China Tianrui Group (HKSE: $1252) is a leading cement manufacturer based in Henan province, China. Known for its diverse range of cement products and extensive production facilities across multiple provinces, the company holds a prominent position in the industry. Publicly listed in Hong Kong, it ranks 380th among China’s top 500 enterprises and 195th among manufacturing companies.
China Tianrui Group suspended trading on Wednesday, April 10, following a drastic 99% drop in its stock price the previous day, erasing nearly all its market value in minutes.
Tianrui Shares Plummet 99%
On Tuesday, the company’s shares plummeted by a staggering 99%, settling around HK$0.05 and reducing its market capitalization to a mere HK$141 million ($18 million). Over 80 million shares were traded in the closing moments, representing nearly 10% of the float.
Analysts attribute the dramatic selloff to a combination of factors, including thin liquidity in the stock and potential margin calls. Steven Leung, executive director at UOB Kay Hian in Hong Kong, explained, “When there is a relatively large selling order, it is easy to trigger panic since there are not enough buyers.” Due to their limited liquidity, Penny stocks like Tianrui are particularly prone to such sudden plunges.
Tianrui’s Majority Shareholders’ Triggers Margin Call
Li Liufa, the primary shareholder of Tianrui, and his spouse collectively hold roughly 70% ownership in the company, further complicating the situation. In January, Li disclosed the commitment of 97 million shares, constituting 3.3% of the company’s total shares, as collateral for a loan of RMB166.5 million, extending over 12 months. Experts speculate that this move triggered a margin call, prompting a significant sell-off.
Tianrui’s Financial Woes
The company’s woes extend beyond the recent stock market turmoil. In 2023, Tianrui’s revenue declined 29% to CN¥7.89 billion compared to fiscal year 2022. The net loss expanded notably, reaching CN¥633.9 million ($87.7 million), indicating a downturn of 241% from the CN¥448.7 million profit reported in the previous fiscal year. Loss per share surged to CN¥0.22, starkly contrasting the CN¥0.15 profit per share recorded in fiscal year 2022.
The company cited weak demand resulting from China’s property downturn, intensifying market competition, and high raw material costs as the primary reasons for its financial struggles.
Calls for Transparency
The abrupt and dramatic nature of Tianrui’s stock rout has raised concerns among investors and regulators. As trading in the company’s shares remains suspended, pending an announcement on “inside information,” Hong Kong’s stock market watchdogs call for greater transparency. Experts emphasize that increased transparency and stricter regulation are essential to preventing similar crashes in the future.
Tianrui Group Stock Update
On Tuesday, Tianrui Group’s stock closed at HK$0.048, a dramatic 99.04% decline from its previous close of HK$5, with trading being halted shortly afterward.
The company’s 52-week high was HK$6.3, while its low was HK$0.035. Recent trends indicate a 50-day moving average of HK$5.147 and a 200-day moving average of HK$5.426. Over the past 65 days, trading volume averaged at 4.59 million shares. Notably, the earnings per share (TTM) is -HK$0.231.
Analysts Outlook
Before the collapse, 7 analysts covering Tianrui Group (1252.HK) recommend a Buy rating. They project a price range of 8.69 to 9.03 HKD, with an average forecast of 8.77 HKD over the next 12 months. This average suggests a substantial potential increase of 18175% from the current price level. However, following the collapse of the stock price, they are likely to revise their ratings downward.
Should You Invest in Tianrui Group?
The sudden and drastic 99% collapse in Tianrui’s stock price has sparked widespread alarm and calls for greater transparency in Hong Kong’s markets. Analysts blame the price collapse on several factors, including thin liquidity and potential margin calls – issues that disproportionately impact penny stocks like Tianrui.
The company’s financial woes, with declining revenues and ballooning losses, have further worsened the situation. As trading remains halted, regulators are under pressure to implement stricter oversight to prevent similar devastating crashes. With no official reason as to the cause of the crash, it would be best to wait on the sidelines before purchasing the stock.
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