China

• The Huafa Property Services Group (982 HK) vote on Huafa Industrial Co., Ltd. Zhuhai (600325 CH)’ HK$0.29 offer is on 28 August. However, shares trade wide ahead of the vote.
• Several readers have enquired about the unusually high spread ahead of the vote of a seemingly clean deal. The conversations raised several concerns. 
• The concerns are unwarranted, and this remains a clean deal. At the last close and for the 30 September payment, the gross/annualised spread was 5.5%/68.9%. 

• 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), Malaysia Airports Holdings (MAHB MK), Capitol Health (CAJ AU). 
• Lowest spreads: Tohokushinsha Film (2329 JP), Fuji Soft Inc (9749 JP), Descente Ltd (8114 JP), Second Chance Properties (SCE SP), Fancl Corp (4921 JP), C.I. TAKIRON Corporation (4215 JP).     

• Roughly six weeks ago, Shanghai Henlius Biotech (2696 HK) announced the scrip option condition was met. Just that Shanghai Fosun Pharmaceutical (2196 HK) (the Offeror) was weighing its options
• This situation mirrored L’Occitane (973 HK)‘s (eventual) scrip option. And in place of Pleasant Lake in that transaction; Henlius has Loyal Valley Capital (5.8309% shareholder) behind the scenes.
• Late Friday, Henlius updated the terms of Fosun’s Offer to now include the scrip option alternative. We expected nothing less. 1H24 results will also be out later today. 

• Tencent reported a softer set of results for Q2 relative to Q1. Revenue for the quarter was up 1% QoQ and 8% YoY.
• Since our last discount update mid-August, the discounts of both Naspers and Prosus have continued to narrow.
• Naspers’ discount is trading well off the lows reached at the end of July (~45%). 

• The 1H result was poor due to the inventory clearance from the new product standards, which rendered older products less desirable. 
• Management has proven to be able to manage costs carefully during a down cycle. 
• Yadea Group Holdings (1585 HK) used to trade around 35x PER; now it is only 10x PER. 

• The Share Alternative is necessary to improve success rate of privatization. Our guess is Henlius Biopharmaceuticals/Lin Lijun would vote for this privatization, but we’re not sure about Qatar Investment’s decision.
• Due to its “flaws”, undervaluation of Henlius is difficult to fundamentally change. So, those conservative and cautious investors would choose the Cash Alternative considering the risks behind the Share Alternative.
• Even if there’re plans of re-listing, it may be based on a new entity formed after integrating Henlius and other assets within Fosun Pharma. So, the value of Rollover Entities/Securities remains uncertain.

• China Power International (2380 HK) kicked off FY24 with an impressive 51.5% surge in 1H24 net profit. All business segments improved YoY, with hydropower being the best. 
• Both volume growth and cost reduction are the key drivers, supporting a 7.2pp gross margin expansion. The 5pp increase in the proportion of hydropower sold also lifted profitability.
• CPI will grow its capacity to 52GW by end FY24, a 15.5% YoY and 7.8% HoH increase. Moreover, the upside will come from more asset injection from its parent.

• Pop Mart’s total revenue increased by 62% YoY due to the promising overseas market.
• Tongcheng’ revenue grew by 48% YoY in 2Q24, as new businesses are successful.
• Alibaba’s Freshippo plans to set up frontline warehouses, which is a way back to online.

• Welcome to Consumer Tales & Trends, your weekly roundup of the latest corporate developments, investment reports and sector events in the consumer industry.
• With fewer young people and a growing number of older adults, the target market for alcoholic beverages is shrinking in many markets including China.
• Upsides from vertical integration could give Ola Electric (OLAELEC IN) a significant cost advantage over local competitors. Strong pricing power can allow it to decide whether to prioritize growth or margins.

• CIMC Enric Holdings (3899 HK)‘s 1H24 result is below expectations, but the growth outlook is promising. Management also guided for a solid recovery in 2H24.
• Backlog and new orders rose 42.5% and 29.4%, respectively, with chemical and environmental orders rebounded sharply QoQ. The overall margin will be better in 2H24.
• Hydrogen revenue should reach Rmb1bn in FY24 (1H24: Rmb450m). New coke oven gas (COG) to hydrogen projects may generate Rmb10bn revenue by FY27, or 43% of FY23 revenue.

• I tally 45 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal 
• Two new deals were discussed this week: Alimentation Couche-Tard (ATD CN)‘s non-binding proposal for Seven & I Holdings (3382 JP).; and EQT’s Offer for PropertyGuru (PGRU US).
• Key updates took place on APM Human Services (APM AU), TCM (570 HK), GaPack (468 HK), Alps Logistics (9055 JP), Fancl Corp (4921 JP), and Jeisys Medical (287410 KS).

• A media outlet that Reports on Deals reported that the consortium will offer HK$14.50 per share, a 22.1% and 61.8% premium to the last close (HK$11.88) and undisturbed price (HK$8.96).
• While not a knockout offer, the consortium’s impending binding proposal suggests confidence that the offer price and structure would gain the support of the substantial shareholders. 
• The downside to a deal break is low as ESR’s valuation is undemanding. Its forward EV/EBITDA multiple is at a 30% discount to the median peers’ multiple.

• Shanghai Fosun Pharmaceutical (Group) (2196 HK) announced the Shanghai Henlius Biotech (2696 HK) share alternative offer, subject to proration due to a cap of 8% of outstanding shares. 
• The share alternative offer was necessary to facilitate the vote as the HK$24.60 offer is half the HK$49.60 IPO price. 
• The co-founders, HenLink and LVC, will likely tender some or all their shares for scrip. At the last close and for the December-end payment, the gross/annualised spread is 7.4%/17.9%.

• China Traditional Chinese Medicine (570 HK)‘s profit warning suggests weaker-than-expected 2024H1 results, but the interim report is needed for clarity. This is unlikely to negatively affect the company’s privatization plans.
• In 24H1, healthcare investment and financing activities have slowed, and it will take time for investors’ confidence in the sector to recover.
• Giant Biogene (2367 HK)‘s 24H1 results exceeded expectations, leading management to raise its 2024 guidance. However, the profit margin declined, and we remain cautious about long-term growth prospects.

• Alibaba Group’s June Quarter 2024 financial report showcases a blend of growth, challenges, and strategic advancements.
• The group reported steady growth in its core e-commerce businesses, Taobao and Tmall Group, with an increase in Gross Merchandise Volume (GMV) and order volumes.
• Particularly, the company’s focus on enhancing user experience and AI-driven strategies appears to be bearing fruit, assuring an upward trajectory in retaining and attracting customers, which is crucial in a competitive e-commerce landscape.

• JD.com reported its second quarter and interim 2024 earnings, presenting a mixed performance amid challenging market conditions.
• The company achieved record non-GAAP net profit for a single quarter, indicating strong profitability and effective cost management.
• However, revenue growth was modest, reflecting the competitive and dynamic nature of the market JD.com operates in.

• Tencent Music Entertainment (TME) demonstrated a strong performance in the second quarter of 2024, anchored by significant growth in its online music services and a robust increase in adjusted net profit.
• The company reported a 28% year-over-year growth in online music services and a 26% increase in adjusted net profit, signaling robust operational health and profitability.
• The addition of over 10 million music subscribers in the first half of 2024, combined with an increase in average revenue per paying user (ARPPU), underscores the company’s effective market penetration and pricing strategy.

• Xiaomi reported CY2Q24 revenue, non-IFRS EBIT and non-IFRS net income 5.6%, 32.2%, and 40.0% vs. consensus. 
• Despite the limited scale and numerous incentives offered at launch, Xiaomi reported an EV gross margin of 15.4%. Greater scale and reduced incentives provide further margin upside in C2H24;
• Xiaomi’s smartphone and IoT market share gain have accelerated amid the halo-effect stemming from the SU7. We reiterate our BUY rating, and raise  TP to HK$27.0, implying 28.3x CY25 P/E.

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.

• AAC Technologies Holdings
• GMR Hyderabad International Airport

• We have correctly forecasted a August rally for the Hang Seng Index in previous insights, here and then here – the rally is on, but a pullback is coming.
• The pullback may come in this week or the next, but it’s probably behind the corner, the index can continue higher after the pullback.
• In this insight we want to expose what are the levels to buy LONG to benefit from a highly probable continuation of the rally in September.

• Kuaishou reported C2Q24 revenue, IFRS operating profit, and IFRS net income in-line, in-line, and 5.7% vs.  our estimates; and in-line, 9.0% and 14% vs. the consensus. 
• The bright spot was strong growth in its advertising and stabilization in the regulation-affected live streaming. Our BUY case of AI empowering mid-sized traffic platforms is intact;
• We cut TP to HK$75 to reflect the sustained damage of weak consumption. The stock is trading at only 8.5x PE for 2025.

• Data from Bank of East Asia (23 HK) is just out with poor 1H24 results YoY
• Notable in its release are its Hong Kong overdue exposure by over three months
• Hong Kong region income is the worst affected by credit costs, this does not seem to be over

• XPeng (XPEV) reported C2Q24 top line, non-GAAP operating loss and GAAP net income in line, 5.4% worse and 7.5% better than our estimate. 
• We raised our MONA forecast by 13% but still significantly below XPEV’s guidance. We believe management guidance is overly optimistic;
• We maintain a SELL rating on the stock and TP unchanged.

• Dupert, a drug for the special treatment of non-small cell cancer has been approved by the NMPA.
• In 2022, China recorded the highest number of new cancer cases, and their exceptional high incidence of smoking is of particular concern.
• Innovent’s portfolio of nine oncology drugs is very attractive in the biggest cancer market.

• SITC International (1308 HK)‘s management guided for a promising outlook for 2H24, with strong load performance in Jul-Aug, and better long-term contract rates YoY.  
• Gross margin expanded 4.5pp in 1H24 despite a 5.3% drop in average freight rate, thanks to good cost control with lower chartered-in costs and more self-owned vessels.
• Net cash increased 195% from end-FY23, and we are confident that its 70% payout ratio can be maintained. Its P/B is still below the 5-year average.

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.

• Sunny Optical Technology Group
• Xiaomi Corp

• Another set of strong results from YMM, revenue and core earnings both up
• Need to monitor orders per MAU; reason for decline in Q224 unclear
• Maintain US$9.45/ADS target price, ADSs are attractive closer to US$7

• Legend Biotech, during their second quarter 2024 earnings call, presented a detailed insight into its operations, financial health, and the strides it’s making in the pharmaceutical space, particularly regarding CARVYKTI, their FDA-approved treatment for multiple myeloma.
• The company reported an 18.5% quarter-over-quarter revenue growth amounting to $186 million for CARVYKTI, which marks a robust 60% increase year-over-year.
• Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.

• Vipshop reported C2Q24 revenue and profit were in-line vs. the street, but the mid-point of C3Q revenue guide missed by 8% due to soft apparel demand;
• VIPS has been post growth for some time. However, its healthy cash flow ensures a 75% dividend payout ratio as promised by the company. 
• We cut our CY24 EPS estimate by 8.4% due to soft apparel demand, leading to a US$ 14.5 TP, but maintain BUY on a post-subsidy recovery. 

• Media reports indicate that Walmart (WMT US) is looking to sell 144.5m shares of JD.com (JD US) to raise up to US$3.74bn. That would be substantially all of its stake.
• There will be passive buying from global index trackers at the time of settlement of the placement shares and could absorb around 12% of the placement shares.
• There will be no passive buying from HSI, HSCEI, HSTECH and HSIII trackers in the short-term. An increase in CCASS holdings should result in passive buying in December.

• China Traditional Chinese Medicine (570 HK) profit warning notes that the 1H24 net profit would decrease by 60%-70% YoY due to pricing pressure, higher impairment losses and remedial taxes. 
• The profit warning could pose a risk to the scheme, as the consortium can withdraw if there is an adverse material change in China TCM’s profits or prospects.
• If there were a danger of triggering the MAC clause, the consortium would not have made the regulatory submissions. The flip side is that the warning helps the shareholders vote. 

• Excluding the new business electrical vehicle, total revenue increased by 23% YoY in 2Q24.
• Smartphone shipments grew faster than Samsung and Apple in 2Q24.
• We believe electrical vehicle will bring significant gross profit in following two years.

• China Traditional Chinese Medicine (570 HK) flagged a 60-70% drop in its 1H24E net profit versus 1H23, due to reduced sales/profit of TCM concentrate, bad debt provisions, and remedial taxes. 
• MAC triggers? No – Sinopharm won’t exercise such right, even if one was ostensibly triggered. I’d be surprised if Sinopharm wasn’t fully aware of TCM’s underlying operations. 
• Get involved on any dips today. Trading wide at a 11.7%/38.7% gross/annualised spread, assuming Dec-end payment.

• Headline numbers for ZTO in Q224 were +10% Revenue, +12% EBITDA
• But gross margin in core express segment fell, as did Operating Cash Flow
• ZTO left guidance unchanged for FY24; we recommend investors AVOID it

• China East Education (667 HK)‘s 1H24 result is impressive with a 58% YoY increase in adjusted net profit. Good cost control is a key contributing factor. 
• Profitability has improved in all business segments. Its strategy to focus on higher-value courses has led to further improvement in annualised tuition per student. 
• The 1H24 result equals 68% of the full-year consensus, implying an upside in market expectations. Its net cash, at 35% of market capitalisation, is unmatched by peers.

• Chinese airports are enjoying a steady passenger traffic growth of 5% YTD; Shenzhen and Shanghai airports are growing much faster.  
• Shanghai International Airport (600009 CH)is our top pick given its size, liquidity, strong balance sheet, and its strong earnings growth potential.  
• Our target price for Shanghai International Airport (600009 CH) is CNY44, pegged to global airport peer average FY25 EV/EBITDA of 12x.   

• The gross margin improved 5 pp (percentage points) YoY and the operating margin improved 7 pp YoY in 2Q24.
• In 2Q24, total revenue grew by 12% YoY, with the main business up by 22% YoY.
• Three cross-sectional comparisons reach similar stock upsides about 100%. Buy.

• Stock valuations for China’s top beer players are near historical lows, but is a recovery on the horizon? Will it ever return to the heady valuations of 2019-2020?
• China Resources Beer Holdings (291 HK) and Budweiser Brewing APAC (1876 HK) have reported 1H2024 results showing a decline in sales volumes, attributed to several short term factors.
• We highlight long-term factors, including an aging population and shifting consumer habits, that could limit sustained growth in China’s alcoholic beverage market.

• Tongcheng Travel Holdings (780 HK) is still suffering from cost pressure, with adjusted net profit increased by 10.9% in 2Q24, despite a 48.1% revenue growth.
• Both GMV and MPU growth rates have slowed in 2Q24 when compared with 1Q24, and revenue may also decelerate in 2H24 given the higher base for comparison.
• The market will need some time to see if the moderating earnings trend will sustain, negatively affecting investor interests. Potential earnings downgrade is also a challenge.

West China Cement (WCC) has released softer than expected H1/24 numbers. The company’s revenue and profitability in Mainland China continued to decline amid the real estate slump, while its performance in Africa was mixed. ​FCF remained negative and leverage continued to deteriorate. That said, liquidity appears manageable, as we expect WCC to refinance its short-term loans. The main debt maturity wall is in July 2026, when the USD 600 mn notes will come due.

In our view, the key risk is uncertainty over the extent of WCC’s overseas expansion. The company stated that it has no plans for capacity expansion in FY 2024, other than the ongoing developments in Ethiopia and Uzbekistan. However, this contradicts media reports on WCC’s investments in Rwanda, Uganda and Zimbabwe. Hence, we are unsure about the level of the company’s planned overseas capex. Going forward, cement demand in Mainland China is likely to remain weak, due to the slowdown in infrastructure investment (with lower growth) and continued decline in real estate investment.

• Hong Kong’s watch and jewelry sales were weak in Q2 CY24 (-24% YoY) as dampened sentiment continues to plague overall retail sales across regional sectors. 
• However, Oriental Watch (398 HK), with its Rolex and Patek Phillipe portfolio, is expected to be more resilient than the rest of the watch industry. 
• The company is still a very good dividend play, trading at 7.6x FY25 PE, with 60% of the market cap in cash and a 13.5% dividend yield. 

• Tong Ren Tang’s performance growth is mainly driven by M&As. Its organic growth and operation management capability are not strong, leading to the concerns on the sustainability of future growth.
• Profit margin is disappointing.If Tong Ren Tang fails to balance the interests of different parties and control costs/expenses,low profit margins will be the norm despite the growth of revenue scale.
• From the perspectives of revenue scale, profitability, operational efficiency, business model, there’s still a gap between Tong Ren Tang and Gushengtang. Tong Ren Tang’s valuation should be lower than Gushengtang.

• J&T Global Express this week reported a strong Y/Y improvement in EBITDA
• The most dramatic improvement came at the company’s China operation
• But the drivers of this improvement appear odd, even contradictory; AVOID

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.

• Tata Motors ADR
• Yankuang Energy Group

• Key 2Q24 takeaways include: 1) revenues likely to step function higher in the near term (4Q24 launch of Apple’s iPhone 16) and beyond reflecting building recycling volumes and rising demand for pre-owned products, particularly in light of ongoing government support 2) management remains focused on increasingly tapping into recycling activity beyond consumer electronics (luxury goods, gold, jewelry, premium liquor), as well as further expanding the company’s store footprint and upgrading existing locations to better showcase multi-category products and 3) we look for further margin expansion looking out to 2H24 and 2025 given a more favorable product/distribution mix.
• From a stock perspective, we see further upside for RERE, as awareness and appreciation of the company’s business model, growth prospects, competitive positioning, and valuation disconnect increasingly take hold.

• China Literature’s revenue increased by 28% YoY in 1H24, because four novel copyrights for movies brought box office hits.
• KE revenue increased by 20% YoY in 2Q24 compared with a 19% YoY decrease in 1Q24, as government policies supported existing home transaction.
• Alibaba announced that it will recruit 1,000 fresh graduates for tech positions in 2025.

• With the review cutoff done, we expect just one change for the iShares China Large-Cap (FXI) (FXI US) ETF in September.
• China Tower (788 HK) is a high probability inclusion while China International Capital Corporation (3908 HK) is a high probability deletion.
• There has been an increase in cumulative excess volume for both stocks in the last few months, but the pace has slowed noticeably in the recent past.

• The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
• Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. Or pledging. However, such disclosures are by no means an absolute.
• The key stocks mentioned in this regular insight include: Swire Pacific (19/87 HK)/Swire Properties (1972 HK) and Hang Lung (10 HK)/Hang Lung Properties (101 HK).

• With the review cutoff done, there should be two changes for the CSOP FTSE China A50 (HKD) (2822 HK) / iShares FTSE/Xinhua A50 China (2823 HK) ETFs in September.
• Huaneng Lancang River Hydropow (600025 CH) and China National Nuclear Power (601985 CH) should replace China Tourism Group Duty Free Corp (601888 CH) and Yihai Kerry Arawana (300999 CH).
• China Tourism Group Duty Free (1880 HK) will be deleted from a global index later this month and there could be some opportunities to trade the A/H arb.

• Wharf REIC reported 2% yoy core earnings growth, the first earnings increase since 2019. The results also show Hong Kong retail business is more resilient than expected
• The upcoming catalysts include 1) lower interest rates, 2) weakening currency environment and 3) bottoming out of HK retail market
• Market is forward-looking and we think the worst is behind us.  Valuation is very compelling.  The stock is a beta play.  BUY

• Even after the 28% surge in share price since the 1H24 result, JD Logistics (2618 HK) still deserves a look as fundamentals have improved, especially with better cost control.
• JDL is riding on scale economies with higher asset utilisation. Quarterly margins have sustained an uptrend, reaching the highest levels since 1Q21 and it will continue.
• We like its lower reliance on JD.com (9618 HK) and net cash of HK$2.83/share (28% of the share price). There is a massive upside in consensus forecasts too.

• The company’s strategy of premiumisation continues to be executed to plan
• Despite the derating, investors will wait until seeing concrete signs of a turn in the Chinese consumer
• Continues to be a liquid proxy for Chinese consumption with no technology regulation risk

• Medtide relies heavily on limited number of customers to contribute performance. If there is any significant reduction in demand by its major customers, Medtide’s performance growth would be materially/adversely affected.
• Due to geopolitical conflicts, pharmaceutical companies are becoming more cautious about their reliance on China CXO. So, the development of Medtide’s overseas business would become more uncertain in this context.
• Medtide’s business scale is still small and its position in the global peptide CXO industry is not as strong as described. Valuation of Medtide should be lower than peers.

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.

• Continuum Green Energy
• Melco Resorts and Entertainment (Philippines)
• West China Cement

• There will be 3 changes for the Hang Seng Internet & Information Technology Index (HSIII) at the September rebalance. There are some surprises.
• Estimated one-way turnover at the rebalance is 3.4% resulting in a round-trip trade of HK$2.04bn (US$262m). 7 stocks will have over 1x ADV to trade.
• Weimob Inc. (2013 HK) is a surprise add. There is 6x ADV to buy from passive trackers and shorts are 12% of shares out and 24x ADV to cover.

• As expected, ASM Pacific Technology (522 HK) will replace Ping An Healthcare and Technol (1833 HK) in the Hang Seng TECH Index (HSTECH INDEX) at the close on 6 September.
• Estimated one-way turnover at the rebalance is 3.2% resulting in a round-trip trade of HK$6.5bn. Passives need to buy over 7x ADV in ASM Pacific Technology (522 HK). 
• Positioning appears light in both stocks. Expect ASM Pacific Technology (522 HK) to move up and Ping An Healthcare and Technol (1833 HK) to move lower near-term.

• The Hang Seng Index Committee its slow move (lack of movement) towards 100 names and sector rebalancing to tech and healthcare. This is really disappointing.
• This time? We get nothing. No name changes. Some capping flows. 6 FAF changes. 
• Minimal flows on the HSI rebalance to be effective on 9 September. 

• The HSCEI is famous but has less AUM tracking it passively than you’d think. Nevertheless it is well-known and well-watched.
• J&T Global Express (1519 HK) and New Oriental Education & Techn (9901 HK) were ADDs. JD Logistics (2618 HK) and SenseTime Group (20 HK) are DELETEs. 
• PICC Property & Casualty H (2328 HK) was NOT included. This was a surprise. We may see some disappointment this week from pre-positioning getting sold.

• In a surprise (maybe should not have been!), there are no constituent changes for the Hang Seng Index (HSI INDEX) in September. However, there are float and capping changes.
• Estimated one-way turnover is 1% and estimated round-trip trade is HK$3.73bn (US$478m). There are no stocks with over +/-0.5x ADV to trade but flows could add to/offset other index flows.
• We remain at 82 index constituents and the road to 100 constituents appears to be a long drawn out torturous one. At this glacial pace, could be an eternity away.

• BABA reported C1Q24 top line, adjusted EBITA and non-GAAP net profit (2.7%), 5.5% and in-line vs. consensus. 
• E-Commerce GMV recovery is the most positive of all. TTG ad-revenues (CMR) trailed GMV growth but we see the two closing the gap in C2H24
• Besides stabilizing e-commerce, BABA is on track of transforming itself from China’s eBay to China’s Microsoft. AI-related cloud revenue grew 100% YoY. 

• HSTECH sees one ADD, one DELETE and several capping and re-capping actions. One of the re-caps is already an un-recap (i.e. a new capping), to be updated.
• The ADD is ASM Pacific Technology (522 HK), as expected, with significant ADV impact to buy. The DELETE is Ping An Healthcare and Technol (1833 HK), also a big sell.
• Across the three major indices, Alibaba Group Holding (9988 HK) is the big dollar sell and HSTECH changes are the biggies in terms of ADV impact.

• Gold breaks above MONTHLY bull flag suggesting possible move to 3000.
• Is China ready to duplicate prior move we witnessed in Nikkei?
• BABA looks technically attractive and could reach par by year-end.

• 1H 24 net profit is expected to grow by 54%, a similar amount to FY 23 with a consistent message that revenue growth helps and cost control is in place. 
• Wasion Group Holdings (3393 HK) benefits from the One Belt One Road policy as many of the EM countries do not have smart power meters yet. 
• Wasion’s holding on Willfar Information Technology (688100 CH) is worth around USD 970 million, double the current market capitalization of Wasion.

• 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), JTower (4485 JP), China Traditional Chinese Medicine (570 HK), Canvest Environmental Protection Group (1381 HK), Capitol Health (CAJ AU). 
• Lowest spreads: Fuji Soft Inc (9749 JP), Descente Ltd (8114 JP), Second Chance Properties (SCE SP), C.I. TAKIRON Corporation (4215 JP), Fancl Corp (4921 JP), Alps Logistics (9055 JP). 

• I tally 46 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal
• Two new deals were discussed this week: JTower (4485 JP) and BusinessOn Communication (138580 KS)‘s Tender Offers. Orora (ORA AU) approached by Lone Star. Ramsay Health Care (RHC AU) Offer also rumoured.
• Key updates took place on China Traditional Chinese Medicine (570 HK), Namoi Cotton Co Operative (NAM AU), APM Human Services (APM AU), and CPMC Holdings (906 HK).

• SOUTHBOUND was again a net buyer, for HK$16.6bn this week (now 28wks in a row of net buying), on VERY LOW two-way volumes. 
• Gross volumes were very low. Net volumes were decent. There were three ETFs in the top 5 SOUTHBOUND net buys this past week suggesting position unwinding.
• Top net buys other than the ETFs were China Mobile and Tencent (now 14 out of 15 days seeing net SOUTHBOUND buying)

• J&T Global Express (1519 HK) and New Oriental Education (9901 HK) will replace JD Logistics (2618 HK) and SenseTime (20 HK) in the HSCEI at the close on 6 September.
• The inclusion of J&T Global Express (1519 HK) is a big surprise and the stock could move higher over the next couple of weeks.
• The non-inclusion of PICC Property & Casualty H (2328 HK) is another surprise since we had the stock highly ranked in the universe.

• 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 5.0bn of A-shares. NORTHBOUND volumes were very, very low overall.
• HK large caps again outperformed Mainland large caps generally. Tech (HSTECH vs Star50 and ChiNext) saw even better HK outperformance.

• SSE 50 and SSE 180, respectively, aim to represent the performance of the 50 and 180 largest and most liquid A-share stocks listed on the Shanghai Stock Exchange.
• In this insight, we take a look at the names leading the race to become ADDs and DELs during the December 2024 index rebal event.
• Some of our index change expectations have changed since our last insight.

• The Aussie Tax-Loss Selling Baskets worked very well on the sell side from 30 April through end-June 2024. What now?  Unwind.
• CK Infrastructure Holdings (1038 HK) has now submitted an application for a secondary listing, not a dual-primary listing, on the London stock exchange. Admission expected on the 19th August. 
• The right trade is to buy JTower (4485 JP) below terms. The really right trade is to already be an owner. IF you’re an arbitrageur, you know what to do.

• Tencent reported C2Q24 revenue, IFRS operating profit, and IFRS net income in-line, in-line, 10% vs. our estimates and in-line, in-line, 19% vs. consensus;
• Weak fintech revenue, due to weak consumption, dragged down overall growth. But we see structural revenue acceleration and margin leverages in advertising, game and AI;
• We raise TP to HK$485 and keep Tencent as our TOP PICK.

• CSI 300 represents the 300 largest stocks by market cap and liquidity from the Shanghai and Shenzhen Exchanges. CSI 500 is the next 500.
• In this insight, we take a look at the potential ADDs and DELs leading the race for the semiannual index rebal event in December 2024.
• Our expected ADDs and DELs baskets have changed slightly since our last insight.

• There are 38 adds and 29 deletes for the Hang Seng Composite Index (HSCI) at the September rebalance to take the number of index constituents up to 518.
• We expect 33 of the 38 HSCI inclusions to be added to Stock Connect while we expect 27 of the 29 HSCI deletions to be removed from Southbound Stock Connect.
• Since the start of the calendar year, shares held though Southbound Connect have increased in 22 of the 27 HSCI deletions that will also be removed from Stock Connect.

• Mixed June quarter results at first glance suggest corporate overhaul strategy is working, with clear evidence Taobao/Tmall is stabilizing in terms of market share and profitability.
• Better platform monetization and clear timetable for achieving break-even by non-e-commerce business segments mean double-digit earnings CAGR by FY26 in our view.
• We expect Alibaba’s upswing business cycle and moderating headwind of housing market slump are paving the way for the stock’s re-rating in the next 12-24 months. 

• Profitability of the business surprised on the upside, as the net profit margin of JD.com increased from 3% in 2Q23 to 5% in 2Q24.
• Share buyback accelerated in 2Q24, as the company bought USD2.1bn worth of stock in the quarter, up from USD1.2bn in 1Q24. 
• The stock is trading at 7x 2024 PE, with a yield of >10% through dividend and buyback.

• Alibaba logistics arm CaiNiao’s revenue growth slowed in the June quarter
• Our main takeaway is that Chinese X-border eComm continues to slow
• We believe all of the large X-border eComm platforms may be affected

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.

• Lenovo
• Citicore Renewable Energy
• Vedanta Resources

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.

• Lenovo
• Citicore Renewable Energy
• Vedanta Resources

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.

• Lenovo
• Citicore Renewable Energy
• Vedanta Resources

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.

• Lenovo
• Citicore Renewable Energy
• Vedanta Resources