CXMT Lives Up to Its IPO Hype With Huge Surge in Opening Day Trading

Shares in Changxin Memory Technologies (CXMT), the largest IPO ever on Shanghai's Nasdaq-style STAR Market and the biggest this year in Asia, were trading at 531 times their offer price at the mid-day break on their exchange debut.

The shares popped 471 percent at the open to 49.5 yuan (US$7.3) from their office price of 8.66 yuan, catapulting CXMT to China's most valuable company ahead of financial giant Industrial and Commercial Bank of China.

CXMT, the world's fourth-largest maker of dynamic random-access memory (DRAM) chips used for data processing in AI models, raised 57.9 billion yuan in a heavily oversubscribed IPO. An over-allotment provision, if fully exercised, could take the IPO size to 66.6 billion yuan, just a whisker below the US$10 billion record Chinese mainland IPO by Agricultural Bank of China in 2010.

The market reported some early trading glitches due to a heavy volume of orders but quickly corrected them.

"We rate CXMT at 'buy' and have set a target price of 116 yuan," according to a statement by Japanese brokerage Nomura. The target price is derived from CXMT's projected earnings per share of 5.8 yuan by fiscal year 2028, applying a 20-fold multiple of price-to-earnings ratio, it explained.

The debut is an indication of how much Chinese investors are willing to pay for a high-profile tech stock amid global volatility in the sector. The retail portion of the IPO was 212 times oversubscribed.

CXMT's IPO price implies 2.4 times book value. That is a 56 percent discount to the average price-to-book ratio for global DRAM peers SK Hynix, Micron Technology and Nanya Technology, according to Bloomberg. It represents an even steeper 77 percent discount to the average for Chinese chipmakers Semiconductor Manufacturing International and Hua Hong Grace Semiconductor.

"We are positive over the long-term growth of CXMT because of huge demand for memory chips driven by rapid AI development," said Fan Zhiyuan, an analyst with Sinolink Securities. "As one of the very few self-reliant DRAM manufacturer, CXMT has the capability to change a market territory currently dominated by Samsung, SK Hynix and Micron Technology."

Hefei-based CXMT was relatively unknown outside China until it burst on the scene this year as a major player in the DRAM making. The company was founded in 2016 by Zhu Yiming, who has degrees in physics and electrical engineering, and worked in the Silicon Valley before returning to China.

The company's technology initially was based on patents it acquired from German DRAM maker Qimonda, which went bankrupt in 2009 during the global financial crisis. CXMT currently has three 12-inch DRAM wafer plants in Hefei and Beijing.

The company is rapidly closing the gap with global rivals as it adopts a strategy that relies on domestic demand to power its overall performance.

"I have no doubt the company is going to grow to be a global leader," Theodore Shou, chief executive of Yiyi Capital, told CNBC. "It's maybe just a question of time that it can be not only a challenger, it can be a global champion in this particular sector."

In the first quarter, CXMT's global market share surged to approximately 8 percent from 3 percent last year. It has a strong and steady client base, spanning Chinese technology leaders that include Alibaba Cloud, Lenovo, Xiaomi, Oppo, Vivo, Transsion and Honor, covering sectors from data centers to personal computers and smartphones. Alibaba is a major stakeholder, while Tencent and Meituan hold indirect stakes.

The company's supply chain – stretching from integrated circuit materials and wafers to assembly and testing – is deeply rooted in the nation's "Made-in-China" ecosystem.

In the first quarter, CXMT swung to net profit off 33 billion yuan from a year-earlier loss, on a 719 percent surge in revenue.