China

• On 28th Mar 2023, Alibaba (ADR) (BABA US) announced that it would adopt a new organizational and governance structure, splitting into six major business groups and other investments.
• Alibaba also stated that each of the business groups would be set up as an independent entity with its own board and the groups will eventually seek to list.
• In our previous note, we highlighted which division could list. In this note, we will look at Cainiao.

• Fund manager China Everbright (165 HK)‘s implied stub and simple ratio (CEL / Everbright Securities Co (A) (601788 CH))) are at multi-year lows.
• Preceding my comments on China Everbright are the weekly setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• In 1Q23, the revenue growth rose significantly to 11% YoY.
• The operating margin also improved significantly to 24% in 1Q23 versus 17% in 1Q22.
• We set an upside of 28% and a price target of HK$440 for yearend 2023.

• Baidu delivered 1Q23 results with top line beat our estimate by 3.5%, and non-GAAP net income beat our estimate by 14.7%. 
• We expect both its ads and AI cloud revenues to recover with accelerated pace, which could offset the increase of R&D spending in AIGC. 
• Reiterate BUY rating and slightly raise TP to US$ 178 to reflect the faster recovery. Our TP implies 17.9x PE in 2023.

• Dmall Inc (1751691D CH) is looking to raise around US$200m in its upcoming Hong Kong IPO.
• Dmall provides cloud-based, end-to-end SaaS platform purpose-built for the Chinese retail industry.
• In this note, we will talk about the positive aspects of the deal.

• China Travel International Investment Hong Kong (308 HK) should have more upside from here given the sharp earnings recovery over FY23-25. But the market seems to have overlooked this.
• Its FY18 net profit reached HK$687m; but dipped to HK$356m loss in FY22. With its businesses now behind issues like HK social unrest and border closure, there is immense upside. 
• All of CTII’s business segments have experienced recovery in FY23, especially following the resumption of HK-mainland China traffic. Its 0.54x P/B is still 52% down from the peak. 

• Tencent Music reported 1Q2023 results. Revenue increased 5.4% YoY to RMB7.0bn (vs consensus RMB6.9bn) while adj. OP more than doubled to RMB1.09bn (vs consensus RMB1.13bn) vs RMB518m in 1Q2022.
• Online music services revenue grew 33.8% driven by strong growth in both paying users and monthly ARPU. Social Entertainment further declined during the quarter.
• 1Q2023 earnings were primarily driven by Online music services and we do not expect a recovery in social entertainment segment’s earnings in the short-term.

• HUTCHMED has been a company that is easily overlooked by investors. However, its BD capabilities have been verified after the deal with Takeda, and its commercialization performance is also commendable.
• Based on our forecast, total oncology/immunology consolidated revenue in 2023 could reach about US$220 million. If product sales growth remains benign, together with good cost control on R&D/SG&A, eventual breakeven is reachable.
• However, based on the current development trend, HUTCHMED could have to remain at the stage of a biotech, and is difficult to become a biopharma. Investors should be aware of this.

• MNSO reported its C1Q23 revenue (3.7%)/1.1% vs. our estimate/consensus, while non-GAAP net income beat our estimate/consensus by 17.7%/26.1% respectively, driven by gross margin ramp-up strategy and G&A reduction; 
• We think MNSO’s brand upgrade strategy is success so far, as it offered more high gross margin products without significantly diluting sales. 
• We maintain Buy rating and raise TP by US$0.5 to US$25.5 to factor in the better gross margin and store expansion outlook.

• ZTO Express (ZTO US) parcel volume increased by 20.5% Y/Y in Q1, better than market growth
• Unit prices fell by 3.7%, slightly worse than peers in Q1 2023, and Revenue missed consensus
• EPS beat expectations on lower unit costs, and management raised full-year volume target

• We believe BABA’s upcoming 4QFY23 results will surprise the market to the upside by a wide margin in terms of recovery in bottomline, catalyzing trading opportunity for short-term investors.
• We also expect that the results will usher in a period of sustained re-rating for the stock due to China’s continued yet slow consumption recovery and Alibaba’s well-executed restructuring plan.
• Geo-Political risks will not go away, but have been very much reflected in current pricing in our view. Buy ahead of results on Thursday.

• At TMA we deliver high probability outcomes by focusing on our 3 pillars of technical analysis. •1) Response to key levels. •2) Price action. •3) Momentum confirmation.
• Our multi-quarter outlook for Tencent Holdings Ltd (700 HK) remains extremely bullish with a multi-quarter target towards 451.95. In April we identified the 302/330 range as a potential buy zone.
• The recent low of 323.20 has preceded an impulsive bullish daily confirmation. This week we await a bullish weekly close (above 343.99) to confirm a renewed MT uptrend bias.

• JD Industrials is a pure trading platform for third party wholesalers.
• The company avoids the competition with its clients and the risk of overdue account receivable.
• JD Industrials has brand support from JD.com and logistics support form JD Logistics.

• ImmuneOnco, a China-based clinical-stage biotechnology company, plans to raise up to US$ 100m via a Hong Kong listing.
• In this note, we examine the company’s core product, namelyIMM01, a CD47 target fusion protein. We also look at the company’s management and pre-IPO investors.
• We think its clinical data is not yet convincing and we are not so keen on the company.

• Hua Hong reported C1Q23 top-line, IFRS EBIT, and non-IFRS net income in-line, (15.3%), and 13.3% vs. our est., and in-line, (3.4%), and 34.9% vs. cons., respectively. 
• Hua Hong reported 1Q23 utilization rate of 103%, higher than peers, which we believe is due to (1) large EV and new energy exposure, and (2) 8” price cuts. 
• Despite near-term margin deterioration, we maintain Hua Hong’s BUY and HK$ 35 TP due to auto IC exposure and localization, implying 11x FY24 PE.

• On May 15th, Tencent holds its annual game conference “Spark 2023” and releases its latest game pipeline, including updates of 15 launched games and 20 new games.
• Considering Tencent’s large size, only a game that has the potential to exceed RMB 10 bn in annual gross billing could be considered as a positive sign.
• Yet, we don’t find any game title that could reach over RMB 10bn annualized gross billing in the game pipeline.

• Different from other TCM companies, Pientzehuang is based on the investment logic of consumer goods, which breaks away from the price constraints of drug market. Meanwhile,  Pientzehuang has formed a “monopoly”.
• As a well-known trademark/time-honored brand in China, and representing the quintessence of Chinese culture, Pientzehuang would be supported by national policies,and is consistent with China’s efforts to expand domestic demand/consumption.
• Although Pientzehuang’s performance was disappointing last year, its strategic height and significance are obviously different from other TCM. We think that this is crucial to the investment value of Pientzehuang.

• The Yuexiu Property (123 HK) Rights start trading today. Last day is next Monday. There is a general pattern to the flows and it behooves investors to be aware.
• There is a pattern to these trades which is worth understanding.
• In this case, I expect it is worth going long Yuexiu Rights vs Short peer basket equity earlier in the cycle.

For our next Corporate Webinar, we are glad to welcome China Shenshan’s Executive Director, David Zhao.

In the upcoming webinar, David will share a short company presentation after which, he will engage in a fireside chat with Smartkarma Insight Provider, Angus Mackintosh. The Corporate Webinar will include a live Q&A session

The webinar will be hosted on Tuesday, 23 May 2023, 17:00 SGT/HKT.

About China Shenshan Orchard

China Shenshan Orchard Holdings Co. Ltd. is a horticultural marketing company in the business of planting, cultivating and sale of kiwifruits in the People’s Republic of China (“PRC”). The Group holds forest use rights for 8 strategically located orchards, spanning a total land area of 9,805 mu (approximately 6.5 million sqm), which is believed to be one of the largest domestic kiwifruit orchards concentrated in the Chibi City, Hubei, the PRC.

• On 28th Mar 2023, Alibaba Group (9988 HK) announced that it would adopt a new organizational and governance structure, splitting into six major business groups and other investments.
• Alibaba also stated that each of the business groups would be set up as an independent entity with its own board and the groups will eventually seek to list.
• Having looked at the past performance of its division, some appear more worthy than others of undertaking a listing in the next year or two.

• Q1 CY23 watch and jewelry sales for HK were up 88% YoY. HK sales for Oriental Watch (30% of revenues but less volatile) will benefit from the recovery in HK.
• We estimate China sales will continue to remain resilient as cross-border travel is yet to pick up in a big way. 
• Trading at 7.5x FY23e and a 14.2% dividend yield, with more than 50% of the market capitalization in cash, the company can pay solid future dividends despite weaker earnings.

• The previously stockpiled drugs/medical devices require a long cycle of digestion. As the industry beta brought by COVID-19 dividend would fade away, JD Health’s performance growth could slow down accordingly.
• Although JD Health divides its buiness into product revenue and service revenue, drug/product sales are still the underlying logic and business model, which is difficult to maintain high growth expectations.
• Current valuation is in reasonable range. Since JD Health will be added to HSI INDEX, it could help boost share price. However, if business transformation fails, high valuation is unsustainable. 

• Q1’23 revenues of US$630.8 million, up 6.1% YoY and flat sequentially.
• Gross margin was 32.1%, up 5.2 points YoY but down 6.1 points sequentially.
• HH is playing a blinder through the downturn and likely beyond…

• JDL reported 1Q23 revenue that is 2.2% vs. our est. and cons., and non-IFRS net loss that was 32% vs. our est., and 18% vs. cons. 
• We have concerns about 1) the declining number of external integrated supply chain (ISC) customers; 
• And 2) declining gross margin, which demonstrate the effects of JD’s low-price strategy, in our view; We maintain JDL’s SELL rating and HK$ 9.20 TP.

• SMIC reported C1Q23 top-line, GAAP EBIT and non-IFRS net profit 4.7%, 17% and 75% vs. our est., and 1.9%, (19.5%), and 25% vs. cons。 
• We expect 1Q23 to be the bottom for SMIC, improving quarterly on the back (1) IC supply chain localization, and (2) domestic economic improvement. 
• Despite high-inventory levels at most clients, SMIC continues to receive wafer orders for new IC products. We maintain BUY rating and HK$ 24 TP.

• Growatt Technology (1833969D CH) is looking to raise about US$400m in its upcoming Hong Kong IPO, after downsizing from an earlier US$1bn float in Nov 2022.
• Growatt Technology is a global distributed energy solution provider, specializing in sustainable energy generation, storage and consumption, as well as energy digitalization. 
• Previously, we looked at the company’s past performance, peer comparison and shared our earlier thoughts on valuation. In this note, we will provide our latest thoughts on 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.

• Hopson Development
• Melco Resorts & Entertainment
• Wynn Macau Ltd

• On 20 April, Yuexiu Property (123 HK) announced plans to raise US$1.1 billion through 30 rights shares for every 100 existing shares rights offering, with a rights price of HK$9.00.
• Since the announcement of the rights issue, Yuexiu shares have declined by -23.6% to the undisturbed price and by -18.2% compared to the TERP of HK$11.74 per share.
• The shares went ex-rights on 2 May and the rights start trading on 15 May. Link REIT (823 HK)’s trading over its rights period provides the playbook for Yuexiu’s trading.

• Travelsky Technology Ltd H (696 HK) is the IT provider for airports in China thus it should be one of the stocks to benefit from China’s reopening.
• Despite already operating at a profit, the share price is still lagging behind the other travel-related names that are still loss-making.
• Its operating numbers have already reached the 2019 level, a pre-COVID era, thus the opportunity to rebound is abundant. 

• Horizon Construction Development (1887128D HK) is looking to raise US$223m in its upcoming Hong Kong IPO.
• HCD is an equipment operation service provider in China. It provides services covering the full cycle of projects.
• In our previous notes, we looked at the company’s past performance and refiled PHIP updates. In this note, we undertake a quick peer comparison and share our thoughts on valuation.

• With the launch of new products and their accelerated admission to hospitals, Acotec’s revenue streams become more diversified, which would enhance its own risk resistance ability and core competitiveness.
• Considering market size/increasing competition, Acotec’s growth ceiling is obvious if relies solely on domestic market. It becomes crucial whether Boston Scientific’s acquisition would bring expected value or have other intentions.
• How much room for improvement in future valuation depends on Acotec’s performance in overseas markets. After all, if there is no internationalization breakthrough, Acotec’s valuation logic would not be reshaped.

• We find good value in Jiangsu Expressway (H) (177 HK) – its 8.3x PER is cheap relative to 10.4% EPS CAGR and P/B multiple of 1.06x is below historical average.
• It has an extremely secured dividend stream for the next two years, yielding at least 6.3%. 1Q23 result showed a solid recovery, and potentially adding upside to earnings outlook.
• Key drivers are stronger traffic recovery, rise in contribution from clean energy, margin expansion through cost control and completion of new projects in the next two years.

• 2023 is a crucial year for Zai Lab.It’s the first time for Zai Lab to demonstrate the profitability of license-in model.If it fails, investors would lose confidence in the company.
• There is little correlation between the four commercialized products, which makes commercialization difficult and leads to low efficiency/high costs for sales team. So, breakeven could be more distant than expected.
• Zai Lab’s current pipelines are hard to make money. There are concerns whether its business model is sustainable in the long term. As its valuation lacks an “anchor”, risk is high.

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.

• Melco Resorts & Entertainment
• Sands China

• The Hang Seng index committee has added four stocks to take the number of Hong Kong Hang Seng Index (HSI INDEX) constituents to 80. A year late, but we’re there!
• The next leg of the increase in the number of index constituents will take us up to 100. There is no timeline, so this should take a couple of years.
• Estimated one-way turnover is 2.93% leading to a one-way trade of HK$5.7bn (US$730m). All adds will have over 2x ADV to buy from passive trackers.

• 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

• As expected, China Shenhua Energy Co H (1088 HK) replaces Country Garden Holdings Co (2007 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the close 2 June.
• Using prices from the close on 12 May, estimated one-way turnover is 2.1% leading to a one-way trade of HK$1.3bn (US$170m).
• The change will lead to an increase in the fair value of the HSCEI 2023 Dividend Futures. We’d be sellers on a move higher towards 240 DIPS.

• There are three main ways for Chinese pharmaceutical companies to enter global markets, but the results are completely different. Investors are advised to make cautious judgments based on different cases. 
• Speed is a crucial factor in the competition for drug development, but there’re precedents in history that late-comers are still able to turn things around, such as GLP-1/weight loss drugs.
• We remain conservative about the future commercialization performance of Bio-Heart’s BRS and Iberis 2nd. However, the product launch is a catalyst for share price, which provides a good short-term trade opportunity.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• Mankind Pharma delivered some joy to the Indian equity markets over the past week.
• There were no major placements over the past week but there were some lockup expiries.

• Horizon Construction Development (1887128D HK)/HCD, a subsidiary of Far East Horizon (3360 HK), has launched its HKEx listing at HK$4.52-4.80 per share to raise up to US$223 million.
• We previously discussed the IPO in Horizon Construction Development IPO: The Bull Case and Horizon Construction Development IPO: The Bear Case. 
• Our valuation analysis suggests that HCD is fully priced at the IPO price range. Therefore, we are inclined to pass on the IPO. 

• JD reported 1Q23 revenue in-line vs. cons., while non-GAAP net income beat cons and our est. 99% and 74%, respectively.   
• It’s early to say whether JD is getting out of the puddle, as (1) revenue grew just 1.4% YoY in 1Q23,  (2) the effect of its management change remains uncertain.
• We maintain SELL, but raise JD’s 2023 non-GAAP net margin from prior 3.2% to 3.34%, and raise TP to US$ 30.  

• JDHealth (JDH) reported C1Q23 top line and non-IFRS operating profit 56% and 78% of our C1H23 estimates. 
• We now take a more positive view on JDH’s ability to at manage the issue at certain periods and certain areas;
• We raise TP from HK$44 to HK$57 and rating to BUY. Possible risks include renewed margin pressure from prescription drugs

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. Wynn Macau Ltd
3. Central China Real Estate
4. Seazen (Formerly Future Land)
5. Agile Property Holdings

and more…

• Cotti Coffee has become a head-to-head competitor of Mixue’s Lucky Cup, and to a lesser degree, Luckin. 
• But what is behind Cotti’s agenda, in our view, is its founder Charles Lu’s aspiration to return to Luckin;
• The biggest obstacle for Charles to repeat the playbook of Steve Jobs is Chinese security regulator’s refusal, so far, to allow franchised chain to list

• There are no constituent changes for the Hang Seng Tech Index (HSTECH INDEX) in June but there are some free float changes and a bunch of capping changes.
• Estimated one-way turnover is 3.2% leading to a one-way trade of HK$3bn (US$384m). There are 3 stocks with over 1 day of ADV to trade.
• Trip.com (9961 HK) has over 1x ADV to buy from Hang Seng Tech Index (HSTECH) trackers. The stock is also an add to the Hong Kong Hang Seng Index (HSI).

• Back on the 1 January, Shandong Xinjufeng Technology Packaging (301296 CH) sought to acquire Jardine Matheson Holdings (JM SP)‘s 28.22% stake in Greatview Aseptic Packaging (468 HK) at HK$2.65/share.
• It was hardly a knockout price. However, Mathson had been itching to exit. Even if it involved selling its stake to one of Greatview’s competitor. 
• Greatview’s board is unimpressed, and now reckons Matheson’s initial buy-in may be in breach of PRC anti-monopoly laws. 

• JD replaces its CEO, Mr. L Xu, with the former CFO, Ms. S. Xu.
• As we expect, the revenue growth slowed down and the operating margin improved in 1Q23.
• We believe the stock has an upside of 92% for 2024.

• Li Auto reported solid 1Q23 performance, with top line in line with cons/our est., and non-GAAP net margin beating cons/our estimate by 4.0/2.7ppt. 
• We reiterate Li Auto as our top pick, because of 1) positive growth outlook in 2023 driven by strong model cycle (L9/L8/L7) and channel expansion; 
• 2) margin upside due to improved opex efficiency. Our TP implies 2.8x PS.

• Zai Lab (ZLAB) reported C1Q23 top line in-line with our estimate but operating/net loss much smaller than our estimate due to cut in R&D spending. 
• ZLAB’s narrower losses in C4Q22 and C1Q23, achieved through R&D cut, do demonstrate the viability of the company achieving commercial breakeven by 2023 and full breakeven by 2025. 
• We still think these viabilities have difficulties to achieve and even achieved, hurt the LT value of the company; We raised our TP from US$25 to US$29 but maintain SELL.

• Shiyue Daotian (1892269D CH) is looking to raise about US$200m in its upcoming HK IPO. 
• Shiyue Daotian is a pantry staple food company in China, providing consumers with pre-packaged premium rice, whole grain, bean, and dried food products. 
• Shiyue Daotian’s largest revenue contributor is its rice products segment. However, the company experienced declining ASPs over the track record period while production and sales volume growth fell.

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 SCE
• MGM China Holdings
• Softbank Group

• China granted a six-month grace period for carmakers and dealers to sell off as many as 2 million new vehicles that will be out of compliance with new emission standards taking effect July 1.
• The move is intended to ease pressure on the auto market amid slowing sales and a brutal price war.
• The government said it will allow sales of vehicles produced under the old pollution standards to continue until Dec. 31, though automakers will have to apply more stringent requirements to newly built autos starting July 1.

• Chinese electric-car giant BYD Co. got a green light from regulators to take over a bankrupt online insurance unit of the scandal-plagued conglomerate Tomorrow Holding Co. Ltd. with plans to turn it into an auto insurance provider.
• The China Banking and Insurance Regulatory Commission (CBIRC) said Tuesday that it approved BYD’s 100% acquisition of E An Property & Casualty Insurance Co. Ltd.
• Chinese authorities seized the company three years ago.

• Guoquan Food (Shanghai) (1786512D CH) is looking to raise about US$500m in its upcoming Hong Kong IPO.
• Guoquan Food (Shanghai) is a home meal solutions provider in China.
• Offering a wide variety of home meal solutions products under its Guoquan Shihui (鍋圈食匯) brand, the firm had a total of 755 SKUs as of Dec 22. 

• Shineway’s 23Q1 performance growth exceeded expectations, mainly driven by TCM formula granules products and injection products. A surge of COVID infection rate in China since 22Q4 was an important reason. 
• Based on data, revenue proportion of COVID-19 related products is not low. So, related sales growth in following quarters this year would decrease as the dividend period of pandemic ends.  
• As the growth of TCM formula granules is expected to offset the slowdown of COVID-19 TCM products, Shineway’s overall revenue growth would still be strong in 2023. Valuation isn’t cheap.

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
• Country Garden Holdings Co
• Wynn Macau Ltd

• T.S. Lines (TSL HK) is looking to raise about US$300m in its upcoming Hong Kong IPO.
• T.S. Lines (TSL) is a container shipping firm primarily operating in the Asia Pacific (APAC) region.
• As of Dec 22, its container shipping network covers a total of 24 countries and regions, 63 major ports and 42 services globally.

• Back on the 29 March, Inner Mongolia Yitai Coal Company Ltd (3948 HK) announced a possible H-share buyback at HK$17/share, a 50.4% premium to the undisturbed price.
• Yitai Coal is PRC-incorporated, therefore it is not afforded compulsory acquisition rights. To buy back ALL H-shares, either a Merger by Acquisition or a Voluntary Conditional Offer is required.
• The Offer/buyback, should it proceed, is subject to various PRC regulatory approvals, including SAFE; together with approval from Yitai Coal’s A/H shareholders. To date, the SAFE Registration has been completed.

• Inner Mongolia Yitai Coal Company Ltd (3948 HK)‘s H Share buyback offer is at HK$17.50, a 54.9% premium to the undisturbed price and a 9.0% premium to the last close. 
• The key conditions are approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders rejection). There is a 90% minimum acceptance condition.  
• The three independent H shareholders holding a blocking stake will be supportive of the attractive offer (9-year H Share price high). The price is final. Timing is the key risk.

• We believe total revenue will grow by 6% in 1Q23, compared to four stagnant quarters in 2022.
• We also believe operating margin will improve by 2 percentage points YoY in 1Q23 due to the layoff in 1Q22.
• We believe the stock has an upside of 48%, but we reduce our price target from HK$563 to HK$505.

• Timing is everything. Yesterday afternoon I flagged Inner Mongolia Yitai Coal Company Ltd (3948 HK)‘s possible H-share buyback at HK$17/share.
• Roughly five hours later a firm HK$17.50/share Offer was announced. The Offer Price is final.
• Other terms and approvals were largely as expected. Payment under the Offer may occur mid-August.

• We believe revenue will grow by 5.6% YoY in 4Q23 and by 9% in FY2023 versus 2.7% in FY2022.
• We also believe operating margin will improve slightly to 8.9% in 4Q23 versus 8.2% in 4Q22.
• We believe the stock has an upside of 63% for March 2024.

• China government guided no commission capping on real estate brokerage business, but the ladder-pricing system may lead to moderate commission rate reduction for Beike.
• We estimate that 0.1% of Lianjia commission rate cut can imply to 1.2% of revenue reduction for Beike in 2023. 
• Therefore, we lowered revenue by (2.8%) and net income by (5.3%) to factor in the potential changes.  We maintain BUY rating but cut the TP by US$2 to US$21.  

• BeiGene (BGNE) reported C1Q23 top line 7% and gross margin 1.5ppt above our estimates, leading to non-GAA operating loss 23% narrower than our estimate. 
• We raise BRUKINSA’s peak year sales from US$5bn to US$5.8bn while cutting Tislelizumab’s peak sales from US$1.5bn to US$1.2bn. 
• With transition to a biopharma complete, BGNE should enjoy a higher multiple; We raised TP from US$219 to US$254 and maintain BUY.

• AviChina Industry & Technology (2357 HK) remains cheap with 3-year earnings CAGR of 17.4% but only 11x PER. It also trades on 55% discount to value of its A-share subsidiaries.
• Aggregate earnings for its four A-share listed subsidiaries grew a solid 26.8% in 1Q23, even faster than AviChina Industry’s FY23F earnings growth of 21.5%. 
• China is expected to increase military spending to narrow the gap against the US going forward. AviChina stays best exposed to such growth in defense demand.

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.

• JSW Steel Ltd
• Powerlong Commercial Management Holdings
• Sino-Ocean Service
• Sunny Optical
• Tata Steel Thailand
• Yuexiu Property

• AAG Energy Holdings (2686 HK) is one of those periodic (and rare) takeover situations that will likely be remembered for what went wrong rather than what went right.  
• A low-balled Offer (proxy advisors agree); perfunctory IFA analysis; a large, and silent, shareholder; and the postponement of the Scheme vote due to voting instructions not being “duly processed”.
• A new Court Meeting has been confirmed for the 2 June. And now we have some odd CCASS movements which raise further questions.

• The review period for the June rebalance ends on 31 May. Announcement of the changes will be made on 9 June with implementation at the close on 16 June.
• There could be 4 or 5 A-share additions due to their inclusion in Northbound Stock Connect. That in turn expands the universe and could result in up to 3 deletions.
• If all changes go through as expected, estimated one-way turnover at the rebalance will be 15.1% resulting in a one-way trade of US$99m.

• As of 8 May, we see three potential changes to the iShares China Large-Cap (FXI) (FXI US) at the June rebalance. This is mainly driven by the inclusions.
• There is over 1 day of ADV to trade on all stocks with the largest impact on BeiGene Ltd (6160 HK) at nearly 4 days of ADV.
• Short interest has been increasing on the potential adds as they have run up a lot in the last few months.

• Hailan Holdings (2278 HK) disclosed a voluntary conditional offer from its controlling shareholder at HK$3.36 per share, a 5.0% premium to the undisturbed price.
• The offer is conditional on a 90% minimum acceptance condition which requires a minority acceptance rate of 60.0%. The offeror/concert parties own 75.0% of shares.
• The offeror aims to exercise compulsory acquisition rights (requires 90% minority acceptance rate) which suggests a bump is possible. The offer price has not been declared final. 

• There’s an obvious declining trend in net profit YoY growth.Considering unsatisfactory growth of MI and IVD in 22H2,if it weren’t for the strong growth of PMLS,Mindray’s overall growth could have been “surprising”.
• The current question is whether IVD and MI segments would have high enough growth to offset the potential performance decline of PMLS segment in post-pandemic era. Problems may emerge afterwards.
• There are still some unresolved technical challenges that constrain the development of Mindray. Without good performance in internationalization, there is no incremental market. Thus no reason to maintain high 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.

• Anton Oilfield
• China Vanke
• Sunac China Holdings
• Times China
• UPL Ltd