On January 29 after market close, CHUNLI MEDICAL (01858) released a positive profit alert for the full year 2025. Preliminary estimates indicate the company expects to report net profit attributable to shareholders of between 245 million yuan and 288 million yuan, representing a year-on-year increase of 96.01% to 130.41%. Simultaneously, the company's adjusted net profit, which excludes non-recurring gains and losses, is projected to be between 230 million yuan and 270 million yuan, surging by 142.80% to 185.11% compared to the previous year. A notable highlight of this forecast is that the growth rate of the adjusted net profit significantly outpaced the growth in reported net profit, suggesting the company's core operations have become the primary driver of profit growth, moving beyond reliance on one-off items.
However, the secondary market reaction to this announcement was subdued. On the trading day following the release, CHUNLI MEDICAL's stock price formed a large bearish candlestick and closed down 2.87%. The share price continued to decline steadily afterwards. By February 12, the stock touched an intraday low of HKD 13.47, marking its lowest level so far this year. In fact, since hitting a interim high of HKD 20.49 in early November of last year, the stock has been on a downward trajectory. In less than four months, the maximum price swing within this period has exceeded 30%.
Why has strong performance failed to create a positive surprise? In the profit alert, CHUNLI MEDICAL attributed the significant year-on-year growth in both net profit and adjusted net profit to the gradual release of growth potential across its product lines following their inclusion in centralized procurement programs, coupled with the continued implementation of its internationalization strategy and the steady advancement of its global business layout. Essentially, the improved annual profit stems from the diminishing impact of volume-based procurement and the development of international operations. For investors in the secondary market, these factors were already largely anticipated.
After three years of industry-wide volume-based procurement for orthopedic consumables, leading domestic orthopedic companies began reporting a rebound in performance starting in the first quarter of last year. CHUNLI MEDICAL itself reported its first quarter of positive profit growth after a period of decline in Q1 last year, with revenue of 230 million yuan (up 3.6%) and net profit attributable to shareholders of 58 million yuan (up 5.2%). Subsequently, the company's performance showed a sustained recovery. For instance, in the first three quarters of 2025, CHUNLI MEDICAL achieved revenue of 756 million yuan, a year-on-year increase of 48.75%, and net profit attributable to shareholders of 192 million yuan, surging 213.21% year-on-year. Looking solely at the third quarter, revenue was 268 million yuan, up 109.51% year-on-year, and the company returned to profitability with a net profit of 77.0619 million yuan.
Reviewing the stock price movement from last year, CHUNLI MEDICAL's shares saw significant gains in May, June, and July, rising 17.69%, 12.18%, and 29.85% respectively, benefiting from a bull market for innovative medical devices in Hong Kong. Trading volumes during this period also expanded noticeably. However, following this rally, the stock entered a three-month period of consolidation, with a minimal price increase of just 0.2% from July 24 to October 30. During this consolidation phase, the average cost basis for holders gradually rose to HKD 15.88, and the proportion of low-cost shares held near the bottom diminished significantly.
Notably, major capital flows showed distinct activity during this consolidation. In the first week of September last year, after periods of net outflows or minor inflows, major capital recorded a net inflow of HKD 32.3101 million. Net inflows generally persisted through September and October, culminating in a move by this capital around the time of the Q3 2025 earnings release. On October 15, the stock price broke upward from the lower Bollinger Band. On October 15 and 16, with daily volumes under 2 million shares, major capital pushed the price up by 4.98% and 3.47% respectively, testing market sentiment. After a low-volume pullback on October 17 confirmed a "hold" stance, a significant volume-driven rally began. From October 20 to November 3, the stock price accumulated a gain of 32.09%. It is worth mentioning that on October 31, the stock closed up 14.04% on a volume of 20.5379 million shares and a turnover rate of 21.59%, indicating that early major capital began taking profits during the ascent.
Considering the price action, the sustained decline in CHUNLI MEDICAL's stock price from November last year onwards is likely attributable to a continued correction following the exit of earlier major capital. The lack of a significant positive market reaction to the annual profit alert likely stems from the absence of any major positive surprise, as the profit recovery had already been factored into the prior price increase.
Has Southbound Capital Become the Net Seller? From a valuation perspective, after three months of price decline, CHUNLI MEDICAL's valuation has once again fallen below the industry average. Current data shows the company's PE ratio is only 19.12 times, lower than the industry average of 20.48 times and also 6% below its three-month average, indicating a clear undervaluation. Typically, high-performing, undervalued stocks are prime targets for Southbound Capital, which has a history of bottom-fishing in such cases. However, for CHUNLI MEDICAL currently, Southbound Capital is not only not buying but appears to be a net seller.
Observations over the past 60 days show the top three net buyers of CHUNLI MEDICAL shares were Hongkong and Shanghai Banking Corporation, Morgan Stanley, and Citigroup, with net purchases of 1.5067 million, 0.8628 million, and 0.5976 million shares respectively. The top three net sellers were Southbound Capital (Shenzhen), Southbound Capital (Shanghai), and Huatai Financial Holdings, with net sales of 2.9785 million, 1.0755 million, and 0.3378 million shares respectively. Combined, the two Southbound channels net sold 4.054 million shares during this period, accounting for 92.31% of the total net purchases by the top three buying institutions, clearly identifying them as the primary source of selling pressure.
Looking at the trend in Southbound Capital's shareholding ratio, their stance towards CHUNLI MEDICAL appears to have shifted significantly during this phase. Data indicates that from mid-November to the end of last year, as the stock price declined, Southbound Capital's buying interest was relatively evident. Their shareholding ratio increased as the price fell, reflecting a typical left-side trading strategy. By December 31, 2025, Southbound Capital's holding ratio reached a high of 47.77%. However, at the start of 2026, coinciding with a technical rebound in the stock price, the Southbound holding ratio plummeted. By January 16 this year, it had dropped to 43.47%, a decline of over 4 percentage points within half a month. Although the ratio saw a temporary recovery during subsequent technical declines, since February, Southbound Capital's investment strategy for CHUNLI MEDICAL has appeared to shift towards trend-following, right-side trading. The holding ratio has now fallen to 43.16%, and based on the average acquisition cost, Southbound Capital is sitting on a paper loss exceeding 10%.
For CHUNLI MEDICAL, following the normalization of the volume-based procurement impact, a performance recovery for both the company and the broader orthopedic device sector was widely expected, making it difficult to deliver a positive earnings surprise. The market's current focus seems to be more heavily weighted on the company's overseas expansion. In the first half of last year, overseas revenue already accounted for 40% of CHUNLI MEDICAL's total. If the upcoming annual report reveals strong international performance, it could potentially serve as a key catalyst for a new round of share price recovery.