Buying low on Shenzhen Hepalink Pharmaceutical Group (09989) for two consecutive months, will the Hong Kong Stock Connect funds soon witness the reversal of the heparin cycle?

Since the second quarter of this year, the stock price of Shenzhen Hepalink Pharmaceutical Group (09989) has been continuously declining, with a drop of nearly 20% within the period. The continuous decline in stock price is attributed to the pressure of prices in the heparin industry chain and overseas policy risks, which have become important reasons for the outflow of funds in the market. However, the continuous decline in stock price has also caused the profit ratio of internal chips of Shenzhen Hepalink Pharmaceutical Group's Hong Kong stock to drop below 0.1% at one point. The persistently low trading volume also suggests that the short selling in the market is nearing exhaustion. Against this backdrop, the continuous bottom-fishing of Hong Kong Stock Connect funds over the past 2 months may have become an important force for the subsequent rebound in the stock price of Shenzhen Hepalink Pharmaceutical Group. The downward trend in the heparin cycle resonates with overseas policy risks. Looking back over time, the current downward trend of Shenzhen Hepalink Pharmaceutical Group's stock price began at the end of July last year. After hitting a year-high of 7.26 Hong Kong dollars on July 21st, the stock price of Shenzhen Hepalink Pharmaceutical Group experienced a week of trading at the top followed by a "four consecutive declines" to trigger the downward trend. The first phase of the decline in the stock price of Shenzhen Hepalink Pharmaceutical Group began in late July last year and lasted for about 2 months until it bottomed out on September 26 last year. During this period, the stock price of Shenzhen Hepalink Pharmaceutical Group basically fluctuated mechanically along the lower middle track of the BOLL line, with the BOLL line gradually shrinking. In the second phase, the market entered a low-level sideways shock market, lasting until January 28th of this year. After a sharp rise of over 8% on January 29th and the formation of a large bullish candlestick, the stock price of Shenzhen Hepalink Pharmaceutical Group's Hong Kong stock began a new round of decline. Investors can easily see that from January 29th to March 20th this year, the company's stock price experienced a continuous downward trend, with a decline of 11.48% within the period, and the core driving factor came from a resonance of the company's performance decline and competitive pressure in the industry. Firstly, the company's performance forecast for 2025 shows that the net profit attributable to shareholders decreased by 41.71%-56.09% year-on-year, mainly due to a 1.98 billion yuan investment loss (accounting for about 50% of net profit) resulting from the failed development of the affiliate Resverlogix. Although the non-recurring net profit increased by 42.78%-81.43% year-on-year, the substantial provision for non-recurring gains and losses somewhat undermined market confidence. Secondly, the heparin industry also faced structural challenges within the period: competition from competitors such as Yantai Dongcheng Biochemicals and Hebei Changshan Biochemical Pharmaceutical, newly approved by the U.S. FDA, entering the market led to a 20% month-on-month decrease in export prices. The U.S. government's imposition of a 15% temporary tariff further squeezed profit margins; although Shenzhen Hepalink Pharmaceutical Group's U.S. factory could partially circumvent the tariff, the overall industry valuation center moved downwards to some extent. After the market digested the above negative news, signs of the stoppage of the decline of Shenzhen Hepalink Pharmaceutical Group's Hong Kong stock were evident, and the trend turned into a sideways shock. However, the continuous resonance of price pressure in the heparin industry chain and policy risks led to another nearly 20% drop in the stock price of Shenzhen Hepalink Pharmaceutical Group in the second quarter of this year. It is understood that the average price of heparin API exports decreased by 20% year-on-year in 2025, directly leading to the company's raw material business gross margin plummeting by 13.6 percentage points to a historical low of 15.7%. Meanwhile, Morgan Stanley also pointed out in a research report in April that intensifying industry competition resulted in low visibility for current price recovery, indirectly leading to a pessimistic outlook in the market in the short term for the company's contribution to Shenzhen Hepalink Pharmaceutical Group's future profits. In addition, the implementation of the EU "Key Drug Acts" in May this year also caused market concerns to some extent. The law requires public procurement to prioritize active pharmaceutical ingredients produced locally in the EU, while Shenzhen Hepalink Pharmaceutical Group earns 90% of its income from overseas markets, with Europe accounting for over 60% of the sales of formulations. Investors are concerned that the company's main product, enoxaparin sodium, may face pressure on market share overseas, leading to this expectation being reflected in the company's stock price subsequently. Hong Kong Stock Connect Funds bottom-fishing for 2 consecutive months However, during this period of downturn this year, the Hong Kong Stock Connect funds in the market have once again made efforts, showing signs of bottom-fishing for Shenzhen Hepalink Pharmaceutical Group. Looking closely at the holding investment trajectory of the Hong Kong Stock Connect funds in Shenzhen Hepalink Pharmaceutical Group, investors can easily see that since the beginning of this year, the trading logic of Hong Kong Stock Connect funds towards the company's Hong Kong stocks leans more towards "buying more as it falls" on the left side. Furthermore, the willingness of Hong Kong Stock Connect funds to hold stocks has also shown a significant increase this year. Looking at the broker trading data from the past two months, the top five selling seats for Shenzhen Hepalink Pharmaceutical Group are Citigroup, HSBC, Morgan Stanley, Shenwan Hongyuan Group, and CICC, selling 2.5139 million shares, 2.0829 million shares, 1.5625 million shares, 0.5275 million shares, and 0.2995 million shares, respectively. As for the buyers, China Investment (Shanghai-Hong Kong Stock Connect) and China Chuangying (Shenzhen-Hong Kong Stock Connect) are the top two buyers of Shenzhen Hepalink Pharmaceutical Group, purchasing 2.7755 million shares and 2.0815 million shares respectively. Furthermore, data shows that from April this year to June 11th, the holding ratio of Hong Kong Stock Connect funds in Shenzhen Hepalink Pharmaceutical Group's Hong Kong stocks has continued to rise, exceeding 50% and reaching 50.33%, with a holding quantity of 111 million shares, corresponding to a holding market value of 438 million Hong Kong dollars. The reason why the Hong Kong Stock Connect funds choose to continue to increase their holdings may be due to the possibility of an upward heparin cycle after the game. Statistics show that China has over 70% of the world's pig intestine resources. The global sales of crude heparin products reached 3.45 billion U.S. dollars in 2022, with China accounting for around 1.725 billion U.S. dollars. This is the fundamental pattern of the heparin supply side. This market pattern indicates that unlike the weak cyclicality of heparin compared to other pharmaceutical industries, a complete heparin cycle is basically synchronized with the pig cycle, usually lasting 3-4 years. This cyclicality can be summarized as "when pig prices rise, heparin is expensive; when pig prices fall, heparin falls." Although the pig market has been in a state of "strong supply and weak demand" in the past few years, with the policy on controlling "internal inversion" of domestic pigs shifting from "soft guidance" to "rigid breakthrough" last year and the increasing policy efforts, the market also becomes increasingly optimistic about the adjustment of mother pig production capacity. Market expectations are that with the driving force of the lagging effect of the reduction of production capacity, since May this year, the number of sows and pigs inventory in China has been declining simultaneously, showing a clear differentiation in the adjustment of production capacity. Data shows that in May this year, the number of sows and pigs inventory in China declined month-on-month. Although the number of sows continued to decrease in May, the rate of decline narrowed, with a decrease of 0.09%. The decline in the number of pigs inventory in May expanded, from a decrease of 0.43% in April to 1.23%. From the perspective of cycle transmission, the overall number of sows in China was at a relatively low level around 4-5 months ago, directly leading to a decline in the number of newborn piglets in May and a contraction of incremental production capacity in the industry. Guided by this trend, the market expects that after June this year, the domestic pig supply side may continue to tighten, and the number of pig inventories is expected to steadily decline. This indicates that the subsequent supply-demand pattern in the domestic pig market and price trends may gradually adjust as production capacity continues to be cleared. This also indicates that pig prices are expected to continue to rise in the future, approaching the industry's breakeven point, with a growing probability of a mild upward trend in the second half of the year. With the expectation of a stronger pig cycle, the reversal of the heparin cycle will gradually become clearer. The low-level ambush of Hong Kong Stock Connect funds in Shenzhen Hepalink Pharmaceutical Group may be based on the above logic.