Stable annual report cannot win market favor, when will GAUSH MEDITECH's (02407) stock price rebound?

Although the domestic ophthalmology medical industry has maintained stable growth in recent years, many enterprises in the ophthalmic device sector are facing short-term performance pressure under the influence of centralized procurement. Recently, several ophthalmic device companies in the AH region disclosed their annual performance for 2025. Among them, Autek China Inc. (300595) experienced a significant decline in net profit, while Shanghai Haohai Biological Technology (688366) saw a decrease in revenue and profit. The reasons for the performance pressure are mostly related to the impact of centralized procurement, which also makes GAUSH MEDITECH (02407) appear somewhat out of place. It was recently revealed that GAUSH MEDITECH has disclosed its annual report for 2025. The financial report shows that the company achieved a revenue of 1.38 billion yuan during the period, a decrease of 3.36% compared to the previous year. At the same time, the profit attributable to shareholders for the period was 96.189 million yuan, an increase of 4.11% year-on-year. Compared to many other ophthalmic device companies, GAUSH MEDITECH still achieved a steady growth in net profit in 2025. Although the company's revenue also experienced a decline, the changes in revenue structure highlighted in the report still make it praiseworthy. Transition from second-hand distributor to self-developer and producer In GAUSH MEDITECH's IPO prospectus in 2022, the company clearly positioned itself as a "primary distributor of distributed products." At that time, GAUSH MEDITECH's product portfolio included 129 products and it was the only ophthalmic company in China at the time that could cover seven sub-specialties in ophthalmology: fundus diseases, cataracts, glaucoma, refractive errors, optometry, ocular surface, and pediatric ophthalmology. However, in reality, many of GAUSH MEDITECH's products were acquired through agencies and acquisitions. According to data disclosed in the prospectus, from 2019 to 2021, GAUSH MEDITECH's sales revenue from distributed products were 986 million yuan, 793 million yuan, and 811 million yuan respectively, accounting for 98.9%, 97%, and 72% of the company's total revenue at the time. In comparison, the revenue contribution from self-developed varieties was far less than the business of second-hand distribution. In addition to the revenue contribution ratio, from 2019 to 2021, GAUSH MEDITECH's research and development expenses were 2.7 million yuan, 3.1 million yuan, and 23.5 million yuan respectively, corresponding to revenue percentages of only 0.2%, 0.3%, and 1.8%. This also shows that self-developed and produced products were not the core business of the company at the time. However, in 2025, GAUSH MEDITECH's revenue structure underwent significant changes. Among the company's total revenue of 13.8 billion yuan for the period, revenue from medical consumables was 6.14 billion yuan, a year-on-year increase of 15.76%; revenue from medical devices was 5.13 billion yuan, a year-on-year decrease of 22.83%; in addition, revenue from the company's own technical services business for the period was 2.38 billion yuan, a year-on-year increase of 5.3%. It can be seen that, during the reporting period, medical consumables surpassed ophthalmic medical devices on the revenue side, becoming the primary source of GAUSH MEDITECH's revenue. In the financial report, GAUSH MEDITECH pointed out that the growth of medical consumables business was mainly due to the rapid development of artificial crystal business and the synergistic efforts of a diversified ophthalmic medical consumables product portfolio. Breaking down the revenue details of the company, revenue from artificial crystals was a key source of income for GAUSH MEDITECH's own products for the period. The financial report shows that revenue from the company's own products for the period was approximately 4.29 billion yuan, an increase of about 14% year-on-year, accounting for 38.1% of the company's total revenue from sales. Among them, the artificial crystal as the main growth driver had a global revenue of 359 million yuan in the period, an increase of about 13% year-on-year. Its domestic market sales volume and revenue both achieved double-digit growth, making it the company's largest product line in China, mostly due to the implementation of the artificial crystal national centralized procurement policy which increased customer coverage and usage. Statistics show that currently, GAUSH MEDITECH has 7 types of self-owned artificial crystals sold in the domestic market, with 4 of them already included in the national procurement catalog. After the implementation of the national procurement policy in the first half of 2024, the sales volume of the artificial crystals included in the procurement increased by more than 50% compared to the previous period, demonstrating the positive advantage of the "value for volume" strategy for GAUSH MEDITECH products. From the perspective of research and development investment, in 2025, GAUSH MEDITECH's research and development expenses reached 92.58 million yuan, an 18% increase year-on-year, with research and development expenses accounting for 6.7% of total revenue, marking a significant increase compared to before. Why doesn't the market value the turnaround in performance? Although from a financial data perspective, GAUSH MEDITECH's annual performance is commendable, the secondary market does not seem to "buy" this financial report. Observing the stock price of GAUSH MEDITECH since it reached a high of 9.30 HKD per share on November 5 last year, it has been steadily declining. From a technical perspective, the company's stock price has been running along the lower BOLL line during this period, with daily trading volume at times falling below 10,000 shares, indicating a sluggish market sentiment. In 2026, GAUSH MEDITECH's stock price has continued its downward trend, despite briefly surging to the mid BOLL line on several occasions, but with volume lacking, making it difficult to reverse market sentiment. As a result, the stock price fell to a low of 5.12 HKD per share on March 12 this year, with trading volume once again dropping to 15,700 shares. Given the continuous downward trend in the stock price over the past month, the sudden collapse in trading volume on that day signaled a weakening of bearish forces in the market. In addition to the ongoing turbulence in the Hong Kong stock market, funds have been shifting from technology to defensive sectors such as energy and healthcare, which has added to GAUSH MEDITECH's undervalued stock price. As a result, the company's stock price has seen a new round of technical rebound, surging over 20% on March 25, directly pushing the stock price to the upper BOLL line. With the support of rising volume and price, the company's stock price's RSI indicator also reached around 80, a level not seen in a long time. However, this strong upward trend is clearly unsustainable. Looking at the distribution of chips, the long-term downward trend in stock prices has trapped the majority of chips in the market, with nearly 80% of chips concentrated in the 70% and 90% overlap areas, and the largest chip peak clustering around 9 HKD per share, significantly higher than the average chip cost and pressure levels. Therefore, the surge on March 25 increased selling pressure in the market. On March 26, trading volume of GAUSH MEDITECH stocks significantly dropped compared to the previous day, indicating a weakened enthusiasm for off-market funds, with increased alignment among off-market participants hinting at a more speculative and cautious sentiment. Despite demonstrating the optimization of its revenue structure in the 2025 interim report, the market already had expectations for its annual performance. Therefore, a stable but not exceeding expectations financial report is not enough to convince hesitant off-market players. As a result, after the annual report was released, GAUSH MEDITECH's stock price continued to decline for 2 consecutive trading days on March 27 and 28, dropping more than 8%. The company's stock price even hit a low of 5.01 HKD per share on April 8, with a maximum decline of 20.73%. It is worth mentioning that although GAUSH MEDITECH has been included in the stock connect program for a year, the fund flow from the Hong Kong stock connect has been one of the main selling pressures for the company's stock in recent days. According to broker trading data, over the past 5 days, the top five selling positions of GAUSH MEDITECH were held by Stock Connect (Shanghai), Citibank, HSBC Hong Kong, OCBC Bank, and BNP Paribas, selling 75,200 shares, 46,100 shares, 33,800 shares, 31,900 shares, and 31,600 shares respectively. However, compared to the continuous selling by Stock Connect funds, the biggest problem facing GAUSH MEDITECH is actually the depletion of liquidity. Since joining the stock connect program, the liquidity of the company's stock has visibly slowed down. Data shows that in February, March, and April last year, GAUSH MEDITECH's monthly stock trading volumes were 13.61 million shares, 8.79 million shares, and 2.12 million shares respectively. Comparing February before joining the stock connect program and April after joining, GAUSH MEDITECH's monthly stock trading volume has dropped significantly by 84.39%. By this year, the company's stock trading volume in the first quarter had dropped to the lowest of only 405,900 shares per month.