HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Disappointing FY22 result from raw milk company <a href="https://www.smartkarma.com/entities/austasia-group-ltd" target="_blank" data-smartkarma-citation="entities:36655:1" rel="noopener">AustAsia Group (2425 HK)</a> should be well expected, but the issue is its guidance that FY23 industry outlook will stay challenging. </li>
<li>Raw milk price is still coming down and 1H23 dairy product demand recovery is slow. Capacity influx will disrupt demand-supply balance, but feed costs pressure seems to have moderated. </li>
<li>Consensus profit projections for the sector are overly optimistic and there is earnings downgrade risk after FY22 result announcement. We will shy away in the near term.</li>
</ul>


Disappointing FY22 result from raw milk company AustAsia Group (2425 HK) should be well expected, but the issue is its guidance that FY23 industry outlook will stay challenging. 
Raw milk price is still coming down and 1H23 dairy product demand recovery is slow. Capacity influx will disrupt demand-supply balance, but feed costs pressure seems to have moderated. 
Consensus profit projections for the sector are overly optimistic and there is earnings downgrade risk after FY22 result announcement. We will shy away in the near term.


China Raw Milk Industry: Takeaways from AustAsia (2425 HK) Call

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Greatview Aseptic Packaging / Event-Driven

<ul>
<li>Earlier this year, <a href="https://www.smartkarma.com/entities/jardine-matheson-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19718:1" rel="noopener">Jardine Matheson Holdings (JM SP)</a> was understood to be exploring the sale of its 28% stake in <a href="https://www.smartkarma.com/entities/greatview-aseptic-packaging" target="_blank" data-smartkarma-citation="entities:10802:1" rel="noopener">Greatview Aseptic Packaging (468 HK)</a>.</li>
<li>GA Pack announced its full-year results late last month and for the first time since 2012, opted not to pay a final dividend.</li>
<li>Shares are down 20% since that non-dividend announcement. That's convenient.</li>
</ul>


Earlier this year, Jardine Matheson Holdings (JM SP) was understood to be exploring the sale of its 28% stake in Greatview Aseptic Packaging (468 HK).
GA Pack announced its full-year results late last month and for the first time since 2012, opted not to pay a final dividend.
Shares are down 20% since that non-dividend announcement. That's convenient.


<ul>
<li>The sharp surge in Omicron-driven local cases has driven more stringent measures by local governments. On ground in Shanghai, we see more tightened measures being implemented over the weekend. </li>
<li>The measures will reduce a lot of foot traffic and lower discretionary spending appetite in Mar, and this will negatively weigh on many 1Q22 results to be announced in late-Apr. </li>
<li>We advocate a long staples, short discretionary strategy in the near term. Also, travel sector will be hit, and on net-net basis, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> looks to be a loser.</li>
</ul>


The sharp surge in Omicron-driven local cases has driven more stringent measures by local governments. On ground in Shanghai, we see more tightened measures being implemented over the weekend. 
The measures will reduce a lot of foot traffic and lower discretionary spending appetite in Mar, and this will negatively weigh on many 1Q22 results to be announced in late-Apr. 
We advocate a long staples, short discretionary strategy in the near term. Also, travel sector will be hit, and on net-net basis, Meituan (3690 HK) looks to be a loser.


China on the Ground: Escalating Measures to Combat Omicron and What Stocks Are Impacted?

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<ul>
<li>Since announcing <a href="https://www.smartkarma.com/entities/shandong-xinjufeng-technology-packaging-co-ltd" target="_blank" data-smartkarma-citation="entities:36744:1" rel="noopener">Shandong Xinjufeng Technology Packaging (301296 CH)</a>’s pre-conditional voluntary offer for <a href="https://www.smartkarma.com/entities/greatview-aseptic-packaging" target="_blank" data-smartkarma-citation="entities:10802:1" rel="noopener">Greatview Aseptic Packaging (468 HK)</a> at HK$2.65 per share, the gross spread has increased. </li>
<li>The Board’s strategy is to rally shareholders against a hostile offer. However, the recent AGM protest votes suggest that the Board cannot easily thwart the offer. </li>
<li>Shandong Xinjufeng's renewed efforts to secure Board representation suggest that its offer is in trouble. Meanwhile, <a href="https://www.smartkarma.com/entities/china-mengniu-dairy-co" target="_blank" data-smartkarma-citation="entities:354:1" rel="noopener">China Mengniu Dairy Co (2319 HK)</a> seems disinclined to engage in a bidding war. </li>
</ul>


Since announcing Shandong Xinjufeng Technology Packaging (301296 CH)’s pre-conditional voluntary offer for Greatview Aseptic Packaging (468 HK) at HK$2.65 per share, the gross spread has increased. 
The Board’s strategy is to rally shareholders against a hostile offer. However, the recent AGM protest votes suggest that the Board cannot easily thwart the offer. 
Shandong Xinjufeng's renewed efforts to secure Board representation suggest that its offer is in trouble. Meanwhile, China Mengniu Dairy Co (2319 HK) seems disinclined to engage in a bidding war. 


GAPack (468 HK): Grinding Towards a Stalemate

China Traditional Chinese Medicine / Event-Driven

<ul>
<li>We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.</li>
<li>Highest spreads: <a href="https://www.smartkarma.com/entities/yichang-hec-changjiang-pharmaceutical" target="_blank" data-smartkarma-citation="entities:21040:1" rel="noopener">Yichang HEC Changjiang Pharma (1558 HK)</a>, <a href="https://www.smartkarma.com/entities/china-traditional-chinese-medicine" target="_blank" data-smartkarma-citation="entities:351:1" rel="noopener">China Traditional Chinese Medicine (570 HK)</a>, <a href="https://www.smartkarma.com/entities/asia-cement-china-holdings" target="_blank" data-smartkarma-citation="entities:3374:1" rel="noopener">Asia Cement China (743 HK)</a>, <a href="https://www.smartkarma.com/entities/canvest-environmental-protection-group-co-ltd" target="_blank" data-smartkarma-citation="entities:100:1" rel="noopener">Canvest Environmental Protection Group (1381 HK)</a>, <a href="https://www.smartkarma.com/entities/greatview-aseptic-packaging" target="_blank" data-smartkarma-citation="entities:10802:1" rel="noopener">Greatview Aseptic Packaging (468 HK)</a>.
</li>
<li>Lowest spreads: <a href="https://www.smartkarma.com/entities/tatsuta-electric-wire-cable-co-ltd" target="_blank" data-smartkarma-citation="entities:12509:1" rel="noopener">Tatsuta Electric Wire &amp; Cable (5809 JP)</a>, <a href="https://www.smartkarma.com/entities/alumina-ltd" target="_blank" data-smartkarma-citation="entities:939:1" rel="noopener">Alumina Ltd (AWC AU)</a>, <a href="https://www.smartkarma.com/entities/fancl-corp" target="_blank" data-smartkarma-citation="entities:15862:1" rel="noopener">Fancl Corp (4921 JP)</a>, <a href="https://www.smartkarma.com/entities/mimasu-semiconductor-industry-co-ltd" target="_blank" data-smartkarma-citation="entities:5531:1" rel="noopener">Mimasu Semiconductor Industry (8155 JP)</a>, <a href="https://www.smartkarma.com/entities/infocom-corp" target="_blank" data-smartkarma-citation="entities:8412:1" rel="noopener">Infocom Corp (4348 JP)</a>, Hollysys.
</li>
</ul>


We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), China Traditional Chinese Medicine (570 HK), Asia Cement China (743 HK), Canvest Environmental Protection Group (1381 HK), Greatview Aseptic Packaging (468 HK).

Lowest spreads: Tatsuta Electric Wire &amp; Cable (5809 JP), Alumina Ltd (AWC AU), Fancl Corp (4921 JP), Mimasu Semiconductor Industry (8155 JP), Infocom Corp (4348 JP), Hollysys.



Merger Arb Mondays (22 Jul) - China TCM, GA Pack, Huafa, Samson, CPMC, Fancl, Tatsuta, Capitol

China

China Mengniu Dairy Company Limited, through its subsidiaries, manufactures and distributes quality dairy products in China. The principal products are liquid milk products, ice cream, and other dairy products, such as milk powder. The Company markets its products under its primary MENGNIU core brand.

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China Mengniu Dairy Co (2319 HK)

China Raw Milk Industry: Takeaways from AustAsia (2425 HK) Call

Outlook for the raw milk industry stays challenging in FY23. Raw milk price is still coming down, 1H23 dairy product demand recovery is slow and...

Osbert Tang, CFA

Greatview (468 HK): A Packing Case Pick

I'd be picking up shares here. Pegged to its longer-term EV/EBITDA average, there is ~50%+ upside from here. With even more upside if GA Pack is...

David Blennerhassett

China on the Ground: Escalating Measures to Combat Omicron and What Stocks Are Impacted?

Omicron combating measures have been stepped up over the weekend and this will make a dent on the Mar operations of many companies. This will be...

Osbert Tang, CFA

GAPack (468 HK): Grinding Towards a Stalemate

There is a stalemate as the Board and Shandong Xinjufeng appear to have similar levels of support. The risk (12.1% downside to undisturbed)/reward...

Arun George

Merger Arb Mondays (22 Jul) - China TCM, GA Pack, Huafa, Samson, CPMC, Fancl, Tatsuta, Capitol

This week, the highest gross spreads are HEC Pharma (122.5%), China TCM (31.8%), Asia Cement (12.6%), Canvest (11.1%), GA Pack (10.9%), Malaysia...

Arun George

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