HNA Holdings Nears $50B Market Cap, Yet Stock Price Dips Close to $1

After nearly a month of fluctuating declines, with stock prices approaching the face value of 1 yuan and a total market value close to 50 billion yuan, HNA Holdings (600221.SH) has also sparked investors' concerns about delisting due to face value.

On June 26th, half an hour after the morning market opened, HNA Holdings hit the daily limit down, with the lowest price reported at 1.05 yuan. After noon, the decline narrowed, and by the end of the day, it closed at 1.11 yuan, with a total trading volume of 562 million yuan for the day and a total market value of 48 billion yuan.

Among the stocks that have already faced or are currently facing delisting due to face value, the total market value at the time of delisting is only a few billion or even tens of billions of yuan, generally lacking in sustainable operation capabilities and insufficient profitability. However, HNA Holdings not only has a market value close to 50 billion yuan but also achieved a profit in the first quarter of this year, and there have been no significant negative news on the fundamentals.

Many industry insiders interviewed believe that the recent market's negative sentiment towards low-priced stocks is still spreading, coupled with the adjustment period of major stock indices, leading to a continuous decline in low-priced stocks, and some companies with acceptable fundamentals have been "inadvertently injured."

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Stock price approaching 1 yuan

On the 26th, the three major A-share indices all turned red and ended up, but they failed to drive HNA Holdings to reverse the trend. After 2 p.m., the Shanghai Composite Index launched a major counterattack, with various concept topics performing, and more than 4,800 stocks rose on the board, but HNA Holdings' decline even expanded, only narrowing the decline in the last five minutes of the day.

Since late May, HNA Holdings' stock price has continued to decline. On June 5th, the stock closed at 1.31 yuan, breaking through the platform that had been horizontal for half a year and accelerating the downward trend. As of the close on the 26th, the stock's monthly decline reached 18.38%, and it fell nearly 9% in the last three days.

Compared with other stocks in the aviation sector, HNA Holdings' stock performance has been at the bottom since the second quarter. Data shows that since April, among the 8 aviation stocks, Juneyao Airlines (603885.SH) and HNA Holdings have fallen by 5.89% and 18.98%, respectively; Huaxia Airlines (002928.SZ) led the sector with a gain of 23.14%, significantly outperforming the stock index, and China Eastern Airlines rose by nearly 10%.

So far this year, 13 listed companies have determined to delist, with 7 of them delisting due to face value and terminating their listing. According to the current stock price, HNA Holdings has set the lowest price since June 2006 (adjusted for rights), and a further 11% decline will break through the 1 yuan face value.

In response to investors' questions about the risk of stock prices falling below 1 yuan on the interactive platform, HNA Holdings stated: The stock price is affected by many complex factors such as the macroeconomic environment, domestic and foreign industrial policies, overall market trends and industry situations, investor psychological expectations, and company operating performance. "The company highly values market value maintenance and management and has formulated a market value maintenance plan."Analysts believe that the continuous decline of HNA Holdings is the result of multiple factors. On one hand, the A-share market is accelerating the process of survival of the fittest, especially with the recent face-value delisting rules acting as a catalyst for panic in the low-priced stock market. Stocks with poor fundamentals and low stock prices have entered a vicious cycle, where the closer the stock price gets to 1 yuan, the lower the willingness of funds to buy, leading to a continuous decline in stock prices and dragging down the valuation pricing of the entire low-priced stock sector. Wind data shows that since June 17th, the average decline of stocks with prices below 1.5 yuan in the Shanghai and Shenzhen markets is 9.15%, with 18 stocks experiencing a decline of over 20%, while the average decline of A-shares in the same period is 5.17%.

Additionally, with the continuous adjustment of A-shares and the second quarter being a market off-season, the civil aviation industry is under overall pressure, and the uncertainty of mid-year performance has triggered fund sales.

The Shanghai-Hong Kong Stock Connect has significantly sold off HNA Holdings since June. Data shows that as of the close on May 31st, the Shanghai-Hong Kong Stock Connect held 672 million shares of HNA Holdings. In the first four trading days of June, the Shanghai-Hong Kong Stock Connect sold approximately 126 million shares in total. By the close on June 25th, the Shanghai-Hong Kong Stock Connect's holdings had decreased to 532 million shares, with a total of about 140 million shares sold.

Second Quarter Performance Pressure

"Companies facing delisting due to face value generally have poor operations, insolvency, and out-of-control internal governance, and no longer possess the ability to sustain profitability. Fundamentally, HNA Holdings does not currently have operational risks, and its profitability is also in the process of continuous recovery," said a private equity person in Shanghai to First Financial Daily reporters, stating that the continuous decline in the company's stock price is mainly due to the negative sentiment of funds towards low-priced stocks.

In the first quarter of this year, HNA Holdings just achieved a turnaround from losses, with operating income of 17.549 billion yuan, a year-on-year increase of 33.48%, net profit of 686 million yuan, a year-on-year increase of 334.51%, and net profit excluding non-recurring gains of 614 million yuan, a year-on-year increase of 502.86%.

Despite the significant improvement in performance in the first quarter, due to market environment and seasonal factors, there is certain pressure on the performance of the civil aviation sector in the second quarter, which is also reflected in HNA Holdings.

Looking at the second quarter, HNA Holdings' passenger traffic has declined on a month-to-month basis for two consecutive months. In May, passenger traffic decreased by 1.27% month-on-month and increased by 3.47% year-on-year; passenger capacity input decreased by 1.69% month-on-month and increased by 4.72% year-on-year.

HNA Holdings also stated in recent institutional research that the domestic civil aviation market as a whole is in the off-season in the second quarter, with the ebb of hot tourism markets (such as Hainan island tours, Northeast China's ice and snow tours), and seasonal markets in the northwest have not yet reached the starting point, putting certain pressure on civil aviation operations.

HNA Holdings also stated that it expects the summer travel market to remain relatively hot this year. In terms of international routes, region by region, North America has the strongest demand, but the recovery of China-US routes is not as expected; in Asian routes, Japan, Thailand, and others are areas with better demand recovery due to the impact of exchange rates and visa-free policies, and as Asian routes fully recover, the company also faces intense market competition; European routes have good demand on routes such as Germany and France due to factors such as the European Cup and the Olympics. It is expected that by the end of 2024, the overall recovery of the industry's international routes will reach more than 80% of pre-pandemic levels, and the company aims to achieve a synchronized level with the industry.