Since the announcement of a major shareholder's share reduction in August last year, SCIENTECH's (02291) stock price has entered a sustained downward trend. Year-to-date, the company's share price has fallen by over 25%. On May 14th, SCIENTECH's intraday price hit a new low of HKD 10.94, pushing its market capitalization below HKD 4 billion. Notably, after this prolonged decline, the company's current stock price and average daily market value have fallen significantly below the eligibility threshold for the Hong Kong Stock Connect program. With just over a month remaining until the end of the latest review period for the program's adjustments, the pressure on SCIENTECH to maintain its eligibility is intensifying.

Can it maintain eligibility after two failed price rallies? Following the major shareholder reduction announcement in August, SCIENTECH's stock price dropped sharply at market open, plunging nearly 9% within the first minute and over 12% within half an hour. The stock closed the day down 12.75%, with the opening price of HKD 27.60 becoming the day's high and a subsequent peak. This marked the beginning of a downward cycle that has lasted over nine months. Technically, the sharp drop on August 26th pulled the price violently from the upper Bollinger Band to the lower band. A subsequent series of seven declining sessions widened the Bollinger Band's opening. Although the stock showed signs of recovery in September and October last year and January this year, with prices attempting to reach or touch the upper band, there was no significant volume support to confirm a genuine breakout, resulting in technical "false breakouts." Consequently, the price returned to the lower band and continued to decline within the narrowing range between the middle and lower bands. It is noteworthy that on March 26th and May 19th, SCIENTECH's daily chart showed significant long upper shadows accompanied by notable single-day volume increases. As both occurred during periods where the price was moving up from the lower Bollinger Band and were followed by small positive candles with reduced volume over the next 2-3 trading days, it easily evoked the classic "Fairy's Finger" candlestick pattern among investors. This pattern typically appears at a stock's cyclical bottom or the early stage of an upward move, representing a test by major funds to gauge selling pressure and resistance levels, often interpreted as a precursor to increased accumulation and an impending upward attack. Many investors adopt follow-on trading strategies based on this pattern. However, for SCIENTECH, prior to the long upper shadow on March 26th, the stock was in a prolonged downtrend. Although the price pierced an important resistance level that day before retreating quickly, the Bollinger Band did not open upward, indicating the overall trend remained downward. In this context, the long upper shadow likely represented a technical "bull trap." On May 19th, when another long upper shadow appeared, the net intraday capital outflow was HKD 7.033 million. It is important to note that the next periodic review for the Hang Seng Index and Hong Kong Stock Connect is in September, with results announced on August 25th. The review period is July 1, 2025, to June 30, 2026. Currently, SCIENTECH's average daily market value during this review cycle is HKD 6.095 billion, only HKD 618 million below the current threshold of HKD 6.713 billion. As we are now in late May, there are less than 40 days until the end of the current review period. Based on data calculations, SCIENTECH needs its stock price to recover to HKD 29.66 during the remaining trading days to successfully maintain eligibility—a target price 147.16% higher than its current level.

Accelerated buying under delisting pressure: What is "Northbound Water" betting on? In reality, SCIENTECH's recent stock volatility is also related to broader market fund preferences and liquidity factors. Over the past year, southbound capital's holdings in Hong Kong-listed pharmaceutical and medical device stocks have increased by approximately 2 percentage points overall. As of March this year, among Hong Kong Stock Connect constituents, there were 250 stocks where southbound capital held over 20%, with the healthcare sector leading at 54 stocks. However, for Hong Kong's pharmaceutical and device stocks, southbound capital acts as both a "ballast" and a "double-edged sword." Recently, the sector preference of southbound capital has shifted noticeably: internet and banking sectors have attracted recent marginal inflows, while the pharmaceutical and device sector's share of total main board turnover on the HKEX has declined from 7% at the start of the year to a low level. Part of the reason for SCIENTECH's continuous decline is the collective correction and liquidity discount in the Hong Kong pharmaceutical and device sector. On the other hand, the Hong Kong Stock Connect Innovative Drug ETF (520880) has seen net subscriptions exceeding RMB 535 million over the past 10 days, with its share count reaching a new high of 5.342 billion units. This trend implies that while mainstream capital is flowing out of the healthcare sector, some smart money is building positions against the trend at low levels—a positive signal for SCIENTECH as well. Indeed, trading activity in SCIENTECH has recently become noticeably more active, partly driven by Hong Kong Stock Connect capital. The proportion of SCIENTECH shares held via the Stock Connect has increased significantly. Broker trading data shows that over the past 20 days, the top three selling seats were Hongkong and Shanghai Banking Corporation, Morgan Stanley, and BNP Paribas, selling 1.2934 million, 962,600, 306,000, and 61,100 shares respectively. On the buying side, Shanghai-Hong Kong Stock Connect was the largest buyer, accumulating 1.064 million shares, followed by Shenzhen-Hong Kong Stock Connect with 906,000 shares. Based on shareholding ratios, China Investment (Shanghai-Hong Kong Connect) and China Creation (Shenzhen-Hong Kong Connect) hold 2.10% and 1.98% of SCIENTECH, respectively. What is "Northbound Water" betting on by buying against the trend amid SCIENTECH's delisting pressure? From a fundamental perspective, according to the company's announced 2025 performance, revenue was approximately RMB 528 million, a year-on-year increase of 11.9%; net profit attributable to shareholders was about RMB 240 million, a year-on-year decrease of 2.4%. Although this shows revenue growth without corresponding profit growth, it represents SCIENTECH's performance under the context of centralized procurement policies. Behind these figures, the company's overall gross margin for 2025 was 84.66%, down less than 2 percentage points year-on-year. The decline in gross margin was mainly due to changes in the revenue mix. In 2024, biodegradable occluders accounted for about 30% of the occluder business, a proportion that increased further in 2025. Biodegradable products carry a gross margin 10-15 percentage points higher than metal products. This means the increasing revenue contribution from higher-margin biodegradable products partially offset the negative impact on gross profit from price reductions for metal products due to centralized procurement. Furthermore, the company's cash flow "safety cushion" cannot be ignored. Data shows the company held cash and cash equivalents of RMB 1.151 billion, with operating cash flow of RMB 221 million, roughly equivalent to its net profit for the period. This indicates robust cash collection capabilities sufficient to support daily operations, alleviating short-term concerns about "insufficient R&D funds" or "cash flow rupture." Against the backdrop of tightening market liquidity and delisting expectations, SCIENTECH's current P/E ratio is only 15.69x, significantly lower than the industry average of 20.29x and about 11% below its three-year valuation center, placing it in undervalued territory. Although SCIENTECH faces significant pressure to maintain its Stock Connect eligibility, its solid fundamentals suggest the possibility of an oversold rebound, which may be one reason Hong Kong Stock Connect capital is choosing to enter.