Benefiting from the strong surge in Hong Kong's pharmaceutical sector and its impressive interim results in 2025, Gaush Meditech (02407) surprisingly achieved four consecutive months of gains after being removed from the Stock Connect list in March last year. From May to September last year, the company's stock price accumulated a rise of 65.50%, standing out among the stocks removed from the Connect at that time. However, Gaush Meditech's share price did not climb relentlessly; starting from mid-to-late September last year, alongside a broader correction in the Hong Kong pharmaceutical sector, its stock entered a three-month period of sideways consolidation, only breaking below this platform and trending lower from late December. Zhitong Finance APP observed that from December 22 last year to the present, Gaush Meditech's stock price has fallen nearly 20%, essentially wiping out all gains since its interim report last year. With the 2025 annual report imminent, can it win back market favor with stellar performance?

On March 10 last year, the adjustments for the first 2025 Hong Kong Stock Connect list took effect. On that day, stocks removed from the Connect saw an average price decline of 14.24%, while average turnover increased by 19%. Among them, 20 stocks fell more than 10%, and Gaush Meditech was one of them. Typically, after removal from the Connect, stocks often face one-way selling pressure from on-market Connect funds. So, is the decline from the second half of December last year until now a new round of liquidation initiated by Connect funds? Zhitong Finance APP learned that because Gaush Meditech's average daily market capitalization during the review period before its removal was only HKD 2.464 billion, it was destined to be kicked out of the Connect even before the official list adjustment. Under these circumstances, Connect funds continued to reduce their holdings throughout 2025, and even when Gaush Meditech's stock price subsequently experienced volatile rebounds, the trend of Connect fund selling did not stop. On March 10, when the Connect list adjustment took effect, the Connect holding ratio in Gaush Meditech was 6.85%. However, despite the volatile stock price performance in 2025, the Connect holding ratio did not show a significant decline corresponding to the stock price drop after its removal. Currently, the on-market Connect holding ratio for Gaush Meditech remains at 3.85%. This means that over the past nearly 10 months, the selling by on-market Connect funds amounted to only 3%.

Looking at volume data, the stock's liquidity visibly slowed after its removal from the Connect. Data shows that in February, March, and April last year, Gaush Meditech's monthly stock trading volumes were 13.6134 million shares, 8.7966 million shares, and 2.1247 million shares, respectively. Comparing February (pre-removal) and April (post-removal), the monthly trading volume plummeted by 84.39%. By December last year, Gaush Meditech's monthly stock trading volume had dwindled to just 973,500 shares. Broker trading data for the past 20 days shows the top five seller seats for Gaush Meditech were Hong Kong Stock Connect (Shenzhen), Citibank, Hong Kong Stock Connect (Shanghai), Ha Fu, and Chuangxing, selling 78,100 shares, 72,600 shares, 55,500 shares, 50,200 shares, and 9,000 shares, respectively. On the buy side, the top five were Futu Securities, BNP Paribas, CLSA, Bank of China, and Longbridge, buying 60,000 shares, 49,100 shares, 44,100 shares, 34,800 shares, and 32,700 shares, respectively. Although on-market Connect funds were the top net sellers over the past 20 days, their holding ratio decreased by only 0.1% during this period. This suggests that at this stage, Connect funds prefer trading on the trend's right side in Gaush Meditech but have not yet reached a level of full liquidation.

Gaush Meditech's poor stock performance in Q1 last year was not only due to its Connect removal but also its disappointing 2024 annual report results. According to Zhitong Finance APP, Gaush Meditech reported revenue of RMB 1.428 billion in 2024, a slight increase of 1.6% year-on-year; however, gross profit fell 4.1% to RMB 663 million, and profit attributable to owners of the parent plunged 46.75% to RMB 92.394 million. The weak profitability was attributed partly to factors like exchange rate fluctuations and the implementation of national volume-based procurement for intraocular lenses, which reduced the comprehensive gross margin and thus gross profit. Another significant reason for the earnings slump was goodwill impairment; by the end of 2024, the company had accumulated impairments of RMB 23.257 million. Beyond these factors, the low proportion of proprietary product sales has also impacted the company's stock price and valuation. Historically, Gaush Meditech has relied heavily on distributing third-party products for its main revenue. This issue was evident even during its IPO. According to the prospectus: during the reporting periods, revenue from distributed products was RMB 986 million, RMB 793 million, and RMB 811 million, accounting for 98.9%, 97%, and 72% of total revenue, respectively; revenue from proprietary products was RMB 11.329 million, RMB 24.72 million, and RMB 316 million, accounting for 1.1%, 3%, and 28% of total revenue, respectively. Clearly, Gaush Meditech has been consciously trying to adjust its business structure: reducing reliance on distributed products and increasing the share of proprietary products. However, in 2024, the revenue contribution from distributed products rebounded. Data shows that distributed products accounted for 67.93% of sales revenue in 2023, but this proportion rebounded to 68.55% in 2024.

However, with the release of the interim report last August, the market observed some improvement in these areas for Gaush Meditech. Data shows that in the first half of 2025, Gaush Meditech achieved revenue of RMB 653 million, a year-on-year increase of 1.7%; gross profit was RMB 316 million, with a gross margin of 48.3%, an improvement of 1.8 percentage points; net profit for the period was RMB 35.9 million, surging 33.5% year-on-year. Overall, the company improved its gross margin while achieving a significant boost in net profit. In terms of revenue structure optimization, Gaush Meditech saw a notable increase in the contribution from proprietary products in H1 2025. Firstly, in R&D investment, the company spent RMB 43.4 million in H1 2025, up 23.6% year-on-year. Supported by continuous investment, its proprietary business revenue reached RMB 322 million in the first half of last year, contributing close to half of the total revenue, a marked improvement from the roughly 30% share in the full year 2024. Specifically, revenue from proprietary products was RMB 203 million, up 14.05% year-on-year, and revenue from proprietary technical services was RMB 119 million, up 8.3% year-on-year. In response, Western Securities issued a research report forecasting that from 2025 to 2027, Gaush Meditech's revenue would be RMB 1.564 billion, RMB 1.715 billion, and RMB 1.875 billion, with year-on-year growth of 9.48%, 9.67%, and 9.33%, respectively; net profit attributable to parent owners would be RMB 135 million, RMB 180 million, and RMB 214 million, with year-on-year growth of 45.85%, 33.71%, and 18.99%, respectively, maintaining an "Overweight" rating. On the day following the release of the H1 2025 report, Gaush Meditech's stock price surged 9.58%, and it rose another 8.87% the next trading day, resulting in a two-day cumulative gain of 19.31%, significantly outperforming the Hong Kong pharmaceutical sector during the same period. In terms of volume, on August 29 last year, Gaush Meditech's daily stock trading volume reached 913,000 shares, returning to levels seen before its Connect removal.

From the current technical perspective of Gaush Meditech, after the stock price broke below its consolidation platform in late December, it has been oscillating mostly in the middle to lower bands of the Bollinger Bands (BOLL). Within January, there were even two trading days with volumes below 1,000 shares, highlighting extremely sluggish trading activity. However, the convergence of the BOLL bands at low levels might indicate that this downtrend is nearing a bottom, with potential for subsequent oscillation along the middle band of the lower BOLL range. Judging from the market performance after last year's interim report, Gaush Meditech's impressive results have the potential to trigger positive feedback in the market, characterized by rising volume and price. This is likely a key reason many investors are closely watching Gaush Meditech's performance during the annual report season.