Market Competition Analysis in a Listing Application: How to Describe Industry Position Safely

The Hong Kong Stock Exchange’s Listing Committee has, over the past 18 months, escalated the scrutiny of market competition analysis within listing applications, particularly for companies relying on a single market or a narrow product line. This shift is codified in the HKEX’s updated Guidance Letter HKEX-GL86-16 (revised January 2025), which explicitly requires applicants to demonstrate “sufficient market size and growth potential” using verifiable, third-party data, not internal projections. The catalyst was the 2024 rejection of a GEM-listed bio-tech firm’s transfer to the Main Board, where the Exchange deemed its self-reported market share of 12% in the Hong Kong medical device segment as “insufficiently substantiated” against publicly available trade statistics. For CFOs and their sponsor teams, this means the days of citing a Frost & Sullivan report without cross-referencing against HKMA trade data or SFC-licensed analyst coverage are over. The bar has moved from narrative assertion to data triangulation. This article dissects the regulatory expectations, common pitfalls, and a defensible framework for presenting industry position in a listing document.

The Regulatory Framework: What the Exchange Expects

The HKEX’s approach to market competition analysis is embedded within the overarching requirement for “sufficient information” under the Listing Rules Chapter 11 (for the Main Board) and Chapter 24 (for GEM). The Exchange does not prescribe a specific methodology, but its Decision HKEX-LD43-3 (2023) provides a clear benchmark: an applicant’s description of its competitive position must be “balanced, not misleading, and based on objective criteria.”

The Triangulation Requirement from HKEX-GL86-16

The 2025 revision of HKEX-GL86-16 introduced a specific paragraph (para. 4.2) that mandates the use of at least two independent data sources for any market share claim. Acceptable sources include: (a) published industry reports from recognised research houses (e.g., Euromonitor, IDC, Gartner); (b) government statistical data (e.g., Hong Kong Census and Statistics Department, PRC National Bureau of Statistics); and (c) audited financial data from publicly listed competitors. The Exchange explicitly warns against sole reliance on commissioned reports from a single consultancy, as these can be tailored to the applicant’s narrative.

The “Sufficient Market Size” Threshold in Practice

A common rejection trigger is the failure to demonstrate that the total addressable market (TAM) is of a scale that justifies a listing. For a Main Board applicant, the HKEX typically expects the TAM in its primary segment to exceed HKD 500 million annually. This is not a published rule but emerges from a pattern of Listing Decisions (e.g., HKEX-LD123-2024, involving a kitchenware distributor). The applicant’s market share, if under 5%, requires a compelling narrative of growth trajectory or technological moat to avoid being classified as a “fragmented market” with no pricing power.

Structuring the Competition Section: A Data-First Approach

The industry position section should not be a marketing brochure. It must function as a quantitative proof of the applicant’s ability to generate sustainable revenue within a defined competitive landscape. The structure below, derived from successful waiver applications handled by Mayer Brown’s Hong Kong practice, provides a replicable template.

Defining the Relevant Market with Precision

The most frequent error is defining the market too broadly or too narrowly. For a company manufacturing lithium-ion battery separators for electric vehicles, the relevant market is not “the global battery market” (HKD 800 billion) but “the global wet-process battery separator market for passenger EVs” (HKD 18 billion, per SNE Research 2024). The Listing Rules Chapter 11.06 requires the description to be “relevant to the business of the issuer.” Overstating the market size by using a broad definition invites a Listing Decision query, as seen in HKEX-LD78-2023. The applicant must explicitly state the geographic scope (PRC only, ASEAN, global) and the product/service segmentation used.

Presenting Market Share Data: The Source and the Methodology

Every market share figure must be accompanied by a footnote citing the source and the calculation methodology. For instance: “The Company held an estimated 8.3% share of the PRC high-purity quartz sand market in FY2024, based on production volume data from the China Nonferrous Metals Industry Association (CNMIA) and the Company’s audited production of 12,400 tonnes against the industry total of 150,000 tonnes.” This level of specificity satisfies the SFC Code of Conduct for Persons Licensed by or Registered with the SFC (para. 16.3), which requires that “any comparison with competitors must be fair and not misleading.” Avoid using “estimated” without providing the confidence interval or the basis of estimation.

Competitor Identification and Financial Benchmarking

The applicant must list its top 3-5 competitors by market share, with a brief description of their ownership structure (listed, private, state-owned) and their latest publicly available revenue figures. For unlisted competitors, the applicant can use industry estimates but must disclose the estimation method. A table format is recommended, showing: (a) competitor name; (b) estimated market share; (c) latest revenue (HKD million); (d) geographic focus; and (e) key product differentiators. This allows the Listing Committee to perform a rapid “reasonableness check” against the applicant’s own financials. For example, if the applicant claims a 15% market share but its revenue is 50% higher than the next largest listed competitor, the data may be inconsistent.

Common Pitfalls and How the Exchange Identifies Them

The HKEX’s Listing Division employs a dedicated team of analysts who cross-reference applicant data against public filings, trade journals, and SFC-licensed research reports. Several patterns have triggered heightened scrutiny in 2024-2025.

The “Self-Serving” Commissioned Report

A report commissioned from a single consultancy, where the consultant is paid by the applicant and the methodology is opaque, is now viewed with skepticism. In the 2024 rejection of a PRC food processing company, the Exchange noted that the commissioned report’s market share figure of 9.2% contradicted the PRC General Administration of Customs data, which implied a figure of 4.1%. The Listing Decision (HKEX-LD156-2024) stated that the applicant “failed to explain the discrepancy.” The fix is to use the commissioned report as one of two sources, and to explicitly reconcile any differences with the independent source.

Ignoring Substitutes and Indirect Competition

The Listing Rules require a description of “competitive conditions” (Chapter 11.07). A narrow focus on direct competitors, without addressing substitutes, is a red flag. For a company providing cloud-based HR software, the competition includes not only other SaaS providers but also on-premise ERP systems and manual HR processes. The SFC’s 2023 Report on Listing Application Quality specifically cited this omission as a recurring deficiency. The applicant should include a paragraph on “competitive threats from alternative technologies or business models,” quantifying the market share of substitutes if possible.

Inflating Growth Rates with a Short Base Period

A common tactic is to present a 3-year CAGR of 40% based on a low base in Year 1. The Exchange will request data for at least 5 years if the growth rate is central to the valuation narrative. In HKEX-LD89-2024, the applicant’s claim of a 50% CAGR over three years was rejected because the base year revenue was HKD 2 million, making the growth statistically insignificant. The Exchange required a 7-year data set to demonstrate sustainable growth. For applicants with a shorter operating history, the narrative must pivot to “market penetration potential” rather than “historical growth.”

Cross-Border Considerations and VIE Structures

For PRC-based companies using a Variable Interest Entity (VIE) structure, the competition analysis must account for regulatory risks that affect market access. The HKEX Guidance Letter HKEX-GL94-18 (updated 2024) requires that any VIE structure includes a discussion of “regulatory risks that could materially affect the issuer’s competitive position.”

The Regulatory Risk Factor in Market Share

An applicant operating in a sector subject to PRC regulatory approvals (e.g., online education, fintech) must disclose whether competitors face the same licensing requirements. If the applicant holds a license that 3 of its 5 main competitors do not, this is a competitive advantage that must be quantified. Conversely, if the applicant is operating under a VIE structure that is subject to potential PRC government action (as per the 2023 Measures for the Security Assessment of Cross-Border Data Transfer), the competition section must include a sensitivity analysis showing the impact on market share if the VIE is invalidated. This is not optional; the Listing Rules Chapter 11.10 requires disclosure of “any material risks.”

Comparing with US-Listed Peers

For companies also considering a US IPO, the competition section can reference US-listed peers (e.g., on the NYSE or Nasdaq) but must reconcile any differences in accounting standards (HKFRS vs. US GAAP) and market definitions. The HKEX’s Listing Decision HKEX-LD45-2023 explicitly warns against “cherry-picking” US peer data that shows a higher market share without adjusting for the different market definition. If a US peer reports a 20% share of the “global market” while the applicant reports 5% of the “Asia-Pacific market,” the applicant must explain why the geographic scope differs and why the narrower scope is more relevant.

Actionable Takeaways for the Listing Application

1. Triangulate every market share claim with at least two independent, publicly verifiable data sources, and explicitly reconcile any discrepancies between them in the application’s footnotes.
2. Define the relevant market narrowly to match the applicant’s actual revenue base, using a product/geography combination that can be validated against an industry association or government statistic.
3. Include a competitive threat analysis that quantifies the market share of substitute products or services, and address how the applicant’s business model is resilient to these alternatives.
4. Provide a 5-year data history for any growth rate used in the valuation, and if the base year is small, pivot the narrative to forward-looking market penetration rather than historical CAGR.
5. For VIE-structured applicants, incorporate a regulatory risk sensitivity analysis that models the impact on market share if the VIE structure is challenged by PRC authorities, referencing the specific PRC regulations involved.