Is the tail greater than the B head? What's going on with the winning rate of Veritas?
$LEADS BIOLABS-B(09887.HK) Yesterday's after-market trading closed up 100.14%, surpassing Innorbio's 82.88% to become the highest-gaining stock in after-market trading so far in 2025!
The first-day gain continues to expand, reaching 114% at the time of writing, but it's unclear how much it will close at.
The stock is a solid one, but the lottery rate is a bit puzzling. Group B heads got 1-2 lots, while Group A tails got 2-3 lots. Group A tails actually got more than Group B heads? This is the first time since the new rules were introduced!
We know that the new rules cap margin at 10 times, making Group A much more crowded than before. This time was no exception: Group B had 20,000 valid applications, while Group A had 300,000, 15 times more than Group B.
So why did Group B heads end up as the unlucky ones this time?
Looking at the allocation results announced last night, I was shocked. The lottery rate for all levels in Group A was uniformly 0.27%, while for Group B, it was uniformly 0.1%.
What does this mean? It means that if you're in Group A, the lottery rate for each lot you apply for is 0.27%. In other words, applying for 1 lot gives you a 0.27% chance, lower than the usual trickle-down rate. Applying for 2 lots doubles the chance, and 3 lots triples it.
So how many lots do you need to apply for to secure one? Without even looking at the results, I can calculate: 1/0.27% = 370 lots. Since there's no 370-lot tier, 400 lots will guarantee one.
For Group B, due to the larger application amounts and the need to balance allocations with Group A, the lottery rate dropped to 0.1%. Group A tails applied for 100,000 lots, while Group B heads applied for 200,000, but the lottery rate for Group B was only about 1/3 of Group A's. This resulted in Group B heads getting less value per lot than Group A tails.
Is this situation common? Should we just skip Group B and stick with Group A tails from now on?
This situation is very rare. Let's look at IFBH's Group A lottery rates (excerpt).
Although the expected value per lot increases with higher application amounts, the marginal utility diminishes due to the declining lottery rate per lot. This generally aligns with the Hong Kong IPO's 'red shoe' mechanism, which prioritizes one person, one account, one lot.
But LintonBio's allocation method, where the lottery rate per lot is identical within the same group, completely disregards small retail investors, trampling the red shoe mechanism and ignoring the Hong Kong Stock Exchange's norms. Typical Morgan Stanley—bold.
Group A's lottery rate was higher than Group B's, and Group A tails were the highest tier in Group A. This made Group A tails the most cost-effective option this time.
So how should we approach future IPOs? Personally, I still think we should aim for Group B when possible. Don't throw the baby with the bathwater—this bizarre allocation method is a rare exception. In 2025, this is the only case so far. Unless policies change drastically, Group B heads' expected value per lot should still be higher than Group A tails.
Finally, the assistant has prepared the good news. Congratulations to all on your gains.
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