China

• The Hang Seng index constituents have moved away from just local Hong Kong shares to being dominated by China H and China-centric shares
• Focusing on these constituents adds much value, especially with shifting liquidity away from US-listed ADS to HKEX listed shares.
• It brings together a more diverse investor base ranging from local Hong Kong, mainland China and the rest of the world.

• Operating margin improved in 4Q22 due to well controlled expenses in minor businesses.
• We believe the state council meeting will provide a turning point in June.
• We set an upside of 31% and a price target at HK$106.

• Shenzhen Expressway Co H (548 HK) guided that many drivers are presented for the rest of the year to support growth, after a 24% YoY decline in 1Q22 net profit. 
• Toll road business should benefit from organic growth and project completions, while clean energy and waste treatment businesses will experience astronomical growth from capacity acquisitions. 
• There exists room to leverage up for growth as liabilities-to-asset ratio is still 11pp below its tolerance level of 65%. Besides below-average PERs, FY22F yield of 10% is attractive too.

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.

• Adani Ports & Special Economic Zone
• Bharti Airtel
• Lenovo
• Vedanta Resources

• FPA is a Los Angeles-based institutional money management firm practicing a disciplined approach to value investing, prudently seeking superior long-term returns while maintaining a focus on capital preservation.
• In the first quarter of 2022, the FPA U.S. Core Equity Fund, Inc.’s (“Fund”) performance was -12.25% (-12.01% before fees and expenses).
• I believe secularly growing mid- to large-capitalization companies trading at compelling valuations will continue to be a favorable place to invest for the long-term—especially relative to U.S. Treasuries and other investment alternatives.

• On the 21 May, Jinke Property (000656 CH) announced the forced sale of shares by its controlling shareholder. One day later, Jiayuan International (2768 HK) announced a similar event. 
• Jinke’s 52.3%-owned Jinke Smart (9666 HK) has now announced an agreement to acquire Jiayuan International’s 73.56% stake in property service play Jiayuan Services Holdings (1153 HK). No price was announced.
• In the past month, Jinke Property is down 24%, Jinke Smart 23%, Jiayuan International 54% and Jiayuan Services 80%. Jiayuan International and Jiayuan Services remain suspended.

• Total revenue grew by 15% YoY and operating margin improved YoY in 1Q22.
• The authorities began to grant licenses and new games will be launched in China and overseas.
• We set an upside of 25% and a price target at US$120. Buy.

• On 19 May, SAIC Motor (600104 CH) emerged as the successful bidder for China Zhengtong Auto Services Hldg (1728 HK)’s 71.04% stake in Dongzheng Automotive Finance (2718 HK).
• As SAIC will hold 30%+ of the voting rights, it will result in an MGO at a price not less than the auction price of HK$1.294 per H Share.
• Dongzheng shares remain in a trading halt. The equity interest will transfer to SAIC and the MGO launched when the Shanghai Financial Court issues an auction sale judgment. 

• Imeik keeps its outstanding financial performance in 2021/2022Q1. On the surface, it looks prosperous, but its development strategy, product layout and resilience in front of risks would bring many uncertainties.
• Considering the pandemic/lockdown and a slowing economy in China, the revenue growth in 2022 could fall to about 50%, then to about 40% and 30% in 2023 and 2024 respectively.
• Imeik’s valuation is “unreasonably high”, which is expected to be lower than Bloomage in the future. Anything that deviates from fundamentals would inevitably return to the origin. 

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

• On the 19 May, SAIC Motor (600104 CH) acquired China Zhengtong Auto Services Hldg (1728 HK)‘s 71.04% stake in Dongzheng Automotive Finance (2718 HK) at a judicial auction. 
• Reportedly SAIC was the only bidder. The price paid appears to be at the minimum bid price of HK$1.294/share. 
• The acquisition will trigger an unconditional Offer for the H shares.  SAIC and ZhengTong have announced the outcome of the auction. But still no word from Dongzheng.

• XPEV (US ADR) is forming a compelling positive wedge but faces a test of the critical 18 macro dual low support where a trading bounce is expected.
• Sell volumes rose on the 25 rejection, calling for a test on the key 18/19 support zone.
• RSI sub 30 target does suggest XPEV breaks 18 support after a tradable bounce with 24/25 the key hurdle. 31 represents MT resistance. 9868 HK linked levels.

• Kuaishou reported 1Q2022 results on Tuesday. Revenue grew 23.8% YoY to RMB21.1bn while reported operating losses declined to RMB5.6bn (27% of revenue) from RMB7.3bn (43% of revenues) in 1Q2021.
• Adjusted operating losses for the quarter further dropped to 24% of revenues from 48% of revenues in 1Q2021 despite drop in livestreaming ARPPU in 1Q2022.
• Kuaishou’s shares have lost almost 80% since its IPO in February last year due to the regulatory crackdown.

• Revenue increased by 24% YoY with online marketing, the main business, up 33% YoY.
• KS operating loss decreased to RMB5.1 bn in 1Q22 from RMB8.2 bn.
• We set an upside of 19% and a price target of HK$75.00. Buy.

• Share price of Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) has rallied 55.7% over the last four months, and we believe it is now prudent to trim position.
• P/B valuation is almost at 5-year high and over 2SD above historical average, but ROE for FY22F is still shy of the peak level achieved in such period. 
• There is downgrade risk for FY22F consensus profit of Rmb1.6bn given 1Q22 profit of just Rmb25m, and near-term retreat in spot rate does not bode well for CSET. 

• We expect PetroChina (601857 CH) and Gree Electric Appliances (000651) to be deleted following a Ground Rule change. Chongqing Zhifei Biological Products (300122 CH) should be deleted on market cap.
• Potential inclusions are Tongwei Co Ltd A (600438 CH), China Citic Bank Corp (601998 CH) and Anhui Conch Cement (600585 CH). 
• One-Way turnover at the FTSE China A50 Index (XIN9I INDEX) June rebalance is estimated at 2.91% and will result in a one-way trade of CNY 1,420m.

• We expect China Railway Group Ltd H (390 HK) and Yanzhou Coal Mining (1171 HK) to replace Smoore International (6969 HK) and Sunny Optical (2382 HK) in the FTSE China50 Index.
• There are capping changes that have a reasonable large impact on a couple of stocks. One-way turnover is estimated at 3.97% and will result in a one-way trade of HK$1,912m.
• FTSE has increased the investability weight for Li Auto (2015 HK) / Li Auto Inc. (LI US) and this leads to the stock failing the median liquidity test.

• Cloud Village Inc. (CVI), also known as NetEase Music, raised around US$420m in its Hong Kong IPO in Dec 21. The IPO was almost entirely taken up by cornerstones.
• The company had also earlier obtained investments from Baidu and Alibaba, along with other mainly PE investors. These investors will be released from their lock-up on 1st Jun 2022.
• In this note, we will talk about the lock-up dynamics and updates over the past few months.

• Botanee has outstanding performance at the current stage, but WINONA alone is not enough to establish a high moat. Its weak R&D/innovation in raw materials/products would cast doubts on outlook.
• Bloomage is more R&D oriented and characterized by integration of industrial chain. Its advanced synthetic biology will bring more possibilities for future development.The collagen would be a new growth point.
• Although with lower net profit margin, Bloomage is expected to have better outlook than Botanee. So, we think Bloomage could have higher valuation than Botanee in the future.  

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.

• Alam Sutera Realty
• Evergrande
• Greenland Holdings Corp
• Indika Energy

• As expected, NIO Inc (9866 HK) will be added to the Hang Seng Tech Index (HSTECH INDEX) at the close on 10 June replacing ASM Pacific Technology (522 HK).
• We estimate passive trackers will need to buy over 9 days of ADV on NIO Inc (9866 HK) while selling 11 days of ADV on ASM Pacific Technology (522 HK). 
• NIO Inc (9866 HK)‘s inclusion in the Hang Seng Tech Index (HSTECH INDEX) could create significant arb opportunities versus NIO Inc (NIO US) on 10 June.

• As expected, Lenovo (992 HK) will replace Hansoh Pharmaceutical (3692 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) after the close of trading on 10 June.
• Sunac China Holdings (1918 HK) has been kept in the index for now, though suspension till 30 June will see it deleted early July.
• Changes to the stocks, number of shares, float and capping results in an estimated one-way turnover of 3.7% and will result in a one-way trade of HK$2,977m.

• Plenty of review announcements after the close on Friday – HSI, HSCEI, HSTECH, FTSE AW/AC, Sensex. Most changes were as expected.
• There are a lot of review cutoffs on Monday and announcements expected later in the week (KOSPI200, KOSDAQ150, CSI300, STAR50).
• There were inflows to Hong Kong, Taiwan, Korea and Australia focused ETFs during the week, while there were outflows from China, Japan and India focused ETFs.

• There are 41 – mostly firm – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Three news deals this week: Kintetsu World Express (9375 JP)‘s Tender Offer, Woolies tilt for MyDeal.com (MYD AU), Hwa Hong (HWAH SP)‘s MBO, & KKR’s bid for Kito (6409 JP)
• Key updates took place for: Virtus Health (VRT AU) &Irongate Group (IAP AU) 

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• With LIC not delivering and Delhivery needing insurance, combined with the Korean cancellations and HK silence, it looks like its going to be a quiet few weeks for IPOs.
• On placements, both the Korean deals were a disappointment, despite being well-flagged.

• On 23rd Dec 2021, Tencent declared a special dividend in the form of distribution in specie of shares of JD.com, making Prosus the third largest shareholder with a 4.2% stake.
• The actual settlement only happened on 25th Mar. On that day, the bulk of the stock that Tencent distributed moved into CCASS with the exception of shares held by Prosus.
• In this note, we talk about the shareholding pattern and increase in shares held in CCASS.

• Authorities encourage platform economy and restarted approving the licenses for new games.
• Fintech just met a high comparison base in 1Q21 and we believe the growth rate will rise.
• We believe the stock has an upside of 39% for the year end 2022.

• Tencent (700 HK) reported 1Q2022 results today. Revenue grew 0.1% YoY to RMB135.5bn (vs consensus RMB140.7bn) while reported OP decreased 34% YoY to RMB37.2bn (vs consensus RMB37.3bn).
• Adjusted OP was down 36% YoY to RMB22.3bn while adjusted OPM declined to 39.2% from 56.1% in the same period a year ago.
• Tencent’s 1Q2022 revenues were below our estimates of RMB144.3bn which was mainly due to significant drop in Fintech and business services revenues.

• Q1 22 operating figures are better than the smaller peers although not exactly beating Anta. 
• Launching the cafe to boost SSSG post-COVID-19 is a positive strategy. 
• Its valuation is currently trading below its historical highs . Turn positive on Li Ning (2331 HK) .

• Taste Gourmet Group (8371 HK) held a webinar with Smartkarma on the 17th of May, highlighting the sharp and swift recovery of F&B in Hong Kong. 
• Post 19th May, eight people can dine in till midnight (vs. four). With mid-May revenue tracking 109% of June 2020 (restrictions were fully relaxed), recovery should be better than expectations.
• Despite the 13% move yesterday, the stock is still cheap at 5.9x PE FY23 earnings and an 8-10% dividend yield (with a potential for further upgrades). 

• Haohai’s development is fuelled by a series of acquisitions, which help Haohai establish the existing diversified businesses, but we haven’t seen any growth point with high certainty.
• Compared with Bloomage and Imeik, Haohai has no competitive advantage in the field of medical aesthetics. It’s also difficult for Haohai to make a substantial breakthrough without obvious product advantages.
• Although Haohai’s PE/TTM is significantly lower than its peers, due to centralized procurement, Haohai’s valuation could be further lower. Considering the risks, we choose to stay cautious on Haohai.

• Leapmotor (LM) aims to raise around US$1bn in its Hong Kong IPO. LM is a smart EV company based in China, founded in 2015.
• It focuses on the mid- to high-end segment in China’s NEV market with a price range of RMB150,000-300,000. As of end FY21, it had delivered a total of 52,832 cars.
• In this note, we talk about the not so positive aspects of the deal.

• Besides as nationalistic consumption play, Haier Smart Home (6690 HK) also offers attractive investment theses with bright growth prospects. Despite share price rebound, valuations are still not yet reflecting fundamentals.
• The surge in demand for refrigerators and freezers during the pandemic-led lockdowns has boosted HSH’s business in 4M22 while it will also reap benefits from Rmb depreciation.
• The government’s support of healthy development of residential real estate market will be positive towards smart home appliance demand which HSH is set to gain from its leadership position. 

• Yunkang Group (2325 HK) raised around US$139m in its Hong Kong IPO.
• On its bookbuild, subscription rates were lackluster and market sentiment hasn’t been the greatest.
• Similar recent deals with weak subscription rates had seen subdued listing performances by the end of their respective first weeks.

• JD will continue to close its unprofitable minor businesses in following quarters.
• The growth rate of total revenue slowed down in 1Q21 due to weak demand of home appliance.
• We believe JD has a significant upside despite that the revenue growth will continue to slow down.

• SMIC reported revenue/GM were US$1,869/40% for revenue/GM in 1Q22 respectively. The revenue matched to our expectation, but the GM was exceeding ~8% versus guidance.
• The outlook is a little bit lower than our expectation for revenue/GM to be US$1860-1,897/37-39% in 2Q22 guidance.
• The overall demand situation is growing up although inflation, Russia-Ukraine war, and other factors may affect. 

• Tencent Music (TME US) reported 1Q2022 results today. Revenue declined 15% YoY to RMB6.64bn (vs consensus RMB6.69n) while reported OP dropped 35.7% YoY to RMB749m (vs consensus RMB817m).
• Revenue from Online music services declined YoY for the first time since 2017 while revenue from Social Entertainment services further declined during the quarter.
• We expect TME’s earnings to remain under pressure with increased competition and regulatory restrictions on livestreaming sector.

• Aier’s private placement was approved by the Shenzhen Stock Exchange, but we don’t think it signals a complete policy shift that private medical institutions are welcomed by capital markets.
• The high goodwill impairment risk and medical disputes are great concerns. However, if Aier changes its development mode, its performance growth would probably slow down or becomes uncertain.
• Aier’s Q2 performance could be affected by pandemic/lockdown. Even after continuous corrections, Aier is still overvalued based on current valuation, which has not priced in all the concerns and risks.

• A50 faces key trendline sell/pivot resistance that will cap the rise with HSI nudging back to sell territory with fresh chart lows expected.
• A50 trendline resistance is the bull/bear inflection point. We look for a sell or rejection near 13,700 if not just under this level for  a test on the 12,400.
• HSI 21k sell barrier while watching for HK tech rise to run out of steam near 4,500 resistance.

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.

• AAC Technologies Holdings
• Greenko Energy Holdings
• Yuzhou Group