China

• 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$1.28bn, split between Shanghai (-US$0.85bn) and Shenzhen (-US$0.43bn)
• The largest inflows were into Aier Eye Hospital (300015 CH) and Shenzhen Mindray  (300760 CH). The largest outflows were in China Merchants Bank (600036 CH) and Sungrow Power (300274 CH).

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.

• 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 outflow over the past week was ~US$0.56bn, split (-US$0.44bn) for Shanghai and (-US$0.12bn) for Shenzhen.
• The largest inflows were into Geely Auto (175 HK) and Hang Seng H Share Index ETF (2828 HK). The largest outflow was in Meituan (3690 HK) and CNOOC (883 HK).

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. Yankuang Energy Group
2. Powerlong Real Estate Holdings
3. Sawit Sumbermas Sarana
4. Vedanta Resources
5. Tata Motors Ltd

and more…

• According to Reuters, Alibaba Group (9988 HK)’s supermarket chain Freshippo is seeking to raise around $400-500m from a fresh funding round which values the loss making company at $6.0bn.
• The fact that Alibaba is willing to dilute ownership at a significant discount to its expected valuation is an additional sign that Alibaba could be running into some financial difficulties.
• Having slashed spending budgets of its smaller investments and more down rounds expected in ventures that are considered too big to fail, we anticipate a challenging time ahead.   

• Deewin Tianxia (2418 HK) raised around US$123m in its Hong Kong IPO.
• DT’s subscription rates had been lackluster with weak coverage on the institutional tranche and the retail portion being undersubscribed.
• Given its smaller size, in our view, the firm should come in at a discount to its peer average.

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

• Glory Star New Media Group H (GSMG US) (GSMG), a leading digital media platform and content-driven e-commerce company in China, has entered a definitive privatisation transaction with Cheers Inc.
• Cheers is offering US$1.55/share, in cash, a 76% premium to GSMG’s undisturbed price, and a 22% premium to the US$1.27/share proposal from GSMG’s CEO Bing Zhang. 
• The buyer consortium owns ~72.8% of shares out and this Offer requires a two-thirds vote from shareholders. This looks done with expected completion this year. But it’s a low-balled Offer.

• In this insight, we discuss a pair trade involving going long on Inner Mongolia Yili Industrial Group (A) (600887 CH)(“Yili”) and going short on China Mengniu Dairy Co (2319 HK).
• Yili has more impressive financial metrics than China Mengniu Dairy in terms of ROE, operating margins, and sales growth. However, Yili is trading at lower EV/EBITDA than China Mengniu Dairy.
• Yili should be trading at premium valuation than China Mengniu Dairy. Therefore, we believe Yili is well poised to outperform China Mengniu Dairy’s share price in the next 12 months. 

• The Holding Foreign Companies Accountable Act (HFCAA) could result in China ADRs being delisted in 2024. The Accelerated HFCAA, if passed, will bring that date ahead to 2023.
• FTSE has announced its implementation plan to migrate the China ADRs in its indices to the local listings using an accelerated schedule.
• Expect a lot more secondary listings/ dual primary listing in Hong Kong over the next few months. The increase free float market cap could keep a lid on prices.

• Giant Biogene Holding (GBH HK) has filed for a Hong Kong IPO for raising as much as $1 billion. The company is China’s largest supplier of collagen-based skincare products.
• Through its dual-pronged “medical institution + mass consumer” sales strategy, the company has increased revenue to RMB1,553 million in 2021 from RMB956.7 million in 2019.
• The collagen-based skincare market in China is expected to grow from RMB9.4 billion in 2022 to RMB77.5 billion in 2027, at a CAGR of 52.6%, thereby offering significant growth opportunity.

• SML Group (SMLGZ HK) is looking to raise about US$200m in its upcoming Hong Kong IPO. The deal will be run by BNP Paribas.
• SML Group (SMLG) is a vertically integrated digital identification solutions provider. It primarily engages in developing, manufacturing and selling label and tag products with RFID, a leading item-level identification technology.
• SMLG operates globally across 24 countries and as of the latest practicable date (17 Jun 22), had 23 production facilities in 18 countries.

• Growatt Technology (1833969D CH) is looking to raise about US$500m in its upcoming Hong Kong IPO. The deal will be run by Credit Suisse and CICC.
• Growatt Technology is a global distributed energy solution provider, specializing in sustainable energy generation, storage and consumption and energy digitalization. 
• As of the Latest Practicable Date (20 Jun 2022), they had shipped over 2.7m PV Inverters, 268,000 energy storage inverters. 

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
• Powerlong Commercial Management Holdings
• Sawit Sumbermas Sarana

• Just days after BYD (1211 HK) surpassed Tesla Motors (TSLA US) as the world’s largest electric vehicle producer by sales, is Warren Buffet cashing in his chips?
• 225mn shares of BYD  – 7.73% of the H shares – moved into CCASS yesterday. These are Berkshire Hathaway’s shares. 
• For a shareholder who has kept his holding in share certificates for 13 years, this development suggests the possibility of a partial or full exit. 

• Tianqi Lithium (002466 CH) priced its H Share at HK$82.00 per share to raise net proceeds of HK$13,062 million (US$1.7 billion). The H Share will start trading tomorrow.
• The H Share listing (HK$82.00) and grey market price (HK$76.50) imply an AH discount of 45% and 49%, respectively. This compares to Ganfeng Lithium (1772 HK)’s current 35.3% AH discount.
• The relative valuation is attractive. At the H Share listing price, Tianqi Lithium (9696 HK)’s H Share trades at a -6% discount to the median peers’ CY2022 P/B multiple.

• Topsports International (6110 HK) is trading cheap to peers Anta Sports Products (2020 HK) and Li Ning (2331 HK), and to partners Nike (NKE US) and Adidas AG (ADS GR).
• Like for so many companies in China, the combination of severe lockdown restrictions and global supply chain disruptions has impacted Topsports operations.
• Yet forward operational updates may surprise to the upside.  Management appears confident of their “immersive shopping experience” strategy, and recently declared a special dividend for FY22 (Feb Y/E). 

• The increase of 225.2 million CCASS shares deposited with Citibank matches Berkshire Hathaway Inc Cl B (BRK/B US)’s stake. BYD (1211 HK) closed -12% down on speculation of a selldown.   
• The H Share recently touched all-time highs and trades at a significant premium to historical multiples. BYD has a recent history of a selldown by a substantial shareholder (Himalaya Capital).
• Berkshire has made a 33x gain on its BYD investment, excluding dividends. Taking money off the table would align with Berkshire’s value investing mandate.

• Topsports International Holdings (TIH) is now trading close to its all time lows, after the shares corrected by 50% over the past year.
• The company is one of the largest retailers for Nike (NKE US) and Adidas AG (ADS GR) in China.
• Given then on/off lockdowns the near term outlook isn’t great, but the stock appears cheap for those willing to take a longer view.

• China just announced game approval for July batch. More games were approved in July compared to June and May.
• Pace of China game approval has picked up albeit at a much slower pace than pre-tightening.
• Tencent and Netease will be under pressure as they continue to score zero in July domestic game approval. 

• China’s NPPA issued a list of 67 new games approved for July 2022, and once again, Tencent (700 HK)  and its smaller rival NetEase were excluded from the list.
• The nine-month long freeze on new game approval was lifted in April, however, none of Tencent’s new games were included in the approved lists in April, June and July.
• This further affirms our view that the anti-monopoly crackdown on tech firms hasn’t slowed down, but regulators are probing on dominant players such as Tencent to level the playing field.

• Topsports suffered the first decline in performance since FY2018. Besides pandemic outbreaks and inventory shortage due to global supply chain disruption, over-reliance on Nike and Adidas is also the reason.
• This is the best opportunity to reduce the number of stores based on “Select+Optimize” strategy. With resumption of sports events and good prospects of China’s sports industry, Topsports could rebound.
• Topsports is undervalued compared with its peers, but we are now in a complicated macro environment. Share prices may not rise as expected, which should be aware of by investors. 

• One of the key reasons why we are bearish on this stock (despite cheap valuations) is that the valuations may become even cheaper. 
• The CCP remains intent on maintaining its ZERO COVID policy which means continued sporadic lockdowns and social distancing measures, which is negative for sports apparel products.
• All in all, we believe that a better time to get back into Topsports International is when the CCP becomes more vocal about finally relenting on its ZERO COVID policy. 

• Huayiwang Technology (1985554D HK) is strong in its digital medical education solutions, which is the cornerstone business for the continuous expansion of other solution offerings and ecosystem.
• HUAYIWANG charges service fees mainly from pharmaceutical companies, which could be a more sustainable profit model than charging from patients directly.
• However, the increasing competition and potential risk of losing medical professionals could shake the foundations of HUAYIWANG’s business. 

• 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. 
• This insight also flags those companies where shares have been pledged, both recently and ongoing.

• Just as investors were starting to get comfortable investing in Chinese big tech, the Government has imposed new fines on a range of tech companies.
• Meanwhile, the June ending quarter could yet again be a disspointment with growth curtailed through lack of funding for loss making businesses.
• Having gained around 50% in June 2022 through signs of easing the tech crackdown, these new fines and a weak June-ending quarter could resend tech valuations to March-2022 lows.    

• On 10th July, SAMR published 28 administrative penalties for violating anti-monopoly law related to disclosing past transactions on firms including Tencent, Alibaba, Didi, Weibo and Bilibili.
• A fine of RMB17.2m (US$2.56m) was imposed in total and were fined for not properly reporting past deals between March 2011 to July 2021.
• The market has come to believe that the anti-monopoly investigation in China is easing off, however, the recent development suggests that the anti-monopoly normalisation will continue.

• JD.com opened a physical shopping mall and we believe it is following Alibaba.
• JD.com signed contract with a state-owned power company for two reasons.
• Two suppliers applied for the liquidation of Suning.com to the court.

• Tianqi Lithium (TL) raised around US$2bn via its H-shares listing. It undertakes mining of lithium ore and manufacturing of lithium concentrate, lithium compounds and derivatives.
• TL was the largest producer of mined lithium globally in terms of output in 2020 and ranked third in terms of revenue generated from lithium in 2020.
• In this note, we talk about the updates since our last note, along with the trading dynamics.

• Eva Precision Industrial Holdings (838 HK) is a supplier of office and automotive equipment (seat/battery frames and moulds), trading at 8.1x PE FY22 with an inflection point in earnings growth.
• As a supplier to Tesla Motors (TSLA US), Great Wall Motor (2333 HK), and Lucid, it is a play on the expansion of the EV space.
• Legacy business of office equipment will also experience growth due to the exit of foreign businesses like Fuji and Samsung enabling the company to have 25% CAGR revenue growth.

• Hope Education Group Co Ltd (1765 HK) achieved good student enrollment quota increase for 2022/2023 academic year and student recruitment results at overseas schools are also very encouraging. 
• Improvement in teaching quality and better facilities should narrow the gap of fees per student (Rmb11,814) with the national average (Rmb20,000), driving net profit growth in 3-5 years. 
• Capex will come down over time given good upside in utilisation and the removal of management fees will relieve financial position. Its relative valuation is also inexpensive. 

• To achieve massive sales expansion, surgical robots and consumables have to reduce price largely to enter NRDL reimbursement. This is at odds with expectations that they will generate high profits.
• The actual market share gained and revenue generated by Medbot may fall far short of expectations, resulting in an inability to cover years of rapid growth in R&D/selling/administrative expenses.
• Due to uncertainties on commercialization and profitability outlook, Medbot lacks an “anchor” for valuation.The large fluctuation in share price would continue. Surgical robots are not a good business for now.

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
• Longfor Properties
• Reliance Industries
• Ronshine China Holdings
• Sino-Ocean Service
• Tata Motors ADR
• Times China

• Most changes expected at the MSCI August QIR are in China. This will be the last QIR using the current methodology. The Feb 2023 QIR will use the comprehensive methodology.
• There are a lot of changes expected to the FTSE All-World and All-Cap indices at the September SAIR and we list out potential inclusions and exclusions.
• Inflows to the KraneShares CSI China Internet ETF (KWEB US) continue as sentiment around China stocks, especially tech, improves.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• Tianqi managed to pull off the largest HK IPO so far this year, a good listing could see a pickup in other large deals.
• For placements, SK IE couldn’t hold on to its deal price, while Ming Yang kicked off what might be a busy GDR season.

• Noah Holdings (NOAH US) priced its H Share at HK$292.00 per share (US$18.60 per ADS) to raise gross proceeds of US$41 million. The H Share will trade on 13 July. 
• The H Share listing is primarily to address the risk of a potential US delisting. With cash accounting for around 50% of the market cap, Noah is well capitalised. 
• The valuation is attractive for a company well-positioned to take advantage of any improving market sentiment and an easing of the risk-off sentiment.

• In our view, Noah Holdings is a solid acquisition candidate as the largest independent wealth management services provider in China. 
• The Chinese regulators made a change to the ETF market to overseas investors via Hong Kong called ETF Connect and this is likely to benefit companies such as Noah. 
• As China’s financial markets become larger and more liberalized, there will be a premium on companies such as Noah Holdings with leading market share in China’s wealth management services. 

• Nexteer Automotive (1316 HK) share price fell 50% in Q1 22 due to the China lockdown scare although it has manufacturing facilities all over the world. 
• It traded below book value at some point and rallied alongside other Chinese names in the past month to currently at book value. 
• Most of the new business won is from EV OEMs thus the company deserves a higher multiple given the high growth in the EV sector. 

• 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 inflow over the past week was ~US$1bn, split between Shanghai (-US$0.2bn) and Shenzhen (+US$1.0bn).
• The largest inflows were into Ganfeng Lithium (002460 SZ) and China Tourism Group (601888 CH). The largest outflows were in Wuxi Lead Intelligent (300450 CH) and Zijin Mining (601899 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 ~US$1.3bn, split US$0.7bn for Shanghai and US$0.6bn for Shenzhen.
• The largest inflows were into Tencent (700 HK) and Li Auto (2015 HK). The largest outflow was in Meituan (3690 HK) and Great Wall Motor (2333 HK).

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. Times China
2. Powerlong Real Estate Holdings
3. Kwg Property Holding
4. Country Garden Holdings Co
5. China South City

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. Times China
2. Powerlong Real Estate Holdings
3. Kwg Property Holding
4. Country Garden Holdings Co
5. China South City

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.

• Oriental Selection achieves high-speed user growth through bilingual livestreaming, thanks to Douyin’s  algorithmic recommendation mechanism before 6/18 ecommerce, after 6/18 the increase in the follower numbers & GMV dropped sharply.
• The unit price of the product is below average, due to the focus on produce and books, Agricultural livestreaming has always been a difficult to grow category
• 10%-15% Commission  is lower than industry average, and subsequent supply chain control and 1st party products have lower margins.

• Currently at 69 constituents, it is unlikely that we reach 80 member by year end. Hang Seng Indexes is finding it tough to reach the target by excluding unprofitable companies.
• We list 11 stocks that could be added to the index in September – with one-way turnover just over 5%, the actual number of inclusions will be lower.
• There are a few potential inclusions where short interest is over 5% of the free float. These stocks could see short covering ahead of announcement of the changes.

• Deewin Tianxia (2418 HK) is looking to raise up to US$147m in its Hong Kong IPO.
• Deewin Tianxia (DT) is a service provider in the commercial automobile service industry in China. 
• The firm continues to generate the bulk of its revenue from its controlling shareholder and the latter’s associates. 

• A lack of prediction accuracy leads us to advise against investing in risky credits.
• We expect up 1/3 of Chinese property developers to either default or negotiate with their creditors and see a few sovereigns running out of cash, following Sri Lanka’s demise. 
• Shimao’s failure to negotiate with its creditors leads us to believe the liquidity situation at many Chinese developers is worse than expected.

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 Vanke

• Over the last few days, the banks and financials have been acting very poorly.
• The gap down on Wednesday in a few sectors and stocks got my attention as there was a bearish setup before today’s trading day.
• A gap, if not filled, will usually mark a change or acceleration of a trend.