A-shares are trading at a 60% discount, heparin is about to emerge from a downward cycle. Shenzhen Hepalink Pharmaceutical Group (09989) is now showing a bottoming out signal?

On October 30th of this year, Shenzhen Hepalink Pharmaceutical Group (09989) disclosed the company's third quarter financial report for 2025. The financial report shows that in the first three quarters of this year, the company achieved operating income of 4.194 billion yuan, a year-on-year increase of 3.09%. Net profit attributable to shareholders of the listed company was 554 million yuan, a year-on-year decrease of 29.04%. Compared to the mid-year report, both revenue and net profit of Shenzhen Hepalink Pharmaceutical Group have decreased year-on-year, but the current quarter's performance showed a slight improvement. After the financial report was released, Shenzhen Hepalink Pharmaceutical Group's Hong Kong stocks saw a "mini high" in the next two weeks before November, with a slight "five-day consecutive increase" from November 7th to November 13th. However, the rise in stock prices did not lead to further volume and price resonance. After a brief market sentiment fermentation, Shenzhen Hepalink Pharmaceutical Group's stock price once again entered a technical downward cycle, falling straight from the upper BOLL line to the lower line in 6 trading days, oscillating at the low between the middle and lower lines, and the stock price continued to decline. After 4 months of oscillation and decline, signs of bottom fishing at the low point began to emerge. Taking a longer-term view, Shenzhen Hepalink Pharmaceutical Group's decline began at the end of July of this year. On July 21, after the stock price of Shenzhen Hepalink Pharmaceutical Group reached a year-high of 7.26 Hong Kong dollars, a week of top and a "four consecutive declines" triggered a downtrend. From a technical perspective, especially after August, Shenzhen Hepalink Pharmaceutical Group's stock price has been mechanically oscillating along the middle and lower BOLL lines, with the BOLL lines gradually shrinking, and the market entering a low consolidation phase. Although Shenzhen Hepalink Pharmaceutical Group's stock price experienced a brief rally after the release of the third quarter report this year and touched the upper BOLL line again in the first half of November, it still continued the previous state of low volume, without significant increase in trading volume support, and failed to form a effective solid candlestick breakthrough, technically belonging to a "false breakthrough" of the BOLL line index. Due to consistent wait-and-see attitude off the market, Shenzhen Hepalink Pharmaceutical Group ended the "five consecutive increase" trend on November 13, and the stock price fell again, returning to the lower BOLL line after 6 consecutive days of fluctuations, and then underwent a bottom consolidation adjustment between the middle and lower BOLL lines. In other words, the current lackluster market trading situation does not support short-term intervention by investors from a technical perspective. Furthermore, due to the modest improvement in the company's third-quarter performance, which had already been reflected in the second week of November, Shenzhen Hepalink Pharmaceutical Group's current market has entered a "calm period" lacking positive catalysts. However, it is precisely during this subdued period that the market's Hong Kong Stock Connect has once again shown signs of bottom-fishing for Shenzhen Hepalink Pharmaceutical Group. Looking closely at the stock holdings investment trajectory of the Hong Kong Stock Connect funds in Shenzhen Hepalink Pharmaceutical Group, investors can easily see that unlike the consistent "buy more as it falls, sell more as it rises" approach, the Hong Kong Stock Connect funds generally trade along the rising and falling cycles. But in the recent inactive trading market of Shenzhen Hepalink Pharmaceutical Group, the stock holdings by the Hong Kong Stock Connect funds have significantly increased. From recent broker trading data, in the past five days, the top five sellers of Shenzhen Hepalink Pharmaceutical Group were Citibank, BNP Paribas, Morgan Stanley, Merrill Lynch, and HSBC, selling 578,400 shares, 198,600 shares, 134,500 shares, 48,500 shares, and 42,500 shares respectively. Looking at the buyers, China Investment (Shanghai-Hong Kong Connect) and China Chuangying (Shenzhen-Hong Kong Connect) were the top two buyers of Shenzhen Hepalink Pharmaceutical Group, buying 586,500 shares and 150,500 shares respectively. Calculated by percentage of ownership, the total percentage of Shenzhen Hepalink Pharmaceutical Group's holdings by Hong Kong Stock Connect funds has reached 43.14%. Funds are playing a game, is the heparin cycle on the rise? It is understood that the heparin industry is a cyclical industry driven by the pig cycle. As an indispensable classic first-line clinical anticoagulant drug, human heparin is mainly extracted from pig small intestinal mucosa. As China is the world's largest pig breeding and slaughtering country, with breeding and slaughtering accounting for more than 50% of the global total, it has established the foundation for China as the world's largest supplier of heparin raw materials. Statistics show that China has over 70% of the world's pig small intestine resources, and in 2022, the global sales of crude heparin reached 3.45 billion US dollars, of which China accounted for around 1.725 billion US dollars. This basic market structure indicates that during a complete heparin cycle, which is generally 3-4 years, the cycle is essentially synchronized with the pig cycle. This cycle can be summarized as follows: "When pig prices are high, heparin prices are high; conversely, when pig prices drop, heparin prices drop". Referring to historical data, heparin prices are highly sensitive to changes in supply and demand. In recent years, there have been multiple rounds of large fluctuations. For example, starting in the second half of 2018, African swine fever led to a significant reduction in the global pig population due to a decrease in sow stocks from 44 million to 28 million, a 45% reduction, combined with a contraction in consumption due to the epidemic, resulting in a special situation of "sharp drop in supply + sudden drop in demand". As a result of the cycle linkage, the above changes led to a tight supply of heparin raw materials. In addition, the global public health event in 2020 led to a significant increase in clinical use of heparin, resulting in a sharp increase in heparin raw material prices as a result of various factors, such as the sharp drop in global pig production. Prices soared from around 2000 US dollars/kg to a peak of 15849 US dollars/kg, representing an increase of approximately 700%. To ensure normal market supply, a series of strong stimulus policies have been successively introduced, resulting in a resonance between policy dividends and high profits in the market (average profit per head exceeding 1500 yuan in 2021), triggering a frenzy of capacity expansion. By June 2022, the national sow inventory reached 42.77 million heads, an increase of 12.6% from the end of 2020, with the total pig inventory exceeding 450 million, reaching a historic high. This is the main reason for the current downturn in the pig cycle and heparin cycle. Although the current pig market is still in a period of "strong supply, weak demand," since the beginning of this year, domestic pig "deintegration" control policies have shifted from "flexible guidance" to "rigorous attack," with increasing policy measures and market optimism about the bias towards the decrease in sow capacity. It is expected that driven by the lag effect of capacity reduction, domestic pig prices are expected to rebound to the breakeven point of the industry by May next year, and enter a moderate upward trend in the second half of next year. Against the background of an expected strengthening of the pig cycle, according to Wind data, the export unit price of heparin raw materials in China in 2024 is expected to decrease due to the impact of raw material prices, but sales volume will increase. In January 2025, the export price is expected to increase by 27% compared to the previous month. Since the second half of 2024, the heparin raw material export price has shown obvious signs of bottoming out and gradually rising. This expectation has already been reacted to in the A-shares of Shenzhen Hepalink Pharmaceutical Group. Currently, the A-shares of Shenzhen Hepalink Pharmaceutical Group are priced at 12.04 yuan, which is an 81.63% increase from the lowest point of 6.64 yuan last year. In comparison, the Hong Kong stock price of Shenzhen Hepalink Pharmaceutical Group has also seen a large increase in the same range, but it is still discounted by 60% compared to the A-share price. Furthermore, from a valuation perspective, the PS valuation of Shenzhen Hepalink Pharmaceutical Group's Hong Kong stocks is only 1.32 times, far lower than the industry average of 2.71 times. For investors, in the context of the gradual clarity of the heparin cycle reversal, increasing holdings through the Hong Kong Stock Connect could serve as an indicator of market sentiment.