China

• Our trading thesis is to go long JinkoSolar Holding (JKS US) and go short JA Solar Technology (002459 CH) in the next 3-6 months.
• The three major reasons include higher momentum for JinkoSolar post 3Q 2023 results, much higher EBITDA growth for JinkoSolar from 2022 to 2024, and relative valuations. 
• Some of the factors driving lower share price of Chinese solar stocks this year include higher US tariffs, excessive manufacturing capacity, and declining prices of solar wafers and panels.

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. Evergrande
2. Logan Property Holdings
3. Japfa Comfeed Indonesia
4. Medco Energi
5. Zhenro Properties Group

and more…

• Chinese-founded fast-fashion retailer Shein acquired British online fashion brand Missguided from Frasers Group Plc, as the Singapore-based fashion giant continues to expand overseas.
• Under the deal, Shein and Missguided’s founder Nitin Passi have formed a joint venture to manage the brand and access its intellectual property under a licensing agreement.
• Shein will also manufacture Missguided’s products through its on-demand production model, and sell on both companies’ websites, Shein said in a statement.

• The HSTECH Index tracks the performance of the top 30 technology companies listed in Hong Kong that have high business exposure to certain technology themes.
• The index changes and the indicative component weights for the December 2023 index review will be published in a couple of weeks.
• In this insight, we take a look at the potential index changes and the resultant capping flows for the HSTECH Index in December 2023.

• Midea Group Co Ltd A (000333 CH), the world’s biggest home appliances maker, has filed for a H Share listing to raise US$1 billion, according to press reports.   
• Midea is the world’s largest home appliance company in sales volume and revenue in 2022. Its subsidiary, KUKA Group, is one of the world’s “big four” industrial robotics companies.
• The investment case rests on return to growth, margin on an upward trajectory, cash generation, strong balance sheet and undemanding valuation. 

• The HSCEI serves as a benchmark to reflect the overall performance of the top 50 “Mainland China” Securities listed in Hong Kong.
• In a couple of weeks, the official index changes and the indicative weights for the final index members for the December 2023 rebalance will be announced.
• In this insight, we take a look at the potential index changes and the resultant capping flows for HSCEI in December 2023.

• Cloudchain (CC CH) is looking to raise up to US$200m in its upcoming HK IPO. The deal will be run by China Securities International, ABC International, ICBC and Maxa Capital.
• Cloudchain is an independent industry digital finance platform in China, serving anchor enterprises, chain-related enterprises, and financial institutions. 
• According to F&S, it is the largest independent digitalized corporate credit confirming platform in China. Its user base had grown at a CAGR of 75.1% from 2020 to 2022. 

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.

• Azure Power Global Ltd
• Evergrande
• Japfa Comfeed Indonesia
• Medco Energi
• Zhenro Properties Group

• Late last night (near mid-night), Kweichow Moutai (600519 CH) shocked the market by announcing a direct price hike on its main Feitian 53 degree product by an average of 20%. 
• The market had no expectation of such price hike as it was widely perceived that Moutai could not directly increase the ex-factory price due to regulatory pressures. 
• Moutai’s Feitian ex-factory price is the key price leader for pretty much all other major Baijiu brand, directly benefiting ZJLD Group (6979 HK).

• WuXi XDC Cayman Inc (1877628D HK), a leading contract research, development and manufacturing organization (CRDMO), is pre-marketing an HKEx IPO to raise US$500 million, according to press reports.
• In WuXi XDC IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
• The bear case rests on margins on a downward trend, large customer concentration, high related party transactions and volatile FCF generation.

• Shenzhen International (152 HK) has reached agreement with the government on the South China Logistics Park Phase I transformation and it will receive Rmb1.058bn compensation.
• The sum equals a significant 9% of SZI’s market capitalisation. The agreement also kick-started the project’s long-term contribution, which may provide an income stream lasting 3-5 years.
• The deal showcased SZI’s ability to realise the underlying value of its assets. The stock should not be valued on its earnings, and its 0.3x P/B is deeply undervalued.

• NII decline has slowed but the overall profitability is lacklustre
• Asset quality stabilized for now, real estate exposure remains a concern
• We believe the turnaround of the bank is still pretty far off. 

• 23Q3 results has sounded an alarm for investors. Obviously, the deterioration of financing situations both domestically and internationally has forced WuXi AppTec to readjust projected revenue growth.
• Almost all of the important logic at the moment is negative for CXOs.Revenue growth in TIDES business alone is hard to offset the decline in WuXi AppTec’s other businesses/industry trend.
• After a pullback, investors can bet on the next rebound, but we still recommend taking profits in time, because without persuasive fundamentals, rebound driven by sentiment is difficult to sustain.

• Given declining prices and slowing volume growth, we anticipated lower Q3 express margins
• The four China-listed express firms saw Op Inc margin fall from 5.3% in Q2 to 3.9% in Q3
• SF fared better than ‘sort & transport’ names, but its freight forwarding segment still a drag

• Two of the biggest deals in the Hong Kong pipeline are A/H listings for S.F. Holding (002352 CH) and Midea Group (000333 CH), both looking to raise around US$3bn.
• Prior to the deals going live, we had a quick look at the A/H premium, subscription and past performance of some of the earlier A/H listings.
• Overall, most of the recent A/H listings haven’t done much in the near term.

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.

• WuXi XDC Cayman Inc (1877628D HK), a leading contract research, development and manufacturing organization (CRDMO), is pre-marketing an HKEx IPO to raise US$500 million, according to press reports.   
• WuXi XDC ranked No. 2 globally and No. 1 in China among CRDMO for antibody-drug conjugates and other bioconjugates in terms of revenue in 2022, according to Frost & Sullivan.
• The bull case rests on large addressable markets, market share gains, fast-paced revenue growth, strong revenue visibility, a solid balance sheet and ambitious capacity expansion plans.

• WuXi XDC Cayman Inc (1877628D HK) is looking to raise around US$500m in its upcoming 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, peer comparison, and shared our thoughts on valuations. In this note, we discuss WXDC’s PHIP updates.

• After a spike higher in fund ownership in 2021, active Asia Ex-Japan funds are beginning to close out positions.
• Funds including T.Rowe Price, LO Funds and Nikko AM have closed out exposure this year.
• JD.com remains a very well owned stock among institutional investors, at a time when performance is anything but stellar so far this year.

• We believe Mr. Su’s resignation as chairman is not a concern, because Mr. Cheng, the CEO, has been operating the company for two years.
• We believe the 3Q23 YoY growth will be lower, as 2Q23 had a lower comparison base.
• We believe the operating margin can be negative in 3Q23 as Q3 is always a weak season, but operating profit will break even for 2023.

• For the month of October 2023, 7 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$4bn.
• The average premium for the new deals announced (or first discussed) in October was 65%. The average YTD is 37% (85 deals).
• This compares to the average premium for all deals in 2022 (106 deals), 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 41%, 33%, 31%, and 31% respectively.

• The A-share subsidiaries of AviChina Industry & Technology (2357 HK) have mostly posted solid 3Q23 results – aggregate earnings growth has accelerated to 50.2%, from 26.8% in 1Q23.
• Their 9M23 result reached 64% of FY23 consensus forecast earnings for AviChina, vs. just 61% a year ago. This indicates the market is too conservative and suggests room for upgrade.
• Valuations are cheap at 8.7x and 7.0x PERs for FY23 and FY24. Its market capitalisation equals just 46% of the total attributable market capitalisation of these subsidiaries.

• We’ve seen increasing global cooperation for ADC pipelines. However, licensing deals alone cannot be used as the only basis for judgment. We still need to wait for solid clinical evidence.
• ADCs are far less “general and popularized” than PD-1. If compare ADC with GLP-1s, the difference is more obvious.How big the real market is for ADC is a question mark.
• WuXi XDC’s share price could perform well after IPO due to positive sentiments towards ADC, but whether its long-term valuation would be higher than peers remains to be seen.  

• Midea Group Co Ltd A (000333 CH) has officially filed for Hong Kong listing last week. 
• A common pushback against owning the stock is the perception of strong correlation to China property, which is not true in terms of business fundamentals.
• The stock is currently trading at 10x 2024E PE compared to an average of 13x over the last 10 years. 

• Midea Group Co Ltd A (000333 CH), one of the world’s largest home appliance producers, aims to raise up to US$3bn in its H-share listing.
• Midea Group is one of the world’s largest home appliance manufacturing companies with a presence in over 200 countries. Its A-shares have been listed since 2013.
• We have covered the company and deal background in our previous note. In this note, we talk about the updates from the recent filing.

• For certain companies now seeking IPOs, X-border volumes may serve as demand proxy
• In 2023, Chinese X-border volume growth has accelerated, up +55% Y/Y through September
• In developing X-border express market, lower ASPs are actually a good thing, in our view

• MSCI China Funds are starting to engage with New Oriental Education & Technology after a big exodus in 2021 following China’s Tech Crackdown.
• Since the lows of 2022, New Oriental Education has been one of the key beneficiaries of active fund rotation.
• Previous holders such as HSBC, Mirae and BlackRock have bought back in after closing out in 2021, but there is still a long way to go to reach previous highs.

• The New and Better (10 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.
• Last week the portfolio bounced back, erasing the previous week’s losses. Southbound continues to see net inflows and this week all H/A Pair sectors saw Hs outperform except Energy.
• High-Div SOEs continue to be weak. Banks, Pharma, Industrials, and Utilities spreads continue to be Very Volatile. Quiddity Favourite Great Wall Motor (2333 HK) up 7% after Q3 results Friday.

• Country Garden should not be a surprise. The bond price at 5 cents is based on much uncertainty.
• We list a few caveats why the bonds at 5 cents are not investible.
• The potential wind-up order by the Hong Kong court will be a big test of the rule of law in China.

• Travelsky Technology Ltd H (696 HK) share price was unjustly sold off due to flows rather than operational performance.
• The key business is processing flights for domestic tourism, with a lesser correlation to geopolitical issues.
• Due to the strong earnings growth, PER is adjusted from 60x to 25x. 

• September outbound tourism metrics plummeted, in some cases to levels seen in Q223
• Domestic air travel demand also fell vs August; normal seasonal patterns are dominating
• As recovery fizzles, travel shares languish, and we see few reasons for optimism, near-term

• Mindray’s Q3 revenue growth slowed significantly, dragging down the overall revenue growth. This was related to China’s anti-corruption campaign, the impact of which is expected to linger for some time.
• Our 2023 forecast is revenue up 15-18% YoY. Anti-corruption campaign would lead to declining demand and growth ceiling of domestic medical equipment market, thus negatively affecting Mindray’s future performance growth.
• Investors may need to prepare in advance for Mindray’s future revenue growth to fall to 15%.Based on this, PE TTM of around 30 is reasonable valuation for Mindray, not undervalued.

• Qyuns Therapeutics, a China-based clinical-stage biotechnology company, plans to raise up to US$ 100m via a Hong Kong listing.
• In this note, we examine the company’s core products, namely QX002N, an IL-17A antibody, and QX005N, an IL-4Rα antibody. We also look at the company’s management and pre-IPO investors.
• We are of mixed views for its two core products. We also think the management and pre-IPO investors are of mediocre quality.

• Onewo (2602 HK) has announced the full conversion of 1.05bn Domestic Shares and Unlisted Foreign Shares to H-shares. The increased market cap will help in HSCI inclusion.
• Onewo (2602 HK) should be added to the HSCI in March and will be added to Southbound Stock Connect soon after index inclusion.
• Onewo (2602 HK) has drastically underperformed its peers since listing and the HSCI inclusion could mark a turning point for the stock.

• Cainiao Smart Logistics (1437124D HK), a global leader in e-commerce logistics, has filed for a HKEx IPO to raise at least US$1 billion at a US$15-20 billion valuation.
• In Cainiao Smart Logistics IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
• The bear case rests on declining global cross-border market share, China logistics decelerating growth, high related-party transactions, and FCF burn. 

• Lalatech charges drivers more commissions but less membership fees to raise the general fees.
• Drivers went on strike to protest against the income squeeze, but they did not  achieve their target.
• We believe Lalatech is the dominator of the low-end truck-hiring market.

• CIMC Enric Holdings (3899 HK) has a solid 3Q23 with excellent new order pick-up, surging by 52.8% YoY on the back of strengths in clean energy and liquid food segments.
• Hydrogen energy revenue is on target to reach Rmb700m in FY23. Meanwhile, management revealed that there is a slight gross margin expansion so far this year.
• With order backlog rising 27.6% YoY to Rmb22.2bn at end-9M23, earnings outlook is well protected. Its net cash position is another credit, making its premium multiples justified.

• JD is in fact competing with a broadcaster on Alibaba’s app, but not Alibaba itself.
• Trip.com’s domestic orders during National Holidays were double last year.
• New Oriental’s revenue increased strongly with new learning centers in 1Q24.

• Aier’s 23Q3 profit growth exceeded expectations. Considering the low base in 22Q4, Aier’s 23Q4 performance could show an obvious rebound. Then, the 2023 full-year results would be more certain.
• Aier has a considerable amount of “off-balance-sheet profits” that can be incorporated into statements in the future. So, although Aier’s growth rate has decreased, it wouldn’t collapse in short term.
• More hidden problems would be exposed in the process of transferring off-balance sheet profits to the on-balance sheet. All the repurchased shares should be cancelled to reduce Aier’s registered capital.

• 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.
• Last week, China Mobile (941), SMIC (981) and CNOOC (883) all saw total SOUTHBOUND turnover top 75% of value traded on a gross basis, indicating huge participation. 
• Meituan was again the top SOUTHBOUND inflow, now net inflow every day for more than a month. Total Net Inflows at HK$6.9bn now 14 weeks straight in the positive column.

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

• China Vanke
• Gajah Tunggal
• Reliance Industries
• Xiaomi Corp
• Yankuang Energy Group

• The results of the first VBP of TCM formula granules in China were announced. 200 varieties of TCM formula granules have been included, with an average price reduction of 50.77%.
• According to the recently released Statistical Bulletin on the Development of Health Care in 2022, we have listed some key points worth investors’ attention.
• Livzon’s 23Q3 performance was below expectations, which was more related to external factors such as anti-corruption campaign, VBP. However, Chairman’s share buyback proposal indicates possibility of a future reversal.

• On the 17 September, specialty prescription drug manufacturer Lansen Pharmaceutical Holdings Co, Ltd. (503 HK), a perennial takeover target, finally announced an Offer.
• Wu Zhen Tao, NED and Chairman of Lansen, made an Offer for shares not indirectly held, of HK$1.80/share, by way of a Scheme, a 26.76% premium to last close.
• Composite Doc is now out. Court Meeting is the 27th November. Expected last day of trading is the 28 Nov. 28 December payment. IFA says fair and reasonable. Looks done.

• The increasing dominance of retailers (off/online) in the US consumer sector measured by market cap over last three decades tellingly illustrates the long term potential of Alibaba in China.
• While we believe consensus underestimates bottom line for 2QFY24, investors will likely focus on the outlook for 2024, with growth of Taobao/Tmall group remaining key share price driver.
• Investors pulling out of Alibaba due to geopolitical risks remind me of how ESG drove investments away from oil & gas years ago and eventually led to the latter’s outperformance.  

• Stellantis, a merger between France’s PSA with Fiat Chrysler Automobiles NV (FCAM BQ), is buying a 17% stake (14.53% fully diluted) in Zhejiang Leapmotor Technologie (9863 HK). 
• Leapmotor will issue 194mn H shares at HK$43.8/share, a 19% premium to last close, in a HK$8.51bn transaction. Stellantis will also hold a 51% stake in newly formed JV. 
• Stellantis is paying a chunky 3.64x market cap-trailing-revenue; but ~2.25x forward revs, which compares to the average for key peers of 1.9x.

• Shares of Tingyi Holding are oversold. It has high dividend yield and attractive valuations. Its core instant noodles and beverage businesses are turning around this year. 
• The consensus expects DPS of HKD 0.62 for Tingyi in 2023 which would suggest a dividend yield of 6.1%. Tingyi Holding’s dividend yield averaged 5% annually from 2018 to 2022.
• Tingyi’s “Master Kong” instant noodle is one of the best known brands in China. The company is also one of the largest producers and distributors of beverages in China. 

• 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 Sun Hung Kai Properties (16 HK) and Golden Solar New Energy Technology Holdings (1121 HK).

• Vinda International (3331 HK) announced 3Q23 results, with net profit up 37% yoy as margins started to recover. 
• Reported sales growth picked up speed, growing at 8% yoy (vs. 4% growth in 1H23), and 12% at constant exchange rates (vs. 10% growth in 1H23). 
• More importantly, gross margin recovered quarter-on-quarter from a 0.2ppt decline in 2Q23 to a 2.3ppt increase in 3Q23.

• J&T priced its IPO at a fixed price of HK$12.00 per share to raise the gross proceeds of the offering of US$500 million. The shares will start trading tomorrow.
• We previously discussed the IPO in J&T Global Express IPO: The Bull Case, J&T Global Express IPO: The Bear Case and J&T Global Express IPO: Valuation Insights.
• The market sentiment on the sector continues to weaken. The de-rating of peers lowers our SoTP valuation to HK$10.01 per share, 16.5% below the IPO price.  

• Li Ning (2331 HK) is trading down 18% today due to a bad 3Q23 operational date. 
• Retail sales grew by only mid-single-digit yoy, while same-store-sales recorded a mid-single-digit decline yoy. 
• Given the operational update, FY23 earnings should be revised down, to likely flat or low-single-digit growth.

• Cirrus Aircraft (0153126D US) is looking to raise up to US$300m in its upcoming HK IPO. 
• Cirrus Aircraft designs, develops, manufactures, and sells premium aircrafts. Its two aircraft product lines, the SR2X Series and the Vision Jet, are currently certified and validated in over 60 countries.
• CA has managed to grow its profitability steadily over the track record period. However, the firm is subjected to heightened regulatory risks as US and China tensions rise.

• There were only 14 new listing on the Main Board of the HKEX (388 HK) in the third quarter. Half of the listings were in the last week of September.
• Of those stocks, only Tuhu Car (9690 HK) and Keep (3650 HK) have a chance of being added to the HSCI in December and then into Southbound Stock Connect.
• Keep Inc (3650 HK) could be added to Stock Connect in early December while Tuhu Car (9690 HK) will have to wait till April for inclusion to the link.

• L’Occitane (973 HK) reported 2QFY24 operational update last night.  Sales grew 17% yoy on reported currency, and up 25% yoy on constant currency. 
• The bright spot of the release is the growth of Sol de Janeiro, the Brazilian-inspired premium body care brand, which grew 202% yoy in constant currency in the quarter.
• Sol de Janeiro has the highest EBIT margin among the 3 major brands of the company, at 24.6% in FY23, suggesting highly profitable growth.

• J&T Global Express (1519 HK), a global logistics service provider, raised around US$500m in its Hong Kong IPO.
• As per Frost & Sullivan (F&S), the firm is the leading express delivery business in Southeast Asia, with a 22.5% market share as per 2022 parcel volume.
• We have looked at the company’s past performance and valuations in our previous notes. In this note, we talk about the trading dynamics.

• WuXi XDC Cayman Inc (1877628D HK) is looking to raise around US$500m in its upcoming 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 peer comparison. In this note, we discuss our thoughts on valuation.

• The Hang Seng Index closed last week down at 17172.13 (CC=-1), on Wednesday was trading below the Q3 WEEKLY support, very OVERSOLD from a price perspective.
• When this pattern is encountered, usually the index bounces no later than CC=-3, i.e. after this week or the week after the end of next week.
• The next support area to go LONG is 16534 and the index got quite close to it intraday, at the start of this week: the low was 16879.

• Oriental Watch (398 HK) went ex-dividend on the 4th of October. The stock gapped down more than what it paid out and now trades at 6x trailing PE.  
• Cash at 1.1 bn HKD is greater than 50% of market capitalization, with a high trailing dividend yield of 16.2% and a rich history of paying chunky dividends. 
• We monitor the sales environment for HK/China, which shows a reasonably good pick-up in HK but lackluster for China.

• The early-stage clinical data of Hansoh’s B7-H4 ADC showed good potential, thus attracting GSK’s attention. This would allow GSK to re-enhance the layout of ADC pipelines after its previous setbacks.
• However, if future clinical data fail to meet expectation, GSK could return the product to Hansoh. After all, US$85 million upfront is more likely to test the waters for GSK.
• Hansoh is already one step ahead of Hengrui in terms of internationalization. This short-term catalyst would no doubt help lift share prices, but the logic behind the rebound is shaky.