China

• 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 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 (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.

• 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.

• 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. 

• 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.

• 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.

• 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.

• Tencent (700 HK) has announced that it will pay an interim dividend via an in-specie distribution of the bulk of its holding in Meituan (3690 HK). 
• Passive FTSE and MSCI trackers will receive shares in Meituan (3690 HK) from their Tencent (700 HK) holdings and they will not need to trade anything in the market.
• First it was JD.com Inc. (9618 HK), now it is Meituan (3690 HK). The market will be looking for other stocks held by Tencent (700 HK) that could be next.

• In mid-August at mid-day, a Reuters article suggested Tencent (700 HK) would seek to divest its $24bn stake in Meituan (3690 HK) this year. The stock fell 9% that afternoon.
• The general underlying suggestion was that regulators wanted them to sell. Other articles suggested later both aspects were “untrue” 
• With Q3 earnings, Tencent today announced a Jan23 distribution (Mar23 settlement) of 958,121,562 Meituan shares (1 for every 10 Tencent shares held). There are significant flow and index implications.

• On 16th Nov 22, post-market close, along with its 3Q22 results Tencent also declared an interim dividend by way of distribution in specie of Class B Ordinary shares of Meituan.
• The share distribution follows the template of the US$16bn worth of JD.com shares that Tencent paid out after its dividend announcement at the end of 2021.
• In this note, we talk about the implications of the deal.

• Swire Pacific has been buying back Swire Pacific (B) (87 HK) and Swire Pacific (A) (19 HK) shares since August. They are now 58+% done with their HK$4bn buyback program. 
• The buyback so far has been 50% B shares and 50% A shares. This still seems odd to me but they are doing what they are doing.
• B/A ratio is near a 19-year low. The last time it dipped to 6% under its 3mo average, it bounced back in 4 weeks. Now 5% cheap to average.

• Tencent (700 HK) reported 3Q2022 results yesterday. Revenue decreased 1.6% YoY to RMB140.1bn (vs consensus RMB140.0bn) while adjusted OP declined 0.2% YoY to RMB28.4bn.
• Revenue from both Internet VAS and Online Advertising declined YoY during the quarter. Social networks revenue declined YoY for the first time by 1.9%.
• Tencent also announced that it will distribute majority of its shareholding on Meituan (3690 HK) to its shareholders in dividends similar to the special dividend of its stake in JD.com.

• Revenue decreased by 1.6% YoY in 3Q22, less than a decrease of 3.1% YoY in 2Q22.
• A governmental media gave positive comment to game industry for first time.
• We believe the stock has an upside of 52% for year end 2023.

• Tencent Music (TME US)  reported 3Q2022 results yesterday. Revenue declined 5.6% YoY to RMB7.4bn (vs consensus RMB7.0bn) while adjusted OP for the quarter increased 14.0% YoY to RMB765m.
• Revenue from social entertainment services decreased 20% YoY which was partially helped offset by 18.8% YoY increase in online music services revenues.
• GPM and OPM improved due to huge spending cuts on content, revenue sharing and S&M and we are yet to see if TME can sustain this without compromising user growth.

• Beijing Sinohytec Co Ltd (688339 CH) (BSH) is looking to raise up to US$400m via its H-shares listing.
• BSH provides fuel cell systems in China, focusing on the design, development and manufacture of fuel cell systems and stacks mainly for commercial vehicles, such as buses and trucks.
• We looked at the company’s past performance in our previous note. In this note, we’ll talk about valuations.

• Bain Capital-backed Chindata Group (CD US) is on the move after Bloomberg flagged – again – interest from industry players.
• This time, SOE-backed China Merchants Group is understood to be mulling a takeover of Chindata. Shares are up 23% since that article earlier this month.
• Back in April, Bloomberg mentioned GDS Holdings (ADR) (GDS US), PE outfit PAG, and EQT AB (EQT SS)-backed EdgeConneX were rumoured to be interested in merging with Chindata. 

• Chinese government outlined 16 steps to support the property industry on Nov 11
• The newly released measures clearly show that the government has reversed its attitude toward property industry, which may trigger the end of the downcycle.
• During the property sector rebound, Country Garden Services (CGS) can be a good investment. The company has a solid track record and shows attractive valuation.

• Chindata Group (CD US)  is the leading carrier-neutral hyperscale data center solutions provider in Asia Pacific emerging markets.
• At the beginning of the month, Bloomberg reported a takeover offer for Chindata from China Merchants Group, which is a state-owned company.
• Several state-owned companies have shown interest towards acquiring data centers and data center companies, which is likely to be in line with China’s strategy of digitization.

• Yunkang Group (2325 HK) was listed on 18th May 2022, with its six month lockup expiring on 17th November 2022.
• Yunkang Group is a medical operation service provider in China and as per F&S, had a market share of 3.7% in China’s medical operation service market as per 2020 revenue. 
• Coming up for six-month lockup expiry are the controlling shareholders and cornerstones. With protracted lockdowns underway in China, this stock has continued to benefit, currently trading 86.3% above IPO price. 

• China’s ambition to build into a strong manufacturing country as revealed in 20th Party Congress should place Dongfang Electric (1072 HK) and CIMC Enric Holdings (3899 HK) in excellent positions.
• The leadership in power and new energy equipment industry, improving gross margin outlook, well-covered order book and undemanding multiples are the key merits of Dongfang Electric (1072 HK). 
• CIMC Enric Holdings (3899 HK)‘s good presence in clean energy, chemical/environmental and liquid food segments, global product competitiveness, secured order backlog and net cash position are its major edges. 

• Micro-Tech Nanjing Co Ltd (688029 CH) would face lower-than-expected performance growth in 2022, but the logic of import substitution and increasing demand for endoscopy consumables would help drive future growth.
• Centralized procurement is a problem, but Micro-Tech’s leading position of endoscopy consumables in China is stable, which wouldn’t be easily affected by centralized procurement when compared with other domestic companies.
• The valuation of Micro-Tech should be lower than Mindray and Sonoscape, since these two companies have much better performance (both growth and profitability), product competitiveness, business layout and outlook.

• In a surprise, MSCI announced the deletion of Wharf Holdings (4 HK) from the MSCI China Index at the November SAIR that will be implemented at the close 30 November.
• The stock dropped 14.3% on Friday as volume spiked 26x compared to ADV and 14m shares were shorted on the day.
• Total short interest is estimated to be significantly lower than the estimated selling from passive MSCI trackers and there could be a move lower over the next few days.

• NetEase and Activision Blizzard will possibly terminate their cooperation next January.
• Singles’ Day sales were not very successful for e-commerce apps such as Alibaba and JD.com.
• IQiyi announced a revenue share rule to short TV series producers, including cost per mille and membership fee.

• We see 3 potential adds for the HSCI in December. We also see 26 potential adds and 16 potential deletes for the index in March.
• Following the March rebalance, we see 22 potential inclusions to Stock Connect while we expect 37 stocks to be removed from the link.
• Some of the potential deletions/ Stock Connect drops have large Southbound holdings and some of these positions could be pared back over the next few months.

• 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. In this note, we undertake a peer comparison.

• Early this year I was quite pessimistic on Hong Kong stocks.
• But since then the Hang Seng is down another 20% or so. A lot of stocks with 9-10%+ dividend yields are laying around.
• I should have been a bit quicker writing this up, but then you are getting it for free.

• Jiangsu Expressway (H) (177 HK) has seen marginally weaker traffic in 4Q22 relative to 3Q22 due to sporadic COVID outbreaks but the magnitude is manageable. 
• We welcome its indication that stable absolute DPS level will be maintained, with additional target to increase gradually. That means secured FY22 and FY23 yield of at least 8.3%.
• Clean energy investment and exit of property business will improve earnings quality. Projected ROE of over 13% also provides good justification for upside to its 0.8x P/B. 

• Hutchison China MediTech Ltd (HCM US) (Hutchmed) didn’t perform well. Its cash holdings could last about two and a half years considering the cash burn rate.
• Hutchmed’s three major commercialized products would all face different challenges. Feedbacks from FDA/MAA cast a shadow on the Company’s internationalization prospects. 
• According to the current speed of pharmaceutical innovation, Hutchmed’s R&D efficiency/productivity is not satisfactory. The current pipeline does not have core competitiveness. Bearish on outlook.

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.

• NagaCorp Ltd
• Sino-Ocean Service

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
• Longfor Properties

• 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

• On Friday, MSCI announced the changes to its indices as part of the November SAIR. Most changes were expected, but there were a few surprises.
• Friday was also the review cutoff for the FTSE Dec QIR. Next Friday has announcement of changes to the Hang Seng, Sensex and FTSE indices.
• Big inflow to iShares Core MSCI Emerging Markets ETF (IEMG US) during the week as inflows to IShares Edge MSCI Min Vol Emerging Markets ETF (EEMV US) continue.

• No substantive progress is achieved on Brilliance Group’s bankruptcy restructuring so far.
• Besides estimated max Rmb6 per share, or HKD6.5 per share special dividend 2022E, shareholders may get more cash dividends in the next few years
• Our enterprise value analysis shows Brilliance China’s fair value could be as high as HHD21.9 per share, including estimated HKD6.5 per share special dividend 2022E.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• On the IPO front,  Indian IPOs continue to trickle in, while other regions appear to be waking up from their slumber.
• There were a few GDR issuances this week, along with another placement in Axis Bank Ltd (AXSB IN) and a number of lock-up expiries. 

• 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. However, such disclosures are by no means an absolute. 
• These insights may flag those companies where shares have been pledged. Stocks mentioned include C C Land Holdings (1224 HK), Impro Precision Industries (1286 HK), and SingAsia Holdings (8293 HK).

• Lygend Resources & Technology (LR HK) is looking to raise about US$600m in its upcoming Hong Kong IPO.
• Lygend Resources & Technology (Lygend) is a nickel trading and production firm with a portfolio covering multiple areas across the nickel industry value chain.
• In this note, we will look at assumptions, and share our thoughts on valuation.

• Company fundamentals have been and will continue to be the single most critical driver for BABA’s share price, although strong US dollar and geopolitics may complicate the situation.
• Expect BABA’s bottomline to reverse an eight-quarter down trend in coming September quarter on the back of disciplined capex and cost cutting, despite a challenging macro environment still pressuring topline.
• Importantly, investors have yet fully appreciated the improving competitive landscape thanks to regulation and rivals’ maturing businesses. See 30% upside in 6-12 months. Ripe timing to buy. 

• Lygend Resources & Technology (LR HK) is looking to raise about US$600m in its upcoming Hong Kong IPO.
• Lygend Resources & Technology (Lygend) is a nickel trading and production firm with a portfolio covering multiple areas across the nickel industry value chain.
• In this note, we look at peers and undertake a peer comparison.

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. Guangzhou R&F Properties
3. Sunac China Holdings
4. Evergrande
5. Central China Real Estate

and more…

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. Guangzhou R&F Properties
3. Sunac China Holdings
4. Evergrande
5. Central China Real Estate

and more…

The Chinese Property Weekly focuses on providing updates in the Chinese real-estate sector, including recent regulatory and company developments, top and bottom performers, rating actions, as well as a list of bond maturities in the next 30 days.

The Chinese Property Weekly focuses on providing updates in the Chinese real-estate sector, including recent regulatory and company developments, top and bottom performers, rating actions, as well as a list of bond maturities in the next 30 days.

• Wish had more conviction for writing this update. The framework for determining if the bounce is durable or if a trend reversal has occurred is not working or is not clear.
• Stocks that could see tailwinds and drivers for a sustained rally do not have the Volume to confirm the trend change.
• At the same time, stocks with massive headwinds and structural issues have high Volumes.

• Inside is a recap of movements in the last week relating to the Hong Kong Stock Exchange -Shanghai and Shenzhen Northbound Connect facilities, broken down by company and industry.
• Overall, net inflowover the past week was ~US$0.26bn, split between Shanghai (+US$0.08bn) and Shenzhen (+US$0.18bn).
• The largest inflows were into Midea Group (000333 CH) and Shenzhen Mindray Bio-Medical Electronics (300760 CH). The largest outflows were in China Yangtze Power  (600900 CH) and Kweichow (600519 CH).

• Inside is a recap of movements in the last week relating to the Shanghai and Shenzhen-Hong Kong Stock Connect facilities, broken down by company and industry
• Overall, the net inflow over the past week was ~HK$4.1bn, split (+HK$1.7bn) for Shanghai and (+HK$2.4bn) for Shenzhen.
• The largest inflows were in Tencent (700 HK) and Wuxi Biologics (2269 HK). The largest outflows were inKoolearn (1797 HK)and China Mobile (941 HK).

• MSCI announced the changes as part of the November SAIR. For Asia Pacific, there are 48 adds and 55 deletes (including one nationality change).
• The deletion of Wharf Holdings (4 HK) is the biggest surprise. The stock should trade weak given the large flow and days of ADV to sell.
• There are listing changes for BeiGene (BGNE US), Li Auto (LI US), Xpeng (XPEV US) and Hutchison China MediTech Ltd (HCM US) to their Hong Kong listed lines.

• Tencent are due to report earnings next week on Nov 16th
• Implied vols are bid up into the event causing an inverted term structure
• We see an opportunity to buy long calendar spreads to play a reversion in vol surface

• Chinese carmaker BYD Co. Ltd. has unveiled its first luxury brand of electric vehicles (EV), joining its peers in efforts to impress wealthy domestic buyers
• The launch marks BYD’s latest step into the high-end auto market as it tries to outgrow its image as a manufacturer of mid- to low-end vehicles
• BYD is China’s largest EV and hybrid vehicle manufacturer by sales. In October, its wholesale shipments surpassed 200,000 for the second consecutive month

• Acceleration in earnings growth at Haier Smart Home Co Ltd (6690 HK) is an encouraging trend. We are happy to see expansion in both gross and operating margin in 3Q22.
• Further channel additions for Casarte and digitalisation efforts will bring positive profitability impact. Meanwhile, we welcome HSH’s increase in engagement of suppliers in product design process.
• Overseas growth has also accelerated in 3Q22 and there are numerous opportunities for HSH to expand its high-end presence and introduce new products in developed country markets. 

• We analyzed three main factors to drive high performance growth of Tofflon in recent years, but these factors have become untenable. The remaining opportunity mainly lies in import substitution.
• Every explosive growth of Tofflon benefits from positive industry trend, whose periodicity is obvious. It’s not a good investment opportunity for long run,but a staged investment opportunity in short term.
• Tofflon is in the transition from explosive growth to steady growth. The change in industry demand would suppress valuation system. Buy low and sell high,rather than hold for long time.

• We believe the revenue growth will recover from zero in 1Q23 to 4% YoY in 2Q23.
• We believe the operating margin will improve in the following two years because the company is cutting unprofitable businesses.
• We set an upside of 43% according to other retailing giants’ price / sales ratios.

• Hangzhou Great Star Industrial Co., (002444 CH) is looking to raise around US$150m in its Swiss GDR listing. Huatai is the sole bookrunner in the deal. 
• The firm is offering 11.5m GDRs (1 GDR to 5 A-shares) for sale at a 16.1-18.7% discount to last close.
• The deal would represent just 2.3 days of three month ADV and 4.3% of the firm’s current mcap.

• Shanghai Pharmaceuticals Holding (2607 HK) reported strong result for the first nine months of 2022, with revenue increasing 8.5% to RMB174.6B. Notably, total revenue growth accelerated to 13% in 3Q22.
• With a leading market positioning and nation-wide distribution network, the company is well-positioned to benefit from the sector tailwinds. Easing of restrictions will provide a major impetus to the company.
• The company has been improving its innovative drug pipeline. It has 42 innovative products in its pipeline, six of which are in pivotal studies.

• Beijing Sinohytec Co Ltd (688339 CH) (BSH) is looking to raise up to US$400m via its H-shares listing.
• BSH provides fuel cell systems in China, focusing on the design, development and manufacture of fuel cell systems and stacks mainly for commercial vehicles, such as buses and trucks.
• In this note, we talk about the company’s past performance and other deal dynamics.

• We believe Tencent’s revenue will stop declining in 3Q22 and bounce back thereafter.
• We believe FinTech will grow fast, but online game will still be stagnant.
• We expect Tencent will have an upside of 67% for year end 2023.

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
• China Fortune Land
• Country Garden Holdings Co
• Kawasan Industri Jababeka
• Longfor Properties
• Medco Energi

• The majority revenue of Shanghai Pharmaceuticals comes from pharmaceutical distribution business, but the pharmaceutical manufacturing business has much higher gross margin,which drives up the overall profit margin of the Company.
• Due to VBP, profit margin is under pressure. Weak demand for COVID-19 vaccines, decreasing long-term profitability and concerns on synergistic effect of cooperation with Yunnan Baiyao cast doubt on outlook.
• Compared with peers, the valuation of Shanghai Pharmaceuticals doesn’t show decent upside potential. High valuation expectations cannot be supported due to industry trend. Its share prices could underperform.

• Jinke Smart Services (9666 HK)’s VGO from Boyu Capital at HK$12.00 per share has been declared unconditional. Boyu has waived the 7.71% valid acceptances condition. 
• Boyu has likely two aims for the unusual VGO – secure anti-trust approval and a re-rating by becoming the largest shareholder. Anti-trust approval was received on 8 November.  
• Acceptances of 0.0081% of outstanding shares reflect the unattractive offer. The final closing date is 22 November. At the last close price, the spread to the offer is 2.7%. 

• Back on the 27th of September, PRC-incorporated property management play Jinke Smart Services (9666 HK) announced a voluntary cash offer from Boyu at HK$12/share, a 33.04% premium to last close.
• The Offer was contingent on SAMR and 7.71% of shares out tendering. Matters were somewhat complicated by Boyu buying 7.15% of shares out before dispatching the Composite Document. 
• Jinke has now announced SAMR approval and waiving the acceptance condition. The Offer is unconditional. The final closing date is the 22nd of November. This may trade through terms. 

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
• Country Garden Holdings Co
• Kawasan Industri Jababeka