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As the broader market consolidates with reduced volume, the ST (Special Treatment) sector is once again experiencing a frenzy of gains.

On August 22, the ST sector fluctuated upwards, continuing its strong performance over the past month. Stocks such as *ST Tianchuang, *ST Jingfeng (000908.SZ, Jingfeng Medicine), ST Gaohong, *ST Ningke, ST Yuancheng, *ST Furun, *ST Jinshi, and 14 others hit their upper limit.

Wind data indicates that since July, the ST sector index (884197) has risen by nearly 10%, outperforming major stock indices. Some individual ST stocks have seen wild surges, with *ST Jingfeng achieving 33 out of 37 trading days hitting the upper limit; high-risk delisting stocks like *ST Furun (600070.SH) and ST Lingda (300125.SZ) have both seen increases of over 100% in the past month.

Prior to this round of speculation, new delisting rules published in April this year clarified the acceleration of a regular delisting pattern that ensures timely clearance. This implies that transactions centered around shell resources will become more difficult, and the ST sector and underperforming stocks may face greater delisting risks. As of the latest closing date, the ST sector index has fallen by 49.53% year-to-date, marking the largest annual decline since the index was established.

In response to the recent active trend following a significant drop in the ST sector, industry institutions believe that in a market with scarce incremental capital, reduced volume adjustments, and no main thematic focus, ST stocks, which are generally small-cap, are easily manipulated by short-term arbitrage funds. The upward trend is not sustainable, and investors need to manage their positions and avoid blindly following the trend.

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The ST sector has once again seen a wave of stocks hitting their upper limit, with *ST Jingfeng being aggressively speculated.

With the strict implementation of delisting rules, the value of listed company shells has been significantly compressed this year. The ST sector has repeatedly hit new lows, with the index falling by 43.4% from April to June. Some "underperforming" low-priced stocks have continued to decline, and when the possibility of delisting becomes significant, investors rush to sell off. Including those that have been delisted and those that have already locked in for delisting, there have been 36 "1 yuan delisting stocks" this year.

Since July, the ST sector has rebounded from its low point, with the index's cumulative rebound reaching 9.06% as of now. Some ST stocks have been hotly speculated upon by funds, attracting high market attention.

On August 22, 14 ST stocks recorded a daily limit up, and the ST sector index closed up by 0.38%. *ST Jingfeng has been the main target of speculative funds, with the stock achieving 33 daily limit ups in the last 37 trading days, following a previous 22-day period with 19 daily limit downs, a "deep V" trend that is rare in A-share history.

Looking at a longer period, according to Wind data, there are a total of 131 ST stocks. From July 1 to August 22, 55 ST stocks have risen by more than 10%, with 38 stocks increasing by over 20%. *ST Jingfeng, ST Lingda, and *ST Jiayu led the sector in gains, all surpassing 100%, significantly outperforming major stock indices.*ST Jingfeng is a typical case of speculation on reorganization expectations. Since May of this year, several executives of *ST Jingfeng have been replaced. Currently, the non-independent director seats of the company's board of directors are occupied by Wei Qingjie (Shiyao Holdings), Zhang Li (Changde City State-owned Assets), Xie Shuqing (Great Wall Company, i.e., the second largest shareholder of the listed company), and Ye Gaojing, the daughter of the former actual controller of the listed company. For this high-level change, the market speculates that the second largest shareholder of *ST Jingfeng, Great Wall Company, is working with Changde City State-owned Assets to promote the reorganization of Jingfeng Pharmaceuticals.

At present, *ST Jingfeng still has unresolved debt maturities, the 2023 financial report has a qualified opinion and a negative opinion on internal control matters that have not been completely eliminated, and there is significant uncertainty about its ability to continue operating. On August 9, *ST Jingfeng announced that due to some potential investors indicating that the time to prepare materials was relatively tight and the internal approval procedures had not been completed, the recruitment of reorganization investors was postponed, and there has been no updated information since then.

As of the end of the first quarter of this year, *ST Jingfeng was insolvent, with a debt-to-asset ratio of 113.51%, and lacked the necessary cash for production and operation. Regarding the progress of the reorganization, *ST Jingfeng announced on the evening of August 12 that the company has entered the pre-reorganization procedure, and there is still uncertainty about whether the company can enter the reorganization procedure.

*ST Furun "narrowly escaped death," while ST Lingda was urged by independent directors to rectify.

ST Lingda and *ST Furun, two stocks, have seen a cumulative increase of over 100% in the past month, making them the leaders of the ST sector. Amid the speculation, the fundamental bearish factors of both companies have not been resolved, and investors need to be aware of the risks associated with speculation.

*ST Furun transformed its main business into big data and internet marketing through the acquisition of Hangzhou Taiyizhishang Technology Co., Ltd. (hereinafter referred to as "Taiyizhishang") in 2016, which generated a goodwill of 800 million yuan. Later, it was found by the China Securities Regulatory Commission that *ST Furun fabricated business through Taiyizhishang, inflated operating income and costs, and engaged in financial fraud in the 2020 annual report, the 2021 annual report, and the 2022 semi-annual report. During this period, the listed company inflated the operating income by a total of 717 million yuan and the operating costs by a total of 716 million yuan.

*ST Furun basically no longer has the ability to sustain profitability. From 2020 to 2023, the company's net profit attributable to the mother company after deducting non-recurring gains and losses accumulated a loss of about 2 billion yuan. In the first quarter of this year, the company's operating income scale decreased to 23.707 million yuan, a year-on-year decline of nearly 20%, with a net loss of 50.112.7 million yuan. As of the end of the first quarter, *ST Furun's undistributed profit loss was 1.086 billion yuan.

From July 8 to July 26, *ST Furun's stock price was below 1 yuan for 15 consecutive trading days. Just when most investors thought the company would be delisted due to its face value, the stock price returned to 1 yuan on July 29 and accumulated a 70.71% increase in the following 19 trading days, "successfully" avoiding the risk of delisting due to face value. On August 22, *ST Furun's stock price hit the daily limit, reporting a price of 1.69 yuan, with a total market value of nearly 860 million yuan.

Since August, ST Lingda has accumulated a 57% increase, leading the sector. Recently, the company announced matters related to pre-reorganization. The creditor, Jinzhai Huijin Investment Co., Ltd., applied to the court for the company's reorganization and the initiation of the pre-reorganization procedure on the grounds that the company cannot repay the due debt, clearly lacks the ability to repay, but has reorganization value. It is understood that ST Lingda's creditors should report their claims to the temporary administrator before September 1, 2024, and there is still uncertainty about whether the company will enter the reorganization procedure later.

In addition to the continuous annual losses and lack of sustainable profitability, ST Lingda has situations such as debt that cannot be repaid and unresolved fund occupation issues. On August 16, ST Lingda announced that the company received a "Rectification Urgency Opinion Letter" jointly submitted by three independent directors, Liu Liming, Lin Shanlang, and He Shaoping. The three independent directors stated that, according to their understanding, a large part of the funds occupied by related parties has not been recovered, and the company has not taken effective measures to recover losses and eliminate adverse effects. At the same time, the company has irregularly guaranteed externally without going through the relevant review procedures, and the relevant internal control deficiencies have not been effectively rectified. The three independent directors of ST Lingda proposed a number of rectification opinions and rectification measures, involving the strengthening and improvement of the listed company's internal control system, correction of irregular guarantee behavior, and other aspects.In the absence of the elimination of various bearish factors, ST Lingda has been hyped as the leader of the ST sector by capital. From July 31st to August 8th, within 7 trading days, the stock price of ST Lingda increased by a cumulative 114.16%, with 3 trading days recording a "20CM" daily limit up. Since August, ST Lingda has accumulated an increase of 57.41%, with the latest price reported at 4.14 yuan, a cumulative increase of as high as 176% compared to the annual low of 1.5 yuan.

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