## IPO Investment Guide: A Complete Analysis of Hong Kong and US Stock Listings

When it comes to IPOs, many investors still feel unfamiliar. IPO stands for Initial Public Offering, which is the process by which a private company becomes a publicly listed company by issuing shares to the public. This is an inevitable choice for companies reaching a certain growth stage and a key window for investors to capture high-quality enterprises.

### The Core Logic Behind IPOs

When a private company continuously expands in size, and the founders' initial capital and financing can no longer support further development, corporate decision-makers will consider transferring ownership from private to public. The significance of this transition is: on one hand, existing shareholders can gain liquidity and investment returns through share sales; on the other hand, the company can raise funds through listing to pay off debts, accelerate business expansion, enhance corporate image, and other purposes. Meanwhile, millions of ordinary investors also gain the opportunity to invest in high-quality enterprises.

### Hong Kong Stock Listing: Strict Conditions and Detailed Procedures

**Listing Requirements**

The main board of the Hong Kong Stock Exchange has relatively high listing thresholds. Companies need to meet any one of the following three conditions:

1. Profitability of at least HKD 20 million in the most recent year, and cumulative profit of at least HKD 30 million over the previous two years, with a profit of no less than HKD 500 million at the time of listing.
2. Market capitalization of no less than HKD 4 billion at the time of listing and revenue of no less than HKD 500 million in the most recent financial year.
3. Market capitalization of no less than HKD 2 billion at the time of listing, revenue of no less than HKD 500 million in the most recent financial year, and a total cash inflow from operating activities of no less than HKD 100 million over the previous three financial years.

**Listing Process**

The Hong Kong listing process involves seven main stages. First is institutional placement, where the company needs to appoint sponsors, accountants, Hong Kong lawyers, Chinese lawyers, internal control consultants, and valuation experts. Next, due diligence and auditing are conducted, with intermediaries verifying the company's shares and assets, and drafting the prospectus and legal opinions simultaneously. The third stage involves business restructuring and governance adjustments to ensure compliance with listing requirements. Then, applications are submitted to the China Securities Regulatory Commission and the Hong Kong Stock Exchange, followed by inquiries and revisions, and the prospectus is published on the HKEX website. Subsequently, roadshows and pricing take place, including non-deal roadshows, investor meetings, and international roadshows. Finally, the issuance and listing are completed.

### US Stock Listing: Diverse Standards and Flexible Choices

**NYSE Conditions**

US stock listings offer more options. For example, on the NYSE, companies can meet any one of the following conditions:

- Pre-tax earnings (excluding extraordinary items) of at least USD 100 million over the past three fiscal years, with each of the last two years exceeding USD 25 million;
- Or a global market cap of at least USD 500 million, revenue of at least USD 100 million in the past 12 months, cash inflows of at least USD 100 million over the past three fiscal years, and cash inflows of no less than USD 25 million in each of the last two fiscal years;
- Or a global market cap of at least USD 750 million, with revenue in each of the last two fiscal years of no less than USD 75 million.

**NASDAQ Conditions**

NASDAQ's standards are more diverse. Companies can choose any of the following paths:
- Achieve positive pre-tax income of USD 1 million in any two of the last three full fiscal years, with shareholders' equity of at least USD 15 million, a public market value of no less than USD 8 million, and more than three active market makers;
- Or shareholders' equity of at least USD 30 million, two years of operational history, a public market value of at least USD 18 million, and more than three active market makers;
- Or a listed security market value of at least USD 75 million, a public market value of at least USD 20 million, and more than four active market makers;
- Or achieve total assets and revenue of USD 75 million in any two of the last three full fiscal years, with a public market value of at least USD 20 million and more than four active market makers.

### Pros and Cons of Investing in IPO New Stocks

**Why Investors Favor New Stocks**

First, IPOs provide investors with the opportunity to enter high-quality companies at the lowest price. Many growth-potential private companies are restricted by shareholding structures, making it impossible for retail investors to purchase their shares before listing. After going public, these companies open to the public, and IPO pricing is often offered at a discount by the company, usually representing the stock's lowest historical price. Missing the IPO price can mean subsequent stock prices may soar rapidly, making it more costly for investors to re-enter.

Second, the choice of listed companies is not random. Most high-quality enterprises tend to launch IPOs when the market is optimistic, indicating strong market expectations for their prospects, and increasing the likelihood of subsequent stock price increases. Additionally, new stocks listed at low prices create opportunities for quick profits for investors.

Third, information during the IPO period is relatively symmetrical. All investors mainly obtain company information through the prospectus, and large institutional investors do not have obvious informational advantages, making it fairer for ordinary investors.

**Risks to Watch Out For**

However, investing in new stocks is not without risks.
- First, if the chosen company is not fundamentally good, even if it successfully lists, when large institutional investors sell off, retail investors may lack sufficient funds and influence to follow suit quickly, ultimately suffering significant losses.
- Second, all positive factors of the company are fully reflected in the IPO price before listing, which limits short-term gains for investors. In other words, most of the upside potential may have already been absorbed by institutional investors and insiders prior to listing.

### Recommendations for Participating in New Stock Investments

Investors should conduct thorough due diligence before engaging in IPOs. Understand the company's fundamentals, financial status, competitive advantages, industry prospects, and other core information, rather than following the crowd blindly. It is also important to recognize that the IPO market is highly volatile, with prevalent short-term speculation, so avoid chasing short-term gains excessively. Instead, adopt a long-term holding and diversified investment strategy, and make timely adjustments based on market changes.

For investors, participating in IPOs indeed offers the potential for substantial returns, but only if they maintain sufficient caution and rationality, and conduct in-depth research on the investment objects to achieve stable returns in the new stock market.