Is Magic Empire Global Ltd IPO a Good Investment?

Key Takeaways:

• Hong Kong-based Magic Empire Global, which specializes in providing financial advisory and underwriting services, will soon launch its own new public listing.
• Although recession fears have previously disrupted Magic Empire’s public ambitions, geopolitical tensions have cynically brought new life to the firm.
• The ebb and flow surrounding Magic Empire has been wild, so prospective investors should assess the situation very carefully before proceeding.

A company that is essentially calling its own number, Magic Empire Global Ltd is finally on the other side of the initial public offering (IPO) fence. Prior to its preparations for being a public company, Magic Empire provided financial advisory and underwriting services for enterprises seeking to enter its native Hong Kong’s equities market.

Still, whether facilitating a client entity’s public market debut or participating in its own unveiling, the new listing segment is extraordinarily risky. In addition, it can be cruelly fickle. In 2021, near-unprecedented activity helped drive a record-breaking tally of 1,035 private firms transitioning into public enterprises. However, the following year produced a dearth of fresh opportunities, leading peers to close up shop and wait for a better time window.

For Magic Empire, its exposure to China’s economic dynamics initially imposed a dark cloud over its proceedings. Nevertheless, with federal regulators seeking greater accounting transparency from Chinese firms listed in U.S. exchanges, the subsequent resistance has many companies doing business in the world’s second-largest economy eyeballing the Hong Kong equities sector as a viable alternative.

While this setup presents potential upside opportunities for Magic Empire, all new listings present the risk of the unknown. Furthermore, the unique market conditions of the post-COVID-19 era impose additional challenges. Thus, investors need to conduct robust due diligence in Magic Empire before moving forward.

Below are key pros and cons to consider.

What Does Magic Empire Global Do?

Doing business as Giraffe Capital, Magic Empire Global is a financial services provider, principally engaged “in the provision of corporate finance advisory services and underwriting services.” According to the company’s Form F-1 disclosure filed with the U.S. Securities and Exchange Commission (SEC), Magic specializes in these functions:

• IPO sponsorship services: Magic acts as sponsors for companies pursuing a listing on the Hong Kong Stock Exchange, guiding them through the listing process in return for sponsorship fees.
• Independent financial advisory: Magic advises its clients on the terms and structures of proposed transactions, along with compliance matters related to Hong Kong’s IPO regulatory framework.
• Compliance advisory services: Magic provides guidance on legal compliance matters for publicly traded companies.
• Underwriting services: Magic covers all angles of the IPO arena for its client enterprises seeking capital market access, including functioning as a global coordinator, bookrunner, lead manager or underwriter.

Established in 2016, Magic Empire has so far completed eight IPO projects where it acted as the sole sponsor for the listing applicants. For 2020 and 2021, the company “engaged in 6 IPO sponsorship projects, 31 financial advisory and independent financial advisory projects, 24 compliance advisory projects and 3 underwriting projects, respectively.”

To clear up potential misunderstandings, Magic Empire is not a Chinese operating company but rather an offshore holding company incorporated in the British Virgin Islands. The holding company itself has no material operations. Instead, Magic conducts its operations in Hong Kong through its operating subsidiary called GCL.

Per Magic’s SEC-filed disclosure, investors participating in this IPO are buying shares of the holding company, not the operating entity in Hong Kong. Indeed, management explicitly states that retail investors “may never directly hold any equity interest in our operating entity, GCL.”

When is the Magic Empire IPO Date?

After filing confidentially on Sept. 3, 2021, Magic Empire is scheduled to print its name on the IPO calendar on Aug. 5, 2022. Shares will trade on the Nasdaq exchange under the ticker symbol MEGL. Network 1 Financial Group Inc. (PINK: NTFL) represents the sole bookrunner for the deal.

Initially, Magic Empire planned to raise $23 million through the distribution of 5 million shares. The estimated price range stood between $4 and $5. At the midpoint range, the company would have commanded a market capitalization of $90 million.

However, following a downward adjustment of the deal, Magic now plans to raise $20 million through the same number of shares distributed. Further, the estimated price target is now $4 per share, translating to the financial services firm having a market cap of $80 million at the modified rate — a downgrade of 11%.

Right off the bat, investors should take note of the downward modification of this IPO. Usually, hotly demanded new listings will adjust their target northward to accrue greater capital. However, moving in the opposite direction implies waning interest for the offering, a problematic circumstance.

In addition, the downgrade represents a significant contradiction against the prior narrative bolstering MEGL stock. Primarily, U.S.-China relations are rapidly devolving into Cold War-era levels of mistrust, meaning that Chinese companies whose shares are listed in New York exchanges would likely have much more favorable views of Hong Kong exchanges.

If the already simmering conflict wasn’t bad enough, House Speaker Nancy Pelosi touched down in Taiwan, a breakaway territory that Beijing views as its own. In response, China conducted a live-fire military exercise in the Taiwan Strait, demonstrating the bad blood between the two nations.

What Analysts Are Saying About Magic Empire IPO

Not surprisingly given its $20 million raise and its projected market cap south of the $100 million mark, very few analysts have weighed in on Magic Empire’s upcoming IPO. However, it’s not particularly difficult to decipher the critical catalyst for MEGL stock. Economic and geopolitical dynamics surrounding China present both the bull and bear case for the financial services provider.

On the pessimistic side of the spectrum, earlier in May, Reuters reported that Hong Kong’s new listing volume plummeted 90% to a nine-year low this year. The culprit? China’s sharp economic slowdown combined with Beijing’s draconian regulatory crackdowns have dampened investor sentiment and private enterprises’ appetite for seeking public capital.

Specific to MEGL stock, Reuters mentioned that the Hong Kong-based IPO drought boded ill for investment banks, “who make about a third of their revenue in the region from equity capital market deals, and for the Chinese-ruled territory's status as a global financial hub.”

By the numbers only “$2.1 billion has been raised this year via IPOs and secondary listings in Asia's most popular fundraising venue compared to $20.7 billion by the same time last year, according to Refinitiv data, the slowest start to a year since 2013.”

But on the bullish front, the heightening of economic tensions between the U.S. and China, particularly with the former government’s threat of delisting Chinese public companies trading in American exchanges augurs cynically well for MEGL stock. With patriotic fervor on both sides running high, Chinese private enterprises may look to the Hong Kong exchange as a viable alternative.

Indeed, Reuters recently reported that Hong Kong could see billions of dollars of inflow from the mainland as Chinese businesses turn to friendlier sources of capital. Still, the current geopolitical environment lacks much semblance of predictability, meaning that MEGL stock remains a speculative venture.

Magic Empire Financial History

Before participating in this or any other IPO, you must conduct a thorough examination of the financials. It’s here where you can often immediately separate the contenders from the pretenders.

For such a small company, Magic Empire offers many positives in its financial disclosures. In 2021, the company posted revenue of nearly $HK 17 million while delivering net income of $HK 1.6 million.

On the balance sheet, Magic had $HK 11.7 million in cash as of Dec. 31, 2021. This haul compared favorably to the company’s long-term debt load of $3.7 million. Overall, total assets amounted to $HK 25.7 million against total liabilities of $20.2 million.

On the cash flow statement, Magic featured free cash flow of $680,000, a notable accomplishment since the prior year saw it go negative to the tune of $4 million.

However, the main concern for Magic is negative growth. While last year’s top-line sales hit $HK 16.9 million, the year prior came in at $HK 20.4 million or a 17.4% decline. With a record U.S. IPO market also translating globally in 2021, Magic’s revenue slump presents a hefty distraction.

Magic Empire Potential

Because of the geopolitical pivot in U.S.-China relations, if American regulators end up delisting Chinese companies, Magic Empire will likely enjoy an organic valuation bump. However, deciphering the winds of international relations is always fraught with risk, especially during this tense backdrop.

Finally, Magic Empire itself may have provided the best warning to prospective IPO participants in its Form F-1 disclosure. “Investing in our Ordinary Shares is highly speculative and involves a high degree of risk.”

Where to Buy Magic Empire IPO Stock

If you want to participate in Magic Empire’s IPO, you’ll need to know how to buy stocks. But before you take that step, you must sign up for a brokerage account. Below is a list of best brokers to consider.

MEGL Stock Restrictions for Retail Investors

Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.

MEGL Stock Pre-IPO

Pre-orders for MEGL stock may still be available. Interested investors should open an account with moomoo to seek for potential news and updates for this and other IPOs.