China

• People’s Insurance (PICC) (1339 HK) has bounced off its lifetime low implied stub and simple ratio (PICC/PICC Property & Casualty (2328 HK)); but still trades below its historical trailing/forward metrics.
• Preceding my comments on PICC 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%.

• We continue to view the latest pullback as healthy/normal within the ongoing bull market, and it is quite possible that the lows have been established on MSCI ACWI (ACWI-US).
• Upgrading EM to Market Weight; MSCI Emerging Markets, China (shanghai Composite) and Hong Kong (Hang Seng) Still Bottoming; we discussed buying in our February 23, 2024 Int’l Compass
• Commodities all appear to be rolling over near resistance, which is what we discussed to watch for in our April 18, 2024 Int’l Compass. This has bullish implications for ACWI

• Xiao-I (NASDAQ: AIXI) is leveraging its experience as a chatbot provider to establish itself as a provider of AI models, principally in China.
• The company is focused on commercializing products in the consumer, marketing, and banking sectors in 2024 and exploring international expansion opportunities.
• The company is competing with some of the most successful companies in China for mindshare in AI markets.

• Weibo (9898 HK) is an inexpensive profitable large social media company in China
• Weibo generates a large cash flow which it uses to pay a 9% dividend yield
• Weibo has synergies with Alibaba’s core e-commerce business and fits well within its other media company ecosystem

• Lalatech Holdings Co Ltd (LALA HK) , a technology driven logistics transportation platform has refiled for IPO in April and this insight focuses on data points from the latest filing.
• The company has disclosed full-year 2023 results which shows significant improvement to the company’s financials, particularly Lalatech’s profitability.
• Lalatech has continued to cutdown its operating costs, which has helped reach profits, and the company has managed to maintain growth despite spending cuts on incentives and promotions.

• In the Politburo meeting this week, China announced the intention to stabilize the property market and improve housing inventory.  Following the meeting, Beijing announced a relaxation of home purchase restrictions.
• Given the extreme pessimism on China property, good opportunities exist for select quality companies in the China property space, especially in property management.
• One name I would like to highlight is CIFI Ever Sunshine Services Gr (1995 HK), a non-SOE property management company with a good reputation in terms of execution.

• The key to Ximalaya turning losses into profits is not the outstanding performance in revenue side, but rather the effective cost control. The Company seems to have encountered growth bottleneck.
• To achieve long-term stable profits, it’s necessary to continuously optimize content quality, improve user experience, and expand paying user scale, but Ximalaya has shown “signs of fatigue” in this regard. 
• AI technology brings big room for imagination, but the question here is how much would truly translate into a leap in financial performance? Ximalaya’s valuation could be lower than peers.

• China Resources Beverage is looking to raise US$1bn in its upcoming Hong Kong IPO.
• China Resources Beverage manufactures and sells packaged drinking water and RTD soft beverages in China.
• In this note, we talk about the not-so-positive aspects of the deal.

• Yum China Holdings (9987 HK)‘s 1Q24 earnings were weaker than the already lowered consensus expectations, as both sales and core operating profit only grew 1% yoy.
• Same-Store-Sales declined by 3% yoy, and restaurant margin declined by 2.7ppt yoy, mainly due to more discounts offered.
• China’s catering industry has changed compared to pre-COVID, where overall average selling price (ASP) is continually under pressure, and customers are increasing seeking value-for-money options.

• Super Hi International Holding (9658 HK) aims to raise around US$100m in its US ADR IPO. MS and Huatai are on the deal.
• Super Hi International (SHI) is a Chinese cuisine restaurant brand, operating Haidilao hot pot restaurants in the international market. 
• In this note, we talk about the deal dynamics and the listing impact.

• For the month of April 2024, 7 new transactions (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$4bn. 
• The average premium for the new transactions announced (or first discussed) in April was ~55%. The average premium YTD is ~42%. 
• This compares to the average premium for transactions in 2023 (117 transactions), 2022 (106), 2021 (165), 2020 (158), and 2019 (145 ) of 39%, 41%, 33%, 31%, and 31% respectively.

• Despite Cotti’s difficulties, we are seeing intensified competition with well-funded competitors like Starbucks and KFC, joining the price war, which poses challenges to Luckin’s effort at raising prices.
• We see Luckin at losing its coffee differentiation. We revised down average store sales growth to (5%)/(10%)YoY due to weak sales caused by the narrowing scope of the RMB9.9 promotion
• We downgrade the stock rating from BUY to SELL and lower TP to US$17/ADS.

COG’s FY 2023 results were acceptable in our view. Importantly, the audit issues resulting in the belated publication of results appear to be minor, with auditor PwC giving a clean audit opinion overall. Leverage was largely stable despite the soft earnings, thanks to debt reduction. In addition, we view positively that the guarantees provided to associate Shandong Shengli (which we classify under debt) have largely fallen away. COG’s liquidity is adequate, as the company is poised to refinance the bridge loan using a new syndicated loan facility.

We move our recommendation to “Buy” from “Hold” on the CHIOIL 4.7 ’26s.

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.

• Nickel Industries
• West China Cement

• Hansoh’s performance in 2023 beat expectations, which was mainly driven by collaboration revenue. Revenue proportion of innovative drug business made breakthrough and has become the major performance driver.
• Ameile’s future revenue growth is critical to Hansoh, but it faces increasing competition. EGFR/c-MET BsAb represents the future trend. If HS-20117 is successful, then the story of EGFR would continue.
• In 2024, Hansoh is expected to receive an upfront payment of US$185 million from GSK. According to the management, revenue is expected to have double digit growth this year.

• L’Occitane (973 HK) disclosed a conditional voluntary offer from Reinold Geiger at HK$34.00, a 15.3% premium to the last close and a 30.8% premium to the undisturbed price (5 February).
• The minimum acceptance condition is that the offeror holds at least 90% of the shares held by disinterested shareholders, which enables the offeror to exercise compulsory acquisition rights.
• Irrevocable and letters of support to accept represent 37.96% of disinterested shares. An attractive offer (representing an all-time high) should facilitate the offer being declared unconditional.

• After nearly six years of conjecture, rumour – plus the key shareholder (holding 72.63% of shares out) contemplating a takeover – we finally have an Offer for L’Occitane (973 HK).
• The price? $34/share, a 30.77% premium to undisturbed, and a figure a shade below the  HK$35/share flagged by Reuters last August deemed “false and without basis“. The price is final. 
• This takeover is a Voluntary General Offer. The key condition is securing 90% of disinterested shareholders holding 27.36%. 9.6% of that number have provided irrevocable undertakings or letters of support.  

• Last week Monday, Tencent confirmed the early release of Dungeon and Fighter Mobile, a highly anticipated mobile adaptation of the computer game developed by Nexon.
• The game is expected to be released in China on the 21st of May following positive test results.
• Tencent was the 11th best performing constituent in the HSTECH index for the week (out of 30), returning 14.7%. The index ended the week up 13.4%.

• Fuyao Glass Industry Group (3606 HK) is the largest auto glass producer in the world, with an estimated 40% market share globally, and a dominant 65% market share in China.
• The investment case for Fuyao include:  ASP increase from product mix upgrade; increasing sales volume due to more auto glasses needed per car; and improving margins.
• The company has production bases in China with annual production volume of around 32.5 million units, and in US with annual production volume of around 5.5 million units.

• Outbound continues to improve, March load factor matched pre-Covid level
• Appears Chinese tourists are “spreading their wings”, travelling farther afield
• Trip.com has been best YTD performer in the space; can airlines catch up?

• Spanning the globe for current best-in-breed auto players shows diverging action.
• New pair suggestion: Long Tesla/Short Rivian. Bottom could be in on TSLA
• Updated JD.com general status from last week’s China/Japan Note encouraging.

• The top five smartphone producers’ market shares got closer in the first quarter.
• The China Immigration Office announced that entry and exit of people increased by 305% YoY in 1Q24.
• China Passenger Car Association expected that new energy vehicle sales volume will grow by 37% YoY in April.

• If the Hang Seng Index (HSI INDEX) closes the month of April up (i.e. above 16541.42), our previous forecast will change (read the insight below for the detailed analysis).
• The index performed an impressive bounce from the support levels (16050) we indicated in our previous insight, it is very overbought (WEEKLY model) and may close April up.
• A continuation of the WEEKLY uptrend is in doubt, this week, while the MONTHLY situation is more complex.

• BYD’s revenue growth is lower than the estimate in our preview note.
• However, the recovery of sales volume in March suggests a strong year.
• We believe BYD will win the price war due to its homemade batteries.

• MAO GEPING relies heavily on flagship brand MAOGEPING, with over-reliance risks on single brand.The strategy of focusing more on offline sales channels makes it appear less up-to-date with the times.
• Different from most brands, the influence of MAO GEPING largely comes from its founder, Mr. Maogeping, who if reduces his holdings, could have a negative impact on the Company’s business/prospects.
• Solely relying on marketing and promotion to drive performance growth is not a long-term solution.Lack of core technology and product innovation would limit MAO GEPING’s future development in fierce competition.

• China announced game approval for the April 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, though the number of approvals appears to be slower than March.
• While Tencent scored zero, Netease got approval for one game.

• The performance of most TCM formula granule enterprises showed slow growth or even decline due to VBP in 2023. Although VBP will continue, it also brings opportunities for related companies. 
• Customized production, expensive upstream raw materials/production equipment, complex supply chain systems, etc. are all major reasons for the high prices of CAR-T therapy, but we see hope for changes.
• Gan & Lee Pharmaceuticals (603087 CH)’s core insulin business will continue to have decent growth based on positive VBP renewal results. It’s expected that in 2024, performance would further rebound.

• China Education Group (839 HK) has turned more attractive after a valuation retreat and the return of reported and adjusted net profit to a positive trend in its 1H24 result.
• Increase in the proportion of undergraduate studies, a better subject specialisation mix, higher accommodation revenue, and a rise in international education will drive unit student revenue.
• More capacity upgrades will allow for a steady increase in student enrollment. Management expects adjusted EBITDA margin to stay stable in the next few years.

• Losses at Air China Ltd (H) (753 HK) narrowed by 42.8% YoY to Rmb1.67bn in 1Q24. If not for the exchange losses, it will be reduced to below Rmb1bn.
• Higher jet fuel prices have dragged result despite record 1Q revenue. However, an 8.3pp YoY margin expansion and a 4% decline in unit costs indicated profitability is climbing. 
• Valuations are too depressed as the share price is still lacklustre but quarterly losses and gross margin have already trimmed from the troughs of Rmb10.5bn and -98%, respectively.

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.

• China Vanke
• Road King Infrastructure

• According to Hygeia’s management, the 25% growth in previous guidance for 2024 would be exceeded. 24H1 would maintain a growth rate of 40+%, and the growth in 24H2 would accelerate.
• However, progress of some projects is slower than expected, so a growth rate of 25%+ in performance forecast seems aggressive.After all, downward adjustment of performance guidance again is very uncomfortable.
• P/E of 30-40 is reasonable range in short term. So, Hygeia is undervalued.In long term, revenue growth could fall to 15-20% because the contribution of M&A to performance would decline.

• A shares were up small on the week, largely due to a big rally on Friday (led by record Northbound buying). HK Stocks had a HUGE week. 
• Net SOUTHBOUND buying was +HK10.3bn. Net buys every day and now 20 days straight, but buying was foreign-led.
• Little market news. More geopolitical news. Big SOE bank H-shares see relentless buying. HSTECH +13.4%, HSI +8.8%, HSCEI +9.1%.

• Performance of SU7 so far, margin of EV biz and globalization potential prompted us to take another look at Xiaomi and we like what we saw;
• Xiaomi surprised during the Investor Day by guiding SU7 gross margin of 5-10%. Delivery guidance also surprised to ship 100k units in 2024. 
• We raise EV profitability estimates on margin guidance and expect market share to expand as it expands to SUVs.

• 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’s consecutive buying streak ended on Monday 25-March, then started again. 20 days straight net buying. NORTHBOUND saw big inflows Friday. A record day I believe.
• HK stocks bounced VERY hard. Seemed like big allocation trade. HSCEI +8.7% vs CSI300 +1.2%. In H/A Pairs, liquid pairs saw Hs outperform their A by 4+% on average.

• 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 BUY RMB 25+bn of A-shares on low gross volume but a huge Friday playing catchup to a massive up-week in HK shares. 
• H outperformed As and it feels like the massive day Friday was just to play reversion on underperformance vs HK shares.

• Eagle Nice International Holdings’ dividend yield averaged 9.2% from FY 2019 to FY 2023. Its annual dividend payout averaged 72.2% in the same period.
• Eagle Nice (Intl) Hldgs is mainly engaged in the design and manufacture of sportswear for adults and children on an OEM basis. Yue Yuen Industrial Holdings is the largest shareholder.
• Eagle Nice Holdings also has attractive valuations and consistent growth in sales and profits. 

• Regulatory risks could derail TikTok’s drive to become Vietnam’s No. 1 online marketplace, an industry expert said.

• The ByteDance-owned short-video app launched TikTok Shop in Vietnam in April 2022 as part of its broader ambition to control 35% of Southeast Asia’s e-commerce market.

• Since then, it has surpassed Alibaba-backed Lazada to become Vietnam’s second-largest online marketplace by gross merchandise volume — TikTok’s vendors sold about $1.3 billion worth of goods in the past six months, according to local media which cited data from local analytics firm Metric. Now, only Singapore-based Shopee stands between TikTok and the top spot.

On 18 April, AGBA announced a surprise deal to acquire 100% of Triller Corp, a global AI-driven social video platform, in an all-stock transaction. Triller is privately-owned but has been independently valued at US$3.2bn. AGBA’s management is using a US$4bn valuation for the combined entity, in which AGBA shareholders will own 20% and Triller shareholders 80%. Triller recorded FY23 revenues of US$45m on 450m user accounts and 2.2m creators but is loss-making. In FY23, AGBA reported revenues of US$54m and 400,000+ clients. The combined group expects synergies from expanding and marketing to Triller’s users and utilizing Triller’s AI, natural language processing (NLP) technology and digital marketing capabilities to drive growth in its Asian investment advisory business and fintech investments.

• Four years ago, almost to the day, Bloomberg ran an article, “China Merchants Group Ltd. is exploring taking China Merchants Port Holdings private“. China Merchants Ports (144 HK) popped 23%.
• CMP gave back (most) of that gain a month later. Shares are up just ~10% since. 
• CMP’s implied stub is bouncing around a multi-year low; and the simple ratio (CMP/ Shanghai International Port Group (600018 CH)) is around an all-time low.

• China Resources Beverage (Holdings) Company Limited is looking to raise US$1bn in its upcoming Hong Kong IPO. The bookrunners on the deal are BofA, BOCI, Citic, and UBS.
• China Resources Beverage manufactures and sells packaged drinking water and RTD soft beverages  in China.
• According CIC, it was the second largest company in the packaged drinking water market in China and the largest company in the purified drinking water market in 2023.

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.

• China Oil And Gas
• Continuum Green Energy
• Indika Energy

• In RMB Dual Counter Trading Is Coming – This Changes AH Relationships, Travis Lundy discussed the forthcoming inclusion of RMB dual counters in the Hong Kong Southbound Connect programs.
• This is but one of the five capital market cooperation measures announced by the CSRC last Friday. 
• The other four measures include ETFs, improving mutual recognition of funds, increasing China IPOs in Hong Kong, and the inclusion of REITs. This insight discusses the latter.

• There were only 12 new listings on the Main Board of the HKEX (388 HK) in the first quarter of the year. More than half the listings were in March.
• Of those stocks, we only see Robosense Technology (2498 HK) having a chance of being added to the HSCI in June and then into Southbound Stock Connect.
• There is a big lock-up expiry for Robosense Technology (2498 HK) in July and that should keep the stock under pressure.

• March Same-Store sales in China disappoint mainly due to diamond jewellery demand
• Overall, gold demand in China continues to rise both in the retail and the official sector
• Visitor arrivals to Hong Kong pick up but are still ~40% below pre-Covid levels.

• Although the 1Q24 revenue of CIMC Enric Holdings (3899 HK) has edged down by 6.8%, this is not a concern as its order backlog suggested a resilient pipeline.
• New orders signed increased by 35.7% with that for clean energy surged 100.2%. Order backlog of Rmb26.9bn represents a growth of 41.9% YoY and 17.8% against end-FY23.
• Management also commented that there is a marked improvement in gross margin for 1Q24 and expects this trend to continue. Its 10.8x PER is inexpensive.

• Sunho’s pipeline has high risk and there is a long way to go to demonstrate their final clinical value. It’s highly uncertain if Sunho would bring expected return to investors.
• The entities involved in the process of reorganization were all related parties. Investment from Efung Anhe/Efung Ansheng sparked concern from CSRC. Sunho is required to explain whether there’s any benefit transfer.
• Due to the lack of strong fundamentals, there is no reason for high valuation. It’s not surprising if Sunho’s valuation finally falls below HKD1.53 billion (or even below HK$1 billion).