China

• 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

• Discounts likely set for a re-rating as market continues to overreact to appointment of CEO amid good set of results.
• The discounts of both Naspers and Prosus have continued to widen since the appointment of Fabricio Bloisi to Group CEO was announced in May (effective 10 July).
• At the end of June, the group released its strongest set of results in years, delivering on consolidated ecommerce profitability ahead of target.

• 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 & Cable (5809 JP), Alumina Ltd (AWC AU), Fancl Corp (4921 JP), Mimasu Semiconductor Industry (8155 JP), Infocom Corp (4348 JP), Hollysys.

• 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. 

• 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 and Hang Seng down hard. Bank buying minimal. NORTHBOUND saw significant selling, but A-share indices generally strong on the week. Window-dressing?
• AH Premia rose 3.3% on average. Really bad week for H vs A as Liquid Hs underperformed their As by 4%. Stunning week really. Relative performance a sea of red.

• SOUTHBOUND was again a net buyer, for HK$19.2bn this week, on smallish two-way volumes. Tencent and ETFs stood out as large net buys.
• I’ve thought national team was buying banks for months. This week, no banks showed in the top five net buys, and only 1 in the top ten.
• It is somewhat perplexing that the flows just stopped. But that may be a sign of things to come. Confirmation may require a week or two.

• 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 +19.3bn of A-shares. NORTHBOUND sold everything. Consumer, Finance, and Energy hit hardest.
• Net flows as a percentage of value traded are clearly “short gamma”, but the net buys this week were of stocks previously a net sell. 

• Xiaomi Corp (1810 HK)‘s smartphone shipments to India surged in Q2 2024, reclaiming the top spot, while Samsung slipped to third.
• Consumer discretionary sales, including smartphones, were weak during the quarter due to elections, subdued demand, and extreme weather.
• The upcoming festive season is crucial for sales, with customers anticipating new launches and better bargains. 5G device upgrades continue to drive growth in 2024.

• Xiaomi (XM)’s shipments increased by 29% YoY in 2Q24, which is the most rapid growth among the global top five.
• Xiaomi is the only clear gainer of market share among the global top five.
• We believe the stock has an upside of 35% and the target price is HK$22.30 for the end of 2024.

• Xiaomi’s global market increased to 15% in 2Q24 compared with 13% in 2Q23.
• GAC Aion began to be produced in Thailand to bypass the new tariff barriers from the US and the European Union.
• Cotti Coffee plans to extend its “RMB9.90” sales to three years.

• Elpiscience is incubated by LAV from the very beginning.The Company has strong capital operation capabilities, but the story of “founding team’s decent background + star cornerstone investors” doesn’t work anymore.
• Elpiscience’s pipelines are still in early stage. However, investors are rational. They will no longer believe in those “good stories”, but focus more on cash flow and drug sales revenue.
• Elpiscience’s business model has raised concerns about its future product sales scale and profits.The market may not recognize the post-investment valuation of US$599 million if check the valuation of peers.

• Zhihu Technology (ZH US) has launched a conditional share buyback offer to acquire a maximum of 46.9m Class A ordinary shares (15.93% of outstanding shares) at HK$9.11 (US$3.50 per ADS).
• The offer is conditional on shareholder approval by a majority of votes cast at the EGM. There is no minimum acceptance condition. The EGM vote is done due to irrevocables. 
• Zhihu’s share buyback returns 19% of cash not subject to government controls, below Douyu International Holdings (DOYU US)’s comparable 34%. The minimum pro-ration is expected to be around 34%. 

• News show that European car makers such as BMW is moving out of China, leaving the Auto market to the local players
• Stocks like Brilliance China will suffer losses as they lose some of the most famous co-brand.
• Foreign firm exits may give relief to local auto makers as it resolves part of the over-capacity problems

• The Gulf Energy (GULF TB)/Intouch (INTUCH TB) merger is an opportunistic, bullying method designed to have GULF shareholders buy INTUCH and therefore AIS (ADVANC TB) at too low a price. 
• CK Infrastructure Holdings (1038 HK)‘s interest in a possible London listing coincides with the LSE undergoing a listing regime change.
• Management continue to creep their stake in Zhongsheng Group (881 HK), and now hold a shade under 50%. 

• Business is struggling due to legacy luxury brands such as BMW losing its positioning in China. Local brands are eating into market share fast. 
• Thankfully, the company is cash rich and its trading nature enables steady supply of dividends and have been known to pay special dividends.  
• Share price has been under pressure, now trading at ~15% dividend yield based on 50% payout,  appealing to yield seekers. 

• There’re rumor that Akeso’s AK112 and AK104 2024 revenue is RMB300 million and RMB1.5-1.6 billion respectively. Sales of AK104 may be below expectations, so Akeso decided to enter NRDL reimbursement.
• Regardless of whether there is a takeover offer, reasonable valuation of Legend Bio is between US$12.5bn-US$15bn based on solid fundamentals. This deal is “a test” for the management of Genscript.
• Current stock price of InnoCare just reflects its essence. If no new catalysts (e.g. breakthroughs in clinical data, new licensing agreement, etc.), we are not optimistic about the prospects of InnoCare.

• Share price under pressure due to industry challenges and transition of new product line-ups.  
• 2024 is a blip, things will normalise 2025 and deliver strong topline and bottomline growth. 
• LiAuto is trading at bargain levels for a company delivering 3-year earnings CAGR of 38%, net cash balance sheet and churns high free cash flow. 

• Most brands under control (Mercedes, Lexus, Toyota) are undergoing popularity downtrend by consumers in China.  
• There will remain a loyal niche supporter base, every legacy auto does, but it also means Zhongsheng will be a smaller and niche distributor going forward. 
• Share price has plunged significantly YTD, trading at only ~5x, which we think is overdone. Yield hunters will like its ~8% DY. 

• Early 6/18 pulled June sales into May, leading to disappointing June NBS data. Combined, online retail grew 5.1% yoy in May/June, and 6.4% yoy in 2Q24. 
• PDD remained the top shelf-ecommerce platform with GMV growing ~20%, followed by Taobao/Tmall (TTG) at ~6-7%, and JD and VIPS at ~2-3% yoy. 
• We expect JD and BABA to report slight earnings beats and guide upbeat on continued profitability improvement in 2H24. 

• Equity ETF flows in China continued to lead Asia as the “National Team” in China supports market levels during the 3rd Plenum.
• CK Infrastructure Holdings (1038 HK) , Genscript Biotech (1548 HK) and BOC Aviation (2588 HK) saw positive news sentiment and share price movements for the week.
• Jiumaojiu (9922 HK) , Aluminum Corporation Of China (2600 HK) and China Hongqiao (1378 HK) saw negative news sentiment and share price drops for the week.

• Huafa Property Services Group (982 HK)’s IFA opines that Huafa Industrial Co., Ltd. Zhuhai (600325 CH)’s HK$0.29 privatisation offer is fair and reasonable. The vote is on 28 August. 
• Key conditions include approval by at least 75% of independent shareholders (<10% of independent shareholders rejection) and a headcount test. The offer price is final.
• No shareholder holding a blocking stake, low AGM minority participation rate and calm retail boards suggest low vote risk. At the last close, the gross/annualised spread is 9.4%/52.5%. 

• STAR 50 Index is a tech-focused, blue-chip index in Mainland China which tracks the top 50 largest and most liquid names in the STAR market of the Shanghai Stock Exchange.
• Unlike the other popular Chinese indices (CSI, SSE, ChiNext, etc.) that rebalance semiannually, the STAR 50 index has a quarterly rebalance cycle and the next rebalance will be in September.
• With the reference period for the September 2024 STAR 50 index rebal event coming to an end, we have presented our final expectations for ADDs and DELs in this insight.

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
• Health And Happiness (H&H)
• Vedanta Resources

• We analyze the audited annual report of Perfect Medical Health (1830 HK) released on the 16th of July. We also analyzed the company’s FY24 presentation. 
• The key takeaway is that the company will endeavor to improve its efficiency by cross-selling more services through Beauty Supermarket and expanding the sleep therapy business with Goku.
• Trading at a 12.5% dividend yield with 17% of its market cap in cash and >50% ROEs, the business is solid and worth exploring as an investment.