China

• Geely Auto (175 HK)‘s share price has largely swatted away the pending US-listing of ZEEKR (ZK US).
• ZEEKR was valued at US$13bn after a US$750mn fund raising in February. At that value, Geely’s 54.7% stake is worth 58% of its market cap.
• Geely is trading around a six and half year low, and below its five average trailing/forward metrics. 

• ZEEKR (ZK US), a premium EV brand by Geely Auto (175 HK), aims to raise around US$500m in its US listing.
• Zeekr was formed in Mar 2021 as a JV between Geely and its founder. Its first model was launched in Apr 21 with deliveries starting in Oct 21.
• We have looked at the company’s past performance and undertaken a peer comparison in our earlier notes. In this note, we will talk about valuations.

• Anta Sports Products (2020 HK) is the second largest China sportswear company at 20% market share in 2022.
• The thesis for Anta lies in Anta’s above-industry earnings growth for the next 3 years, low market expectations on China sportswear sector, and flexible multi-brand strategy.
• Anta trades at a forward PE of 17x based on estimated 2024 earnings, with around 15-20% expected net profit growth in 2024-2026.

• Xiaomi Corp (1810 HK) is a member of the Hang Seng Index, Hang Seng China Enterprises Index and Hang Seng TECH Index, among others.
• Capping of stocks at 8% of the index weight will lead to selling in Xiaomi (1810 HK) at the close on 1 December, mainly from Hang Seng TECH Index trackers.
• Relative underperformance vs the HSTECH Index from now to Tuesday will require passive to sell less stock, while outperformance will lead to increased passive selling. That opens up trading opportunities.

• Kuaishou’s 3Q2023 earnings beat consensus estimates with significant improvement to the company’s profitability driven by growth across all business segments.
• Operating losses of the overseas segment has further reduced, and new offerings such as paid mini dramas have been driving strong growth for the company.
• Though Kuaishou’s share price has moved up during the last few months, valuation multiples are at a steep discount to historical multiples, suggesting there is further upside.

• After COVID-19, China healthcare has been under pressure for a long time. High interest rate environment is unfriendly to companies, but the current situation is not entirely devoid of opportunities.
• GLP-1s has reignited investors’ interest in this industry, which will be long-term opportunity and bring alpha. With rich domestic/overseas catalysts ahead, related share price performance is worth looking forward to.
• Among the domestic GLP-1s companies, Innovent is our top pick. The “concept validation” of Innovent’s business model has been completed. A qualitative change in the Company is coming soon.  

• Sunpower reported 9M23 results which showed the company performing strongly as a 100% GI business.
• Revenues +15% and EBITDA +46% YoY. Earlier this month a competitor listed in China at a massive premium to Sunpower’s valuation.
• The uncertainty over the CB due in April 2025 will be an overhang but management believes there are multiple ways to resolve this in FY2024.

• The turnaround of sports business at China Dongxiang (3818 HK) is very welcoming. We are glad that sales trend in Oct-Nov is sustained and Phenix brand is well-received.
• Reported losses widened as poor market environment enlarged investment losses. However, net cash and investment portfolio are still valued at Rmb8.5bn, or 5.9x its market capitalisation. 
• CNDX looks comfortably at over 6% full-year dividend yield. Together with just 0.15x P/B, there are enough protections for the downside of the stock.  

• Legend Biotech Corp (LEGN US) has reported mixed 3Q23 result, with revenue missing and EPS beating consensus. For 3Q23, partner Janssen reported Carvykti worldwide revenue of $152M, up 30% QoQ.
• Legend entered an exclusive, global license agreement with Novartis, which grants Novartis the rights to develop, manufacture, and commercialize LB2102 and other potential CAR-T therapies for upfront payment of $100M.
• The company is expanding manufacturing capacity for Carvykti. As of September 30, 2023, Legend has cash balance of $1.4B, which should provide a runway through 2025.  

• Trip.com reported strong Q3 earnings, reflecting 2023’s ongoing tourism revival
• Net Income beat expectations, and company made progress on expense control
• But we don’t see “game-changing” numbers in Trip.com’s latest earnings release

• Haitong International Securities Group (665 HK)’s scheme meeting is on 15 December. The IFA considers Haitong Securities Co Ltd (H) (6837 HK)’s HK$1.52 per share offer fair and reasonable. 
• Key conditions include approval by at least 75% of independent shareholders (<10% of independent shareholders rejection) and a headcount test. No shareholder holds a blocking stake.
• The high takeover premium ensures a done deal. At the last close and for the 18 January 2024 payment, the gross and annualised spread is 2.7% and 18.2%, respectively.

• NetEase reported revenue/non-GAAP operating profit/GAAP net income inline/5.24%/16.2% vs. our estimation.
• The bottom-line beats were primarily attributed to the operational efficiency achieved through the usage of AIGC tools, and reduced S&M expenses resulting from organic traffic generated by high-quality game content.
• We maintain our BUY rating and raised TP to $138 for future game releases, implying 19x PE, and it is currently trading at 17x PE in 2024

• Once the pre-cons were satisfied on the 15th November, it seemed pessimistic to stick to the delayed 29 December dispatch date for Haitong International Securities Group (665 HK)‘s Scheme Document. 
• And right on cue, the Doc was issued last night (21 Nov). The Court Meeting is the 15 December. with an expected cash despatch on or around the 18 January.
• Trading at a gross spread to terms of 2.7%. The headcount test applies. But this should comfortably get up. 

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.

• With P/B back to the 5-year average of 1.9x but ROE surpassing the last five years, Air China Ltd (753 HK) is our High Conviction pick for 2024.
• Lower US interest rates next year will reduce interest expenses as 18.7% of debt is USD-denominated. Potential Rmb appreciation vs. USD may bring significant exchange gain too.
• Supportive government policies will further drive domestic traffic. For international traffic, more capacity resumption will power recovery. Cathay Pacific Airways (293 HK) is another profit accelerator.

• BZ reported 3Q23 cash billing 0.8% higher than our est., revenue beat our estimate/consensus 5.2%/3.8%, non-GAAP NI beat our estimate/consensus by 103%/50%.
• Cost saving and investment income are the main reasons for bottom-line beat, which we think are not sustainable.
• Even BZ can deliver its “3 years with 100mn new users” target until 2025, we think its 20% earnings CAGR in 2023-25E still cannot justify its high valuation (TBC)

• Total revenue grew by 21% YoY in 3Q23, as both advertising and e-commerce expanded strongly.
• KS achieved historical high operating margin and operating profit, as the company continue to cut all operating expenses.
• We believe the stock has an upside of 63% and a price target of HK$95. Buy.

• JD Health’s 23Q3 results were below expectations. Due to the high base of 22H2 (especially 22Q4), revenue growth could become negative in 23Q4, thus dragging down 2023 full year growth.
• Considering the high base in 23H1, performance pressure could continue until 24H1. JD Health’s past high growth will be gone. Investors may need to get used to the lower-than-expected growth.
• Share price of JD Health is now in the bottom range. Current valuation is attractive. Despite the performance headwind, P/S is expected to return to about 3 to 4.

AGBA’s Q323 results continued to be affected by the weak recovery in China and consequent subdued mainland demand for Hong Kong health and wealth products. As a result, revenues were flat year-on-year at US$13.2m, but down from US$17.4m in Q223. The pre-tax loss was US$12.9m, putting the company on track to meet its US$49m projected loss for FY23. AGBA also announced that it has entered into term sheets for a US$6.2m private share placing with a new institutional investor, AGBA’s group president and AGBA management at US$0.70 per share plus warrants with an exercise price of US$1.00/share. The amount could expand subject to ongoing conversations with additional potential investors. The significant premium to the current share price signals management’s confidence in AGBA’s long-term value. The capital will go towards funding organic growth, strategic acquisitions and managing liquidity until projected material profitability in FY25.

• Optimism for improved shareholder returns through IPOs diminishes further as Alibaba (ADR) (BABA US) puts the Cloud spinoff on hold.
• Jack Ma’s sale of 10m ADS, representing 5% of his Alibaba holdings, sparks concern. Investors should worry about his lack of optimism.
• With the Cloud IPO on hold, Alibaba Group Holding (9988 HK) is vulnerable to numerous downside catalysts, as outlined below.

• In-Line results were overshadowed by company’s pullback from March restructuring plan and Jack ma’s family trust selling shares.
• Worst sell-off in a year was over-reaction as abrupt changes unnerved investors who tended to interpret the events  with excessive negative sentiments.
• Valuation almost priced in a scenario where company is overtaken by PDD in faltering Chinese economy. Selling amidst this extreme pessimism is the last thing investors want in our view. 

• The accretion trade is going to plan as Prosus NV (PRX NA) sells Tencent (700 HK); and Prosus and Tencent both back their own shares.
• Preceding my comments on Prosus/Tencent One 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%.

• Alibaba’s cloud servers experienced downtime for more than three hours.
• Kuaishou achieved success in the Singles Day sales and we expect a high growth rate for “other revenue” in 3Q23.
• Tims China’s revenue grew strongly with aggressive expansion of new stores.

• With the review period complete, BeiGene (6160 HK) could replace Anhui Conch Cement (914 HK) in the iShares China Large-Cap (FXI) (FXI US) in December.
• There will be over 2 days of ADV to buy in BeiGene (6160 HK) and nearly 2 days of ADV to sell in Anhui Conch Cement (914 HK). 
• Short interest has been increasing in BeiGene (6160 HK) and dropping in Anhui Conch Cement (914 HK) over the last few months.

• We expect total revenue will grow by 24% in 3Q23, as catering has been recovering in China.
• We expect Meituan can still earn positive operating profit 3Q23, as the company cut salespeople’s bonuses.
• We also believe that the stock has an upside of 87% for year end 2024.

• Led by international activity, CaiNiao booked +25% Y/Y revenue growth in FYQ2
• FYQ2 EBITA margin improved Y/Y and Q/Q, even as express companies struggled
• Result bolsters CaiNiao status as vehicle to access BABA’s international growth

• HK & China CRE credit impaired loans are rising sharply and high in 3Q23. We believe there is risk that the bank has to take much higher credit costs.
• Not only Mainland China CRE where there are risks. HSBC shows its ECL coverage ratio for HK CRE rising 45% over the past nine months, from 4Q22 to 3Q23.
• LT credit costs shows HSBC’s provisioning is like during a benign environment, at ~1/3 of its LT average. Its +34% QoQ credit costs in 4Q22 is worth keeping in mind.

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 Karawaci
• Softbank Group
• Xiaomi Corp

• Hygeia’s asset-heavy model leads to a situation of expense “front-loading” and profit “back-loading”.Management’s attitude towards profit is “thought-provoking”.It’s best for investors not to have high hope for Hygeia’s profit margin.
• Hygeia can maintain 30%+ growth in short term, but revenue growth could fall to 15-20% in the future due to lack of high-quality M&A targets and uncertainties brought by anti-corruption.
• Revenue forecast is about RMB4 billion in 2023 and RMB5-5.5 billion in 2024. P/E of 30-40 is reasonable range at this stage, which would drop afterwards. Current valuation is expensive. 

• On Friday, Hang Seng Indices announced the changes to the benchmark Hang Seng Index, the index in the family with the largest AUM.
• Li Auto (2015 HK) and WuXi AppTec (2359 HK) are added. There are no deletions.
• I see 3.4% a side to trade and across the three major indices there are larger net flows, but few compelling ones given possible pre-positioning.

• The Dec 23 review results for the Hang Seng Tech Index were announced on Friday 17 November after the close.
• There were no ADDs to or DELETEs from the index, in something of a surprise. 
• The “big flow” on HS TECH is the downweight on Xiaomi Corp (1810 HK) due to sharp capping after significant outperformance since the August review.

• For a second review running, Zhongsheng Group (881 HK) has avoided being deleted from the Hang Seng China Enterprises Index (HSCEI INDEX).
• That means China Unicom Hong Kong (762 HK) misses out on index inclusion, but there is still hope for the next one.
• There does not appear to be any significant positioning on either stock and any large moves early in the coming week could be short lived.

• The New and Better (16 weeks old) A-H Monitor has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
• Hs with H/A pairs outperform their As on average with higher-liquidity Hs outperforming more. High Premium As not seeing shrinking premia on average.
• SOUTHBOUND and NORTHBOUND were net sells overall. It looked like the combination of NORTHBOUND and SOUTHBOUND put on a long H short A in the non-bank financial sector.

• The HSCEI Review for December 2023 was announced on Friday 17 November. 
• There were no ADDs and no DELETEs, which was a bit of a surprise.
• There is about 2.8% one-way to trade. Alibaba (ADR) (BABA US) is a sell across all three major indices.

• Keep Inc (3650 HK) and Tuhu Car (9690 HK) will be added to the Hang Seng Composite Index (HSCI) after the close of trading on 1 December.
• Keep (3650 HK) will be added to Southbound Stock Connect from the open on 4 December while Tuhu Car (9690 HK) will only be added to Stock Connect in April.
• There are lock-up expiries on both stocks, prior to or after inclusion in Stock Connect, and trading strategies will need to take that into account.

• This is the somewhat brand-spanking-new Quiddity HK Connect SOUTHBOUND Monitor. We work off the same presentation as the A/H Premium Monitor and Mainland Connect NORTHBOUND Monitor.
• SOUTHBOUND flows the last several weeks clearly indicated a momentum move. The top net sells were all down. The top buys were all up. This week that trend moderated significantly.
• SOUTHBOUND breaks a 17-week inflow streak with HK$2.1bn of net outflows entirely driven, it appears, by relatively few accounts punting large size in local (HK-listed) ETFs

• Shenzhen Senior Technology-A (300568 CH) is looking to raise around US$275m in its upcoming Switzerland GDR listing. The bookrunner on the deal is Huatai International.
• As per media reports, the firm was earlier looking to raise between US$300-400m via a Swiss GDR issuance, having secured approval earlier to sell up to 128m A-shares.
• However, given its lackluster share price performance over the past year, the eventual deal size would be capped at around US$275m.

• Non-Core items boosted Q3 earnings, but core margins plunged vs Q2
• In a surprise move, ZTO has abandoned its aggressive pursuit of share
• Medium term growth is likely to slow, and pressure on margins remains

• WuXi XDC’s shares surged since IPO. Obviously, ADC industry is in a “honeymoon period”. The market is optimistic about ADC due to high certainty and growth visibility in short term.
• Pharmaceutical companies believe this platform would produce blockbuster products continuously. However, if there’s any “persuasive event” to change optimistic expectations on ADC, it’s time for investors to reconsider WuXi XDC.
• “Positive sentiment + non-falsifiable short-term logic” would indeed push WuXi XDC’s shares to a new high. As long as sales of major ADCs are in line with expectations, party continues.

• BABA reported C3Q23 revenue, non-GAAP operating profit and GAAP net income in-line, 6% and (7%) vs. our est., and in-line, in-line and (14%);
• Instead of appointing capable management to oversee key subsidiaries, BABA backpedalled to call off its spin-off plans;
• We cut TP from US$ 127 to US$ 72, and downgrade to SELL.

• Tencent reported C3Q23 revenue, non-IFRS operating profit and IFRS net income (2.4%), 8.9% and 17% versus our estimates. The bottom-line beat was mainly due to the growth of high-margin businesses;  
• We view commercialization of Video Accounts and expansion of overseas gaming are still at early stage.
• Progression of these high-margin, high-quality business will persist into 2024;  We maintain BUY but raise target price to HK$ 432. 

• JD.com reported in-line revenue and a non-GAAP net profit beat of 12% vs. consensus, mainly due to the 145% beat by subsidiary JD Logistics (JDL).
• 3Q GMV grew low-single digit and growth could remain similar in 4Q given the high-COVID related FMCG base. JDs GMV may reaccelerate in 2024 as smartphone and FMCG growth returns.
• Meanwhile, JD lowered the minimum spend required for free shipping, which we expect to lead to accelerate parcel volume growth for JD Logistic. 

• Li Auto (2015 HK) and WuXi AppTec (2359 HK) will be added to the Hang Seng at the close on 1 December taking the number of index constituents to 82.
• Neither inclusion is a surprise. The non-inclusion of primary listed foreign companies is a bigger surprise – that could take place at the next rebalance.
• Estimated one-way turnover is 3.53%, estimated one-way trade is HK$6.88bn (US$882m). Capping leads to buying in Alibaba (9988 HK) and selling in Tencent (700 HK) and HSBC (5 HK). 

• The FRTIB benchmark switch from the EAFE Index to the ACWI IMI ex-USA ex-China ex-Hong Kong Index will result in a round trip trade of around US$56bn.
• The changes for the CSI 300, CSI 500, STAR50, SSE50 and a bunch of other mainland China indices will be announced after market close on Friday.
• Relatively quiet week for ETF flows with no major creations or redemptions during the week.

• XPeng C3Q23 top line, non-GAAP operating loss and GAAP net loss in line, 28% and 68% worse than our estimates, main reason is G3’s End-Of-Production charge to the gross margin
• We expect XPEV to experience tough transition in 2024 since product line which spans across sedan and SUV, shall experience severe competition at a time when its differentiation is eroding.
• We prefer to wait out this period; we cut TP of XPEV from US$18 to US$9 and downgrade to SELL.

• JDH reported C3Q23 top line and non-IFRS operating profit that are 39% and 34% of our C2H23 estimates. We cut C2H23 top line, non-IFRS operating profit and IFRS net income.
• We keep 2024 top line unchanged but cut non-IFRS operating profit by 31% as we believe JDH might need to invest to explore new growth opportunities;
• We cut TP from US$65 to US$52 but maintain BUY.

• The 2023 NRDL negotiation has officially begun since Friday. Pharmaceutical enterprises predict the price reduction would be more reasonable. But some company representatives were dissatisfactory with first-day negotiation results. 
• Although there’re many optimistic judgments about the improved financing environment in both China and overseas markets, this may not be the case. Based on the data, we remain cautious instead.
• As the disposable glove market gradually shows a warming trend, we are optimistic that Intco Medical would achieve a performance reversal in the future. The current valuation has bottomed out.

• TME reported C3Q23 revenue, non-IFRS operating profit and IFRS net income inline, 12.9%, 2.3% vs. consensus. The bottom-line beat mainly due to the cost-effective operation and music subscription services.
• We notice TME has become less reliable on live streaming and more on monetizing its user base through ARPU enhancement
• We upgraded TME to BUY and raised the target price to US$ 9.7, implying a 21.1x PE ratio compared to its current trading at 17.8x in 2024.

• Atour reported 3Q23 revenue 6.4%/17.1% higher than our estimate/consensus, non-GAAP NI 5.5%/9.1% higher than our estimate/consensus.
• We expect Atour 4Q23/2023 RevPAR recovered to 107%/114% of 2019 level, and revenue to increase 104%/96% YoY respectively.
• We maintain the stock as BUY rating, and raised TP by US$1 to US$37.5, reflecting the rapid growth of retail product sales.

• While Alibaba (ADR) (BABA US)‘s 2Q24 revenue and OP closely matched consensus expectations, the company experienced a significant sell-off, resulting in shares plummeting by over 9% yesterday.
• Yesterday’s weak performance may be linked to a 10% pre-earnings price surge, anticipating robust results. The postponement of the Cloud Spin-off could also have contributed to the decline.
• We maintain a bearish stance on Alibaba Group Holding (9988 HK) as we identify other fundamental and structural downside catalysts might become increasingly important and price-sensitive as time progresses.

• Based in Hong Kong, Dream International is one of the largest toy manufacturers in the world. It specializes on plush stuffed toys and plastic figures. 
• Despite the global toys markets going into destocking cycle, the company has generated significant growth in operating profit in the past year driven by strong demand for plush stuffed toys.
• If we assume a moderate 20% YoY increase in dividends in 2023, this would imply DPS of HKD 0.48 and this would suggest a dividend yield of 12.7% current prices. 

• Huawei Technologies Co. Ltd. on Thursday began taking preorders for the first electric vehicle (EV) it co-developed with auto partner Chery Automobile Co. Ltd., upping the ante in its push into China’s highly competitive EV market.
• Equipped with a digital cockpit powered by Huawei’s HarmonyOS 4.0 and an advanced assisted driving system, the Luxeed S7 is the first electric sedan marketed under Huawei’s Smart Selection business model. The previous releases with other auto partners were SUVs.
• The Luxeed S7 is available for pre-order in four versions with a starting price of 258,000 yuan ($35,417), according to Huawei’s Vmall website.

• In 1H23, Hygeia Healthcare Group (6078 HK) reported revenue growth of 15% YoY to RMB1,760 million, mainly driven by a 16% YoY growth in hospital business.
• Hygeia’s gross profit margin contracted 20bps YoY to 32.4%. Riding on 5.6x increase in government grant, operating profit jumped 33% YoY to RMB420M, leading to 320bps margin expansion to 23.9%.
• In July, Hygeia acquired Chang’an Hospital for RMB1,660 million. The acquisition will provide Hygeia with greater room to expand its business in the northwest region of the PRC.  

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. SJM Holdings
2. Melco Resorts & Entertainment
3. Lenovo
4. Longfor Properties
5. Tata Motors Ltd

and more…

• 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

• Alibaba’s operating margin rose to 15% in 2Q24 versus 12% in 2Q23.
• Every expense as percentage of total revenue decreased and EBITDA of every business line increased.
• We believe the reorganization is going smoothly and the stock has an upside of 82%. Buy.

• Wuxi XDC priced its IPO at HK$20.60 per share (upper-end of range), and raised HK$3.5bn (US$417m) at a market capitalisation of HK$24.3bn and post-money EV of HK$20.4bn.
• Both HK offering and the international offering of the company were significantly oversubscribed by 49.96x and 19.6x respectively.
• Our DCF value per share is still at a significant premium to the final IPO price, and we expect Wuxi XDC’s IPO to have a strong debut.

• WuXi XDC Cayman (1877628D HK) priced its IPO at HK$20.60 per share to raise the gross proceeds of US$470 million. The shares will start trading tomorrow.
• We previously discussed the IPO in WuXi XDC IPO: The Bull Case, WuXi XDC IPO: The Bear Case and WuXi XDC IPO: Valuation Insights.
• The market sentiment on the sector has modestly weakened. However, the IPO price is attractive, with our DCF valuation of HK$22.89 per share, 11.1% above the IPO price.

• 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 ENN Energy (2688 HK), PCCW Ltd (8 HK) and Wuxi Biologics (2269 HK).

• The FRTIB has decided to switch its benchmark for the International Stock Index Investment Fund from the EAFE Index to the ACWI IMI ex-USA ex-China ex-Hong Kong Index.
• With around US$68bn invested in the I Fund, this will set off churn among the constituent stocks in 2024. One-way trade is around US$28bn with DM outflows and EM inflows.
• The benchmark shift could be done over a 4 month period with higher trading during periods where liquidity opportunities arise.

• The pre-condition relating to Haitong International Securities Group (665 HK)’s privatisation offer from Haitong Securities Co Ltd (A) (600837 CH) is satisfied. The offer is at HK$1.52 per share. 
• The key conditions are approval by at least 75% of independent shareholders (<10% of independent shareholders rejection) and the headcount test. The high takeover premium facilitates approval. 
• This is a done deal. At the last close and for an estimated early February 2024 payment, the gross and annualised spread is 5.6% and 26.4%, respectively.

• The Federal Retirement Thrift Investment Board which manages the four major funds in the Thrift Savings Plan for US federal government employees will change benchmark for its International Fund
• This was announced on 14 November. The transition will take place “in 2024.” It entails moving from MSCI EAFE to MSCI All Country World ex-USA ex-China ex-HongKong Investable Market Index.
• The explanation: double the countries, lots more stocks, BUT CHINA! This means selling ~US$1.6bn of HK stocks but US$20bn of one-way flow in total (lots of Japan/UK/Europe to sell)

• Tencent (700 HK) ’s 3Q2023 revenues fell marginally below consensus, however, OP beat consensus estimates. Domestic games returned to growth after a flat quarter in 2Q2023.
• Both Online Advertising and Fintech businesses have seen strong increase in top line with GPM approaching new highs for the two businesses.
• Though Tencent’s earnings show a recovery, we would remain cautious given the slowdown in Chinese economy and Tencent failing to make into new game approval list since July 2023.

• Our review of the  three stocks here reveals considerable run room ahead as revenue  recovery in Asia gaming is  outpacing  forecasts.
• These companies  have proven   resilient after taking big hits during covid crisis.
• Balance sheets are stronger, revenue  rising, margins  improved–much of  this not as yet  reflected in valuations.

• Advertising, international game, and Fintech grew by two digits, but domestic entertainments were stagnant.
• The gross margins of all business lines improved and admin expense as percentage of total revenue decreased.
• We believe the stock has an upside of 30% for the year end of 2024.

• WuXi XDC Cayman (1877628D HK) raised US$470m in its Hong Kong IPO.
• WuXi XDC Cayman (WXDC) is a CRDMO focused on the global antibody drug conjugates (ADC) and broader bioconjugate market providing integrated and end-to-end services.
• In our previous notes, we looked at the company’s past performance and valuations. In this note, we talk about the trading dynamics.

• Taste Gourmet (8371 HK) reported Q2 profits 25% over our expectations at 30 mn HKD (81% YoY), led by net margin expansion to 11.2% (vs. our expectation of 8.8%)
• The net cash of 133 mn HKD represents around 27% of market capitalization, which is used to increase the restaurant count in HK from 42 to 48 QoQ.
• The company declared a 5.5 cent interim dividend (Vs. 4.8 cents last year). We believe they can declare a 12.5/13 cent dividend for FY24 (March-End)

• The clinical need for NGS hasn’t developed as rigid demand due to high cost, difficult operation, high requirements on hospitals/personnel, etc. It takes time for NGS to improve market penetration.
• Genecast’s LDT business could face compliance issue.Its in-hospital business has lower gross margin.Increasing R&D expenditure is inevitable since products need to get approval by regulatory authorities, putting pressure on profitability. 
• Burning Rock is in a leading position in NGS field, but its market value is quite low. We advise investors to be prepared for valuations to fall short of expectations.

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.

• SJM Holdings

• With the review period for the December rebalance of the CSI500 Index complete, we forecast 50 changes (the maximum permitted) for the index at the close on 8 December.
• Estimated one-way turnover is 9.66% at the December rebalance resulting in a one-way trade of CNY 6.36bn. There are 29 stocks with over 1 day of ADV to trade.
• The potential deletes have outperformed the potential adds over the last 6 months though there has been a narrowing of the gap recently. Position for a further narrowing.

• ZEEKR, a premium EV brand by Geely Auto (175 HK), aims to raise around US$500m in its US listing.
• Zeekr was formed in Mar 2021 as a JV between Geely and its founder. Its first model was launched in Apr 21 with deliveries starting in Oct 21.
• In this note, we talk about the not-so-positive aspects of the deal.

• Back in late 2020, Livzon Pharmaceutical Group (1513 HK) proposed spinning off 39.4%-held Livzon Diagnostics on Chinext. After numerous filings with the regulators … crickets.  
• Livzon has now proposed listing Livzon Diagnostics on the National Equities Exchange and Quotations with an intention of transitioning listed shares to the Beijing Stock Exchange (BSE).
• The CSRC recently introduced a raft of initiatives to spur investor interest in the BSE. After all-but-abandoning the prior listing, Livzon looks to be cashing in on this recent excitement. 

• Haier Smart Home (6690 HK) is less exposed to China’s real estate market than one would have thought. Despite poor property industry, HSH still generated 12.9% earnings growth in 3Q23.
• We are delighted to see further margin pick-up in 2Q23-3Q23, thanks to digitalisation and better efficiency. We believe such a trend can be sustained over the next 12-18 months. 
• More innovative products will drive market share, and better margin can support a 13% 3-year earnings CAGR. ROE is high at 17-8% despite net cash (8.8% of share price).   

• Abrocitinib/Upadacitinib/Dupilumab will all exert great pressure on the future commercialization space of CM310 in China. If Keymed doesn’t run head-to-head trials with dupilumab, CM310’s internationalization outlook would be gloomy.
• Compared with IL-4 that has been almost occupied by dupilumab, Keymed has more opportunity on TSLP. Even with Keymed-AstraZeneca deal, our valuation of CMG901 is cautious based on our analysis. 
• The current valuation of Keymed is not cheap. The next big catalyst to share price is a new license-out deal with MNC on CM310/CM326, marking the beginning of qualitative changes. 

• WuXi XDC Cayman (1877628D HK) is looking to raise up to HK$4.07bn (US$521m) in its IPO by selling 197.6m shares at HK$20.6/share, valuing the company at HK$24.67bn (US$3.16bn).
• WuXi XDC Cayman (1877628D HK) will not get Fast Entry to any indices but should be added to the HSCI and to Southbound Stock Connect in March.
• Inclusion in other indices will take longer with the highest probability of index inclusion starting in September 2024.

• Last week, Zhejiang Expressway Co H (576 HK) announced its rights offering on both its H-Shares and its A-Shares, previously mooted on 23 May, and the Circular on 26 June.
• The company applied, got CSRC approval on 5 Nov, announced the issuance on 6 Nov, and shares went ex- on 10 November. It’s probably unneeded, but it’s there. 
• The stock is cheap. The company will boost its payout ratio. And it isn’t that “heavy” a deal. The Rights Trading Dynamics may be interesting.

• With the review period for the December rebalance of the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX) complete, there could be 13 changes for the index.
• We estimate one-way turnover of 1.94% at the December rebalance leading to a one-way trade of CNY 6.98bn. There are a lot of stocks with over 1x ADV to trade.
• Over the last 6 months, the potential adds and potential deletes have tracked each other and underperformed the index. Positioning has led to outperformance in the last week.

• Bloomberg reported Asia Pulp & Paper is the latest party to have expressed interest in acquiring Essity (ESSITYB SS)’s controlling Vinda International (3331 HK) stake at more than HK$20 per share.
• Vinda has three substantial shareholders. We think the most likely structure is a bidder acquiring Essity’s stake, which would trigger a mandatory general offer.
• Vinda’s recent update points to improving growth and margins. Peers and historical multiples imply a fair price range of HK$21-26 per share, a 7-32% premium to the last close.

• Zeekr, a premium EV brand by Geely Auto (175 HK) , aims to raise around US$500m in its US listing.
• Zeekr was formed in Mar 2021 as a JV between Geely and its founder. Its first model was launched in Apr 21 with deliveries starting in Oct 21.
• In this note, we talk about the positive aspects of the deal.

• China Feihe (6186 HK) saw major derating (from around 20x PE to the current high-single-digit PE) coupled with sizable earnings drop (-28% yoy in 2022/-25% yoy in 1H23) since 2022. 
• The investment thesis or trade thesis here is a play on the rise of new born babies in 2024, the year of the dragon in China. 
• The margin of safety here is also high given a 7% forward dividend yield (Feihe has pledged to increase dividend payout ratio going forward).

• J&T debuted with a rich valuation, but little investor enthusiasm to date
• Focusing on J&T’s valuation alone could be a boon to CaiNiao’s valuation…
• …but, with few other comps, J&T’s lackluster early performance could be a drag

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 Jinmao Holdings