China

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads – Alliance Aviation Services (AQZ AU), 21Vianet Group (VNET US), 111 Inc (YI US), Pendal Group (PDL AU), Genex Power Ltd (GNX AU), O2Micro International (OIIM US).
• Lowest spreads – Tyro Payments (TYR AU), Nitro Software Ltd (NTO AU), Tassal (TGR AU), OZ Minerals Ltd (OZL AU), China Vast Industrial Urban Development (6166 HK), PTB.

• 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

• 3Q22 result of Kunlun Gas is weaker than expected, but this is due to lower other income and surge in non-operating expenses. Without them, profit growth is actually more encouraging.
• While there is gross margin squeeze on higher input costs, Kunlun managed to reduce operating costs by 14.1%, successfully mitigated the negative impact.
• Kunlun Gas contributed 62.5% of 1H22 net profit of Kunlun Energy (135 HK). Its solid 36.2% 9M22 earnings growth still points to healthy underlying momentum for its parent.

• Akeso has made some business progress. We analyzed the commercialization outlook/concerns on its late stage products. Akeso still stays at the level of biotech, a long way from becoming biopharma.
• The core challenge is whether bispecific antibody can bring better marginal clinical benefits than the combination of two mab, and why patients are willing to pay higher price for them?
• The sales forecast of Akeso’s late stage products could be RMB2 billion to RMB3 billion. The market value by the end of Nov 4 was just reasonable but not undervalued.

• Tencent and Alibaba are rumored to be acquired by state-owned companies.
• Tencent charges for originally free function and JD.com re-organized to cut cost.
• Autohome’s revenue stopped declining in 3Q22 and it is time to accumulate.

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.

• ABM Investama
• NagaCorp Ltd
• Times China
• Yuexiu Property

• 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 Cross Harbour (32 HK), C C Land (1224 HK), and Zhuguang Holdings Group Co (1176 HK).

• 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,  a number of companies in India have launched thier IPOs recently, even as HK and rest of Asia remains dormant.
• The only notable placement this week was the selldown in Axis Bank Ltd (AXSB IN) by Bain Capital.

• Since our note in April China Meidong: Back the Porsche at 20 HKD, the company is down greater than 50% despite improving fundamentals due to bearish sentiment on China.
• The stock trades at 11.3x/6.4x FY22/23e PE. Assuming an 80% payout ratio, the stock has a 7.1%/12.5% dividend yield for FY22/23e. We believe there is an upside to the payout.
• Checks with the company suggest Porsche sales are robust in the high double digits, and the company has overall accelerating revenue trends since Q1 2022. 

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. Melco Resorts & Entertainment
2. Lenovo
3. China Jinmao Holdings
4. Lifestyle International Holdings
5. Geely Auto

and more…

• 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 outflow over the past week was ~US$2.4bn, split between Shanghai (-US$1.15bn) and Shenzhen (-US$1.25bn).
• The largest inflows were into CATL (300750 CH) and Pylon Technologies (688063 CH). The largest outflows were in Kweichow Moutai (600519 CH) and Inner Mongolia Yili Industrial Group (600887 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$3.4bn, split (+HK$1.58bn) for Shanghai and (+HK$1.82bn) for Shenzhen.
• The largest inflows were in Tencent (700 HK) and Meituan (3690 HK). The largest outflows were in Hang Seng H Share Index (2828 HK) and Gcl New Energy (451 HK).

• Chinese social media giant Tencent Holdings Ltd. and state telecom operator China Unicom were cleared by the country’s antitrust regulator to set up a joint venture to develop data and cloud-related businesses.
• The new business, one of 15 investment deals that cleared antitrust review Tuesday, will focus on content delivery networks and edge computing.
• The partnership is another tie-up between Tencent and China Unicom after a 2017 investment in which the social media giant acquired a 5.18% stake in the telecom company.

• Tianqi Lithium (9696 HK) and JD Health (6618 HK) could be inclusions while XPeng (9868 HK) and Longfor Properties (960 HK) are near certain deletions.
• There are a few stocks that are close to the deletion threshold and could be deleted from the index if they continue to sell off over the next few weeks.
• Tianqi Lithium (9696 HK) is also a high probability inclusion to the FTSE All-World Index at the December rebalance. That will bring in additional inflows to the stock.

• The fake news about China reopen and the COVID-19 vaccine business are the major driving force for the rally of CanSino’s share price. However, such rally would not last long.
• CanSino didn’t perform well in Q3 and 2022 would be a difficult year for CanSino. The major turning point of CanSino performance still lies in MCV4, not COVID-19 vaccines. 
• CanSino’s H-share valuation has become more reasonable,but the downside risk in HKEX is hard to predict. Investors could consider offload and secure the gains. There’s better opportunity to long ahead.

• Giant Biogene has priced its IPO at HK$24.30 per share, at the lower end of the company’s indicative IPO price range of HK$24.3-27.7 per share and raised HK$495.8m (US$63.2m).
• The HK offering was oversubscribed by only 2.08 times while the international offering was subscribed by 4.22 times.
• Though Biogene’s IPO was priced attractively, we think lower demand for the company’s shares led to pricing at the bottom of the IPO price range.

• Apparently, China Communications Construction (1800 HK) has an uninspiring 3Q22, but this is mainly due to losses at concession projects and heavy credit and asset impairments.
• We estimate outstanding backlog at Rmb3.28trn, enough to cover 4.5x FY22F revenue. Expansion in 3Q22 gross margin, against declines in 1Q22 and 2Q22, is a positive development.
• Despite outperformance against major indexes YTD, CCCC still trades on 2.3x and 2.1x PERs for FY22-23. Its 0.16x P/B has overly discounted the value of underlying assets.

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.

• Country Garden Holdings Co
• Delta Dunia Makmur
• Greenland Holdings Corp
• Lenovo
• Melco Resorts & Entertainment
• MGM China Holdings

• After a 86% decline on share price YTD, we believe it’s time to revisit Xpeng.
• Having gone through all the negatives which led to Xpeng’s underperforming vs peers, we believe the market has overreacted, while the company’s advantages/technology improvements have been ignored.
• After 4 months of sales decline, company fundamentals would bottom out from November onwards with G9 starting to speak for itself. 

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.

• Giant Biogene (GB) raised around US$70m by pricing its  HK IPO at the low-end.
• GB is a leader in the bioactive ingredient-based professional skin treatment product industry in China.
• We had looked at various aspects of the deal in our previous note. In this note, we will talk about the demand for the deal and other trading dynamics.

• Yashili International Holdings (1230 HK)‘s spread to China Mengniu Dairy Co (2319 HK)’s offer (HK$1.20) has widened to 10.1% due to doubts about the satisfaction of the remaining pre-condition.
• We think the delay in satisfying Dumex Key Condition is due to the glacial bureaucratic process. The pre-conditions long stop date is 31 July 2023, which provides sufficient time.
• Both Danone SA (BN FP) and Mengniu can waive conditions to satisfy the pre-condition. Both have the motivation to complete the transaction as it facilitates the unwinding of their partnership.

• On the 9 June, Urban planner China VAST Industrial Urban Development (6166 HK) received a pre-conditional Offer, by way of a Scheme, from China Jinmao Holdings (817 HK).
• On the 17 October, China Jinmao and China VAST announced that all pre-cons for the HK$2.40/share Offer had been fulfilled.
• The Scheme Doc is now out. The Court Meeting will be held on the 23 November. The IFA says fair and reasonable. This is done and trading tight to terms

• With the review period complete, we expect 18 changes to the index in December – most deletions are Financials, most inclusions are Industrials.
• The market volatility over the last couple of weeks has altered the sectoral breakup of the potential changes with Industrials gaining index spots at the expense of Consumer Staples.
• We see 5 of the potential adds being added to the MSCI China Index in February and 6 of the potential adds being added to the FTSE All-World/All-Cap in March.

• CIMC Enric Holdings (3899 HK) has a steady 3Q22 with good revenue growth for the chemical & environmental and liquid food segments. Management also said margin has expanded YoY.
• Overall order backlog of Rmb13.7bn is generally sufficient to cover individual segment’s revenue over the next 6-15 months, comfortably securing the growth prospects. 
• With significant overseas revenue, it is benefiting from depreciation of Rmb against the USD. It also anticipates a pick-up in domestic clean energy segment growth in FY23.

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 Minerals
• Greenland Holdings Corp
• Longfor Properties
• UPL Ltd

• WuXi AppTec’s 2022Q3 results beat the market expectations. The Company’s performance showed good recovery from the prior pandemic/lockdown, but it has not yet entirely reversed the trend of slowing growth.
• Wuxi AppTec has a problem of decreasing future gross margins. Although the Q3 results could bring short-term catalyst for WuXi AppTec’s share price, such rebound may not last long.
• We further analyzed WuXi AppTec’s business, and we remain to be conservative on the Company, because the whole outlook and investment logic of CXO have changed. 

• China Vast Industrial Urban Development (6166 HK)‘s scheme document is out with the court meeting scheduled for 23 November. The IFA considers the offer to be fair and reasonable. 
• Key conditions include approval by at least 75% of independent shareholders (<10% rejection). Shareholders with blocking stakes either provided irrecovables or will likely support the offer.
• The offer is not great but headcount test is not applicable. At last close and for the 14 December payment, the gross and annualised spread is 0.8% and 6.7%, respectively.

• Metal recycler Chiho Environmental Group Limited (976 HK) was suspended this morning pursuant to Hong Kong’s Takeovers Code. 
• For more than a year, the controlling shareholder group has been implementing a potential restructuring. The ultimate controlling shareholder is Tu Jianhua, an executive director of Chiho.
• This long drawn-out reorganisation may finally result in an Offer for Chiho.

• At the end of the review period, we forecast 10 changes for the Chinext Price Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in December.
• Passive trackers will need to buy +/-0.5 days of ADV for most inclusions and exclusions from the indices. The impact on the potential deletions is higher on average.
• The potential adds have outperformed the potential deletes over the last six months, though there has been a sharp narrowing of the gap over the last few weeks.

• Vitasoy Intl Holdings (345 HK) was shunned by investors last year as its products were taken off the shelves in China, causing its revenue from China to plummet. 
• Recently announced a substantial increase in net profit vs last year.  
• Despite the recent uptick, Vitasoy’s share price is still trading at 50% PBR vs 5 years ago. 

• Hong Kong government published on Oct 31 a statement titled “Policy Statement on Development of Virtual Assets in Hong Kong” with a much friendlier stance on crypto industry
• The policy statement mainly focuses on crypto asset ETF, NFT, tokenized assets, stablecoin, and e-HKD; while utility tokens are missing from it.
• While this has been perceived positively by the industry, the biggest concern is still the regulatory uncertainty, especially considering mainland China’s outright ban on all crypto-related activity

• In 2022H1, Ping An Health’s losses narrowed and gross profit margin increased, with various financial indicators showing an improving trend. The Company also announced a new acquisition recently.
• In the process of turning from 2C business to 2B business, Ping An Health hopes to expand B-end users who can contribute higher margin, but this transformation would encounter difficulties.
• If the payment method in China is not changed (still dominated by national medical insurance payment, with small portion of commercial insurance), it’s difficult to improve the profitability qualitatively.

• Geek+ is the fastest-growing robotics startup and producer of warehouse robots powered by AI and deep learning algorithms. The company successfully integrates logistics with robots. 
• Beijing-Based Geek+ has raised a total of ~$532M in funding over 7 rounds. The last round was a $100M Series E in August 2022 that was led by Intel Capital. 
• Warehouse robots have a huge market potential driven by rising labor costs in China, lack of human labor in the warehouse segment, and huge fluctuations in production capacity. 

• Founded in 2016 by Richie Chen and Shengdong Xu, HAI Robotics is a pioneer in ACR systems and warehouse automation robotics unicorn.  
• HAI Robotics offers flexible automation solutions to improve efficiency while reducing costs. The company’s vision is to utilize robotics to create and deliver value to each factory and warehouse. 
• China is the hub for the production of AMRs and ACRs, easing the workforce shortage, improving operational efficiency, saving additional storage, and handling a wide range of SKUs. 

• XPeng Robotics is a bionic smart robot maker backed by Chinese EV giant XPeng and high-profile investor IDG Capital. The company focuses on AI, robot autonomy, and interaction.
• Founded in 2016 and headquartered in Shenzhen, XPeng Robotics is an affiliate of XPeng, with R&D centers in Beijing, Guangzhou, and Silicon Valley. 
• Bloomberg reported that $100M+ Series A financing was the largest single-tranche fundraising for the bionic robot sector in China in the past two years. 

• Gaussian Robotics sells a new generation of autonomous cleaning robots that can be applied in office buildings, shopping malls, indoor galleries, hotels, schools, healthcare facilities, and warehouses.  
• Shanghai-Based unicorn wants to disrupt the cleaning industry with automation, promoting the use of low-cost autonomous cleaning robots worldwide. 
• The company owns the world’s most advanced commercial cleaning robot portfolio offering cost-effective smart robotic solutions to 2,000+ customers in 40+ countries across 6 regions.

• With a day left in the review period, we forecast 50 changes (the maximum permitted) for the CSI500 Index at the close on 9 December.
• We estimate a one-way turnover of 13.53% at the December rebalance leading to a one-way trade of CNY 8.01bn. The Materials, Consumer Discretionary and Information Technology sectors are net gainers.
• The potential adds and potential deletes have performed in line over the last few weeks, and we’d look to position for outperformance post the end of the review period.

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads – 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), 111 Inc (YI US), Genex Power Ltd (GNX AU), O2Micro International (OIIM US), Shandong Fengxiang (9977 HK).
• Lowest spreads – Tyro Payments (TYR AU), Tassal (TGR AU), China Vast Industrial Urban Development (6166 HK), Singapore Medical (SMG SP), PTB Group Ltd (PTB AU), Nearmap Ltd (NEA AU).

• PAG Capital has won the judicial auction to acquire 70.92% of Shandong Fengxiang (9977 HK). 
• The acquisition remains subject to regulatory clearance (including SAMR). Once greenlit, PAG will be required to make an unconditional Offer for the H-shares at HK$1.5132/share.
• Separately, it is PAG’s intention to delist Fengxiang which involves Scheme-like delisting resolutions. 

• Two Week summary of vol changes and moves across Global Markets
• Analysing ATM volatility and skew changes over the last 10 days
• We suggest a few trades to take advantage of the implied vol surfaces

• Dongfang Electric (1072 HK) logged a 40.1% growth in reported profit and a 36.5% increase in new orders in 3Q22, both represent excellent sequential momentum.
• A 0.5pp 3Q22 gross margin expansion demonstrated order execution and cost control strengths. We also forecast end-FY22 backlog at 1.8x FY22F revenue, well securing outlook.  
• DEC is set to see accelerated growth momentum from rising power storage, particularly pumped storage, demand in the medium term. Yet, it only trades on cheap 8.1x FY23F PER.

• In 3Q22, S. F. Holdings’s revenue grew by 45% YoY and net profit increased by 89% YoY.
• Alibaba resumed its link on Kuaishou’s live streaming sales before Singles’ Day.
• Tencent denied the rumor that it would be acquired by China Mobile.

• Driven by the demand for nucleic acid testing due to COVID-19, Kingmed’s 22Q3 performance continued to grow. However, its accounts receivable also increased sharply, which would be a risk. 
• Kingmed has to switch business in time when the huge demand for nucleic acid testing fades away.The YoY growth of other businesses would be the key to decide its outlook.
• The current valuation of Kingmed isn’t attractive. After COVID-19 is under control, Kingmed’s YoY revenue growth could fall back to below 40%. Net profit margin could reduce to above 10%.

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.

• Vedanta Resources
• Yankuang Energy Group

• PAG is the successful bidder for Shandong Fengxiang (9977 HK)‘s controlling shareholder’s 70.92% stake at HK$1.5132 per H Share (RMB1.3822 per domestic share).
• As PAG has no compulsory acquisition rights, it will also seek shareholder delisting approval. The MGO is not conditional on the approval of the delisting resolution.
• The share sale transfer requires SAMR approval which will be forthcoming. Our best guess is the MGO completes end-January 2023. At the last close, the gross spread is 14.6%.

• 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, Blibli managed to upsize its IPO, while a few companies will launch their Indian IPOs in the coming week.
• There were no notable placements this week, which wasn’t surprising after Monday’s market turmoil.

• 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 Haichang Ocean Park Holdings (2255 HK), C C Land (1224 HK), and GBA Holdings (261 HK).

• Lygend Resources & Technology (LR HK) is looking to raise about US$800m in its 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.
• With the Obi Project expanding the firm’s capacity into the higher margin production segment, Lygend expects sales and profitability to pick up. 

• Atour Lifestyle Holdings (ATAT US) is a leading upper midscale hotel chain group in China is getting ready for an IPO in the US.
• We believe that a valuation range of RMB12.8 billion ($1.8 billion) to RMB16.9 billion ($2.3 billion) is appropriate for Atour Lifestyle Holdings. 
• Unless the IPO is priced sufficiently lower than the intrinsic value of the company, many institutional investors will likely pass on the IPO given the Bearish market sentiment.

• 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$3.65bn, split (+HK$1.78bn) for Shanghai and (+HK$1.87bn) for Shenzhen.
• The largest inflows were in Tencent (700 HK) and Meituan (3690 HK). The largest outflows were in China Shenhua Energy (1088 HK) and China Overseas Land & Investment (688 HK).

• 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 outflow over the past week was ~US$2.7bn, split between Shanghai (-US$1.8bn) and Shenzhen (-US$0.9bn).
• The largest inflows were into Tianqi Lithium (002466 CH) and Shenzhen Mindray Bio-Medical (300760 CH). The largest outflows were in Kweichow Moutai (600519 CH) and Ping An Insurance (601318 CH).