With the mid-term report approaching, the stock price has once dropped below net assets. Will the buyback be a good remedy for boosting confidence in Beijing Chunlizhengda Medical Instruments (01858)?

Since the Hong Kong stock price of Beijing Chunlizhengda Medical Instruments (01858) hit a peak of HKD 20.42 on November 3 last year, it has entered a downward spiral mode. Particularly since 2026, the performance of Beijing Chunlizhengda Medical Instruments in the Hong Kong stock market has highlighted a consistent theme of good performance without rewards, poor performance with penalties. Why has the stock price diverged from the underlying fundamentals? This year, both the 2025 annual report and the 26Q1 financial report show that Beijing Chunlizhengda Medical Instruments has demonstrated stable fundamental characteristics. From the annual report data, in 2025, the company achieved an operating income of HKD 1.05 billion, a year-on-year increase of 29.8%; the net profit attributable to shareholders was HKD 270 million, a year-on-year increase of 118%; the corresponding growth rate of net profit excluding non-recurring items reached 170%, amounting to HKD 256 million. The biggest highlight of this performance is that the growth rate of the net profit excluding non-recurring items significantly exceeded the growth rate of the net profit attributable to shareholders, indicating that the company has to some extent moved away from reliance on one-off gains and losses, with improvements in core business becoming a key driver of profit growth. On the other hand, the companys achievements in reducing costs and increasing efficiency are equally important. In 2025, while maintaining a relatively high R&D investment ratio of 11.33%, the total expenses were HKD 239 million, accounting for 22.86% of the current revenue, a year-on-year decrease of 31.39%. Among these, the 17.51% reduction in selling expenses highlights an important achievement in cost reduction and efficiency improvement, reflecting a continuous optimization of the expense structure. Regarding business performance, in 2025, overseas revenue grew by 38.2% year-on-year, accounting for 46.7%. This strong performance also continued into the 26Q1 quarter, with the companys overseas operations experiencing high growth, particularly in the European, American, and Southeast Asian markets, which exhibited high-margin characteristics that enhanced overall profitability. The 26Q1 financial report showed that due to the restructuring of the pricing system following the renewal of centralized procurement contracts and seasonal adjustments in the number of terminal surgeries, the companys revenue for the period was HKD 217 million, a slight year-on-year decrease of 5.60%. Although there was a short-term fluctuation in revenue, in terms of profit quality, the companys gross profit margin for the period was 66.26%, an increase of 3.44 percentage points from the previous quarter; the net profit attributable to shareholders was HKD 61.71 million, a year-on-year increase of 6.27%, and the growth rate of net profit excluding non-recurring items was 11.71%. Additionally, in terms of cash flow, thanks to the reasonable control of operating expenses and the optimization of capital operation efficiency, the companys net cash outflow from operating activities for the period was HKD 10.9281 million, a significant improvement compared to a net outflow of HKD 75.3436 million in the same period last year. However, the secondary market seems indifferent to the stable fundamental performance of Beijing Chunlizhengda Medical Instruments. It was observed that on January 29 of this year, after the market closed, Beijing Chunlizhengda Medical Instruments released an announcement forecasting a substantial year-on-year increase of 96.01% in net profit attributable to shareholders for the 2025 annual results, anticipating that the growth rate of net profit excluding non-recurring items would significantly outpace that of net profit attributable to shareholders. However, the secondary market responded lukewarmly; the next day after the earnings forecast was released, the company's stock price in Hong Kong fell sharply, with a loss of 2.87%. After the formal earnings report for the 2025 annual report was released on February 27, the stock price plummeted by 4.11% the following day, marking a "four consecutive decline" trend. On the evening of April 29 this year, Beijing Chunlizhengda Medical Instruments announced that its revenue for the 26Q1 quarter had decreased by 5.60% year-on-year. The following day, the stock price dropped by 10.96%, erasing over HKD 800 million in market value in a single day, with a cumulative drop of approximately 24% over three trading days. Amid this relentless decline, the stock price of Beijing Chunlizhengda Medical Instruments has continuously decreased, hitting a new low of HKD 8.12 during intraday trading on June 26, exceeding its annual low and briefly falling below its net asset value per share. As of August 12, the market capitalization of Beijing Chunlizhengda Medical Instruments had fallen to around HKD 3.5 billion, actually falling below the threshold for stock connect, but as the company is listed in both the A-share and H-share markets, it does not have market capitalization requirements to directly enter the Hong Kong stock connect and will not be delisted. However, the prolonged decline has caused a significant shift in market sentiment, and the divergence among stock connect funds is gradually increasing. Investors are keenly focused on when the low-level consolidation phase of Beijing Chunlizhengda Medical Instruments might emerge into a reversal trend. Could a stock repurchase be a remedy? From a valuation perspective, after a long cycle of stock price decline, the overall valuation of Beijing Chunlizhengda Medical Instruments has once again fallen below the industry average level. According to data, as of now, the companys PE ratio is only 11.33 times, below the industry average of 17.51 times, and also down 16% compared to the company's average PE over the past year, indicating a clearly undervalued state. Typically, fundamentally strong yet undervalued stocks are important selections for stock connect funds. Previously, there have been several instances where stock connect funds engaged in bottom-fishing for such stocks, but regarding the current situation of Beijing Chunlizhengda Medical Instruments, the sentiment among the stock connect funds has shown a marked divergence. It can be observed that over the past 60 days, the top three net buyers of Beijing Chunlizhengda Medical Instruments were the stock connect (Shenzhen), Morgan Stanley, and Futu Securities, with net purchases of 6.0895 million shares, 758,600 shares, and 469,600 shares respectively; while the top three sellers were the stock connect (Shanghai), Citibank, and HAITONG INT'L, with net sales of 3.2085 million shares, 1.0687 million shares, and 903,800 shares respectively. It is evident that within this period, the total net trading volume from the two major stock connect channels reached 9.298 million shares, accounting for 74.39% of the total net trading volume of the top three institutions, clearly indicating that the stock connect channels were the main source of trading volume for Beijing Chunlizhengda Medical Instruments during this phase. However, there was a significant disparity in buying and selling opinions between these two major stock connect channels. This divergence is also reflected in the overall shareholding ratio of stock connect funds in Beijing Chunlizhengda Medical Instruments. From the end of May to the end of June this year, amidst the continuous oscillation and decline of Beijing Chunlizhengda Medical Instruments stock price, the buying willingness of stock connect funds was quite apparent. During this period, the shareholding ratio of stock connect funds rose as the companys stock price declined, reflecting the typical left-side trading logic of stock connect funds. As of June 29, the shareholding ratio of stock connect in Beijing Chunlizhengda Medical Instruments reached a peak of 48%. However, thereafter, as the stock price of Beijing Chunlizhengda Medical Instruments began to hover at the bottom, the shareholding ratio of stock connect funds also slowly dropped amidst the oscillations. By August 3, this ratio fell to 47.26%, indicating a shift from a consensus to a divergence in buying and selling amongst the stock connect funds. Moreover, based on the cost of holding positions, the overall position of stock connect funds is still in a state of loss. From the current trading situation of Beijing Chunlizhengda Medical Instruments, it is not difficult to see that stock connect funds, after previously absorbing positions, have remained trapped in the market. Since April 30, the stock has shown a continuous pattern of small gains and losses, and the current low-level consolidation state demonstrates a lack of support from external funds, reflecting insufficient confidence among those holding onto cash outside the market. This may be partly related to the lack of stock repurchase plans from Beijing Chunlizhengda Medical Instruments. As previously mentioned, the fundamentals of Beijing Chunlizhengda Medical Instruments have accelerated improvement and stability in recent years. Currently, the company has over HKD 2 billion in net cash on its balance sheet. However, in light of its low stock price, Beijing Chunlizhengda Medical Instruments has yet to implement any stock repurchase plans, with its last round of stock repurchases occurring in 2022. In contrast, AK MEDICAL, which also focuses on joint business, only recently cleared the stock connect threshold at the end of June, yet its stock price has experienced a stage-bottom rebound, with an increase of 17% since then. In reality, despite facing similar market conditions, AK MEDICAL has certain differences from Beijing Chunlizhengda Medical Instruments in both financial performance and overseas business. Still, one significant reason that secondary market investors are more willing to buy into AK MEDICAL is likely due to its robust repurchase efforts. It is known that since the beginning of this year, AK MEDICAL has repurchased shares 37 times, accumulating a total of 47.822 million shares, involving HKD 264 million. Typically, opting for repurchase at low stock prices not only benefits the financial and strategic goals of the company but also serves a short-term market stabilization role during weak markets, which helps to boost market confidence. From this perspective, for the fundamentally strong Beijing Chunlizhengda Medical Instruments, timing a repurchase may be a good remedy to boost market confidence under the current market conditions.