The Main Board Profit Requirement

May 2021

In November 2020, the Stock Exchange of Hong Kong Limited (“HKEX”) issued a consultation paper to primarily consider a proposal to increase the Main Board listing profit requirement. There was an overwhelming response from a broad range of 115 respondents that were representative of wide array of stakeholders in the Hong Kong capital market. The initial proposal of the Stock Exchange was to increase the three-year profit requirement from the $50 million to HK$125 million. According to the consultation conclusion, it appears that a majority of the respondents (83%) did not support the proposed increase due to various reasons. That having been said, there were respondents that supported the increase having taken into consideration factors such as inflation rate, economic growth of Hong Kong and increase in the market capitalisation requirement.

Despite the response from the market, HKEX recognizes that it is not able to cater for companies of all sizes, to support and enable listings of all businesses, without due consideration of market quality issues and investor protection concerns. Further, even with post-listing enforcement actions already in place to regulate listed companies, HKEX maintains their position to adopt a robust gate-keeping approach together with the post-listing regulations with the overriding objective to protect and safeguard the interests of the investing public.

The conclusion of HKEX’s consultation paper is to increase the profit requirement by 60%, resulting in an aggregate profit threshold of HK$80 million, and to amend the profit requirement during the three-year track record period such that the minimum aggregate profit required for the first two financial years of the track record period will be HK$45 million and that for the final financial year will be HK$35 million, which translates in to an implied historical P/E ratio of approximately 14 times.

The proposed implementation date of the new profit requirement is 1 January 2022.