China

• CPMC Holdings (906 HK) disclosed a competing pre-conditional voluntary offer from ORG Technology Co., Ltd. A (002701 CH) at HK$7.21, a 4.9% premium to Changping Industrial’s HK$6.87 offer.  
• Like the Changping Industrial offer, ORG’s offer is pre-conditional on regulatory approvals and has a 50% minimum acceptance condition. Changping Industrial has secured all regulatory approvals except SAMR. 
• ORG’s skinny premium and precarious irrevocable from Mr Zhang Wei suggests Changping Industrial’s next move is to secure Mr Wei’s irrevocable with a revised higher offer.

• After six months had elapsed, and CPMC Holdings (906 HK)‘s Offeror just needing SAMR/SAFE clearance before launching a firm bid, a competing Offer from ORG Technology (002701 CH) appeared unlikely. 
• Yet in a surprise move, ORG has made a pre-conditional (NDRC, SAFE, MoC, SAMR, and shareholder approval) Offer at HK$7.21/share, a 4.9% premium to the ongoing SASAC/NCSSF Offer. 
• ORG’s pre-con Offer also has a 50% acceptance condition. ORG and concert parties have 24.43%. And Zhang Wei (22.01%) has given has an irrevocable. Directors have 0.87%. Intriguing situation. 

• Meituan reported C1Q24 revenue 6.0%/6.2% higher our estimate/consensus, and adjusted net income 19%/29% higher than our estimate/consensus. The stock fell on lower takeout order and in-store revenue guidance for C2Q24;
• The stock has two uncertainties:(1)Strategic moves by Douyin and Eleme,(2)success of overseas expansion. There are no easy answers to these two questions but we believe the corner has been turned
• We maintain the stock as BUY rating and raise TP to HK$156/share to factor in the improvement in profitability.

• Indie Semiconductor’s Q1 2024 financial results and strategic discussion provide both encouraging and cautionary insights.
• During this period, the company reported a year-over-year revenue increase of 29% to $52.4 million, driven by strong performance in their Autotech market segment, albeit slightly below the provided guidance.
• Gross profit stood at $26.4 million, reflecting a gross margin of 50.3%, which fell short of expectations due to unfavorable product mix adjustments.

• During the upcoming Dragon Boat Festival, both flight and railway traffic seems sluggish, indicating a cooled-down enthusiasm for long-distance trips due to budget constraints.
• Data points to booming short-distance travel with self-driving as the major means, helped by lower price;
• Benefiting from hotel booking and catering, Meituan is the biggest beneficiary of such consumption downgrade.

• Total revenue increased by 25% YoY and all business lines grew strongly.
• In 1Q24, the operating losses from new initiatives decreased by 45% YoY, but new initiatives revenue still grow.
• We conclude that the price target can be double of the market price.

• Water Oasis (1161 HK) reported profits down 30% YoY (ex-one-off profits down 9% YoY only), but commentary cited headwinds in the business due to muted HK economic sentiment.
• Anticipating these headwinds, the company cut its semi-annual dividend by 50% to only 3.5 cents (implying a 7% yield on the current share price) despite a massive cash buildup.
• Net cash at 396 mn HKD is now 58% of the market cap. Given the current economic backdrop, we see a conservative approach to dividend payment in the medium term. 

• QuantumPharm (QUP HK) is looking to raise US$144m from its Hong Kong IPO.
• QuantumPharm is a R&D platform, utilizing quantum physics-based first-principles calculation, advanced AI, high-performance cloud computing, and scalable and standardized robotic automation to provide drug and material science R&D solutions.
• In our previous notes, we looked at the firm’s past performance and PHIP updates. In this note, we share our thoughts on valuations. 

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.

• Greentown China
• HPCL-Mittal Energy Ltd
• Lippo Karawaci
• Citicore Renewable Energy

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.

• Greentown China
• HPCL-Mittal Energy Ltd
• Lippo Karawaci
• Citicore Renewable Energy

• Asia Cement China (743 HK) disclosed a Cayman scheme privatisation offer from Asia Cement (1102 TT) at HK$3.22. Including the dividend, the total offer is HK$3.26, 1.7% below the last close. 
• The offer, which is final, is unattractive as it is materially below net cash and historical trading ranges. The disparity cannot be justified by the potential cash burn this year.
• While no shareholder holds the 10% blocking stake, the high AGM minority participation rates and emerging retail opposition suggest a high chance of a deal break. 

• CK Asset Holdings (1113 HK) has traded lower recently and shorts have exploded in the stock in the last few months.
• CK Asset Holdings (1113 HK) has underperformed its peers in the last 6 months and trades cheaper on forward PE and price to book.
• There will be passive selling in the stock in just over two weeks. There will be positioning, but not enough to meet passive supply. Expect a further move lower.

• After Chinese cement play Asia Cement China (743 HK) (ACC) was suspended on the 28th May, a punchy Offer from its parent Asia Cement (1102 TT) was expected. 
• Not to be. Asia Cement is offering $3.22/share, best & final. A 3.01% discount to last close, ~ 45% premium to undisturbed, and a whopping 37% discount to net cash.
• Asia Cement plus concert parties hold 73.38%, so a blocking stake at the Court Meeting is 2.662%. One (possible) aspect in Asia Cement’s favour is that ACC is not shortable.  

• A stabilizing property market matters more than other factors such as industry rivalry and shareholder return policies for the performance of leading China e-commerce players in our view.
• China’s worst property market downturn is probably behind us. This will gradually help restore consumer confidence and lift consumer propensity to spend, improving growth outlook for China e-commerce sector.
• We believe China e-commerce players will in general benefit from a stabilizing housing market. Alibaba remains the most attractive play in the space. 

• A high disease burden, high demand for chronic treatment, and an ageing population makes China an excellent opportunity for an established pharma company.
• With 1/3 of the market cap in cash, a healthy payout ratio, and a FPE of under 8, CMS is one of the bargain beneficiaries in the Chinese healthcare space.
• The founder/CEO recently purchased 8m shares. He last bought shares in 2020-2021. The share price almost tripled afterwards.

• Onewo (2602 HK), a leading China property management company with the controlling shareholder being China Vanke (H) (2202 HK), announced a major share repurchase mandate last night.
• The company intends to repurchase its shares in the open market up to HKD5.8bn, which is around 20% of the current market cap. 
• The company is trading at 13x 2024E PE on around 15% net profit growth in 2024E, and at 5% forward dividend yield. 

• Although Midea’s performance keeps growing, it is difficult for the home appliance industry to return to rapidly growing incremental market as it was during the robust development of real estate.
• As Midea’s To C business encounters growth bottleneck, To B business has become new performance driver and second growth curve, but several new businesses are facing challenges in 24Q1.
• For mature leading enterprises in home appliance industry, a valuation of 10-20x PE is reasonable, which means market value of RMB370-740 billion, assuming 2024 net profit would reach RMB37 billion.

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 Jinmao Holdings
• NagaCorp Ltd
• Citicore Renewable Energy
• Yuexiu Property

• The June rebalance of the HSI, HSCEI INDEX, HSTECH and HSIII indices will use today’s closing prices to cap the index constituent weights at 8%/12%. This will lead to large flows.
• The round-trip trade across all stocks across the four indices is estimated at HK$32bn (US$4.1bn).
• Li Auto, Alibaba, NetEase, Zijin Mining, SenseTime and BYD Electronics are the largest buys while Tencent, Meituan, JD.com, Kuaishou Technology, Xiaomi and HSBC Holdings are the largest sells.

• MSC indices were rebalanced in the closing auction on Friday. Turnover for the day on the JSE was R41.9bn, R25bn traded in the closing auction (60%).
• Turnover at the February rebalance was R25.6bn. Most SA constituents were pushed lower in the closing auction and for the day, consistent with the downweighting of SA Inc.
• China was downweighted in the ACWI and EM indices for a second straight quarter, reducing the country weight in ACWI by 6bps to 2.69%.

• Unexpectantly, Great Eagle Holdings (41 HK) said it would not proceed with an Offer; and Hong Kong hotel-play Langham Hospitality (1270 HK) promptly cratered. But why the flip flop?
• Preceding my comments on GE, Langham and Champion REIT (2778 HK), are the current setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• In 1Q24, Pop Mart International Group L (9992 HK)‘s international sales grew around 250% yoy, and made up around one quarter of sales (vs. 17% of sales in 2023). 
• I now expect 39% sales growth in 2024, driven by 140% yoy growth in the international business and 18% growth in domestic China business. 
• I further expect a 50% yoy growth in net profit growth in 2024 driven by a 0.8ppt increase in gross margin and 0.5ppt in operating leverage. 

• The HSI added BYD Electronics (285 HK) and deleted Country Garden Services (6098 HK). HSCEI added Zijin Mining Group Co Ltd H (2899 HK) deleted Xinyi Solar Holdings (968 HK) 
• HSTECH had no changes, but lots of flow. The index team sets capping levels, then resets them a three days before the actual rebalancing. There were some capping/recapping changes.
• Below we offer tables showing all the changes and flows across the indices for each stock, ranked by Flows, ADV, and Ticker. And a spreadsheet with all the relevant data.

• The June 2024 index review results for the ChiNext and ChiNext 50 indices were announced yesterday.
• There will be seven changes for the ChiNext index and five changes for the ChiNext 50 index. Some of these names surprised us.
• In this insight, we take a look at our final flow expectations for the confirmed index changes and our thoughts on the selection process.

• The approval/filing process of China TCM’s privatization is complicated and would take some time, but there’re almost no cases of disapproval. It also depends on the adequacy of materials submitted.
• Due to the extension of time for the despatch of Scheme Document, this process would be delayed for more months.But we should receive clear information by October at the latest.
• For arbitrageurs, China TCM is an investment opportunity of high success rate, which becomes more attractive if HK stock market is depressed.It’s better suited to idle funds considering potential risks/returns.

• The market’s assumption of no special dividends in Chow Tai Fook Jewellery (1929 HK)‘s upcoming FY24 result is conservative, and this does not fit into its usual pattern. 
• Should it pay special DPS, the dividend yield may reach an attractive 10.7%. With its net cash position, CTF can financially maintain the average 135.6% payout ratio. 
• A return to its historical average dividend yield of 7.4% means that CTF’s share price will need to go up by 45% from the current level.

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

• There are 7 changes for the ChiNext Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index at the June rebalance.
• We correctly forecast 5/7 and 7/7 for the Chinext Index adds/deletes and were 3/5 and 5/5 for the Chinext50 Index adds/deletes.
• Based on the estimated passive tracking AUM, the one-way trade across both indices is estimated to be CNY 3.69bn (US$508m).

• Yankuang Energy Group (1171 HK) is looking to raise up to US$608m through a primary follow-on, via selling 270m H-shares.
• The deal is a somewhat large one to digest, at 10.6 days of three month ADV and 2.7% of current mcap.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• We have already discussed our flow expectations for the mainstream indices in the CSI family such as CSI300/500, SSE50/100, and the STAR50/100 for the June 2024 index rebal event.
• In this insight, we take a look at our flow expectations for the ADDs/DELs involved in the rebalance of some of the lesser known indices in the CSI family.
• The indices covered in this insight are All Share Brokerage, China Internet, Medical Devices, National Defense, and Livestock Breeding indices.

• Alibaba Pictures’ revenue increased by 44% YoY and EBTIDA increased by 61% in the March quarter.
• Cainiao, Alibaba’s logistics network, plans to purchase fresh food from the places of origin.
• Li Auto finished a round of layoff, in which headcount was reduced to 22,000 from 30,000.

• The June 2024 index review results for the STAR 50 and STAR 100 indices were announced after market close on Friday 31st May 2024.
• There will be 3 changes for the STAR 50 index and 9 changes for the STAR 100 index.
• We expect one-way flows of approximately US$750mn and US$314mn for the STAR 50 and STAR 100 index rebal events in June 2024.

• The June 2024 index review results for the SSE 50 and SSE 180 indices were announced after market close on Friday 31st May 2024.
• There will be 5 changes for the SSE 50 index and 18 changes for the SSE 180 index.
• These changes could collectively cause one-way index flows of ~US$1.8bn during the June 2024 index rebal event. In this insight, we take a look at our final flow expectations.

• Q124 showed solid top-line growth, impressive improvement in core margins
• We are not too concerned about moderating domestic hotel, air pricing
• After consensus EPS raised, TCOM a BUY below US$50 per ADS, in our view

• We have always been concerned about QuantumPharm’s business model. It is relatively difficult for a service provider like QuantumPharm to scale up revenue by just relying on charging service fees.
• For AI pharmaceutical companies, how to make money is a pain point for entire industry. Just focusing on preclinical stages would limit profitability.We haven’t seen any certainty of achieving breakeven.
• Increasing competition would bring more challenges for QuantumPharm. Post-investment valuation in 2021 was too expensive.If its future performance falls short of expectations, then sooner or later the valuation will collapse. 

• CSI announced the changes for the June rebalance after market close on 31 May and the changes will be effective after the close of trading on 14 June.
• There are 5 adds/deletes – we correctly forecasted 3 adds and all 5 deletes. Passives need to trade 0.5-3x ADV on the adds and 0.5-2.1x ADV on the deletes.
• With the index not very widely forecasted, the adds could outperform the deletes over the next week in a repeat of the performance at the December rebalance.

• There are 3 changes for the SSE STAR50 (STAR50 INDEX) and 9 changes for the STAR100 Index. Implementation will take place at the close on 14 June.
• United Nova Technology (688469 CH) and Biwin Storage Technology (688525 CH) were not added at the March rebalance since they were consistently loss-making. But they have been added this time.
• United Nova Technology (688469 CH) had been trading poorly and then the stock dropped further after non-inclusion in March. That could change now with inclusion confirmed.

• There are 5 changes for the SSE50 Index (SSE50 INDEX) that will be implemented at the close on 14 June. There is over 1x ADV to trade on most stocks.
• The index committee has focused on sector balance with higher ranked stocks from the Financials sector ignored and lower ranked stocks from other sectors included.
• The adds have outperformed the deletes over the last 6 months and positioning (especially on the surprises) could lead to further upside for a long/short trade.

• The June 2024 index review results for China’s CSI 300 and CSI 500 indices were announced after market close on Friday 31st May 2024.
• There will be 12 changes in CSI 300 and 50 changes in CSI 500 which could collectively cause one-way index flows of ~US$3.7bn during the June 2024 index rebal event.
• Compared to Quiddity’s final expectations, 114 out of the 124 index changes (both ways) were correct translating to a hit rate of 92%. 

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), Hollysys Automation Technologies (HOLI US), Chilled & Frozen Logistics Holdings (9099 JP), Ansarada Group Ltd (AND AU), Malaysia Airports Holdings (MAHB MK). 
• Lowest spreads: Great Eastern Holdings (GE SP), Mma Offshore (MRM AU), Pact Group Holdings (PGH AU), Mimasu Semiconductor Industry (8155 JP), Kfc Holdings Japan (9873 JP), Alumina Ltd (AWC AU). 

• There are 4 changes for the CES China Semiconductor Chips Index that will be implemented at the close on 14 June.
• Biwin Storage Technology Lt (688525 CH) and Beijing Yandong Microelectroni (688172 CH) are also inclusions to other indices too and the multiple flows will increase the impact on the stocks.
• The adds have underperformed the deletes. If things go the way of the December rebalance, a long adds/ short deletes trade could do well from now to implementation.

• There are 12 changes for the CSI 300 Index (SHSZ300 INDEX) and 50 changes for the CSI Smallcap 500 Index (SH000905 INDEX) in June. Most changes were expected.
• There are a lot of stocks with over 1 day of ADV to trade. The round-trip trade in June is estimated to be US$5bn.
• The adds have outperformed the deletes for both indices but the return profile of a long adds/ short deletes trade for the CSI500 Index is a lot smoother.

• Several US customs brokers have been suspended under new, tighter rules
• The new rules could make ‘de minimis’ imports slightly more difficult
• Whether it lists in London or NYC, additional rule changes could threaten SHEIN

• It is said that Fosun Pharma plans to privatize Henlius. There’re doubts about how to solve the debt problem/cash flow pressure of Fosun Pharma. A third party could be involved.
• Shareholders may not be willing to accept an Offer Price that is significantly below IPO price. It’s also possible that shareholders vote against the privatization. So, there are many uncertainties.
• Deal talks are still ongoing. It’s difficult to see clearly what’s happening under the table. Valuation logic of Fosun Pharma should be more like PE/VC firms not traditional pharmaceutical company.

• The changes to the CSI All Share Investment Banking & Brokerage Index were announced after market close on 31 May and will be implemented at the close on 14 June.
• Guosen Securities (002736 CH) will be added to the index while Northeast Securities (000686 CH) will be deleted from the index.
• There is a lot of flow and impact for both stocks and the stocks could outperform/underperform their peers over the next couple of weeks.

• The Quiddity Mainland Connect NORTHBOUND Monitor. Like the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor. Lots of Flows/Position Tables and Charts with which to play.
• Last week saw NORTHBOUND net SELL RMB 5.7bn of A-shares on lower gross volumes. NORTHBOUND bought Zijin, Yangtze Power, and renewables and sold SOEs.
• Ongoing questions as to whether the NORTHBOUND volumes to the buy side are all foreigners. Some suspect there is national team buying mixed in, as was expected from earlier announcements.

• SOUTHBOUND was again a net buyer for HK$29.7bn on small two-way volumes. Bank Of China Ltd (H) (3988 HK) dropped to #4 this week but SOE buying dominated.
• It is not clear how much of this is H/A discounts, expected dividend tax removal, and the KPIs for SOE CEOs to raise prices and payout ratios, but it continues.
• Valuations are acceptable. Flows are good. Policy changes are afoot. SOUTHBOUND may continue to see inflows – national team and otherwise.

• ZX (9890 HK) will replace Fenbi Ltd (2469 HK) in the KraneShares CSI China Internet ETF (KWEB US) at the close on 14 June.
• There will be over 6 days of ADV to sell in Fenbi Ltd (2469 HK) and we estimate over 2 days of ADV to buy in ZX (9890 HK). 
• There are other ETFs that track very similar indices and there could be a lot more to trade in the stocks at the close on 14 June.

• The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
• SOUTHBOUND’s renewed buy streak continued this past week; every day net positive. Strong net buying. NORTHBOUND saw net selling. Gross volumes on both were light.
• AH Premia rebounded off multi-year lows, on average, this past week as Hang Seng/other HK indices fell and A-shares did not do much. Liquid Hs underperformed As by 2%.

• On the 9th May, Shandong Xinjufeng (301296 CH) (XJF) made a pre-conditional voluntary general Offer at $2.65/share (best & final), contingent on a 50% acceptance. Final/special dividends to be added.
• GAPack(468 HK) has made it clear that XJF is a competitor of GAPack. And Mengniu (2319 HK) may review its relationship if pre-cons are satisfied/waived; or the Offer gets up.
• XJF has announced the necessary applications have been sent to NDRC, MoC, and SAMR; and it prepping for a shareholder meeting to approve the Offer. 

• Bloks Group (1850960D CH) is looking to raise US$300m in its upcoming Hong Kong IPO. The bookrunners on the deal are Goldman Sachs, and Huatai International.
• Bloks Groups (Bloks) operates in the toy segment where it primarily assembles character toys. Its portfolio contains both self-developed and renowned licensed intellectual property (IPs).
• According to F&S, Bloks was China’s largest player in the assembly character toy segment with an approximate gross merchandise value (GMV) of RMB1.8bn in 2023.

• The majority of its revenue comes from selling float glass, which is used in buildings and construction. 
• The Chinese government has started home ownership relaxation that will reinvigorate the real estate market. 
• It is still trading at 67% lower to 3 years ago. 

• After CaiNiao halted IPO in late March, company reported lower Q4 margins
• What drove Q4 margin deterioration, retention payments or weaker X-border?
• With IPO off the table, supporting AliExpress becomes CaiNiao’s main role

• PDD Holdings Inc., an innovative online retail company based in China, seems to show a strong future trajectory based on its first quarter 2024 earnings conference call.
• The company surpassed its year-on-year growth with total revenue reaching RMB 86.8 billion, marking a 131% increase.
• This impressive growth serves as a testament to PDD Holdings’s efforts to deepen its access and widely influence the consumer market.

• Alibaba Health Information Tec (241 HK) operates an online platform for healthcare services and products.  Post COVID the company has maintained and grown it the online healthcare market.
  
• The company which is 53%-owned by Alibaba Group Holding (9988 HK) , recently reported results for 2023 which beat analyst estimates, recording a 65% increase in net profit.
• The company recently bought AJK Technology from Taobao which gives Ali Health  operational rights for advertising of online healthcare merchants on Tmall (Alimama).

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess China Vanke’s ESG as “Adequate”. The company has “Adequate” scores for all three pillars. Controversies are “Immaterial” and Disclosure is “Strong”.

• Jiangxi Rimag Group, a China-based medical imaging center operator and provider of Rimag cloud services, set terms for an IPO and plans to raise ~HK$280M (~$36M) in Hong Kong.
• The IPO is expected to be between HK$14.60 and HK$16.80. At the midpoint of the range, Jiangxi Rimag will have a market value of ~HK$5.6B based on 356.3M outstanding shares.
• CITIC Securities is leading the offering. CMB International and Huatai International act as joint global coordinators, joint bookrunners and joint lead managers.

• Legend Holdings Corp H (3396 HK) owns 31% of Lenovo (992 HK) , the number one global PC maker
• Lenovo is a leader selling AI enabled PC’s globally.  Its server business is growing rapidly through strong demand for generative AI.  Legend is the leading AI seed investor in China.
• Technical pattern strong for Lenovo reaching a 9 year high.  Legend showing increasing momentum from an historic trough valuation level

• A high disease burden, high demand for chronic treatment, and an ageing population makes China an excellent opportunity for an established pharma company.
• A transition period following the inclusion of four large drugs in the NDRL creates an opportunity following a big de-rating.
• With 1/3 of the market cap in cash, a healthy payout ratio, and a FPE of under 8, CMS is one of the bargain beneficiaries in the Chinese healthcare space.

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.

• Shui On Land

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.

• Fosun International
• Lenovo
• Lippo Malls Indonesia Retail Trust
• NTPC Ltd
• Rakuten