China

• Ping An Insurance (601318 CH) trades at a 40% premium to Ping An Insurance (2318 HK). The premium has blown out the last week and there could be a reversal.
• The difference in Ping An’s AH premium versus the HSAHP Index has shrunk to its narrowest level in the last 10 years.
• Shareholding in Ping An Insurance Group of (601318 CH) via Northbound Connect has dropped and shareholding in Ping An Insurance (H) (2318 HK) via Southbound Connect has increased steadily.

• 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. But that didn’t help. 
• SOUTHBOUND flows were bigly positive and NORTHBOUND flows a large net sell. Nevertheless AH Premia had their best week in ages as HK large caps, mid-caps, small-caps got shellacked.
• Now at new 52wk wides on A premia. Now within 3% of 5+ year highs.

• 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 23.5bn of A-shares on strong average activity. Big net selling on Weds. National Team stepped in Thurs. NORTHBOUND stepped in to sell Friday.
• Renewables were a bit more mixed this week but still a net sell by NORTHBOUND. It is not clear what stops persistent net selling. 

• With three-quarters of the review period nearly complete, there could be 12 changes for the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX) in June.
• We estimate one-way turnover of 1.3% at the June rebalance leading to a one-way trade of CNY 5.06bn. There are a lot of stocks with over 1x ADV to trade.
• There have been big ETF inflows to the CSI 300 Index trackers, but the potential adds have still outperformed the index and the potential deletes.

• An ugly week for HK stocks but SOUTHBOUND flows showed decent net buying at HK$14.7bn on the week. High-Div SOEs continue to be in favour.
• What appears to have been strong net selling on the mainland combined with CBBC unwinds in Hong Kong related to mainland-linked stocks caused HK to have a baaaaad week.
• The separately published AH Monitor highlights a Really Tough Week. Hs got KILLED vs their A-share counterparts as CBBCs sold the HK names and National Team bought A-shares.

• Dickson Concepts Intl (113 HK) reported the best result in its last six semi-annuals in H1 FY24, with profits rising 42% YoY. 
• Net cash on the balance sheet was 9.6 HKD/share (vs. share price of 4.54 HKD/share). Gross cash was over 12 HKD/share. 
• The company increased its interim dividend by 25% to 10 cents for the first time after four years (the expected full-year dividend is 37-40 cents).

• While the 2H23 result of Lonking Holdings (3339 HK) may disappoint due to a plunge in sales volume, it is a yield play given the high historical payout ratio.
• Assuming a DPS of HK$0.10 for FY23-25 as in FY22, yielding 8.3%, the total dividend will amount to Rmb1.2bn. This only equals 22% of its net cash (including short-term investments).
• Its controlling shareholders bought 7.3m shares since 27 Dec, raising the stake by 0.13pp to 56.2%, demonstrating their positive view on the share’s value and long-term outlook. 

• 23Q3 revenue would increase by 15% QoQ/over 40% YoY. 23Q4 revenue would increase 8-10% QoQ/over 45% YoY. 2023 full-year revenue growth would be 42-43%.Profit growth is more optimistic than revenue.
• In the first week of January 2024, YoY high growth momentum continued from December 2023, without any impact of consumption downgrades so far.In 2024, Gushengtang would accelerate pace of M&A.
• Gushengtang’s business model has been successfully validated. Different from Aier, Gushengtang is still in a period of rapid expansion. The Company remains our top pick in China’s medical service sector.

• Minsheng Education (1569 HK) is a highly undervalued Chinese education stock with high dividend yields. Market cap of the company has declined by nearly 90% from Jun 2018 to today. 
• Minsheng Education’s dividend yield averaged 5.1% from 2020 to 2022. Estimated dividend yield is 14.6% in 2023.   
• Minsheng Education mainly provides educational services in China. The company is one of the leaders of China’s private higher education industry.

• The review period for a global index commenced last week and will run through this week as well.
• The announcement of the changes for the LQ45 Index should be announced in the coming week and will be implemented at the close on 31 January.
• Huge inflows to CSI 300 Index trackers during the week while there was a big outflow from Tracker Fund of Hong Kong (2800 HK). 

• I tally 46 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Two new deals discussed this week on Smartkarma: Genetron Holdings Ltd (GTH US)‘s take-private transaction; andMedley (4480 JP)‘s buy out of GUPPY’s Inc (5127 JP).
• Key updates took place on: Orecorp (ORR AU), Weiqiao Textile (2698 HK), Benefit One (2412 JP), Taisho Pharmaceutical (4581 JP), T&K Toka (4636 JP), and Hollysys Automation Technologies (HOLI US).

• Genetron Holdings Ltd (GTH US) shareholders will vote on the consortium’s US$4.08 per ADS offer on 21 February. The offer is light in comparison to historical trading ranges.
• Completion is conditional on shareholder approval, dissenting shareholders representing less than 15% of outstanding shares and regulatory approvals (NDRC, MoC and SAFE). 
• Despite the light offer, the completion conditions should be met. At the last close price and end of March completion, the gross and annualised spread is 7.7% and 45.5%, respectively.

• As more and more China’s drugs successfully obtained FDA approval, we analyzed the “style” of the US FDA, aiming to help investors understand the prospects of domestic companies’ internationalization strategies.
• For mature pharmaceutical companies, we analyzed the benchmarks for some key financial indicators in terms of both revenue and cost. On these basis, companies’ profit performance would be decent. 
• As a top pharmaceutical SOE, China Resources Pharmaceutical (CRP) wouldn’t go bankrupt.This is the bottom line.Together with stable dividends, CRP is a worthwhile investment target to hold in bear market.

• 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, we continued our coverage of Amer Sports (AS US) and looked at Mixue Group Hong Kong filings.
• Placements continued to trickle in throught the week, across the region, apart from Hong Kong.

• Back on the 11th October 2023, Genetron Holdings Ltd (GTH US), a precision oncology platform, entered into a definitive take-private transaction, at $4.08/ADS, a 15% premium to undisturbed.
• The EGM for shareholders to vote on the transaction will be held on the 21 February. The record date is the 9 Feb.
• This merger requires approval from at least two-thirds of the votes cast, and 59.7% are supportive. Trading at a gross spread of 7.7%. This is a clean deal.

• Chinese property developer Country Garden Holdings Co. Ltd. vowed to deliver more than 480,000 homes in 2024, a more modest target than 2023 after it failed to achieve its 700,000-unit goal last year.
• The focus of 2024 is still to “guarantee delivery, guarantee operation and guarantee credit,” of which delivery is the bottom line that Country Garden “must firmly hold,” Chairwoman Yang Huiyan said at the developer’s annual meeting Monday.
• Country Garden, once China’s No. 1 developer by sales, delivered more than 600,000 units last year, short of its goal set at the beginning of 2023, the developer said.

• Travelsky Technology Ltd H (696 HK) (TravelSky) issued its 2023 operating statistics and a profit warning that is far below market expectations, the share price has plunged by 36% 
• Our analysis suggests that staff cost, commission, and systems costs have soared. This will be contained when traffic accelerates and absorbs these fixed cost items 
• Our target price of HKD9.92 (+21% UPSIDE) is based on 2024 PE 14.8x (1SD below mean). Keep an eye, worthwhile trade, due for a bounce    

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Lippo Malls Indonesia Retail Trust
2. Vedanta Resources
3. ReNew Energy Global
4. China Jinmao Holdings
5. Geely Auto

and more…

• Budweiser Brewing APAC (1876 HK) has seen investors run for the hills over the last year. The halving of the stock price could mean deletion from passive portfolios.
• Other Hong Kong listed brewers, China Resources Beer Holdings (291 HK) and Tsingtao Brewery Co Ltd H (168 HK) have been beaten down too and have underperformed their Asian peers.
• The deletion from passive portfolios could provide a buying opportunity in Budweiser Brewing APAC (1876 HK) at the end of February (or earlier if the stock drops due to positioning).

• Back on the 1st November, Nikolai Levitskii, Russian iron-ore play IRC (1029 HK)‘s chairman and largest shareholder, acquired 4.72% of shares out, lifting his stake above 30%, triggering an MGO.
• The Offer is conditional on Levitskii holding more than 50% of shares out. His intention is to maintain IRC’s listing. At the first close, he held 35.77% (5.16% had tendered). 
• The current spread is 9.2%. MIC, with 16.67% of shares out, has yet to tender. Nor do I expect them to. Plus IRC is on the OFAC sanction list. Avoid.

• Huawei Technologies Co. Ltd. is facing trouble in meeting delivery commitments for the first electric vehicle (EV) it has co-developed with auto partner Chery Automobile Co. Ltd., a possible sign of supply chain challenges for the model.
• Some people who placed orders for the Luxeed S7, which is the first electric sedan marketed under Huawei’s Smart Selection business model, recently complained online that they could not receive their cars within the promised timeframe.
• In an effort to mollify the customers, Luxeed announced Monday on social media that it will provide people who placed orders for the Luxeed S7 between Nov. 28 and Jan. 15 with varying cash compensation capped at 10,000 yuan ($1,403), based on their wait time.

• (I didn’t want to send it out right away, because I wanted to proofread my post before sending it, and unfortunately DADA is already up 10% since writing 🙁 )
• Recently Dada Nexus (DADA) , a Chinese last mile delivery service and on demand retail platform reported that about 500mn RMB ($70mn US) of revenue and costs were overstated for the first 3 reported quarters of 2023.
• This news came right after 2 JD executives had taken over management of the company in December last year.

• Weiqiao Textile Co (2698 HK)’s offer pre-condition is satisfied. Prudence has increased its shareholding to 3.39% of the outstanding shares (9.79% of H Shares), marginally short of a blocking stake.  
• The HK$3.50 offer has been declared final, which rules out a bump. Therefore, Prudence’s strategy could be to play the gross spread or to block the deal.
• The Shandong Luoxin Pharmaceutical (8058 HK) precedent supports the gross spread play view. However, unlike the precedent, Prudence is marginally short of a blocking stake in Weiqiao Textile.  

• Mixue Group is looking to raise about US$1bn in its upcoming Hong Kong IPO. 
• MIXUE Group (MIXUE) is a freshly-made drinks company providing affordable products to consumers, including freshly-made fruit drinks, tea, ice cream and coffee, typically priced at around one USD per item.
• In this note, we talk about the positive aspects of the deal.

• HSBC holds 19% of BoCom and still carries it with a value of USD23.3bn despite the stock market valuation putting it closer to USD8.1bn on YE22 figures.
• The bank cites its Value In Use testing as the justifiable reason for this gap, and this testing will include major assumptions like discount rates and long term growth rates.
• Goodwill and other intangible charges were USD10.6bn in FY08, USD3.4bn in FY16, and USD7.4bn in FY19 for HSBC.

• Back on the 4th December, Weiqiao Textile Co (2698 HK) announced a pre-conditional privatisation at HK$3.50 per H-share, a chunky 104.68% premium to last close and around a six-year high
• Pre-Conditions – regulatory approval from NDRC, MoC and SAFE – have now been fulfilled. The Composite Doc is expected to be dispatched on or before the 24 January. 
• This Offer is a Merger by Absorption incorporating a Scheme-like vote. There is no tendering condition. Prudence Investment Management, which has now built a 9.79% stake, will be supportive.

• In 4Q23, we expect Luckin Coffee revenue to increase 93% YoY to RMB7.1bn, and expect GPM/OPM to decline (5.8)/(1.3) ppt YoY to 19.0%/8.2%, respectively.
• We cut 4Q23 operating income by 12%. In 2024, we raised our revenue estimate by 5% due to the speed up of new store opening schedule.
• Furthermore, as price competition eased, we expect Luckin to offer less low-priced drinks, thus driving up OPM in 2024.

• Negative China sentiment from where Perfect Medical Health (1830 HK) derives about 15-20% of its revenue is causing the company’s share price performance to remain lackluster. 
• Stock trades on a 10% dividend yield with 15% of the market capitalization in cash, despite the outlook for HK, where it derives >75% of its revenue, is slightly better.
• With a 10-year average ROE of the business >40% and a 10.8x PE for FY24e, this stock is a dividend gem worth exploring. 

• PICC P&C’s Q3 underwriting profitability deteriorated due to typhoon/catastrophe-related losses in both motor and non-motor business.
• Samsung Life’s new business growth momentum continued in Q3’23; new business CSM margin slightly improved QoQ.
• Prudential disclosed limited details in its Q3 results but we can see the growth trend of new business volume and profits continuing in the quarter.

• Mixue Group is looking to raise about US$1bn in its upcoming Hong Kong IPO.
• MIXUE Group (MIXUE) is a freshly-made drinks company providing affordable products to consumers, including freshly-made fruit drinks, tea, ice cream and coffee, typically priced at around one USD per item.
• In this note, we talk about the not-so-positive aspects of the deal.

• Guming generates revenue mainly from the sales of goods/equipment to its franchisees (or ToB business). So, Guming’s future growth depends significantly on its ability to operate and expand store network.
• China’s freshly-made beverage market is highly competitive. Guming is unlikely to catch up with MIXUE, but Guming will be overtaken by the rest players if it fails to compete effectively.
• Due to Guming’s business model, investors’re hard to see the real picture of Guming solely based on its revenue/profits. Guming’s valuation should be higher than Nayuki but lower than MIXUE.

• The review cutoff date for the March rebalance of the HSIII was 29 December. The changes will be announced on 16 February and become effective after the close 1 March.
• We see a high probability of Zx Inc replacing Flowing Cloud Technology (6610 HK) in the index. There is a lower probability of 4Paradigm (6682 HK) replacing CMGE Tech (302 HK). 
• Capping will result in passives buying Meituan (3690 HK) and selling Tencent (700 HK), Kuaishou Technology (1024 HK), JD.com (9618 HK) and Alibaba Group Holding (9988 HK). 

• China Unicom Hong Kong (762 HK) remains inexpensive with respect to parent China United Network A (600050 CH) – its hybrid domestic A-share twin – and to peers.
• Preceding my comments on Unicom, 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%.

• The Shanghai Containerised Freight Index has popped by 25% in the first two weeks of 2024 due to the Red Sea crisis. Orient Overseas International (316 HK) is a beneficiary.
• There are already signs of bottoming out of realised freight rate and load factor in 4Q23. The spike in freight rate means that consensus forecasts are too bearish. 
• OOIL’s net cash of US$5.6bn equals 58% of its market capitalisation, making its 0.7x P/B and 8% yield attractive. There is also a possibility for a higher dividend payout. 

• In this note, we will look at the Asia Pacific IPO pipeline for 2024, following up with US ADRs, after having looked at HK, India, Japan and Korea earlier.
• This list has been compiled on a best effort basis from tracking the company filings and through various other sources
• The deals you see in this note are only a part of our full IPO pipeline tracker. Feel free to drop us a message for additional information on these IPOs.

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.

• Lippo Malls Indonesia Retail Trust

• On the 6 November 2023, Zhejiang Expressway Co H (576 HK) announced its rights offering on both its H-Shares and its A-Shares, previously mooted on 23 May.
• The rights were discussed by Travis Lundy in Zhejiang Expressway (576 HK) Rights Offering – The Dynamics May Be Interesting. He liked the stock.  That was a good call. 
• The current implied stub – net of Expressway’s 40.3% look-through stake in Zheshang Securities (601878 CH) – is back to pre-Covid levels.  I’d be looking to unwind the stub here. 

• 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 this insight, we take a look at our expectations for potential ADDs and DELs for the STAR 50 index during the March 2024 index rebal event.
• I currently expect three changes for the STAR 50 index in March 2024.

• The New and Better (5mos old) 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 (ETFs negative, high-div SOEs positive) and NORTHBOUND flows a small net sell. AH premia rose slightly on average. Especially at narrow premia.
• STILL time to go long Hs vs As for the new year. 52wk wide discounts were just four weeks ago. Wide A/H premia in renewables space look vulnerable.

• The ChiNext Index represents the performance of the 100 largest and most liquid A-share stocks listed on the ChiNext Market of the Shenzhen Stock Exchange.
• The ChiNext 50 index is a subset of the ChiNext Index and it consists of the top 50 names in the ChiNext index with the highest daily average turnover.
• In this insight, we take a look at the names leading the race to become ADDs and DELs in the June 2024 index rebal event.

• We expect PDD to report the highest growth in topline for 4Q23 over last three years. In particular, we believe its bottom line will beat by wide margin.
• But easy days are gone for PDD’s domestic e-commerce business and high base will kick in from 1Q24, resulting in tough comps, notable deceleration and potentially short-term share price volatility.
• We see 20% upside to current PDD valuation by assigning 20xPE to our US$12 billion adjusted net profit estimate for 2024.

• Due to centralized procurement and anti-corruption campaign in 23H2, negative YoY revenue growth in 2023 seems to be inevitable. We are not optimistic about Weigao’s performance turnaround in 2024.
• After new policy strictly prohibiting borrowing to purchase medical equipment in public hospitals was released, the investment logic of medical device sector changes, which would negatively affect Weigao’s outlook.
• Weigao feels like “living off its past gains”.Current valuation is reasonable not undervalued. There’s no need to rush to long this stock when downward trend in share price hasn’t reversed.

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.

• Vedanta Resources

• Irc Ltd (1029 HK) notes that the offeror (Nikolai Levitskii) and acceptances reached 35.77% at the first closing date, materially short of the 50% minimum acceptance condition. 
• The offeror has extended the closing date by 39 days (30 business days) to 20 February, the last day the offer can become or be declared unconditional. 
• The rise in iron ore prices and a light offer pose challenges. The risk/reward profile is unfavourable as the upside (5.4% spread) outweighs the downside (20.5% to the undistributed price).

• SSE 50 and SSE 180, respectively, aim to represent the performance of the 50 and 180 largest and most liquid A-share stocks listed on the Shanghai Stock Exchange.
• In this insight, we take a look at our expectations for potential index changes for SSE 50 and SSE 180 during the June 2024 index rebal event.
• I continue to expect 5 changes for SSE 50 and 18 changes for SSE 180 but some of the names have changed since my last insight.

• Tencent will allow Douyin to broadcast the game Honor of Kings after a four-year ban.
• Dada’s stock plunged after the company released its suspicious auditing result.
• Alibaba’s mobile office app, Dingding, has accumulated 120,000 paying users.

• 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 2.4bn of A-shares on decent average activity. 
• Renewables and Kweichow Moutai (600519 CH) were the big net sells on the week.

• We compile our selection of small and mid-cap names with our desired characteristics of high dividend yields, value, and margin of safety.
• Our top picks: Perfect Medical Health (1830 HK), Water Oasis (1161 HK), Taste Gourmet (8371 HK), Uchi Technologies (UCHI MK), and The Keepers Holdings (KEEPR PM).
• We recently added Plover Bay Technologies (1523 HK) to our list of companies under coverage. We believe there are some excellent near-term catalysts in the name. 

• SOUTHBOUND flows showing momentum tendencies this past week on a single-stock basis, still. 
• SOUTHBOUND saw HK$6.8bn of net OUT-flows in the week to 12 Jan 2024. Total flows were HK$118bn.
• SOUTHBOUND saw large net selling of ETFs (unwinding Week 1) and large net buying of high-div SOEs like CNOOC, China Mobile/Telecom/Unicom, and coal names.

• WuXi Bio’s optimism about new orders failed to generated expected surge in its stock price. Many investors raised great doubts about the credibility and professionalism in communication of WuXi Bio.
• It’s easy/cost-effective for WuXi Bio to “adjust” order number. However, it’s more difficult to inflate revenue/cash flow. We have to wait for future financial results to know the real situation.
• XBI is essentially “a bond”.Recent surge of XBI is driven by the expectations of Fed’s rate cut + US soft landing, rather than virtual improvement of external environment.Much remains unclear.  

• The review period for the next rebalance of a global index kicks off this week and that is where a lot of eyes will be focused.
• There were big inflows to ETFs tracking the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX) while there were redemptions from the Hang Seng H Share Index ETF (2828 HK). 
• Inflows continue for iShares Emerging Markets ex China (EMXC US) while there were outflows from iShares ACWI ETF (ACWI US). 

• The entire R&D cycle involves multi-party cooperation, leveraging one’s strengths. So, it is not difficult to understand some of the choices made by domestic pharmaceutical companies (e.g. Innovent, BeiGene).
• Due to outdated technology, investment value of Sirnaomics is low, which means the likelihood of the company being acquired is also not high. We remain conservative about the outlook. 
• ImmuneOnco’s stock price has performed much better-than-expected after IPO on HKEX. However, the endgame of ImmuneOnco’s market value could be only about RMB1.5 billion, which means large potential downside ahead.

• Since my previous insight on WH Group (288 HK) in October 2023, the stock is up 17%, massively outperforming the Hang Seng Index (HSI INDEX).
• The company is still trading at 6x forward PE, compared to an average forward PE of 11x since 2016. 
• With the US business recovering as well as its potential IPO, and a stable China business, the stock remains a buy with limited downside. 

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess West China Cement’s ESG as “Adequate”, in line with its “Adequate” Environmental and Governance scores. That said, the company’s Social pillar is “Weak”. Controversies are “Immaterial” and Disclosure is “Adequate”.

• JD.com, Inc. managed to surpass the revenue and earnings expectations of Wall Street.
• The company broadened its free shipping reach in the third quarter by leveraging enhanced logistics capabilities.
• The company strategically reduced the minimum order value for free shipping services, granting JD Plus members unlimited free shipping for 1P products.

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Sunny Optical Technology Group
2. Yuexiu Property
3. Vedanta Resources
4. Tata Motors Ltd
5. Adani Ports & Special Economic Zone

and more…

• PDD Holdings Inc. surpassed Wall Street’s revenue and earnings expectations, with total revenue reaching RMB 68.8 billion, marking a 94% year-on-year increase.
• In the third quarter, they responded to a growing demand for consumption upgrades by introducing impactful promotions like the Summer Carnival, Duo Duo Harvest Festival, National Brand Festival, and Duo Duo Reading Month.
• PDD also collaborated with over 100 Chinese national brands for the National Goods Festival, promoting top brands through live streaming sessions.