HIGHTIDE-B (02511): Over 30% increase in just 5 days, is the discounted placement a miraculous recovery or a deadly poison?

On June 26, 2025, HIGHTIDE-B (02511) announced that it plans to issue new shares at a price of HKD 2.21 per share, representing an approximate 15% discount. The share placement was completed on July 7 of the same year, comprising a total of 56.555 million shares, raising net proceeds of HKD 131 million. It was observed that during this round of placement by Junshengtai Pharmaceuticals, the companys stock price not only did not fall below the placement price from the announcement to the completion of the placement, but actually increased by approximately 8.9%; after completing the placement, the stock price surged by 29.35% within 4 trading days. On August 7, 2026, Junshengtai Pharmaceuticals announced that a new round of placement of 98.71 million shares had been completed, raising approximately HKD 222 million. On the same day, the companys stock price rose significantly by 16.84%, accumulating a 30.77% increase over 5 trading days. Are market investors betting on an arbitrage opportunity following the new round of share placement? Why did stock prices retract over 40%, causing fluctuations in market sentiment? Since reaching a peak of HKD 4.72 on May 5 of this year, Junshengtai Pharmaceuticals' stock price began a nearly two-month-long downward trend, only stabilizing around July 30, with the price retraction reaching 44.81%. From a market perspective, it can be seen that after the stock price hit the upper Bollinger Band on April 21, there was indeed a trend of following the sectors decline. Under a four-day downtrend, the stock price approached the midline of the Bollinger Bands but later experienced a sideways stop and a counter-trend rebound with three up days, with both volume and price rising to push the stock price to a temporary high. The core driving factor was the companys 2025 annual report disclosed after hours on April 29. Although the report showed a significant 73.26% year-on-year decrease in revenue, the sharp 54.76% reduction in research and development expenses resulted in a net loss of RMB 245 million, a 35.84% narrowing year-over-year. As an unprofitable 18A company, the positive trend in cash status became the primary reason for the short-term rebound in stock price at that time. However, after rapidly breaking above the upper Bollinger Band on May 4 and 5, Junshengtai Pharmaceuticals' stock price experienced a technical pullback with increased volume over the next two trading days, followed by a clear decline in price and contraction in volume. During this period, the poor performance of Junshengtai's stock price may have been influenced by the dual effects of a depressed market sentiment and short-selling pressure. From April to June this year, the Hang Seng Healthcare Index saw a decline of 27.65%. This was primarily driven by significant drops in the innovative drug sector. Data showed that the Hong Kong stock innovative drug index fell by over 26% from the peak in September 2025 to the low in June 2026, while the Hong Kong 18A sector retracted nearly 40% during the same period. Within this industry-wide correction, the Hong Kong pharmaceutical sector displayed a scissors gap in terms of chip supply and funding structure; on one hand, there was a rapid increase in financing enthusiasm in the Hong Kong 18A sector leading to a continuous expansion of available chips, while on the other, without the entry of new capital, the average daily trading volume gradually shrank. In other words, the continuous increase in chips in the Hong Kong pharmaceutical sector led funds to enter a status of stock competition, resulting in valuations only being able to dissipate downward. Therefore, even with favorable conditions for high-valuation growth stocks, investors in the market tended to prefer taking profits. It can be observed that on June 10, the Hang Seng Healthcare Index showed signs of stabilization, closing up by 1.44%. On the same day, Junshengtai Pharmaceuticals stock price closed down by 5.13%; however, it made a long lower shadow, maintaining its position above the lower Bollinger Band, and likewise showed signs of a rebound after being oversold, initiating a four-day uptrend. Unlike the ongoing fluctuations in the sector, after this round of four consecutive up days, Junshengtais stock price again fell into a period of decline until the end of July. The reason was the "window of good news" for the company during this time. The prolonged low trading volume also indicated low market activity. It was not until this round of discounted placement that there was a noticeable fluctuation in volume and price. Why did the discounted placement lead to a new round of rebound? As mentioned above, as an unprofitable 18A company, cash issues remain one of the important factors affecting Junshengtai Pharmaceuticals' performance in the secondary market. From the previously disclosed annual report data, by the end of 2025, the company had cash on hand of HKD 232 million, a year-on-year decrease of 25.22%, marking the second consecutive year of cash reduction. If calculated at an operating expenditure of HKD 224 million for the same year, if no new sources of income are opened up, the company might deplete its cash by the end of this year. This is one of the primary reasons Junshengtai has chosen discounted placements for two consecutive years. The reason the company has experienced upward trends after both rounds of discounted placements is attributed to the uses of the funds raised as well as market expectations regarding the company's future. According to the sale announcement, Junshengtai will use 75% of the placement proceeds for the research and development of its core product, HTD1801, and stated that the proceeds will be utilized before 2028; in last years placement announcement, the company similarly indicated that 75% of the proceeds from the placement would be used for research and development of HTD1801. Financing for two consecutive years for core product development is indeed one of the reasons investors recognize Junshengtais discounted placements. More importantly, it lies in the optimism some investors have regarding the core product, HTD1801. It was noted that Junshengtai delivered a compelling performance report at the end of last year. On December 2 of last year, Junshengtai Pharmaceuticals officially announced that its self-developed global first oral anti-inflammatory and metabolic regulator, HTD1801, surpassed AstraZeneca's flagship drug dapagliflozin in multiple key endpoints during the critical phase III clinical trial HARMONY for type 2 diabetes. Clinical results showed that after 24 weeks of treatment with HTD1801, the least squares mean change in HbA1c was -1.12%, while the dapagliflozin group recorded -0.93%, resulting in a statistically significant least squares mean difference of -0.20%. In addition to meeting the primary endpoint, HTD1801 also performed significantly better across multiple secondary endpoints. Compared to dapagliflozin, HTD1801 demonstrated more significant effects in reducing low-density lipoprotein cholesterol and non-HDL cholesterol, with a lower proportion of patients needing additional or intensified statin treatment. Furthermore, a higher proportion of patients treated with HTD1801 achieved the glycosylated hemoglobin target of <7.0%, while also showing a greater reduction in lipoprotein(a). In terms of safety, HTD1801 exhibited good tolerance, with the incidence of serious adverse events being 3.8%, lower than the 4.4% in the dapagliflozin group. The most common adverse events in the HTD1801 group were mild to moderate gastrointestinal reactions, and no serious hypoglycemic events occurred during the study period. Unlike SGLT2 inhibitors, which simply promote glucose excretion, HTD1801 aims to address the unmet clinical needs in cardiovascular, renal, and metabolic diseases at their root. Previous global clinical results have continuously validated the multi-functional characteristics of this drug. However, from a medicinal chemistry perspective, the core mechanism of HTD1801 lies in the ingenious design that combines berberine and ursodeoxycholic acid through ionic bonding, which does indeed improve solubility and bioavailability. Nonetheless, compared to high-barrier innovative technologies like monoclonal antibodies, bispecific antibodies, ADCs, or gene therapies, whether this type of modified new drug can achieve the high premiums of original innovations in the long term remains to be questioned. From a valuation standpoint, driven by this placement, the company's PB valuation has consecutively risen, currently reaching 6.71 times, far exceeding the industry average of 2.55 times, and exceeding its one-year PB valuation by over 92%. With the RSI indicator having recently peaked at 84 and showing clear overbought signals, whether Junshengtai Pharmaceuticals can maintain its current price is also a key concern for investors.