After the profit warning, why did Joinn Laboratories (06127) see its stock price rise nearly 90% in just one and a half months by hitching onto the rising Hang Seng Index?

On January 24, Joinn Laboratories (06127) disclosed a profit warning, expecting a year-on-year decrease in net profit attributable to the parent of approximately 77.8% to 85.2% for the 2024 fiscal year. Additionally, Joinn Laboratories also mentioned in the announcement: during the reporting period, the company's laboratories maintained a good operational status, but due to intensified industry competition, increased pressure to secure contracts, declining order prices, and squeezed profit margins, the gross profit margin decreased year-on-year, resulting in a corresponding decrease in net profit from laboratory services. Furthermore, the market prices of biological assets held by the company decreased during the reporting period, leading to a negative impact on performance due to changes in fair value of biological assets. The pressures of securing contracts, squeezed profit margins, and risks of falling prices have not been eliminated. For a CRO company, these challenges alone are enough for the market to "whip up a storm", but Joinn Laboratories has taken a different path. Observing the situation after January 27, Joinn Laboratories' Hong Kong stock price has been steadily climbing, reaching a high of 16.28 Hong Kong dollars during trading on February 27, with a closing price of 15.56 Hong Kong dollars on the same day. The increase in the range was as high as 85.24%, with a growth rate far exceeding the industry average. Despite the lackluster performance, Joinn Laboratories' stock price appears to have deviated from the traditional logic of the CXO industry recovery and entered the realm of asset revaluation. Behind the nearly 90% increase in a month and a half In terms of market sentiment, since Joinn Laboratories saw a significant increase in trading volume of 11.91% on November 4 last year, achieving a daily turnover of 181 million Hong Kong dollars on that day, the internal and external disagreements in the market have converged, with holders tending to wait for gains and not easily give up their holdings. Until February 20, the circulation of the substantial draft opinion on improving the drug pricing mechanism and measures for supporting innovative drugs for high-quality development in the second round of consultations resonated with the Class B Catalog and commercial reimbursement, benefiting the long-term development of high-quality innovative drugs. As a result, the CXOs and innovative drug stocks in both AH markets surged, boosting overall sentiment in the pharmaceutical industry. Looking at the emotional cycle, since January this year, the sentiment towards CXO targets in the Hong Kong stock market has been fluctuating around the freezing point, with internal and external perspectives remaining bearish, leading to low trading volumes. After "together for a long time, must part ways", before February 20, there was a clear increase in trading volume differences within the CXO sector, and the circulation of this important document became the catalyst for the surge in the CXO topic sentiment. It is not difficult to see that on February 20, many CXO targets in the Hong Kong stock market released heavy trading volumes to pull up large positive trends, achieving a long-awaited turnover internally and externally. Except for Asymchem Laboratories, the other CXO companies continued to rise the next day, cashing in on the emotional premium. Generally, market sentiment driven by news speculation rises quickly and falls just as quickly. On February 24 and 25, Pharmaron Beijing and Hangzhou Tigermed Consulting continued to fluctuate and decline. In contrast, Joinn Laboratories saw two days of shrinking trading volumes on the 24th and 25th, accelerating internal agreement, and closing up 3.31% on the 25th, exceeding market expectations. Therefore, it gained market sentiment premium the next day, with the stock price rising by 11.21%, widening the gap with other industry peers. Buying intentions of the southbound funds? At the end of September last year, there was a global wave of revaluation of assets priced in RMB, benefiting the Hong Kong stock market. At the beginning of this year, the emergence of Deepseek ignited the market again, accelerating the revaluation of China's new quality production capacity valuation system globally. The most direct manifestation is the Hang Seng Tech Index, which has risen more than 40% in the past one and a half months since its launch on January 14 this year, leading the entire AH markets out of the early year market boom led by new quality production concepts such as AI, computing power, and humanoid Siasun Robot&Automation. Data shows that in February, the cumulative net purchases of southbound funds in Hong Kong stocks reached 152.8 billion Hong Kong dollars, setting a new monthly high in the past four years and second only to the net purchases of 310.6 billion Hong Kong dollars in January 2021, which is the second largest single-day net purchase in history. In addition, in just two months since 2025, the total net purchases of Hong Kong stocks have reached 278.4 billion Hong Kong dollars, exceeding the full-year net purchases in many previous years. The emotional premium in this round of market rally is also reflected in Joinn Laboratories' Hong Kong stock price. Over the past 60 days, China Creation has been the largest buyer of Joinn Laboratories, with a net purchase of 8.8737 million shares. Furthermore, since the beginning of this year, southbound funds have been increasing their holdings in Joinn Laboratories, with the highest stake reaching 40.24%. The path of increasing holdings by southbound funds seems to show different logics at different points. In the period from the beginning of the year to February 10, southbound funds were "buying more as it fell" for Joinn Laboratories, focusing on low-cost holdings. However, after February 20, southbound funds started to "buy more as it rose" for Joinn Laboratories, showing strong buying intentions. The change in the logic of holdings by southbound funds for Joinn Laboratories may be a reflection of the change in the logic of low-valuation high-quality asset allocation in the Hong Kong stock market. As mentioned earlier, overseas funds are accelerating the acquisition of massive undervalued high-quality assets priced in RMB, and the increase in southbound funds may be a form of "resistance" in the asset allocation landscape. Additionally, for Joinn Laboratories itself, although the company issued an annual profit warning, the content shows a turnaround in net profit attributable to the parent and net profit from laboratory services.Come see, Joinn Laboratories' net profit attributable to shareholders has actually started to decrease from the second quarter of this year, and the latest financial report shows that it has stopped falling and started to rise again. As for the market's concerns about the monkey price losses, they are also narrowing further, indicating that its risks are being cleared.During the overall downturn in the industry, Joinn Laboratories, as a leading company, has shown a stronger resilience against the trend, exceeding market expectations, and obviously presenting a larger margin of safety for investment. In addition to its solid fundamentals, the logic behind the Southbound funds allocation to Joinn Laboratories may also involve "speculation on AI concept". It is understood that in July last year, Joinn Laboratories announced that the digital pathology assistant analysis system developed in cooperation with Shengzhi Intelligence has been widely recognized in practical application. The company also stated that, based on the completion of digital transformation, it will continue to focus on the AI field, introducing comprehensive AI assisted diagnostic technology, expanding the application scenarios of AI technology in the CRO field, and providing intelligent solutions for customers to improve research and development efficiency. It is reported that Joinn Laboratories is currently one of the few CXO leading companies in the AH region that explicitly engage in AI-assisted business, which coincides with the bull market initiated by the Deepseek concept, making it a "AI medical concept stock" on the current hot Hang Seng Technology Index, forming a resonance.