HAICHANG HLDG (02255) suspension report: A "fake whale shark" causing stock prices to plummet by 30%?

HAICHANG HLDG02255stock price is undergoing a brutal "A-shaped kill". It is noted that on the morning of November 18th, HAICHANG HLDG's stock price "flash crashed" at the opening, dropping to as low as HK$0.44, with a peak decline of over 31% during the trading session. Since reaching a short-term high of HK$1.04 on October 8th, HAICHANG HLDG's stock price has fallen by nearly 60%. At noon on November 18th, HAICHANG HLDG issued an announcement stating that trading of the company's shares would be suspended from 1:56 pm on the same day, but did not disclose the reason for the suspension. Public opinion turmoil follows one after another. From a news perspective, HAICHANG HLDG has truly entered a "troubled autumn". In October, there were rumors in the market that the company would sell assets, privatize, and the controlling shareholder would sell shares. In response, HAICHANG HLDG issued a clarification announcement on October 27th. The announcement pointed out that the company currently has no plan to sell assets, and the controlling shareholder currently has no plan to privatize the company. Regarding the rumors of the controlling shareholder selling shares, the company and the controlling shareholder will examine further opportunities to optimize the shareholder and capital structure based on maximizing the interests of the company, but there is currently no agreement reached with any investors on selling shares. The company will make further announcements when appropriate. Under the impact of the above rumors, as of the close on October 27th, HAICHANG HLDG's stock price had fallen by over 30% from its peak on October 8th. After the company issued a clarification announcement, the stock price temporarily stabilized but the "turbulence" resurfaced. In recent days, the topic of "exhibiting fake whale sharks in a large oceanarium" has sparked heated discussions on the internet. The reason is that during the "Golden Week" period, visitors at a certain marine world in China found that the whale shark they were observing was not a real whale shark, but an "artificial whale shark", which has caused dissatisfaction among many tourists. According to media reports, the artificial whale shark is not an isolated case, with at least 5 artificial whale sharks currently on the market, and HAICHANG HLDG currently only has one live whale shark in its 7 projects. From an economic perspective, it is reasonable for marine parks to be cautious about holding expensive and fast-depreciating "biological assets" such as orcas and whale sharks. Marine parks often struggle to provide a comfortable living environment similar to the natural habitat of whale sharks, which seriously affects the health and lifespan of the whale sharks. Usually, in natural environments, whale sharks can live for over 70 years, but in captive conditions, the average lifespan is only 5 years. In this context, using "bionic organisms" to replace live organisms in marine parks reflects the capital's pursuit of profit. However, if this affects the visitor experience, it may not be a long-term solution. Professionals also point out that the "fake whale shark" incident is not just a tourist dispute, but also reflects the overall survival dilemma of marine theme parks. Deeply mired in loss, cost reduction and efficiency improvement are imminent. Taking HAICHANG HLDG as an example, under the impact of the pandemic, the company's sales gross margin plunged from over 45% before the pandemic to -11.05% in 2020; in 2022, the company's sales gross margin fell further to -35.15%. From 2020 to 2023, the company's net profit attributable to equity holders was -1.478 billion yuan, 8.45 billion yuan, -1.396 billion yuan, and -0.182 billion yuan. In the first half of 2024, HAICHANG HLDG has not yet reversed its losses, achieving revenue of 800 million yuan, a net loss of 8.4 million yuan; the sales gross margin is 24.4%, a decrease of 2.7 percentage points year-on-year. Under performance pressure, HAICHANG HLDG's financial leverage ratio is also rising further. As of June 30, 2024, the company's net debt ratio was 197.5%, up 15 percentage points from 182.5% as of December 31, 2023. To reverse the downturn in fundamentals, HAICHANG HLDG undoubtedly needs to make major efforts to reduce costs and improve efficiency. Currently, HAICHANG HLDG is undergoing a transformation in its business model. The company disclosed in its mid-year report for 2024 that it is expanding the second phase of the Shanghai HAICHANG HLDG project through a light-asset model. This project is developed using the Operations-as-a-Service (OAAS) model, where partners are responsible for land acquisition and investment construction; HAICHANG is responsible for operations and management, and realizing revenue. The second phase of the Shanghai HAICHANG HLDG project is expected to open in 2025. In addition, HAICHANG HLDG also pointed out in its 2023 annual report that in order to reduce dependence on rare animals and promote the commercial application of bionic technology, the company has also developed bionic whale sharks, bionic stingrays, bionic Yangtze River dolphins, and other bionic organisms, which can be used for popular science, scientific product output, and entertainment product output. It should be noted that with the outbreak of the "fake whale shark" incident, the public's acceptance of marine parks using "bionic organisms" instead of live organisms clearly needs to be improved, and the inherent operational risks should not be ignored. The long-term downward trend of HAICHANG HLDG's stock price indicates that many investors are choosing to avoid risks, but in the game of "the poison of others is honey to me," investors who take a contrarian approach and "bottom fish" are not uncommon. Data shows that as of November 15th, the Hong Kong Stock Connect held 912 million shares of HAICHANG HLDG, an increase of 91 million shares from October 15th, bringing the shareholding ratio to 11.23%. Perhaps southbound funds believe that HAICHANG HLDG's controlling shareholder will stick to and develop this "family business" and may be able to reverse the trend of losses in the future.