China

• Back in September 2023, Jardine Matheson Holdings (JM SP) sold its 28.22% stake in Greatview Aseptic Packaging (468 HK) to Shandong Xinjufeng Technology Packaging (301296 CH) (XJF). 
• Then in November, XJF requisitioned an EGM to spill the board. At the EGM on the 26th January, not one of XJF’s five new proposed appointments were successful.
• XJF has now made a pre-conditional (various PRC approvals) voluntary general Offer at $2.65/share (best & final), contingent on a 50% acceptance hurdle.  Final/special dividends to be added. 

• 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 Melco International Development (200 HK), Sino Land Co (83 HK), and ZJLD Group (6979 HK).

• Hotel rooms in China decreased by 5.4% compared to the previous year
• H World has maintained its position as a leading hotel operator in China with a diverse portfolio of brands
• Founder Qi Ji’s strong track record in the hospitality industry has contributed to H World’s success in navigating challenges and growing its presence in the industry.

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.

• Shouhui Tech (SHOU HK) is looking to raise around US$200m in its upcoming Hong Kong IPO.
• Shouhui Tech (Shouhui) is an online life and health insurance intermediary service provider in China.
• In this note, we talk about the firm’s historical performance.

• Stable cement price, good cost control, and a better base for comparison will lift Anhui Conch Cement (914 HK)‘s profitability recovery in 2-4Q24.  
• Anhui Conch’s earnings outperformed in 1Q24. Its peers are making losses and hence will reduce excess supply. Stabilisation of the real estate market will lower the pressure on demand.
• Net cash equals 46% of the current share price, and its valuations (both PER and P/B) are inexpensive relative to peers and ROE.  

• It’s an exciting 1Q24 result that revenue and GM beat the prior guidance.
• The 2Q24 outlook appears to be better than 1Q24, with revenue expected to increase by 5% to 7% QoQ and GM by 9% to 11%.
• We consider the primary bottleneck is the embargo of EUV machines to China from the Netherlands.

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
• Lippo Karawaci
• SJM Holdings
• Softbank Group

• We feel consensus overstates margin pressure for Alibaba’s March quarter results. We expect its group adjusted EBITA to deliver single-digit growth vs. investors’ concern about earnings retreat.
• March quarter should mark start of an earnings recovery cycle in our view, as improving China macro and well-executed business revamp plan put Alibaba back on growth track.
• This also means an end to its multiple contraction which lasted for five quarters. We see 50% upside on double-digit earnings growth and multiple expansion over next 12 months.

• On 21 February, China Traditional Chinese Medicine (570 HK) announced a privatisation offer from the Sinopharm-led consortium at HK$4.60 per share, a 47.4% premium to the undisturbed price.
• The wide gross spread (7.0%) reflects risks around the re-rating of peers, the slow pace of satisfying the pre-condition, the completion timetable and Ping An’s blocking stake. 
• The key risk is the deal close timing due to the slow pace of regulatory approvals, which increases the chance that the vote will held after the August interim.   

• IMAX Corp, listed on the NYSE, is a 71% shareholder of IMAX China, a HKEX listed subsidiary – in charge of the release of IMAX films in Greater China.

• IMAX HK is rather illiquid – 7.15 HK is a mere $0.93 USD – with no investor presentations, no earnings calls – again, as is common with ideas in this blog, we are dealing with a company that is more or less “unownable” for most, flies under the radar, and therefore sports a, for a lack of a better word, shite valuation.

• Whilst IMAX Corp, the parent company, trades at ~8x EBITDA, the “backwater” subsidiary IMAX HK, trades at a mere ~5x EBITDA, despite margins being more than 10 pts higher.

• The growth of TIDES business slowed down, and revenue decreased QoQ despite increasing production capacity.As the main growth point of WuXi AppTec’s future performance, this is not a good signal.
• Due to BIOSECURE Act, US companies have been negotiating with other contract manufacturers so as to reduce reliance on WuXi AppTec.Let’s see the situation of new orders in following quarters.
• WuXi AppTec’s performance recovery is closely related to the pace of Fed’s interest rate cuts. From the perspective of growth outlook/macro environment/geopolitical conflicts, WuXi AppTec is still in “dangerous period”.

• A play on higher food and energy prices going forward
• Natural Gas moving up from multi-year lows will support fertiliser prices going forward
• A Low valuation with a solid balance sheet lowers the risk

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 Energy
• ENN Natural Gas
• Indofood CBP Sukses
• West China Cement
• Wynn Macau Ltd

• WuXi XDC Cayman (2268 HK) was listed in Hong Kong on 17th Nov 2023 after raising US$470m. Its six-month lockup will expire on 16th May 2024.
• WuXi XDC Cayman (WXDC) is a contract research, development, and manufacturing organization (CRDMO) focused on the global antibody drug conjugates (ADC) and broader bioconjugate market providing integrated and end-to-end services.
• In this note, we will talk about the lock-up dynamics and updates since our last note.

• 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.
• In my last insight (link), I discussed how the rankings had to be monitored closely before finalizing the index change expectations for the June 2024 index rebal event.
• Now that the reference period is complete, I have discussed my final expectations for the June 2024 review. The official index changes will be announced later this month.

• We upgrade Meituan because we believe its success in Hong Kong might be replicable on a global scale. 
• The upcoming autonomous driving (ADS) revolution has deep and fundamental implications in permanently cutting Meituan’s logistic cost;
• We upgrade the stock from SELL to BUY and raise TP to HK$150/share

• Singamas Container Holdings (716 HK) is interesting in that it has a net cash of US$300m (HK$2.35bn), but its market capitalisation is only HK$1.5bn. 
• This is a possible privatisation candidate given the steep discount to cash. The thin trading volume made it difficult to function as a financing platform.
• Business-Wise, it should have passed the trough as global container box plant utilisation is expected to improve in the next two years, driving profitability recovery.

• With the review period now complete, we forecast 7 changes for the ChiNext Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in June.
• There are 4 stocks that could be added to both indices while some stocks will also have same way flows from CSI Smallcap 500 Index (SH000905 INDEX) trackers.
• The potential adds have outperformed the potential deletes over the last 6 months. There has been a big move higher in the potential adds over the last few weeks.

• Despite a slightly flatter revenue/margin trajectory outlook, we remain optimistic that ATRenew’s differentiated pre-owned consumer electronics transactions and services platform in China will continue to drive outsized growth in transaction volumes, sales, fees, and profits over the long run.
• While RERE has meaningfully outperformed recently, we believe current levels for the stock still provide investors with an attractive entry point, as awareness and appreciation of the company’s business model, growth prospects, competitive positioning, and valuation disconnect increasingly take hold.
• Despite what we believe to be conservative inputs/assumptions, our DCF model suggests a wide disconnect between ATRenew’s fundamentals and the stock’s current price.

• NIM is continuing to decline, from ~2.5% at its recent peak to ~1.8% in the most recent quarter. This may be from higher rescheduled loans.
• Loan growth ascent is strangely steady, and not indicative at all, of any business cycle. This alone is a concern, for true visibility of figures.
• Impairment costs do not suggest concern on underlying credit metrics, but with far higher loan balances in the past few years, this is an even greater worry.

• Café de Coral faced challenges during COVID-19 but is now showing signs of recovery with the removal of restrictions and return of tourists
• If revenues and operating margin return to pre-pandemic levels, the stock could trade at a favorable P/E ratio and dividend yield
• Strong shareholder confidence through additional share purchases indicates Café de Coral is poised for success in the post-pandemic market

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.

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.

• Adaro Energy
• Greentown China
• Vedanta Resources

• CaoCao Inc (1646553D CH) is looking to raise around US$300m in its upcoming Hong Kong IPO. The bookrunners on the deal are Huatai, ABC International, and GF Securities.
• CaoCao Inc (CaoCao) is a ride-hailing firm incubated by the Zhejiang Geely Holding Group (Geely).
• According to Frost & Sullivan (F&S), the firm has consistently ranked as the top three ride hailing platforms in China based on gross transaction value (GTV) between 2021-2023.

• Concurrent with its HK$34/share VGO, L’Occitane (973 HK)‘s disinterested shareholders may be entitled to a share scrip alternative. IF afforded, up to 5% of shares out can participate.
• The big unknown is whether you receive shares of the levered-up Bidco, at some as yet undetermined scrip ratio; or keep shares of L’Occitane as-is.
• To trigger the rollover option, 10% of disinterested shareholders need to express interest by the 15th May (a Hong Kong holiday btw). A deadline without details. 

• We believe total revenue will grow by 7% YoY in 1Q24 and faster in the remaining three quarters of 2024.
• We believe EPS will grow by 41% to HK$3.80, which is higher than the market consensus.
• The stock has risen by 26% since our last Buy rating, but there is still an upside of 9% till the end of 2024.

• We believe revenue will grow by 6% YoY in 4Q24, but by 11% for FY2026 (roughly 2025 calendar year).
• We believe Alibaba has been actively raising its revenue growth, but this the effect cannot be seen in the short run.
• We conclude the stock has an upside of 46% and a price target of US$120.

• With the review period nearing completion, 6 stocks are in inclusion zone and 9 are in deletion zone. However, there can be a maximum of 5 changes at a review.
• We estimate a one-way turnover of 7.1% at the June rebalance leading to a one-way trade of CNY 9.9bn (US$1.37bn). Index arb balances should increase the impact on the stocks.
• The potential inclusions (of which four are Financials) have continued to outperform the mixed bag of potential deletions. With pretty big impact on the deletes, expect further divergence.

• The HK$34/share offer price is final, which exceeds all-time high closing price of HK$33.60/share since IPO in 2010. EUR6 billion is equivalent to a PE of 52.17x, higher than peers.
• Deploying China’s sinking market is “a good story full of imagination”. However, it may fail to bring expected profits considering increasing competition/potential price war, leading to uncertain future performance growth.
• For minority shareholders, this privatization provides an attractive opportunity to monetise their investments at a premium over market price. We don’t think the current “technical bull market” to be lasting. 

• CPMC Holdings (906 HK) has a pre-conditional voluntary offer from Changping Industrial at HK$6.87 and potentially a competing offer from ORG Technology Co., Ltd. A (002701 CH). 
• Five months after announcing its offer, Changping Industrial obtained regulatory approvals from all except SAMR, SAFE, and the Vietnam Competition Commission. 
• An ORG offer seems unlikely due to a lack of progress in May and timing risk, as the Changping Industrial offer could be unconditional before the ORG obtains regulatory approvals.

• In this insight we show drivers of LalaTech’s +US$1bn turnaround in OpInc
• We also evaluate which drivers are likely to generate future improvements
• Lalatech won’t repeat incredible 2021-23 CoR, OpEx performances, in our view

• China after-school tutoring remains one of the most attractive and visible sectors in the next 2-3 years time frame. 
• Even though New Oriental Education & Techn (EDU US) had some hiccups in FY3Q24 results, they were mainly due to factors not related to the core after-school tutoring business.
• My sector top pick is China Beststudy Education Group (3978 HK), as valuation is lower and growth is higher, though it has a much smaller market cap..

• 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.
• The 12-month reference period used for the June 2024 review is now complete. The SSE 180 expected ADDs/DELs list has changed slightly since I published my last insight (link).
• In this insight, we take a look at our final expectations for index changes during the June 2024 index rebal event.

• With the review period complete, we forecast 3 changes for the SSE STAR50 (STAR50 INDEX) in June. All changes are migrations from/to the STAR 100 Index.
• One way turnover is estimated at 3.4% resulting in a one-way trade of CNY 4.5bn (US$630m). There is a lot to trade from passive trackers, especially on the inclusions.
• The potential adds have outperformed the potential deletions by ~18% over the last month with Hangzhou EZVIZ Network (688475 CH) and APT Medical (688617 CH) moving higher.

• The review period for the June rebalance is complete and we expect 11 changes to the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX). 
• We estimate one-way turnover of 1.4% at the rebalance leading to a one-way trade of CNY 8.82bn (US$1.22bn). There are a lot of stocks with multiple days ADV to trade.
• The potential deletes have bounced off their lows as the market has recovered. But the potential passive selling could see them underperform over the next month.

• 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: Hollysys Automation Technologies (HOLI US), QV Equities Ltd (QVE AU), Southern Cross Media (SXL AU), Qantm Intellectual Property (QIP AU), Probiotec Ltd (PBP AU), China TCM.
• Lowest spreads: Chilled & Frozen Logistics Holdings (9099 JP), Roland DG Corp (6789 JP), Mma Offshore (MRM AU), Pact Group Holdings (PGH AU), Jastec Co Ltd (9717 JP).

• A-Shares only two days of the week and were up small Monday and Tuesday. H-shares took a breather Wednesday after trailing A-shares, then rallied hard on Thursday and Friday. 
• Net SOUTHBOUND buying was +HK6.0bn. Net buys every day and now 22 days straight, but buying still appears foreign-led price-taking action. 
• The only big news this week in China/HK was probably the Politburo’s new stance of trying to do more for the mainland property market, concentrating on unsold homes. 

• The HSCEI 2024 dividend futures have moved higher following mainland China banks announcing that they will pay out interim dividends starting this year.
• The HSCEI 2025 dividend futures have moved higher too, though they have lagged the HSCEI 2024 dividend futures.
• Even though the HSCEI 2024/25 dividend steepener has dropped by around 10 points in the last few weeks, we see further downside in the near-term.

• With the review period now complete, we forecast 50 changes (the maximum permitted) for the CSI Smallcap 500 Index – Shang (SH000905 INDEX) at the close on 14 June.
• We estimate a one-way turnover of 9.3% at the rebalance resulting in a one-way trade of CNY10.88bn (US$1.5bn). The Industrials and Information Technology sectors gain at the expense of Materials.
• The potential adds have outperformed the potential deletes by 8% over the last 3 months. There could be further outperformance over the next few weeks.

• Some investors have concerns that the privatization may fail. We also noticed that Morgan Stanley raised China TCM’s target price to HK$5.4. However, the privatization of China TCM seems “mandatory”.
• At this stage, some background information is worth the attention, which will help investors better understand the logic behind this privatization and thus resolve the “confusion”.
• According to regulatory requirements, it’s expected that both CNPGC and Taiji will integrate resources in pharmaceutical manufacturing and distribution sectors, so as to solve horizontal competition issue between the two.

• 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 2.3bn of A-shares on high gross low net volume in the two days. NORTHBOUND bought CATL, Shenzhen Mindray, some financials.
• As outperformed Hs on Monday and Tuesday (when both were open), then Hs rocketed on Thursday and Friday. As will have to catch up early in the week.

• Due to the overvaluation of pharmaceutical companies in the primary market, only foreign markets are able to “digest” such high valuation. So, various promising drugs are acquired by foreign investors.
• The field of RDC/RLT has attracted our attention, which could become the next hot area. Since nuclides are the most important bottleneck, domestic related enterprises will usher in opportunities.
• Shijiazhuang Yiling Pharmaceutical’s performance would continue to be under pressure in 24H1 but would rebound in 24H2 after “destocking”. Valuation/share price have not yet bottomed out. Don’t rush to bottom-fish.

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments: HD Hyundai Marine Solution (443060 KS) and ZEEKR (ZK US) IPOs.
• Event-Driven developments: L’Occitane (973 HK), Chilled & Frozen Logistics Holdings (9099 JP), Kfc Holdings Japan (9873 JP), Mimasu Semiconductor Industry (8155 JP), Austal Ltd (ASB AU). 

• Tally 47 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• One new deals was discussed on Smartkarma this week: L’Occitane (973 HK)‘s VGO from major shareholder, Reinold Geiger. A deal for KFC Holdings Japan (9873 JP) is apparently imminent. 
• Key updates took place on: CSR Ltd (CSR AU), Azure Minerals (AZS AU), CIMC Vehicle Group Co Ltd (1839 HK), and Chilled & Frozen Logistics Holdings (9099 JP).

• CSI 300 represents the 300 largest stocks by market cap and liquidity from the Shanghai and Shenzhen Exchanges. CSI 500 is the next 500.
• The reference period for the June 2024 review is now complete. There are some changes to the expected ADDs/DELs list since I published my last insight (link) ~3 weeks ago.
• In this insight, we take a look at our final expectations for index changes in June 2024.

• 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.