On April 9, the stock price of China Tianrui Cement (1252.HK) fell 90% at the end of the session. The total market value evaporated from over HK$14 billion to only HK$140 million remaining. The net market ratio fell directly to 0.01 percent lower than the industry average.

This 10 billion cement giant, a subsidiary of China's top 500 companies, is suspected of being maliciously shorted. The trading volume of 200,000 shares alone triggered a 30% drop. Because it had already triggered stop-loss positions with many brokerage firms, each brokerage firm closed their positions one after another, creating a “stomping effect”, and its stock price hit HK$0.1 within the next 5 minutes. As of press release, the company had issued a brief suspension notice before the market. Relevant staff said that the company's business operations remained normal.

The stock prices of major companies in the industry, such as China's Tianrui Cement, experienced a dive. At the end of the day, they still “lost” the poor liquidity of Hong Kong stocks. This had to make people notice once again the “extremely cold liquidity of Hong Kong stocks.”

The risk of Hong Kong stock liquidity depletion once again revealed

This is not the first time that Hong Kong stocks have collapsed. This kind of “cliff-style collapse” has occurred many times in the Hong Kong stock market. Yesterday alone, many companies experienced flash crashes. However, the fundamental reason behind the “normalization” of flash crashes is the exhaustion of liquidity in the Hong Kong stock market. Especially when the market is weak, the liquidity of individual stocks is relatively low, and low trading volume can drive stock prices to fluctuate greatly. The combination of the two can easily lead to flash crashes.

The poor liquidity of Hong Kong stocks has long been known to everyone. Due to various reasons such as geopolitical factors and industry regulation, foreign investors have doubts about the safety of Chinese companies. Foreign investors lack confidence in Chinese companies, and most of the Hong Kong stocks are Chinese companies. Therefore, many Western and international investors have withdrawn from Chinese stocks and reduced their investment in the Chinese market, which in turn has led to poor liquidity in the Hong Kong stock market. Compared to the A-share market, where capital flows are strictly controlled, foreign confidence can be described as having a significant impact on the Hong Kong stock market, which also made Hong Kong stocks suffer even more. Although the Hong Kong government and regulators have taken a number of measures to encourage liquidity, at present, it is still difficult to effectively resolve the liquidity problem in the Hong Kong stock market in the short term.

However, there are still investment opportunities behind the collapse, and many investors believe that China's Tianrui Cement bottom-up opportunity has arrived. Understandably, the net market ratio of stocks that have experienced a flash collapse is often very low. The current net market ratio of China Tianrui Cement has fallen to 0.01. What is the net market ratio. The market price is divided by the book value of the company's net assets. What is the concept of a net market ratio falling to 0.01? It shows that you can use the market price of 0.01 yuan to buy the company's net assets worth 1 yuan, which indicates that the market's valuation of the company has been seriously underestimated. Therefore, in general, a lower net market ratio means that stocks are cheaper, have a higher investment value, and also have a higher margin of safety. The net market ratio is usually applied to companies in the financial industry. Since almost all of their assets are financial assets, the liquidity is very high, and the difference between their liquidated value and book value is minimal. However, the fact that China Tianrui Cement, a leader in the cement industry, has such a low net market ratio, it cannot be said that it is not the floor price.

The brand has been recognized by the industry, and the company is a number of key engineering suppliers

China Tianrui Cement was founded in 2001. The company is mainly engaged in limestone mining and utilization and production and sales of building materials products such as clinker, cement, and construction aggregates. Its production capacity ranks among the highest in the country. In 2021, the company ranked 7th in the overall strength ranking of listed cement companies in China. The company occupies a leading position among cement clinker manufacturers in Henan Province and Liaoning Province. It is one of the 12 national key cement enterprises (groups) supported by the state, ranking 9th in the country, and is also one of the five leading cement enterprises for mergers and joint restructuring in the central region designated by the Ministry of Industry and Information Technology.

The company produces a variety of high-quality cement, and its “Tianrui” brand is highly praised in the industry. In 2023, Tianrui Cement was awarded the “National Cement Competition 40th Anniversary Outstanding Contribution Award Advanced Unit”. With its excellent product quality, the company has been able to take charge of a number of national key projects and has become the main supplier for projects such as the Hada High Speed Rail, Beijing-Hong Kong High Speed Rail, Beijing-Hong Kong-Macau Expressway, Lianhuo Expressway, South-to-North Water Transfer, Yellow River Bridge, and Dalian Port.

The parent company Tianrui Group is strong, and the actual controller is a super-rich person in Henan

China Tianrui Cement belongs to Tianrui Group, one of China's top 500 enterprises. Currently, Tianrui Group has developed into a giant private enterprise in China. According to public information, Tianrui Group was founded in 1982 and is a joint-stock enterprise group integrating industries such as green building materials, foundry (intelligent manufacturing), Internet technology, cultural tourism, etc. In the newly released list of the 2023 Top 500 Chinese Enterprises and the 2023 China Top 500 Private Enterprises, Tianrui Group Co., Ltd. ranked 380th and 181st respectively in the country with operating revenue of 60.1 billion yuan. In addition, the company was also shortlisted in the 2023 China Top 500 Manufacturing Enterprises and 2023 China's Top 500 Private Manufacturing Enterprises, ranking 195th and 121st respectively in the country.

It is worth mentioning that Li Liufa, the actual controller of Tianrui Cement in China, is a super-rich person in Henan. According to the newly released “2024 Hurun Global Rich List”, Li Liufa and Li Fengyi ranked 900 on the list with a wealth of 27 billion yuan. In addition, Li Liufa was twice named the richest man in Henan on the “New Fortune 500 Rich List” by “New Fortune” magazine in 2011 and 2012.

In summary, this sharp drop in stock prices has profoundly revealed the current liquidity risk in the Hong Kong stock market. The trading volume of more than 20 million yuan alone has led to a sharp decline in China's Tianrui International market value of nearly 15 billion dollars. Although the cement industry is facing an adjustment in investment logic due to the downturn in the real estate market, it is unusual for stock prices to plummet in just 15 minutes without significant changes in the company's fundamentals. From a rational point of view, the current market value of China Tianrui Cement has clearly deviated from its corporate value. For investors seeking value, this may be an investment opportunity worth paying attention to