AMDD Digital’s Market Cap Jumps from $ 1 Billion to $ 400 Billion – What Is It and Who Is Behind It?

What in the world is AMDD Digital Inc. and who is behind it?

This is the question many investors are asking themselves after an unknown Hong Kong company managed to join the ranks of global megacaps worth around half a trillion dollars on Tuesday.

It started when the American Depository Share (ADS) with the ticker code HKD had an opening gap, exceeding its previous closing price by 25% right at the start of trading before hitting an intraday high of $ 2,555.

At its peak, it more than tripled in value and achieved a market capitalization of over $ 450 billion, more than the parent company of Facebook Meta or Chinese online retail giant Alibaba.

And it did so with a daily volume of just 350,500 shares, according to data from Yahoo Financethe lowest since ADS began trading and far below the 1.2 million that had been traded on average.

Even though it lost a quarter of its value on Wednesday, it is still worth around $ 240 billion, making it more valuable than Toyota, Nike, McDonald’s or Walt Disney.

Needless to say, this was an impressive performance for a company that sold 16 million shares for $ 7.80 each in mid-July, which gave it a market cap of around $ 1 billion.

What’s behind the surge?

There is apparently no justification for that type of market cap.

Total income-generating assets on its balance sheet just passed the $ 400 million mark in March according to SEC filings, a minnow in the world of high finance. Fortune tried to contact the company but emails and calls were not answered immediately.

A look at its website reveals little about its business model. His short one-minute corporate presentation video markets the company as a “one-stop digital solutions platform in Asia and a fusion reactor for the best entrepreneurs and ideas in the digital age” using a decidedly Star-like aesthetic. Wars.

A closer look at its SEC filed prospectus reveals what it means.

AMTD Digital basically sells some sort of club membership to its “SpiderNet Ecosystem Solutions,” which it claims to bring benefits by connecting businesses together. This included the vast majority of its $ 25 million in annual revenue generated in the fiscal year ending April 2021.

Rather unusually, his pre-tax profits over the past three years have consistently been above his top line thanks to fair-value accounting gains on his business interests in companies like Appier, DayDayCook WeDoctor, and five Asian fintechs.

The parent company of the company is AMTD Group, a Hong Kong conglomerate whose core competencies are investment banking, hotel services, premium education, media and entertainment. It also has another subsidiary, AMTD IDEA, which is also listed on the New York Stock Exchange, although this is only worth $ 14 billion.

‘Significant volatility’

Exactly why AMTD Digital is listed in the United States is unclear, as it immediately warned investors in its stock prospectus that it may eventually be forced to delist under SEC rules.

This is because Beijing’s bureaucracy is currently preventing its Chinese auditor from being inspected by the U.S. Public Company Accounting Supervisory Board established under the Sarbanes-Oxley Act.

This has been a continuing source of frustration for investors in many Chinese stocks. If the US and China fail to reach an agreement, some 261 US-listed Chinese companies with a combined market value of $ 1.3 trillion risk delisting.

AMTD parent group chairman and CEO, Calvin Choi, left his job as CEO of UBS to take over.

His capitalist history and distinction as a Young Global Leader at the World Economic Forum does not prevent him from extolling the strengths of the Communist Party of Mainland China, or celebrating the “glory and dream of the Great Rejuvenation of the Chinese Nation” a century after its foundation.

Despite boasting an executive vice president with an anti-corruption background and ties to Carrie Lam, the former Beijing proconsul in Hong Kong, Choi himself was reportedly targeted for a two-year ban on the sector by the values ​​regulator. capital after investor China Minsheng Investment Group accused Choi of making a mistake.

“Some projects [undertaken with funds from CMIG] it actually made money, but it didn’t give us the profits, ”a senior executive at the company told China’s Caixin in October 2020. “Some have suffered losses, but we don’t know if they really invested or embezzled money.”

A seismic anomaly

In the world of fundamental analysis, where companies are valued based on their future cash flows, AMTD Digital’s staggering market capitalization is the kind of seismic anomaly in the financial system that statistically should only occur once every hundred years. .

Even AMDD Digital doesn’t seem to know why it’s so valuable now. Using a letter of thanks to his newly minted shareholders as an opportunity, he said he too was baffled by his stock performance.

“During the period since our initial public offering, the Company has noticed significant volatility in our ADS price and has also seen very active trading volume,” he wrote Tuesday. “To our knowledge, there are no material circumstances, events or other matters relating to our Company’s business and operations since the IPO date.”

With that kind of leap, it’s no surprise that permabears have emerged from their slumber. Well-known short seller Jim Chanos asked if “we will ignore all 400 billion meme shares in the room” while Hindenburg Research’s Nate Anderson called his controlling owner AMTD Group “sketchy”.

Coincidentally, it came on the same day that Securities and Exchange Commission President Gary Gensler praised the 20th anniversary of the Sarbanes-Oxley Act intended to restore confidence in American capital markets following the accounting fraud scandals that have targeted investors in Enron and Worldcom.

The rush triggered painful memories of Robinhood’s fateful decision to remove the ability for retail investors to place buy orders on retail chain GameStop, seen as a decision to protect a handful of hedge funds deep on the meme title.

“So why hasn’t the buy button been removed for HKD? Why wasn’t retail behind it? “A Twitter user replied to Gensler on Tuesday.” Stock market fraud for real. You’re useless.

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