China

• China has tightened restrictions on online games again driving significant falls in names such as Tencent and NetEase. 
• While the move may surprise some given prior moves to restart approvals in our view the overall trend of regulation is not especially surprising. 
• In particular, the tightened regulations appear to target the most important drivers of mobile gaming profitability and today’s large drops may actually be underreactions.

• In the latest wave of management changes, Eddie Wu, Jack Ma’s trusted associate has staged a comeback, securing pivotal roles.
• We believe this is not a mere coincidence. Jack Ma seems to be orchestrating moves from behind the scenes, with Eddie Wu strategically positioned to represent his influence.
• The Chinese government’s reaction to Jack Ma’s increased involvement may impact Alibaba Group Holding (9988 HK)‘s price performance in the short term.

• This is our 5th annual edition of the IPOs Pipeline Worldwide (Top 100 Companies) report.
• After weak global IPO markets in 2022 and 2023, the near term trend for global IPOs continues to remain lackluster.
• For those investors that closely monitor the global IPO opportunities, this is a good reference insight to check out the largest potential IPOs that could get completed next year.

• Plover Bay Technologies (1523 HK) is another exciting play from the stable of net cash (12% of market cap) and high dividend yield (8% FY22) companies.  
• The company develops networking technologies that enable supercharged connectivity. Users can build always-on networks anywhere by combining fixed, mobile, and satellite connectivity. Its major brands are Peplink and Pepwave.
• Plover Bay is a high net margin (25%) and high ROE (>50%) business that has 9-10% CAGR revenue growth (trading at 11x PE) with catalysts up ahead. 

• Gree Electric Appliances (000651 CH) announced a profit alert for FY22 yesterday.  Net profit is expected to increase 10.2% – 19.6% yoy for the whole year.
• The resilient result of Gree should alleviate concerns of the market that Midea is too correlated with China’s new home sales. 
• The stock is trading at 10x 2024E earnings compared to an average of 13x over the last 10 years, with earnings likely growing at a high-single-digit pace.

• UBTech Robotics (9880 HK) is looking to raise about US$168m in its upcoming HK IPO, after downsizing from an earlier reported float of up to US$700m.
• UBTech Robotics is engaged in artificial intelligence (AI)-empowered robotics in China, dedicated to the innovation of humanoid robots and development and sales of smart service robotic solutions.
• In our previous note, we looked at the company’s performance and its PHIP updates. In this note, we share our quick thoughts on valuation.

• The 20% retreat in the share price of Cosco Shipping Energy Transportation (1138 HK) from the peak has well reflected the plunge in 3Q23 VLCC rates and 10% earnings downgrade.
• 4Q23 VLCC rates have rebounded 78.4% QoQ. Re-routing due to recent Houthi attacks on commercial ships at the Red Sea has reduced effective supply and is positive to rates.
• Heightened energy security needs will drive demand. The medium-term supply pressure is mild as the VLCC orderbook equals just 2% of the existing fleet, fueling ROE for FY23-25F. 

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. Meituan
2. Lippo Malls Indonesia Retail Trust
3. SK Hynix
4. China Jinmao Holdings
5. Geely Auto

and more…

• The review period for the March rebalance ends 31 January. We expect the changes to be announced 23 February with the implementation taking place after the close on 8 March.
• We expect the index committee to continue using a 6-month minimum listing history resulting in four changes to the index.
• One way turnover is estimated at 3.3% resulting in a one-way trade of CNY 4,717m. The impact on the deletions will be much larger than that on the inclusions.

• We view both Weixin Video Account (WVA) and Douyin China as secondary assets to their respective parents, which in our view, may lead to them forming…(TBC)
• However, rising competition in the short-play (短剧) market may put the two businesses in more direct confrontation, which may delay or diminish the chance for two to work together;
• We view Tencent as the likely winner in the continuing evolution of short video as it considers various options to maximize the value of WVA traffic.

• Local news reported an unnamed expert suggesting ByteDance might be buying Eleme for US$7bn, leading to share of Meituan to fall;
• While we believe (1) buying a food delivery business to complement Douyin’s in-store business makes some sense and…
• (2) ByteDance has been aggressive in pushing the boundary of its businesses, an entry into domestic food delivery is a daunting challenge that yields very little benefits for ByteDance;

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 South City

• Amid demand by consumers for cost effective items, we expect that demand for discounted apparel will sustain into 2024…
• We expect high levels of apparel sales continued in December, as VIPS reported double-digit GMV growth for various types of winter related apparel items during 12/12…
• China’s cost-conscious spending environment favors VIPS, in our view. We maintain BUY and raise TP to US$ 18.1, implying 7x FY24 non-GAAP P/E.

• China East Education (667 HK) is interesting as it is probably the only education company with no debt. Net cash amounted to Rmb2.1bn, or 42% of its market capitalisation. 
• Earnings have bottomed out and the marginal YoY decline in 1H23 is due to upfront costs for staff recruitment. Its vocational education focus also faces fewer regulatory risks.
• We consider it a potential privatisation candidate at 0.8x P/B. Its major shareholders owned 75% of the company, leaving a free float of less than HK$1.4bn.

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.

• Yuexiu Property

• The market seems “not excited” with fruquintinib’s FDA approval.We analyzed the potential reasons behind.Beyond boosting market sentiment when license-out deal is announced initially,its practical impact on valuation could be limited.
• HUTCHMED’s financial performance is good. The deal with Takeda helps to relieve cash-flow pressure. We think HUTCHMED is a relatively safe bet for investors as eventual breakeven is drawing near.
• If based on conservative calculation, market value of about US$1,455-2,055 million is a good place to long.When market value is higher than US$3,500 million, it’s time to consider taking profits.

• In November, domestic parcel volume growth accelerated vs recent months
• International remains very strong; STO keeps taking share from Yunda
• Avoid domestic ‘ground’ segment, seek international growth in SF, CaiNiao

• East Buy’s stock price plunged after a conflict broke out between the top broadcaster and the management team.
• NIO will launch another brand for low price products, following BYD’s low price and Li Auto’s price reduction.
• Tencent will move its unimportant assets to China Literature again.

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.

• Meituan

• 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 and NORTHBOUND flows were both sells, respectively, but liquid Hs with H/A pairs OUT-perform As on average by 100+bp. Liquidation by overseas investors feels finished. 
• Time to go long Hs vs As for the new year at 52wk wide discounts. 3 Short H/A pairs now switched to long. 3 new pairs long this week. 

• We don’t consider Douyin an existential threat to Meituan, but we see the company’s growth increasingly be constrained by its business model itself.
• We believe Meituan will disappoint the market with regard to its bottom line growth in 2024, barring major overhaul of its new initiative businesses.
• Meituan will have to make tough choice between growth and profitability and either scenario won’t bode well for its valuation. We value the company at RMB410 billion, meaning 18% downside.

• SOUTHBOUND flows showing reversion tendencies continues for a fourth week. Hs rebound vs their As on the week – especially the liquid ones.
• SOUTHBOUND saw HK$9.9bn of OUTflows on the week to 15 Dec, ALL of which was net sales of Tracker Fund of Hong Kong (2800 HK) and Tencent (700 HK). 
• High-Div SOEs again saw action. This time with both CNOOC Ltd (883 HK) and China Telecom (728 HK) seeing net buying as a percentage of volume. 

• Since SEC operates in US executive branch, Congress lacks power to stop IPOs
• But by passing new laws, Congress could potentially undermine SHEIN’s IPO
• Given current political climate in the US, SHEIN IPO faces real political risks

• Water Oasis (1161 HK) reported 16%/65% YoY revenue/PAT growth for FY23. For H2 FY23 revenue/PAT decelerated to 7% YoY/31% YoY. The company guided a positive outlook for FY24.
• Net cash increased to 271 mn HKD, representing 28% of market capitalization (990 mn HKD), as the company benefitted from positive working capital cycle changes. 
• Water Oasis (1161 HK) declared a 7-cent dividend for H2 FY23, bringing the overall dividend for FY23 to 14 cents (9.6% div yield). 

• REPT BATTERO Energy (REPT) raised around US$270m in its Hong Kong IPO.
• REPT is a lithium-ion battery manufacturer in China, focusing on R&D, production, and sales of EV/ESS lithium-ion battery products such as battery cells, modules and packs.
• We have covered various aspects of the deal in our previous note. In this note, we will talk about the demand and trading dynamics.

• Haier Smart Home (6690 HK)‘s acquisition of Carrier commercial refrigeration business is earnings accretive. It will also be strategically positive to its growth outlook. 
• With net cash of Rmb17.3bn, HSH has no problem funding the deal internally. Instead of earning a single-digit return on cash, the business’ 9% earnings yield is attractive. 
• The transaction will extend HSH’s application scenarios from household to commercial while elevating its competitiveness in Europe and allowing it to capture the B-end customers. 

• The Quiddity Mainland Connect NORTHBOUND Monitor. Like the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor. Lots of Flows/Position Tables and Charts to play with.
• Last week saw NORTHBOUND net sell RMB 18.6bn of A-shares on slightly lighter activity. Friday saw large NORTHBOUND net buys early in the day but ended a net sell.
• Looking at the change in the weekly position charts over the last year is striking (easiest in the Sectors table to start). Still. 

• Octillion Energy Holdings (OE HK) is looking to raise US$400m in its upcoming Hong Kong IPO.
• Octillion Energy Holdings (OE) primarily designs, manufactures and markets tailor-made battery systems for electric vehicles (EVs), and to a lesser extent, electric storage systems (ESS) and battery management systems (BMS).
• As per F&S, OE had a 9.6% market share and was ranked the third largest EV battery system provider for passenger battery EVs (BEVs) in China by FY22 shipment units.

• Recent business updates of WuXi Bio led to a decline in WuXi AppTec’s share price and changed investors’ expectations for CXO. Now is the time to adjust forecasts.
• We analyzed the growth rate of various business of WuXi AppTec in 2024. In a neutral scenario, growth next year could fall short of management’s guidance.Reversal in 2025 is uncertain.
• If WuXi AppTec “unexpectedly” receives blockbuster orders, which are large enough to hedge against the downward trend of WuXi AppTec’s other businesses, then it will help to change performance expectations.

• 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.
• Four new deals discussed this week: Sigma Healthcare (SIG AU)‘s reverse takeover; Tanotos’ tilt for Vinda (3331 HK); and Tender offers for Shinko Electric (6967 JP) and Outsourcing (2427 JP).
• Key updates took place on: Pact Group Holdings (PGH AU), Allkem (AKE AU), Costa Group Holdings (CGC AU), T&K Toka Co Ltd (4636 JP) and Hollysys Automation Technologies (HOLI US).

• 2023 NRDL negotiation results were released. We’re seeing the rules of NRDL renewal negotiations tilt toward innovative drugs, leading to lower price reduction, but there has been no fundamental change.
• The record-breaking US$8.4 billion deal involving BMS and Sichuan Biokin Pharmaceutical (688506 CH) (SystImmune) is not without risk, though. We still recommend to remain rational.
• The issue facing Shanghai Haoyuan Chemexpress (688131 CH) is higher revenue but lower margins. Valuation will likely experience further declines due to lock-up expiry and share reduction.

• It was a busy week with rebalance implementations at the close of trading on Thursday in Korea and then across the region on Friday.
• The SET 50 Index changes should be announced this week and the Yuanta TW Div+ ETF will continue to implement the changes till Thursday.
• There were inflows to China ETFs during the week while there were big outflows from Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) ETFs.

• Beijing and Shanghai laid out long waited stimulus policies on property market, include 1) lower property down payments ratio;2) lower mortgage loan rate;
• 3) lower recognition standard for ordinary home. The key is to encourage households to add leverage.
• We treat the financial stimulus as one-off positive shock to the home transaction markets in the two cities,  especially benefiting 1Q24 sales for Beike due to…

• Weekly summary of vol changes and moves across Global Markets
• Analysing ATM volatility and skew changes over the last 5 days
• We suggest a few trades to take advantage of the implied vol surfaces

• Las Vegas Sands (LVS US) announced it will buy  ~1% of Sands China (1928 HK). Melco International Development (200 HK) mean reverts after a roller coaster out/under-performance. 
• Preceding my comments on Las Vegas Sands and Melco 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%.

• Vinda International (3331 HK) has announced a pre-conditional voluntary offer from Sukanto Tanoto at HK$23.50 per scheme share, a 7.8% premium to the undisturbed price (26 April). 
• The pre-condition relates to China SAMR and Japan Fair Trade Commission approval. The offer is conditional on the offeror and concert parties representing more than 50% of voting rights.
• Irrevocables ensure the satisfaction of the minimum acceptance condition but also rule out a competing proposal. The timing of China SAMR approval is the key risk. 

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. NagaCorp Ltd
2. China Jinmao Holdings
3. Hopson Development
4. Greentown China
5. Seazen (Formerly Future Land)

and more…

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. NagaCorp Ltd
2. China Jinmao Holdings
3. Hopson Development
4. Greentown China
5. Seazen (Formerly Future Land)

and more…

• Back on the 27 April, personal hygiene play Vinda International (3331 HK) announced its controlling shareholder Essity (ESSITYB SS) would commence a strategic review of its 51.59% ownership.
• That spurred, allegedly, a variety of suitors including Brazil’s Suzano, the world’s largest hardwood pulp producer, Bain Capital, CVC Capital, DCP Capital, and Indonesia’s Tanoto family.
• And the Tanoto’s have now emerged with a HK$23.50 pre-conditional Offer. The key risk is PRC regulatory approval . Elsewhere, this is a done deal. 

• 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.
• There could be up to four index changes. Some of these are high-conviction changes and some are low-conviction changes.

• Local news reported two positive developments for Zai Lab’s FcRn inhibitor Efgartigimod: (1) Rival CSPC/HarbourBio withdrew BLA for competing drug Batoclimab (HBM9161), (2) Efgartigimod was included in 2024 NDRL;
• We raise Zai Lab’s 2024 top line by 8.8% but keep non-GAAP operating loss largely unchanged；
• We raise TP by US$2 to US$20 and maintain SELL.

• The stock of Poly Development and Holdings Group Co. Ltd. jumped 7.6% Tuesday after the leading developer unveiled an up to 2-billion-yuan ($279 million) share buyback aimed at arresting its sliding equity price.
• Shares of Poly Development closed at 10.34 yuan in Shanghai Tuesday, compared with 9.61 yuan at Monday’s closing. The stock has nearly halved from the 18.59-yuan peak in April 2022 after the persistent downturn in the property market.
• Poly Development, China’s largest developer by sales this year, said late Monday that it plans to buy back 1 billion yuan to 2 billion yuan of its own shares in the next three months.

• Cash-strapped developer Dalian Wanda Group Co. Ltd. can breathe a temporary sigh of relief having reached an agreement with investors to avoid an immediate repayment of more than 40 billion yuan ($5.6 billion) for an unfulfilled flotation of its property management unit.
• Wanda faced having to repay a group of investors their 38-billion-yuan investments plus interest under a 2021 agreement if the developer failed to list its light-asset unit, Zhuhai Wanda Commercial Management Group Co. Ltd., by the end of this year.
• As Zhuhai Wanda’s listing plan failed despite four attempts, the repayment obligation became a ticking time bomb hanging over the company, which is struggling with capital drains amid plunging sales.

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.

• There were 6 inclusions and 6 exclusions for the Nasdaq-100 Stock Index (NDX INDEX) at the annual December reconstitution. Then another ad hoc change was added on top of that.
• Impact on the inclusions ranges from 1-8 days of ADV to buy, while the impact on the deletions varies from 0.7-2.6 days of ADV to sell.
• Apart from the constituent changes, there are expected to be inflows in Tesla Motors and Broadcom and outflows from Apple, Microsoft, Amazon.com and NVIDIA.

• China Tourism Group Duty Free Corp Ltd (601888 CH)  (CTG) share price has plunged by 63% despite solid 9M23 profits growth and cash flushed balance sheet 
• Underlying fundamentals is solid, Chinese people still buying duty free goods, albeit tilting towards value than decadence purchases 
• CTG is cheap relative to its own history on all valuation metrics (PE, P/Book, P/FCF) and many technical indicators suggest it is in OVERSOLD territory 

• 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.
• At present, I see 10 ADDs/DELs for the CSI 300 index and 50 ADDs/DELs for the CSI 500 index.

• Li Auto’s deliveries and revenues surged by three digits since 3Q23.
• The company is building new factories in Changzhou and Beijing. 
• However, we believe the stock is overvalued apart from comparing with Tesla.

• 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.

• Diseases with complex mechanisms like NASH are unlikely to be solved by drugs with a single target, but compared with THR-β and GLP-1s, our view on HTD1801’s prospects is negative.
• HTD1801 faces high R&D failure risk and challenges in obtaining the final approval for NASH indication. For T2DM indication, the current intense competitive landscape has dimmed its future commercialization prospects.
• Several original shareholders have already cashed out in advance, indicating that they are not optimistic about the prospects of HighTide. The valuation premium space after IPO could be lower-than-expected.

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.