The second batch of lifting restrictions date is approaching. Can YAN PALACE (01497), with a net profit decline of more than 40%, hold on to the cornerstone of profit and loss?

This July, YAN PALACE (01497) saw its stock price surge by 69.09% in just one month, with a strong one-sided upward trend, becoming the focus of the market. However, after reaching a high of 15.34 Hong Kong dollars on July 31st, YAN PALACE entered a three-month period of sideways trading. From a technical perspective, sideways trading is usually a state of non-trending movement, and after sideways trading, the market needs to choose a direction, either breaking out to the upside to form an upward trend or seeking support at a new low. YAN PALACE chose the latter. On October 21st, YAN PALACE's stock price dropped below the 5-day moving average of 13.46 Hong Kong dollars, starting to turn downwards. In the following seven trading days, YAN PALACE's stock price remained below the 5-day moving average, quickly falling to 11.68 Hong Kong dollars on October 31st. Subsequently, in the next three trading days, trading volume in YAN PALACE increased daily, reaching 260,000 shares on November 5th, the highest in nearly a month. After this round of decline, YAN PALACE's stock price fell below 11 Hong Kong dollars, closing at 10.82 Hong Kong dollars on November 12th, a decrease of 19.49% from the closing price of 13.44 Hong Kong dollars on October 18th. It was found that during the first batch of cornerstone investors' unlocking on June 12th this year, YAN PALACE's stock price dropped by 14.9% in the seven trading days leading up to the unlocking date. Now, with only 28 days left until the second batch of cornerstone investors' unlocking on December 12th, the secondary market performance of YAN PALACE may once again become the market's focus. Cornerstones teetering on the brink of profit and loss Unlike other companies that bring in well-known investment banks as cornerstone investors for their IPOs, according to the prospectus, half of YAN PALACE's cornerstone investors are the company's own suppliers. YAN PALACE introduced a total of six cornerstone investors during the IPO phase, who subscribed to a total of 16 million USD (approximately 125 million Hong Kong dollars) in new shares. This includes the company's main suppliers, PT. Anugerah Citra Walet Indonesia, PT Niaga Cakrawala Sukses, and PT Esta Indonesia from Indonesia, with the three suppliers subscribing to 5 million USD, 3 million USD, and 3 million USD respectively. In addition, VALUE PARTNERS subscribed to 2 million USD through two wholly-owned subsidiaries, Wu Chen subscribed to 2 million USD, and Mr. Huang Chengguang subscribed to 1 million USD. The unlocking of shares, as a matter of significant impact on stock prices and liquidity, is particularly important for companies like YAN PALACE with already weak liquidity. Data shows that the unlocking period for VALUE PARTNERS' two subsidiaries and Wu Chen is six months, and they were unlocked on June 12th this year, with a total of 3.2144 million shares, accounting for 0.7% of the total issued shares. Compared to the small-scale unlocking of the first batch, the second batch of unlocking in December will include the remaining four cornerstone investors, unlocking a total of 9.636 million shares, accounting for 2.07% of the total issued shares, translating to a market value of over 100 million Hong Kong dollars at the current share price. For YAN PALACE, during the unlocking of the first batch of cornerstone investors, the closing price on June 12th was 8.22 Hong Kong dollars, resulting in a loss of approximately 15.26% based on the subscription price of 9.7 Hong Kong dollars. In comparison, despite the recent rapid decline in stock price, the second batch of cornerstone investors would still profit by 11.55% based on the closing price of 10.82 Hong Kong dollars on November 12th. However, according to statistics, as of early 2023, about one-third of newly listed stocks have seen a surge of over 100% during the unlocking period. But after unlocking, statistically speaking, the average increase in these companies' share prices is almost zero. As of now, there is nearly a month left until the second unlocking period in December, and it is uncertain whether YAN PALACE can maintain its current stock price. It is worth mentioning that the company applied to the Securities and Futures Commission on January 24th to convert all issued approximately 137 million shares (from 7 shareholders) of unlisted shares with a face value of 0.2 Hong Kong dollars per share into HKEX H-shares to achieve full circulation, and received the record notification on March 7th. With the announcement of full circulation of H shares, it may indicate that shareholders no longer have locking mechanisms, putting the company under significant selling pressure during the unlocking period. Market trends behind the surge and plunge After YAN PALACE announced the full circulation of H shares, there were also voices in the market suggesting its entry into the Hong Kong Stock Connect. In fact, the conditions for inclusion in the Shenzhen-Hong Kong Stock Connect are more relaxed than the Shanghai-Hong Kong Stock Connect, as in addition to medium and large index targets, the Hang Seng Small Cap Index targets with an average month-end market capitalization of 5 billion Hong Kong dollars or more can also be included. For YAN PALACE to be included in the small cap index, it needs to increase its market capitalization to over 5 billion Hong Kong dollars and have an active trading market. With some time left until the adjustment in September 2024, the company may manage its market capitalization to meet the requirements for inclusion in the Hong Kong Stock Connect. Returning to YAN PALACE itself, with the positive news of stock repurchase announcements and the company's 2023 annual report, the trend of chips returning to their original positions became apparent, and the time spent in sideways trading began to shorten, with the stock price showing a significant breakout trend. Specifically, from February to June this year, although the price fluctuations varied, YAN PALACE's stock price remained around 8-9 Hong Kong dollars, overall in a sideways trading effect. Normally, the sideways phase is a good opportunity for the buyer to accumulate chips, with a large amount of chips accumulating at the lower end during this phase. Once the major players have finished accumulating chips, the next step is to break YAN PALACE's stock price away from its cost range, opening up profit potential. Therefore, from June 28th to July 9th, the company's stock price saw a continuous rise for seven trading days, with a maximum range of 52.16%. Then, from July 10th to July 15th, after a slight shakeout for a few days, the stock price once again showed an upward trend, ultimately pushing the company's stock price to a high of 15.34 Hong Kong dollars with a wave of "eight consecutive gains" following "three little white soldiers". The next part is as mentioned above, YANPALACE has entered a period of sideways fluctuations lasting for three months. By comparing the chip distribution charts on August 15 and November 12, it is not difficult to see that, during the continuous price increase in July, YAN PALACE had already formed a large profit-taking area in August, with a large number of profit-chips concentrated between 8.56 and 14 Hong Kong dollars, with a profit ratio as high as 90.87%; However, during the three-month sideways period, the main funds on one hand suppressed the market through some chips, and on the other hand, absorbed selling pressure chips. Until November 12, a double peak dense form had been formed, with the recent peak at the top continuously moving downwards, and the chips at the bottom gradually increasing, forming a process of multi-peak decline. At this time, the profit-taking interval is only left with 40.68%.It is worth mentioning that YAN PALACE's mid-term financial report for 2024 released earlier is not impressive. Although YAN PALACE's revenue reached 1.059 billion yuan in the first half of this year, an increase of 11.36% year-on-year, exceeding the 1 billion mark, at the same time, the company's net profit attributable to the current period was only 58.08 million yuan, a decrease of 42.54% year-on-year, and the net profit margin also dropped from 11.29% in 2023 to 5.67%. In comparison, from 2020 to 2023, YAN PALACE's net profit was 123 million yuan, 172 million yuan, 206 million yuan, and 212 million yuan respectively. Obviously, YAN PALACE's mid-term performance in 2024 has a significant gap from the previous expectations. This is clearly unfavorable for YAN PALACE, which is about to face the unlocking of its cornerstone shares. Against the backdrop of deteriorating fundamentals and weak market liquidity combined with insufficient absorption capacity, stock prices may experience significant fluctuations. At that time, YAN PALACE's real "unlocking challenge" may be coming.