Tongheng New Materials IPO: Overcoming Four Challenges in the Hong Kong Stock Market, Why the Urgent Need for a Second Round of Financing After Cashing Out Nearly 1 Billion?

Questioning AI · Shareholders have reduced holdings by nearly 1 billion, does this imply transformation risks?

IPO News

Author | Baker Street Detective

When a listed A-share company experiences continuous share reductions by shareholders and executives while simultaneously launching a Hong Kong IPO for financing, the market often raises a very direct question: Why are shareholders retreating before the Hong Kong Stock Exchange IPO? This is the core controversy triggered recently by Tongcheng New Materials’ attempt to list in Hong Kong.

On the surface, this appears to be a typical “A+H capital layout”; but if we consider industrial transformation, shareholder reductions, and market timing together, it becomes clear that this is more like a capital game where industry expansion and capital realization happen simultaneously.

01 An eager-to-transform new material “top student”

Tongcheng New Materials’ initial label was simple: a leading tire rubber additive manufacturer, a domestic supplier of specialty rubber additives and electronic chemicals, with products widely used in tires, new energy vehicles, semiconductor materials, and more.

The company mainly produces phenolic resins, bonding resins, and other rubber materials, serving clients including Michelin, Bridgestone, Goodyear, and other global tire giants. In the niche tire materials sector, the company has long been a domestic leader.

But the problem is also obvious: tire materials are a typical mature industrial sector with a clear industry ceiling and limited valuation space. Over the past few years, Tongcheng New Materials has started telling a new story—semiconductor materials.

Through investment and acquisitions, Tongcheng New Materials has gradually entered the supply chain of photoresist supporting materials, electronic chemicals, and semiconductor materials, aiming to upgrade from a “tire material company” to an “advanced materials platform.”

This transformation is crucial for the capital market because, in valuation logic, chemical material companies and semiconductor material companies are almost valued in two different worlds. According to Tongcheng New Materials’ 2025 semi-annual report, most of its ongoing projects are related to chips and semiconductors.

Perhaps against this backdrop of industry narrative upgrade, Tongcheng New Materials is increasingly eager to list in Hong Kong.

From the company’s perspective, this move is understandable. The electronic chemicals industry shares a common characteristic: long R&D cycles, high technical barriers, and huge capital investment. Especially in the semiconductor materials field, R&D and capacity building often require continuous funding.

Listing in Hong Kong can provide access to overseas financing channels, foreign currency funds, and international institutional investors. For a company hoping to enter the global semiconductor supply chain, this is a very practical capital tool. Meanwhile, the narrative system in the Hong Kong market is also different.

In A-shares, Tongcheng New Materials is more easily seen as a chemical materials company; but in Hong Kong, it can be redefined as a semiconductor materials platform company. The capital market’s greatest strength is assigning different valuations to the same company based on different narratives.

02 Continuous share reductions, how big is the funding gap, and where is the money going?

Just as the company was preparing to tell the “global advanced materials story,” another issue caught the market’s attention—shareholders are continuously reducing holdings. A simple search on Juchao shows 25 reduction notices from Tongcheng New Materials, with the most notable case being early investor Yutong Investment.

Public information shows Yutong Investment held about 10% of Tongcheng New Materials at IPO, then gradually reduced holdings through centralized bidding and block trades over the following years. From 2021 to 2024, it reduced about 5% of shares; in 2025, it launched a new reduction plan, selling about 3.33%. Based on public data, these reductions have realized approximately 659 million yuan in cash.

After the reductions, its stake dropped to about 1.91%, including 540,000 shares not yet sold, nearly close to liquidation. More subtly, during the reduction process, the institution was also warned by regulators for disclosure issues. In other words, early-stage capital is gradually exiting.

Meanwhile, related shareholders are also reducing holdings simultaneously. The company’s related party, Virgin Holdings Limited (a family-controlled enterprise), reduced about 1.65% of shares between July 2023 and January 2024, cashing out roughly 314 million yuan, with sale prices ranging from 27.74 to 38.40 yuan per share. When summing these transactions, the total cash realized by capital has approached 1 billion yuan.

This has led the market to a classic question: if future growth is highly certain, why are some capital entities cashing out at this stage?

Of course, from a corporate governance perspective, Tongcheng New Materials’ control remains very stable. Chairman Zhang Ning holds over 60% of shares through multiple platforms, ensuring no change in control, and management remains highly committed. But the real concern for the capital market isn’t “why are they reducing,” but “why are they doing so during the IPO window?”

Because, in the market’s psychological logic, if a company’s future growth is highly certain, internal capital tends to be held long-term rather than cashed out early.

From a macro perspective, Tongcheng New Materials’ Hong Kong IPO reflects an increasingly obvious trend: A-share companies are upgrading their valuation and financing systems through Hong Kong listings. When a company shifts from traditional manufacturing to high-tech materials, a single capital market often cannot fully meet both financing needs and narrative valuation.

Thus, companies maintain their industrial financing base in A-shares while seeking international capital and new valuation logic in Hong Kong. Over the past two years, from new energy to AI to advanced materials, more and more companies are following this “A+H” path.

The key issue is: narratives can change valuation logic but cannot change fundamentals. Tongcheng New Materials’ real test is whether it can complete the transformation from a tire material company to a semiconductor material platform. If the semiconductor business can truly break through, the company’s valuation system may be completely reconstructed; but if the related business underperforms, the market will quickly revise its expectations.

Against the backdrop of simultaneous capital exit and industry expansion, the company’s future likely depends on a simple question: can the new story truly translate into new profits?

03 Who is the new story told to?

The core narrative of Tongcheng New Materials’ Hong Kong listing is actually just one sentence: from a tire material company to a semiconductor material platform. But the market’s real concern isn’t the story itself, but whether the new story can become new profits.

Because in the semiconductor materials sector, the narrative space is large, but commercialization is equally challenging. For Tongcheng New Materials, at least four practical hurdles must be crossed.

First is the technical barrier and certification cycle. Semiconductor materials are not ordinary chemical products; their core feature is “extreme stability.” Products like photoresist supporting materials, electronic resins, and electronic chemicals must operate stably in ultra-clean environments over long periods, with any tiny impurities affecting chip yield.

Therefore, wafer fabs’ certification of material suppliers is extremely strict. From sample delivery to mass production, it often takes two to three years or longer. This means that even if a company has technical capability, it may not quickly generate revenue. For a company in rapid transformation, there can be a long time lag between technological breakthroughs and commercialization.

Second is the inertia of the global supply chain. The semiconductor materials industry has long been dominated by international giants like JSR, Tokyo Ohka Kogyo, Shin-Etsu Chemical, and others, which have deep roots in the photolithography and related materials fields for decades. These companies are not only technologically advanced but also deeply integrated into the global wafer fab supply chain.

For new entrants, the biggest challenge isn’t just making products but replacing existing suppliers. In the semiconductor industry, once a material is stabilized in production, wafer fabs rarely change suppliers easily, as switching involves re-verification of yield and reliability risks. In other words, the market isn’t fully open to competition but is a highly locked-in supply chain system.

Third is capital consumption and return cycle. Semiconductor materials are a typical “slow-return” industry. R&D requires long-term investment, high-standard equipment, and customer certification takes years, leading companies to invest for a long time without immediate large-scale profits. For traditional materials companies, this model differs significantly from their usual stable orders and mature customer base. The transition to semiconductor materials is more like a long-term technological investment. That’s why many companies, after entering the semiconductor field, see little profit in the short term. For Tongcheng New Materials, Hong Kong financing can address stage funding needs but cannot shorten the industry cycle itself.

Fourth is the competitive position within the industry chain. In semiconductor materials, different segments have varying technological barriers. Photoresist itself is the highest barrier, while supporting resins and electronic materials, though important, have more competitors and lower entry barriers.

This means that even if Tongcheng New Materials makes breakthroughs in certain materials, it may not achieve the high profit margins typical of photoresist companies. Many semiconductor material firms ultimately face a reality: their products enter the supply chain but with limited profit margins.

These issues do not necessarily mean Tongcheng New Materials’ transformation will fail. On the contrary, the trend of domestic semiconductor material localization indeed offers a historic opportunity for new entrants. But opportunity and difficulty often go hand in hand. For the market, the most critical question isn’t “whether they can enter the semiconductor materials industry,” but “whether they can establish genuine profitability in this industry.”

If in the coming years Tongcheng New Materials can complete customer certification, expand wafer fab orders, and gradually build a stable supply chain, today’s narrative may evolve into real profit growth. But if technological adoption is slow, customer verification cycles lengthen, or products remain at the edge of the supply chain, the semiconductor business may remain a “strategic investment” for a long time, unlikely to become a profit pillar.

Based on the previous discussion, according to Tongcheng New Materials’ 2025 semi-annual report, most of its ongoing projects are semiconductor-related, and capacity ramp-up remains uncertain. Whether the transformation succeeds or not will require more time to see.