In July this year, Yan Palace (01497) saw a rapid 69.09% surge in stock price within just one month, with a strong upward trend, becoming a focus of market attention.

However, after reaching a high of 15.34 Hong Kong dollars in the range on July 31st, Yan Palace entered a three-month period of lateral oscillation. From a technical perspective, lateral oscillation is typically a trendless running state, where the market needs to choose a direction after the consolidation: either break upwards to form an uptrend, or go downwards seeking support at new lows. Yan Palace chose the latter.

On October 21st, Yan Palace's stock price fell below the 5-day moving average of 13.46 Hong Kong dollars, beginning to turn downwards. In the following 7 trading days, Yan Palace's stock price remained below the 5-day average, rapidly dropping to 11.68 Hong Kong dollars on October 31st. Subsequently, in the next 3 trading days, Yan Palace's trading volume expanded daily, reaching 0.26 million shares on November 5th, the largest in nearly a month. After this round of decline, Yan Palace's stock price has dropped to below 11 Hong Kong dollars, closing at 10.82 Hong Kong dollars on November 12th, down 19.49% from the closing price of 13.44 Hong Kong dollars on October 18th.

According to the The Standard Finance News app, during the first lock-up release on June 12th this year, Yan Palace's stock price fell by 14.9% in the 7 trading days leading up to the release date. Now, there are only 28 days left until the second batch lock-up release date of Yan Palace on December 12th, which may once again become a market focus in the secondary market.

Cornerstone Investors Near Breakeven Point

Unlike other companies' IPOs that introduce well-known investment banks as cornerstones, according to the prospectus, half of Yan Palace's cornerstones are the company's own suppliers.

During the IPO stage, Yan Palace introduced a total of 6 cornerstone investors, subscribing to a total of 16 million US dollars (about 0.125 billion Hong Kong dollars) in sale shares. This includes the company's main suppliers, PT. Anugerah Citra Walet Indonesia, PT Niaga Cakrawala Sukses, and PT Esta Indonesia from Indonesia, with the three supplier cornerstones subscribing to 5 million US dollars, 3 million US dollars, and 3 million US dollars respectively. In addition, Value Partners subscribed to 2 million US dollars through two wholly-owned subsidiaries, Mr. Wu Chen subscribed to 2 million US dollars, and Mr. Wong Cheng Guang subscribed to 1 million US dollars.

As an event that has a huge impact on stock prices and liquidity, share buyback is particularly important for companies like Yan Palace, which already have weak liquidity.

Data shows that Value Partners' two subsidiaries and Wu Chen's lock-up period is 6 months, and it was lifted on June 12 this year, with a total of 3.2144 million shares unlocked, accounting for 0.7% of the total issued shares. Compared to the small initial unlock, the second batch of cornerstone investors, including the remaining 4 cornerstone investors, will be unlocked in December, totaling 9.636 million shares, accounting for 2.07% of the total issued shares, with a market value of over 0.1 billion Hong Kong dollars at the current stock price.

For Yan Palace, during the initial unlock of cornerstone investors, the closing price on June 12 was 8.22 Hong Kong dollars, calculated at a subscription price cost of 9.7 Hong Kong dollars, resulting in a loss of approximately 15.26% for the initial block orders. In contrast, thanks to the price increase in July, even with the recent rapid price drop, the second batch of cornerstone investors still make a profit of 11.55% when calculated at the closing price of 10.82 Hong Kong dollars on November 12.

However, according to Data, among the new stocks listed since the beginning of 2023, about one-third have experienced a segment increase of over 100% during the lock-up period. However, after the lock-up period, statistically speaking, the average increase for these companies almost goes back to zero. Currently, with nearly a month left until the second unlock in December, it is uncertain whether Yan Palace can maintain its current stock price.

It is worth mentioning that the company applied to the CSRC on January 24 to convert all issued approximately 0.137 billion shares (held by 7 shareholders) of unlisted shares with a face value of 0.2 yuan per share to be listed in Hong Kong, achieving full listing in Hong Kong. The CSRC notified the company of the record filing on March 7. With the announcement of full H-share listing, it may indicate that shareholders no longer have a lock-up mechanism, and the company will face significant selling pressure during the lock-up period.

Market Trends Behind the Sharp Rise and Fall

After Yan Palace announced the full circulation of H shares, there were voices in the market about its rush to enter the Hong Kong stock connect program. In fact, the requirements for inclusion in the Shenzhen-Hong Kong Stock Connect are more lenient than those for the Shanghai-Hong Kong Stock Connect. In addition to large and medium-sized index stocks, index stocks with an average month-end market value of 5 billion Hong Kong dollars or more of the Hang Seng Composite SmallCap Index can also be included. For Yan Palace to enter the small-cap index, it needs to increase its market value to over 5 billion Hong Kong dollars and actively trade in the market. With some time before the adjustment in September 2024, if the company manages its market value, it may meet the requirements for inclusion in the Hong Kong Stock Connect.

Returning to Yan Palace itself, at that time, under the announcement of the stock buyback and the positive news of the 2023 annual report, the trend of chip positioning became evident, the period of consolidation began to shorten, and there was a significant upward breakthrough in the stock price.

Specifically, from February to June this year, although the price of Yan Palace fluctuated, it basically maintained at around 8-9 Hong Kong dollars, overall in a sideways shock effect. Usually, the sideways phase is a good opportunity for the buy-side to absorb chips, during this phase, a large number of chips accumulate at low levels. And after the main force completes the absorption of chips, the next step is to let Yan Palace's stock price break away from its cost area, opening up profit space. Therefore, in the 7 trading days from June 28 to July 9, the company's stock price saw continuous increases, with the maximum range reaching 52.16%. Then, from July 10 to July 15, after a few days of minor fluctuations, the stock price once again gathered an upward trend, ultimately pushing the company's stock price to a high of 15.34 Hong Kong dollars after a wave of "eight consecutive gains" following "small triple gains".

Next is what was mentioned earlier, Yan Palace started a 3-month sideways shock period. Comparing the chip distribution charts on August 15 and November 12, it is easy to see that in August, with the continuous rise in stock price in July, Yan Palace had formed a relatively large profit area in August, with a large number of profitable chips, with over 70% of the chips concentrated between 8.56-14 Hong Kong dollars, with a profit ratio as high as 90.87%; but during the 3-month sideways period, the main funds on one side contended by suppressing some chips, while on the other side, took over the selling pressure chips, until November 12, a double-peak dense pattern had formed, with the recent peak located above continuously moving downwards, in the process of gradually expanding chips at the bottom, it is the process of forming a multi-peak decline, at this time, the profit range is only 40.68%.

It is worth mentioning that the mid-term financial report disclosed by Yan Palace earlier in 2024 was not impressive, although in the first half of this year, Yan Palace's revenue reached 1.059 billion yuan, an 11.36% year-on-year increase, exceeding the 1 billion scale. However, at the same time, the company's net income attributable to shareholders for the period was only 58.08 million yuan, a 42.54% year-on-year decrease, and the net profit margin also dropped from 11.29% in 2023 to 5.67%.

In contrast, from 2020 to 2023, Yan Palace's net income was 0.123 billion yuan, 0.172 billion yuan, 0.206 billion yuan, and 2.12 billion yuan respectively. Obviously, Yan Palace's mid-2024 report performance has shown a significant deviation from previous expectations. This is clearly unfavorable for Yan Palace, which is about to face cornerstone unlocking. Against the backdrop of deteriorating fundamentals, weak market liquidity coupled with insufficient absorption capacity may lead to significant fluctuations in stock prices. The real 'unlocking challenge' for Yan Palace may be imminent.