On August 13, 2026, RIDGE OUTDOOR (02720.HK), once hailed as the "world's No. 1 fishing gear stock," issued a profit warning projecting net profit attributable to shareholders of approximately RMB 22.5 million to RMB 23.3 million for the first half of 2026—a steep decline of 42.2% to 44.2% compared to RMB 40.3 million in the same period last year. This warning lands just six months after the company's listing on the Hong Kong Stock Exchange on February 10, 2026.

From IPO peak to halved share price

On February 10, 2026, RIDGE OUTDOOR debuted on the HKEX with an issue price of HKD 12.25, raising approximately HKD 346 million. The stock opened up 96% on its first trading day, spiked to an intraday record of HKD 39.5, and closed at HKD 24.78—a 102% gain. It surged another 53% the following day, racking up a cumulative gain of over 200% in just two sessions and pushing market capitalization toward HKD 5 billion. However, the market's enthusiasm evaporated just as quickly. By August 17, the stock closed at HKD 23.42, retreating more than 40% from its peak, with market value falling to roughly HKD 3 billion. From darling to battered, RIDGE OUTDOOR went through the cycle in half a year.

Recovery that hit a wall

The company's financials weren't on a straight upward trajectory—they were still climbing out of a deep 2023 trough. In 2022, revenue peaked at RMB 818 million with net profit of RMB 107 million. But 2023 brought a sharp downturn: revenue plunged 43.4% to RMB 463 million and net profit shrank to RMB 46 million, hit by global macro headwinds and downstream destocking. A steady recovery followed: 2024 revenue grew 23.8% to RMB 573 million with net profit of RMB 56 million, and 2025 revenue rose 15.5% to RMB 662 million with net profit up 32.5% to RMB 74 million. By 2025, the company had restored net profit to about 70% of its 2022 peak. Yet that recovery trajectory was broken in the first half of 2026, with net profit of just RMB 22.5 million to RMB 23.3 million—far below last year's RMB 40.3 million and signaling a return to pre-recovery levels.

Three controversies hanging over the IPO

Looking back, RIDGE OUTDOOR's IPO buzz was never without its skeptics. First, there's its heavy reliance on OEM/ODM manufacturing. The company has deep ties with global brands like Decathlon, Rapala VMC, and Pure Fishing, with contract manufacturing revenue consistently above 90% from 2022 through the first eight months of 2025, while its own OBM brand remained below 10%. While OEM orders provide stability, they come with weak pricing power and persistent margin pressure—the 2023 revenue collapse was a stark reminder of that fragility.

Second, there's geographic concentration risk. Over 80% of revenue comes from overseas markets, with more than 70% tied to Europe alone. In the profit warning, the company explicitly cited "weakening European consumer confidence starting February 2026, bottoming out in April," which extended OEM customers' ordering cycles and dragged overall revenue lower.

Third, the pre-IPO dividend drew sharp criticism. Despite net profit of just RMB 59.4 million in 2024, the company paid out RMB 65 million in cash dividends right before listing, funneling over RMB 61.6 million to founder Yang Baoqing's family, which held 94.77% of shares. That payout pushed net current assets negative by end-2024. Raising HKD 285 million from the market while cashing out pre-IPO profits sparked widespread doubts about the necessity of the fundraising.

Triple headwinds were already in the forecast

Management attributed the profit decline to three external factors: weak European consumer confidence reducing OEM orders, currency translation losses from RMB exchange rate fluctuations, and core raw material costs—especially aluminum—rising over 20% year-on-year. Meanwhile, increased spending on OEM promotion and OBM competitiveness further inflated selling and administrative expenses. None of these were sudden surprises—regional concentration risk was disclosed in the prospectus, and raw material price swings are an inherent vulnerability of the OEM model. But the market overlooked these red flags ahead of the listing, chasing the scarcity value of a "global No. 1 market share" story without weighing the strong correlation between performance and macro cycles in contract manufacturing.

Transformation underway, but relief is far off

The profit warning wasn't all bad news. The company noted that OBM business surpassed 10% of total revenue for the first time, maintaining solid growth during the period. Plans call for allocating 45% of IPO proceeds to brand development and promotion, with another 25% for R&D, as it pivots from contract manufacturing to owning its brand. But the road is steep—China's fishing tackle market is already a brutal red ocean crowded with local players and price wars. Entering mid-game, RIDGE OUTDOOR faces both direct competition and the challenge of building brand awareness and distribution from scratch. Crossing the 10% OBM threshold is progress, but to justify a HKD 3 billion valuation, that number needs to multiply several times over. With European consumer recovery still uncertain and aluminum prices and currency swings posing further risks, the company finds itself in an awkward spot: its OEM foundation is exposed to macro shocks while its brand transformation remains a long-term solution that can't address immediate pressures.