On September 3rd, the Hong Kong-listed company, Sun Energy Group (2459.HK), experienced a sudden plunge in its stock price.

As of the time of writing, the trading of the stock has been suspended, with a drop of 98.4% before the suspension, quoted at 0.325 Hong Kong dollars per share, with a transaction volume of 490 million Hong Kong dollars. In terms of news, Sun Energy Group has been named by the Hong Kong Securities and Futures Commission (SFC) for having a highly concentrated equity ownership.

First Financial Daily reporters noticed that between April and August of this year, despite the company's disclosed continuous losses in performance, the stock price has been on an upward trend, surging more than 10 times. Prior to the surge, funds had already been bought in advance. According to the disclosure, in April and May, the controlling shareholders of the company successively sold shares to multiple individuals, with a total of 110 million shares sold. The SFC also warned that, given the highly concentrated equity ownership of the stock in a small number of shareholders, even a small number of shares traded could lead to significant fluctuations in the company's share price.

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After a 10-fold surge, the stock plummeted by 99.17%.

Today, Sun Energy Group (02459.HK) opened with a stock price plunge. As of the time of writing, the trading of the stock has been suspended, with a drop of 98.4% before the suspension, quoted at 0.325 Hong Kong dollars per share.

The total market value of Sun Energy Group has also shrunk significantly, from 20.45 billion Hong Kong dollars at yesterday's close to the current 328 million Hong Kong dollars, almost "wiped out" in a single day.

In terms of news, the SFC pointed out yesterday that Sun Energy Group has a highly concentrated equity ownership and warned of the risks.

It is worth noting that before this flash crash, the stock had accumulated a surge of more than 1000% over the past four months.

On May 3rd, the company's stock price was only 1.8 Hong Kong dollars per share, and since then, the stock has fluctuated upwards, reaching around 20 Hong Kong dollars per share by mid-July. In early August, the international index compiler MSCI announced the results of the index quarterly adjustment for August 2024, and Sun Energy Group was included in the Hong Kong Small Cap Index, with the adjustment taking effect after the close on August 30th. Driven by this news, the stock price of Sun Energy Group further explored upwards, and on August 30th, it once soared to 23.10 Hong Kong dollars per share, reaching the highest point since its listing.

The equity structure is highly concentrated.Behind the sharp price fluctuations, the issue of concentrated equity in Sheng Neng Group is evident. According to the Hong Kong Securities and Futures Commission's inquiry results this year, as of August 19, the company had 25 shareholders holding a total of 279 million shares, equivalent to 27.65% of the issued capital. In addition, a controlling shareholder holds 582.5 million shares (accounting for 57.67% of the issued capital), and there are approximately 49.3095 million shares (representing 4.88% of the issued capital) that are not settled in the Central Clearing and Settlement System (CCASS) and the Hong Kong Shareholders Register. The above totals are equivalent to 90.2% of Sheng Neng Group's issued capital.

In response, Sheng Neng Group disclosed in an announcement that the approximately 49.3095 million shares not settled in the CCASS and the Hong Kong Shareholders Register refer to the shares held at the Cayman Islands share transfer registry. As of August 19, five shareholders only held 42.61 million shares (representing 4.22% of the issued shares). Currently, the total holdings of thirty-one shareholders are equivalent to 89.53% of the issued shares.

Although there is a discrepancy between the company's and the regulatory authority's disclosed data, a rough estimate suggests that only about 100 million shares of the company (approximately 10%) are held by retail investors in the secondary market.

In addition to the high concentration of equity, the company's performance this year has been contrary to the stock price trend. Sheng Neng Group is a global manufacturer of ultra-high power (UHP) graphite electrodes, and the company went public in Hong Kong in 2023.

Since its listing, Sheng Neng Group's performance has been relatively poor. Financial reports show that for the fiscal year 2023, the net loss attributable to the company's owners was $15.47 million. According to the company's recently disclosed profit warning, for the first half of the fiscal year 2024, the net loss attributable to the company's owners is expected to be no more than $16.5 million, which is an increase compared to the same period last year.

However, during the period when the above financial reports and warnings were intensively disclosed, the stock price continued to rise. Between April and August 2024, the stock price increased more than tenfold, reaching a peak of HKD 23.10 per share.

The Hong Kong Securities and Futures Commission warns that, given the high concentration of equity among a small number of shareholders, even a small number of shares traded can cause significant price fluctuations. Shareholders and potential investors should exercise caution when buying and selling the company's shares.

"The stock price rising without a fundamental basis and deviating from the industry trend are dangerous signals. Especially in stocks with high equity concentration, one should be vigilant against the suspicion of market manipulation," a senior investor in Hong Kong stocks told the reporter.

"The higher the concentration of a company's equity, the lower the cost for the market manipulator," an industry insider believes that in Hong Kong stocks, "market manipulation stocks" usually choose to use low-priced share placements. In stocks with high equity concentration, a small number of shares can cause rapid changes in stock prices. Subsequently, they can raise the stock price while selling in the secondary market to make retail investors take over.

The reporter noticed that before the significant rise in stock prices, the controlling shareholder of Sheng Neng Group had conducted multiple share transfers. According to the company's announcement on April 30, the controlling shareholder, Otautahi Capital Inc. (referred to as "OCI"), signed a transfer document, selling 40 million and 38 million company shares to two transferees, respectively. After the sale, OCI's shareholding ratio decreased from 73.17% to 65.45%. On May 20, OCI sold another 32 million company shares to an independent third party, reducing its shareholding ratio to 62.28%.However, it remains to be seen whether there is market manipulation by a market maker, pending further disclosure of information.

It is noteworthy that previously, the Hong Kong regulatory authorities have successively investigated and dealt with market-disrupting activities such as "pump and dump" schemes. "Pump and dump" refers to the practice where fraudsters first use various means to inflate the stock price, then lure investors into buying illiquid stocks through social media platforms, and subsequently sell the stocks. According to regulatory information, the stocks targeted by these "pump and dump" groups typically have low trading volumes and small market capitalizations, making it easier for the "market-making team" to inflate the prices of such stocks at a lower operational cost, and involving multiple newly listed stocks.

The Chief Executive Officer of the Hong Kong Securities and Futures Commission, Julia Leung, has previously stated that although the small-cap stocks involved in the "pump and dump" cases under investigation represent only a small portion of the market, these scams could undermine investor confidence, thereby harming the liquidity and valuation of the small-cap stock segment.