China

• S.F. Holding (002352 CH) could raise between HK$26-33bn (US$3.4-4.2bn) in its H-share listing depending on the H-shares discount and exercise of the overallotment option.
• The H-shares could get Fast Entry to certain indices and regular entry to others depending on the number of shares that are allotted to cornerstone and/or strategic investors.
• The H-shares will be added to Southbound Stock Connect following the end of the price stabilisation period. Inclusion in the Hang Seng Composite Index will come later.

The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks. The Asia Monthly is intended to broaden investors’ understanding of the Asian USD high-yield market.

Founder Securities Co. Ltd.’s third-largest shareholder, China Cinda Asset Management Co. Ltd., is selling 2% of the brokerage’s stock worth 1.2 billion yuan ($166 million).

The share sale is to meet Cinda’s needs for corporate operations, Founder Securities said Monday night in a statement.

China Cinda, the nation’s biggest state-owned bad-debt manager, plans to sell as many as 165 million shares of Founder Securities between Aug. 23 and Feb. 22, 2024, through centralized bidding, the brokerage said.

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.

• Country Garden Holdings Co
• MGM China Holdings
• Vedanta Resources

• 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.
• Stocks mentioned in this regular insight include Flat Glass (6865 HK), Arts Optical Intl Hldgs (1120 HK), and Sky Light Holdings Ltd (3882 HK).

• Country Garden Services (6098 HK) announced a profit warning for 1H23 last night, expecting sales to increase by 3-4% yoy and net profit to see a 0-10% drop yoy.
• The company also announced the intention to repurchase up to 10% of total shares outstanding. 
• Share price up +18% following the profit warning and share buyback announcement – a good read-across for the rest of the sector that will report interim results later this month. 

• Luckin Coffee reported 2Q23 revenue beat our est. by 7.5%, and non-GAAP NI beat our estimate by 84.1%. 
• The top-line beat is driven by stronger product sold on average store sales, the bottom-line beat is driven by economies of scale and less than estimated sales promotion.  
• We maintain the stock as BUY rating and raise TP by US$5.5 to US$43/ADS (27x PE in 2023) to factor in the outlook of sustainable margin improvement.

• We expect Hua Hong to report C1Q23 top-line and non-IFRS net income in-line and (24%) vs. cons., respectively, missing mainly due to one-time costs. 
• Hua Hong’s post-A share IPO valuation is cheap at 0.7x P/B, but we expect that weakening industrials demand and a slow recovery to hamper shipments.
• We maintain BUY but cut Hua Hong’s TP to HK$ 34 reflecting lowered wafer shipments estimates for FY24/25. Our TP implies 15x FY24 PE.

• The market’s reaction to WuXi AppTec’s 23H1 report was positive due to some improvements in performance, but we don’t think WuXi AppTec has reversed its predicament completely if look closely.
• We deep dive the challenges/risks in macro environment faced by US/Europe. The orders WuXi AppTec received from MNCs can’t guarantee future growth momentum if the US cannot achieve “soft landing”.
• We advise investors not to be blinded by the high growth of CXO in the past since the prosperity of CXO industry may face continuous downward pressure in the future.

• We estimate Taste Gourmet (8371 HK) to deliver 39% YoY revenue growth and about 13% YoY profit growth (adj 350% YoY) for Q1 FY24e, to be declared on August 10th.
• The company is expected to go ex-dividend on the 4th of August and pay out a 5.2-HK cent final dividend by the 24th of August for FY23.  
• Trading at 6x FY24e PE /20% of the market capitalization in cash and a 9-10% dividend yield ( based on a 50-60% payout ratio) represents a great investment opportunity.

• Hong Kong-based Immuno Cure BioTech has closed the US$12 million tranche of its US$27 million Series A fundraising round, led by Gobi Partners-managed AEF Greater Bay Area Fund.
• The biotech company will use the capital to accelerate the development of DNA vaccines and antibodies besides preparing for an IPO in Hong Kong.
• Immuno Cure focuses on R&D of immunotherapies for cancers, inflammatory and infectious diseases based on its patented “PD-1-enhanced DNA Vaccine Platform” and “Anti-Δ42PD1 Antibody Platform” with two DNA vaccine candidates, ICVAX and ICCOV, currently in clinical trials.

• As of 1 August, there could be two changes for the iShares A50 China (2823 HK)/ CSOP A50 (2822 HK) in September.
• There should be over 1x ADV to buy on NARI Technology Co Ltd A (600406 CH) and over 1x ADV to sell on Shaanxi Coal Industry (601225 CH). 
• There are a few stocks bunched around similar market caps among the potential adds and there could be changes to the list over the next few weeks.

• Positive profit alerts from both Jiumaojiu and Haidilao reflect strong gain in operating efficiency but also point to looming growth deceleration as brands mature.
• We see valuation more reasonable due to a combination of sector de-rating in 1H23 and higher visibility into earnings recovery post these profit alerts.
• Yum China remains best long-term play in China catering sector in our view. While both Haidilao and Xiabuxiabu present trading opportunity, we are still cautious about Jiumaojiu.

• CKA is a well diversified conglomerate with residential DP and IP (office and retail) in HK and China, with sizable business in UK (pubs) and infra assets in EU
• CKA focuses on capital mgmt (share buybacks, M&As, disposals), and consistently unlock value for shareholders.  CKA is in net cash, its strongest balance sheet position for 20 years
• Valuation is extremely compelling. We recommend CKA as a long-term buy and hold for investors and traders

• We compile our selection of small and mid-cap names with our desired characteristics of high dividend yields, value, and margin of safety. 
• Our top picks are Perfect Medical Health (1830 HK), Water Oasis (1161 HK), Taste Gourmet (8371 HK), Uchi Technologies (UCHI MK), and The Keepers Holdings (KEEPR PM).
• We expand our list coverage into Multi Bintang Indonesia (MLBI IJ), Delta Djakarta (DLTA IJ), and Sheng Siong (SSG SP) as quality high ROCE names worth looking at.

We view Yuexiu Property (YXP) as “Low Risk” on the LARA scale. Our assessment takes into account the company’s: [1] parental support from Guangzhou Yuexiu (GYX), which is an SOE; [2] sound operating track record; [3] good contracted sales performance; and [4] geographical diversity, with a focus on the Greater Bay Area. These are balanced against weak market sentiment and a change in government policy.

Our fundamental Credit Bias on YXP is “Stable”. We expect its near-term credit profile to be supported by stable sales and cash collection, with Transit-oriented Development being a key factor underpinning the company’s growth. While YXP likely has limited room for margin improvement given the industry trends, we believe YXP could still outperform most of its competitors in terms of profitability. In addition, we expect the developer to have good funding access, given parent GYX’s SOE status and close relationship with the municipal government.

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”.

We maintain our “Buy” recommendation on the YUEXIU curve. We like the company’s fundamentals and its support from GYX. We also expect YXP’s near-term credit profile to be supported by stable sales and cash collection.

• The rebound of China TCM’s performance in 23H1 could be mainly driven by its core concentrated TCM granules business as well as the recovery of other businesses after China reopens. 
• We analyzed the potential performance changes that may occur in 23H2. The full year performance of 2023 will be worth looking forward to. We expect the share price to rebound.
• TCM VBP is always an issue. Due to the high base in 2023, the YoY performance growth in 2024 could decline, which may put pressure on valuation at that time. 

• Oriental Watch (398 HK) cycled into favorable comps for April-June 2023 owing to COVID-related closures in China in 2022 for the same period. 
• Another favorable data point was the Emperor Watch & Jewellery (887 HK) positive profit alert for H1 FY23 ( Jan-Jun 2023), where the company guided >100% net profit growth. 
• Oriental Watch (398 HK) trades at 6.9x FY24e, with more than 50% of the market cap in cash and a ~100% payout ratio resulting in a 14% dividend yield. 

• We expect SMIC to report C1Q23 top-line and non-IFRS net income 2% and 16% vs. consensus, respectively.
• We suggest SMIC’s ability to supply sanctioned firms with 14/7nm nodes provides it with significant pricing power. We expect the decline in SMIC’s wafer ASP to slow.
• We expect overall 2H demand to improve due to (1) normalizing fabless inventory levels, and (2) stabilized smartphone demand. We maintain BUY rating and raise our TP to HK$ 26.

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.

• Country Garden Holdings Co
• Pan Brothers
• Pertamina Geothermal Energy PT
• Sino-Ocean Service
• UPL Ltd

• The review period for the September rebalance ends today. The changes could be announced on 25 August with the implementation taking place after the close on 8 September.
• The upcoming launch of the STAR100 Index could result in the index committee continuing to use a 6-month minimum listing history resulting in two changes to the index.
• One way turnover is estimated at 2.3% resulting in a one-way trade of CNY 2,658m. The impact on the deletions will be much larger than that on the inclusions.

• Prosus looks to continue to cut its stake in Tencent by 2-3% every year to fund its open-ended share buyback program.
• Evidence would suggest that the buyback is set to continue at a relatively steady pace for the foreseeable future, which should support the discount to NAV going forward.
• The simplification of the shareholding structure, to remove the cross-holding, could sustainably reduce Prosus’ discount to NAV by roughly 10%.

• 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 – Rakuten Securities (RAKUSEC JP), EbixCash (EBIXC IN), Lalatech Holdings Co Ltd (LALA HK) and Lianlian DigiTech (2104619D CH) IPOs.
• Event-Driven developments – Eoflow (294090 KS), Dali Foods Group (3799 HK), L’Occitane (973 HK), Toshiba Corp (6502 JP), Pacific Current (PAC AU), Estia Health (EHE AU). 

• Back on the 27 June, Dali Foods Group (3799 HK), announced a privatisation Offer by way of a Scheme from its founder/chairman/CEO Xu Shihui.
• The cancellation price, which has been declared final, was HK$3.75/share, a decent 37.87% premium to undisturbed.
• The Scheme Doc is now out. The Scheme Meeting is the 23 August. Xu and concert parties control 88.89%, therefore a blocking stake is 1.11% of shares out. 

• The Rmb10.8bn acquisition of clean energy assets from parent by China Power International (2380 HK) is positive in raising its clean energy proportion to over 70% of total capacity.
• The drop in share price reflects concerns about elevation of gearing and the need for potential equity funding. However, even all equity financing scenario will only dilute EPS by 1%.
• We think its earnings quality will improve, balance sheet will be enhanced and profitability will be raised. Its 1H23 positive profit alert also showed a recovery in operational performance. 

• Unisound AI Technology, a Beijing-based AI unicorn, filed to go public in Hong Kong. I used a diverse peer group of domestic AI companies to come up with IPO valuation. 
• From a peer group perspective, I arrived at an IPO valuation close to ~RMB12b (or ~$1.7B), using a ~15x EV/CY22 Revenue to my 2023 revenue estimate of RMB780m (+30% y/y).
• However, I believe SaaS valuation multiples may appear rich for the stock, keeping in mind non-recurring revenue and the high hardware cost in the total cost of sales and services.

• Our 1H23 revenue estimate is 8.7% lower than consensus, and we expect 1H23 NPM at breakeven vs. consensus at 5%。
• Mainly because teahouse brands in China had suffered the intensified competition from the price war in Coffee industry.
• We maintain the stock as BUY rating as the margin improvement process is gradual showing effect, while we lower TP by US$2 to US$9.3 to reflect the intensified competition pressure.

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
• Greenland Holdings Corp
• Lippo Karawaci

• We see decidedly mixed signals in Chinese outbound tourism numbers from June
• Meanwhile, the modest pace of the recovery in domestic air traffic continued last month
• What to look for in Q2/H1 earnings results over the next several weeks

• The changes to the LQ45/IDX30 were announced last week and will be implemented Monday. The PSE also announced that there would be no changes for the PCOMP INDEX in August.
• There are a bunch of review cutoffs on Monday, most notably for the Nikkei 225 (NKY INDEX), STAR50 INDEX, the NIFTY family of indices and the KRX New Deal indices.
• There were inflows to China focused ETFs and outflows from Taiwan and Korea focused ETFs during the week.

• AD (Alzheimer Disease) and RNAi are one of the most valuable breakthroughs in global pharmaceutical industry in recent years. We think they may bring the next round of biopharmaceutical prosperity.
• MNCs have begun to adjust their strategic business model in China. Licensing cooperation and equity investments in China biotech companies are expected to become a new trend.
• We can’t expect too much from Genscript Biotech (1548 HK) just because Legend Bio’s CAR-T product has good sales performance. Genscript could underperform based on our analysis.

• Dali Foods Group (3799 HK)‘s scheme document is out with the court meeting scheduled for 23 August. The IFA considers the HK$3.75 per share offer to be fair and reasonable. 
• Key condition is approval by at least 75% of disinterested shareholders (<10% of all disinterested shareholders rejection). No independent shareholder holds a blocking stake. 
• Sector sentiment has modestly weakened. This looks done. At the last close and for the 8 September payment, the gross and annualised spread is 3.6% and 34.8%, respectively.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• In the IPO space, the coming week will see Cinema XXI listing.
• Given that we are in the middle of earnings season, there were no new placements this week.

• Broad General Holding (BG HK) is looking to raise at least US$100m in its upcoming Hong Kong IPO. The bookrunners on the deal are Deutsche Bank and Everbright Securities.
• Broad General Holding is a private investment fund manager with a focus on serving high network individuals (HNWIs).
• As per F&S, the firm was the second largest private investment fund manager in China focused on serving HNWIs in terms of total AUM as of Dec 22.

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. 21Vianet Group
2. SK Hynix
3. Yuexiu Property
4. Nameson Holdings
5. China Jinmao Holdings

and more…

• VW’s long-term software dilemma caused delays of new EV model launch. Thus, leveraging established software capability of Xpeng could help VW catch up and shorten its R&D cycle.
• We see two benefits for Xpeng: 1) a new revenue stream from tech licensing and potential reduction of supply chain costs; 2) VW’s endorsement  could help Xpeng’s overseas expansion.
• We think the potential of Xpeng’s high-margin tech licensing being opened to more VW models and other OEMs. Our TP implies 2.5x 2024PS

• 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 13 ADDs/DELs for CSI 300 and 50 ADDs/DELs for CSI 500. 

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.

• Sands China
• Sino-Ocean Service
• SK Hynix
• O-Net Technologies (Group)
• Yuexiu Property

The Asia HY Trade Book for July 2023 includes a summary of our recommendations, as well as our high-conviction ideas. The report also features relative-value charts and lists of the bonds across Asia (ex-Japan) HY and crossover credits.

• Lianlian DigiTech (2104619D CH), a digital payment services provider in China, has filed for an HKEx IPO to raise US$500 million, according to press reports.  
• In LianLian DigiTech IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
• The key elements of the bear case rest on margin pressure on the fastest-growing business, operating losses, an unconvincing path to profitability, FCF burn with a weak balance sheet.

• In three more weeks, the index changes and the indicative capping changes for the September 2023 rebalance will be officially announced. 
• We first looked at the potential HSCEI index changes and the resultant capping flows for September 2023 in Quiddity HSCEI Sep 23 Flow Expectations: Two Changes Likely, US$276mn One-Way 
• In this insight, we take a look at Quiddity’s updated flow expectations which account for the changes in prices in the last ~1.5 months.

• In Quiddity HSTECH Sep 23 Flow Expectations: Two ADDs/DELs Possible, I discussed my initial flow expectations and potential index changes for the September 2023 Rebalance.
• The suggested (previous insight) SHORT Ping An Healthcare and Technol (1833 HK) is down 10.6% vs the hedge JD Health International (6618 HK) in ~1.5 months. 
• In this insight, I have presented my updated flow expectations and some new trade ideas for the next few weeks.

• Tencent (700 HK) ’s online games business grew for the first time in 1Q2023 (+10.8% YoY) after four consecutive quarters of YoY decline followed by regulatory hurdles.
• Our app data analysis reveals that online games revenue would grow by about 12% YoY in 2Q2023E driven by increases in both domestic and international games revenues.
• On Monday, it was also reported that Tencent is in the process of acquiring a majority stake in Polish gaming studio Techland, expanding the long list of overseas gaming acquisitions.

• In June, mainstream parcel pricing declined by over 10% Y/Y, but SF Holding saw ASPs rise
• We believe J&T Global Express’ planned IPO could negatively impact the industry in H2
• Pricing pressure has increased, in our view, and we expect margins to decline in H2 23

• Lalatech Holdings filed for an IPO in March. I have tried to come at an IPO valuation for the company using a mix of methodologies: EV/Revenue, EV/GTV and EV/Gross Profit.
• Taking a weighted average of peer group multiples-based valuation methodologies, I arrived at a ~$7B IPO valuation for Lalatech Holdings, including ~$1.65B of cash and cash equivalents.
• From a peer group perspective, I arrived at a fair IPO valuation close to ~$7B, using a ~5x EV/CY22 Revenue, ~0.7x EV/CY22 GTV, and a 10x EV/CY22 Gross Profit multiple. 

• L’Occitane (973 HK) is drawing takeover interest from Reinold Geiger, the Chairman and the largest shareholder, according to Bloomberg. Mr Geiger has been exploring financing options for the potential deal.
• The presence of a significant disinterested shareholder, Acatis KVG, necessitates an attractive takeover premium. Acatis KVG trimmed its stake in July 2021 at HK$30.01 per share.
• L’Occitane released a solid 1QFY2024 update today with constant currency growth of 24.5% YoY. Irrespective of a bid materialising, the valuation is undemanding compared to peer multiples. 

• Lianlian DigiTech (2104619D CH), a digital payment services provider in China, has filed for an HKEx IPO to raise US$500 million, according to press reports.   
• Lianlian ranked first among the independent digital payment solution providers in China in terms of TPV in 2022, with a market share of 9.1%, according to Frost & Sullivan.   
• The key elements of the bull case rest on rising market share, doubling of active customers, resilient core business growth and rapidly growing additional revenue streams.

• Black Sesame Technologies (BLACKSES HK) is looking to raise around US$300m in its upcoming Hong Kong IPO.
• Black Sesame International Holdings (BSIH) is an automotive-grade computing SoC and SoC-based intelligent vehicle solution provider.
• In this note, we will talk about the not so positive aspects of the deal.

• Based on the current situation, sales of MCV4 in 2023 could still be unsatisfactory. We think MCV4 is hard to become the second growth curve of CanSino in post-COVID era.
• Whether CanSino’s zoster vaccine is able to become Best-In-Class would largely determine whether this product would truly become the next blockbuster vaccine to turn the situation around for CanSino. 
• CanSino’s commercialized products cannot contribute large-scale revenue in time to prevent continuous deterioration of performance. Results in 2023 could be lower than expected, and investors are losing confidence in CanSino.

• Robosense Technology (ROBO HK) (RT) is looking to raise around US$400m (estimated) in its upcoming Hong Kong IPO. 
• As of Mar 23, it had earned design wins for mass production of LiDAR for 52 vehicles with 21OEMs and Tier 1 suppliers, ranking No. 1 globally, according to CIC.
• In this note, we talk about the not-so-positive aspects of the deal.

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
• Greenland Holdings Corp
• Sino-Ocean Service