China

• There is only one new listing as a potential inclusion to the HSCI in June. If added to the HSCI, it will also be added to Southbound Stock Connect.
• There are 18 potential inclusions and 19 potential deletions for the HSCI in September. There are a few close adds and there could be another 5 deletions on Prolonged Suspension.
• A lot of the potential deletions have large Southbound holdings. With all the stocks becoming sell-only, there could be unwinding of some positions over the next couple of months.

• Aag Energy Holdings (2686 HK)’s disclosed a revised timetable to vote on Xinjiang Xintai Natural Gas (603393 CH)’s HK$1.85 offer. The new scheme meeting is set for 2 June. 
• Our analysis suggests that in the best case, Xinjiang Xintai would need to further swing NO votes representing 6.52%-8.34% of outstanding shares to YES to get the scheme approved. 
• AAG’s case is unprecedented. The risk-reward remains unattractive as the upside to a scheme pass (13.5% upside) is equal to the downside to a scheme fail (average 13.5% downside).

• Chinese authorities have begun to ban public opinion against non-state-owned companies.
• These actions were the opposite to what the authorities did in past years.
• We believe the authorities need non-state-owned companies to bail the unemployed young people out of the weak job market.

• Hong Kong retail sales strongly rebounded 41% yoy in March
• During May Day Holiday (Apr 29 – May 3), there was 625k mainland visitors to Hong Kong, around 63% of pre-COVID level
• Among all RE sub-sectors, retail and residential will be the first to recover (already seeing recovery), office will be lagging and the last. 

• Back on the 23 December, Skyworth Group (751 HK) announced another partial buyback – this time for 100mn shares (3.87% of shares out), at HK$3.80/share, a 20.25% premium to undisturbed.  
• On the 28 March, terms were bumped to $5.00/share. Independent shareholders approved the whitewash waiver on the 5 May.
• The Offer closes on the 18 May. The minimum proration is 7.8%. Expect the final proration to be higher. 

• China Energy Engineering (3996 HK) is a laggard in this round of “China style valuation” rally. With strong earnings and project backlog, there is good room to catch up.
• Its 1Q23 earnings growth is ahead of the infrastructure trio, and so as the new contracts signed. Moreover, it has a faster growth in overseas market. 
• The 3-year EPS CAGR is projected at 16.3%, yet it just trades on 5x PER. Its ROE of 9.4% makes it attractively priced at only 0.4x P/B for FY23.

• A significant change in 23Q1 was not just a narrowing of net loss, but a sudden turnaround in sales profit under the rapid revenue growth, which was an important leap.
• BeiGene’s commercialization capabilities largely rely on high expense level that significantly deviating from the industry average, making eventual commercialization success more difficult. BeiGene is an “outlier” even among global peers.
• How to control expenses while ensuring sustained sales growth and long-term competitiveness is an important issue for BeiGene. If no new blockbuster product emerges ultimately, high valuation would not last.

• 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.
• The LT downtrend structure in 1288 HK was simply defined by its 2018/2022 sequence of lower highs and lower lows. This structure was broken last week.  
• LT momentum indicators (monthly RSI / MACD) have recently confirmed this bullish LT trend change. The current uptrend appears set to extend towards 3.60/3.90 (+13%-24%) in the coming 2-3 quarters.

• Tofflon needs to go through a considerable period of adjustment after experiencing the high point of performance. Its “periodicity” is obvious, which means the performance high growth is not sustainable.
• The decline in growth rate of contract liabilities suggests that the future prospects is highly uncertain. Overall margins could continue to drop due to reduction in high margin overseas orders.
• Unless there’s a major catalyst, it’s difficult to see significant valuation boost in short term. Given the current downward trend in performance, valuation may continue to decline in the future.

• AAG Energy (2686) exhibits a clear wedge range to trade with an intermediate positive outcome as long as lower wedge support stands up near outlined 1.50 support.
• The intermediate cycle favors a bullish outcome as long as lower pattern support holds true. Wedge still needs time to mature.
• 1.70 is the level to clear for bull traction. Risk to 1.40 region if we fail to hold lower wedge support at 1.48.

• 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

• MIR forecasts China’s industrial robot market growth to accelerate to ~12% y/y in 2023 and will sustain at double digit y/y for the next several years.
• Management sees order growth back to normal in Mar and Apr. 
• Industrial robot sales volume is expected to increase to ~25K in 2023, growing by ~45% y/y. 

• Many people have begun to pay attention to whether there would be a second wave of COVID-19 in China. We think it is necessary to share our views.
• The overvaluation or undervaluation of China’s core assets cannot be explained solely by classic valuation models such as PE/PB/DCF, but rather by considering the deep meaning represented by the companies.
• Lifetech’s future growth space depend more on the performance of pacemakers and IBS, but they are facing different challenges. Therefore, we recommend short-term trade rather than long term hold.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• Nexus Select Trust will open books for India’s first Retail REIT, just as the first major India IPO for the year, Mankind Pharma seeks to list.
• There was only Ventia (VNT AU) placement during the week, along with Giant Biogene Holding (2367 HK) lockup expiry.

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. Vedanta Resources
2. Azure Power Global Ltd
3. Pakuwon Jati
4. Japfa Comfeed Indonesia
5. China Jinmao Holdings

and more…

• RemeGen’s C1Q23 top line came in as 31% of our C1H23 estimate while IFRS operating loss came in as 55%. 
• C1Q23 gross margin exceeded our C1H23 estimate by 12ppt, mainly due to restraining in shipment
• We cut our product sales estimates and raise WACC by 1ppt to reflect concentrated risk, leading to TP reduction from US$64 to US$46.

• 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. 
• In this note, we will provide a quick peer comparison update and our latest thoughts on valuation.

• China Communications Construction (1800 HK) should see more valuation upside as it narrows the discount to book through more asset disposal, spin-off, restructuring and securitisation.
• Healthy 1Q23 earnings demonstrated underlying business strength. We expect new contract growth to accelerate in the rest of this year. Backlog estimated to cover 4.7x FY23F revenue.
• Gross margin has stabilised in 1Q23 when compared with 1Q in previous years. Contribution from concessions will improve as traffic recovers and projects get mature. 

• We expect Hua Hong to report C1Q23 top-line, IFRS operating income, and IFRS net income in-line, 14.1% and 19.1% vs. consensus, respectively. 
• Our sample of 1Q23 A-share fabless balance sheets showed that inventory days rose, which we expect will lead to a slowdown in wafer orders beginning in 2Q23.
• Despite near-term weakness, we are positive the longer-term benefits of (1) localization, and (2) EV demand. We maintain BUY and raise TP to HKD35.

• China Fortune Land Development Co. Ltd said it successfully restructured more than 80% of its 219 billion yuan ($31.7 billion) debt overhang.
• The cash-strapped private developer returned to profitability after two years of liquidity crisis
• Hebei province-based China Fortune Land signed agreements with creditors to restructure 180.6 billion yuan of debts through various means by the end of 2022, accounting for 82.4% of total outstanding debt

• Luckin Coffee 1Q23 revenue beat is due to higher-than-expected store expansion, while SSSG is in-line with our estimate. 
• The normalized of RMB9.9 per cup campaign is expected to generate minor impact on Luckin Coffee’s profitability. 
• We maintain the stock as BUY and maintain TP at US$41.

• Minth’s stock price has been weak in the past year but its improving fundamentals started to reflect in the results in 2H22. 
• 2023 revenue growth will be supported by the overseas auto market recovery and fast-growing battery housing business. 
• Minth’s valuation is near historical low and is at a discount to its peers

• Urbanization and brand premiumization are Focus Media’s two long term structural drivers which will keep broadening its audience and advertiser base.
• 1Q23 results end a 5-quarter streak of profit decline and  mark the start of new profit cycle. This will usher in a meaningful stock re-rating if history is a guide.  
• We expect at least 30% upside by the end of 2023 by applying 25x P/E (still at large discount to last profit cycle) on RMB4.9 billion net profit for 2023. 

• Meituan has recently implemented three strategies to compete with Douyin: a low-price strategy, the addition of more video/live streaming content, and a management reorganization.
• The low-price strategy has already shown some promising results, as seen in the slowdown of Douyin’s local service GTV and the number of new merchants joining its platform.
• However, the effectiveness of the other two strategies, particularly Meituan’s push to add more video content, remains unclear.

• The cloud hospital platform services serve as “the entry point” of Neusoft Xikang’s overall solutions, but the restrictions imposed by cities would affect the scalability of business.
• The variety of 2B objects and the diversity of medical scenarios covered would be conducive to the transformation to 2C business, resulting in stronger user stickiness and more monetization opportunities.
• Xikang’s 2B business is weaker than ClouDr. Financial performance would finally reflect the effectiveness and rationality of business model. Xikang’s valuation should be lower than ClouDr and Ping An Good Doctor.

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.

• Adaro Energy
• Azure Power Global Ltd
• ENN Natural Gas
• Vedanta Resources

• In my previous insight in Mid-March 2023, we had a look at the potential index changes and the resultant capping flows for the HSTECH Index in June 2023.
• Since then, our flow expectations have changed with changes in prices and/or float and total share counts.
• Here are our latest flow expectations based on the current prices.

• In my previous insight in Mid-March 2023, we had a look at the potential index changes and the resultant capping flows for the HSCEI Index in June 2023.
• Since then, our flow expectations have changed with changes in prices and/or float and total share counts.
• Here are our latest flow expectations based on the current prices.

• Aag Energy Holdings (2686 HK)’s latest AGM results show a strong dissent from minorities. The number of NO votes per resolution varied from 590.9-652.5 million or 17.40%-19.22% of outstanding shares.
• The AGM voting shows that Xinjiang Xintai Natural Gas (603393 CH) will struggle to pass the scheme even if the record date is changed and some NO votes are invalidated.
• The risk-reward profile remains unfavourable as the downside to a scheme fail (12.1% to 17.0% downside) is greater than the upside to a scheme pass (+12.1% to HK$1.85 offer).

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.

• In unprecedented fashion, AAG Energy Holdings (2686 HK)‘s board adjourned the Court Meeting on the 27 April due to some voting instructions not being duly processed.
• That reasoning had a whiff of nonsense. And just under a week later, there has been no update. Perhaps this is moot though.
• At yesterday’s AGM, disinterested shareholders turned up in record numbers to vote against stock-standard resolutions. If a similar turnout were present at the Court Meeting, the Scheme would have failed. 

• Taste Gourmet (8371 HK) will report FY23 (March YE) results on June 23rd. Channel checks indicate strong momentum in Q4 Vs. Q3 FY23.
• Based on our estimates of 72/112 mn HKD for FY23/24e, the stock trades at 8x/5x FY23e/FY24e with a 7.6%/11.9% dividend yield assuming a 60% payout ratio.
• The company has 114 mn HKD of cash (20% of market cap), which is earmarked for restaurant expansion by 6-10 outlets and dividend payout (50-60% of earnings) in HK/China.

• Aier’s performance slowed significantly in 2022, with revenue and net profit growth rates at their lowest in nearly a decade.Although performance rebounded in 23Q1, the growth rate lags behind peers.
• In front of increasing competition and difficulty of finding good acquisition targets, Aier’s poor operational capabilities and endogenous growth cannot support rapid growth. The beautiful story has shown obvious cracks.
• Future single-digit growth is inevitable. Aier is significantly overvalued due to problematic long logic. It should be noted that there would be four further holdings reductions for Aier this year.

• While meeting expectations in 1Q23, Sinotrans (598 HK) has relied on a 105.2% surge in other income, mostly government subsidies. Without them, pre-tax profit would have dropped 21%.
• For most business areas, volume has come down YoY and QoQ, highlighting challenging operating environment. JV contribution, mostly DHL-Sinotrans, has also declined 11.5% YoY.
• While we like its long-term fundamentals and undemanding multiples, we have concerns on near-term headwinds and weakened earnings quality; and risks of profit downgrades.  

• We believe JD’s growth rate will continue to slow down and its margin will continue to improve in 1Q23.
• However, we also believe revenue growth will recover from 2Q23.
• We set a price target of HK$256, implying an upside of 85%. Buy.

• The government has started to encourage social capital to run hospitals. By entering the market that haven’t been fully covered by public hospitals, LDP has large development space theoretically.
• The current gross profit margin of LDP isn’t satisfactory. Together with continuous expansion of new hospitals with large investment, LDP could face either continuous loss or very low profit margin.
• China’s high degree of regulation depresses medical service price.The benefit chain of hospitals is complicated.In essence, an industry with low level of terminal payment is hard to generate high profits.

• Alibaba (ADR) (BABA US) Cloud will cut prices for its elastic computing services using Arm and Intel-based chips by 15-20% and Nvidia’s V100 and T4 graphics processing units by 41-47%.
• It seems like the company is trying to combat increasing competition in the only way it knows how, by further subsidizing its already-subsidized cloud services.
• Price may not be the main reason for companies to avoid using Alibaba Group (9988 HK)‘s Cloud services. Government initiatives to nationalize the cloud-computing market could be a bigger factor.

• 4Q22 result beat and 1Q23 result was roughly in line
• Revenue growth to accelerate and margin to improve in 2023
• Long-Term targets remain unchanged and the valuation becomes attractive now

• The market should be happy with the 43.9% YoY growth in recurring earnings at Dongfang Electric (1072 HK) in 1Q23. Gross margin of 18.7% is the highest since 2Q21.
• New orders surged 26.1% YoY and 92.4% QoQ to a record Rmb22.6bn in 1Q23. We estimate backlog equals to 1.42x FY23F consensus revenue, meaning a very secured pipeline.
• While EPS dilution is a concern, this has already been reflected in share price. The acquisitions of subsidiaries will enhance FY23 earnings. Its 8x PER and 0.8x P/B are inexpensive.

• Giant Biogene raised around US$70m in its Hong Kong IPO, after having downsized the deal and priced it at the low-end. Its six-month lockup will expire soon.
• GB is a leader in the bioactive ingredient-based professional skin treatment product industry in China.
• In this note, we will talk about the lock-up dynamics and updates since our last note.

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
• Japfa Comfeed Indonesia

• In 2022, Hygeia maintained stable revenue growth but with lower-than-expected profit performance. We think Hygeia’s profitability would improve gradually in the future as more and more new hospitals become break-even.
• Different from Aier/Topchoice, Hygeia’s acquired hospitals would be directly incorporated into the listed company, which means all aspects of consideration would be prudent. This is clearly more beneficial for investors/shareholders.
• Hygeia’s business model has proven to be replicable.The implementation of DRG policy has no significant impact on profitability. Hygeia is expected to have higher valuation than Aier/Topchoice in the future.

• We expect SMIC to report C1Q23 top-line, IFRS operating income, and non-IFRS net income (2.6%), (31%), and (29%) vs. consensus, respectively.
• Our sample of 1Q23 earnings for A-listed fabless firms found that (1) inventory days grew 18% QoQ to 191 days, and (2) revenues declined 9% QoQ. 
• Despite potential earnings miss, SMIC’s BUY case is strengthened positive externalities. We maintain BUY and raise TP to HK$24.

• 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 – Yuexiu Property (123 HK) rights issue and ADICON Holdings Limited (ADI HK), Horizon Construction Development (1887128D HK), Mankind Pharma (6596876Z IN) IPOs.
• Event-Driven developments – Blackmores Ltd (BKL AU), United Malt Group Ltd (UMG AU),  Aag Energy Holdings (2686 HK), HKBN Ltd (1310 HK), Metro Pacific Investments Co (MPI PM), Lian Beng.

• 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), Estia Health (EHE AU), United Malt Group Ltd (UMG AU), Aag Energy Holdings (2686 HK), HKBN Ltd (1310 HK), Origin Energy (ORG AU).
• Lowest spreads – Healius (HLS AU), Liontown Resources (LTR AU), Lian Beng (LBG SP), Mincor Resources NL (MCR AU), Pushpay Holdings (PPH NZ), Blackmores Ltd (BKL AU).

• Southbound will close for 3 days due to holiday, we view it as a good time to buy the stock on short-term momentum
• Investment thesis for CNOOC is similar to China Mobile: Strong southbound flows and A/H premium to narrow to support H share price
• Valuation is attractive.  Potential share buybacks and trading dual counter (to narrow AH gap) are the upcoming catalysts

• Friday marked the end of the review cutoff for the MSCI, CSI300, CSI500, STAR50, SSE50, ChiNext and a bunch of other indices for the upcoming rebalances in May and June.
• There are no major index events coming up this week as a lot of markets are shut on different days.
• There were big inflows to mainland China ETFs during the week, while there was a big redemption from the iShares MSCI ACWI ETF (ACWI US). 

• It is relatively low-hanging fruit to “further propel the renmimbi’s internationalisation” and for HKEX, it will “cement HK’s position as the premier offshore renmimbi financing center.”
• The Conundrum: the more active investors decide they like Fast Retailing (9983 JP), the more there is to sell. That creates interesting opportunities.
• Short Yuexiu Property (123 HK) now, or soon. The dynamics of this is that there WILL be selling when the rights come out. 

• The real foothold of a pharmaceutical company lies in  “Development” rather than “Research”. After the clinical development has reached the first-class level, what remains is the vision of the leaders.
• For China biotech, we think they would go through four stages- Stage 1 (2015 – 2019), Stage 2 (2019 – present), Stage 3 (2026-2028) and Stage 4 (starting from 2030).
• If without Merck’s deal, Kelun’s profit improvement was mainly due to effective cost control. If Kelun could maintain double-digit revenue growth, with net profit margin around 10%, it’s already good.

• 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

• Tissue-Maker Vinda International (3331 HK) closed down 6.4% yesterday, recovering from a 13.8% fall intra day.
• Vinda said its 1Q23 operating profit declined 85.4% to HK$65mn. Vinda also announced its controlling shareholder Essity (ESSITYB SS) will commence a strategic review of its 51.59% ownership.
• A long-term shareholder potentially seeking a possible divestment, shortly after a company announces poor results, is not a great look.

• Adjusted net profit at China Education Group (839 HK) grew 15.1% in 1H23, accelerated from 5% in 2H22. We are delighted to see resumption of interim DPS at Rmb0.164.
• FY23 outlook will be underpinned by higher education student enrollment and tuition increase. Strengthened financial position offers opportunities for both organic and M&A growth.
• Potential upside will also come from completion of for-profit conversion at Jiangxi University of Technology. We consider its 7.9x PER, 1x P/B, 13.3% ROE and 5.5% yield attractive.

• We think the coffee price competition, mainly between Luckin and COTTI, is temporary, and will have little impact to Luckin’s gross margin. 
• We also think COTTI’s low pricing strategy is unsustainable, and its franchisees are keen for price hike.  
• We maintain the stock as BUY and maintain TP at US$41.

• Tencent will report 1Q2023E earnings on 17th May. Online gaming revenues have declined YoY for 4-consecutive quarters while social networks revenue has been down for the last two quarters.
• Our app data analysis suggests that grossing ranks of some of Tencent’s key domestic titles have dropped during 1Q2023 while international titles show an improvement during the quarter.
• Our regression model suggests that Tencent’s internet value-added services biz’s revenues would grow at lower single digits in 1Q2023E and is still playing catch up with its own self.