[HK IPO] Aux Subscription Status and New Share Analysis

Company Name:$AUX ELECTRIC(02580.HK) Electric Co., Ltd. (02580.HK, hereinafter referred to as the "Company")

Sponsor: CICC

Greenshoe: Yes (CICC)

Cornerstone Investors: 28.1%

Subscription Period: August 25 - August 28

Listing Date: September 2

Main Business: Air conditioning production and sales

1. Sponsor, Greenshoe, Cornerstone

CICC is the sole sponsor and greenshoe provider, making all the money.

Cornerstone investors account for 28.1%, totaling four institutions. China Post Wealth Management and China Post Life Insurance together hold 14.7% (both invested via QDII), Hunan Valin Group holds 6%, and Tibet Yuanlesheng holds 4.5%.

Hunan Valin Group is a wholly-owned subsidiary of Hunan Iron and Steel Group, backed by the Hunan SASAC.

Tibet Yuanlesheng is a bit special. Since the company does not have QDII qualifications, it signed a swap agreement with CICC, meaning CICC actually holds the shares and transfers the gains/losses to Tibet Yuanlesheng via the agreement.

Overall, the cornerstone investors are decent, with no major highlights but nothing to criticize either.

IPO Rating: ★★★

2. Margin Financing Situation

As of 4:20 pm on the first day of subscription, margin financing was 8.27x, with a total of HKD 1.493 billion. It's been a while since we've seen single-digit margin financing on the first day—impressive.

This IPO uses Mechanism A, with a maximum clawback of 35%. The public offering consists of 72.5074 million shares, equivalent to 350,000 lots.

Tianyue Advanced had 167,000 lots, so this company's offering is more than double that of Tianyue.

Moreover, Tianyue's cornerstone investors accounted for 36.2%, while this company's anchor investors are estimated to be about 2.5x that of Tianyue.

Given this issuance structure, there may be significant selling pressure in the gray market and on the first day.

IPO Rating: ★★

3. Valuation and Fundamental Analysis

The company is the world's fifth-largest supplier, with a 7.1% market share.

This ranking is interesting—it's based on sales volume.

As we all know, Aux focuses on high volume with low margins. In 2024, its gross margin was 21%, compared to 29.4% for Gree and 26.2% for Midea.

In terms of average price, Gree's offline average is about RMB 4,200, Midea's is RMB 3,600, while Aux is only RMB 2,000. This explains why Aux's 2024 revenue was RMB 29.76 billion, while Gree's was RMB 190.04 billion—6.4x higher—but Gree's sales market share is only 2.3x that of Aux.

As for sales rankings, whether intentional or not, the prospectus doesn't provide this data, and we don't have specifics either.

Additionally, the massive pre-IPO dividend has been widely discussed, but I can't help but comment.

According to the prospectus, the company paid a dividend of RMB 3.8 billion in 2024. The controlling shareholder, Zheng Jianjiang (and his brothers Zheng Jiang and He Xiwan), through Aux Holdings, owns 96.36% of the shares, cashing out RMB 3.6 billion.

For this IPO, at the upper pricing limit, the post-IPO market cap would be RMB 27.13 billion, with a 13.3% issuance ratio, raising RMB 3.61 billion.

After cashing out RMB 3.6 billion, they're raising another RMB 3.6 billion. While Hong Kong listings can avoid scrutiny of pre-IPO dividends, Mr. Zheng isn't even trying to hide it—this is just asking for money outright.

Pre-IPO dividends are common, and over the years, the market has developed ways to justify them, big or small.

For example, a large dividend and small fundraising amount could mean the company isn't short on cash and just wants to go public for capital market development. A small dividend and large fundraising could mean the company needs funds but wants to give shareholders a token gesture.

But RMB 3.6 billion out and RMB 3.6 billion in? I can't think of any reason other than cashing out. They're not even giving us a chance to defend them.

The company's overseas revenue has been rising, from 42.9% in 2022 to 57.1% in the first three months of 2025.

However, this is mainly due to ODM (original design manufacturing) business. Overseas ODM rose from 35.2% in 2022 to 46.8% in early 2025, up 11.6 percentage points, while overseas own-brand (OBM) sales only rose 2.6 percentage points. ODM drives most of the growth.

This isn't to say ODM is bad—many electronics manufacturers like Lens Technology and Luxshare have thrived on it. But the difference is that electronics ODM often serves giants like Apple and Samsung, who take the lion's share.

In the air conditioning industry, the top players—Midea, Gree, and Haier—are firmly established, with Xiaomi close behind. From the company's top five clients, its ODM customers are mostly from Jordan, UAE, and Vietnam. These clients are likely smaller than Aux itself, and the big three don't need its ODM services.

If the clients aren't making much, it's hard to see how the company can grow significantly by relying on them for ODM in the long run.

The company's R&D spending is also very low. In Q1 2025, R&D was RMB 130 million, or 1.4% of revenue, compared to Gree's RMB 1.7 billion (4.1%) and Midea's RMB 4.35 billion (4%). Both the amount and ratio are far below peers.

But then again, why bother with R&D when you're just doing ODM? Remind you of slacking off at work?

Additionally, operating cash flow has declined sharply since 2024, mainly due to rising accounts receivable. In 2023, 2024, and Q1 2025, days sales outstanding (DSO) were 24.8, 30.3, and 37.4 days, respectively.

But this isn't a big issue. Gree's DSO for the same periods was 27.4, 31.4, and 38.7 days, while Midea's was 34.6, 35.8, and 34.2 days. The company's DSO isn't significantly worse than peers.

Finally, valuation. Since the company's growth is faster than the giants (23% revenue growth in 2024), we'll use PEG for comparison.

Due to its lower net margin, the company's net profit growth isn't as strong as its revenue growth. After calculating, its PEG is lower than Midea's but higher than Gree's.

The valuation is acceptable, but given the business outlook, upside may be limited.

IPO Rating: ★★★

Conclusion:

The company's fundamentals are mediocre, and the sponsor/cornerstone setup is unremarkable. But the pre-IPO dividend stunt stands out.

Subscription sentiment is neutral to negative (medium amount, low multiples), and the large offering size could create significant selling pressure.

With such a large issuance, it's likely to be market-driven, making it hard to manipulate.

Overall, it's a bit of a toss-up.

IPO Rating: ★★~★★★★