Why did GENFLEET-B become the "new favorite" in the innovative drug bull market despite a drop of over 6% on the second day of listing and still being "reluctantly sold"?

On September 19, GENFLEET-B (02595) was listed on the Hong Kong Stock Exchange, with the intraday stock price reaching HKD 50.20, an increase of 146.20% from the issue price, and ultimately closing up 106.47%, with a market capitalization approaching HKD 15 billion. The performance of GENFLEET-B on its first day of trading is, in fact, another manifestation of the current bull market for innovative drugs in Hong Kong stocks.

Taking the Hong Kong Stock Connect Innovative Drug Index (931250) as an example, after hitting a historical low of 460.24 points in April last year and confirming a double bottom pattern, the index has broken through the annual line this year, with an increase of over 110% year-to-date, and the corresponding sector's trading volume has continued to expand. Since the second quarter of this year, its average daily trading volume has increased by 300% year-on-year, reflecting the market's trading enthusiasm.

However, in the past three weeks, both the Hong Kong Stock Connect Innovative Drug Index and the Hang Seng Healthcare Index have shown signs of stagnation at high levels. The Hang Seng Healthcare Index, in particular, experienced consecutive weekly declines in the second and third weeks of September, which is the first occurrence this year. On one hand, there are continued hot IPOs, while on the other hand, there are sectors showing stagnation, inevitably leading to market concerns and voices advocating for "locking in profits." Therefore, at this critical juncture, assessing the future direction of the innovative drug sector is of great significance for investors.

Will the Federal Reserve's Rate Cut Bring New Opportunities?

On September 17, Wednesday Eastern Time, the Federal Reserve announced a 25 basis point rate cut after the FOMC meeting, lowering the target range for the federal funds rate from 4.25% to 4.5% to 4.00% to 4.25%. This is the Federal Reserve's first rate cut this year. Against the backdrop of slowing job growth, a slight increase in the unemployment rate, and rising risks in employment, the market expects two more rate cuts of this magnitude within the year.

Historically, the Federal Reserve's rate cuts reduce the cost of borrowing in dollars and decrease the attractiveness of the dollar, often driving global capital flows to emerging markets. In the short term, the Federal Reserve's rate cut cycle brings liquidity easing, which is expected to provide a more noticeable marginal boost to the Hong Kong market, which is currently in a multi-sector growth cycle. The pharmaceutical sector, especially the innovative drug sector, is clearly one of the important options for capital, becoming a key direction for foreign capital to increase allocation to China's scarce assets.

However, as mentioned above, the innovative drug sector in Hong Kong stocks has already doubled in value year-to-date, and the subsequent valuation growth potential has become a direct factor attracting funds to the innovative drug sector in the short term.

According to Zhitong Finance APP, the current price-to-earnings ratios (PE-TTM) of the aforementioned Hong Kong Stock Connect Innovative Drug Index and the Hang Seng Healthcare Index are 36.19 times and 35.96 times, respectively, which are significantly lower than the corresponding valuation levels of over 50 times for A-shares and U.S. stocks' biotechnology indices, showing a clear advantage In the long term, unlike the previous round of innovative drug bull market from 2015 to 2021, which was driven by policies (accelerated drug review + Hong Kong Stock Exchange 18A new policy), the current innovative drug market in Hong Kong not only has policy support but also emphasizes the companies themselves as the core driving factor. "Hardcore innovation - global monetization - performance verification" has become the key logic for assessing the "investment certainty" of innovative pharmaceutical companies.

From a policy perspective, last year, the State Council's executive meeting reviewed and approved the "Implementation Plan for Supporting the Development of Innovative Drugs Across the Entire Chain," providing systematic guidance for the research and development, approval, pricing, and payment of innovative drugs. This year, the government work report explicitly proposed for the first time to "improve the drug pricing formation mechanism, formulate a catalog of innovative drugs, and support the development of innovative drugs and medical devices."

This year, taking the recently fully launched 11th batch of national centralized procurement as an example, it has for the first time included "anti-involution" as a core principle of centralized procurement, emphasizing full adherence to the principles of "stabilizing clinical practices, ensuring quality, preventing collusion, and anti-involution." The most prominent change in the new rules is the optimization of the selection of "price difference control anchors," stipulating that when the "lowest price" is below "50% of the average qualifying price," the "50% of the average qualifying price" will be used as the anchor for price difference control, rather than simply selecting the lowest bid. This aligns with the current development path of the domestic innovative drug industry transitioning from a quantity logic to a quality logic.

With policy support and the synergistic effects of product commercialization, cost control, and global layout, domestic innovative pharmaceutical companies are collectively crossing into scalable profitability.

According to Southwest Securities, in the first half of 2025, the total revenue of 149 Hong Kong-listed pharmaceutical companies reached CNY 896.12 billion (+1%), with a net profit attributable to the parent company of CNY 61.99 billion (+29.7%). Among them, 36 innovative drug companies achieved revenue of CNY 28.5 billion during the same period, a year-on-year increase of 15.8%, significantly outperforming the entire industry; and the sector's net profit attributable to the parent company jumped from a loss in 2024 to CNY 1.8 billion, showing a clear turning point in fundamental improvement.

Market Investment Logic from the Perspective of Capital

Returning to GENFLEET, the company set multiple records for Hong Kong Stock Exchange 18A during this PO issuance process, and its historical financing and IPO financing data are sufficient to show the heat of the innovative drug market. This may make it a key point for opening the next phase of the innovative drug bull market in Hong Kong.

Data shows that since its establishment, GENFLEET has conducted a total of 7 rounds of private financing, with a total amount of CNY 1.421 billion, and the post-investment valuation reached CNY 3.124 billion before its IPO in the C+ round.

This time, the IPO issuance scale before the exercise of the overallotment option is USD 233 million, and after the exercise, it will reach USD 268 million, setting a record for the Hong Kong Stock Exchange 18A sector since 2022. Moreover, GENFLEET has introduced a luxurious cornerstone lineup including RTW Fund, TruMed, OrbiMed, UBS Asset Management, Vivo Fund, Huitianfu Fund, Franklin Templeton, Tibet Yuanlesheng (through TRS), and Qingchi Capital, with a total subscription amount of approximately USD 100 million, accounting for about 49.27% of the shares offered (before the greenshoe), also the highest cornerstone subscription amount for Hong Kong biotechnology companies since 2022 In other words, market sentiment had already peaked on the eve of GENFLEET-B's listing. The subsequent dark market and first day were merely a continuation of the heightened market sentiment.

According to observations from Zhitong Finance APP, on September 18, GENFLEET-B opened high at HKD 40.00 in the Phillip dark market, quickly surged to a high of HKD 45.58 after a brief fluctuation, and subsequently maintained a medium-high position, closing at HKD 41.22, ultimately rising by 102.16%, with a total transaction volume of HKD 213 million. On the next day, during its first listing performance, GENFLEET-B directly gapped up at the opening price, with the stock price soaring to HKD 44, a staggering increase of 115.79% compared to the issue price, quickly reaching an intraday high of HKD 50.20, and finally closing at HKD 42.10, an increase of 106.47%, with a transaction volume of HKD 1.553 billion and a turnover rate of 11.15%, overall performing better than the previous day's dark market.

However, the doubling of the increase from the issue price, combined with the performance of a high and subsequent pullback on the same day, also led to significant market divergence on GENFLEET-B's first day of listing, with many investors choosing to "cash in." But on September 22, despite a drop of 6.13%, there was a noticeable "reluctance to sell" in the market, with the trading volume plummeting from 34.9135 million shares on the first day of listing to 4.7366 million shares.

Furthermore, from the distribution of shares, 93.42% of the shares are concentrated in the range of HKD 40.50 to HKD 47.60, with only 0.85% of the shares being profit-taking shares, a significant decrease from the 20.10% profit-taking ratio on the first day of listing. This means that the vast majority of investors still choose to hold on, with the "reluctance to sell" attitude prevailing.

The reason investors are optimistic about GENFLEET-B lies in its fundamental performance, which hits multiple key points of the current bull market for innovative drugs in Hong Kong stocks: it has a differentiated autonomous pipeline, its products have been validated through commercialization and BD transactions, and its revenue has shown a growth trend in recent years. In short, the scarcity of GENFLEET-B's core products and its rich R&D pipeline provide it with long-term value anchors. Therefore, against the backdrop of the ongoing bull market for innovative drugs in Hong Kong stocks, a fundamentally solid target that aligns with the growth logic of innovative drugs clearly has a higher value proposition