Since its first listing on October 31, the stock price of Cathay Biotech Inc. (02563) has been steadily rising. On December 17, during trading, the company's stock price reached a peak of 39.50 Hong Kong dollars, an increase of 146.88% compared to its issue price of 16 Hong Kong dollars.

At that time, Cathay Biotech Inc. had just seen its " MACD"Golden Cross" signal appeared, and on December 16, it surged by 11.84%, indicating that a Buy signal seemed to have emerged. However, on December 17, after Huahao Zhongtian Pharmaceutical closed with a long upper shadow, it began its first downtrend since being listed.

Is there a prewarning for a single-day drop of over 40%?

On December 18, observed by the Zhitong Finance APP, after closing down by 3.53% on all moving averages, Huahao Zhongtian Pharmaceutical's stock price started to turn downwards; on December 19, the company closed down by 7.60%, with the closing price first testing the 10-day moving average, which at this time also showed signs of flattening that represents the boundary between the strength of bulls and bears. However, on December 20 and 23, Huahao Zhongtian Pharmaceutical's stock price rose slightly by 1.11% and 2.97%, respectively. However, from a technical perspective, if the stock price breaks upward, there should be a corresponding increase in Volume; otherwise, it may merely be a rebound during a downtrend and will soon fall back below the 10-day moving average. From the Volume over these two days, it was 0.334 million shares and 343,200 shares, which was merely consistent with previous levels.

Without support in Volume, on December 24, signs of a trend reversal for Huahao Zhongtian Pharmaceutical began to be evident. First, the MACD indicator showed the first green bar after a "Death Cross"; secondly, the more sensitive 5-day moving average crossed the 10-day moving average downward, indicating a clear downtrend.

On December 25, after several days of flattening, the 10-day moving average for Huahao Zhongtian Pharmaceutical exhibited a clear downward trend on the same day, acting as a significant stop-loss signal for investors.

In fact, the situation can also be observed from the Volume around December 17. In the upward trend of Huahao Zhongtian Pharmaceutical's stock price since December, as the company's stock price continued to rise, the daily trading volume remained around 0.3 million shares and showed noticeable shrinkage on the highest day, the 17th, compared to the previous day, indicating insufficient upward momentum and a potential reversal in trend.

After several days of fluctuations, this reversal finally occurred on December 30. According to Zhicheng Financial APP, on December 30, the stock price of Cathay Biotech Inc. opened lower and continued to decline, falling to an intraday low of 17.96 Hong Kong dollars, with a maximum drop of 43.07%.

Generally speaking, a significant bearish candlestick often serves as a way for Block Orders to drive panic selling among short-term investors using the fear created by high-volume bearish candlesticks. Since the formation of a high-volume bearish candlestick can make short-term performance look poor, this cleaning technique is very rapid and effective. However, there is an important indicator for determining this method, which is the volume. The volume must be extremely high, larger than the volume over the past few weeks; only with a massive bearish candlestick can it indicate that short-term investors are exiting, while Block Orders take advantage of the situation to accumulate.

However, on that day, the trading volume of Cathay Biotech Inc. was only around 0.6 million shares, far from being "massive." If its stock price does not "absorb" the large bearish candlestick formed on December 30 and close with a high-volume bullish candlestick, it suggests that the stock may not yet be at the end of its downward trend, and bottom signals have not yet appeared.

Entering the downward channel of valuation center?

According to Zhicheng Financial APP, on December 30, the top three sell-side seats for Cathay Biotech Inc. were ABN AMRO, JP Morgan, and Merrill Lynch, selling 0.0198 million shares, 0.0166 million shares, and 7,400 shares, respectively; from the buy-side, Futu Securities was the largest buyer, purchasing 0.1118 million shares, while Bank of China International was the second-largest buyer, purchasing 0.0242 million shares.

However, extending the timeframe to nearly 20 days, the top two sell-side seats for Cathay Biotech Inc. are Sea盈 Securities and Futu Securities, selling 1.7028 million shares and 166,000 shares, respectively. Among them, Futu was the underwriter for Cathay Biotech Inc.'s IPO issuance, while Sea盈 Securities serves as its book manager and underwriter.

From a fundamental data perspective, as an 18A enterprise, Cathay Biotech Inc. has yet to achieve profitability. The company's revenue for 2022 and 2023 was 32.82 million yuan and 66.64 million yuan (in RMB), with losses during the period of 0.161 billion yuan and 0.19 billion yuan, respectively. In the first five months of 2024, the company's revenue was 28.56 million yuan, reflecting a 5.58% increase compared to the same period last year, while the operating loss was 57.43 million yuan, narrowing by 31.14% compared to the same period last year.

Core products have been on the market for many years but have consistently failed to break even, which is partly related to medical insurance price negotiations. It is understood that the company's core product, Yutaida long-acting injection, was approved for listing by the National Medical Products Administration in 2021 at an average selling price of 2388.71 yuan per bottle. It was included in the National Medical Insurance Drug List in 2022, and on March 1, 2023, the negotiated price officially took effect, resulting in a price drop of over 60% for the product.

However, thanks to the expansion of medical insurance, the sales volume of the company's products has increased in recent years. According to the prospectus, the sales volume of Youtide Long injection from 2021 to 2023 and from January to May 2024 were 29,750 bottles, 18,483 bottles, 90,021 bottles, and 38,577 bottles respectively. It is worth mentioning that the company's prospectus previously indicated that the production capacity utilization rates during the reporting period were 5.5%, 39.4%, and 0%, which may suggest that the competitiveness of the company's products in the market needs improvement.

From the perspective of product structure and R&D pipeline, currently Huahao Zhongtian mainly focuses on the layout of Youtidelong injections. Among Huahao Zhongtian's core products and 19 candidate products, 16 are all based on the single active pharmaceutical ingredient Youtidelong. There are three formulations of it in the company's product portfolio. As for other candidate products like BG22, BG18, BG44, they are still in the early preclinical development stage.

In short, weak profit performance and reliance on a single core product for research and development create a certain degree of uncertainty for Huahao Zhongtian Pharmaceutical's future performance. Yet this fundamental situation needs to support Huahao Zhongtian Pharmaceutical's Market Cap of up to 14.418 billion HKD.

Data shows that the current industry average PB is 2.81 times, while Huahao Zhongtian Pharmaceutical's current PB is as high as 11.34 times, far exceeding the industry average and the company's Historical Data. According to the company's prospectus, as of May 31 of this year, the company's net asset value was 0.671 billion yuan. If calculated according to the industry average PB valuation level of 2.81 times, Huahao Zhongtian Pharmaceutical's reasonable valuation is only around 1.886 billion HKD, which is 41.44% of the company's current Hong Kong stock Market Cap of 4.551 billion HKD.

In recent years, the synthetic biology sector has gained significant attention, with industry insiders predicting that synthetic biology may bring direct economic benefits of trillions of dollars globally each year. However, due to factors such as 'difficult technology implementation' and 'poor monetization,' the performance of the secondary market in the global synthetic biology sector has fallen far short of initial expectations. On May 13 of this year, U.S. synthetic biology company Ginkgo Bioworks received a (Delisted) warning from the NYSE; leading A-share synthetic biology company Cathay Biotech Inc. has seen its stock price drop by more than 60% since its peak in 2021. Currently, it seems that Huahao Zhongtian Pharmaceutical, which plummeted over 40% in a single day, has also not escaped the fate of declining stock prices.