China

• 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. 

• We see 8 potential inclusions and 1 potential deletion for the MSCI Standard index at the August QIR. Announcement on 12 August (Asia time) and implementation on 31 August.
• Largest passive inflows expected on Gcl Poly Energy (3800 HK), Kasikornbank (KBANK TB), Tianqi Lithium (002466 CH) and Qinghai Salt Lake Industry (000792 CH). 
• There are a few of the China/ Hong Kong listed stocks that could have same way flows from the FTSE trackers a couple of weeks later at the September SAIR.

• AI software company SenseTime’s share price dropped more than 50% over the last one week with the expiry of lock-up period as pre-investors of the company took some profits.  
• The company was placed in an investment blacklist by the US government prior to the IPO which forced to launch the IPO without investors from the US.
• The company also priced the IPO at the bottom of the price range and despite all of this, shares quickly went up to HK$8.20 from IPO price of US$3.85.

We view West China Cement (WCC) as “Medium Risk” on the LARA scale. The company has a leading market position in Shaanxi in China, as well as a small but expanding presence in Xinjiang and Guizhou. It also has a plant in Mozambique, which commenced operations in December 2020. The cement industry in Shaanxi has favourable supply/demand dynamics, as producers have been able to coordinate production cuts to boost ASP despite overcapacity. That said, there could be event risks related to WCC’s expansion plans, particularly in Africa (where industry trends are less well-understood). Moreover, the company may be exposed to geopolitical and execution risks in frontier markets.

Our fundamental Credit Bias on WCC is “Stable”, on account of its strong OCF and still-healthy leverage. That said, we believe leverage will weaken in FY 2022 and FY 2023 before recovering, given the company’s plans for continued investments in Africa. Moreover, WCC’s new plants in Africa would require time to ramp up before they can generate meaningful earnings.

Controversies are “Immaterial”. We note that cement production is a major source of carbon emissions. According to IEA, the cement industry contributes 7% of global CO2 emissions and is the second-largest industrial emitter (behind the iron and steel industry). That said, there is a lack of suitable alternatives for cement as an input of concrete. Moreover, WCC’s main markets (China and Africa) will likely remain heavily dependent on cement for infrastructure developments. Hence, we assess the ESG Impact on Credit as “Neutral”. 

• China Power International (2380 HK) will acquire 2.15GW clean energy capacity from its parent SPIC for a total of Rmb7.5bn. This will add 14.3% to its end-FY21 clean energy portfolio.
• We think the assets are priced attractively at 12.5x PER for FY21, a discount to peers’ average of 14x. The acquired capacity has an impressive 45.8% YoY earnings growth.
• CPI targets to have 70% of end-FY23 capacity from clean energy, and this implies a 46.3% CAGR between FY21 and FY23, which is a very exciting momentum. 

• Gaush Meditech (GMT HK) is a leading total solution provider of ophthalmic medical devices industry.
• The irreplaceability of Gaush in the whole industrial chain is actually not high based on its current business model.The proprietary product business may also need to face different policy risks.
• Together with other uncertainties such as increasing market competition and medical reform policy in China, we are conservative about Gaush’s outlook at the current stage.  

• Weilong Delicious Global (WDG), a spicy snack food company in China, aims to raise around US$500m in its Hong Kong IPO.
• According to F&S, WDG ranked first among spicy snack food enterprises in China, with a market share of 6.2%, and in the seasoned flour product and spicy vegetable snacks categories.
• In this note, we talk about the updates from its refiled PHIP.

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.

• Hopson Development
• KWG Living Group
• Powerlong Commercial Management Holdings
• Times China
• Yuexiu Property

• Alibaba CEO’s article appeared on a government journal, which can be a positive signal to non-state-owned companies.
• Prosus sells shareholdings in Tencent and JD.com to repurchase its own shares.
• Tencent is trying to use game technologies in other fields.

• The offer period for Miniso (MNSO US)’s HK listing began on 30th June at a maximum offer-price of HK$22.10 per-share, which translates to a 42% premium to its ADSs .
• With store-level performance expected to reach the pre-COVID level , alongside an aggressive plan to increase the store count by 60%, we predict more than 100% upside to FY24 consensus.
• Our estimates put Miniso on 4.3x FY24 OP, which seems genuinely cheap compared to most of the GMS stocks in New York and Hong Kong.

• Readboy Education has the second largest market share in China’s smart learning device market. The company has filed for an IPO on the HKEx to raise around HK$ 520m.
• The company grew its revenues strongly over the past three years but shipments have been declining in 2021 amidst the COVID-19 resurgence and subsequent lockdowns.
• Margins have been declining due to raw material shortages and even though Readboy claims to have taken measures to deal with the shortages, we are yet to see its effectiveness.

We view Anton Oilfield as “High Risk” on the LARA scale, due to refinancing risk for the USD 2022 notes (maturing in December) amid a challenging capital market. That said, we believe the refinancing risk is manageable. We also consider the company’s: [1] small scale; [2] customer concentration; and [3] expertise in horizontal drilling, which is expensive and likely to be cut during downturns. Anton may face heightened geopolitical risks due to its increased exposure to Iraq, with c. 50% of the order book derived from the Middle East and Central Africa. Positively, the shale gas business in China could be more stable than other parts of the upstream oil industry, due to the government’s policy of improving oil & gas self-sufficiency. Anton’s near-term outlook is supported by its large backlog (more than two years of revenues).

Our Credit Bias remains “Stable”, given the reasonable operational performance on the back of supportive oil prices and an improving operating environment.

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

• Alibaba Health’s core pharmaceutical direct sales business is facing challenges in terms of increasing competition as well as lower revenue growth and margins, dragging down the overall performance.
• The recent new policies about online drug sales on third-party digital healthcare platforms and online diagnosis and treatment would add more uncertainties on Alibaba Health’s business and outlook.
• If such unfavorable trend continues, the gap between Alibaba Health and JD Health would be wider. It’s not easy to break the deadlock. Investors may need to take heed.

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.

• Yanlord Land
• Yuexiu Property

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.

• Yanlord Land
• Yuexiu Property

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.

• Tianqi Lithium (9696 HK) is looking to sell up to 188.74m shares to raise up to US$1.97bn. Pricing at HK$69-82/share is a 52-43% discount to Tianqi Lithium (002466 CH).
• Between 32-38% of the total offer size is being taken by 7 cornerstone investors and they are locked in for 6 months from listing date (expected 13 July).
• Tianqi Lithium (9696 HK) could be added to MSCI China in November, FTSE All-World and FTSE China 50 in December. Southbound Stock Connect could come online soon after listing.

• Tianqi Lithium (TL) is looking to raise up to US$1.7bn 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 take about the deal pricing and run the deal through our ECM framework.

• Tencent exhibits a compelling bear case in the form of triangle slated to break down to press on macro 310 support. A wave 5 new low near 280/263 is targeted.
• MACD turning down from macro resistance stand out as a compelling direction signal that aligns with the bearish triangle a-b-c bounce count.
• This new low would (terminal wave 5 cycle trough) represent a macro buy entry to challenge the 420 macro bull/bear line.

• Tencent’s share price is down 6.5% over the last five days as largest shareholder Prosus sais that it would sell down Tencent shares to fund the buyback of Prosus/Naspers shares.
• Though Chinese regulators removed the ban on new game approval in April this year, none of Tencent’s new game titles received approvals in over the last two months.
• Tencent’s 1Q2022 earnings were weak and we expect 2Q2022E earnings to further decelerate with resurgence of Covid cases in China alongside weak macroeconomy.

• Tianqi Lithium (9696 HK) has launched its H Share listing at an indicative price range of HK$69.00-82.00 per share. Pricing is on 6 July and listing on 13 July.
• Tianqi Lithium (002466 CH)‘s AH discount range of 52.9%-44.0% is reasonable in the context of Ganfeng Lithium (1772 HK)’s average AH discount is 38.5% since its H Share listing.
• Our relative valuation analysis suggests that Tianqi’s H Share valuation is attractive in comparison to median peers’ multiples. 

• Bilibili (9626 HK) will replace Sunac China Holdings (1918 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the close of trading on 8 July.
• While Bilibili (9626 HK)‘s index inclusion is a surprise, the impact from passive fund trading is not a lot. Nothing much one can do on Sunac China Holdings (1918 HK). 
• The Hang Seng China Enterprises Index (HSCEI INDEX) will drop 16.12 points at the close on 8 July. Something for traders to watch out for over the next week.

• Notwithstanding bright spots and positive long-term outlook, the ESG gold rush has created an acute state of chaos. Regulatory flux. Rampant greenwashing. ESG litigation. Elon and S&P.
• The silver lining? New ESG-related investing opportunities emerging from all the chaos; stocks poised to benefit, regardless of who else wins or losses. The new shovel-sellers, as it were.
• One large opportunity is driven by new greenhouse gas (GHG) reporting regulations, specifcally leading GHG emissions software-as-a-service (SaaS) and platform-as-a-service (PaaS) stocks.

• Hong Kong Stocks are more excited than the mainland about cutting the Quarantine period from 14 to 7 days.
• The 25th Anniversary of the Hong Kong handover means more stability ahead of celebrations and trading dominated by position squaring.
• Only Xiaomi shows signs of a breakout. It broke the downtrend from August 2021 with the inside days in the last two trading sessions. It looks like it will test the breakout and cover it next week.

• Dental Doctor has not established core competitiveness and high moat, and has to invest more on marketing and promotion to attract customers and drive growth.
• The lack of dentists, weak talent and training system as well as high dentist turnover rate would be big concerns for the Company’s long term development, especially for nationwide expansion.
• This industry has not yet entered the profit mode. Most of chain dental services providers are still in the stage of cash-burning expansion. So, we are conservative about the Company’s 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.

• Powerlong Commercial Management Holdings
• Sunac China Holdings

• Sichuan Tianqi Lithium Industries, Inc (002466 CH) has upped its targeted H Share raise from US$1.0-1.5 billion to US$1.5–2.0 billion. The listing will kick off on Thursday.
• In Tianqi Lithium H Share Listing: Riding the Wave, we noted that Tianqi is well-placed to leverage the high lithium prices to deliver growth, margin and cash generation.
• In this note, we examine the likely discount that Sichuan Tianqi Lithium Industries, Inc. (TIANQI HK) will offer its H Shares in comparison to the A Shares.

• Li Auto Inc. (LI US) has announced an ATM offering to sell US$2.0 billion of ADS. The offering appears to be timed to take advantage of the share price rally.
• Li Auto (2015 HK)‘s strong balance sheet and cash generation do not necessitate the need for the offering. The impending launch of the Li L9 underpins its prospects. 
• However, with the recent rally, the shares are at best fully valued at the last close. We prefer remaining on the sidelines for now. 

• We do not expect any inclusions or exclusions for the Hang Seng Tech Index (HSTECH INDEX) at the September rebalance.
• Float and capping changes will lead to a one-way turnover of 6.5% and that will result in a one-way trade of HK$4,913m.
• SenseTime Group (20 HK) will have the largest buying flow due a potential increase in free float. The stock is also a potential inclusion to the HSCEI INDEX in September.

• MINISO Group Holdings (MNSO US) rallied more than 70% this month before receiving approval for a $100m placement on the Hong Kong Stock Exchange yesterday (27th June 2022).
• The company has no requirement for extra cash and this Hong Kong listing is mostly a precautionary measure against a potential delisting of Chinese companies from US markets.
• Overall, we are positive about this placement on account of momentum, reasonableness of current valuation and positive reception of what we would regard as an intention to accelerate expansion.

• CSRC and SFC have approved the inclusion of eligible ETFs in Stock Connect and trading of the ETFs under Stock Connect would begin from 4 July.
• There are 4 ETFs included in Southbound Stock Connect, while there are 83 ETFs that have been included in Northbound Stock Connect.
• Under Stock Connect, only secondary trading is allowed in the ETFs with no creations or redemptions permitted. This will have implications for short-term and long-term repo on the HSI/HSCEI/HSTECH indices.

• Arrial’s positioning at high-end private dental chain indicates limited growth space. The large investment in dental professionals drags down overall margins but fails to generate good word-of-mouth and expected returns.
• Public hospitals with NRDL reimbursement and private dental chains with high cost performance would put more pressure on Arrail. Increasing marketing/promotion expenses cannot turn things around but further reduce margins.
• Overall, the high-end strategy cannot bring high-end returns. We are not optimistic about Arrail’s prospects and profitability. The Company may even keep losing money and hard to turn profitable.

• Today Prosus announced that it will begin an open-ended share repurchase programme of Prosus and Naspers shares which will be funded by on-market sale of Tencent shares.
• Prosus also announced that it has sold its entire shareholding in JD.com, to raise US$3.67bn, on-market in Jun 2022.
• In this note, we talk about the implication and timing of today’s announcements.

• New Medical Product Rule banned online direct sales of medical products.
• Koolearn’s stock price plunged after surging, as Tencent reduced its shareholdings.
• Alibaba dismissed employees in Freshippo and JD.com downsized its community group purchase.

• China has released a draft rule on 22nd June that would prevent third-party e-commerce platforms from selling drugs directly to consumers online.
• Alibaba Health as well as JD Health’s shares dropped 15% at the end of trade on 22nd June while Ping An Health’s shares lost about 5.7% of its value.
• This is the First of a series of reports where we analyse the impact of the above draft rule on leading digital-healthcare players in China. This report discusses JD Health.

• Prosus (PRX NA)/ Naspers (NPN SJ) hold 28.78% of Tencent (700 HK) and will be selling Tencent stock to fund their own buyback due to the large discount to NAV.
• At 3-5% of Tencent (700 HK)‘s ADV, the selling will last from 9-15 years, though could take much longer (or not complete) if Prosus/Naspers’ discount to NAV shrinks considerably.
• Passive trackers will buy only around 12-14% of the incremental stock and this will lead to a big overhang on Tencent (700 HK) in the near future.

• Through perfect partnership system, Gushengtang locks in the scarce TCM physicians, and then quickly establishes/merges offline medical institutions to occupy the market. Such development mode works well so far.
• The challenges are the risks of losing talents to competitors and the weak sales of healthcare products leading to lower profitability. 
• Gushengtang is in an industry that receives government encouragement/preferential policies. The 2022 revenue growth forecast could fall back to about 25% considering the pandemic/lockdown. The EPS could narrowly turn positive.

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.

• JSW Steel Ltd
• SJM Holdings
• Tata Steel Thailand

• Tencent sold US$3bn worth of SEA shares in Jan 22. The rest of its stake was locked up for six months.
• The initial stake sale by Tencent didn’t go down too well and the stock is now trading over 63% below the deal price.
• In this note, we will talk about the lock-up dynamics and recent updates.