China

• 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

• Due to IPO policy adjustment on SSE STAR Market, investment/financing for innovative drugs should continue to deteriorate.But the positive side is the innovative drug industry is emerging from the bottom.
• For the three hot fields in pharmaceutical industry (BsAb, ADC, CGT), we analyze their position and pecking order, which should be ADC > BsAb > CGT at the current stage.
• To better understand the investment logic of Fosun Pharmaceutical, it is necessary to fully understand the ecosystem/operational model of Fosun Group. Fosun Pharma’s role is just a “chess piece”.

• How did CaiNiao turn profitable? We answer with an analysis of the company’s P&L
• We also analyze CaiNiao’s Balance Sheet, Cash Flow statement, and Operating Stats
• We conclude with a list of ten questions we would put to CaiNiao management

• The ChiNext Index represents the performance of the 100 largest and most liquid A-share stocks listed on the ChiNext Market of the Shenzhen Stock Exchange.
• The ChiNext 50 index is a subset of the ChiNext Index and it consists of the top 50 names in the ChiNext index with the highest daily average turnover.
• In this insight, we take a look at our final expectations for the ADDs and DELs for the December 2023 and their flow implications.

• Accelerating the Offer timetable for NWS (659 HK) such that it closes before the dividend ex-date appeared stingy. But why pay dividends to shareholders that won’t hold the shares anymore?
• Those concerns have been put to rest with the despatch of NWS’ Composite Doc and New World (17 HK)‘s Circular, guaranteeing all shareholders the dividend, no matter the Offer outcome.
• The key risk now is NWD’s independent shareholder vote. On balance, this should get up.

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. Shui On Land
2. Seazen (Formerly Future Land)
3. Yuexiu Property
4. China Hongqiao
5. Longfor Properties

and more…

• Anta Sports Products (2020 HK) announced a set of strong 3Q23 operating data yesterday after market close.
• Both Anta and Fila brands performed well in a challenging macro environment in China in 3Q23, with 3Q22 being a high base. 
• Another bright spot is that other brands outside of Anta and Fila grew 45-50% yoy in 3Q23, with Descente up 40-45% yoy and Kolon up 65-70% yoy.

• The WisdomTree Emerging Markets SmallCap Dividend Index is a fundamentally weighted index that measures the performance of small cap stocks within Emerging Markets.
• The October rebalance will result in a one-way turnover of ~45% and in a one-way trade of US$1.24bn. There are ~300 stocks with over 1 day of ADV to trade.
• With only 4 trading days to implementation, there could be large moves on stocks with large flows and impact over the next few days.

• Nws Holdings (659 HK)’s IFA opines that the conditional voluntary general offer from the Cheng family is fair and reasonable. The offer + 2H dividend is HK$9.46 per share.
• The key condition is (majority vote) approval by independent NWD shareholders (EGM on 2 November). The timetable is designed such that the shareholders will also receive the NWS final dividend.
• NWD has a high but declining AGM minority participation rate. Retail forums suggest support for the transaction. On balance, we believe that this deal gets up. 

• Central Huijin, the sovereign wealth fund, increased their shareholding of the Big 4 banks in China on 11 October 2023
• Contrary to their last similar action, Huijin will increase its stakes in these banks over the next 6 months period, providing stabilizing force of the stock prices 
• Worries on property sector, LGFV and the overall health of the economy have significantly depressed banking stocks. 

• CSI 300 represents the 300 largest stocks by market capitalization and liquidity from the entire universe of Shanghai and Shenzhen Stock Exchanges. CSI 500 represents the next largest 500 names.
• In this insight, we take a look at the potential ADDs/DELs for the CSI 300 and CSI 500 rebalance in December 2023.
• A couple of baskets I suggested in my last insight have both outperformed the CSI 300 index by more than 2% in less than a month.

• The SSE 50 and SSE180, respectively, aim to represent the performance of the 50 and 180 largest and most liquid A-share stocks listed on the Shanghai Stock Exchange.
• In this insight, we take a look at our final expectations for potential index changes for SSE 50 and SSE 180 during the December 2023 Rebalance event.
• I currently expect 5 ADDs/DELETEs for the SSE 50 index 18 ADDs/DELs for the SSE 180 index. Some of these names are different from my previous 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.

• Adani Ports & Special Economic Zone
• Shui On Land
• Yuexiu Property

• PDD Holdings Inc. delivered a solid result and managed an all-around beat in the quarter.
• The company experienced a substantial 66% year-on-year increase in revenue, signaling a growing trust in its products and services.
• This surge in consumer confidence has led to increased demand across various product categories, a testament to the company’s continued success.

• Shenzhen International (152 HK) is well set to post a significant YoY and HoH growth in earnings in 2H23. Our discussion with the company confirmed this.  
• Profit from Yicheng Qiwanli is expected to be booked and there will be profit upside from REIT listing with logistics hubs at Hangzhou and Guizhou as underlying assets.
• Significant reduction in USD and HKD-denominated debt will reduce its exposure to foreign exchange losses as well as high interest rate, both will be reflected in 2H23.

• J&T Global Express, a global logistics service provider, is looking to raise about US$500m in its upcoming 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 undertaken a peer comparison in our earlier notes. In this note, we talk about valuations.

• PAGD successfully narrowed net loss. It seems that the Company doesn’t mind “sacrificing” revenue scale, which could be considered “a necessary price” to pay for the transition to 2B model.
• PAGD mainly rely on Ping An Group channels to acquire B-end and F-end users, but based on our calculation, PAGD would encounter an obvious growth ceiling at certain revenue scale.
• Although PAGD could achieve breakeven by divesting businesses with low strategic synergies and effective cost control, the Company’s long-term growth potential and prospects remain uncertain, leading to discounted valuation.  

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 Hongqiao
• Sunny Optical Technology Group
• Yanlord Land

• Back on the 26 June, Chow Tai Fook (CTFE) made a pre-conditional voluntary Offer for New World (17 HK)‘s 60.88%-held NWS (659 HK) at HK$9.15/share, a 22.2% premium to undisturbed.
• The Cheng-family-backed CTFE and connected parties held 45.24% of NWD, therefore the parent was effectively injecting ~US$2.75bn of cash into NWD for its NWS stake.
• The pre-cons are now done, with a 13 October despatch date for the Composite Document. Technically, this could be wrapped up before NWS’ final dividend ex-date. That’s worth exploring further.

• With no stocks in inclusion or deletion zone, we do not expect any constituent changes for the Hang Seng TECH Index (HSTECH INDEX) in December.
• Capping changes will result in a one-way turnover of 2.16% and that will result in a round-trip trade of US$556m.
• The impact of capping changes has doubled over the last month and there will be more changes from now till the official capping is done on 28 November.

• A new electric car powered by Huawei’s autonomous driving technology has hit the market with a bang, attracting tens of thousands of orders in less than a month and giving the telecom-equipment giant a confidence boost as it pushes further into China’s highly competitive auto market.
• As of Friday, more than 50,000 orders have been placed for the upgraded version of the Aito M7 SUV since it was launched on Sept. 12, said Richard Yu, chairman of Huawei’s smart car unit, in a social media post Saturday.
• For each order, customers paid a non-refundable deposit of 5,000 yuan ($695), according to information provided by Aito — a premium electric-vehicle (EV) brand co-developed by Huawei Technologies Co. Ltd. and automaker Seres Group Co. Ltd.

• China Tourism Group Duty Free (1880 HK) announced preliminary results for 3Q23 which came in below market expectations.
• Compared to the previous quarter 2Q23, sales declined by 1% q-o-q, while net profit margin declined from 10.4% in 2Q23 to 8.9% in 3Q23. 
• The company (H-share) is trading at 26x 2023E PE and 23x 2024E PE, still expensive as visibility is low and derating continues. 

• Lalatech has refiled for HKEx IPO and the company plans to raise around US$1bn through the IPO. This insight focuses on latest data points from the company’s new filing.
• The company has disclosed results for 1H2023 which point to notable improvement in the company’s financials including an operating profit margin of around 21% for 1H2023.
• There has been significant reduction in the company’s operating costs, merchant discounts and carrier incentives in particular, which have helped significant improve the company’s margins.

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
• Country Garden Holdings Co

• J&T Global Express, a global logistics service provider, is looking to raise about US$500m in its upcoming 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 its PHIP updates in our earlier notes. In this note we will undertake a peer comparison.

• Guoquan’s model is easy to replicate.The so-called “moat” is all based on scale effects, without which Guoquan would lose competitiveness.This is why Guoquan has been striving to expand franchised stores.
• With the increasing frequency of people dining out after China reopens, the high-speed expansion in 2020 seems unsustainable. To B model has less growth space/potential than To C model.
• In such a fiercely competitive market, Guoquan’s long-term development logic is not solid. The current temporary improvement in financial performance is likely to be a flash in the pan.

• Zhongsheng Group (881 HK) is in deletion zone and could be deleted. China Unicom Hong Kong (762 HK) could be added to the index as the highest ranked non-index constituent.
• Estimated one-way turnover at the rebalance is 2.14% resulting in a one-way trade of HK$1.38bn. Meituan (3690 HK), Alibaba Group (9988 HK) and Tencent (700 HK) will be capped higher.
• China Unicom Hong Kong (762 HK) is supported on its 50/100 day moving averages and could move higher. Zhongsheng Group (881 HK) has been trading below its moving averages.

• Tianju Dihe Technology, more commonly known as Juhe Data, filed to go public in Hong Kong. The company provides standard API services through its APIHub marketplace in China. 
• Tianju Dihe Technology plans to trade on the HKSE, and CITIC Securities is leading the IPO. The company was backed by JD Technology, a fintech unit of JD.com. 
• With a market leadership position and a mission to empower the digital economy with data technologies, I have no doubt that Tianju Dihe Technology will have a successful IPO.

• WuXi AppTec’s share price has performed well recently, mainly driven by CXO’s “immune attributes” to anti-corruption campaign, investors’ bullish view of weight loss drug business, and the previous oversold rebound.
• Peptide CDMO business would contribute limited incremental performance to WuXi AppTec considering overall large business volume.Downward trend of CRO business is hard to be hedged by weight loss drug business.
• Due to higher-for-longer rate, China CXOs only have rebound value, but no reversal logic. It’s time to consider taking profits in a timely manner before the share price falls again.

• US users of the popular SHEIN and Temu shopping apps tend to be relatively young
• Compared to older Americans, younger Americans (18-34) tend to have less political clout
• What does this mean for SHEIN and Temu, and how will they respond to political challenges?

• Nearing the end of the review period, we forecast 8 changes for the ChiNext Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in December.
• Given stock selection uses liquidity as a major input, the impact of passive trading will be much larger on the deletions as compared to the additions.
• The potential adds have outperformed the potential deletes, but relative performance has been drifting lower over the last few months. There are stocks that will have flows from other indices.

• Lalatech Holdings Co Ltd (LALA HK) is looking to raise about US$1bn in its upcoming HK IPO.
• Lalatech operates via a marketplace model serving merchants and carriers. Its platform facilitates closed-loop transactions from online shipping order booking to intelligent order matching, and automated dispatching to after-sale services.
• We have looked at the company’s past performance in our earlier notes. In this note we will talk about the updates from its refiling.

• The HSI INDEX has fallen for 2 more weeks since our last insight – current CC is =-5, and Q3 support was breached last week, the index is clearly OVERSOLD.
• If the HSI bounces this week, it could be an occasion to go SHORT – take note that the index could take 3 weeks to rally before rolling down again.
• The target price area where to enter SHORT trades,to benefit from a continuation of the downtrend is: 17598-18784.

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.

• Hopson Development
• Lenovo
• Tata Steel Thailand
• West China Cement

• The pre-condition for the Nws Holdings (659 HK) voluntary general offer from the Cheng family is satisfied. The total offer (HK$9.15 + 2H dividend) is HK$9.46 per share.
• The key condition is (majority vote) approval by independent NWD shareholders. NWD’s share price decline and dependency on NWS earnings/cash flow support a NO vote.
• A reasonable offer which reduces NWD’s gearing, results in a special dividend and helps reduce the holding company discount supports the YES vote. We think that the YES vote prevails.

• Outbound daily traffic during the long holiday down -15% vs 2019, and short of expectations
• Total domestic trips up 4% vs 2019, but average daily trips -9% & average daily spending -4%
• Ten months in, the pace of China’s 2023 tourism recovery remains disappointingly sluggish

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.

• Greentown China
• Tata Motors ADR

• The YTD underperformance of Dongfang Electric (1072 HK) has put it on very attractive PER of 5.8x for FY23. More importantly, it has delivered both earnings and new order growth. 
• Financial position has improved with net cash of Rmb16.5bn and its recurring earnings soared 26.5% at 1H23. The adverse economic environment has not had an impact on its operations.
• New orders amounted to Rmb48.9bn (+33.3% YoY), a record high, and we estimate backlog at Rmb166bn. This equals 2.5x FY23F revenue and suggests forward earnings are well covered.

• Haitong International Securities Group (665 HK) announced a pre-conditional privatisation offer from Haitong Securities Co Ltd (H) (6837 HK), the controlling shareholder, at HK$1.52, a 114.1% premium to the undisturbed price.
• The pre-condition related to regulatory approvals are a formality as Haitong Securities’ largest shareholder is the Shanghai SASAC. The offer price is final.
• The key conditions are approval by at least 75% of independent shareholders (<10% of independent shareholders rejection) and headcount test. The highest HKEx takeover premium in a year facilitates approval.  

• When Haitong International Securities Group (665 HK) was suspended on the 27 September, a punchy premium was expected if controlling shareholder Haitong Securities Co (600837 CH) was launching an Offer. 
• And that is what we got: a $1.52/share Offer, by way of a Scheme, and a 114% premium to last close. Terms have been declared final.
• This is a pre-conditional Offer, requiring approvals from approvals from Shanghai SASAC, CSRC, NDRC, and the Shanghai branch of the PBOC. 

• Weight loss drug business has indeed significantly alleviated concerns about overcapacity issue in those leading CDMOs, but they do not have such a strong driving force on CROs.
• The last straw that hits an industry is often not due to the disappearance of demographic dividends/declining demand/poor financial performance of companies, etc., but rather to policy-guided capital flows.
• 3D Medicines (1244 HK) can be said a typical negative example in biopharmaceutical industry, and it is easy to be “manipulated”. We recommend investors stay away from such high-risk company.

• In this insight, we take a look at a group of names with reasonably high likelihood of being involved in index changes for the Hang Seng Index in September 2023.
• The index changes for the December 2023 rebalance will be announced in mid-November (17 Nov) and implemented in early-December (with effect from 4 Dec).
• Although the Hang Seng index has a highly subjective constituent selection process and index changes are somewhat unpredictable, we will continue sharing our thoughts for each quarterly review.

• 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

• Legend Biotech Corp (LEGN US) reported six-fold jump in revenue to $73M in 2Q20, driven by strong uptake of the sole commercialized drug, Carvykti, which generated worldwide revenue of $117M.
• Label expansion applications have been submitted to the FDA and EMA seeking approval of Carvykti for the earlier treatment of patients with relapsed or refractory multiple myeloma.
• Legend Biotech has 11 pipeline programs covering hematologic malignancies and solid tumors. Recent financing activities have fueled the company’s cash balance to $1.5B, which should provide cash runway through 2025.

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. AAC Technologies Holdings
2. Vedanta Resources
3. China Vanke
4. JSW Infrastructure
5. Medco Energi

and more…

• People’s Insurance (PICC) (1339 HK) is currently trading at an all-time low implied stub.
• Stripping out PICC’s 68.98% stake in PICC Property & Casualty H (2328 HK), the market is assigning HK$35.6bn less for its steady and profitable life/health insurance stub ops, year-to-date. 
• PICC is outperforming the HSI. It’s just that PICC P&C is on a hot streak, possibly driven (pun intended) by EV insurance. 

• Xinyi Glass Holdings (868 HK)‘s stable auto glass business is often overlooked, making up 39% of the company’s gross profit in 1H23.
• Given the current valuation of 7x 2023E PE and 1.3x 2023E PB, the risk reward is skewed to the upside, and downside is protected with the stable auto glass business. 
• The company’s management has been aggressively increasing stake in the company in the last 2 months, gobbling up 11 million shares.

• Tian Tu Capital (1390587D CH) raised around US$144m in its Hong Kong IPO.
• Tian Tu Capital (TTC) is a private equity/venture capital investor and fund manager with a focus on Chinese consumer brands and companies.
• We have covered various aspects of the deal in our previous notes. In this note, we will talk about the demand and trading dynamics.

• Power output for China Power International (2380 HK) is healthy in Jul-Aug, following the solid trend in 1H23. The drop in hydropower has moderated and wind and solar stayed decent.
• Capacity growth will reach 43% in FY23. With just 7.8% YoY in 1H23, most of the new capacity will be added in 4Q23, accelerating both output and profitability.
• The parent SPIC’s massive clean energy assets are candidates for potential injection. CPI’s high EPS CAGR of 28.8% means that it well deserves premium valuation multiples. 

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.

• AAC Technologies Holdings
• Tata Motors ADR