China

In today’s briefing:

STAR50/STAR100 Index Rebalance: No Changes for STAR50; 4 Changes for STAR100
Six Hang Seng Index Family Indices: Flows for Dec 6 Rebal
KWEB Index Rebalance: 1 Add & 4 Deletes in December
Quiddity CSI 300/500 Dec 24 Results: ~90% Hit Rate; Positive Start for the Trade
HK Connect SOUTHBOUND Flows (To 29 Nov 2024); SB Trading Volumes Lower, Still Strong Net Buying Tech
BUY/SELL/HOLD: Hong Kong Stock Updates (NOVEMBER 29)
[Kanzhun Ltd. (BZ US, BUY, TP US$17) Target Price Change]: Mark Down C4Q24 and 2025 on Weak Demand
CSI300/CSI500/CSI1000 Index Rebalance: US$9bn Round-Trip Trade
SSE50/SSE180 Index Rebalance: Couple of Surprises; Seres Group’s Multiple Inclusions; US$3.2bn Trade
A/H Premium Tracker (To 29 Nov 2024): AH Premia Flat, Volumes Low; Premia Should Fall More

STAR50/STAR100 Index Rebalance: No Changes for STAR50; 4 Changes for STAR100

As forecast, there are no changes for the SSE STAR50 (STAR50 INDEX) in December while there are 4 changes for the STAR100 Index.
There will be big outflows for Semiconductor Manufacturing International Corporation (SMIC) (688981 CH) due to SSE STAR50 (STAR50 INDEX) capping. There will be selling from other index trackers too.
Hainan Jinpan Smart Technology (688676 CH) had been ignored by the index committee at the September rebalance, so this inclusion in the STAR100 Index could come as a surprise.

Six Hang Seng Index Family Indices: Flows for Dec 6 Rebal

In this insight, we present the flows to buy and sell for each of the top 6 Hang Seng Index Family indices based on estimated tracking AUM.
The indices: Hang Seng Index (HSI), HS Tech Index (HSTECH), HS China Enterprise Index (HSCEI), HS HK Biotech (HSHKBIO), HS Internet & Infotech (HSIII), and HS Healthcare Index (HSHCI).
By Quiddity calculations based on prices of 29 November’s close, there is one-way flow across these six indices of HK$15,894,690,433.49 to trade on 6 December. Roughly speaking.

KWEB Index Rebalance: 1 Add & 4 Deletes in December

The December rebalance of the KraneShares CSI China Internet ETF (KWEB US) will take place at the close of trading on 13 December.
Cloud Village (9899 HK) is an add while Lufax Holding (LU US), Ping An Healthcare and Technology (1833 HK), ZX (9890 HK) and YSB (9885 HK) are deletes.
The deletions of Ping An Healthcare (1833 HK), ZX (9890 HK) and YSB (9885 HK) were forecast and there will be positioning in the stocks. Lufax was a close delete.

Quiddity CSI 300/500 Dec 24 Results: ~90% Hit Rate; Positive Start for the Trade

By Janaghan Jeyakumar, CFA

The December 2024 index review results for China’s CSI 300 and CSI 500 indices were announced after market close on Friday 29th November 2024.
There will be 16 ADDs/DELs for CSI 300 and 50 ADDs/DELs for CSI 500.
The CSI 300 and CSI 500 index rebal events could trigger US$4.5bn and US$3.8bn in one-way flows respectively.

HK Connect SOUTHBOUND Flows (To 29 Nov 2024); SB Trading Volumes Lower, Still Strong Net Buying Tech

SOUTHBOUND gross trading activity dropped sharply again to the lowest in a few months but net SOUTHBOUND buying remains very strong, with big flows on tech.
Most of the top names were tech names – both in gross and net buys. Only 1 tech name in top five net sells.
Last week I said I expect HK-listed tech to continue getting bought. Alibaba, Tencent, Xiaomi, etc are safe havens against Trump tariffs as they don’t compete in the US. Continue.

BUY/SELL/HOLD: Hong Kong Stock Updates (NOVEMBER 29)

By David Mudd

As Hong Kong market continues to consolidate, the consumer discretionary sector is leading in momentum and strength while the energy and materials sectors lag.
Trip.com Group (9961 HK) , Trip.com (TCOM US) received BUY ratings after a strong 3Q24 announcement on revenue and earnings. China’s tourist numbers are projected to reach Pre-COVID levels soon.
Yum China Holdings (9987 HK) , Yum China Holdings (YUMC US) received BUY ratings after initial success from its small store/franchising strategy. The company is actively returning capital to shareholders.

[Kanzhun Ltd. (BZ US, BUY, TP US$17) Target Price Change]: Mark Down C4Q24 and 2025 on Weak Demand

Kanzhun, along with Kuaishou, Beike and PDD, are we call the “Macro Mauled Champions” (MMC). We suggest long term investors to accumulate;
Weak industrial sector earnings in October bodes ill for manufacturing hiring into C4Q24 and we think may further extend to early 2025 recruiting season;
We expect BZ to grow profit faster than revenues on cost savings, particularly on marketing and gain shares. We cut the TP from US$19 to US$17.

CSI300/CSI500/CSI1000 Index Rebalance: US$9bn Round-Trip Trade

There are 16 changes for the CSI 300 Index, 50 changes for the CSI 500 Index and 100 changes for the CSI1000 Index that will be implemented on 13 December.
There are 257 unique names that are adds or deletes and the round-trip trade across all 3 indices is close to US$9bn.
Stocks with the largest inflows and impact have outperformed stocks with the largest outflows and impact over the last few weeks. That could continue for the next couple of weeks.

SSE50/SSE180 Index Rebalance: Couple of Surprises; Seres Group’s Multiple Inclusions; US$3.2bn Trade

There are 5 changes for the SSE50 Index (SSE50 INDEX) and 18 changes for the SSE180 Index that will be implemented at the close on 13 December.
Seres Group (601127 CH) is an add to both indices, plus the CSI 300 Index, and passive trackers will need to buy over US$900m of the stock.
The adds have outperformed the deletes with a lot of the outperformance coming in the last couple of months. Trim positions in the expected adds/deletes and build positions in surprises.

A/H Premium Tracker (To 29 Nov 2024): AH Premia Flat, Volumes Low; Premia Should Fall More

Mainland share market volumes continue to be better than HK and SOUTHBOUND volumes, but SB continues to buy tech.
Stocks in HK and mainland markets bounced a bit this week as Scott Bessent named incoming Treasury Secretary and tariff talk diverges from China. Non-economic China policy matters more near-term.
H/A Pairs were surprisingly un-volatile on the week. There are a fair number of wider spreads. Non-bank financials AH Premia remain at the low end of their 52-week range.

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Nov 30

Daily Brief China: China Boqi Environmental Hol, Baidu, Agora Inc., Shui On Land, SGX Rubber Future TSR20 and more

In today’s briefing:

Boqi Env (2377 HK)’s Partial Offer Now Open. But First The EGM
[Baidu, Inc. (BIDU US, SELL, TP US$78) TP Change]: C3Q24 Review: No Respite in Going Ex-Growth
Agora (API US): Rationalizing All Biz and Zero in on OpenAI
Lucror Analytics – Morning Views Asia
Helixtap China Report: Declining Inventory Could Help Revive Demand

Boqi Env (2377 HK)’s Partial Offer Now Open. But First The EGM

On the 23rd October, flue gas treatment play China Boqi Environmental Hol (2377 HK) announced a buyback of 15% of shares out, at HK$1.20/share, a 16.5% premium to undisturbed.
The buyback lifts the stake of co-founder Zeng Zhijun and concert parties to 32.59% – up from 27.71% – before options. To avoid an MGO, this requires a whitewash waiver
The Offer Doc is now out. The EGM – and the first close – is the 20th December.

[Baidu, Inc. (BIDU US, SELL, TP US$78) TP Change]: C3Q24 Review: No Respite in Going Ex-Growth

By Ying Pan

BIDU reported C3Q24 top line, non-GAAP operating profit and GAAP net income in-line, 4.6% and 66% vs. our estimate and in-line, 8.7% and 46% vs. consensus.
Ads revenue declined and C4Q24 guidance was below expectations. Margin improvement was mainly achieved through personnel cuts, which we think is not sustainable. AI didn’t contribute materially to revenues;
We see no return to growth from any of the business lines. We keep our SELL rating and cut the TP from US$84 to US$78.

Agora (API US): Rationalizing All Biz and Zero in on OpenAI

By Andy Fu, CFA

Agora share price rallied 34% on C3Q24 earning call. During the call Agora outlined plans for large scale layoffs and committed to turn profitable for full year 2025;
With the business rationalization, cooperation with OpenAI now becomes the only growth driver for the future. We believe with Agora’s operation-oriented business model, there is a fair chance for success;
Considering the price cut speed of 10x in one year from Chat GPT, the audio GAI price lower from US$9/hour to US$1/hour could happen within one year.

Lucror Analytics – Morning Views Asia

In today’s Morning Views publication we comment on developments of the following high yield issuers: Shui On Land
The US market was closed for Thanksgiving yesterday.
The Biden administration is weighing additional curbs on the sale of semiconductor and AI memory chips to China, reported Bloomberg on Wednesday.

Helixtap China Report: Declining Inventory Could Help Revive Demand

By Arusha Das

Inventory lowest in 13th months
Arbitrage widens for African and Indonesian rubber
Frontloading resulted in spike in exports

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Nov 29

Daily Brief China: Tencent, Geely Auto, CNY, Pateo Connect Technology, TI Fluid Systems , Wynn Macau Ltd and more

In today’s briefing:

Tencent/Netease: Second Month of Game Approval Disappointment
HK CEO & Director Dealings (28th Nov 2024): Geely Auto, Kingsoft Corp, Coastal Greenland
China Watch: Forget About the BRICS Currency – China Wants to Impact the USD from Within
Pateo Connect Pre-IPO: Undifferentiated and Unprofitable
ABC Technologies/TI Fluid Systems: Highly Likely Firm Offer by Tomorrow
Lucror Analytics – Morning Views Asia

Tencent/Netease: Second Month of Game Approval Disappointment

By Ke Yan, CFA, FRM

China announced game approval for the November batch. The number of games approved remained at a higher level than 2023.
The pace of China game approval appears to have accelerated to the same level as pre-tightening.
None of the companies that we are tracking got any approval for November batch.

HK CEO & Director Dealings (28th Nov 2024): Geely Auto, Kingsoft Corp, Coastal Greenland

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 include: Geely Auto (175 HK), Kingsoft Corp (3888 HK), and Coastal Greenland (1124 HK).

China Watch: Forget About the BRICS Currency – China Wants to Impact the USD from Within

By Andreas Steno

Last week, we missed an intriguing story that several clients have asked us to explore.
China issued $2 billion worth of USD-denominated bonds, which might not seem groundbreaking at first glance—it’s not uncommon for China to issue bonds in dollars.
However, two aspects of this issuance stand out:The Venue: These bonds weren’t issued in the typical financial hubs like New York or Shanghai but in Riyadh, Saudi Arabia—a first of its kind.

Pateo Connect Pre-IPO: Undifferentiated and Unprofitable

By Nicholas Tan

Pateo Connect Technology (PTC HK) is looking to raise up to US$300m in its upcoming Hong Kong IPO.
It is one of the largest domestic providers of smart cockpit and intelligent connectivity solutions in China, providing full-stack smart cockpit solution and cloud-based vehicle connectivity, for Chinese OEMs.
In this note, we look at the firm’s past performance.

ABC Technologies/TI Fluid Systems: Highly Likely Firm Offer by Tomorrow

By Jesus Rodriguez Aguilar

ABC Technologies has largely completed its due diligence and reiterated a potential offer price of 200p per share, which the TIFS Board is minded to recommend if confirmed.
After several extensions, tomorrow November 29 marks the final extension of the PUSU deadline. Spread has tightened over the last trading sessions in anticipation of a firm offer.
The 200p proposal values TIFS at 4.64x NTM EBITDA, above the 4.55x sector median, reflecting a fair valuation despite industry challenges like Chinese market weakness and fluctuating OEM shares.

Lucror Analytics – Morning Views Asia

In today’s Morning Views publication we comment on developments of the following high yield issuers: Wynn Macau, ReNew Energy, Softbank Group, Vedanta Resources
In the US, October personal income came in above estimates at 0.6% m-o-m (0.3% e / 0.3% p).
Meanwhile, personal spending slowed to 0.4% m-o-m (0.4% e / 0.6% revised p).

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Nov 28

Daily Brief China: Vitasoy Intl Holdings, Shandong Hi-Speed New Energy G, Fosun Tourism, China Dongxiang, Changchun BCHT Biotechnology C, Quantasing Group , BrainAurora Medical Technology and more

In today’s briefing:

Vitasoy (345 HK): Trading Rich As Ng & Yeo Hiap Seng Up Their Exposure
Shandong Hi-Speed New Energy (1250 HK): Shandong Hi-Speed Holdings (412 HK) Possible MGO
Fosun Tourism (1992 HK): Back Into The Fold?
Shandong Hi-Speed New Energy (1250 HK): Possible MGO At HK$1.78/Share.
Vitasoy (345 HK): Take Profits as Takeover Speculation Mounts
China Dongxiang (3818 HK): Investment Gain Remains the Driver
Sustainable Investing Surveyor – Focus on Birchtech Corporation (BCHT)
QSG: F1Q25 Earnings Review – EPS Miss on Lower Revenues Silver Transition Gaining Momentum
Pre-IPO BrainAurora Medical Technology – Weak Growth Prospects Cannot Support High Valuation

Vitasoy (345 HK): Trading Rich As Ng & Yeo Hiap Seng Up Their Exposure

Yesterday, beverage maker Vitasoy Intl Holdings (345 HK) announced a 1H25E (Mar Y/E) net profit of HK$171mn, a 4.8% gain yoy. An interim dividend of HK$0.04/share (HK$0.014/share in 1H24), was declared.
What was absent from the announcement/briefing was any comment on Philip Ng Chee-tat’s and Yeo Hiap Seng (YHS SP)‘s recent buying in Vitasoy.
Ng, the younger brother of Sino Land (83 HK)‘s chairman Robert Ng Chee-siong, indirectly holds 12.26%, up from 5.22% on the 7th October. The share price is up 104% since.

Shandong Hi-Speed New Energy (1250 HK): Shandong Hi-Speed Holdings (412 HK) Possible MGO

Shandong Hi-Speed New Energy G (1250 HK) disclosed a possible mandatory unconditional offer from Shandong Hi-Speed Holdings Gro (412 HK) at HK$1.78, a 7.2% premium to the undisturbed price.
The offer is conditional on SDHS completing a sale and purchase agreement (SPA) to acquire CITIC Securities’ entire 13.52% stake at HK$1.78 per share.
The key precondition of the SPA is SDHS shareholder approval of an ordinary resolution relating to the SPA and the possible offer. The vote is a formality.

Fosun Tourism (1992 HK): Back Into The Fold?

Fosun Tourism (1992 HK) a leisure-focused integrated tourism group, is currently suspended pursuant to the Takeovers Code.
Fosun Tourism was spun off from Fosun International (656 HK) in December 2018. Fosun Int’l currently holds 79.45% of shares out.
Fosun Tourism gained ~8% yesterday on the highest volume in over two years. Recent news concerned Temasek-backed CapitaLand Investment (CLI SP) taking a 20-30% stake in Fosun Tourism’s subsidiary Club Med.

Shandong Hi-Speed New Energy (1250 HK): Possible MGO At HK$1.78/Share.

Not a delisting Offer, but a possible mandatory unconditional Offer from Shandong Hi-Speed Holdings (412 HK) (SDHG) at HK$1.78/share, a premium of 7.23% to last close.
SDHG, with 43.45%, has entered into an SPA with two Citic Securities (H) (6030 HK)-backed funds holding 13.52%, the completion of which lifts SDHG’s take to 56.97%, triggering an MGO.
Conditions to the SPA are straightforward. Expect Shandong Hi-Speed New Energy G (1250 HK) to trade tight, if not through terms.

Vitasoy (345 HK): Take Profits as Takeover Speculation Mounts

Vitasoy Intl Holdings (345 HK)’s shares surged 19.5% on speculation that billionaire Philip Ng will launch a takeover offer due to recent share purchases.
Philip Ng’s stakebuilding suggests three potential outcomes. The likely near-term outcome is that he continues to nudge up his stake and potentially seek Board representation.
Without the Lo family’s support, a scheme privatisation is impossible. While a voluntary conditional offer is possible, it isn’t very likely, as Vitasoy’s valuation looked frothy at the last close.

China Dongxiang (3818 HK): Investment Gain Remains the Driver

By Osbert Tang, CFA

China Dongxiang (3818 HK) turned around in 1H FY25 as it reported a net profit of Rmb137m, vs. losses of Rmb410m a year ago. Interim DPS increased 92.7% YoY.
Investment gain is the key driver, reaching Rmb171m in the period, compared with losses of Rmb497m previously. Most investment categories contributed positively.
CDNX trades on a 76.9% discount to its SOTP value and a P/B of just 0.22x. Net cash amounted to Rmb3.2bn, or 58.3% more than its market capitalisation.

Sustainable Investing Surveyor – Focus on Birchtech Corporation (BCHT)

By Water Tower Research

The WTR Sustainable Index was up 3.3% W/W versus the S&P 500 Index (up 1.7%), the Russell 2000 Index (up 4.5%) and the Nasdaq Index (up 1.9%).
Energy Technology (14.0% of the index) was up 7.3%, while Industrial Climate and Ag Technology (48.3% of the index) was up 3.4%, ClimateTech Mining was up 1.6%, and Advanced Transportation Solutions (20.3% of index) was up 2.2%.
Top 10 Performers: HLGN, WAVE, HYLN, ACHR, AMY, AMYZF, AMMP, CLIR, FCEL, GWTI

QSG: F1Q25 Earnings Review – EPS Miss on Lower Revenues Silver Transition Gaining Momentum

By Zacks Small Cap Research

Key F1Q25 takeaways include: 1) ongoing progress against QSG’s transition to providing high-demand products and services to middle-aged and elderly individuals
2) despite our forecasts for ongoing revenue declines, we look for continued profitability reflecting management’s ongoing focus on optimizing expenses, more efficient customer acquisition, more targeted marketing initiatives, and more integrated online/offline distribution
3) QSG maintains ample liquidity to continue to invest in the company’s strategic transition while maintaining profitability, and returning capital to shareholders

Pre-IPO BrainAurora Medical Technology – Weak Growth Prospects Cannot Support High Valuation

Although DTx is considered a promising field, the industry is still in the early stages of trial and error development, and there is still a long distance from mature commercialization.
BrainAurora’s revenue YoY growth rate declined significantly. Considering the small revenue scale and slowdown in revenue growth, is it possible for BrainAurora to experience stagnant growth in the near future?
BrainAurora’s products haven’t been widely recognized in China’s hospitals/medical system, nor has it established a solid profit model.High valuation isn’t justified. We doubt if this field could bring good return.

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Nov 27

Daily Brief China: S.F. Holding, Xiaomi Corp, AAC Technologies Holdings, SGX Rubber Future TSR20, China Education Group, Taste Gourmet, China Vanke , Hansoh Pharmaceutical Group and more

In today’s briefing:

SF Holdings A/H Trading – Strong Demand but Is Probably Close to Fair Value
Xiaomi (1810 HK): Three Months Surge Overvalued Vehicle Business
Technically Speaking, Breakouts and Breakdowns: HONG KONG (NOVEMBER 25)
Demand Uncertainty To Influence Rubber Markets In Q1 2025
China Education Group (839 HK): What’s up After the Big Bath?
Taste Gourmet (8371 HK): Resilient H1 FY25: Cash Now 35% of Market Cap
Lucror Analytics – Morning Views Asia – November 26, 2024
Hansoh Pharmaceutical Group (3692.HK) – Successful Business Transformation Opens up Valuation Upside

SF Holdings A/H Trading – Strong Demand but Is Probably Close to Fair Value

By Sumeet Singh

S.F. Holding (002352 CH), China’s largest express delivery company, raised around US$860m in its H-share listing in Hong Kong.
SFH is the largest integrated express logistics service provider in China and the fourth largest in the world. It has been listed on the Shenzhen Stock Exchange since 2017.
We have covered the company and deal background in our previous notes. In this note, we talk about the trading dynamics.

Xiaomi (1810 HK): Three Months Surge Overvalued Vehicle Business

By Ming Lu

Xiaomi’s stock price has risen 62% since our buy rating after 2Q24 results.
We believe vehicle production will bring Xiaomi a revenue of RMB90 billion maximum.
The sum-of-the-parts valuation suggests significant downside for the next twelve months.

Technically Speaking, Breakouts and Breakdowns: HONG KONG (NOVEMBER 25)

By David Mudd

Hong Kong continued a correction in its Bull market which has lifted the HSCEI to be the best performing Asian index this year. Southboune buying is strong.
AAC Technologies Holdings (2018 HK) share price had a breakout relative to the MSCI AC Asia Index. The company reported solid results benifitting from the smartphone and auto sectors.
CGN Power (1816 HK) share price relative to MSCI China broke down. The company reported a disappointing 3Q24 results even as power generation increased by 15% YoY for the period.

Demand Uncertainty To Influence Rubber Markets In Q1 2025

By Arusha Das

Short term supply shortage
US and EU demand uncertain
Shipping cost spike in short term ahead of Trump’s tariff drive

China Education Group (839 HK): What’s up After the Big Bath?

By Osbert Tang, CFA

Although the reported FY24 net profit plunged 69.7% due to intangible impairments, China Education Group (839 HK)‘s adjusted net profit grew by 3.3% and adjusted EBITDA by 12.3%.
Based on adjusted net profit, its payout ratio is flat at 40%, implying an 8% dividend yield. This suggests underlying operations are decent and demonstrate confidence in the outlook.
Both tuition and enrollment are expected to sustain growth in FY25, meaning that a consensus forecast of 9% net profit is achievable. Its 4.5x PER does not appear stretched.

Taste Gourmet (8371 HK): Resilient H1 FY25: Cash Now 35% of Market Cap

By Sameer Taneja

Taste Gourmet (8371 HK) reported H1 FY25 results of Revenues/Pat 19% YoY/-6%YoY. Profits disappointed slightly as the company was unable to achieve the desired restaurant table turns.
Cash continues to pile on the balance sheet, with 185 mn HKD of net cash representing 35% of market capitalization. The company paid a 6-cent semi-annual dividend.
The stock trades at a 5.2x PE for FY25, has a 10% dividend yield, and plans to grow at least 15% CAGR.

Lucror Analytics – Morning Views Asia – November 26, 2024

Treasuries surged yesterday, with yields falling 10-13 bps across the curve after a strong auction of 2Y notes and in the wake of US President-elect Donald Trump’s nomination of Scott Bessent as the next Treasury Secretary.
Mr Bessent is expected to implement Mr Trump’s tax cuts, while reducing the budget deficit and boosting GDP growth through deregulation and other pro-growth policies.
The yield on the 2Y UST fell 10 bps to 4.27%, while that on the 10Y UST declined 13 bps to 4.28%.

Hansoh Pharmaceutical Group (3692.HK) – Successful Business Transformation Opens up Valuation Upside

Hansoh’s 24H1 results beat the expectations. Product revenue (excluding BD cooperation revenue) would achieve double-digit growth in 2024 full year, among which revenue of Ameile would maintain 20%+ YoY growth.
Total product revenue would be about RMB14-14.5 billion in the future. Based on P/S of 5, market value is RMB70-72.5 billion, which is the lower end of market value range.
There is still certain gap in terms of R&D capability/globalization outlook between Hansoh and those leading biotech in China. So, we think valuation of Hansoh would be lower than them.

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Nov 26

Daily Brief China: Tencent, Hang Seng Index, JST Group, Ascentage Pharma Group Corp, Iron Ore, CRRC Corp Ltd H and more

In today’s briefing:

EQD | Hong Kong Single Stock Options Weekly
EQD | Hong Kong Index Options Weekly – HSI and HSCEI
JST Group Pre-IPO: Growing Rapidly but with Some Accounting Red Flags
Ascentage Pharma (6855.HK) – The Future Valuation Leap Is Worth Looking Forward To
IO Weekly Technicals Review [2024/47]: IO Uptrend to Continue
CRRC (1766): Still Far from the Highs

EQD | Hong Kong Single Stock Options Weekly

By John Ley

Implied vols were lower across all sectors on the week with option volumes peaking on Friday.
Post-Earnings vol crush helped push vols lower for key names.
Tencent stands out with low implied vols over the past year, high liquidity and is trading almost 17% below its 52 week high.

EQD | Hong Kong Index Options Weekly – HSI and HSCEI

By John Ley

Move away from short gamma levels and position covering help push HSI implied vols lower on the week.
Short dated Puts are still very active in HSCEI at the 6300 and 6800 strikes.
Both HSI and HSCEI implied vols are trading about 2 points above their pre-stimulus levels.

JST Group Pre-IPO: Growing Rapidly but with Some Accounting Red Flags

By Nicholas Tan

JST Group (1703609D CH) is looking to raise up to US$100m in its upcoming Hong Kong IPO.
It is China’s largest and most popular e-commerce SaaS ERP provider to facilitate the connection of merchants with over 400 e-commerce platforms in China and across the world.
In this note, we look at the firm’s past performance.

Ascentage Pharma (6855.HK) – The Future Valuation Leap Is Worth Looking Forward To

For full-year 2024, sales of olverembatinib is expected to reach about RMB240 million, and there is a possibility of exceeding expectations. RMB500 million sales of olverembatinib is expected in 2025.
Market value of US$1.25 – 1.9 billion is reasonable range for Ascentage if just considering olverembatinib alone. The peak sales of APG-2575 is expected to surpass olverembatinib in overseas markets.
The next big catalyst is the potential licensing cooperation with MNCs for APG-2575, if reaches, would push Ascentage’s market value to surpass HUTCHMED, as prospects of APG-2575 is basically guaranteed.

IO Weekly Technicals Review [2024/47]: IO Uptrend to Continue

By Suhas Reddy

SGX IO Futures closed USD 3.83/ton higher for the week ending on 22/Nov. It traded in a range of USD 6.90/ton, which was smaller than the prior week.
Chinese portside inventories increased by 350k tons WoW to 148.86 MT as of 22/Nov. Steel mill inventories rose 13.8% to 15.6 MT in mid-November compared to early November.
Iron ore prices remain well supported in the near term despite high stockpiles at Chinese ports due to strong consumption and robust steel production ahead of the Lunar New Year.

CRRC (1766): Still Far from the Highs

By Henry Soediarko

CRRC Corp Ltd H (1766 HK) recent innovation on carbon-fibre subway trains for commercial operation has displayed their capability to decarbonize transport.
Free cash flow improved from RMB -11 billion last year to now -1.4 billion and 28% of its market caps are in cash.
CRRC used to trade at as high as 40x PER and 67x price to cash flow and currently is trading at 10x PER and 4x price to cash flow.

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Nov 25

Daily Brief China: Shanghai Henlius Biotech , Midea Group, Kuaishou Technology, Alibaba Group Holding , Cssc Offshore & Marine Engg Group, Travelsky Technology Ltd H, China Resources Pharmaceutical, Xiaomi Corp and more

In today’s briefing:

Henlius (2696 HK): NDRC Approval Should Calm Nerves
HSTECH Index Rebalance: Midea (300 HK) Replaces Weibo (9898 HK); US$1.5bn Round-Trip Trade
Hang Seng Index (HSI) Rebalance: Still Baby Steps to Get to 100 Members
HK Connect SOUTHBOUND Flows (To 22 Nov 2024); Volumes Much Lower But Broad-Based Buying Continues
A/H Premium Tracker (To 22 Nov 2024): AH Premia Rise Sharply; Hs Shellacked Vs As In Most Sectors
Henlius (2696 HK): The Spread Should Narrow After NDRC Approval
Travelsky (696): Sleepy Giant
China Healthcare Weekly (Nov.24) – 10th VBP, Biotech Valuation Logic, China Resources Reorganization
China Consumption Weekly (25 Nov 2024): Xiaomi, Haier, Autohome, Xpeng, Full Truck, Tongcheng
[Kuaishou (1024 HK, BUY, TP HK$72) TP Change]: C3Q24 Review: Value Stocks Face Picky Investors

Henlius (2696 HK): NDRC Approval Should Calm Nerves

Due to several factors, the gross spread of Shanghai Fosun Pharmaceutical (Group) (2196 HK)’s HK$24.60 offer for Shanghai Henlius Biotech (2696 HK) has widened to 21.5%.
The wide gross spread reflects the China TCM deal break hangover, slow progress in satisfying the precondition, Fosun Pharma’s potential funding challenges, and the shareholder vote.
NDRC approval should calm nerves about precondition satisfaction. Even with lingering deal-break concerns, a 21.5% gross spread is excessive.

HSTECH Index Rebalance: Midea (300 HK) Replaces Weibo (9898 HK); US$1.5bn Round-Trip Trade

In a surprise, Midea Group (300 HK) will replace Weibo (9898 HK) in the Hang Seng TECH Index (HSTECH INDEX) after the close of trading on 6 December.
Estimated one-way turnover at the rebalance is 4.5% resulting in a round-trip trade of HK$11.72bn (US$1.51bn). Passives need to buy 9x ADV in Midea Group (300 HK).
The Midea Group Co Ltd A (000333 CH) / Midea Group (300 HK) premium could drop due to the index inclusion providing an entry point into an AH expansion trade.

Hang Seng Index (HSI) Rebalance: Still Baby Steps to Get to 100 Members

Kuaishou Technology (1024 HK) and New Oriental Education (9901 HK) will be added to the Hang Seng Index in December while New World Development (17 HK) will be deleted.
Estimated one-way turnover is 2.7% and the estimated round-trip trade is HK$10.89bn (US$1.4bn) with over 1 day of ADV to trade in the adds and the delete.
The index committee has net added 1 stock to the Hang Seng Index this year to go from 82 to 83 constituents. Reaching the 100-member target will drag into 2026.

HK Connect SOUTHBOUND Flows (To 22 Nov 2024); Volumes Much Lower But Broad-Based Buying Continues

SOUTHBOUND gross trading activity dropped sharply but net SOUTHBOUND buying remains very strong and very broad-based.
The trend continues to be net buying of tech though Friday saw a lot of profits taken in Tech names by SOUTHBOUND holders.
I expect HK-listed tech to continue getting bought. Alibaba, Tencent, Xiaomi, etc are safe havens against Trump tariffs as they don’t compete in the US. Still.

A/H Premium Tracker (To 22 Nov 2024): AH Premia Rise Sharply; Hs Shellacked Vs As In Most Sectors

Huge volumes continue to be traded on the mainland share markets. SOUTHBOUND volumes dropped sharply but net buying continued strongly.
Stocks in HK and mainland markets fell heavily with HK’s main indices down 6-7% and China’s blue chip indices down 3.3-3.6% (CSI 500 – 4.8%).
Within H/A Pairs, after outperforming the HK/mainland spread for weeks, spreads got shellacked. Worst week in a long time (-3.7%), perhaps on the back of “disappointing” lack of stimulus measures.

Henlius (2696 HK): The Spread Should Narrow After NDRC Approval

On the 24th June, Fosun Pharmaceutical (2196 HK) made a HK$24.60/share Offer, in cash, for H-shares not held in Shanghai Henlius Biotech (2696 HK). A scrip alternative was subsequently afforded.
This is a pre-conditional Offer, subject to NDRC, Mofcom and SAFE – followed by a Scheme-like vote for independent H-shareholders. Henlius has announced that NDRC approval has now been secured.
Trading at a massive gross spread of ~21.5% compared to ~10% just prior to China Traditional Chinese Medicine (570 HK)‘s capitulation. This is excessive.

Travelsky (696): Sleepy Giant

By Henry Soediarko

Despite being a key beneficiary in travel and tourism in China, the rather muted growth in the first half does not bode well for Travelsky Technology Ltd H (696 HK) .
YTD share price performance has reflected the above, but the deep discount valuation to Trip.com (TCOM US) might be temporary.
In the near term, the company’s share price will not rebound as the company has less upside participation compared to Airlines and OTA.

China Healthcare Weekly (Nov.24) – 10th VBP, Biotech Valuation Logic, China Resources Reorganization

The 10th national VBP officially begins. Enterprises involved in this VBP include Shanghai Fosun Pharmaceutical (2196 HK)Shanghai Pharmaceuticals (2607 HK), Sichuan Kelun Pharmaceutical (002422 CH), CSPC (1093 HK), etc..
We analyzed Chinese Biotech companies’ P/S range based on different product revenue growth. Due to low profitability, there is “a valuation discount” if they are included in global valuation system.
KPC has agreed to acquire 51% interest in CR Shenghuo from CR Sanjiu. Due to good performance, we are full of expectations for the future acquisition/integration within China Resources.

China Consumption Weekly (25 Nov 2024): Xiaomi, Haier, Autohome, Xpeng, Full Truck, Tongcheng

By Ming Lu

Haier plans to acquire all shares of Autohome and dismiss 30% of Autohome’s employees.
In 3Q24, Xiaomi’s revenue grew by 30% YoY or 17% YoY without electric vehicle.
In 3Q24, Tongcheng Travel’s revenue increased by 51% YoY with gross profit up by 29% YoY.

[Kuaishou (1024 HK, BUY, TP HK$72) TP Change]: C3Q24 Review: Value Stocks Face Picky Investors

By Ying Pan

Kuaishou reported C3Q24 revenue, IFRS operating profit,and IFRS net income in-line with our estimates and consensus.The only negative was that C4Q24 guidance for operating margin missed consensus and our estimate;
Within mid-sized Internet platforms, Kuaishou lacks fresh secular driver, putting its stock under pressure. Advertising and GMV growth still outpace the industry and some peers. The stock is undervalued;
We maintain our BUY rating and slightly revised down TP to HK$72 to make up for the higher-than-expected OPEX guidance.

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Nov 24

Daily Brief China: PICC Property & Casualty H, PDD Holdings, Midea Group, S.F. Holding, Tuya Inc, KE Holdings , ZIM Integrated Shipping Services and more

In today’s briefing:

HSCEI Index Rebalance: PICC P&C (2328 HK) Replaces Longfor (960 HK)
[PDD Holdings (PDD US, BUY, TP US$146) TP Change]: C3Q24: Painful Reversal of Its Merchant Squeeze
HSCI Index Rebalance: Midea (300 HK) And Black Sesame (2533 HK) Added
Weekly Deals Digest (24 Nov) – SF Holding, FineToday, KEPCO, Seven & I, Kadokawa, HKBN, Arcadium
Tuya Inc – Growth Trajectory to Accelerate Following 13% Stake Purchase by 65 Equity Partners
[KE Holdings Inc. (BEKE US, BUY, TP US$25) TP Change]: C3Q24 Review: C4Q24 Rebound but What’s Next?
Monthly Container Shipping Tracker: Price Momentum Softens | CMP-ZIM L/S Pair Idea (November 2024)

HSCEI Index Rebalance: PICC P&C (2328 HK) Replaces Longfor (960 HK)

PICC Property & Casualty H (2328 HK) will replace Longfor Properties (960 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the close on 6 December.
Estimated one-way turnover is 2.68% resulting in a round-trip trade of HK$2.84bn (US$365m). The final capping will use the close of trading on 3 December.
There could be a move higher in PICC Property & Casualty over the next few days while any selling in Longfor Properties will be a covering opportunity for the shorts.

[PDD Holdings (PDD US, BUY, TP US$146) TP Change]: C3Q24: Painful Reversal of Its Merchant Squeeze

By Ying Pan

PDD reported C3Q24 top line, non-GAAP EBIT and non-GAAP net income (2.6%), (12.4%) and (6.3%) vs. cons., and (3.4%)
PDD is easing its appeasement of China-platform merchants, positive for profitability,but its transition to the semi-consignment model will likely continue as it tries to improve merchandise selection and logistics quality
We reiterate BUY as PDD is undervalued at 8.1x CY2025 P/E, but we cut its TP to US$ 146 to reflect slower growth amid increasing overseas investment.

HSCI Index Rebalance: Midea (300 HK) And Black Sesame (2533 HK) Added

Midea Group (300 HK) and Black Sesame International Holding (2533 HK) will be added to the Hang Seng Composite Index (HSCI) after the close on 6 December.
Midea Group (300 HK) is already in Southbound Stock Connect while Black Sesame International Holding (2533 HK) will be added from the open on 9 December.
There is a huge lock-up expiry for Black Sesame International Holding (2533 HK) in February while the lock-up for Midea Group (300 HK) cornerstone investors ends in March.

Weekly Deals Digest (24 Nov) – SF Holding, FineToday, KEPCO, Seven & I, Kadokawa, HKBN, Arcadium

A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
ECM developments: S.F. Holding (6936 HK) H Share listing,FineToday Holdings Co Ltd (289A JP) IPO, Kansai Electric Power (9503 JP)‘s US$3.5 billion placement.
Event-Driven developments: Seven & I Holdings (3382 JP), Kadokawa Dwango (9468 JP), Integrated Design & Engineering Holdings (9161 JP), HKBN Ltd (1310 HK), Arcadium Lithium (LTM AU).

Tuya Inc – Growth Trajectory to Accelerate Following 13% Stake Purchase by 65 Equity Partners

By Garvit Bhandari

Temasek-Backed 65 Equity Partners bought 13% stake in Tuya, implying a total investment of US$100 million (or S$134M).
The fund’s mandate is to support high-growth, mid-cap companies seeking a listing on the Singapore Exchange (SGX).
The listing will benefit Tuya by providing easy access to capital. Tuya will be able to use stock as a currency to fund its expansion plans in Southeast Asia.

[KE Holdings Inc. (BEKE US, BUY, TP US$25) TP Change]: C3Q24 Review: C4Q24 Rebound but What’s Next?

Beike (BEKE) reported C3Q24 revenue in-line with our estimate and consensus but non-GAAP operating profit 26%/25% below, mainly due to higher commission rebate and agent salaries;
Strong rebound in home transaction volumes in October and November, led to our C4Q24 revenue 16% above consensus. But the rebound needs more stimulus to sustain;
We maintain the stock as BUY and raise TP to US$25 to reflect the near term rebound and steady market share gains.

Monthly Container Shipping Tracker: Price Momentum Softens | CMP-ZIM L/S Pair Idea (November 2024)

By Daniel Hellberg

Price momentum softened dramatically in October, mirroring steep declines in H221, FY22
We believe price momentum, rather than earnings, drives medium-term share performance
Reaction to ZIM’s stellar Q324 results & guidance raise suggests more downside ahead

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Nov 23

Daily Brief China: Atour Lifestyle Holdings and more

In today’s briefing:

[Atour (ATAT US, BUY, TP US$37) Review]: Small Differences Here & There but Overall Case Intact

[Atour (ATAT US, BUY, TP US$37) Review]: Small Differences Here & There but Overall Case Intact

Atour (ATAT) reported C3Q24 revenue 2.3% lower than our estimate but 4.8% higher than consensus. The net income beat our estimate/consensus by 6.6%/9.5%, thanks to disciplined cost controls.
Although RevPAR weakened in C3Q24 as expected, turnaround is coming already in C4Q24. We also expect moderate RevPAR growth in 2025.
We keep the TP at US$37/ADS and maintain a TOP BUY on Atour.

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Nov 22

Daily Brief China: S.F. Holding, Kingsoft Corp, Tuya Inc, PDD Holdings, Xiaomi Corp, Trip.com, Saint Bella, Hang Seng Index, China Vanke and more

By Shifara Samsudeen, ACMA, CGMA

In today’s briefing:

SF Holding HKEx Listing: Peer Comparison and Valuation
The Heat Is On: News Flow and Sentiment in CHINA / HONG KONG (November 21)
Tuya: Improving Sales Growth and Profit Margins Help to Clench Investment by 65 Equity Partners
PDD (PDD US): 3Q24, Focuses on Growth, But Not Profit Margin
[Xiaomi Inc. (1810 HK, BUY, TP HK$33) Target Price Change]: Good Result, and It Will Only Get Better
[Trip.com (TCOM US, BUY, TP US$74) Target Price Change]: C3Q24 Review: Domestic Story Back in Focus
Saint Bella Pre-IPO: Rapid Growth but Facing Birth-Rate Headwinds
Pinduoduo: Behind Its Efficiency Edge
EQD | Hang Seng (HSI) – Analysis of Option Strategies Recently Traded on HKEX
Lucror Analytics – Morning Views Asia

SF Holding HKEx Listing: Peer Comparison and Valuation

Chinese logistics service provider SF Holding has filed for a listing on HKEx and seeks to raise HK$6.2bn (US$795m) through the issuance of 170m shares (3.4% of outstanding shares).
The listing is priced at HK$32.3-36.3 per share, as expected at a 20-29% discount to the last closed price of SF Holding’s A-Shares on 18th November.
Our valuation analysis suggests that SF Holding’s HK offering is attractive at the lower end of the indicative IPO price range.

The Heat Is On: News Flow and Sentiment in CHINA / HONG KONG (November 21)

By David Mudd

Hong Kong is again trading well below its historical multiple valuation levels after the October/November correction. Mainland investors bought a record amount the day after Trump’s win.
Kingsoft Corp (3888 HK) reported consensus beating results with its online game segment surging. The company is benefiting from AI upgrades in its office SAAS business.
Precision Tsugami China (1651 HK) posted blockbuster earnings for its 1H25 as the machine tool sector rebounds on the back of factories upgrading to intelligent manufacturing.

Tuya: Improving Sales Growth and Profit Margins Help to Clench Investment by 65 Equity Partners

By Douglas Kim

On 18 November, it was announced that 65 Equity Partners (backed by Temasek) will invest US$100 million (S$134 million) for a 13% stake in Tuya Inc (TUYA US).
Net cash as a percentage of market cap is currently at 92%. Tuya’s sales growth and improvement in operating margin in 1Q-3Q 2024 have also been impressive this year.
Comps are trading at average EV/EBITDA of 13.7x in 2025 versus 2.3x for for Tuya. If Tuya continues its turnaround, its valuation gap versus its peers could decrease further.

PDD (PDD US): 3Q24, Focuses on Growth, But Not Profit Margin

By Ming Lu

In 3Q24, PDD released strong revenue growth, but a flat margin.
We believe, in 2025, PDD will continue to focus on growth rather than profit.
We conclude an upside of 43% and a price target of US$167 for 2025. Buy.

[Xiaomi Inc. (1810 HK, BUY, TP HK$33) Target Price Change]: Good Result, and It Will Only Get Better

Xiaomi reported CY3Q24 revenue, non-IFRS EBIT and non-IFRS net income 4.7%, 7.8%, and 16.6% vs. consensus.
C4Q should be even stronger, as (1) appliance subsidy drive IoT revenue and margin improvement, (2) SU7 production output ~doubles
We reiterate Xiaomi as our TOP BUY idea and raise Xiaomi’s TP to HK$ 33 to reflect the improved profit outlook. Our TP implies 26.6x CY25 P/E.

[Trip.com (TCOM US, BUY, TP US$74) Target Price Change]: C3Q24 Review: Domestic Story Back in Focus

TCOM reported C3Q24 revenue 1.4%/1.6% higher than our est./cons., non-GAAP operating income is 12.5%/5.4% higher than our est./cons., mainly due to strong domestic sales and efficient cost control.
We expect revenue growth to accelerate in 4Q24 and 2025,backed by domestic travel recovery and steady overseas expansion.AI powered cost saving bringing extra leverage in margin is an additional positive.
We keep the stock as BUY rating and raise TP to US$74/ADS.

Saint Bella Pre-IPO: Rapid Growth but Facing Birth-Rate Headwinds

By Nicholas Tan

Saint Bella (SAINT HK) is looking to raise up to US$200m in its upcoming Hong Kong IPO.
It operates the second largest and fastest growing postpartum care and recovery service in China, as per Frost & Sullivan. It operates an extensive network of 59 premium postpartum centers.
In this note, we look at the firm’s past performance.

Pinduoduo: Behind Its Efficiency Edge

By Eric Chen

We compared similar growth stage of Alibaba to Pinduoduo, when GMV of both platforms increase from RMB1 trillion to RMB4 trillion, to facilitate better understanding of efficiency edge of Pinduoduo.
Contrary to consensus, Pinduoduo didn’t do better than Alibaba on OPEX (advertising expenditure in particular), but it did extract much greater value from the ecosystem via significantly higher take-rate.
The findings highlight how Pinduoduo aggregate user traffic at surprisingly high cost to beef up merchant competition in terms of cost optimization and user acquisition, with Pinduoduo reaping greatest value.

EQD | Hang Seng (HSI) – Analysis of Option Strategies Recently Traded on HKEX

By Gaudenz Schneider

Hang Seng Index (HSI INDEX) implied volatility fell across the term structure and skew. The skew displays a smile favoring specific option strategies.
The most traded HKEX traded tailor-made combinations are Call and Put Spreads. Straddles, Strangles and Butterflies have become less popular most recently.
While three quarters of all strategies take a long volatility position, there is a balance in bullish, bearish, and market-neutral strategies.

Lucror Analytics – Morning Views Asia