During trading, the stock price violently surged by over 70%, and then rapidly fell by more than 6%. Powerwin Tech (02405) gave investors a stimulating "roller coaster" ride within one hour.

Finance and Economics APP observed that within 15 minutes of the opening on November 6, the stock price of Powerwin Tech experienced a violent surge, with an intraday increase exceeding 70%, peaking at 75.26%; shortly after, within half an hour, the stock price of Powerwin Tech rapidly dropped back to around 30%. Around 10:17 am in the morning session, after the increase rebounded to 56.25%, the stock price of Powerwin Tech suddenly plunged significantly, dropping to a low of 2.33 Hong Kong dollars, compared to the day's high of 4.78 Hong Kong dollars, a decrease of 51.25%.

Finally, Powerwin Tech closed down by 4.04%, with a trading volume of 28.28 million shares, and a turnover of 0.1 billion Hong Kong dollars, bringing an end to the 'magical day'.

Who initiated this 'roller coaster' trend?

Since the beginning of this year, the performance of Powerwin Tech in the Hong Kong stock market has overall been in a volatile downward trend. As of the close on November 5, its stock price has fallen by 49.63% year-to-date. Especially after the end of May, the company's stock price has been in a low-level consolidation phase, with daily average trading volume rarely exceeding 4 million shares. This is what makes the performance on November 6 seem completely out of sync.

After experiencing a long consolidation phase from the end of May to early November this year, the stock price of Powerwin Tech has mainly stayed in the range of 2.5-3 Hong Kong dollars at a low level, with some fluctuations during this period, but it has generally maintained a stable consolidation effect.

It is worth mentioning that during this process, the buying block orders kept some chips under pressure to make the market, while at the same time taking over the selling pressure chips, leaving most of the chips unchanged, locked in the absorption area, awaiting profit-taking at the high level. According to the chip distribution chart, regardless of how the stock fluctuates with buying high and selling low, the low-level chip accumulation area (2.6 Hong Kong dollars to ​​3.5 Hong Kong dollars) has always remained unchanged.

From the perspective of trading seats, public data shows that the top three net buyers in the past 20 days are Futu Securities, First Shanghai Securities, and Huasheng Securities, with net purchases of 6.136 million shares, 2.034 million shares, and 1.888 million shares, respectively. At the same time, the net selling volume is relatively small, with Morgan Stanley selling the most at only 1.144 million shares, while Dasheng Securities and Tiger Securities both sold less than 0.5 million shares.

Looking further back, Morgan Stanley has been the largest seller of Powerwin Tech in the past 60 days, selling a total of 3.856 million shares, followed closely by Soochow Securities and Yingli Securities, selling 3.68 million shares and 2.516 million shares, respectively.

However, on November 6th, Yaocai Securities dominated with a large net buying volume of 11.076 million shares, far ahead of other brokerages. The 2nd and 3rd place buyers were Futu Securities and Yuexiu Securities with net buying volumes of only 0.232 million shares and 0.196 million shares respectively. The selling side was equally subdued, with the top three sellers being GF Securities, Bocom International, and Tiger Securities, with net selling volumes of only 0.78 million shares, 0.296 million shares, and 0.192 million shares.

From a capital perspective, Powerwin Tech saw a net outflow of 73.2987 million Hong Kong dollars on the day, with a net outflow of 45.1792 million Hong Kong dollars from large orders and 21.7836 million Hong Kong dollars from small orders. On the inflow side, there was a net inflow of 24.1495 million Hong Kong dollars, including 16.2314 million Hong Kong dollars from small orders.

The fundamental deterioration behind the surge in stock prices

As a cross-border digital marketing service provider, the root cause of Powerwin Tech's stagnant stock price lies in its weak fundamental situation.

On August 19th of this year, Powerwin Tech issued a profit warning for the mid-term of 2024, followed by the disclosure of the 2024 first-half performance on August 28th. The financial report showed a decline in both revenue and profit for the period. During this time, the company's revenue was $7.368 million, a year-on-year decrease of 15.93%; while the net income was $0.338 million, a significant year-on-year decline of 83.3%.

Regarding the decline in revenue, the company mentioned in the financial report that it was due to intensified competition in the digital marketing service industry where the company operates, in order to maintain its competitive edge. Starting from 2024, the company has suspended account management fees and increased rebates for certain customers.

According to the financial report disclosure, most of the company's revenue comes from cross-border digital marketing services, and in previous financial records, the company's clients mainly come from the cross-border e-commerce industry.

The company's cross-border digital marketing services include three subcategories: standardized digital marketing services, customized digital marketing services, and SaaS-based digital marketing services. During the reporting period, the revenue from standardized digital marketing services and customized digital marketing services both declined, with a decrease of 30.9% and 32.7% respectively, amounting to 4.8 million USD and 2.3 million USD; in contrast, the business revenue from SaaS-based digital marketing services showed growth, increasing by 173.4% to 1.2 million USD.

While its main standardized digital marketing services business saw a performance decline due to market competition, the revenue growth of SaaS digital marketing services has to some extent optimized the company's revenue structure.

As mentioned above, the decline in revenue and profit of Powerwin Tech stemmed from insufficient market competitiveness. However, the cross-border e-commerce and marketing market it operates in are rapidly expanding.

According to the Intelligence Finance app, in 2023, cross-border e-commerce continued its growth momentum. According to the General Administration of Customs estimates, China's total import and export volume of cross-border e-commerce in 2023 reached 2.38 trillion yuan, a growth of 15.6%, 15.4 percentage points higher than the national import and export growth rate. The rapid rise of cross-border e-commerce is also continuously expanding the demand for digital marketing services.

According to Frost & Sullivan data, as of the end of 2021, China had approximately 1,000 cross-border digital marketing service providers, with a total bill amount of around 22.2 billion USD; the market size grew from 4.8 billion USD in 2016 to 28.25 billion USD in 2022, with a compound annual growth rate of 36.0%; it is expected to reach 61.6 billion USD by 2026, with a compound annual growth rate of 22.5% from 2021 to 2026.

In the SaaS-based cross-border digital marketing services sector, as early as 2021, China had 200-300 SaaS platforms or solution providers, with the top five service providers accounting for about 46.3% of the market size.

It is evident that in the context of the expanding market, market competition is becoming increasingly fierce. Therefore, Powerwin Tech had to resort to a series of concession strategies to retain customers, and the weakening of market bargaining power has also been reflected in its financial reports.

As of the end of June this year, the company's accounts receivable from third parties reached $0.245 billion, further increasing by 20.39% compared to the previous period, accounting for a high proportion of 33.27% of the company's current revenue, with the proportion of accounts aged over 3 months reaching 37.83%. The weakness in collection ability is also reflected in the cash flow, with the current net cash outflow from operating activities of the company at $40.31 million, indicating a significant impact on the company's cash collection ability.

At the same time, in order to maintain the company's normal operation, Powerwin Tech also maintains a high asset-liability ratio, with the current asset-liability ratio reaching 331.8%, which may indicate some worrisome factors in the company's financial stability. The overall weak fundamentals are also one of the important reasons hindering its stock price stability.