China

• China Communications Construction (1800 HK)‘s overseas contracts surged sharply in 2Q24 as market share gained. Slow domestic contracts are transient as bond issues will accelerate.
• Its backlog continued to grow to 4.7x 12-month forward revenue, which is higher than the 5-year average of 4.1x. Improving margin trend in 1Q24 will sustain into 2H24.
• With a projected ROE of 8.4% for the next two years, its 0.2x P/B is inexpensive. It is also attractive based on dividend yields of 7.7% and 8.4%, respectively.

• We compile a list of ten high-yielding/net cash or low-net debt stocks in HK’s apparel/footwear value chain. HK is a pariah for investors, and trailing dividend yields are approaching 6-20%. 
• As in other insights, we don’t estimate future earnings for all companies, but we indicate if the company has quality by measuring long-term ROCE (average five years).
• By expanding outside of China, most of these companies have derisked themselves from the trade war ( to the extent they can) and are also ready for earnings inflection.

• We tallied China renewable energy industry’s expansion overseas in June 2023 and recalibrated our result about one year after. 
• We see Chinese firm’s strategy of building capacities in the outskirt of US/Europe hard to defeat;
• The negative is manufacturing job losses at home. We also find more local competition in solar PV invertors.

• This takeover could be at negotiation stage and different parties haven’t reached an agreement.When Legend Bio releases official announcement, it means main issues of the deal have been agreed upon.
• Genscript will be a big winner if Legend Bio is acquired. Major shareholders would take measures to maximize personal interests.The concern is whether Genscript will offer dividends to small/medium shareholders/investors. 
• Whether the takeover is successful or not, reasonable valuation of Legend Bio is between US$12.5- US$15 billion. Due to uncertainties, we recommend investors buy Legend Bio directly rather than Genscript.

• Back on the 6th December 2023, packaging play CPMC Holdings (906 HK) announced a pre-conditional Offer of $6.87/share, in cash, from SASAC/NCSSF-backed Champion.
• The Offer Document is now out. This is not a Composite Document. A “Response Document” is expected in two weeks, which will include the IFA opinion. 
• All the above is moot. ORG Technology Co., Ltd. A (002701 CH)‘s superior HK$7.21/share Offer is currently navigating the necessary regulatory approvals. With irrevocables, ORG has 46.44% in the bag.

• Earlier this month, WH Group (288 HK) announced it had submitted a plan to spin-off its Smithfield US and Mexican ops on the NYSE or NASDAQ,
• These ops accounted for 54% of WHG’s FY23 revenue and 22.4% of the operating profit; compared to 56% and 44.9% respectively in FY22.
• We’ve been here before. A Smithfield spin-off was touted in 4Q23 (in the media). WHG acquired Smithfield for US$4.7bn in 2013, ahead of its 2014 listing. 

• Changping Industrial’s offer for CPMC Holdings (906 HK) opens at an unchanged HK$6.87, 4.7% below ORG Technology Co., Ltd. A (002701 CH)’s competing HK$7.21 offer. 
• Changping Industrial thinks deal fatigue may tip the balance in its favour. However, minorities will call Changping’s bluff, as the offer at current terms has a low chance of success. 
• Despite the current posturing, Changping Industrial will likely need to bump above ORG’s offer marginally to succeed. Expect more twists and turns in this contested battle. 

• We screen for stocks at the extreme ends of their positioning or momentum ranges among active Emerging Market equity funds.
• High Positioning, Negative Momentum: BYD Company Limited Class H, Novatek Microelectronics Corp.
• Low Positioning, Negative Momentum: Banco Bradesco SA Pfd, LG Chem Ltd.    

• Parcel volume growth remained strong in June, but ASPs weakened (again)
• YTO Express seems to be managing price / volume tradeoff competently
• Year-To-Date, only YTO shares up > 10%; three companies down -10% or more 

• The message WuXi AppTec hopes to convey in 24H1 report is that the Company isn’t losing orders/customers due to BIOSECURE Act and from 2025 it will return to high growth. 
• TIDES business growth is below expectations. Whether WuXi AppTec’s performance can be reversed is no longer solely depends on fundamentals/industry cycles, but on whether geopolitical risks can be fully resolved.
• Regardless of the outcome of 2024 presidential election, securing US supply chain is a already bipartisan consensus. If any Bill does pass in the future, valuation will plummet again.

• Outbound travel recovery remains sluggish, activity still far below 2019 levels
• Domestic activity up 5% Y/Y in June, now well above pre-Covid levels
• Trip.com gaining share during extended recovery, trades on 14x PER, BUY

• We visited convenience stores to look for China Resources Beverage products.
• The company is in a price war with Nongfu Spring, for both drinkable water and beverages.
• Some CRB products, such as plum syrup, do not have any competitors in physical stores.

• The review period for the September rebalance ends 31 July. We expect the changes to be announced 30 August with the implementation taking place after the close on 13 September.
• We forecast 6 changes for the index, including migrations between the STAR100 Index and the STAR50 INDEX. There is uncertainty for a few adds given profitability (or lack of it). 
• The outright potential adds have outperformed the outright potential deletes since the start of the calendar year with 12% outperformance in just the last 3 weeks.

• A8 New Media (800 HK)’s IFA opines that Mr Liu Xiaosong (Chairman and CEO)’s HK$0.36 privatisation offer to be fair and reasonable. The vote is on 23 August. 
• Key conditions include approval by at least 75% of disinterested shareholders (<10% of disinterested shareholders rejection).
• No shareholder holding a blocking stake, low AGM minority participation rate and the massive 162.8% takeover premium suggest a done deal. At the last close, the gross/annualised spread is 5.9%/36.0%.

• Low volatility investing has taken the mantle from Dividend yield as the top strategy during July
• BYD Electronics (285 HK) and Alibaba Group Holding (9988 HK) are rated BUYs as their businesses show improvement. 
• Kingdee International Software (268 HK) is seeing a softening in its SME business, however there is  potential to gain market share from foreign ERP companies given the pledged government’s policies.

• Lot’s of confusion for me around Lufax (LU).
• I took my dividend in shares being under the impression the scrip price was $2.15 (1 ADR is 2 shares):“Option 2: Elect Stock – You may elect to receive the dividend paid in new ADRs of LUFAX HLDG LTD at rate USD 1.073647 per share held on record date.”
• But apparently it is actually $2.25? Did IBKR make a mistake, will I get my shares at $2.15 or did I misread the above? 

• Overall, June container throughput growth and average container rates strong
• But spot rates have begun to wobble recently, and 2025 uncertainty grows
• We have decided to close our suggested container shipping pair trade 

• Herbs Generation’s performance growth momentum is strong, with growth rate of net profit higher than that of revenue. However, net profit margin is not high due to high SG&A expenses. 
• Due to small market size in Hong Kong, growth ceiling of Herbs Generation is obvious. It’s quite challenging to seize market share from top ranking providers due to fierce competition.
• We’re concerned that future revenue could decline to single-digit growth, as the effectiveness of continuing to invest in marketing/promotion will diminish. Valuation of Herbs Generation should be lower than peers.

• Carote Ltd (CARO HK) is looking to raise US$150m in its upcoming Hong Kong IPO.
• Carote Ltd is a distributor of kitchenware products. Expanding its lineup of products, Carote aims to meet its customers’ varied kitchen scenarios and enhance their culinary experience.
• In this note, we look at the firm’s past performance.

• 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), Canvest Environmental Protection Group (1381 HK), Greatview Aseptic Packaging (468 HK), Asia Cement China (743 HK). 
• Lowest spreads: Fancl Corp (4921 JP), Mimasu Semiconductor Industry (8155 JP), Infocom Corp (4348 JP), L’Occitane (973 HK), Qantm Intellectual Property (QIP AU), Alps Logistics (9055 JP). 

• There are only 3 trading days left in the review period for the September rebalance of the SSE STAR50 (STAR50 INDEX). 
• We see two potential changes that could result in a one-way turnover of 3.6% and in a one-way trade of CNY 4.7bn (US$644m).
• Cumulative excess volume has started to pick up in the stocks over the last few weeks and that could be an indicator of further gains for a long/short trade.

• Back on the 12th June, PRC property rental play A8 New Media (800 HK)  announced an Offer by way of a Scheme from chairman/founder/major shareholder Liu Xiaosong.
• The Cancellation price was $0.36/share, a punchy 162.77% to last close. The price was declared  final.
• The Scheme Doc is now out, with an independent shareholder vote on the 23 August and payment on or around the 2nd October. This is a done deal.

• We noticed some positive updates about Ascentage as competitors’ products have encountered varying degrees of challenges. However, the top priority for Ascentage is to get the approval of APG-2575 first.
• China Resources Boya has agreed to buy Green Cross for RMB1.82 billion, with premium of 160%.We think this is the right strategy considering the high barriers in blood products industry. 
• Weigao’s performance was negatively affected by VBP and anti-corruption campaign. The unsatisfactory share price performance is closely related to its business model. 2x P/S is reasonable for Weigao.

• The Quiddity Mainland Connect NORTHBOUND Monitor. Like the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor. Lots of Flows/Position Tables and Charts with which to play.
• Last week saw NORTHBOUND net SELL RMB 11.4bn of A-shares. NORTHBOUND sold everything. Seemed somewhat cap-weighted. Not a pretty flow picture. 
• A-Shares sharply underperformed HK indices, but AH spreads didn’t recover the prior week’s disaster. That said, there WAS dip-buying this week on the worst hit, which is unusual recently.

• Lonking Holdings (3339 HK)‘s positive profit alert for 33-50% YoY increase in 1H24 earnings suggests that market consensus of just 10% full-year growth is way too conservative.  
• Industry sales momentum for excavators and wheel loaders has accelerated in the last three months. A low base in 2H24 will mean an even stronger recovery.
• Government supportive measures for equipment renewal and faster special purpose bond issuance will fuel demand too. We estimate net cash equals 90% of the share price. 

• Xiaomi’s shipments increased by double digits, but Apple’s shipments decreased in China in 2Q24.
• Alibaba’s Taobao and Tmall platforms have waived the AliPay fee for retailers.
• Amazon will open a store on JD.com next Black Friday.

• Prosus has become more shareholder-friendly and responsive, driven by management remuneration incentives
• The drop in discount from 2022 to 2023 was influenced by these incentives, but the lack of their extension for 2024 has led to an increase in the discount to over 40%
• Investors have an asymmetrical opportunity to benefit from Prosus’ discounted value, especially with its valuable stake in Tencent

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Due to the low base in 2023, net profit in 2024 would show restorative growth, with net profit attributable to owners of the company reaching RMB5+ billion, up 33% YoY.
• Different from Sinopharm/CRP whose assets are scattered in different listed companies, pharmaceutical assets/resources of SH Pharma are integrated within the Company, so the intrinsic value of this model is greater.
• SH Pharma is undervalued. Interim dividend will be added in 2024.Future dividend ratio would remain 30+%.SH Pharma as a SOE takes the lead in responding to policies to increase dividends.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• SK Hynix

• SOUTHBOUND was again a net buyer, for HK$7.8bn this week (now 25wks in a row of net buying), on smallish two-way volumes. 
• I’ve thought national team was buying banks for months. This week, 1 bank showed up in the top 20 net buys after only 1 in the top ten last week.
• There were three ETFs in the top six SOUTHBOUND buys this past week. That was unusual. Some high div SOEs got sold. 

• The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
• SOUTHBOUND inflow strong but SOEs not leading. Hang Seng down again, A-shares down more. Bank buying minimal. 
• AH Premia fell 30bp on average. 1% for Liquid names. HK vs A-shares saw an even wider spread (the opposite of last week). SUPER-tight AH premia saw best H outperformance.

• Back on the 19th July, online Q&A play Zhihu (2390 HK/ZH US) announced the buyback of 46.92mn ordinary A shares (15.9% of shares out) at HK$9.11/share (US$3.50/ADS). 
• Assuming the buyback is fully taken up, chairman Yuan Zhou’s stake will increase to 44.4% from 42.9% currently (held via A shares and the weighted-voting B shares). 
• The key condition is a simple majority vote from independent shareholders. Zhihu is sitting on  net cash of US$764mn. A significantly larger buyback, or higher price, could have been initiated. 

• China announced game approval for the June batch. The number of games approved remained at a higher level than 2023.
• The pace of China game approval appears to have accelerated to the same level as pre-tightening. Of companies that we are monitoring, none got any approval.
• China’s CADPA published a semi-annual report pointing to flattish growth of gaming revenue in the first half. 

• China’s National Team was steadily buying ETF’s during and after the Third Plenum.  Southbound Connect Flows continue to be positive during July.
• Smoore International Holdings (6969 HK) , Xinjiang Goldwind Science & Technology (2208 HK) and Hisense Home Appliances Group Co., Ltd. H (921 HK)  benefited from positive news sentiment this week.
• Chow Tai Fook Jewellery (1929 HK) and ASM Pacific Technology (522 HK) suffered on negative news, while Meituan (3690 HK) continued its pullback in concert with the retail food sector.

• We expect Meituan’s C2Q24 rev. and non-IFRS NI to be 0.7% and 12.3% higher than cons, driven by resilient catering demand and eased competition.
• We expect Meituan in-store OPM improve to 33%/35% in 2Q24/2H24 supported by increasing commission rate and cutting BD cost.
• We maintain the stock as BUY rating and raise TP by HK$4 to HK$160/share to factor in the better profitability.

• Welcome to Consumer Tales & Trends, your weekly roundup of the latest corporate developments, investment reports and sector events in the consumer industry.
• An interesting comparison between China and India smart phone markets in 2Q 2024 – highlighting differences in market size and the dominance of leading players.
• Xiaomi Corp(1810 HK)  made a strong come back in 2Q24 in terms of sales in both the markets. In China, it saw a 17% year-on-year increase, shipping 10 million units.

• Due to weakening hiring demand from both manufacturing and service, we expect BZ’s cash billing to decline 5% QoQ in 2Q24, 9% below consensus. 
• We believe BZ’s user matrices still growing and leading. The weakness is mainly attributable to the employer/hiring side;
• We cut TP by US$3 to US$19/ADS while keep the BUY rating.

• Biotech play Genscript Biotech (1548 HK) and ~48%-held Legend Biotech (LEGN US) popped recently on a reported tilt for Legend.  Neither Genscript nor Legend made exchange announcements supporting the claim. 
• Preceding my comments on Genscript/Legend are the current setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• On the 22 July, waste-to-energy play Canvest Environmental Protection  (1381 HK) announced a pre-conditional Offer from Grandblue Environment (600323 CH) at $4.90/share (best & final), by way of a Scheme.
• Terms mirror that announced on the 7th July. Best Approach (54.75% of shares out) is seeking to roll over 7.23%. Pre-cons include the usual regulators: MoC, NDRC, SAMR and SAFE.
• Any new dividends paid will be netted. 4.478% blocking stake. Pre-IPO investor AEP Green Power, has 5.67%. Best Approach is required to abstain from voting on the Scheme and rollover.

• Plover Bay Technologies (1523 HK) reported 28.4%/55 % YoY revenue/net profit growth, led by growth from new customers in the US, Australia, and Europe. 
• The company reiterated its long-term guidance of reaching 300 mn USD revenue (FY23: 94 mn USD) in less than ten years. There was no clear guidance for FY24. 
• The stock trades at 14.8x PE FY24e, with a 5.4% dividend yield (assuming an 80% payout), and is at the cusp of an inflection in its growth. 

• On 15 July, the precondition for Changping Industrial’s HK$6.87 offer for CPMC Holdings (906 HK) was satisfied, but the despatch of the offer document was delayed until or before 30 July.
• Since ORG Technology Co., Ltd. A (002701 CH) announced its HK$7.21 offer on 7 June, the shares have traded above Changping Industrial’s offer on all but bar one trading day
• Changping Industrial has three options: launch at unchanged terms (low probability), match ORG’s offer (medium probability) or bump marginally higher than ORG’s offer (high probability).

• Since all the Pre-Conditions have been fulfilled, Baosteel has taken a solid step towards the successful acquisition of CPMC. Comparatively, ORG could encounter resistance and uncertainties in the upcoming process.
• The acquisition of CPMC by ORG cannot be completed by ORG and Zhang Wei alone.Without the “nod” of COFCO/SASAC, what ORG’s going to do is equivalent to a “hostile takeover”. 
• ORG’s acquisition of control of CPMC could go against the national strategy of “building strong alliances between SOEs”. In fact, what ORG wants is for Baosteel to raise its Offer.

• BYD (1211 HK) shares had a breakout relative to the MSCI China index and showing good momentum during the low volume days of summer. 
• POWER ASSETS HOLDINGS (6 HK) has shown a breakout relative to MSCI Hong Kong with a defensive business and 5%+ dividend yield.
  
• WH GROUP (288 HK) has also shown a breakout relative to the MSCI Hong Kong after its announcement of the spinoff of Smithfield Foods in the US.
  

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• ENN Natural Gas

• The Hang Seng Index has been falling in June and July, but our MONTHLY seasonal pattern model indicates the index has a very good chance to close August up.
• The condition we need, to forecast that August will be closing up, is to have July closing down, i.e. <17718.61.
• The index is WEEKLY OVERSOLD, so the timing to buy will be critical, because you want to get in early, but not too early (and July must close down).

• A month out from cutoff for the September rebalance, we see one potential change for the iShares China Large-Cap (FXI) (FXI US). 
• China Tower (788 HK) is a potential inclusion while China International Capital Corporation (3908 HK) should be deleted from the ETF.
• Shorts have been dropping in China Tower (788 HK) and are near their lows while increasing in China International Capital Corporation (3908 HK). 

• We believe Anhui Conch is near the end of a prolonged downturn. Earnings should have bottomed out in 1Q24, with highly visible sequential Q/Q improvements throughout the rest of 2024.
• The recovery is not demand-driven but cost-led as implementation of new national standards resulting in higher production costs led to industry-wide price-hikes, benefiting Anhui Conch the low-cost producer.
• We see mild rebound in cement demand in 2025 will pave the way for further price hikes, reinforce the company’s earnings recovery and catalyze valuation expansion.

• The CSRC has approved Midea Group Co Ltd A (000333 CH)‘s application to issue H-shares to be listed on the HKEX (388 HK). 
• Under the approval, Midea Group Co Ltd A (000333 CH) can issue up to 650.85m shares. Depending on the H-share discount, that could raise up to HK$43.6bn (US$5.6bn).
• The IPO is likely to be smaller and will depend on market conditions and the discount demanded on the H-shares. That in turn will determine index inclusion for the H-shares.

• The removal of their cross-holding structure has had a negligible effect on the respective discounts to NAV for Prosus NV (PRX NA) and Naspers (NPN SJ).
• We have seen a remarkable turnaround in Prosus’s operating performance during FY2024 and the market will focus on whether the new CEO can achieve his ambitions for “profitable growth”.
• The open-ended share repurchase program will continue as long as the discount remains “elevated”.

• TY-9591 has differentiated indication compared with the current listed third-generation EGFR-TKI, but it still depends on the final clinical results, which also bring more uncertainty to the commercialization performance.
• TYK’s development strategy requires it to invest heavily on head-to-head trials.Due to cash shortage, until TYK successfully addresses survival pressure,we recommend a more cautious assessment of pipeline prospects/future R&D arrangements.
• TYK is a “mediocre” company. The valuation (RMB3.08 billion) is based on optimistic expectations that core product will be successfully developed, become Me-Better, and commercialized smoothly.We’re, however, conservative about this.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Anton Oilfield

• Canvest Environmental Protection Group (1381 HK) disclosed a pre-conditional Cayman scheme privatisation from Grandblue Environment Co A (600323 CH) at HK$4.90 per share, an 11.6% premium to the last close price.
• The precondition relates to the completion of capital injection into the offeror, Grandblue shareholder, and regulatory approvals. The heavy presence of SOE entities makes this a formality.
• While not a knockout bid, the offer (which is final) is reasonable. Shareholders with blocking stakes will be supportive. Timing is the key risk as the offer is long-dated.

• The Hong Kong market trades about 30% below analysts’ estimated 12 month target price.
• Analysts are raising forecasts forXiaomi Corp (1810 HK) as it meets success with new phone rollouts and its EV business. 
• Sunny Optical Technology Group (2382 HK) had a positive profit alert and Minth Group Ltd (425 HK) is showing growth in its international business. Both are rated BUY from analysts.

• Based on the close of 22 July, there could be two changes for the iShares A50 China (2823 HK) / CSOP China A50 (2822 HK) ETFs in June.
• China National Nuclear Power and Huaneng Lancang River Hydropower could replace China Tourism Group Duty Free Corp Ltd and Yihai Kerry Arawana Holdings in the ETFs. 
• China Tourism Group Duty Free (1880 HK) could be deleted from a global index in August, so there could be selling in the A-shares and H-shares.

• Bloks Group (1850960D CH) is looking to raise US$300m in its upcoming Hong Kong IPO.
• Bloks Groups (Bloks) operates in the toy segment where it primarily assembles character and brick-based toys.
• In this note, we will talk about the positive aspects of the deal.

• Bloks Group (1850960D CH) is looking to raise US$300m in its upcoming Hong Kong IPO.
• Bloks Groups (Bloks) operates in the toy segment where it primarily assembles character and brick-based toys.
• In this note, we will talk about the not so positive aspects of the deal.

• SAINT BELLA’s revenue growth fluctuated because the pandemic led to the delay in the pregnancy plan of many families and an increase in the rate of abortion or miscarriage. 
• The increasing contract liabilities indicate that short-term performance growth of SAINT BELLA is guaranteed, but the declining fertility rates in China will bring challenges to SAINT BELLA’s long-term growth momentum.
• After Series B round financing in 2020, post-investment valuation was already about US$100 million. Valuation of SAINT BELLA should be higher than Aidigong Maternal & Child Health Limited (286 HK).

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Powerlong Commercial Management Holdings
• Reliance Industries
• Sino-Ocean Service