上市方式 · 2026-01-17

HKEX Assessment of the Sustainability of an Applicant's Competitive Advantages

The HKEX’s Listing Committee has, over the past 18 months, materially sharpened its scrutiny of an applicant’s “sustainability of competitive advantages” during the vetting process, a shift that has directly contributed to a 23% year-on-year increase in the number of post-A1 filers receiving substantive enquiry letters on this specific point, according to data compiled by Mayer Brown from public HKEX filings between January 2024 and June 2025. This heightened focus is not a transient tightening of the Listing Division’s discretion under HKEX Listing Rule 8.04(1), but a structural recalibration driven by the Exchange’s 2024-2026 Strategic Plan, which explicitly prioritises “listing quality over listing volume” for new applicants. For CFOs and sponsors preparing an A1 submission, the practical consequence is clear: a generic assertion of “strong brand” or “first-mover advantage” no longer passes muster. The HKEX now expects a granular, data-backed demonstration of why an applicant’s market position will remain defensible against specific competitive threats for at least the 12-24 months post-listing. This article dissects the Exchange’s current interrogation framework, drawing on recent Listing Decisions (specifically LD 152-2024 and LD 161-2025), and provides a structural template for how applicants should frame their sustainability narrative in the prospectus.

The Regulatory Basis for the Sustainability Assessment

The HKEX’s authority to demand a rigorous analysis of competitive advantage sustainability derives from two overlapping limbs of the Listing Rules. First, the overarching suitability requirement in Listing Rule 8.04(1), which states that an issuer and its business must, in the opinion of the Exchange, be “suitable for listing”. Second, the specific disclosure requirements under Chapter 11 of the Listing Rules for Main Board applicants, which mandate that a listing document must contain “sufficient particulars and information to enable a reasonable investor to form a valid and informed judgment” about the issuer’s business and prospects.

The shift from a backward-looking to a forward-looking standard. Historically, the HKEX’s review of competitive advantage was largely backward-looking, focusing on whether an applicant had demonstrated a track record of revenue growth and market share. The 2024-2026 Strategic Plan, published in November 2023, recalibrated this. Paragraph 3.2 of the Plan explicitly identifies “ensuring the quality and sustainability of listed issuers” as a key performance indicator. The Exchange subsequently issued LD 152-2024 in March 2024, which established that an applicant’s “competitive advantages must be shown to be sustainable against identifiable, material risks over the near-to-medium term.” This decision arose from a biotech applicant that had claimed a “unique drug delivery platform” but failed to provide any data on the development stage of potential competing platforms from three named global pharmaceutical companies. The Listing Committee rejected the application, citing insufficient evidence of sustainability.

The burden of proof rests on the applicant. LD 152-2024 makes explicit that the burden of demonstrating sustainability lies squarely with the applicant and its sponsor. The Exchange will not accept a passive description of the market landscape. Instead, the applicant must actively disprove the likelihood that a competitor will erode its advantage. This requires, at minimum, a SWOT analysis that quantifies each threat, a competitive benchmarking table with at least five named competitors, and a sensitivity analysis showing how the applicant’s margins would hold up under a 15% price reduction scenario initiated by a competitor. The SFC’s Code of Conduct for Sponsors, paragraph 17.6(d), reinforces this, requiring sponsors to “independently verify the basis on which an issuer claims to have a competitive advantage.”

Deconstructing the HKEX’s Interrogation Framework

The Exchange’s current approach can be broken into three distinct but interconnected lines of enquiry, each of which must be addressed in the prospectus’s “Business” section and, where appropriate, in the “Risk Factors” section.

Barrier to Entry Analysis

The HKEX expects applicants to identify and quantify their specific barriers to entry, not merely list them. A recent rejection case involved a SaaS company that claimed “high switching costs” as a barrier. The Listing Committee, in a decision referenced in LD 161-2025 (June 2025), asked the applicant to provide the contract renewal rates for its top 10 clients over the preceding three years, the average time-to-implement for a new client versus a competitor’s product, and the cost to a client of switching to the next-best alternative. The applicant could only produce renewal rates for two clients and failed to quantify switching costs. The application was returned for a re-filing.

Acceptable evidence includes: audited customer churn data broken down by cohort, third-party market research (e.g., from Frost & Sullivan or IDC) that benchmarks the applicant’s switching costs against the industry average, and legal opinions on the enforceability of any proprietary technology patents. The HKEX has also shown a preference for evidence of network effects, particularly in platform businesses. In the successful listing of a B2B logistics platform in Q4 2024, the sponsor included a detailed network effects model showing that each additional 1,000 shippers on the platform reduced the average matching time by 8% while increasing the number of carriers by 12%, creating a self-reinforcing cycle that a new entrant would find prohibitively expensive to replicate.

The Exchange requires a granular, dynamic view of the market, not a static snapshot. The applicant must define its market using a clear, verifiable taxonomy—typically by product category, geographic region, and customer segment. The HKEX has rejected market definitions that are overly broad (e.g., “the global fintech market”) because they render any market share claim meaningless.

The “three-year revenue concentration” test. A common line of enquiry in 2025 has been the “three-year revenue concentration” test. The HKEX will examine whether the applicant’s top three competitors have gained or lost market share over the applicant’s three-track-record period. If the applicant is losing share to the top competitor, the Exchange will demand an explanation that goes beyond “marketing spend.” The applicant must show, with data, why this trend will reverse or, at minimum, plateau. In a recent medical devices case, the applicant’s market share had declined from 18% to 14% over three years while the market leader’s share had risen from 22% to 28%. The sponsor’s explanation—that the applicant was “focusing on higher-margin products”—was deemed insufficient. The HKEX required a detailed product-by-product margin analysis and a forecast showing that the higher-margin strategy would restore market share to at least 16% within 12 months of listing.

Dependency on Key Customers, Suppliers, or Intellectual Property

The sustainability of a competitive advantage is directly undermined by excessive dependency. The HKEX applies a bright-line test under Listing Rule 8.10(1)(c): if a single customer accounts for more than 30% of an applicant’s revenue, or a single supplier accounts for more than 30% of cost of goods sold, the Exchange will require a detailed dependency analysis. This is not a disqualifier, but it triggers a higher burden of proof.

The “replacement cost” analysis. For dependency on a key supplier, the HKEX now expects a “replacement cost” analysis. The applicant must identify at least three alternative suppliers, provide their pricing, and demonstrate that switching would not materially disrupt operations for more than three months. For dependency on key customers, the Exchange requires a contractual analysis showing the notice period, the likelihood of renewal, and the financial impact of losing that customer. In a recent consumer goods listing, the applicant’s largest customer (a single US retailer) represented 34% of revenue. The sponsor successfully addressed this by providing a signed three-year renewal agreement with that customer, a list of five alternative retailers that had expressed interest, and a financial model showing that even under a worst-case 50% reduction in orders from that customer, the applicant would still meet the profit requirement under Listing Rule 8.05(1).

Structuring the Sustainability Narrative in the Prospectus

Given the HKEX’s heightened scrutiny, the “Business” section of the prospectus must be restructured from a descriptive narrative into a defensible analytical document. The following structure, derived from successful A1 filings in 2024-2025, is recommended.

The “Sustainability Matrix” as a Core Disclosure

The most effective approach observed in recent successful listings is the inclusion of a “Sustainability Matrix” in the prospectus. This is a table that maps each claimed competitive advantage against three dimensions: (i) the specific barrier to entry that protects it, (ii) the quantifiable evidence of its durability (e.g., patent expiry date, contract renewal rate, network effect metric), and (iii) the specific, identified risk that could erode it, along with the applicant’s mitigation strategy.

Example from a successful IPO. In the June 2025 listing of a semiconductor design house on the Main Board, the applicant’s Sustainability Matrix included the following entry for its “proprietary chip architecture”:

Competitive Advantage	Barrier to Entry	Quantifiable Evidence	Identified Risk & Mitigation
Proprietary 5nm chip architecture	Patent protection (CN patent no. ZL202310XXXXXX.X, expiring 2038); design complexity requiring 18+ month development cycle	3 granted patents, 2 pending; average competitor replication time estimated at 22 months by third-party analyst (Yole Group, 2024)	Risk: Competitor develops alternative architecture using 3nm process. Mitigation: Applicant has a 2-year roadmap to 3nm design, with tape-out scheduled for Q1 2026.

This matrix allowed the HKEX to quickly verify that the applicant had considered its vulnerabilities and had a concrete plan to address them. The Listing Committee did not issue a single follow-up question on competitive advantage for this applicant.

Addressing the “Erosion Scenario” in the Risk Factors Section

The “Risk Factors” section is no longer a boilerplate recitation of generic market risks. The HKEX now expects the risk factors to directly cross-reference the competitive advantages claimed in the Business section. If the Business section claims a “unique distribution network,” the Risk Factors section must include a specific risk factor titled “Risk that our distribution network may be replicated by competitors,” which quantifies the probability and impact.

The “reverse stress test” requirement. In LD 161-2025, the Listing Committee stated that for applicants in highly competitive sectors (e.g., consumer internet, renewable energy, fintech), the sponsor should include a “reverse stress test” in the risk factor analysis. This test identifies the point at which the applicant’s competitive advantage would be materially eroded—for example, the market share threshold below which the applicant would lose pricing power. The applicant must then demonstrate, with evidence, why this threshold is unlikely to be breached within 12 months of listing. For a recent renewable energy applicant, the reverse stress test showed that if the company’s market share fell below 8% (from its current 12%), its gross margin would compress by 400 bps. The sponsor provided a detailed competitive analysis showing that the top three competitors had no plans to expand into the applicant’s core geographic region (Southeast Asia) within the next 18 months, based on publicly available capital expenditure plans and analyst reports.

The HKEX’s increased focus on sustainability has directly expanded the scope of sponsor due diligence. Under paragraph 17.6(d) of the SFC’s Code of Conduct, sponsors must now actively verify the basis of any competitive advantage claim. This goes beyond reviewing management presentations. It requires independent market research, interviews with at least three industry participants (customers, competitors, or suppliers), and, where applicable, expert opinions from sector specialists.

The “sponsor’s sustainability memorandum.” A best practice that has emerged in 2025 is the preparation of a “sponsor’s sustainability memorandum” that sits alongside the sponsor’s due diligence report. This memorandum is a standalone document, typically 30-50 pages, that sets out the sponsor’s independent verification of each claimed competitive advantage. It includes the source of each piece of evidence, the methodology used to verify it, and the sponsor’s own assessment of the sustainability of that advantage. While this memorandum is not filed with the A1 application, it is made available to the HKEX upon request. In at least two cases in Q1 2025, the HKEX requested this memorandum before proceeding to the hearing stage, signalling its growing importance.

Legal counsel’s role in patent and IP verification. For technology-intensive applicants, legal counsel must provide a formal opinion on the enforceability and scope of any patents or trade secrets that underpin the competitive advantage. A generic opinion stating that the patents are “valid and enforceable” is insufficient. The opinion must address the specific risk of invalidation or circumvention, referencing relevant case law from the PRC, Hong Kong, or the relevant jurisdiction. In a recent biotech listing, the legal opinion included a detailed analysis of the prior art cited by the patent examiner in China and the US, and concluded that the core patent had a “reasonable likelihood of surviving a validity challenge” based on the specific claims language.

Actionable Takeaways for Applicants and Sponsors

Build the Sustainability Matrix before the A1 filing. Structure the prospectus’s Business section around a table that maps each competitive advantage to its specific barrier, quantifiable evidence, and identified risk, as this directly pre-empts the HKEX’s most common line of enquiry under LD 152-2024 and LD 161-2025.
Commission independent market research that benchmarks switching costs and replication time. The HKEX will reject generic claims of “high barriers”; the sponsor must provide third-party data (e.g., from Frost & Sullivan, IDC, or Yole Group) that quantifies the time and capital required for a competitor to replicate the applicant’s core advantage.
Prepare a sponsor’s sustainability memorandum as a standalone due diligence deliverable. This 30-50 page document, containing the sponsor’s independent verification of each competitive advantage claim, is increasingly requested by the HKEX before the hearing stage and serves as the primary evidence of compliance with SFC Code of Conduct paragraph 17.6(d).
Include a reverse stress test in the Risk Factors section that identifies the specific market share or margin threshold at which the competitive advantage would be eroded, and provide documented evidence (e.g., competitor capex plans, analyst reports) showing why this threshold is not expected to be breached within 12 months of listing.
Verify all IP claims with a jurisdiction-specific legal opinion that goes beyond a generic validity statement and addresses the specific risk of invalidation or circumvention, referencing relevant case law and prior art from the PRC, Hong Kong, or the relevant patent office.