The stock price rose nearly 10% against the market trend during trading hours. Can RECBIO-B (02179) break free from the liquidity trap in the critical year of commercialization?

Recently, the Chinese A-share market's Spring Festival effect has begun to show, with market sentiment warming and trading volume decreasing. On January 8th, the A-share market opened low and continued to decline, with the Shanghai Composite Index falling below 3200 points again. Under the negative sentiment, the Hong Kong stock market also showed a downward trend. As of the midday close on January 8th, the Hang Seng Index fell by 1.59%. In the field of healthcare stocks in the Hong Kong stock market, compared to the slight three-day consecutive decline in the Hang Seng Index, the performance of the Hang Seng Healthcare Index is obviously worse. Since hitting a high of 2565.93 points on December 10, 2024, this index has been falling all the way. On January 8th, the Hang Seng Healthcare Index fell by 2.46% to 2174.10 points at the midday close, resulting in a cumulative drop of 15.27% in the past month. However, despite the weak performance in the sector, Ruikang Bio, which has been trading sideways for nearly 2 months, suddenly saw a wave of upward trend in trading due to the company's recent successful 800 million yuan private placement and positive news of its self-developed new adjuvant recombinant herpes zoster vaccine REC610 completing Phase III clinical trials. On January 8th, Ruikang Bio's intraday increase once reached 9.8%, drawing market attention in the generally declining healthcare sector. A surge in liquidity Companies like Ruikang Bio, an A-share company that has no commercialized products and has yet to turn a profit, has faced severe liquidity issues in recent years. In 2023, Ruikang Bio had a total trading volume of 23,092,400 shares for the whole year, but by 2024, this figure had dropped sharply to 308,200 shares. For example, in December 2024, Ruikang Bio had only one trading day with a volume exceeding 50,000 shares, with most days seeing less than 10,000 shares traded. However, as a penny stock plagued by liquidity issues that distort the price-value relationship, Ruikang Bio's potential for appreciation shown amidst its adversity should not be underestimated. Observing from 10 October last year, when the company hit a low of HKD 7.3, Ruikang Bio's stock price has been in a consolidated period of over 2 months until December 20 when it began to move. Within three trading days, the stock quickly surpassed the previous high and reached a new high of HKD 9.50 on December 31. This round of price increase in Ruikang Bio has a clear feature: the increase in price is not accompanied by an increase in volume. Looking back to October 22, investors can see that, after fluctuations in September and October, Ruikang Bio, which already lacked liquidity, was close to becoming illiquid. On that day, the volume was only 2,000 shares, and the turnover rate was 0%. However, then a capital injection began cautiously into Ruikang Bio. On October 23, the trading volume increased slightly to 15,500 shares, reaching 43,500 shares on October 30. Although the company's stock price fluctuated slightly in the following month, the daily trading volume generally remained above 10,000 shares. Furthermore, on November 12 and November 28, the share volume of Ruikang Bio even reached 108,000 shares and 173,000 shares respectively. In fact, at this time, Ruikang Bio was in a bottom consolidation phase. After a long period of decline, the trading volume decreased to a minimum. The stock price volatility decreased, and the trading was light with few takers. Then the trading volume suddenly increased and substantially expanded within a few trading days. It can be seen that on November 12, the stock price of Ruikang Bio broke through the previous high of HKD 9.00 and volume increased, before pulling back. In general, this signals that the leading capital is accumulating positions, indicating their imminent participation. During the December rally, the main capital in Ruikang Bio changed its previous cautious approach and switched to a rapid rise strategy characterized by consecutive large positive candles. Usually, this approach is adopted by funds with strong financial strength that have accumulated enough chips at lower levels and control the market intensely. For example, on December 20, when the daily volume was just 2,500 shares, the stock price rose by 2.88%. This demonstrates the high level of market control prowess by the dominant capital. During this round of price increase, the dominant capital also employed significant pullbacks or shakeouts. Starting from January 3, the stock price fell for four consecutive trading days until January 8th, when the stock price initially rose but then sharply dropped in the afternoon, forming a large negative candlestick with heavy volume. This kind of operation by the dominant capital often causes short-term investors to leave due to panic. Generally, only a huge negative candlestick with significant volume indicates the exit of short-term investors, achieving the purpose of capital absorption by the dominant capital. However, with a volume of only 8,500 shares on that day, this shakeout did not reach its goal. If the recent movement of the stock price cannot "erase" this large negative candlestick and show a subsequent rise with higher volume, it means that this shakeout operation by the dominant capital has not yet concluded. The year 2025 will be crucial for commercialization For Ruikang Bio at this stage, commercialization is an unavoidable hurdle. Especially with the dim prospects for the commercialization of its new crown recombinant protein vaccine ReCOV, the nine-valent HPV vaccine has become the fastest progressing product in Ruikang Bio's pipeline. The company has already planned the timing for market application, intending to submit the nine-valent HPV vaccine for market approval to the National Medical Products Administration by 2025. Thus, the most critical task for Ruikang Bio at the moment is to progress with its research in a step-by-step manner while ensuring that its operations smoothly lead to the commercialization of the REC603 recombinant HPV nine-valent vaccine. Due to the heavy investment in the new crown vaccine before 2022, the commercialization time for the nine-valent HPV vaccine by the company has been slightly delayed. The "burning money in research" has become inevitable for Ruikang Bio. According to the company's disclosed data in the 2023 annual report, Ruikang Bio's research and development expenses for the period were 488 million yuan, a decrease of 31.91% year-on-year. This reduction led to a 27.00% year-on-year decrease in the company's operating expenses and a loss of 572 million yuan, shrinking by 22.55% year-on-year. Looking at the cash flow, in 2023, Ruikang Bio had a net outflow of 638 million yuan from operating activities. At the end of the period, the company held cash and cash equivalents totaling 835 million yuan. This means that by the end of 2023, the company's cash reserves were enough for "burning money in research" for less than 2 years, highlighting the urgency of the company's commercialization efforts.Nature. In this context, the importance of Rekobio receiving an 800 million investment is highlighted.According to reports, on November 11th of last year, Rekoo Biotech announced that it plans to issue up to 143 million domestic shares to Yangtze River Pharmaceutical at a subscription price of 5.59 yuan per share, raising approximately 800 million yuan (equivalent to a post-valuation of about 3.5 billion yuan for Rekoo Biotech). The funds raised, after deducting relevant issuance expenses, will be used for the research and development of herpes zoster vaccine products and to supplement operating funds. Regarding the reasons for this private placement, Rekoo Biotech stated that it is to further enhance the company's comprehensive competitiveness, increase risk resistance capabilities, supplement research and development funds for pipeline products, and promote stable and healthy business development. After completion of this private placement, the largest shareholder of Rekoo Biotech will change from founder Liu Yong to Yangtze River Pharmaceutical, with Yangtze River Pharmaceutical and Yangtze River Hong Kong holding 24.88% of Rekoo Biotech's shares. With the additional 800 million yuan raised through this private placement, Rekoo Biotech is expected to commercialize its HPV nine-valent vaccine product this year. However, the current domestic competition situation is significantly different from before. In terms of the current market penetration rate and competitive landscape of the domestic HPV vaccine market, the vaccination rate for eligible women aged 9-45 estimated by the Chinese Center for Disease Control and Prevention in 2020 was 2.24%. With the addition of domestic vaccine companies such as Beijing Wantai Biological Pharmacy Enterprise and Walvax Biotechnology in recent years, the market competition has become more intense, pushing vaccine prices back up while also increasing vaccination rates. According to Sinolink's estimation, by the end of 2023, the national HPV vaccine penetration rate will be around 19%. In October 2024, the National Health Commission's Maternal and Child Health Department announced that the free HPV vaccine policy covering 11 pilot provinces would reach approximately 40% of eligible girls nationwide (aged 13-14). Without a first-mover advantage in the female market, Rekoo Biotech's commercialization prospects for its nine-valent HPV vaccine may not be optimistic, but the male market could become an important opportunity for them. Globally, driven by factors such as increased penetration rates of the HPV vaccine in low- and middle-income countries and the expansion of vaccination coverage to eligible male populations, the global HPV vaccine market is expected to reach $10.52 billion and $16.82 billion in 2025 and 2031, respectively. According to Kaiyuan Securities' forecast, as the HPV vaccine successfully completes Phase III clinical trials and expands its indications to male populations, coupled with the increasing awareness of the target population for vaccination, the Chinese HPV vaccine market will continue to grow, potentially reaching 62.54 billion yuan in 2031. On January 8th of this year, MSD announced that Gardasil's multiple new indications have been approved by the National Medical Products Administration for use in males aged 9 to 26. As the first and currently the only HPV vaccine approved for use in males in China, the approval of MSD's Gardasil may provide some important insights for Rekoo Biotech, which is at a critical stage of commercialization and may determine the future valuation trend for Rekoo Biotech.