China

• NEV sales volume grew by 47% YoY in December 2023 and 36% in 2023.
• BYD’s sale volume grew by 62%, higher than the industry average, 36%, in 2023.
• All NEV stocks plunged, but we still believe BYD has an upside of 61%.

• We expect BABA to report CY4Q23 top-line, adjusted EBITA and non-GAAP net income (3.2%), (7.1%) and (3.0%) vs. consensus. 
• We estimate Taobao/Tmall GMV grew 2.4%, but was offset by lower take-rate, we expect;
• BABA’s “Return to Taobao” strategy tilts traffic to low-priced Taobao products to fight PDD for low-priced mindset.

• CSI 300 represents the 300 largest stocks by market capitalization and liquidity from the entire universe of Shanghai and Shenzhen Stock Exchanges. CSI 500 represents the next largest 500 names.
• In this insight, we take a look at the potential ADDs/DELs for the CSI 300 and CSI 500 rebalance in June 2024.
• Since my December 2023 insight, a couple of names have left the CSI 300 Expected ADDs basket and have been replaced by two other names. 

• Zhubajie Co Ltd (ZHUHKZ HK) is looking to raise at least US$100m in its upcoming Hong Kong IPO. The bookrunners on the deal are Citic Securities, and CCB International.
• Zhubajie (ZBJ) is a customized enterprise services e-commerce platform in China.
• The firm focuses on using technologies to match the service demands of enterprise clients with the skills of service providers, facilitating transactions between its ZBJ platform.

• BYD (1211 HK) overtook Tesla Motors (TSLA US) as the largest EV maker by deliveries in December 2023.
• Tesla is suspending work at its Berlin factory temporarily due to the tension in the Red Sea, while BYD’s supply chain is all in China.
• BYD is trading at deep discount to Tesla on PEG, PER, and PBR.

• We had conversations with industry consultants and business executives from China’s catering sector to understand the impact of the country’s weak economy on consumer behavior and sector outlook for 2024.
• We expect moderate pricing competition, continued rise of social media in generating online food orders and key industry players’ increased focus on smaller-size store formats.
• While we are still cautious about the sector in general, we reiterate bullish view on DPC Dash, which we believe will outperform and has potential to double in two years. 

• 3Q FY24 sales of Sa Sa International Hldgs (178 HK) have recovered to 49% of the FY19 level. Although this is slower than market expectations, the improving trend remains intact.
• Stronger Rmb, more attractions in Hong Kong, resumption of “multiple-entry permits” for Shenzhen residents, and more new stores at Sa Sa will drive the rest of this year. 
• Consensus forecasts are conservative, expecting FY24 earnings just 46% of FY19. With current share price down from HK$1.00-1.50 range during 2020, Sa Sa’s valuations are too depressed.

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.

• Back in June 2017, Toray Industries (3402 JP) acquired a 28.03% stake in Pacific Textiles (1382 HK) (@ HK$10/share). Rumours that Toray would take this stake to 50% never unfolded.
• Pacific Textiles is currently trading at HK$1.30/share, its lowest level outside of the GFC. 
• Relatively inexpensive, high digit yield and M&A angle, Pacific Textiles remains attractive. This is supported by the recent Offer for Weiqiao (2698 HK) and David Webb taking a 5% stake. 

• Xtep International (1368 HK) announced an operational update for 4Q23, with retail sales growing more than 30% for the Xtep brand (off of a low base in 4Q22).
• The overall quality of the retail sales growth is low, as the growth was mainly driven by higher discount level (around 30% compared to 25-30% in the previous quarter). 
• I still prefer Anta over Xtep at this stage, as Xtep is more of a beta play if the consumer sentiment turns around in China. 

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.

• Shui On Land
• Sunny Optical Technology Group
• Vedanta Resources
• Yuexiu Property

• After 23H1 results were released, we have seen some positive business progress in internationalization. There has been no obvious negative news about performance. Acotec’s future prospects are still relatively optimistic.
• Contrary to solid fundamentals, Acotec’s stock price continues to decline. The sluggish stock price performance is not directly related to fundamentals, but rather to poor liquidity and unsatisfactory capital inflows.
• Stock price hasn’t bottomed yet, so investors’re not advised to rush to buy the dip.For market value management, Acotec’s management need to invest more energy/time to maximize shareholder value/investors’ returns.

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.

• Road King Infrastructure

• Based on the close of 8 January, there could be two changes for the iShares A50 China (2823 HK)/ CSOP A50 (HKD) (2822 HK) in March.
• Shaanxi Coal Industry (601225 CH) and China Everbright Bank Co A (601818 CH) could replace Bank Of Ningbo Co Ltd A (002142 CH) and Aier Eye Hospital Group (300015 CH). 
• The impact of passive trading will be higher on the inclusions compared to the deletions. Then there are cash and carry positions that will be rebalanced, adding to flow.

• In this note, we will take a look at the Asia Pacific IPO pipeline for 2024, starting with Hong Kong.
• 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.

• Shougang Fushan Resources (639 HK) energy, a pure play on high coking coal prices, now trades at 5.7x FY24 PE (1.5x EV-EBITDA), assuming 2,200 RMB/ton prices (vs spot 2500). 
• The company has ~7.5 bn HKD of net cash (on H12023), representing 50% of the market cap despite conducting a recent buyback of 5% and paying all its outstanding dividends/taxes. 
• With an 80% payout, we can also expect a dividend yield of 14% for FY24 if prices average 2200 RMB/ton.  

• A new draft measure suggested Shenzhen is planning to accelerate its shantytown renovation and offer more Affordable Houses to meet demand of low-income groups, mimicking Singapore’s HDB flat policy.
• As China’s property market gradually heading to the Singapore model, we expect the existing home market to enlarge and new home market to shrink.
• We expect Beike existing home business and renovation business to benefit, while new home business hurts. We maintained the stock as BUY rating and TP at US$24.5/ADS.

• The upcoming Chinese New Year travel rush is expected to see air passenger volume reach 80m, a 9.8% increase vs. 2019. Tongcheng Travel Holdings (780 HK) is a key beneficiary.
• In addition to air ticket booking, Tongcheng can gain from demand for related services and products. The focus on lower-tier cities will make it better satisfy their demand. 
• Its FY24F PER of 15.2x is lower than sector average of 16.4x, yet 3-year EPS CAGR of 30.7% is higher. Its underperformance against Trip.com (TCOM US) can be reversed.

• The business model of MIXUE is S2B2C. The expansive and highly efficient supply chain is the bedrock of MIXUE’s industry leading performance and scale, setting it apart from its peers.
• MIXUE has more flexibility to diversify its business to explore new growth points and is also more resilient to risks/industry changes, which determines sustainability and growth ceiling of future development.
• As competition for freshly-made tea drinks industry intensifies, capital has become “impatient”. As an industry leader, now is the best time for an IPO. MIXUE’s valuation could reach US$10 billion.

• Guming Holdings (GUM HK) is looking to raise US$300m in its upcoming Hong Kong IPO. The bookrunners on the deal are Goldman Sachs, and UBS.
• Guming Holdings (Guming) is a maker of freshly-made beverages in China.
• As per CIC, its “Good me” brand is China’s largest mid-priced freshly-made tea store brand in terms of both GMV in 2023 and store count as of Dec 2023.

• Oriental Watch (398 HK)  went ex-dividend on the 4th of January and has settled at an appetizing valuation of 6.8x PE with 60% of the market cap in cash.
• The market post-golden week and into the new year has been tepid.
• We expect the company to continue paying out 100% of its profits as dividends, based on which the dividend yield is close to 14% at the current share price.

• In this note, we will take a look at broker performance for HK IPOs and placements in 2023. 
• The following dataset includes all HK IPOs and placements above US$100m, which amounted to a total of 27 deals.
• The deals you see in this note are based on our historical IPO and placement tracker. Feel free to drop us a message for additional information.

• PDD diversified into ‘local life’ businesses in December 2023, but stopped these businesses within two weeks.
• We believe PDD’s low price advantage does not work in Meituan-like ‘local life’ and the top performer Meituan is hard to fight.
• We believe the stock price has an upside of 88% for year end 2024.

• MIXUE Group (1860056D CH) is looking to raise about US$1bn in its upcoming Hong Kong IPO. The bookrunners on the deal are Bank of America, Goldman Sachs, and UBS.
• 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.
• The firm is the largest domestically freshly-made drinks company in terms of number of stores as of Sept 23, and number of cups sold during 9M23, according to CIC.

• Kerry Logistics Network will pay a special dividend in the form of KEX shares
• This will trigger a general offer by SF Holding for all KEX shares at THB 5.50
• Why is SF Holding doing this, & how could its int’l express business change?

• 2023 marked our eighth year covering Equity Capital Markets in Asia Pacific. In 2023, IPOs didn’t pick up much from the low base of 2022  while placements showed upward momentum.
• We ended 2023 with an accuracy rate of 73.7% across 57 IPOs that we covered and 79.3% across 115 placements.
• For those not familiar with our coverage, we aim to cover all IPOs and placements with a minimum deal size of US$100m across Asia-Pacific, including China ADRs.

• IVF Hospital’s profitability and growth momentum look good at this stage, but the Company is still in early stage of development, with obvious gap with leading players in the industry.
• IVF penetration rate in China is not high and the rate of improvement is slow. With public hospitals accounting for over 90% market share, IVF Hospital’s growth space is limited.
• Licensing is a big barrier for development, slowing down the pace of nationwide expansion. The “good story” should be based on internationalization, which is actually the weakness of IVF Hospital.

In our inaugural Asian Monthly for 2024, we discuss the regional credit outlook for the year, with a focus on China, India, Indonesia as well as our favoured bonds. We also provide a review of 2023, including new Asian USD corporate bond issuances and defaults last year.

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.

• Adani Green Energy
• Adani Ports & Special Economic Zone
• ENN Natural Gas
• Greentown China
• Innergex Renewable Energy
• SK Hynix
• Tata Motors ADR

• Alibaba is transforming into a leaner, more efficient and more profitable technology company with sharpened focus on core business and shareholder return.
• While we don’t expect growth to define the company in the near future, high single-digit P/E more than compensates for the lack of it.
• This worst-performing and cheapest technology stock among global peers stands a big chance of staging a comeback in 2024 in our view.

• 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 flat/light and NORTHBOUND flows a significant net buy, respectively, but liquid Hs with H/A pairs OUT-perform As on average by 200+bp.
• STILL time to go long Hs vs As for the new year. 52wk wide discounts were just last week. Wide A/H premia in renewables space look vulnerable.

• With a few weeks to go in the review period, CGN Power (1816 HK) and Yankuang Energy Group (1171 HK) could be added to the ETF in March.
• China Resources Beer Holdings (291 HK) and Wuxi Biologics (2269 HK) are potential deletions while there is another stock close to deletion zone.
• There are a lot of shorts on Yankuang Energy in terms of days of ADV and as a percentage of float while short interest on the other stocks is lower.

• Anta Sports Products (2020 HK) announced a set of in-line 4Q23 operating data. 
• In addition, the company has filed a registration statement with the U.S. SEC on January 4 for a proposed listing of Amer Sports on the New York Stock Exchange. 
• Anta currently trades at a forward PE of 17x based on estimated 2024 earnings, compared to a historical forward PE of 24x since 2017.

• 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 – Aoki Super (9977 JP), Hollysys Automation Technologies (HOLI US), JSR Corp (4185 JP), Shinko Electric Industries (6967 JP), Probiotec Ltd (PBP AU), Adbri (ABC AU).
• Lowest spreads – Pact Group Holdings (PGH AU), T&K Toka Co Ltd (4636 JP), A2B Australia (A2B AU), Tietto Minerals Ltd (TIE AU), IJTT Co., Ltd. (7315 JP). 

• SOUTHBOUND flows showing momentum tendencies this past week on a single-stock basis, still. Hs gave up some ground vs As in Week One.
• SOUTHBOUND saw HK$14.4bn of net IN-flows in the 4-day week to 5 Jan 2024. Total flows were HK$96bn.
• SOUTHBOUND start the year by buying ETFs, high-div SOEs like China Mobile and CNOOC, coal names, and sports/consumer names.

• Amer Sports, 52.7% owned by Anta Sports Products (2020 HK), has finally filed a US IPO registration. This is positive for Anta Sports as it can realise Amer’s value.
• Reported losses at Amer have increased YoY for 9M23 due to higher finance cost. But, its gross, operating, and adjusted EBITDA margins have all recorded solid improvements. 
• Assuming Amer is listed at the sector’s average FY23 P/S of 1.6x, Anta Sports may book deemed disposal gain of HK$13.5bn, or about 6.8% of its market capitalisation.

• The HSI INDEX index closed December (barely) up, no rally, nullifying completely the MONTHLY time bar count pattern suggesting a LONG MONTHLY trade (the 1-bar reversal has already happened).
• The index is approaching the Q3 support at 16449. A WEEKLY bounce is possible from that level, but we don’t know if the bounce can last more than 1 week.
• If the index keeps going down this week, it could find support between 16500 and 16000. A longer correction could end in the 15800-15600 price area. Use tight stops.

• A recent report shows apparent gains by Temu against US “dollar” store chains
• In this insight we introduce the “dollar” store concept and share our experiences
• We conclude that Temu & SHEIN don’t likely view some categories as priorities

• 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 5.5bn of A-shares on lighter average activity. BIG net selling flows on the first day of the year for HK going north.
• Looking at the change in the weekly position charts over the last year is striking (easiest in the Sectors table to start). Still.

• Mixue Group (MIX HK), a world-leading freshly made drinks company, filed for an HKEx IPO to raise US$0.5-1.0 billion. 
• Mixue is China’s largest and the world’s second-largest freshly made drinks company, in terms of both the number of stores and cups sold in 9M23, according to CIC.
• The investment case rests on a strong brand, leading market share, high revenue growth, robust cost control, stable profitability and cash generation. 

• WuXi XDC remains our top pick in China healthcare. We’re optimistic about its share price performance. Cansino is stronger than imagined, and we recommend investors to be patient with it.
• The future competitive landscape of GLP-1s would present very different situation from traditional drugs. Innovent’s Mazdutide could be a “dark horse” if the head-to-head trial against Semaglutide is successful.
• For GLP-1s, it will be difficult to shake the first-mover position of the first two giants (Semaglutide and Tirzepatide) unless latecomers are able to show higher marginal benefits.

• Last week Kerry Logistics Network (636 HK) (KLN) announced it would in-specie its entire 52.1% stake in Kerry Express Thailand (KEX TB) (KET).
• As S.F. Holding (002352 CH) holds a controlling 51.5% stake in KLN after the 2021 partial Offer, it will hold 26.8% in KET post-in-specie. That triggers an unconditional MTO.  
• The MTO price will be THB5.50/share. The key regulatory approval is Thai SFC. That won’t be an issue. 

• Anhui Conch Cement (914 HK) is trading at a historical low forward P/B of 0.5x, compared to an average of 1.2x for the last decade. 
• In the long term, China cement will likely see much lower volume and lower cement prices in the short term, but eventually rising cement prices due to better supply picture. 
• As the lowest cost producer, Anhui Conch stands a very good chance to win out in the long term and potentially more than double its current market share. 

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. Agile Property Holdings
2. China Vanke
3. Indika Energy
4. SK Hynix
5. Vedanta Resources

and more…

• New China Life Insurance Co. Ltd. will partner with a unit of China International Capital Corp. (CICC) to set up a $1.4 billion fund to invest in companies with real estate assets, as the state-owned insurer taps the property sector for long-term returns despite a market downturn.
• New China Life said it has reached an agreement with China Capital Investment Group (CCIG) to forge the private fund, in which the insurance company will provide 9.999 billion yuan ($1.4 billion) as the limited partner. CICG will be the general partner with 1-million-yuan investment and will manage the fund.
• The fund, with a term of eight years, will focus on direct and indirect investment in companies holding property projects in their long-term portfolios, according to New China Life.

• We expect Q3 FY24 revenues/profits to be >40%/>70% YoY for Taste Gourmet (8371 HK) for their results in early February. 
• Another catalyst we look forward to in CY24 is the main board listing on HKex. The timeline, we believe, should be in the second half of the year.
• Trading at 6x PE with an 8.5% dividend yield and cash of 130 mn HKD, or about 21% of the market cap, is one of our top dividend gems.

• Back in October, I wrote in PICC’s (1339 HK) Lifetime Low Implied Stub that People’s Insurance (1339 HK) was trading at an all-time low implied stub. It’s widened further since. 
• Over the past 12-months, excluding PICC’s 68.98% stake in PICC Property & Casualty (2328 HK), the market has assigned HK$42.6bn less for PICC’s steady and profitable life/health insurance stub ops.
• What gives? Falling interest rates is one. EV insurance in another. Yet this bifurcation is extreme.

• In this insight, we take a look at a group of names with reasonably high likelihood of being involved in index changes for the Hang Seng Index in March 2024.
• The index changes for the March 2024 index rebal will be announced on 16th February 2024.
• While the Hang Seng Index selection process is highly subjective, we continue to believe that identifying eligible names and grouping them by conviction level could be a valuable exercise.

• Cloudbreak Pharma, a China-based clinical-stage biotechnology company, plans to raise up to US$200m via a Hong Kong listing.
• In this note, we examine the company’s core products, namely CBT-001 and CBT-009, for pterygium and juvenile myopia respectively.
• We are seeing a lack of convincing sustainable innovation from the company. Pre-IPO investors and management are mediocre.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• China Vanke
• SJM Holdings

• BYD’s sales volume grew by 45% YoY in December, higher than 31% YoY in November.
• For the whole year 2023, BYD’s total sales volume rose by 62%.
• We conclude the stock has an upside of 74% for 2024.

• HKEX (388 HK) outlook has been withering for some time, and new data on property transactions, shows that this remains weak.
• SGX (SGX SP) in a less volatile geopolitical financial center, has a much lower market capitalization while its earnings outlook is far stronger.
• Two major differences between these two entities is their ROE and ROA, although the former may be more relevant. SGX (SGX SP) has an ROE that is nearly 50% higher.

• Kweichow Moutai (600519 CH) announced the preliminary result for FY23, with sales and net profit both up 17% yoy. 
• The overall weak consumer sentiment in China has not spared the Chinese liquor sector, as overall Chinese liquor demand has been lukewarm. 
• The current valuation for Moutai has become very attractive, and even if no rerating, the return is likely to be around 15% through earnings growth plus 2% from dividend yield.

• First of all, happy new year to all my readers! May 2024 bring market beating returns for everyone.
• Again I managed to underperform my blog stock picks by concentrating in the wrong stocks.
• Although I still ended up over 20% for the year, it was disappointing considering I was getting close to 30% in July.

• The essential difference between QuantumPharm and InSilico in terms of business models is that InSilico is an end-to-end generative AI-driven biotech but QuantumPharm is more of a platform-based service provider.
• It’s difficult for QuantumPharm to achieve significant increase in revenue scale in short time,because the service fee amount is usually not large, and it takes time to accumulate order volume.
• If there is no substantial performance contribution, these good stories would not bring about a sustained leap in valuation. QuantumPharm’s valuation in last funding round before IPO is too expensive. 

• We doubt if PetroChina (857 HK) can sustain good performance in 2024. On historical patterns, it has never sustained as one of HSI’s best-performing stocks for two consecutive years. 
• Consensus growth forecasts of 4.4% and 4.3% for FY24-25 are likely wrong as this means FY25 will be the 5th straight year of growth. PetroChina does not behave like that. 
• Crude oil price has got back to the end-2022 level, but PetroChina’s share price is still 50% higher. A return to their high correlation before 2023 will lead to underperformance. 

• Yichang HEC Changjiang Pharma (1558 HK) is set to benefit from the recent upsurge in respiratory illness in China. The company commands ~90% share of anti-flu drug market in China.
• In 1H23, HEC Pharma’s revenue jumped 148% YoY to RMB3.2B, mainly due to spiking flu cases in China. A strong flu season in 4Q23, should boost H2 performance.
• Despite a 43% rally in HEC Pharma share price over the last six months, the shares are trading at forward P/E of just 4.8x.

• We see 30 potential adds (including plenty of new listings) and 28 potential deletes (on market cap and liquidity) for the Hang Seng Composite Index in March.
• We expect 26 stocks to be added to Southbound Stock Connect following the rebalance while 25 stocks could be deleted from the trading link and become Sell-only.
• There are stocks that have a very high percentage of holdings via Stock Connect and there could be some unwinding prior to the stocks becoming Sell-only.

• China Tourism Group Duty Free Corp Ltd (601888 CH) (CTG) announced last week a new supplementary contract for its duty-free airport businesses in Beijing and Shanghai airports
• The new deal aims to promote collaborations between the airports and CTG, acting like true partners. However, we think it is more positive for airports and slight detriment to CTG
• Maintain our Bullish call with an unchanged target price of CNY106 (+27% UPSIDE), based on the company’s lowest recorded PE ratio in the past 10 years of 23.2x into FY24

• Dada Nexus Limited (DADA.OQ) (“Dada”), with a market cap of USD 869.9 million, is one of China’s leading on-demand retail platforms holding around 20% market share behind Meituan (42%, 3690.HK) and Ele.me (24%, Alibaba-owned).
• Dada, a 54% subsidiary of JD.com (JD.OQ; 9618.HK) and 9% owned by Walmart Inc. (WMT.N) operates two core businesses, namely:

• JD Daojia (JDDJ), which is a local non-restaurant online to offline (“O2O”) retail marketplace

• WuXi XDC looks like “an outlier” among domestic CXOs – Its share price has performed well so far. As a niche player, WuXi XDC’s short-term performance growth is relatively guaranteed.
• We analyzed the valuation of WuXi XDC Cayman (2268 HK) under different scenarios. How much upside WuXi XDC’s valuation would have depends on the future real market size of ADCs.
• We’re conservative about whether we could have a US$50 billion ADC market. The “lucky” part for WuXi XDC is the current ADC market brings “a safe window period” for investors.

• In this insight we preview J&T’s maiden earnings report as a listed company
• We focus on revenue growth & margin trends in the China & SE Asia businesses
• We fear slowing organic growth & margin deterioration could spook investors