China

• Chow Tai Fook (CTFE) has made a voluntary cash Offer for New World Development (17 HK)‘s (NWD) 60.88%-held NWS Holdings (659 HK) at HK$9.15/share, a 22.2% premium to undisturbed. 
• CTFE and connected parties hold 45.24% of NWD, therefore the parent is effectively injecting ~US$2.75bn of cash into NWD for its NWS stake.
• The Offer is subject to regulatory approvals in Hong Kong and Bermuda. These will not be an issue given CTFE is NWD’s ultimate shareholder. 

• 4Paradigm (1764934D HK) is looking to raise about US$600m in its upcoming IPO in Hong Kong. 
• 4P is a platform-centric AI enterprise solutions provider. It was the largest player by revenue in the platform-centric decision-making AI market in China in 2022, as per CIC. 
• In our previous note, we took a look at the company’s background and financial performance. In this note, we will cover the firm’s refiling updates.

• A slew of bad news from weak China consumption, depreciating RMB to negative progress in an arbitration sent Meilan Airport stock down to below book value.
• Yet when it comes to the fundamental of the company itself, we believe concerns are over-blown and very much priced in.
• Meilan Airport is the most under-valued major airport in China airport space in our view. Patience will pay off.

• Global logistics and express delivery service provider J&T Express (1936374D CH) has filed for an IPO on the HKEx to raise about US$500m-1bn.
• J&T’s SEA operation is the only gross margin making business, however, the segment’s gross margin has been on a declining trend.
• Though the gross losses of China biz has reduced during 2020-2022, J&T continues to invest in China to capture market share which we think would delay profits.

• JST Group (1703609D CH) is looking to raise at least US$100m in its upcoming HK IPO. The deal will be run by CICC and JP Morgan.
• Jushuitan (JST) is China’s largest e-commerce SaaS ERP provider in terms of revenue in 2022, with a market share of 20.7%, according to CIC. 
• The firm offers a suite of cloud-based e-commerce SaaS products, and is able to connect merchants with over 350 e-commerce platforms in China and across the world.

• Luyuan Group (LUYUAN HK), a founder-led company and a pioneer in the e-bike industry in China, is looking to raise capital via the upcoming Hong Kong IPO. 
• Luyuan Group (LUYUAN HK) is an extremely ambitious manufacturer of electric bicycles and electric motorcycles in China. ”Luyuan” is a trusted and well-known brand in Asia and worldwide.
• I like profitable growth at scale and believe Luyuan Group IPO would be attractive to investors, given the company’s 40% y/y revenue growth and valuable brand.

• KN046’s commercialization prospects is limited if it doesn’t demonstrate better results than PD-1 in head-to-head trial. The value of KN046 still lies in its potential to treat PDAC not sqNSCLC.
• KN026 is difficult to become a blockbuster variety. JSKN003 may not have good opportunity in front of DS-8201. Many investors are unhappy with Alphamab’s credibility and information disclosure quality.
• Alphamab’s valuation is already at low level. However, considering the current pessimistic sentiment towards biotech in HKEX, investors are advised to remain cautious, and just short-term trade is recommended.

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
• Sino-Ocean Service

• Daniel Zhang stepped down from the Chair and CEO and moved to be the head of cloud intelligence.
• The retail focus will move from physical store and branded product to a platform for third-party retailers.
• We believe the strategy change is correct in the weak consumption market.

• 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 – Alibaba (ADR) (BABA US)‘s Cainiao & Cloud Intelligence Group, J&T Global Express (1936374D CH),  Amman Mineral Internasional (1416286D IJ), Tata Technologies (TATATECH IN) IPOs.
• Event-Driven developments – Invocare Ltd (IVC AU), Arcland Service (3085 JP), JSR Corp (4185 JP), SBI Shinsei Bank (8303 JP), Amara Holdings (AMA SP), Yashili International Holdings (1230 HK).       

• Taste Gourmet (8371 HK) reported earnings of 68 mn HKD for FY23 (including impairments of 3.2 mn HKD). Adjusting for impairments, earnings were in line with our estimates.
• The company signed ten new leases in HK, which are expected to commence over the next 5-6 months taking the total restaurant count in HK to 49. 
• Trading at 5.6x PE FY24e with a dividend yield of 10.7% based on a 60 payout ratio, we see a further inflection in earnings in FY24 with new restaurant openings.

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.

• Central China Securities
• UPL Ltd

• Due to COVID-19, the consumption pattern of customers has changed.The rapid development period of pharmacies is coming to an end and the industry has entered a new era of integration.
• The essence of Deshengtang’s business model is more like traditional retail offline pharmacies, relying heavily on selling drugs. The Company’s healthy gross margin gives hope for an early turnaround. 
• However, no matter from which field to seek expansion, Deshengtang would encounter strong competitors.It remains to see if Deshengtang can survive in the industry rather than be acquired by competitors.

• 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

• The results of National TCM VBP were released, with average price reduction of 49.36%, involving multiple large varieties with sales over RMB1 billion and exclusive products from many listed companies.
• CDE will move closer to the FDA’s standard for approving new drugs. So, pharmaceutical companies need to update clinical strategies timely according to the situation, otherwise unexpected events may occur.
• We analyzed some key points about Hua Medicine Ltd (2552 HK). We think its core drug Dorzagliatin still has many uncertainties that are worth investors’ attention.

• RMB dual counter started trading. Great Wall Motor (2333 HK)‘s A-shares trade at 3x the multiple. THAT is a big discount to harvest. 
• China Feihe (6186 HK)‘s CFO exits an indirect stake of 6.38% around Feihe’s all-time low. 
• EcoPro Co Ltd (086520 KS) has swatted aside analyst downgrades and the indictment of its chairman to touch an all-time high

• 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, Tryt Inc (9164 JP) launched its Japan IPO, while we also looked at Big C Supercenter (BIGC TB)‘s past performance. 
• On the placement front, in India the market hitting all-time highs appears to have driven a flurry of blocks.

• In this China banks screener; we focus on the potential for increased credit quality headwinds going forward, given the weak GDP growth outlook
• China bank shares have been poor performers and still we see selective buy opportunities, with better credit quality metrics
• We favour Industrial Bank and CCB both of which have attractive valuations; Minsheng, on the other hand, remains exposed to a worsening of the credit quality cycle

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. China Jinmao Holdings
2. Lifestyle International Holdings
3. Geely Auto
4. First Pacific Co
5. Tata Motors Ltd

and more…

• Oriental Watch (398 HK) reported a steady result, with 2023 earnings <18% YoY ( adjusted for one-time gains in 2022 <5% YoY), which was broadly in line with our expectations. 
• The DPS for FY23 was 61 cents (FY22: 74 cents) lower than our expectation of 65 cents, a 100% payout ratio equating to a 14% dividend yield.
• Cash at 1.07 bn represents > 50% of market capitalization. We believe the management will dip into reserves when it requires to manage a decent payout for shareholders.

• Alibaba (ADR) (BABA US) aims to complete a spin-off of the Cloud Intelligence Group via a stock dividend distribution, with it becoming publicly listed in the next 12 months.  
• The Cloud business is pursuing a land-grab strategy to reignite growth. While it is the only profitable Chinese cloud platform, the profitability gap to Amazon AWS highlights the opportunity. 
• The aim to bring in external strategic investors before the spin-off will provide a valuation benchmark. Our analysis points to a Cloud business valuation range of US$45-58 billion. 

• Melco has lagged other Asian operators as Macau recovery pits up speed. Concerns over debt levels continue.
• Fair value estimated slightly above current trade largely reflecting 2022 results.Maca
• Macau and Manila tracking positive, Cyprus could provide accretive EBITDA before end of this year and beyond/

• PCCW Ltd (8 HK) is selling an initial 26.1% equity stake in its streaming platform Viu, to Vivendi SA (VIV FP)‘s Canal+, for US$200mn.
• Via a staggered investment, Canal+ can increase its equity to US$300mn. In addition, a further investment, at Canal+’s option, could result in increasing its stake in Viu to 51%.  
• Elsewhere, PCCW’s 18% discount to NAV is the narrowest in over two years.

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.

• Powerlong Commercial Management Holdings

• The Hong Kong Stock Exchange (HKEX) launched its new dual-currency counter Monday, and the first batch of 24 stocks had a total turnover of 163 million yuan ($22.9 million) on the first day.
• The Hong Kong Dollar-yuan dual-currency counter allows investors to trade and settle designated shares in Hong Kong or mainland China currency, offering the potential to access new liquidity.
• The model also lays the groundwork to support the next phase of development to allow investors from the Chinese mainland to trade Hong Kong-listed yuan, or renminbi, securities through the southbound Stock Connect, the HKEX said.

• Alibaba (ADR) (BABA US) aims to complete the IPO of Cainiao Smart Logistics (1437124D HK) in the next 12 to 18 months. Alibaba holds a 67% stake in Cainiao. 
• Cainiao’s revenue growth, while on a declining trend, remains in double digits. Encouragingly. narrowing losses set a path to profitability.
• On 30 March, Bloomberg reported that Cainiao is currently valued at more than US$20 billion. Our valuation analysis suggests that such a valuation is justifiable.

• Keep Inc (KEEP HK) is looking to raise around US$100m in its upcoming Hong Kong IPO.
• Keep is an online fitness platform, offering online fitness content, smart fitness devices and fitness products.
• In this note, we discuss the updates since our last note.

• 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 stock mentioned in this regular insight is China Feihe (6186 HK)

• Funde Sino Life Insurance, a significant shareholder of Shougang Fushan Resources (639 HK), has sold down its stake in the company by 3.31% to  27.96% as per recent filings.
• Along with coking coal prices remaining weak, this creates a massive overhang clubbed with uncertainty on the share price in the short term. 
• It also creates an opportunity as the stock has almost 70% of its market capitalization in cash, a low-cost advantage, and a dividend yield of at least 12% for FY23e.

• We expect Luckin to report 2Q23 rev. at 75.0% YoY and 30.1% QoQ to RMB5,771mn. We expect GPM, non-GAAP OPM, non-GAAP NPM to decline 3.7ppt, 3.6ppt, and 3.9ppt QoQ .
• Luckin is putting scale ahead of profitability, surpassing 10k total stores in 2Q23 and heading to 12k total stores in 2023, while maintaining a decent margin. 
• We maintain the stock as BUY rating and cut TP by US$3.5 to US$37.5 (36x PE in 2024) to factor in the margin dilution effect from sales promotion.

• China Dongxiang (3818 HK) posted good FY22/23 result, supporting by sharp recovery in its investment portfolio contribution. Its apparel business also witnessed narrowing losses.
• It trades on 0.2x P/B, with most of book value being cash and investment portfolio. It is true that it deserves a discount but this is just too deep.
• Fading pandemic impact should be positive to CNDX’s apparel business – it has already witnessed a 5.6pp increase in offline sales. More brand promotion should be a positive driver.

• Xiamen Yan Palace Bioengineering (1951686D CH) is looking to raise around US$200m in its upcoming Hong Kong IPO. The deal will be run by CICC and GF Securities.
• Xiamen Yan Palace Bioengineering focuses on the development, production and marketing of high-quality modern edible bird’s nest (EBN) products.
• According to Frost & Sullivan (F&S), the firm is the largest EBN product company globally in terms of retail value between 2020-2022, with a market share of 4.1%.

• In May, average pricing fell again Y/Y, and volume growth moderated somewhat vs April
• We look forward to learning more about J&T Global Express IPO and its path to profits
• Check out the weird China-US postage fraud case and YTD share performance

• The pricing of core product Envafolimab doesn’t have an advantage over competitors. Its market opportunities and profit margins are very limited if seen from both production side and sales side.
• 3DMed clearly faces financial pressure, and may not smoothly promote other pipelines. Under current market environment, it’s almost impossible to achieve substantial refinancing. The survival of 3DMed cannot be guaranteed.
• The fundamentals of 3DMed are not strong enough to justify high valuation. Current share price is clearly overvalued.Eventually the market will return to rationality. We recommend investors offload in time.

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.

• ENN Natural Gas
• Vedanta Resources

• Daniel Zhang’s transition to a less prominent role within Alibaba’s Cloud business, after previously serving as CEO and Chairman of Alibaba Group (9988 HK), could be seen as a demotion.
• We suspect that there could be some government influence on these proposed leadership changes.
• Nonetheless, the situation is not encouraging, especially as the company enters a turbulent phase with multiple units poised to pursue IPOs in the near future.

• J&T Global Express (1936374D CH), a leading express delivery business in Southeast Asia and China has filed for a HKEx IPO to raise US$1 billion, according to press reports.   
• In J&T Global Express 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 organic revenue decline in SEA/China, deteriorating contract liabilities, SEA margin pressure, high cash burn and weak balance sheet.

• SML Group (SMLGZ HK) is looking to raise about US$200m in its upcoming Hong Kong IPO.
• SML Group (SMLG) is a vertically integrated digital identification solutions provider. It primarily engages in developing, manufacturing and selling label and tag products with radio frequency identification (RFID).
• SMLG’s revenue growth rebounded post-COVID on the back of improved consumer sentiment. However, the firm’s profitability growth has been slowing down yet it has undertaken additional debt to payout dividends.

• A major reason for investors’ disappointment is that the number of new projects in 23H1 were significantly lower-than-expected. The impact of slowdown in financing activity began to show in 23H1.
• Higher revenue growth of non-COVID projects is needed to achieve the performance guidance target.If the management fail to fulfill the commitment to accelerate business recovery in 23H2,they may lose creditability.
• It’s unlikely to receive AD drugs orders this year. The market would react directly to short-term sentiment. Without big catalysts, it’s difficult for WuXi Bio’s stock price to perform well.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess H&H International’s ESG as “Adequate”, in line with the “Adequate” Environmental, Social and Governance scores. The Social pillar has the highest weightage, given the nature of the business. Controversies are “Immaterial” and Disclosure is “Strong”.

• We held a conference call with the Chief Investment Officer of UMP Healthcare (722 HK), Patrick Cheung, on the 19th of June, 2023. 
• The company continues to forge strategic alliances and collaborations, the latest being Hong Kong Adventist Hospital, in addition to the recent partnerships with Pedder Health/Human Health Holdings (1410 HK).
• The stock represents an excellent opportunity when trading at 6.6x PE FY23E with 44% of the market capitalization in cash and a 7.7% dividend yield on our numbers (50% payout).

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.

• We expect June quarter results to beat consensus and demonstrate a balanced growth across topline and bottom-line.
• During a time when headlines drive BABA share price, it is more important to stay grounded in numbers, see what is in price and make trades accordingly.
• We maintain US$500 billion target market cap on 20x RMB180 billion non-GAAP net profit by FY25.

• J&T Global Express (1936374D CH) is looking to raise about US$1bn in its upcoming Hong Kong IPO.
• J&T Global Express (J&T) is a global logistics service provider. 
• 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.

• J&T Global Express (1936374D CH), a leading express delivery business in Southeast Asia and China has filed for a HKEx IPO to raise US$1 billion, according to press reports.   
• J&T is the number one express delivery operator in Southeast Asia by parcel volume from 2020 to 2022, according to Frost & Sullivan. 
• The key elements of the bull case rest on large addressable markets, market share gains, robust reported revenue growth and narrowing losses which set a path to profitability.

• The company mainly sells its products online and spends much of its advertising budget online.
• The rice market is fragmented and there are two main competitors, Arawana and Fortune.
• We believe the company’s dry food can use the reputation of its rice to boost sales.

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.

• Yankuang Energy Group

• Mobvoi, the innovative Chinese AI company backed by Google, Volkswagen Group, and top-tier VC firms, filed for a Hong Kong IPO. The company plans to raise between $200M and $300M. 
• Mobvoi is a rapidly growing AI unicorn. Revenue from AI software solutions skyrocketed 400%+ y/y in 2022. The company will launch AI painting assistant and AI writing assistant 2.0. soon.
• China-Based startup chose CICC and CMB international to tap capital markets to develop universal LLM, market expansion, strategic alliances, acquisitions, and working capital. 

• In the past few years, the investment business and M&A of Viva accelerated based on a series of financing tools such as IPO/placement/convertible bonds. Thus, Viva’s scale has grown rapidly.
• Continuous decline in stock price ultimately triggered a “redemption crisis” for Viva’s convertible bonds.Although Viva resolved it by transferring equity in its CRO subsidiary, the prospects are still not optimistic.
• Due to the downturn in innovative drug industry and deterioration of financing environment,whether the high valuation of Viva’s CRO business would be recognized by secondary market is a question mark.

• 24 different HK-listed stocks will be tradable in RMB on the HKEX starting 19 June. They make up 35% of HKEX market cap, 40% of total turnover. They are fungible.
• The ultimate goal is to allow mainland investors to trade HK stocks in RMB, but we’re not there yet. Southbound has yet to be approved for the 21 SB-eligible names.
• Only five of the 24 have A-shares, and of those, three (China Mobile, CNOOC, and Great Wall Motor) have wide H-share discounts. Those should be the ones to look at.

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads – 111 Inc (YI US), United Malt Group Ltd (UMG AU), Silk Laser Australia (SLA AU), Estia Health (EHE AU), Chindata Group (CD US), ENM Holdings (128 HK).
• Lowest spreads – Healius (HLS AU), Liontown Resources (LTR AU), Musgrave Minerals (MGV AU), Toyo Construction (1890 JP), Lian Beng (LBG SP), Penguin International (PBS SP).

• AbbVie’s patent infringement allegations against BeiGene Ltd (6160 HK) is an attempt to obstruct BeiGene through legal means and save Imbruvica’s sales decline in the market. AbbVie came prepared this time.
• BeiGene has a chance to win the lawsuit if without any political factors.But if BeiGene fails to walk away unscathed, any damages/patent royalty would be detrimental to its financial performance/forecast.
• The real key point in determining BeiGene’s future turnaround is not this lawsuit, but the clinical results of TIGIT project. Even with the correction since May, BeiGene is still expensive.

• There were a bunch of rebalances across different index families that were implemented at the close of trading on Friday.
• The coming week is quieter though there are a couple of ad hoc rebalances for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and KOSDAQ 150 Index (KOSDQ150 INDEX). 
• Yet another week of inflows to Tracker Fund of Hong Kong Ltd (2800 HK) as the number of units outstanding is nearly the highest over the last couple of years.

• 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

• Viva Biotech Holdings (1873 HK) is raising RMB1.06 billion (~$150 million) through offloading ~24% of its equity interest in Viva Shanghai, the primary entity of the company’s CRO business.
• The consideration implies a revenue ratio and gross profit ratio of 4.90x and 11.04x, respectively. The ratios are at the similar level of the average ratios of other comparable peers.
• Going ahead, Viva Biotech is planning to spin off its CRO business for separate listing in the A-shares market. IPO application is expected to be filed by June 30, 2024.

• 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,  HK remained quiet with Australia seeing some more action.
• On the placement front, Bain continued to exit Axis Bank Ltd (AXSB IN) while Weilong Delicious Global (9985 HK) and Sula Vineyards had lock-up expiries.