Stock price has been falling for 9 consecutive months, SCIENTECH (02291) enters the "Trading Halt Countdown."

Since the announcement of the "controlling shareholder's reduction of holdings" in August last year, the stock price of SCIENTECH (02291) has entered a continuous downward trend. From the beginning of this year until now, the company's stock price has accumulated a decline of more than 25%. On May 14th, the intraday stock price of SCIENTECH fell to a new low of 10.94 Hong Kong dollars, setting a new record low for the listing, with a corresponding market value falling below 4 billion Hong Kong dollars. It is worth mentioning that after a long period of decline in stock price, the current stock price and daily average market value performance of SCIENTECH are significantly below the threshold of Hong Kong Stock Connect. With a critical point approaching where there is more than a month left before the end of the observation period of the latest round of adjustments for Stock Connect, the pressure for SCIENTECH to maintain its connectivity is increasing day by day. Can the stock price rise again after two highs and falls to achieve connectivity? After the announcement of the reduction in holdings by the controlling shareholder in August last year, the stock price of SCIENTECH plummeted rapidly after the opening, with a nearly 9% plunge within 1 minute; within half an hour, the stock price dropped by over 12% at the maximum. Finally, the company's stock price continued to decline throughout the day, closing down by 12.75%, with 27.60 Hong Kong dollars as the opening price becoming the highest point for SCIENTECH that day and in the subsequent phase. Since then, SCIENTECH has entered a downward cycle that has lasted for more than 9 months. From a technical point of view, the sharp drop on August 26th directly pulled the company's stock price from the upper BOLL line to the lower BOLL line, and then the "seven consecutive declines" caused the BOLL line to continue to widen downward. Although there were signs of rebound in September and October last year and in January this year, with the stock price showing clear impact or touching the upper BOLL line, there was no noticeable increase in trading volume support, and no effective solid candlestick breakthrough was formed, which technically belonged to a "false breakthrough" of the BOLL line indicator. Therefore, in the subsequent market, the stock price of SCIENTECH returned to the lower BOLL line, and continued to decline in between the narrowing BOLL line and the lower BOLL line. It is worth noting that on March 26th and May 19th this year, SCIENTECH displayed a noticeable long upper shadow line on the daily K chart, accompanied by significant increases in trading volume. Since both instances occurred while the company's stock price was deviating from the lower BOLL line upswing cycle and both occurrences were followed by 2-3 trading days of small positive candlesticks with shrinking volume, it is easy for investors to associate it with the technical pattern symbolizing the main fund's attack on the market, known as the "guiding star" in candlestick charting. From a classic perspective, the "guiding star" usually appears at a stock's cyclical bottom or at the beginning of a rise, indicating the main fund's testing of market stability and resistance before advancing upwards. Many investors may choose to follow a trend-following trading strategy based on this technical pattern. However, in the case of SCIENTECH, before the long upper shadow line appeared on March 26th, the company's stock price was in a long-term downtrend. Although the stock price broke through an important resistance level and quickly fell back on that day, the BOLL line did not open upwards, indicating an overall downward trend. The long upper shadow line more likely represents a "bear trap" in technical terms. When the stock price of the company once again showed a long upper shadow line on May 19th, there was a net outflow of 70.33 million Hong Kong dollars in intra-day funds on that day. It is worth noting that the next round of periodic adjustments for the Hang Seng Index and Hong Kong Stock Connect will be in September this year, with the results of the review to be announced on August 25th, and the review period will be from July 1, 2025, to June 30, 2026. Currently, SCIENTECH's average daily market value in this review period is 6.095 billion Hong Kong dollars, which is only 618 million Hong Kong dollars lower than the current market value threshold of 6.713 billion Hong Kong dollars. Considering that it is already late May, there are less than 40 days left before the end of the latest round of adjustments for the Hong Kong Stock Connect. Therefore, based on the data calculation, SCIENTECH needs to rise to 29.66 Hong Kong dollars in the remaining trading days to successfully maintain connectivity, with the target price for connectivity being 147.16% higher than the current price of SCIENTECH. Under the pressure of maintaining connectivity, would buying accelerate in the face of a potential rising trend? In fact, the recent stock price fluctuations of SCIENTECH are also related to the market's funding preferences and liquidity factors. Observing the past year, the overall increase in Southbound funds holding Hong Kong-listed pharmaceutical stocks has been about 2 percentage points. By March of this year, among the Hong Kong Stock Connect targets, there were 250 stocks with a Southbound funding holding ratio exceeding 20%, with Healthcare and Medical sector accounting for 54 of them. However, for Hong Kong-listed pharmaceutical stocks, Southbound funds can be both a "stabilizing factor" and a "double-edged sword." Recently, the sector preferences of Southbound funds have shifted significantly: Internet and banking sectors have attracted recent marginal increments of Southbound funds, while the pharmaceutical sector's share of total trading on the HKEX main board has fallen from 7% at the beginning of the year to a low point. The partial reason for the continuous decline in the stock price of SCIENTECH is precisely the collective adjustment in the current Hong Kong-listed pharmaceutical sector and the discounted liquidity. On the other hand, the Hong Kong Stock Connect Innovative Medicine ETF (520880) has accumulated net purchases exceeding 535 million yuan in the past 10 days, with the number of shares rising to a record high of 5.342 billion. The trend behind this indicates that although mainstream funds are flowing out of the medical sector, there are smart money players who are smart enough to enter against the trend at low levels. This signal is also good news for SCIENTECH. In fact, the recent trading activity in SCIENTECH's market has been significantly active, and this is driven by the support of Hong Kong Stock Connect funds. It has been observed that the proportion of Hong Kong Stock Connect holdings of SCIENTECH has significantly increased in recent days. Looking at the broker's trading data, in the past 20 days, the top three sellers of SCIENTECH are HSBC Hong Kong Shanghai, Morgan Stanley, and BNP Paribas, selling 1.2934 million shares, 0.9626 million shares, and 0.3060 million shares respectively; as for the buyers, Hong Kong Stock Connect (Shanghai) is the largest buyer, accumulating 1.064 million shares, followed by Hong Kong Stock Connect (Shenzhen) with 0.906 million shares bought. Based on the proportion of holdings, China Investment (Shanghai-Hong Kong Connect) and China Chuangying (Shenzhen-Hong Kong Connect) currently hold a 2.10% and 1.98% stake in SCIENTECH respectively. Despite the pressure on SCIENTECH to maintain connectivity, its stable fundamental performance makes its stock price potentially able to rebound significantly from an oversold position, which may be one of the reasons why Hong Kong Stock Connect funds choose to enter the market against the trend. Buying against connectivity pressure, what is the "northern money" playing at? Looking at SCIENTECH's fundamentals, based on the company's published performance for 2025, its current revenue is approximately 528 million yuan, an increase of 11.9% year-on-year; the net profit attributable to the parent company's shareholders is approximately 240 million yuan, a decrease of 2.4% year-on-year. Although on the surface there is an increase in revenue but not in profit, this is the performance report that SCIENTECH has handed over in the face of centralized procurement. Behind this financial report, the company's overall gross profit margin for 2025 is 84.66%, a decrease of less than 2 percentage points year-on-year. However, the main reason for the decrease in the company's gross profit margin is due to changes in the revenue structure. In 2024, degradable plugs accounted for about 30% of plug business, and in 2025, this proportion was further increased with a higher gross profit margin for degradable products compared to metal products by 10-15 percentage points. In other words, the gradually increasing proportion of revenue from degradable products "offset" some of the negative impact on the company's gross profit from the reduced price of metal products due to centralized procurement. Additionally, the company's cash flow "safety cushion" should not be overlooked. Data shows that the company's current cash and cash equivalents are 1.151 billion yuan, and the operating cash flow is 221 million yuan, which is basically equivalent to the company's current net profit, indicating that the company's cash collection capability is stable and sufficient to support daily operations. There is no immediate concern about "lack of funds for R&D" or "break in the financial chain." In the background of the market's tight liquidity combined with expectations of connectivity, SCIENTECH's current PE valuation is only 15.69 times, significantly lower than the industry average of 20.29 times, and significantly lower than the company's three-year valuation average by about 11%, placing it in the undervalued range. Although SCIENTECH faces significant pressure to maintain connectivity, its solid fundamental performance suggests that its stock price still has the potential for an oversold rebound. This may be one of the reasons why Hong Kong Stock Connect funds choose to enter the market against the trend.