China

• Meituan (3690 HK) reported 2Q2023 results yesterday which beat consensus estimates and the company’s profitability has further strengthened during the quarter.
• However, there has been clear signs of a slowdown in the company’s core local commerce biz with increased promotions/incentive, decline in revenue per on-demand delivery transaction and fall in OPM.
• Meituan has flagged that macroeconomic headwinds and adverse weather conditions could slowdown core local commerce biz in the current quarter which should drag down earnings.

• Pop Mart International Group L (9992 HK) presents an interesting story of a Chinese domestic brand going overseas, and potentially being successful overseas (at least in the short-term). 
• A recent case of a Chinese brand achieving success overseas is Miniso (MNSO US), and shareholders of Miniso have been richly rewarded. 
• Pop Mart trades at a PE of 24x based on estimated 2024 earnings, with around 30% expected net profit growth in 2024E.   

AAC Technologies’ results were weak as expected, with the top line and gross margin both lower. Overall revenue fell 2% y-o-y to CNY 9.22 bn for H1/23. Gross profit declined 27.2% to CNY 1.3 bn, with the gross margin down 4.8 ppts to 14.1%. This was largely due to market competition for the optics and acoustics business, as well as changes in the product mix. Despite the muted sales performance, the company deleveraged further and achieved strong FCF, driven by increased CFO and reduced capex. Liquidity appears to be sound, with 4.4x LTM Cash/ST Debt. Management guided for the optical lens gross margin to be positive in Q4.

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. Softbank Group
2. China Hongqiao
3. China Jinmao Holdings
4. Geely Auto
5. First Pacific Co

and more…

• Wuxi Biologics (2269 HK) recorded 8% YoY revenue growth to RMB8.5B in 1H23. Strong momentum continued in the base business, with the non-COVID revenue achieving a 60% YoY growth.  
• Ramping up of new manufacturing facilities, maintenance shutdown of existing facilities, slowdown in funding environment in China, and increasing expenses have negatively impacted the profitability.
• Total number of integrated projects reached a new record of 621 with 46 integrated projects added to the pipeline. As of June 30, backlog increased 9% YoY to $20.1B.

• Total revenue grew by 33% YoY, which is the highest growth rate in the past seven quarters.
• The company achieved a higher operating profit in 2Q23 after turned the profit positive in 1Q23.
• The stock price has risen by 20% since our last buy rating, but we believe there will be still 38% upside for yearend 2024.

• Over the last decade, VIPShop proved it is the undisputed leader in China’s online discount retail business with the longest streak of profitability and impressive ROE among China internet names.
• Investors are misplaced to look to the stock for growth. Rather, it is cash cow in mature business with deep moat and run by disciplined management who cares about shareholders.
• Trading at 4.5x our FY23 earnings excluding net cash, it valuation is attractive even compared to depressed sector comps. Expect 20% CAGR of return by 2025 driven by intrinsic value.

• IQ reported 2Q23 revenue and non-GAAP net income 0.2%/28.5% vs cons.
• We cut our projections for 3Q23’s membership services revenue, but increased estimations for online ads services revenue, and raised margin forecasts for 2023.  
• We maintain our US$ 6.25 TP, implying 16.2X PE in 2023.

Road King’s H1/23 results were mixed in our view. The company reported robust top-line growth, albeit gross profit plunged due to lower ASP of properties delivered. In addition, cash dividends from toll roads declined materially, owing to the non-renewal of the Tangjin expressway concession upon expiry in April.

Positively, Road King’s net debt continued to decrease, as it repaid borrowings using cash collection from property deliveries. The company could sustain its sales momentum in H2/23, as it is poised to launch the So Kwun Wat project (its sole remaining undeveloped project in Hong Kong) for sale.

We believe Road King will remain current on its obligations for the next 12 months. That said, the company’s medium-term prospects appear dim. Moreover, the small and dwindling land bank might suffice for only another two years of development. In the meantime, the company is likely to continue repurchasing offshore bonds.

We move our LARA to “High Risk”. We maintain our “Hold” recommendation on the ROADKG 2024 notes, but move to “Not Recommended” on the remaining notes.

• Regulators cleared state-backed bank card giant China UnionPay, the world’s largest provider of debit cards, to more than triple its registered capital to almost 10 billion yuan ($1.37 billion).
• Such a capital increase usually is intended to improve a payment institution’s risk control system and ensure the safety and stability of the business, a senior analyst in the payment industry said.
• People at UnionPay told Caixin that the capital increase was a distribution of unrealized shareholder equity and was a normal financial adjustment with no impact on its shareholding structure.

• Alibaba (ADR) (BABA US)‘s New Retail strategy stumbled, prompting the company to revert to its e-commerce origins with a renewed emphasis on social commerce.
• Creating a social media platform could be relatively simple, yet turning it into a prosperous venture amid established social media giants could be challenging.
• Branching out from social media to e-commerce might be straightforward, but Alibaba Group Holding (9988 HK)‘s unprecedented reverse path could present unique challenges.

• Golden Eagle Retail (3308 HK)‘s scheme document is out, with the court meeting scheduled for 15 September. The IFA considers the HK$6.88 per share offer fair and reasonable. 
• The key condition is approval by at least 75% of disinterested shareholders (<10% of all disinterested shareholders rejection). The shareholder with a blocking stake has provided an irrevocable.
• This is a done deal which help by the material derating of peers. At the current price of HK$6.75 and for the 17 October payment, the gross/annualised spread is 1.9%/13.4%.

• S.F. Holding (002352 CH), the largest Asian integrated logistics service provider, has filed for an H Share listing to raise US$2-3 billion, according to press reports.   
• SF is the largest integrated logistics service player in China and Asia, and the fourth largest player globally, in terms of revenue in 2022, according to Frost & Sullivan.
• The key elements of the investment case rest on the primary business’ improving fundamentals, margin trajectory, cash generation, modest leverage and undemanding PEG multiples.

• Anta Sports Products (2020 HK) reported a set of resilient earnings in 1H23, with net profit up 32% yoy.
• Management reconfirmed 2023 guidance for Fila and Anta at double-digit retail sales growth, and increased 2023 guidance for other brands to 40% yoy compared to 30% before. 
• Anta’s sales growth has been the most resilient in previous industry down-turns in China.  China macro worries should not be overly read through to Anta’s future results.

• Kuaishou Technology (1024 HK) reported 2Q2023 results yesterday which beat consensus estimates. The company reported an OPM of 4.7% with net profits for the first time.
• The company’s domestic business continues to see improvement in operating profits while losses of the overseas business have reduced significantly over the last few quarters.
• Though livestreaming growth has decelerated, the company’s online marketing and e-commerce businesses continue to expand driving Kuaishou’s earnings.

H&H International’s H1/23 results were stronger than expected. The company managed to deliver y-o-y growth of 17% in total revenue to CNY 7 bn, driven by an optimised product mix with strong growth (above 40%) in nutrition supplements across all product categories. As a result, revenue from nutrition supplements further expanded to account for 60.1% of total revenue (H1/22: 49%). The top-line increase was boosted by double-digit expansion across all regional markets, in Mainland China (H1/23: +15.4%), Australia & New Zealand (ANZ; +19.4%), North America (+20.9%) and other territories (+13.7%).

Problems in baby nutrition & care (BNC) persisted, with revenue down 2% y-o-y in H1/23. IMF sales dropped 10% in Mainland China and fell 55% in ANZ, in line with our expectations. We expect adult nutrition & care (ANC) and pet nutrition & care (PNC) to continue being H&H’s key growth segments, while BNC should remain challenging.

That said, we believe H&H faces very limited short-term repayment risk, with 1.4x LTM Cash/ST Debt as at end-June 2023. The company had CNY 2.1 bn in cash, compared to c. USD 210 mn in repayment needs over the next 12 months. Liquidity could also be supported by enhanced working capital efficiency, which would lead to stronger operating cash flow.

Our Credit Bias on H&H is “Stable”, given the company’s solid business fundamentals, strong market positions and moderate financial profile. The BTSDF notes are trading at c. 94.5, yielding 10-16%. We view the notes as fairly priced, and maintain our “Hold” recommendation.

Sunny Optical has released H1/23 numbers that were worse than expected in our view, with revenues and earnings below street estimates. Revenues declined 15.9% y-o-y to CNY 14.3 bn. Meanwhile, gross profit dropped 39.5% to CNY 2.1 bn, with a margin of 14.9%. Net profit plunged 68% to CNY 437 mn. A detailed cash-flow statement was not provided. Positively, the financial risk profile and liquidity remain healthy, supported by a large net cash position. Gross Debt/EBITDA rose to 3.9x, which is too high for a Baa1 credit in our view. We note that this has crossed Moody’s 2.0x negative rating trigger, which should cause downgrade pressure to build up.

• Baidu reported 2Q23 revenue/non-GAAP net income 2.3%/38.1% vs cons., Baidu core’s online marketing revenues and other revenues grew 7.1%/13.0% YoY, respectively. 
• We expect that Baidu’s ads growth will continue into 2H23, supported by recovery of key advertisers. 
• We slightly increase FY23 EPS estimates and maintain our TP of US$162, which implies 17.8X PE.

The H1/23 results of China Oil and Gas (COG) were broadly in line with our expectations. The credit profile remains satisfactory, supported by a decrease in borrowings. We view positively management’s goal of reducing long-term debt.

Overall, the operating environment was favourable as expected. That said, there was a dip in residential sales vis-a-vis H1/22, given unusually high sales in 2022 due to COVID lockdowns. According to the company, volume growth was 15% y-o-y in January and February 2023.

COG is keen to reduce financing costs and extend its maturity profile by refinancing the USD 290 mn syndicated loan that falls due on December 31st. The company is in discussions with banks and is planning to launch a new syndicated loan to take out the USD 290 mn. The new syndicated loan is likely to be priced at a similar level as the existing facility.

• C2Q23 revenue (1.9%)/2.6% vs. our estimate/consensus, its non-GAAP NI is 18.5%/18.3% higher than estimate/consensus. 1) GPM improvement from revenue mix ; 2) less than expected OPEX from IP licensing fee. 
• We think Miniso’s strategy to open more flagship stores is in-line with its brand upgrade strategy for seeking price premium beyond value-for-money, which bodes well for its long-term brand value. 
• We maintain Buy rating and maintain TP at US$26. We raise 2024 EPADS by 6.4% to project lower OPEX with efficiency improvement.

• The total revenue growth rate accelerated significantly to 28% YoY in 2Q23.
• The high-margin businesses grew more rapidly than the low margin business.
• Gross Merchandise Value and Active user base still increased strongly.

• There is considerable worsening in net profit, including from key divisions
• Despite rising assets for Health and Life, profit in this core division is down a lot
• Banking exposure is significant, with a poor outlook, and making Ping An less pure

• On the 28th May, PRC department store play Golden Eagle Retail (3308 HK) announced a privatisation offer, by way of a Scheme, at $6.88/share, a 40.41% premium to last close.
• The Offeror is the Wang family, Together with concert parties, they control 80.29%. 7.18% of the remaining 19.71% of the disinterested stakeholders have given an irrevocable. 
• The Scheme Doc was despatched this morning (23 August). The Scheme Meeting is September 15th with expected payment on (or before) the 17th of October. The Offer price is final.

• Despite Headwinds Revenue Remains Relatively Stable at HK $1,968 million 
• For 1HFY2023–Total Buyback of 0.77 million shares (HK$2.3 million) at average price of $2.99 
• Stock at 0.25x tangible P/B and at 1.96x P/E on our FY2024 earnings estimate 

• When we discovered that JD Health’s growth could face a downturn crisis, we hope to find a suitable substitute. ClouDr has such potential due to its good performance/reasonable business model.
• The current anti-corruption campaign could bring new opportunities to ClouDr, who can rely on “hospital first” strategy to take the upper hand, but it should be based on some prerequisites.
• ClouDr’s business is expected to keep strong growth momentum in 2023. The Company is expected to achieve breakeven in 2024. Investors could see good stock price performance at that time.

• IQiyi failed to give its share price a lift with  stronger-than-expected 2Q results except for slight miss in paying subscribers .
• We believe that investors are expecting the end of its remarkable turnaround story and embracing a stable and moderate growth stage.
• While iQiyi trades at ~10x our FY23 earnings, the cheap valuation by itself doesn’t stand out among China internet peers as a group. We would wait for better entry points.

WCC’s H1/23 results were softer than expected, as the company reported lower sales volumes and larger-than-expected ASP declines across its plants in Mainland China. In particular, sales volumes and ASP in the company’s stronghold of Shaanxi fell 4% and 16% y-o-y, respectively. Positively, WCC’s expansion in Africa has been progressing well, with overseas operations now accounting for 27% of revenue. The company’s plants in Africa enjoy substantially higher margins than those in China.

In our view, the key risk for WCC is uncertainty regarding the extent of its African expansion, with the company reportedly developing another USD 100 mn cement plant in Rwanda. We believe further expansion into Africa will fundamentally change WCC’s risk profile.

 We move our recommendation on the WESCHI 4.95 26 to “Buy” from “Hold”.

• Activation Group (9919 HK) unveiled its first-half financial results for 2023 on August 10th, 2023.
• In this article, we will provide an overview of Activation’s performance during this period and share thoughts on its future prospects.
• The Experiential Marketing segment recorded a full recovery, reaching RMB 280 million, surpassing the 2021 H1 level of RMB 276 million.

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.

• The premium of Ping An Insurance Group of (601318 CH) to Ping An Insurance (H) (2318 HK) has jumped from 4% to 14% in the space of a week.
• There has also been a jump in the Hang Seng Stock Connect China AH Premium Index and big inflows to mainland China ETF raising the possibility of National Team buying.
• A stabilisation in onshore China markets could lead to the AH premium dropping back towards parity and we would gradually scale out of long A/ short H positions.

• 1Q23 shows strong Value Of New Business (VONB), not sure of profit flow through
• Comparative to 1H22 is easy vs loss of USD556m in the period, but risk to downside
• Despite, stock buybacks, increased dividends market cap down 34% since peak this year

• Based on the close of 21 August, there could be two changes for the iShares A50 China (2823 HK)/ CSOP A50 (HKD) (2822 HK) in September.
• NARI Technology Co Ltd A (600406 CH) and CSC Financial (601066 CH) should replace Tongwei Co Ltd A (600438 CH) and Shaanxi Coal Industry (601225 CH) in the ETFs.
• There are couple of stocks with over 1x ADV to trade from the ETFs. Plus there are cash and carry positions that will need to be rebalanced, adding to flow.

Longfor’s H1/23 results were weaker than expected, with y-o-y declines of 35% in overall revenue to CNY 65 bn and 40% in revenue from property development to CNY 50 bn. That said, recurring income rose 10.4% to CNY 12.2 bn, which is becoming a meaningful annuity-like cash flow. This will be helpful in underpinning Longfor’s financial risk profile should there be a prolonged downturn in the property sector.

The company appears to have healthy access to bank funding, and should have sufficient liquidity to meet near-term debt maturities. That said, we highlight the risk of a potential reduction in the liquidity buffer, due to weak contracted sales and higher ST debt. Longfor recorded contracted sales of only CNY 7.6 bn in July 2023, compared to an average of CNY 11 bn per month in H1. ST debt surged 75% to c. CNY 39 bn, from c. CNY 22 bn at FYE 2022.

We maintain our “Hold” recommendation on the LNGFOR curve. The various notes appear to offer good value at current yields of 15-21%. That said, market technicals are very poor for private developers, with even the bonds of solid names such as Longfor experiencing volatility.

• Taobao and Tmall have implemented two major reforms: 1) The launch of the Wanxiangtai Platform Unlimited Edition; 2) Changing the rules for displaying merchant sales volume from monthly to annual.
• Although the new Wanxiangtai differs from PDD’s “Fangxintui” and “Quanzhantui” , the idea is to simplify and automate merchant promotion. We anticipate that this change will boost the take rate.
• We increased our core e-commerce take rate estimate for BABA in FY24/FY25 to 3.85%/4.0%, respectively, and raised our TP to US$ 127.

• China MeiDong Auto (1268 HK) announced a profit warning this morning, expecting a 90% decline in net profit for 1H23. 
• Luxury auto dealer in China is facing major uncertainties in its business model, with no visibility in the near term. 
• However, Zhongsheng Group (881 HK) currently employs the best long-term strategy amidst industry transformation.  Suggest to keep a close eye on the name.

• Chinese express parcel volume growth was 11.7% in July, far slower than in Feb-May
• July ASP for all segments fell to 8.84 Yuan per piece, the lowest in at least ten years
• Industry leader SF Holding partly insulated from margin pressure by air, international 

• Hengrui’s performance recovery in 23H1 (especially 23Q2) was due to the low base last year caused by pandemic/lockdown. Increasing innovative drugs revenue proportion also reduced the negative impact of VBP.
• People think the turning point of Hengrui’s performance has arrived, but we hold different opinions.Some big varieties haven’t entered VBP. It would take some time to achieve breakthrough in internationalization.
• The negative impact of 23H2 anti-corruption hasn’t been reflected in interim report.Even if Hengrui’s performance growth could be back to 20-25% YoY in 2025/2026, over 60 PE/TTM is already expensive. 

• Sichuan Baicha Baidao Industrial (SCBCBDID CH) is looking to raise up to US$300m in its upcoming HK IPO. The deal will be run by CICC.
• Sichuan Baicha Baidao Industrial (SBBI) sells new-style tea drinks through its ChaPanda stores, most of which are franchised.
• As of the Latest Practicable Date (8th Aug 2023), ChaPanda’s store network comprised 7,117 stores, spanning across 31 provinces and municipalities in mainland China. 

• Sinopharm Group Co Ltd H (1099 HK) will be added to the Hang Seng Index (HSI INDEX) on 1 September while Country Garden Holdings Co (2007 HK) will be deleted.
• Both changes are a surprise, but the impact on Sinopharm Group Co Ltd H (1099 HK) will be much larger. Given the recent increase in shorts, there could be covering.
• Estimated one-way turnover is 1.9% leading to a one-way trade of HK$3.65bn. Capping will result in selling on Alibaba Group Holding (9988 HK), Tencent (700 HK) and HSBC (5 HK). 

• As expected, East Buy Holding (1797 HK) replaces AAC Technologies Holdings (2018 HK) in the Hang Seng TECH Index (HSTECH INDEX) at the close on 1 September.
• Estimated one-way turnover is 3.5% leading to a one-way trade of HK$3.4bn (US$435m). There are 4 stocks with over 1 day of ADV to trade.
• Short interest is 15% of float on both stocks. Short covering could take East Buy Holding (1797 HK) higher while providing support for AAC Technologies (2018 HK) closer to deletion.

• This is the Brand Spanking New and Improved and Extra Spiffy H/A-Share Discount/Premium Weekly designed to help investors see H/A relationships easily. 
• We used to do it and decided to bring it back better. There are lots of cool interactive tables, and charts, heat maps, and comparative data. And 19 Trade Recommendations. 
• We hope this new version serves readers even better. Improvements this week due to popular demand, and updated format. Further feedback is welcome/appreciated. 

• Dali Foods Group (3799 HK)‘s gross spread on the Founder’s (Mr Xu Shihui) HK$3.75 per share offer has sharply increased and stood at 5.3% at the last close.
• The rising gross spread is due to the recent market selloff (the gross spread of all HKEx merger arbs we track increased this week) and vote risk. 
• The vote risk is due to no interim results, the high AGM minority participation rate and a modest offer. There is little evidence that these risks will derail the vote. 

• The Sep 23 review results for the Hang Seng Tech Index were announced on Friday 18 August after the close.
• East Buy Holding (1797 HK) (formerly Koolearn) was an ADD. AAC Technologies Holdings (2018 HK) is a DELETE. 
• AAC is a significant flow event, and worth looking at. There are a few odds and ends too.

• On Friday, Hang Seng Indices announced the changes to the benchmark Hang Seng Index, the index in the family with the largest AUM.
• Sinopharm Group Co Ltd H (1099 HK) is ADDED, Country Garden Holdings Co (2007 HK) – in no surprise, is deleted. 
• I see HK$4bn a side to trade, and the only “compelling” trade by ADV here is Sinopharm, but correlations with a Peer Basket are low.

• Evergrande’s filing in itself does not signify a deterioration in its financials; it was already insolvent as of end 2021.
• The bankruptcy filing provides the benefits of automatic stay and is a necessary step to validate the Group’s offshore restructuring plan. 
• Evergrande’s long term viability still depends on recovery of the China property market. 

• The HSCEI Review for Sep 2023 was announced on Friday 18 August. There is one ADD Trip.com Group (9961 HK) and one DELETE Country Garden Services (6098 HK). 
• Neither of these two are a surprise. Neither are hugely impactful. 
• There is about 2.5% one-way to trade. Alibaba (ADR) (BABA US) is a sell across all three major indices.

• In 2Q23, total revenue grew by 31% YoY and revenue from external customers grew by 56% YoY.
• The operating margin can still breakeven during the rapid growth.
• We believe the stock has an upside of 70% for yearend 2024. Buy.

• Fu Shou Yuan (1448 HK) has a solid 1H23 with net profit jumped 78% YoY. Its margin reached the highest level, reflecting resurgance in demand and good cost control.
• Both volume and ASP growth led us to believe there is positive room for profitability improvements. Its balance sheet has also strengthened with net cash equals 17% of share price.
• A 18.4% increase in pre-need contracts signed suggests encouraging underlying demand. More M&As are added drivers to earnings prospects.

• There are 22 adds and 27 deletes for the Hang Seng Composite Index (HSCI) at the September rebalance to take the number of index constituents down to 518.
• We expect all 22 inclusions to the HSCI will be added to Stock Connect, while 24 of the 27 HSCI deletions will be removed from Southbound Stock Connect.
• Since the end of June, shares held though Southbound Connect have increased on 20 of the 27 HSCI deletions and there could be some unwinding in the next two weeks.

• For a considerable period of time, the industry has been speculating about when the large-scale VBP of TCM formula granules will officially begin. Now, here it comes. 
• Primary market and other financing except IPO in European and US biopharma industry shows a significant signal of recovery. However, IPOs remain stagnant. 
• We analyzed key points about China Resources Sanjiu. Sanjiu is expected to have better performance in 2023 than 2022, but we advise investors to allow a sufficient margin of safety.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• The IPO space saw a few pops this week, some were somewhat justifiable in SBFC Finance Limited and Concord Biotech while one was reminisent of the 2020-21 frenzy,  Vinfast. 
• In the placement space, the selldown for InterGlobe Aviation Ltd (INDIGO IN) materialised as expected but despite that the deal didn’t do much.

• As expected, Trip.com Group (9961 HK) replaces Country Garden Services (6098 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the close on 1 September.
• BeiGene (6160 HK) fails the Velocity Test and misses inclusion, while an increase in Zhongsheng Group (881 HK)‘s float keeps it in the index.
• Using prices from the close on 18 August, estimated one-way turnover is 2.78% leading to a one-way trade of HK$1.73bn (US$221m).

• BILI reported 2Q23 top-line in-line and non-GAAP net profit 7% better than consensus.  However, gaming revenue was weak, causing BILI to revise down its full-year revenue guidance.
• We believe e-commerce ads could become a new near-term driving force, but the rapid growth of game-related ads might fade post-Q3. 
• Also, the significant consolidation of ACG games could affect BILI’s future game performance. We maintain our US$ 12.3 TP and SELL rating.

• Friday was the review cutoff for the September rebalance of the ASX family of indices. The September changes for the Hang Seng family of indices were also announced.
• The September changes for the SSE STAR50 (STAR50 INDEX) will be announced after the close of trading on 25 August.
• For a second week running, there were big inflows to mainland China ETFs and were spread across multiple index trackers. There were outflows from iShares Emerging Markets (EEM US). 

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. Sino-Ocean Group
2. Adani Ports & Special Economic Zone
3. Road King Infrastructure
4. China Jinmao Holdings
5. Geely Auto

and more…

• MaxLinear’s acquisition of Silicon Motion has been abandoned, with both sides threatening arbitration. 
• It is difficult to understand why the acquisition would have resulted in the synergies projected by management.  The businesses are very different.
• Assuming the companies go different ways, expect for SiMo to perform as it has in the past.

• STAR 50 Index is a tech-focused, blue-chip index in Mainland China which tracks the top 50 largest and most liquid names in the STAR market of the Shanghai Stock Exchange.
• Recently, I discussed the historical price and volume performance of STAR 50 rebalance events in Quiddity Primer for STAR 50 Index Rebalance Events. 
• In this insight, we take a look at our expectations for potential ADDs and DELs for the STAR 50 index during the December 2023 Rebalance event.

• WuXi XDC Cayman Inc (1877628D HK) is looking to raise at least US$100m 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 this note, we will talk about the not-so-positive aspects of the deal.

• Chongqing Brewery Co A (600132 CH) announced a impressive earnings beat last night, with net profit up 24% yoy in 2Q23.  Stock is limit up (10%) today.
• The results confirm the premiumization thesis of the China beer sector is in tact.
• Buy China Resources Beer Holdings (291 HK); take advantage of the overall H-share market weakness and unfounded fear on deflation.   

• JD Health reported 1H2023 results yesterday. 1H revenue increased 34.0% YoY to RMB27.1bn (vs consensus RMB27.5bn) and reported an OP of RMB943.9m (vs consensus RMB753.2m) vs RMB60.1m in 1H2022.
• Though the company made OPM of 5.7% in 1Q2023, 1H2023 OPM was 3.5% in line with our analysis that OPM in excess of 2-3% may not be possible in LT.
• There is very little upside for GPM to improve unless the company’s high-margin service business takes off at a higher rate which seems unrealistic to us.

• JD reported 2Q results that were slightly better than the street expected.
• But the set of results did little to alleviate our concerns about the structural challenges JD need to combat.
• We still don’t think JD represents a viable investment case due to its lack of growth catalysts (vs. PDD) and attractive valuation (vs. Alibaba). We would stay on the sideline.

• 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.
• I currently expect 14 ADDs/DELs for CSI 300 and 50 ADDs/DELs for CSI 500. 

• State investors including China’s biggest government-backed chip investment fund agreed to pour 12.6 billion yuan ($1.7 billion) into a wafer production project in Shenzhen as the country strives to boost its domestic chipmaking capacity.

• Shanghai-listed China Resources Microelectronics Ltd. (CR Micro) said in an exchange filing Tuesday that its board has approved a plan for its Shenzhen subsidiary Runpeng Semiconductors to sell shares to several investors.

• The deal, still pending approval by shareholders, will expand Runpeng’s registered capital from 2.4 billion yuan to 15 billion yuan, with a capital injection from the National Integrated Circuit Industry Investment Fund Co. Ltd., known as the “Big Fund,” and four other government-backed investment funds.

• The growth rate of advertising revenue rose to 36% YoY in 2Q23 from 22% YoY in 1Q23.
• Bilibili continued to cut costs and expenses by dismissing employees in a game studio.
• The share price has fallen enough, and we believe it is time to Buy.

• Tencent reported 2Q23 revenue/non-IFRS net income (2.5%)/2.3% vs cons. Gaming was weaker than the street expected, while online advertising beat.
• We expect gaming growth will improve slightly while advertising growth will decelerate in 3Q. 
• We maintain BUY but cut TP to HK$ 402 to reflect online gaming weakness.

• The main business line, home appliance began to grow by two digits.
• Logistics revenue continued to grow strongly by 51% YoY and can still break even.
• The operating profit rose to RMB7.3 bn in 2Q23 versus RMB3.8 bn in 2Q22.

• Alibaba Group Holding Ltd.’s workplace collaboration platform DingTalk will split from the company’s cloud division and pursue its own IPO, a source familiar with the matter told Caixin, as the tech giant ramps up efforts to unlock growth following its major restructuring.
• DingTalk’s separation is expected to be completed before the Alibaba cloud unit’s own IPO, the source close to the e-commerce firm said.
• Alibaba announced in May that it would spin off its Cloud Intelligence Group via a stock dividend distribution to its shareholders over the next year with an eventual listing.

• WuXi XDC Cayman Inc (1877628D HK) is looking to raise at least US$100m 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 this note, we will talk about the positive aspects of the deal.

• In 2Q23, online advertising and FinTech revenues continued to grow rapidly.
• Game revenue was slow, but two existing games were still at the top of the game market.
• The operating margin improve significantly, benefiting from the layoff last year.

• Tencent (700 HK) reported 2Q2023 results today. Revenue grew 11.3% YoY to RMB149.2bn (vs consensus RMB151.1bn) while reported OP increased 34% YoY to RMB40.3bn (vs consensus RMB44.6bn).
• Rapid growth in ad business, video account monetisation and cost controls have contributed to Tencent’s 2Q2023 earnings despite domestic gaming business has slowed down.
• Though Tencent’s 2Q2023 results show a recovery in earnings, we would interpret the company’s earnings with caution given the slowdown in domestic gaming and social networks businesses.

• SSE 50 and SSE180, respectively, aim to represent the performance of the 50 and 180 largest and most liquid A-share stocks listed on Shanghai Stock Exchange. 
• Earlier this month, I discussed the historical price and volume performance of SSE 50 and SSE 180 Rebalance events in Quiddity Primer for SSE 50/180/380 Index Rebalance Events. 
• In this insight, we take a look at our expectations for potential index changes for SSE 50 and SSE 180 during the December 2023 Rebalance event.

• Lianlian DigiTech (2104619D CH) is looking to raise up to US$500m in its upcoming HK IPO.
• LianLian DigiTech is a digital technology company that provides a range of digital payment services and value-added services to customers in China and around the world.
• Lianlian’s digital payments segment has historically been its largest revenue contributor. However, profitability has been declining on the back of lower gross margins and mounting losses from its Liantong JV.

• While management of SITC International (1308 HK) thinks that the worst is over, we are less positive given the lacklustre demand and the disappointing Jul-Aug market freight rates.
• Its gross margin is still significantly ahead of the pre-COVID levels, and financially, its net cash balance has been coming down. The dividend payout ratio has also lowered slightly.
• The FY23 consensus earnings forecast is too optimistic given 1H23 net profit is only 33.5% of the full-year estimate. The downside risk will cap near-term share price performance. 

• TME reported in-line results with continued divergence in its two major businesses: Online music increased by 48% YoY, while social entertainment declined by 25% YoY.
• We expect these trends to continue, with online music benefiting from price increases and social entertainment facing ongoing challenges from competition, regulations, and macro influences.
• Recently, Douyin has been advancing the integration of its large entertainment division. We anticipate that this will pose pressure on TME. Remain SELL and cut TP to US$ 5.7.

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.

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