China

• Giordano International (709 HK)’s voluntary conditional from the Cheng Yu Tung family (24.57% of outstanding shares) at HK$1.88 per share is open with a first closing date of 5 September.
• Crucially, the offeror will not increase the offer price. In combination with an ongoing retail recovery, the low-ball offer has little chance of meeting the 50%+ minimum acceptance threshold.
• While the IFA says the offer is fair and reasonable, key directors will not accept the offer. A deal break implies, at most, another 10% downside to the last close.

• After a downturn in 2019,Consun has turned things around and achieved amazing results in 2021. Its core business was not affected by VBP. Consun will continue to make further progress.
• Consun is undervalued if compared with industry average, the peers and considering its large cash balance. Share prices have decent upside potential, driven by fundamentals, promising outlook and favorable policies.
• Wanbangde’s intention to acquire Consun’s shares at high price would also be a catalyst. We recommended investors to follow Consun closely, which has certain investment value based on our analysis.

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.

• Anton Oilfield
• Central China Securities
• West China Cement

• CTG Duty Free (1880 HK) is looking to sell up to 118.176m shares to raise up to US$2.5bn. Pricing at HK$143.5-165.5/share is a 38.6%-29.2% discount to CTG Duty Free (601888).
• Between 32-37% of the total offer size is being taken by 9 cornerstone investors and they are locked in for 6 months from listing date (expected 25 August).
• CTG Duty Free (1880 HK) could be added to MSCI China in November, FTSE All-World and FTSE China 50 in March. Southbound Stock Connect could come online on 19 September.

• On the 23 June, the Cheng family made an underwhelming voluntary conditional Offer of $1.88/share for Giordano International (709 HK). 
• The Offer is conditional on the family getting to more than 50% via tendering, and the Cheng’s (and concert parties) control 24.57%.  
• The Composite Document is now out with a first close on the 5 September.  The Offer Price has now been declared final. That’s a surprise.

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand and Chinese ADRs.
• Highest spreads are 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Ramsay Health Care (RHC AU), Resapp Health (RAP AU), Infomedia Ltd (IFM AU), Lifestyle International Holdings (1212 HK).
• Lowest gross spreads are Dongzheng Automotive Finance (2718 HK), Excelpoint Technology (EXLP SP), MyDeal.com.au Ltd (MYD AU), Cocoaland Holdings (COLA MK), Giordano International (709 HK), China VAST.

• At the indicated price range, or 24.8-28.6x PER for FY22F and 16.7-19.2x for FY23F, the H-share IPO of China Tourism Group Duty Free Corp (601888 CH) is not attractive enough. 
• 2Q22 net profit is worse than it appears. Recent Sanya lockdown has wiped off half of the summer peak season which may even negatively affect demand during Golden Week.
• Consensus forecasts are too optimistic and there may be another 15% downside. Given current macroenvironment, market volatility and earnings uncertainty, risk outweighs return even at the low-end of price range.

• Express parcels increased by 8% YoY in China in July.
• TikTok was still the top non-game app in the world in July.
• Meituan raised its prices of bike sharing on August 10.

• Huadong released encouraging 2022H1 results. After a significant decline due to the loss of VBP bid for core varieties, Huadong is out of trouble and back on track now.
• The future profit contribution would be on medical cosmetology and industrial microorganisms businesses. For 2022 forecast, revenue YoY growth is below 10%, and net profit YoY growth is above 15%.
• Due to unfriendly macro environment, Huadong’s share price could face a correction. But based on its promising outlook, we recommend that investors could take advantage of the pullback to long.

• 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, China Tourism launched its US$2.5bn IPO. 
• There were no major placements this week and it likely to remain that way in the near future owing to it being earnings season.

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments – China Tourism Group Duty Free Corp Ltd (601888 CH) has launched an H Share listing to raise US$1.9-2.2 billion.
• Event-Driven developments at EVOC Intelligent Technology Company Limited H (2308 HK), Lifestyle International Holdings (1212 HK), OZ Minerals Ltd (OZL AU), MACA Ltd (MLD AU), Excelpoint Technology (EXLP SP), MyDeal.    

• China Tourism Group Duty Free Corporation Limited (CDF) aims to raise around US$2.5bn in its H-share listing in Hong Kong.
• As per Frost & Sullivan, CDF had 92.3% market share by retail revenue in China duty-free merchandise sales in 2020.
• In this note, we talk about the deal pricing and run the deal through our ECM framework.

• Yesterday Swire Pacific (A) (19 HK) (and Swire Pacific Ltd-Cl B (87 HK)) announced a buyback of shares according to the 2022 AGM mandates approved in May, limited to HK$4bn. 
• A reader question prompted me to look more closely at the rules. There are nuances NOT covered in the announcements. So I work through them. 
• The conclusions are surprising, and lead to one clear trading idea. 

• China Tourism Group Duty Free Corp Ltd (601888 CH) has launched its H Share listing at HK$143.50-165.50 per share. Pricing is on 18 August and listing on 25 August.
• In CTG Duty Free H Share Listing: Another False Dawn?, we noted that on a fundamental view, we would prefer to remain on the sidelines.
• Our valuation analysis suggests that the A Shares are trading close to fair value and the H Share valuation is unattractive compared to peers. We would pass on the listing.

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.

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. Pakuwon Jati
2. Softbank Group
3. Lenovo
4. China SCE
5. Kwg Property Holding

and more…

• Honeywell has successfully maintained a particularly high level of resilience despite persistent supply chain restrictions, inflationary headwinds, and geopolitical upheaval.
• Despite the inflationary challenges, Honeywell continued with margin expansion and this helped the management surpass the earnings expectations of Wall Street.
• It is also increasing technology investments in sustainability through Honeywell Ventures and a classic example was the investment in Electric Hydrogen.

Yanlord Land’s H1/22 results were reasonably strong in our view, considering the depressed industry environment. The company’s sales and cash collections remained robust, supporting its liquidity profile. In addition, a high proportion of its cash balance remains freely available. We note that Yanlord’s operating performance held up relatively well (vs. that of developer peers), thanks to its high asset quality. Still, we broadly agree with management’s dim assessment of the Chinese property industry’s medium-term prospects. 

• Mastercard continued to bear the brunt of inflationary pressures since the start of 2022 but the company has definitely benefitted from the fact that travel-related spending and consumer spending have remained strong.
• Apple Pay Later has been recently announced by Apple which is using the Mastercard installments program.
• In the U.S., the company established a partnership agreements that extend its small, co-brand, credit, and debit business credit programs.

• Clorox Co has navigated via challenging operating conditions and it failed to meet Wall Street expectations in terms of revenues.
• As a part of the company’s IGNITE strategy, it has announced a streamlined operating model for creating a faster, simpler company.
• One of the best ways to expand margins for Clorox has been its direct-to-consumer strategy which is gradually paying off.

• Swire Pacific (A) (19 HK)/Swire Pacific Ltd-Cl B (87 HK) has announced a HK$4bn buyback. While that is 6.5% of shares out, it is over 15% of real float.
• Swire Pacific (A) (19 HK) was trading at a 50% discount to NAV and near the widest level over the last few years.
• There will be passive selling once the buyback is complete, but the stocks should run up prior to that.

• Today Swire Pacific (A) (19 HK) (and Swire Pacific Ltd-Cl B (87 HK)) announced earnings, and they announced a large (HK$4bn) buyback.  
• Details are somewhat thin, but there are a bunch of possibilities, and all of them should have non-negligible impact on Swire and Swire vs Peers. 
• The immediate market response was to send them up 10% on the day. That puts both at somewhere near one-year highs, but the discount to NAV is still big.

• China Tourism Group Duty Free Corporation Limited (CDF) is gearing up to launch Hong Kong’s largest listing so far this year, with a reported deal size of around US$2-3bn.
• Prior to the deal launch, we’ve had a quick look at the A/H premium, subscription and past performance of some of the earlier A/H listings.
• Overall, most of the recent A/H listings haven’t done much over the first month.

• We believe revenue would Still Be Slow in 2Q22, but will recover in 4Q22 or 2023.
• We believe FinTech will be the only highlight, but online game and advertising will be negatively impacted.
• However, we estimate the stock price will have an upside of 55%.

• Swire Pacific (19 HK) has announced a “small” buyback at HK$4bn, but it is a material portion of ADV.  
• What remains unknown is how the buyback will be split.  The split will only be known once buyback volumes are announced. 
• Swire is trading cheap at a look-through forward P/B of 0.28x compared to its five-year average of 0.38x, and the two-year average pre-Covid of 0.48x. 

• Kuaishou Technology Co. Ltd., the operator of China’s second-largest short video app, unveiled the new video cloud brand StreamLake and a self-developed intelligent video processing chip Wednesday in key moves to expand its business
• The launch of StreamLake, the first enterprise-facing product from Kuaishou, marks the short-video platform operator’s official entry into the cloud services market and a shift from its original consumer-focused businesses
• StreamLake will provide artificial intelligence-powered video creation and distribution solutions for corporate clients, Kuaishou said.

• Biocytogen Pharmaceuticals (Beijing) (BCP HK) is a biopharmaceutical and pre-clinical research services company with two core products (YH003 and YH001) and 10 other pipeline candidates.
• The company currently does not have any commercialised products and earns revenue through offering pre-clinical research services and antibody development.
• Biocytogen’s business model comes with inherent risks such as absence of approved drugs. Hence, we would recommend staying on the side line.

• A slow 1H22 new project momentum and a slight retreat in net profit are not expected to materially alter the positive outlook for China Everbright Water (1857 HK). 
• We estimate project pipeline equals to about 28% of its existing operating capacity. They will underpin growth prospects over the next two years.
• New project growth should accelerate in 2H22 given the increase in local governments’ special purpose bonds issue. Cost inflation is expected to moderate sequentially as well.

• The carnage in China and some Hong Kong real estate and property management companies and financials went largely unnoticed.
• The five-day decline in Longfor was 18%, Country Garden by 15.50%, Hang Seng Mainland Properties Index fell 6.75%, and HSI Properties Index fell 2.75%.
• It has had zero impact on the rest of the world (ROW) markets.

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
• Pakuwon Jati

• China Tourism Group Duty Free Corp Ltd (601888 CH)/CTGDF, the largest travel retail operator in the world, aims to launch an H Share listing to raise US$2-3 billion on Friday.
• CTGDF is a play on the normalization of domestic travel. However, the H Share listing timing is not ideal as a vital summer travel market, Sanya, is under renewed lockdown. 
• The recovery timing has again shifted, with expectations of a 4Q recovery, but 2022 consensus expectations look slightly optimistic. We prefer to remain on the sidelines.

• 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 also flag those companies where shares have been pledged, both recently and ongoing.

We view Zoomlion as “High Risk” on the LARA scale, mainly due to its moderate financial profile. The company has concentrated exposure to China’s construction machinery segment, which is in turn reliant on infrastructure and construction spending in the country. Furthermore, a downturn in the property sector has had an indirect impact on Zoomlion. Globally, the industry is dominated by a few MNCs.

Zoomlion has a strong domestic market position, and is the world’s seventh-largest heavy machinery manufacturer. The company enjoys a close affiliation with the Chinese government, with its largest shareholder being a SOE. This improves Zoomlion’s access to refinancing capital. We expect the construction machinery industry to benefit from rising replacement demand and infrastructure development.

Our Credit Bias on Zoomlion is “Stable”, reflecting the company’s stable revenue. That said, we remain cautious about the likelihood of overdue risks resulting from the tough economic conditions. Additionally, capex has increased significantly and is expected to remain high, given the need to construct relocated plants and upgrade the company’s products. Overall investor sentiment is supported by Zoomlion’s operating track record and its largest shareholder, Hunan Xing Xiang Investment (a SOE). This may facilitate continued access to domestic debt markets.

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”.

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.

• Greenland Holdings Corp
• Lenovo
• Longfor Properties
• Softbank Group
• Times China

• S&P DJI commenced a market consultation for the S&P Global Water Index on 29 July and that could lead to quite a few changes to the index in October.
• We currently see 14 deletions and 10 inclusions for the index in October. Most of the changes will have a high impact from passive fund trading.
• There could be more changes in April 2023 once stocks listed in Emerging Markets are included in the index.

• Tencent short from 390 is rewarding and reaching for new chart lows now that the 310 pivot support has given way and leading the likes of BABA.
• MACD target support is the key input to align with a terminal wave 5 low to set up the macro long entry in September.
• Undershoot risk to lower channel support with a low due in September and rally hurdles toward year end at 370/390. 420 remains the forward macro barrier to challenge/clear.

• Just days after AMTD Digital (HKD US) was ramped 30,000% to a ridiculous valuation only weeks after its IPO, Magic Empire Global (MEGL US) IPOed and rose 2000+ on Day1.
• MEGL is a corporate advisory, helping smallcaps IPO then helping them comply with listing rules. 2 principals, 2 professionals, 5 staff with no moat had US$2.16mm in revenue in 2021.
• And it is worth US$2.3bn – 1000 x revenues and 10,000x earnings?  This is not OK. And it smacks of something unsavoury. 

• Reuters and several other news media outlets reported that Tencent (700 HK) is looking to raise its stake in French game publisher Ubisoft as it seeks to expand overseas.
• Tencent owns approx. 5.0% of Ubisoft which was acquired in 2018 and is said to have reached out to the founding family Guillemot to buy a stake from their ownership.
• As we mentioned in our previous insight, Tencent has been excluded for the fourth time from new game approvals which had impacted its online games biz.

• Due to the lockdown/pandemic, Pientzehuang Pharmaceutical’s 2022H1 performance slowed down. Considering the economic downturn and people’s cutting back spending on non-rigid consumption, the full-year revenue growth could be around 10%-20%.
• The Company’s key challenge lies in revenue growth. However, it is not easy to increase sales largely due to the scarcity of raw materials, which limits the expansion of production.
• Pien Tze Huang is overvalued. Share price could continue to fall,but it will bounce back due to its high moat. 2022 is a good time for bottom fishing this stock.

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
• KWG Living Group
• Longfor Properties
• Sino-Ocean Service

• EVOC Intelligent Technology Company Limited H (2308 HK) announced a privatisation offer from Mr Chen Zhi Lie, the ultimate controlling shareholder, at HK$1.75 per H share. 
• The key conditions are approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders’ rejection). There is no minimum acceptance condition.  
• The offer price is final. The offer is attractive in comparison to long-term historical share prices and multiples. We think that Mr Chen’s third privatisation attempt will likely succeed. 

• Tencent aims to raise shareholdings in an overseas game company and reduce shareholdings in a domestic movie producer.
• Tencent and NetEase have not got new game licenses and a license black market has emerged in China.
• Autohome revenue decreased in 4Q22 due to the lockdown in Shanghai.

• Magic Empire Global (MEGL US) is the second biggest bubble in 2022, after AMTD Digital (HKD US). 
• We believe there are two major reasons for MEGL’s surging share price including US retail investors’ buying frenzy post AMTD Digital and the “scarcity effect” of new Chinese IPOs.
• Sell MEGL as it makes little sense to put any of your valuable amounts of capital into this stock. The bubble has already started to burst on MEGL. 

• Magic Empire Global (MEGL US) shares are currently up 45x since its listing at US$4.00 per share on 5 August. Its market cap currently stands at US$3.6 billion.
• Just like AMTD Digital (HKD US), it is hard to pinpoint the real reason for MEGL’s share price surge. MEGL’s financials are uninspiring and cannot justify the share price ramp.
• MEGL has no unique competitive advantage which could justify it’s current large premium multiple compared to larger and better-established peers.    

• Chongqing Hongjiu Fruit (CHF HK)  focuses on managing the entire supply chain for quality fruits grown in China, Thailand and Vietnam.
• The company has a portfolio of 49 fruit categories and has filed for an IPO on HKEx and plans to raise proceeds of US$300m.
• CHF’s earnings growth is slowing down while margins are trending downwards and the company’s cashflow burn is increasing

• After shares were suspended on the 1 August, electronics play and property developer EVOC Intelligent Technology Company Limited H (2308 HK) has announced a privatisation at HK$1.75 per H-share.
• This Offer is by way of a Merger by Absorption, which incorporates a Scheme-like vote. There is no tendering condition.
• The premium to last close is just 15.13%; however, it is a 42.28% premium to the five-day closing average. This is EVOC’s third privatisation attempt in the past five years. 

• Magic Empire Global (MEGL US)  priced its IPO at $4.00 per share in August. Unknown financial services company sold 5M ordinary shares to investors and raised ~$18M.
• Return since IPO totaled a whopping ~2,825%. IPO investors are sitting on ~$570M in paper profits and own 25% of Magic Empire’s shares outstanding. 
• Network 1 Financial Securities, an independent full-service broker-dealer based in New Jersey, led the offering. The firm specializes in investment banking services for small to mid-sized companies. 

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.

• Bharti Airtel
• Guangzhou R&F Properties
• Indika Energy

• Lifestyle International Holdings (1212 HK) announced a privatisation offer from Mr Lau, the controlling shareholder and Chairman, at HK$5.00 per scheme share, a 62.3% premium to the undisturbed price.
• The offer price is final. Key conditions include approval by at least 75% of independent shareholders (<10% of independent shareholders rejection). No shareholder holds a blocking stake.
• The offer price is unattractive for long-term shareholders and below average sell-side price targets. Nevertheless, this deal likely goes through as the headcount test is not applicable.

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand and Chinese ADRs.
• Highest spreads are Lifestyle International Holdings (1212 HK), 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Ramsay Health Care (RHC AU), Infomedia Ltd (IFM AU), Yashili, ResApp.
• Lowest gross spreads are Excelpoint Technology (EXLP SP), Frasers Hospitality Trust (FHT SP),  MyDeal.com.au Ltd (MYD AU), Cocoaland Holdings (COLA MK), True Corp Pcl (TRUE TB), China VAST. 

• SAIC Motor (600104 CH) completed the auction procedures for acquiring a 71.04% stake in Dongzheng Automotive Finance (2718 HK). This will trigger an unconditional MGO at HK$1.2430 per H Share.
• The offeror and Dongzheng are required to issue the composite document on or before 11 August jointly. However, an application has been made to the Executive to extend the deadline. 
• At last close and for an end of September completion, the gross and annualised spread to the MGO price is 3.6% and 20.9%, respectively.

• At 0.71x 12-month forward P/B multiple, Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) has overly discounted the earnings recovery for FY22 and FY23.
• VLCC rate has rebounded since end-Jun but are still at unexciting US$10,000/day level only. This is below an estimated cash breakeven level of US$25,000/day for its fleet.
• Tanker demand-supply balance looks to be at equilibrium over the next 12 months, leaving limited potential for significant surge in rate. This opens room for earnings disappointment, in our view. 

• Although Weigao achieved solid growth in 2021 after pandemic was under control,the real test will come in 2022. The implementation of centralized procurement will have a significant impact on performance.
• After spinal implants are included in centralized procurement this year, all of Weigao’s three major businesses (spinal implants/trauma implants/joint implants) are within the scope. Short-term performance pressure is inevitable.
• As a result of the pandemic/lockdown in 2022H1, we lowered our performance forecast on Weigao.   

• Thomas Yau, Lifestyle International Holdings (1212 HK)‘s controlling shareholder, is offering to take the company private by way of a Scheme at HK$5/share, a 62.3% premium to last close.  
• Independent shareholders comprise 23.51% of shares out, therefore the blocking stake at the forthcoming Court Meeting is 2.351% of shares out. 
• The Offer price is final. No dividends will be paid during the Offer period.

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.

• ENN Natural Gas
• Lifestyle International Holdings
• Road King Infrastructure
• Shui On Land
• Times China

• Participate in SJM Holdings (880 HK)‘s Excess Application Auction, though one would need to bid for a fantastically large quantity of shares to get anything, because everyone else will
• At a 11% gross spread to terms, and potential 4Q22 completion, Yashili(1230 HK) IS A CLEAR BUY. The world is a bit risk averse and it shows up in spreads.
• The ‘headcount test‘ for Cayman-incorporated companies failed to move with the times and address the fact that the majority of shares of Hong Kong-listed companies were held by HKSCC Nominees.

• In this insight, we discuss our recent visit to a Haidilao restaurant in London and the listing of Super Hi International in Hong Kong. 
• On 13 July, Haidilao (6862 HK) provided the IPO prospectus of Super Hi International for a separate listing in Hong Kong bourse.
• By spinning off Super Hi and listing this newco in Hong Kong, Haidilao is capitalizing on its best known global brand for hot pots amid zero COVID policy in China.

• There are 42 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• One new deal was discussed this week on Smartkarma. Honda Tsushin Kogyo (6826 JP)‘s Tender Offer.
• Key updates took place for: Resapp Health (RAP AU), Link Administration (LNK AU), and Yashili International Holdings (1230 HK).