Trading volumes have also taken a beating, with a 30-day average volume equivalent to a paltry US$70,000 per day. Assuming it could line up investors, Milan Station would find it tough to issue new shares. Any new offering would invariably represent a high number of trading days, a key measure for follow-on equity transactions.

Where did it all go wrong?

The timing of Milan Station's IPO couldn't have been better. Riding on what seemed like a wave of new equity issues by European luxury companies in Asia, it capitalised on investor sentiment and the appeal of high-end brands to mainland consumers.

The listing prospectus indicated that the luxury branded handbag market in China was worth US$1.72 billion in 2009 and is forecast to quadruple by 2014. Such a rosy picture now looks doubtful, as shown by LVMH's third quarter results two weeks ago, which suggested that China's love affair with luxury goods could be flagging.

Documentation for the Milan Station IPO also gave cause for worry. First, if not uncommon with mid- or small-cap IPOs in Hong Kong, Milan Station had posted a negative operating cash flow in 2010. This outflow almost doubled in 2011, to HK$4.3 million. Over the same time, operating expenses increased at double the rate of revenues.

There were issues about the company's business model and its sustainability, an issue that has recently resurfaced with concerns about the supply arrangements for Japanese competitor Brand Off (see "Not a cheap knock-off in sight", in last week's ).

While Milan Station highlighted in its offering circular that 85 per cent of the handbags it sold came from private consumers, it also disclosed that over 46 per cent of these (and more than 55 per cent at the end of 2011) were unused, rather than second-hand. This raises questions about parallel imports.

Its plan to open 24 new shops between 2011 and 2014 now looks ambitious. According to its website, its store portfolio has only increased from 14 to 17 outlets since listing.

But a lack of liquidity clearly failed to provide good support for the stock. With a free float of only US$35 million, 15 per cent of which took the form of "friends and family" cornerstone investors (including a celebrity sushi restaurateur and local paper and jewellery tycoons - arguably not the usual, influential institutional accounts), aftermarket trading was always expected to be diminutive once the initial excitement of the IPO had subsided.

This discouraged coverage of the stock by sell-side research analysts that pitch ideas to professional investors. Indeed, according to information provider FactSet, only one such broker (Phillip Securities) still actively follows the company - with a sell recommendation to boot and a target price of HK$0.42 - a downside of 25 per cent from current levels. With institutional ownership at only 5 per cent of the free float, little improvement is expected any time soon.

When it comes to IPOs, spinning a good but realistic story is key, as is the ability of investors to buy and trade in size. Milan Station, unfortunately, offered a decidedly mixed bag of both to investors.

Philippe Espinasse, a former investment banker, is the author of (HKU Press)