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In today’s briefing:
- Alibaba (9988 HK): 2Q23, Better Growth, Better Margin, 38% Upside
- Taste Gourmet: Cash Generation Par Excellence
- Growatt Technology Pre-IPO – Thoughts on Valuation
- Anhui Conch Cement (914 HK): The Trough Looks to Be Behind Us
- Buy Meituan on Tencent’s Distribution Announcement of Meituan Shares
- China’s Top Rare Earth Mining Company and Top Refiner Fight Over Prices
- HIBOR, Country Garden, Meituan, Tencent, and HSBC
- China Resources Pharmaceutical (3320.HK) – Here Are the Concerns
Alibaba (9988 HK): 2Q23, Better Growth, Better Margin, 38% Upside
- Revenue began to grow in 2Q23 after the zero growth in 1Q23.
- The operating margin improved to 12.1% in 2Q23 versus 7.5% in 2Q22.
- We believe the stock has an upside of 38% and a price target of HK$108.
Taste Gourmet: Cash Generation Par Excellence
- Taste Gourmet Group (8371 HK) reported its H1 2023 result with profit of 32 mn HKD up 28% YoY, backed by subsidies due to restrictions earlier in the year.
- Net cash rose by 52 mn HKD (almost 12.4% of market capitalization) to 117 mn HKD HoH (28% of market cap). Nine mn HKD in subsidies are outstanding.
- The company declared 4.8 cents of dividend (9.1% annualized yield), in addition to repurchasing and canceling >2% of the shares outstanding recently.
Growatt Technology Pre-IPO – Thoughts on Valuation
- Growatt Technology (1833969D CH) is looking to raise about US$500m in its upcoming Hong Kong IPO.
- Growatt Technology is a global distributed energy solution provider, specializing in sustainable energy generation, storage and consumption, as well as energy digitalization.
- In our previous notes, we looked at the company’s past performance and peer comparison. In this note, we will look at assumptions and share our thoughts on valuation.
Anhui Conch Cement (914 HK): The Trough Looks to Be Behind Us
- 3Q22 is probably the worst quarter for Anhui Conch Cement (914 HK) in this cycle. Demand has picked up sequentially, with 4Q22 average cement price up 7% QoQ.
- It expects the spending of special purpose bond proceeds and possibly push forward of 2023 quotas to benefit infrastructure demand. The stabilisation of property market also helps.
- Cost management efforts will soon pay off, providing room for recovery in margin. Solid financial position with net cash equals to 34.5% of share price is an added strength.
Buy Meituan on Tencent’s Distribution Announcement of Meituan Shares
- Tencent announced to transfer 958 million shares of Meituan as a special dividend
- This distribution is similar to the previous JD distribution in Dec 2021
- The transfer of Meituan shares can provide potential two entry points of the stock.
China’s Top Rare Earth Mining Company and Top Refiner Fight Over Prices
- Inner Mongolia Baotou Steel Union Co. Ltd., the world’s largest rare earth mining company, is still pressing for a significant price increase from its only customer even though the buyer’s shareholders rejected two previous proposals.
- Higher prices for Baotou Steel Union’s output of the key materials for green technologies could lead to a broader price increase for the minerals.
- China has the world’s largest deposits of the 17 closely related rare earth metals.
HIBOR, Country Garden, Meituan, Tencent, and HSBC
- The headlines of sweeping changes in the property market easing and Xi’s G-20 meetings to signal the thawing of foreign relationships were the main drivers of the continued rally early in the week.
- What has been very different in this rally is the robust Southbound Inflows indicating strong interest from mainland investors but (yes, there is always one) it does not tie up the sharp rise in short-end HIBOR.
- The HIBOR rise could be due to the drawdown of the large-margin loan in support of this rally. I have not found data to support or rebuff such a thesis.
China Resources Pharmaceutical (3320.HK) – Here Are the Concerns
- The distribution business is stable, but it’s difficult to achieve high growth/profits due to industry trend. Therefore, the valuation of this business is hard to increase.
- The performance of pharmaceutical manufacturing business is important, which largely determines the overall profit margin. But it actually depends on what the subsidiaries can contribute, who are facing different challenges.
- China Resources Pharmaceutical may need to improve its vision of asset selection and its ability to judge and grasp the long-term trend of the industry. The current valuation isn’t attractive.
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