China

• 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 16.1bn of A-shares on VERY strong average activity after +9.9bn and +12.1bn RMB the two weeks before. Some National Team buying this week.
• Renewables selling was tempered. Finance and Industry saw large net buying. Five of the top ten buys among liquid NORTHBOUND stocks were finance. Info Tech saw net selling. Again. 

• 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 and NORTHBOUND flows net positive. AH premia on average rose so Hs underperformed As by 1.75%. Narrow premia pairs saw AH premia rise most.
• Watch the SOE stock price KPI space. Wouldn’t be short SOEs vs Privates on H/A basis. Low-hanging fruit with some SOEs having large cash balances.

• The HSTECH Index tracks the performance of the top 30 technology companies listed in Hong Kong that have high business exposure to certain technology themes.
• The index changes for HSTECH index for the March 2024 index rebal event will be announced on 16th February 2024. 
• In this insight, we take a final look at the expected index changes and our latest flow expectations.

• A bad week for HK and Chinese shares. National Team buying seems lighter into the waning days of the Year of the Rabbit.
• Net SOUTHBOUND buying was HK$4.0bn in the shortened pre-holiday week.
• Remarkable this past week, again, was the tendency to net sell names which were down hard, and net buy names which have been performing well.

• The HSCEI serves as a benchmark to reflect the overall performance of the top 50 “Mainland China” securities listed in Hong Kong.
• The index changes for HSCEI index for the March 2024 index rebal event will be announced on 16th February 2024. 
• In this insight, I have shown how my flow expectations have changed since I published my last HSCEI insight on 6th December 2023.

• The effects of SHEIN’s and Temu’s growth on US retail are already well known
• But recent data points show the companies impacting other industries, too
• Through their dramatic growth the two companies are gaining influence in US 

• NHSA’s new regulation on establishing a mechanism for pricing newly listed chemical drugs and encouraging high-quality innovation attracted widespread attention. However, it’s difficult to interpret this as an optimistic rule.
• Although we see increasing interest in products from Chinese pharmaceutical companies, it would be difficult for Chinese biotech to be acquired on a large scale in the foreseeable future.
• Based on 2023 results, Medicilon has entered a vicious circle. Multiple sell-offs made us question the moral standards of management. The risk is high for this type of small/lower-tier CXO.

• Both SMIC & Hua Hong reported Q423 earnings in line with expectations and both guided Q124 flat to slightly down. SMIC expects FY24 mid single digit growth YoY.
• The downturn has exposed inherent weakness in China’s Semi Foundry segment relative to peers as exemplified by the significant GM disparity
• China’s two leading semi foundries have ~80% domestic dependence. Right now, that’s a headwind

• We expect KE Holdings (Beike) C4Q23 revenue to be in-line with consensus, with non-GAAP NI 15.6% higher than consensus, mainly due to better existing home sales.
• Although overall home living demand remains lukewarm in 2023, the structural substitution from purchasing new home to existing home has accelerated, benefiting Beike, in our view.
• We maintain the stock as BUY rating and trim down TP by US$0.5 to US$24.0/ADS to factor in the weak new home sales.

• Taste Gourmet (8371 HK) reported revenue of 37% YoY Q3 2024, with profits up 37% YoY (  lower than our 50% YoY estimate). 9M FY23 revenue/profits were up 43%/43% YoY. 
• We look forward to the mainboard listing. We believe the process will commence when FY24 results are out in June. 
• The stock trades at 5.8x PE FY24e, with a potential dividend yield of 8.5% and cash around 26% of its market capitalization at 147.7 mn HKD.

• Cathay Pacific’s strong end to 2023 has been well flagged but we think expectations are too low for 2024.
• ANA, JAL and Korean Air have each seen unit pax revenue momentum accelerate into calendar 4Q23 which bodes well for 2024 prospects, particularly as manpower challenges slow capacity restoration.
• Our 2024 EBITDAR is 5% ahead of consensus while we are 11% ahead at the net income level.

• Nearly US$37bn has flowed into mainland China listed ETFs since 2 January and could be driven by the National Team supporting the market. Central Huijin has announced their ETF buying.
• Most of the inflows have been focused on large cap indices including CSI 300, SSE50, CSI 500, CSI 1000, ChiNext, STAR50 and Chinext50 indices.
• While the inflows were initially focused on the CSI 300, there has been a diversification recently with big inflows to the SSE50, CSI 500, CSI 1000 and ChiNext indices.

• China Traditional Chinese Medicine (570 HK) (“TCM”) is the traditional Chinese medicine arm of SASAC-managed China National Pharmaceutical Group Corporation (CNPGC), one of the largest healthcare groups in China.
• By my reckoning, TCM has fielded three Offers in the past decade, all from Sinopharm Hongkong, an indirect wholly-owned subsidiary of CNPGC and TCM’s major shareholder.
• TCM was suspended “pursuant to the Code on Takeovers and Mergers” earlier today. The Real McCoy? A no-deal again from CNPGC/Sinopharm? And why didn’t the last Offers complete?

• Today, after Hong Kong market close, the Ministry of Education issued a new draft regulation on K12 tutoring. 
• I have written before on New Oriental Education & Techn (EDU US) and China Beststudy that there is now a equilibrium reached between all parties on tutoring in China. 
• The new draft regulation basically puts it into concrete policy, which should alleviate investor concern on the sector. 

• Alibaba reported a largely in-line December quarter as lower take rate and widened loss from international commerce businesses resulted in pressured bottom line.
• The results also suggest a persisting pattern of China consumers trading down, which – along with the company’s ongoing internal overhaul – will continue to be headwind in 1H24.
• That said, we see increase of US$25 billion share repurchase program and dividend policy to well support share price at current valuation. 

• The 1Q24F outlook is still showing a decline, with a slightly increase in revenue of 2% QoQ. However, the GM is expected to decrease to 9-11% from 16.4% in 4Q23.
• Management predicts that there will be a double U-shaped recovery in 2024F. Revenue in 2024F is expected to grow annually by mid-single-digit.
• The main areas of growth for SMIC in 2024F will be in mobile phones, smart homes, IoT, and computing.

• We expect Meituan continue under pressure in the medium term due to the intensified competition with Douyin, and Meituan’s low price defending strategy in both food delivery and IHT businesses.
• Our non-IFRS net profit is roughly in-line with consensus in 4Q23 but 20%/25% lower than consensus in 2024/25.
• We downgrade the stock to SELL rating and cut TP to HK$57/share.

• Shanghai Spacecom Satellite Technology, a space tech startup backed by the Shanghai municipal government, has raised 6.7 billion yuan ($943 million) to fund the construction of a low-orbit satellite constellation that will provide broadband access to the internet
• The Series A funding round was led by Shanghai Alliance Investment Ltd., an investment fund backed by the Shanghai government and a founding investor of Spacecom.

• Other investors include CAS Investment Management Co. Ltd., Hengxu Capital, Guotai Junan Securities Co. Ltd. and CAS Star.

• Alibaba’s revenue grew by 5% YoY and its operating margin improved by 2 percentage points YoY in 3Q24.
• We believe the company turned its focus from margin improvement to revenue growth.
• We set the upside at 20% and the price target at HK$90 for March 2025. Buy.

• New World Development (17 HK) stock has continued to drop and the decrease in market cap should result in selling from passive trackers at the end of the month.
• New World Development (17 HK) has underperformed its peers and now trades at cheaper valuations on most parameters.
• Passive trackers will need to sell over 100m shares of New World Development. That could provide liquidity for investors that see value and for shorts to cover their positions.

• Bloomberg reports that Sinopharm is reviving its interest in privatising China Traditional Chinese Medicine (570 HK)/CTCM. Sinopharm has contacted banks about financing and is considering partnering with other investors.
• Sinopharm’s best bet is to partner with Ping An Insurance Group of (601318 CH) and privatise through a scheme. In this scenario, no disinterested shareholder would hold a blocking stake.
• Due to Sinopharm’s previous privatisation attempts, shareholders will be wary of the latest rumour. Nevertheless, the valuation is undemanding compared to peer multiples.

• We once again heard privatization rumor of China TCM, but China TCM denied it at this stage. We still recommend investors to remain vigilant until receive definite official announcement.
• One important background of privatization is the integration of SOE carried out in recent years. We do not rule out the possibility that Taiji Group would drive this privatization.
• It may not be an optimal time for the proposal of privatization by major shareholders. Other shareholders may not want to give up high-quality stocks, which makes privatization challenging.

• On the 29th December 2023, Kerry Logistics Network (636 HK) (KLN) announced it would in-specie its entire 52.1% stake in Kerry Express Thailand (KEX TB).
• Given S.F. Holding (002352 CH) holds a 51.5% stake in KLN, it will hold 26.8% in KET post-in-specie, triggering an unconditional MTO. The MTO price will be THB5.50/share. 
• Thai SFC approval has now been satisfied.  The MTO should commence around the 13th Feb. with payment ~26th March. KLN, cum-entitlement to KEX, is the 19 Feb.

• CaiNiao’s revenue growth remained strong, up +24% Y/Y in December quarter
• EBITA turned positive from loss in prior year period, but margin < FYQ2
• Overall, an impressive set of results that distinguishes CaiNiao from express 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.

• ENN Natural Gas
• UPL Ltd

• 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 are Hangzhou Tigermed Consulting C (3347 HK), East Buy Holding (1797 HK) and Kingkey Financial (1468 HK).

• Bloomberg reports that L’Occitane (973 HK) draws takeover interest from Blackstone (BX US), which is considering partnering with Chairman and largest shareholder Reinold Geiger.
• Blackstone needs an attractive takeover premium due to the presence of significant disinterested shareholders (Mr. Geiger and Acatis KVG).
• Shareholders will be wary of the latest rumour due to Mr Geiger’s aborted offer on 4 September 2023. Nevertheless, the valuation is undemanding compared to peer multiples.

• Water Oasis (1161 HK) just went ex-dividend on 6th Feb and is now trading at a 7.5x PE FY24e and a 10.7% dividend yield on trailing FY23 earnings.  
• The company has refurbished its flagship stores, and we believe it can perform 8-9% better year over year for FY24 than FY23.
• The company also has 230 mn HKD net cash (after netting dividends paid out), representing     26% of market capitalization.

• From 2018 onward, French beauty retailer L’Occitane (973 HK) has apparently drawn interest from the likes of Advent International and its controlling shareholder Chairman Reinold Geiger – amongst others. 
• There is substance to these “Offers” – Geiger confirmed in August 2023 he was contemplating a conditional voluntary general Offer. He holds 72.65% of shares out according to the HKEx. 
• The latest news, with no definitive source, is that Blackstone is mulling the possibility of teaming up with Geiger on a buyout.

• Kayou (000KAYOU CH) is looking to raise up to US$500m in its upcoming HK IPO. The deal will be run by CICC, Morgan Stanley and JP Morgan.
• Kayou is a Chinese pan-entertainment product retailer of toys, with trading cards in particular as its core product. 
• As of 9M23 (30th Sep 23), it had an IP matrix of 44 IPs through licensing from IP partners and the development of proprietary IPs. 

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.

• Bharti Airtel
• Guangzhou R&F Properties
• UPL Ltd

• Based on effective strategic positioning, Xiaocaiyuan is able to seize the market’s demand for cost-effective catering during consumption downgrade and the trend of increasing restaurant chain rate in China.
• The key for Xiaocaiyuan to generate increasing profits at low spending-per-consumer is due to its strong supply chain, which will be favored by capital especially when Xiaocaiyuan enters community catering.
• Xiaocaiyuan International Holding (XCY HK) is better than peers. However, due to poor sentiment in HKEX, it’s not sure if Xiaocaiyuan’s valuation/share price performance could outperform peers as well.

• The EGM to vote on the privatisation of iClick (ICLK US) takes place on the 8th March.  The Offer price is US$4.08/ADS (US$0.816/share), bang in-line with iClick’s 1H23 net cash/share. 
• That’s a far cry from the 2021 non-binding Offers of US$75/ADS and US$67.50/ADS from Infinity Equity Management and PAG/Oasis respectively – after adjusting for November 2022’s reverse share split. 
• The Buyer Group owns 35% of shares out and 69% of the vote. The Merger requires at least two-thirds of the voting power of shares out. So this is done. 

• BYD released its result estimate for 2023, in which net profit rose by 74% to 86% over 2022.
• Li auto delivered 31,165 vehicles in January 2024, up by 106% over 2023.
• As per rumors reported in the media, Alibaba will sell RT-Mart, a supermarket brand.

• The review period for the March rebalance ended 31 January. We expect the changes to be announced 23 February with the implementation taking place after the close on 8 March.
• There are 10 stocks in inclusion zone and 11 in deletion zone. There should be 10 changes since that is the cap for the maximum changes at a single rebalance.
• The potential adds and deletes are down between 37-47% over the last 6 months and a long/short trade could provide superior risk-adjusted returns.

• Even the company itself shows in its recent presentation that a substantial portion of its revenue growth was due to rising rates on its cash deposit balances. This should wane.
• The company’s effective tax rate moved from 14% in the past few years, when it was stable to 10% in most recent period, this is not a core positive attribute.
• Geopolitical risk, economic malaise in both Hong Kong and China, can lead to less interest in the market, trading, placements, perhaps suggesting its 6x PB is not warranted?

• Some 17 months after the Cheng Family failed to secure 50%+ of Giordano International (709 HK), the family are now calling an SGM to install friendly directors. 
• Sino Wealth, a Cheng family’s vehicle with 24.06% of shares, has requisitioned an SGM to remove CEO Peter Lau, and install Colin Currie as CEO, plus appoint three other NEDs/INEDs.
• If this were to come to pass, the family would have (almost) effective control of the board. The vote will be close. And David Webb is now below 5%. 

• CMS’s way of in-licensing products has shifted from CSO model to asset-purchase model so as to enhance control on the assets. But the transformation hasn’t been recognized by the market.     
• Despite outstanding fundamentals, CMS’s valuation remains low. Doubts about the Company’s real R&D capabilities/core competitiveness and the negative image due to past financial fraud could be the reasons.
• CMS would encounter performance headwinds in 2023/2024 due to VBP, but revenue/profit growth is expected to pick up in 2025. It’s still a good defensive choice in a bear market.

• HashKey Group, an end-to-end digital asset financial services group based in Hong Kong, has completed a Series A financing round of nearly US$100 million at a pre-money valuation of over US$1.2 billion.
• The round attracted new and existing investors, including prominent institutional investors, leading Web3 institutions, and strategic partners.
• The group will use the money to accelerate the product diversification of its licensed business in Hong Kong and drive development globally.

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.

• Hopson Development

• Share price of Meituan has fallen by 25% since we flagged the name as high-conviction sell for 2024 last December, due in large to its weakening fundamental and earnings cut.
• We believe its competitive positioning in food delivery remains rock solid and estimates Meituan will likely command over 2/3 market share in in-store business, at the expense of margin.
• The company trades at 12x/8.6x 2024/25 consensus earnings. Current valuation already priced in rather bearish outlook amidst macro concerns and intensified competition in our view. We see value emerging.

• By one metric, outbound tourism in December improved to 89% of 2019 levels
• Meanwhile, domestic activity in December remained close to pre-Covid levels
• In this month’s edition we track the tourism recovery in ten illustrative charts

• Based on the latest updates, it’s still uncertain to see a positive turnaround.There’ve been no effective ways to evade.Debate about restricting Chinese biopharmaceuticals has never gone away in US politics.
• Nobody can say with 100% certainty whether the Bill will be passed/how much impact it will have. Until the dust settles, any rebound in share prices is difficult to sustain.
• The market is preparing for the worst-case scenario, but if the final Bill is less stringent than expected, shares of WuXi AppTec and its subsidiaries would rebound.Here’re different bottom-fishing strategies.

• 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 flows were net negative and NORTHBOUND flows a decent buy. AH premia on average fell, but liquid pairs saw AH premia rise. Chinese/HK shares shellacked.
• Watch the SOE stock price KPI space. Wouldn’t be short SOEs vs Privates on H/A basis. Low-hanging fruit with some SOEs having large cash balances.

• 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 9.9bn of A-shares on very strong average activity after +12.1bn RMB the week before. Some National Team buying this week. 
• Renewables selling was tempered. Energy and Finance saw net selling. Industry and Tech saw large net buying. Relatively larger net Shenzhen buying later in the week as stocks fell hard.

• A bad week for HK and Chinese shares. National Team buying seems lighter into the waning days of the Year of the Rabbit. 
• Net SOUTHBOUND selling was HK$9.4bn on the week, with net selling every day as the market fell hard – both in HK and the mainland.
• Remarkable this past week was the tendency to net sell names which were down hard, and net buy names which have been performing well. 

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• On the IPO front, Amer Sports (AS US) was priced below its range, while Thai Credit Bank PCL, managed to get enough support to pull thru. 
• Given the earnings season, there weren’t many placement apart from Indus Towers (INDUSTOW IN) and Metals Acquisition (MTAL US)‘s CDR offering. 

• If there’s ultimately substantial negative policies in the field of biopharmaceuticals between China and US, APIs will be the segment with the highest risk. But CXO would also be affected.
• Now we have entered the harvest period after the previous peak of financing round in China’s biotech industry, which has become a concentrated “peach picking period” for foreign pharmaceutical enterprises.
• Considering the low market sentiment, we’re cautious on companies with high valuation elasticity before they come up with convincing products. So, we don’t recommend investors rush to bottom-fish CSPC Innovation.

• After announcing flattish results for both parent and subsidiary, Hang Lung (10 HK) announced Ronnie Chan is stepping down as chairman, with his son Adriel to assume the mantle. 
• Ronnie, 75-years of age, has been chairman since 1991. Adriel (42-years old) has been an ED since 2016 and vice-chairman since 2020. 
• Separately, HLG’s 66% discount to NAV is wide for a straightforward parent-sub structure. The P/Bs for both HLG and Hang Lung Properties (101 HK) are around the lowest-ever levels. 

Key points (machine generated)

• 111 Inc’s privatization process has been ongoing for 14 months, but no definitive agreement has been reached, leading to investor fatigue and a significant drop in stock price.
• Chinese companies listed in the US typically have long privatization timelines, with some taking over 2 years to finalize the process.
• The extended timeline in 111 Inc’s case may be causing concern among investors, resulting in a wider spread between the offer price and the stock price, but relisting the company in China could potentially lead to a higher valuation.

This article is sourced from an online content aggregator through publicly available sources and is displayed below for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Battery giant Contemporary Amperex Technology Co. Ltd. (CATL) (300750.SZ -0.92%) has set up a battery swapping joint venture (JV) with ride-hailing company Didi Global Inc. to service Didi’s expanding fleet of electric vehicles (EVs).
• The tie-up is CATL’s latest foray into battery swapping — dominated by EV-maker Nio Inc. — as it aims to expand beyond production and into downstream businesses that make use of its products.
• It comes as the world’s No. 1 producer of EV batteries by installed capacity faces growing competition from rivals such as BYD Co. Ltd. (002594.SZ +0.69%), which produces both vehicles and their batteries.

• China’s embattled property developer Country Garden Holdings is ramping up overseas asset sales as the company struggles to raise cash to address its debt woes.
• The Guangdong-based developer has listed a residential development project in East London for sale, British media reported last week.
• The divestiture came after Country Garden offloaded two projects in Australia.