Take this navigation guide, and understand hundreds of pages of the prospectus in seconds.

Another A+H new stock is here.

The leading enterprise in China's seasoning industry. $HAITIAN FLAV(03288.HK)$ Officially launched the IPO on June 11. The company was listed on the Shanghai Stock Exchange in 2014, and this is a secondary listing in Hong Kong. The company plans to globally issue 0.263 billion shares, with sponsors including CICC, Goldman Sachs, and Morgan Stanley, and is expected to be listed on June 19.

Want to know more about the highlights of the Foshan Haitian Flavouring and Food IPO? You can check:The "A+H seasoning leader" Foshan Haitian Flavouring and Food has launched its IPO and plans to list on June 19, with a minimum subscription amount of 3666.62 HKD.

Before investing in a new IPO, the first thing to do is to clearly understand the fundamentals and valuation of the stock. Only by thoroughly researching its fundamentals can a better sense and improved chances of successful investment and profitability be achieved.

The most detailed information for researching a company's fundamentals is undoubtedly the prospectus. The prospectus can be downloaded from the IPO Subscription page on the Futubull app, here is a download link.

However, when faced with hundreds of pages of the prospectus, many novice investors may feel lost and not know where to start. This article provides a navigation guide for the prospectus to help locate key information easily. We will first attach the 'navigation map' at the beginning and then accurately locate it by module.

Outline of the prospectus: Summary

The first module we will look at is the 'Summary' of the prospectus, which serves as the outline of the prospectus and introduces the company's basic information, competitive advantages, development Global Strategy, financial summary, and IPO Market Cap conditions. After browsing the 'Summary', we will have a preliminary understanding of the company's fundamentals and valuation level.

In the Hong Kong stock market, about 80% of the new stocks generally have mediocre fundamentals. For these companies, after reviewing the 'Summary' section, they can be filtered out without needing to spend further time delving deeper.

The remaining few stocks with decent fundamentals are worth looking at in more detail. Following the order from the directory, we can focus on three sections: 'Industry Overview', 'Business', and 'Financial Information'.

First section: Industry Overview

In this module, we can see the large industry and sub-industry that the company is in, focusing on the specific sub-industry section, including three aspects: industry space, industry growth rate, and industry competition pattern.

It is best to be in a growth industry with a relatively large industry space, low industry penetration rate, and fast industry growth rate, while having a relatively concentrated industry competition pattern, and the company ranks relatively high in the industry. Specific industry development data will be provided in the prospectus.

The second part: Business

In this module, focus on the company's business model, competitive advantages, and key business data.

The business model refers to what the company does, how it attracts customers, and how it converts value, which can be understood through common life knowledge.

Sometimes companies overpackage themselves, exaggerating their technological content and business prospects. At this time, one should also sharpen their vision and see through phenomena to grasp the essence.

Competitive advantage refers to where the company's competitive barriers are relative to competitors in the same industry. For example:

Brand barrier. Strong brands often enjoy product premiums, thus increasing profit margins. For example, in various consumer goods industries.

Scale barriers. In the manufacturing sector, often the larger the scale, the lower the cost, and the higher the profit margin, such as in the Autos industry.

Technological barriers. Mastering core technologies that other companies do not possess brings about monopolistic advantages, such as AI chips.

Network effects. Once a large number of users are acquired, they connect with each other, making it difficult to migrate to other products, thus forming a network barrier. For example, in the Internet industry.

Business data refers to the data disclosure related to the company's operation. For example:

For service stores such as restaurants, metrics like table turnover rate, single-store sales, and store expansion can be analyzed.

For product businesses, metrics like product pricing and sales trends can be analyzed.

For Internet businesses, metrics like user numbers and revenue per customer can be analyzed.

The third part: financial materials.

There are three financial statements: the income statement (profit and loss statement), the balance sheet, and the cash flow statement. For beginner investors who have no understanding of how to read financial reports, you can start by learning from the introductory video courses on financial reports in the Futubull Education.Understanding the key points of financial reports reveals the wealth secrets.

First, the income statement, which is the report that the 'financial data' section will focus on disclosing first. Focus on revenue size, revenue and net income growth rates, gross margin, and net profit margin, etc.

Revenue size should not be too small. Companies with low revenue are either start-ups or small companies. Unless a start-up is highly sought after during the IPO, the risk is very high. The fundamental research value of small companies is low, as they are mostly driven by speculation.

Revenue and profit growth cannot be too slow; the higher, the better. Companies with slow growth have little potential for imagination and are unlikely to perform explosively after going public. At the same time, the net income growth rate should ideally be higher than the revenue growth rate, as such companies benefit from scale effects and have sustained profitability, indicating greater developmental potential.

The levels of gross margin and net profit margin should not be too low; otherwise, the position in the Industry Chain may not be strong, lacking competitive advantages, making it difficult to gain recognition from capital.

Next, the balance sheet. Primarily focus on the level of debt ratio, inventory level, accounts receivable level, and cash reserves.

The debt-to-asset ratio should not be too high. If borrowing is excessive, on one hand, interest expenses are large, affecting profit levels; on the other hand, operational risk is high, and expansion potential is limited.

Inventory levels should not be too high, and ideally, the growth rate of inventory should not exceed that of revenue. If inventory is too high or grows too quickly, it indicates that the company's products may face sales pressure and the growth outlook is worrisome.

Accounts receivable should also not be too high, and the growth rate should not exceed that of revenue. Otherwise, accounts that remain uncollected for too long will become bad debts, affecting profits. Additionally, excessive accounts receivable negatively impacts cash flow and indicates a weak position in the Industry Chain and a poor competitive landscape.

Cash reserves should not be too low; otherwise, the company's self-sustainability is too weak. Relying entirely on funds from the IPO can lead to significant operational risks post-listing.

Lastly, the cash flow statement should be analyzed. Focus mainly on the net inflow of cash from operating activities, capital expenditures, and the situation regarding dividend distributions.

In the cash flow from operating activities, pay attention to the situation of net cash inflow. Cash flow is the lifeline of a company; if the net cash inflow from operating activities is higher than net income, it indicates that the quality of the company's net income is high. Conversely, if it is far lower than net income, caution may be warranted.

In the cash flow from investing activities, focus can be placed on capital expenditures such as fixed assets. Companies with excessive capital expenditure may see rapid revenue growth; however, if revenue growth is slow, this could indicate significant operational risks and overall cash flow situation might be relatively weak.

In the cash flow from financing activities, attention can be given to the situation regarding dividend distributions. After going public, paying dividends is something investors appreciate, but if there are ex-dividend bonuses before the IPO or if a large portion of cash is withdrawn, that undoubtedly would be a significant negative factor.

In addition to the three core sections: industry overview, Business, and financial data, other modules in the prospectus also hide valuable information. We will likewise review it in order, from top to bottom.

Other Modules: Important Notice

Two key points can be highlighted here. The first piece of information is whether there are any sales of old shares; if so, it will be indicated as 'Share Sales' or 'Shares for Sale'. Most companies do not sell old shares, and any sales would indicate a Shareholding by major shareholders or other shareholders, which is undoubtedly a negative indicator.

The second piece of information is the list of sponsors and underwriters. The historical performance of these Institutions can also have a certain impact on the listing performance of new shares. Among them, a company may have several sponsors, and we can further find the 'Stabilization Price Manager' in the 'Definitions' module; the price stabilizer is usually the lead sponsor.

Other Modules: History, Development, and Corporate Structure

There is also a lot of important information here. The first point is to look at the composition of the company's shareholders. If it is a state-owned enterprise, it is generally difficult to have short-term performance. If there are celebrity Institutional shareholders or Industry Chain giant shareholders, that is undoubtedly a positive indicator.

The second point is to look at the shareholding ratio; if there are too many shareholders and the ownership is too dispersed, it may increase the selling pressure after listing.

The third point is to look at the pre-listing restrictions on shareholders; if there are unrestrained shares, it will increase short-term selling pressure on the first day of listing.

The fourth point is to look at the latest financing time; if the company has not had new financing in recent years, it indicates that the company's industry track has likely lost its heat, and the potential for imagination has also decreased.

The fifth point is to look at the discount/premium situation of pre-IPO financing. This provides a vertical comparison of the company's historical valuation, which is of certain reference value for assessing the company's IPO valuation.

Other modules: Directors, Supervisors, and Senior Management.

Here, the focus is on the background of the company's executives. If the founder is a serial successful entrepreneur, such individuals are more likely to pursue long-termism, which is a significant advantage. Additionally, if the management team's industry experience and professional background align with the company's business, this is also beneficial for the company's development. Conversely, if company executives have certain controversies in their past, caution is advised.

Other modules: Cornerstone Investors.

In a bear market environment, if a company can find star institutions or major upstream clients as cornerstone investors, and if the cornerstone proportion is significant, this will be very bullish. In a bull market environment, however, if the cornerstone investors are unremarkable or the cornerstone proportion is very small, the quality of the company may be concerning.

Other modules: Structure and conditions of the global offering.

Two points can also be observed here. The first is to look at the proportion of public reallocation. Generally, the public offering portion can be reallocated up to 50%, but for companies with larger issuance scales, there may be other regulations. For example, in the previously extreme case of Kuaishou, the maximum reallocation proportion for the public portion was only 6%. The smaller the reallocation proportion, the less selling pressure from retail investors post-listing, which is advantageous for the first-day performance.

The second point is to check for the existence of an overallotment option, also commonly referred to as the 'Green Shoe'. The funds raised from the overallotment of new shares may be used to buy shares to support the stock price when the new stock breaks below the IPO price. In the case of large-cap stocks, if an overallotment option is not set up, when the stock breaks below the IPO price post-listing, there will be no Green Shoe funds to stabilize the market.

The third point is to look for any adjustment rights for the issuance volume. A small number of companies may set an additional 15% adjustment right for the issuance volume beyond normal financing, which increases the potential financing ratio by 15%, thereby increasing selling pressure after going public; this is certainly a negative aspect.

This concludes the "navigation map" on how to read an IPO prospectus. After reading this article, there should be a better understanding regarding the industry, Business, financial aspects, and other modules of the prospectus. The full text exceeds 3000 words, and due to length restrictions, this "navigation" cannot cover everything comprehensively. If there are any omissions or any other questions, feel free to leave us a message in the comment section.

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