China

• China Meidong Auto (1268 HK) trades at a 12x/9x PE FY22/23E with a 6.5% dividend yield at a 20 HKD/share price (assuming an 80% payout ratio).
• In buying China Meidong Auto (1268 HK), you get an industry leader in the dealership space with supreme execution (35% ROE/47% CAGR profit growth/best capital allocator).
• The integration of the Starchase Porsche Dealerships provides an upside potential, as the management, with their superior track record, can significantly improve the target’s operations.

• H&H is faced with multiple challenges. Internally, the performance is under pressure, with stagnating revenue, decreasing profits, cash flow shortage and bankruptcy risk.It’s difficult for H&H to turn things around.
• Externally, factors such as the declining birth rate, lower demand, fierce competition in the infant formulas market, rising costs due to inflation, and economic slowdown worsen the Company’s prospects.
• Based on our 2022 forecast (14% or lower adjusted EBITDA margin,1%-2% or flat revenue growth), we do not think H&H is a good investment. We are conservative about its outlook.

• FY 2021 was a difficult period for Health And Happiness (H&H) (1112 HK) with the lower than usual sales growth and a big one-off expenses. 
• It is true that the D/E ratio has gone up to 161% but this is not the first time it happened. 
• FCF/Sales remain at low double-digit and cash/TA is also at low double-digit so it is far from going bust.

• Yunkang Group (2325 HK) is a medical operation service provider in China and offers a full suite of diagnostic testing services.
• The company’s IPO application has been approved and plans to raise about US$139m. In this  insight, we have highlighted some of the key new data points from PHIP filing.
• Revenue grew 8.8% YoY in 2021 excl. Cov-19 tests (vs 80.2% from Cov-19 tests) and we are yet to see major improvements excluding the positive impact on margins from COVID.

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. Sunac China Holdings
2. Kawasan Industri Jababeka
3. Kwg Property Holding
4. Tata Steel Ltd
5. China Jinmao Holdings

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. Sunac China Holdings
2. Kawasan Industri Jababeka
3. Kwg Property Holding
4. Tata Steel Ltd
5. China Jinmao Holdings

and more…

• A Ground Rule change to the index universe will result in the deletion of PetroChina (601857 CH) and Gree Electric Appliances (000651 CH) from the FTSE China A50 Index (XIN9I).
• Potential inclusions at the June rebalance are Poly Real Estate Group Co., Ltd (600048 CH) and Anhui Conch Cement (600585 CH). China Citic Bank Corp (601998 CH) is close.
• Assuming three changes are implemented, one-way turnover at the rebalance is estimated at 3.05% and will result in a one-way trade of CNY 1,484m.

• Binjiang Service Group (3316 HK) is turning out to be one of the most resilient private PMC in terms of margins and profitability with the conservative approach of the management.
• Trading at 12x/9.4x FY22e/FY23e with 25% of the market capitalization in cash, potential investors have the best of both worlds in value and growth.
• The company will continue to pay 60% of its earnings as dividends, resulting in a 5.2%/7.5% dividend yield for FY22e/FY23e. We believe the stock has the potential to re-rate.

• Keep Inc (KEEP HK) is looking to raise around US$500m in its upcoming Hong Kong IPO.
• Keep is an online fitness platform, offering online fitness content, smart fitness devices and fitness products. 
• The firm aims to develop a closed-loop system where its offerings are complementary, thus servicing an individual’s entire fitness life cycle.

• The 1Q22 result of Dongfang Electric (1072 HK) kick-started FY22 with an encouraging new record high quarterly profit and a good recovery in YoY new order momentum.
• We are excited to see DEC managed to control its selling, administrative and R&D costs with a slight 2.7% YoY growth, compared with a solid 29.8% revenue increase.
• Recurring pre-tax profit growth is estimated to be over 30% YoY, and its order backlog at around Rmb85.4bn, 1.8x its FY21 revenue. We consider its 7.7x FY22F PER very undemanding. 

• Yunkang Group (YK HK) is looking to raise US$139m in its Hong Kong IPO.
• Yunkang Group is a medical operation service provider in China and as per F&S, had a market share of 3.7% in China’s medical operation service market as per 2020 revenue.
• Yunkang saw its full-year FY21 performance pulled up in the later half of the year. Number of tests administered had also surged 3.45x YoY in FY21.

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.

• CIFI Holdings
• Kawasan Industri Jababeka
• KWG Living Group
• Sunac China Holdings
• Tata Steel Thailand

• There could be 3 or 5 changes to the STAR50 INDEX in June depending on the minimum listing history (6 months or 12 months) used by the index committee.
• Jinko Solar (688223 CH) is a high probability inclusion while Shanghai Microport Endovascular MedTech (688016 CH), ArcSoft Corp Ltd (688088 CH) and DBAPP Security Ltd (688023) are high probability deletions.
• Stocks performance over the last couple of months indicates the market is assigning a higher probability to the index committee using a 12 month minimum listing history.

• Alibaba Group (9988 HK)’s fourth-quarter results will be out soon and we predict another disappointing quarter with mid-single-digit revenue growth.
• The company’s FY23 revenue guidance could be significantly weaker than the current consensus estimate as rumoured layoffs and budget cuts are likely to affect Alibaba Group (BABA US)’s growth.
• With the share price near the upper end of the trend channel leading up to 4QFY22 earnings, we think it’s a good time to add to existing short positions.

• The scheme document is out with the Court meeting scheduled for 10 June. The IFA considers the offer to be fair and reasonable. Suchuang Gas Corp (1430 HK) remains suspended.
• Key conditions are the headcount test and approval by at least 75% of disinterested shareholders (<10% of all disinterested shareholders rejection). 
• Excluding the irrecovables, no shareholder holds a blocking stake. As the timeframe to fulfil the resumption guidance remains highly uncertain, the offer is a welcome exit opportunity. 

• PAG aims to raise around US$2bn via its Hong Kong IPO.
• PAG is an alternative investment firm focused on Asia-Pacific (APAC), it had approximately US$50bn in assets under management (AUM), as of Dec 21.
• In this note, we will talk about the not so positive aspects of the deal.

This month, we provide an update on the developments in the Oil & Gas sector following Russia’s invasion of Ukraine.

The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks, and discussing specific areas of interest in the “In-Focus” section. The Asia Monthly is intended to broaden investors’ understanding of the Asian USD high-yield market.

• The MWA market that Betters belongs to has showed rapid growth and large potential. Obviously, Betters would benefit from it based on its existing products and leading market position.
• However, the medical device industry in China is subject to strict policy supervision. It cannot rule out the possibility that the Company’s products would be included in the centralized procurement.
• In terms of valuation, Micro-Tech Nanjing Co Ltd (688029 CH) could be a comparable company,  but Betters’ valuation should be lower than it.

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.

• Gajah Tunggal
• Times China

• We expect the maximum permitted 30 changes at a single review to take place at the June rebalance. Most changes are high probability.
• We estimate a one-way turnover of 4.25% at the rebalance leading to a one-way trade of CNY 10.677bn.
• Industrials, Information Technology and Materials sectors are expected to have the most net inclusions, while Health Care and Financials are expected to have the most net deletions.

• Shenzhen International (152 HK) has secured pre-tax gain of HK$2.8bn from deemed disposal of Qianhai Business and this is another example for its ability to realise underlying asset value.  
• SZI still holds a 50% stake in Qianhai Business, allowing it to capture further upside from this project. The transaction should also improve cash flow as land fees are repaid.
• Other logistics transformation projects like the South China Logistics Park, which has an area even larger than Qianhai Business, will provide upside for the longer term. 

• PAG aims to raise around US$2bn via its Hong Kong IPO.
• PAG is an alternative investment firm focused on Asia-Pacific (APAC), it had approximately US$50bn in assets under management (AUM), as of Dec 21.
• In this note, we will talk about the positive aspects of the deal.

• Suchuang Gas Corp (1430 HK)‘s Scheme Document is now out. The Scheme Meeting will be held on the 10th June with expected payment on or before the 21 June. 
• The Independent Financial Advisor (Essence International) has concluded the offer by CR Gas (1193 HK) is fair and reasonable. 
• The pain is almost over for shareholders. This is as good a deal one can expect under the circumstances. Shareholders should vote through the Offer resolutions and pocket the cash. 

• The 2021 report is the worst ever annual report of Hengrui, with double drop in both revenue and net profit.2021Q4 and 2022Q1 are also the worst two quarters so far.
• Although Hengrui has invested heavily in R&D and internationalization, it’s still trying to follow an established model with better security.Essentially, Hengrui is still the same Hengrui. Nothing has changed fundamentally. 
• For now, Hengrui hasn’t released any signal for “a reversal”. If going bottom fishing, investors may have to take a long, uncertain journey with Hengrui. Can you afford to wait?

• SenseTime Group (20 HK) currently has a float of 1.4%. That will increase to 46% at the end of June as pre-IPO and cornerstone investor lock-ups end.
• The Hang Seng Tech Index FAF increase and potential inclusion in the Hang Seng China Enterprises Index will require passive trackers to buy 700m shares early September.
• Economic stimulus in China, outlook for China tech, lock-up expiry, inclusion in Southbound Connect and flows from passive trackers will drive the stock for few months and provide trading opportunities.

• We see seven new listings as potential inclusions to the HSCI in June. One is already a part of Connect while five will be added to Southbound Stock Connect.
• We see 19 potential changes to the HSCI in September. Seven of the deletions are on market cap, four on liquidity, and eight due to prolonged trading suspension.
• Some of the potential deletions have large Southbound holdings and some of these could be trimmed over the next couple of months.

• Healthy 17.2% growth in 1Q22 net profit of Kunlun Gas, the most important subsidiary of Kunlun Energy (135 HK), provides a welcoming evidence to ease market concerns on costs.  
• While gross margin was down 0.2pp YoY, it expanded by 0.4pp QoQ. Key cost items including selling, administrative and R&D are all under control, boosting EBIT margin by 0.5pp YoY.
• 1Q22 is a record quarter for Kunlun Gas, and gearing stays comfortable with strong operating cash flow. We believe such set of result signals good 1Q22 for Kunlun Energy. 

• China Communications Construction (1800 HK) has bucked the trend of weaker earnings growth in the last two quarters by posting a healthy 17.7% YoY net profit growth for 1Q22.
• While gross margin contracted slightly, the good control on selling and administrative expenses have partly absorbed margin contraction. Its new contract value for 1Q22 has also reached record high.
• With government’s aggressive special purpose bond issue and infrastructure investment, we expect new contract momentum to pick up. Trading at 3.2x PER and 0.22x P/B, CCCC is massively undervalued.

• In 2021/22Q1, Mindray’s 20%+ growth rate is not easy in this difficult/complicated environment, but the market hopes to see stronger data and a fresh logic of growth to restore confidence.
• After China’s “new infrastructure”  projects finish, how to maintain its 20%+ growth could be a challenge in the long term if Mindray couldn’t make breakthrough in internationalization or innovation.
• However, Mindray is still a “safe play”. Its current PE/TTM is also more reasonable, but definitely not undervalued. It would be much better to long Mindray at a lower valuation.

• Guodian Technology & Environment Group (1296 HK)‘s composite document is out with the H Shareholders’ class meeting on 20 May. The IFA considers the offer to be fair and reasonable. 
• The key condition for the privatisation is approval by at least 75% of independent H-shareholders (<10% of all independent H-shareholders rejection). There is no minimum acceptance condition. 
• The H Shareholder with a blocking stake has provided an irrevocable. For a 9 June payment, the gross and annualised spread to the offer is 1.9% and 19.5%, respectively. 

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore and the US (Chinese ADRs only).
• This week, the highest gross spreads are Dongzheng Automotive Finance (2718 HK), Yashili International Holdings (1230 HK), 21Vianet Group (VNET US), Sezzle Inc (SZL AU), Link Administration Holdings (LNK AU). 
• The lowest gross spreads are Beijing Enterprises Urban Resources (3718 HK), Virtus Health (VRT AU), 51 Job Inc Adr (JOBS US), China Logistics Property Holdings (1589 HK), Uniti Group.

• As one of the few CXOs in the industry that has layout of the whole industry chain, Pharmaron carries many expectations. But it cannot compete with WuXi AppTec so far.
• If Pharmaron could make breakthrough either in its CMC services (improving gross profit margin and scale) or the CGT services, the Company’s outlook and valuation logic would improve greatly.
• The valuation of Pharmaron should be lower than WuXi AppTec and WuXi Biologics, but higher than Asymchem, Tigermed and Joinn. Considering the macro uncertainties, short-term trades are advised.

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.

• Guangzhou R&F Properties
• Medco Energi

• China Education Group (839 HK) demonstrates resilience amid market concerns on policy uncertainties by posting a 40.5% growth in 1H22 reported net profit and 20.1% growth in adjusted net profit. 
• Higher education segment saw 44% profit growth and strengths will sustain into 2H22. Weaker secondary vocational and global education segments will witness a sharp recovery, based on latest application statistics.
• CEG has secured increase in tuition and quota in the coming school year, and this will boost FY23 outlook. It opts for an Rmb500m buyback, instead of paying interim dividend.

• Caixin reported on Wednesday that Meituan (3690 HK) has shut down community-group service (Meituan Select) in Beijing following news that the company plans to shut down operations in loss-making cities.
• Community-Group buying (CGB) became popular in China in 2020 and Meituan entered the market in 3Q2020 and continues to spend heavily on the biz.
• The market became heavily competitive in the form of price war, which attracted regulatory scrutiny and led to large players like Alibaba and JD.com opting out of the market.

• Beijing Enterprises Water Group (371 HK)/(BEWG) will launch a conditional mandatory general offer (MGO) for Beijing Enterprises Urban Resources (3718 HK) at HK$0.78 as it crossed the 30%+ voting threshold. 
• The MGO is conditional on the offeror and concert parties holding more than 50% of the voting rights (currently own 38.64%). The MGO price is unattractive, in our view.
• BEWG’s justification for the offer and lack of a “no increase in offer price” wording suggests the possibility of a bump. The shares closed 2.6% above the MGO price.    

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.

• Guodian Technology & Environment (1296 HK)‘s Composite Document is now out. The Scheme Meeting will be held on the 20th May with expected payment on or before the 9 June. 
• The Independent Financial Advisor (Gram Capital) has concluded China Energy and Guodian Power’s Offer is fair and reasonable. 
• This is a done deal – play the spread. This is trading at a gross/annualised spread of 1.9%/18.6%. 

• CNOOC Ltd (883 HK) released fantastic, above-consensus earnings for Q1, which were minimally impacted (positively) by non-recurring profits. 
• The driver was higher gas production on much higher prices. At current price, the implied PER is 3.0x for 2022.
• And the company also announced a Special Dividend of HK$1.18/share or 10.9% of yesterday’s share price. 

• Last evening CNOOC Ltd (883 HK) announced a special div of HK$1.18/share – that is higher than market expectations. JD.com Inc. (9618 HK) could announce a special div next week.
• Fair value for the HSCEI 2022 dividend futures moves higher to 250 DIPS off the back of CNOOC Ltd‘s special div and the estimated JD.com Inc. (9618 HK) special div.
• The HSCEI 2022/23 steepener had dropped to -29 yesterday and should drop even lower today where we could see some covering.

• Beijing Enterprises Urban Resources (3718 HK) (BEUR) has announced a mandatory general cash offer from Beijing Enterprises Water Group (371 HK) (BEW). 
• This Offer was triggered by BEW increasing its stake to 31.23% from 29.97%. The Offer price is HK$0.78/share, a zero premium to last close and 20% above the 30-day average. 
• This is an underwhelming privatisation Offer. BEUR traded through terms as recent as last November. The Offer price has not been declared final.

For our next Corporate Webinar, we are glad to welcome Taste Gourmet Group (8371 HK) CFO and Company Secretary, Gerald Yu. In the upcoming webinar, Gerald will share a short company presentation with on-the-ground insights from Hong Kong, after which he will engage in a fireside chat with Smartkarma Analyst Sameer Taneja. A live Q&A session will follow.

The Corporate Webinar will be hosted on Tuesday, 17 May 2022, 17:00 SGT.

Taste Gourmet Group Limited is a Hong Kong-based restaurant group offering a variety of cuisines, under a portfolio of brands, to a diversified customer base. Since the opening of its first restaurant in 2007, the group has owned and operated a total of 34 restaurants offering Vietnamese, Japanese, Chinese, Western, and Drink under 14 brands, including 11 self-owned brands such as La’taste Vietnamese Cuisine, Dab-Pa Peking & Szechuan Cuisine, Dab-Pa Peking & Szechuan Bistro, Dab-pa Modern Chinese Cuisine, Urawa Japanese Restaurant, Nabe Urawa, Rakuraku Ramen, Wasyohuya Yamaichi, Moments Together, Yakiniku Guu, San-Kinn, three licensed brands known as Parkview, Takano Ramen, and Tirpse, and one joint venture brand known as Xianghui.

Corporate Webinars by Smartkarma Corporate Solutions feature discussions with IROs and Executives, discussing their companies, the challenges they face, and the opportunities in their sectors and markets.

• HKEX (388 HK) core businesses such as cash market and stock connect remain robust against the backdrop of relatively low expectation.
• Mark-To-Market investment loss underscored the volatile fixed income market, we expect the negative impact will continue into 2Q22 as the shift in rate environment.
• MSCI China A50 future continues its rapid ramp-up, ADV is up 86% quarter-over-quarter. Overall future trading is strong, ADV is up 39% quarter-over-quarter.

• Scivita Medical Technology (SMT HK) has certain technical advantage and a comprehensive portfolio of products and candidates, which would help the Company seize a position in this market.
• There are also some potential risks and concerns that could be unfavorable for Scivita’s development, which should be aware of by investors.
• In terms of the valuation, SonoScape and Aohua Endoscopy (688212.CH) could be the comparable companies, but the valuation of Scivita should be lower than either of them.

KWG Group’s disclosure and transparency during the investor call are encouraging, though we believe that its plan to repay the USD 900 mn notes in September is subject to some executional risk. In particular, the raising of additional secured loans would be subject to banks’ willingness to lend against the Ap Lei Chau project. We stated previously that it was unclear if KWG and Logan would be able to profitably launch the project for sale, as the record land price would be a stumbling block. That said, KWG should be able to receive steady cash collections from the sale of the remaining units at its Kai Tak project. Assuming a 50% sell-through rate, this could fetch an attributable HKD 1.5-1.75 bn in the coming months. In addition, KWG might be able to supplement its liquidity with asset disposals, particularly if it is willing to dispose of them at a discount.

• Xinjiang Goldwind Science & Technology (2208 HK) sees recent recovery in WTG price to be positive; and the increase in average unit size should be good to unit costs.
• Gross margin contracted 3.1pp YoY in 1Q22 and it has put in place many cost reduction initiatives to contain cost inflation. It expects more impacts can be realised in 2H22.
• External order backlog up 6.3% YoY to 16.97GW, with an encouraging 37.7% growth for overseas contracts. We think its 9.9x FY22F PER is inexpensive relative to the clean energy plays.

• The quit of the centralized procurement of chemiluminescence products in Anhui directly put Autobio Diagnostics (603658 CH) in a passive position. The implications could be deeper and more complex than expected.
• Autobio didn’t seize COVID-19 testing opportunities, leading to the doubts about the Company’s market sensitivity and team execution, thus losing the opportunity to generate substantial cash flow for future acquisitions.
• Together with weak internationalization business, Autobio’s future performance growth could be uncertain and may not be able to support the rapid valuation expansion as expected.

• Sinotrans (598 HK) posted a 17.7% YoY net profit growth for 1Q22, providing evidences that it can weather the slowing trade momentum. More encouragingly, net profit surged 54.9% QoQ.
• Gross margin expanded 1.3pp YoY, signaling better cost performance. DHL-Sinotrans continued to provide very promising contribution, reflecting in a 14.3% growth in investment income. 
• Operation parameters are solid and gearing stays healthy (7.6%), providing room for higher dividend payout. Even at last year’s payout, it trade on 10.9% yield; and it’s on 3.3x PER.

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.