HKEX Disclosure Requirements for an Applicant's Analysis of Key Competitors

The Hong Kong Stock Exchange (HKEX) has intensified its scrutiny of competitor analysis disclosures in listing applications, a shift that directly impacts an applicant’s ability to demonstrate its competitive position and market standing. This development follows the HKEX’s 2024 Guidance Letter (HKEX-GL112-24), which clarified that an applicant’s analysis of key competitors must be specific, verifiable, and directly relevant to its business model. The guidance, effective from 1 January 2025, responds to a trend where applicants provided generic or unsubstantiated competitor comparisons, often failing to meet the “sufficient, accurate, and complete” standard required under Listing Rule 2.13(2). For CFOs, company secretaries, and sponsor counsel, this means that a competitor analysis is no longer a marketing exercise but a regulatory deliverable subject to the same evidentiary rigour as financial projections. The Exchange now expects applicants to name specific competitors, cite verifiable sources for market share data, and explain how the applicant’s competitive advantages translate into tangible financial outcomes. Failure to comply can result in additional rounds of HKEX queries, delaying the listing timetable by an average of 4-6 weeks, based on data from 2024 listing applications reviewed by the Listing Division.

The Regulatory Framework: From General Principle to Specific Mandate

The Shift Under HKEX-GL112-24

The HKEX’s 2024 Guidance Letter (HKEX-GL112-24) explicitly elevated the competitor analysis from a narrative disclosure to a substantive requirement. The letter states that an applicant must “identify its key competitors in each material market segment and provide a meaningful comparison of its competitive strengths and weaknesses relative to those competitors.” This is a departure from the pre-2024 practice, where many applicants listed competitors generically (e.g., “other international carriers” or “leading technology firms”) without naming them or quantifying their market positions.

The guidance is rooted in the overarching requirement under Listing Rule 2.13(2) that all information in a prospectus must be “sufficient, accurate, and complete” to enable a reasonable investor to make an informed decision. The HKEX’s 2024 Annual Report on Listing Decisions (published March 2025) noted that in 2024, 23% of all listing applications received at least one substantive query from the Exchange regarding the adequacy of competitor analysis disclosures, up from 11% in 2023. The most common deficiencies cited were a lack of specific competitor names (42% of queries), reliance on unverified third-party market reports (31%), and failure to explain how the applicant’s competitive advantages affect financial performance (27%).

The Sponsor’s Due Diligence Obligations

Sponsors are now required to perform verifiable due diligence on the competitor analysis. Under paragraph 17 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (SFC Code of Conduct), a sponsor must take “all reasonable steps” to ensure that information in the listing document is not false or misleading. This extends to the competitor analysis. The SFC’s 2024 Thematic Review of Sponsor Work (published October 2024) found that 34% of sponsor files lacked adequate documentation to support the competitor comparisons presented in the prospectus. The SFC specifically noted instances where sponsors accepted management’s assertions about market share without independent verification.

For the applicant’s management, this means that internal market intelligence must be corroborated by external, verifiable sources. The HKEX’s Listing Decision LD117-2024 (a case involving a PRC-based logistics company) rejected an applicant’s claim that it was the “third-largest player in the Guangdong-Hong Kong-Macao Greater Bay Area cross-border express delivery market” because the supporting data was sourced from an internal management report without independent audit or third-party validation. The applicant was required to withdraw its A1 application and refile with a corrected analysis.

Structuring the Competitor Analysis: What the HKEX Expects

Naming Competitors and Defining the Market

The HKEX requires that competitors be named specifically. Generic references to “other international airlines” or “major tech companies” are insufficient. The applicant must define its market with precision, including geographic scope, product or service categories, and customer segments. For a Main Board applicant, the market definition must be consistent with the business description in the prospectus and the applicant’s own financial reporting segments.

For example, an applicant in the PRC electric vehicle (EV) battery sector must name competitors such as Contemporary Amperex Technology Co. Ltd. (CATL), BYD Company Ltd., and CALB Group Co., Ltd. — not “other PRC battery manufacturers.” The applicant must then provide a comparison of market share by revenue, production capacity (in GWh), and key financial metrics such as gross margin and R&D spend as a percentage of revenue. The HKEX’s 2024 Guidance Letter explicitly states that market share data should be sourced from “independent industry reports, government statistics, or audited financial statements of the competitors where available.”

Quantifying Competitive Advantages

A qualitative statement that the applicant has “superior technology” or “better customer service” is insufficient. The HKEX expects the applicant to quantify its competitive advantages and link them to financial outcomes. This requirement is grounded in the principle of materiality under Listing Rule 2.13(2). For instance, if an applicant claims a cost advantage, it must provide a comparison of its unit cost (e.g., cost per kWh for battery production) against named competitors, with the source of the competitor’s cost data clearly cited.

In LD117-2024, the HKEX rejected an applicant’s claim of “higher operational efficiency” because the applicant failed to provide a comparison of its operating expense ratio (operating expenses as a percentage of revenue) against its named competitors. The Exchange noted that the applicant’s own financial statements showed an operating expense ratio of 18.7%, while the industry average (based on a Frost & Sullivan report cited by the applicant) was 15.2%. The applicant was required to explain this discrepancy and provide a revised analysis.

Addressing Competitive Weaknesses

The HKEX also requires a balanced disclosure. An applicant must identify its competitive weaknesses and explain how it intends to address them. This is consistent with the requirement under Listing Rule 11.06 that a listing document must contain “all information necessary to enable an investor to make an informed assessment of the issuer’s activities, assets, and liabilities, financial position, profits and losses, and prospects.”

For example, an applicant in the PRC semiconductor design sector must disclose if it relies on a single foundry for chip fabrication. If that foundry is a competitor (e.g., TSMC), the applicant must explain the risks of supply dependency and the steps taken to diversify. The HKEX’s 2024 Annual Report on Listing Decisions cited a case where an applicant failed to disclose that its largest competitor was also its sole supplier of a critical component. The application was returned for a second round of queries, delaying the listing by 8 weeks.

Practical Implications for the Listing Timetable and Prospectus Drafting

Impact on the A1 Filing and HKEX Queries

The enhanced disclosure requirements directly affect the A1 filing process. Sponsors must now include a detailed competitor analysis as part of the draft prospectus submitted with the A1 application. The HKEX’s Listing Division will review this analysis as part of its initial assessment. Based on 2024 data from the HKEX’s Quarterly Listing Statistics (Q4 2024), the average number of substantive queries received per application increased from 4.2 in 2023 to 5.8 in 2024, with competitor analysis queries accounting for 1.2 of the 5.8 queries on average.

For applicants targeting a Main Board listing, the competitor analysis must be included in the “Business” section of the prospectus (typically Chapter 5 or 6 in a standard prospectus structure). The analysis should be presented in a tabular format, with columns for competitor name, market share, key financial metrics (revenue, gross margin, net profit margin), and a comparison of competitive advantages (e.g., cost structure, technology, customer base, geographic reach). The sponsor must ensure that all data is sourced from verifiable public records or independent industry reports, with the source cited in a footnote.

Cross-Border Considerations for PRC Applicants

For PRC applicants using a VIE structure or a Cayman Islands holding company, the competitor analysis must address the regulatory environment in the PRC. The HKEX’s Guidance Letter HKEX-GL112-24 specifically notes that applicants should consider how PRC government policies (e.g., the 14th Five-Year Plan, industry-specific regulations) affect their competitive position relative to domestic and international competitors.

For example, a PRC biotech applicant must disclose how the PRC’s National Medical Products Administration (NMPA) approval timelines compare with those of the U.S. FDA or the European Medicines Agency (EMA), and how this affects the applicant’s time-to-market advantage. The applicant must also name specific competitors in the same therapeutic area and provide a comparison of their clinical trial progress, pipeline assets, and regulatory milestones. Failure to do so may result in the HKEX requesting a supplemental analysis, which can add 3-4 weeks to the listing timetable.

The Role of Independent Industry Reports

The HKEX strongly encourages applicants to use independent industry reports (e.g., from Frost & Sullivan, Euromonitor, or iResearch) as the primary source for market share and competitive analysis data. However, the Exchange has cautioned against over-reliance on reports commissioned by the applicant or its sponsors. In LD117-2024, the HKEX noted that a commissioned report from a third-party research firm was given “limited weight” because the research firm had a financial interest in the applicant’s listing (the report was paid for by the applicant and was used in the prospectus).

The HKEX’s 2024 Guidance Letter advises that if an applicant uses a commissioned report, it must disclose the relationship and provide a reconciliation of the report’s findings with publicly available data. For instance, if a commissioned report states that the applicant has a 25% market share, but publicly available data from the PRC Ministry of Industry and Information Technology (MIIT) shows the applicant’s share at 18%, the applicant must explain the discrepancy and provide the basis for the higher figure.

Actionable Takeaways for Applicants and Sponsors

1. Name competitors explicitly and define the market with geographic and product scope — generic references to “other industry players” will trigger an HKEX query, adding 4-6 weeks to the listing timetable.
2. Quantify every competitive advantage with verifiable financial or operational metrics — a claim of “superior technology” must be supported by a comparison of R&D spend as a percentage of revenue, patent counts, or product performance benchmarks.
3. Disclose competitive weaknesses and the mitigation strategy — failure to address a known weakness (e.g., supply dependency on a competitor) can result in the application being returned for a second round of queries.
4. Source market share data from independent, publicly verifiable reports — commissioned industry reports must be reconciled with government statistics or competitor audited financials, with the relationship disclosed.
5. Integrate the competitor analysis into the sponsor’s due diligence work programme — the SFC expects sponsors to document their verification of competitor data, including source checks and management interviews, in the sponsor’s working files.