China

• Guodian Technology & Environment Group (1296 HK)‘s (GTE) pre-cons are now fulfilled – bang in line with my timetable estimate.
• The Composite Document should be despatched to the shareholders on or before 29 April 2022. 
• Assuming all goes to plan – and there is every indication it will – payment under the Offer is expected around mid-June.

• A Bloomberg article claimed that Chindata Group (CD US) is attracting takeover interest from GDS Holdings (ADR) (GDS US), PAG and EdgeConneX. Shares rose 9.8% to close at $4.81.
• Potential privatisation will require the blessing of Bain Capital, the largest shareholder. Chindata’s track record of beating guidance, modest leverage and the beaten-down rating make it a target. 
• A forward EV/EBITDA multiple of 8.9x, in line with 21Vianet Group (VNET US)’s proposed acquisition multiple, would imply $6.85 per ADS. 

• AKM Industrial (1639 HK)’s privatisation offer from Alpha Luck and AKM Meadville of HK$1.8345 consists of a base offer (HK$1.82) and a final dividend (HK1.45 cent).
• The pre-condition was fulfilled on 22 April. The latest date for the despatch of the scheme document has been extended to 10 June. 
• Shareholders with blocking stakes have previously provided irrevocables. At last close and for an early-August effective date, the gross and annualised spread to the offer is 3.1% and 10.7%, respectively.

• Tencent (700 HK) will announce its first quarter 2021 results on 18th May 2022.
• Since 3Q2021, Tencent’s earnings have started to decelerate, and the previous quarter marked the slowest ever revenue growth for the company since 2004.
• We expect Tencent’s earnings weakness to continue well into 1H2022E due to slowdown in online games and online advertising businesses.  

• InnoCare was approved to list in the SSE STAR Market, and the Company also released its improving financial performance in 2021. However, the outlook for InnoCare remains challenging and uncertain.
• Either orelabrutinib or the pipeline, they don’t have pricing power due to lack of sufficient competitiveness and slower development progress, which means that their commercialization performance is highly uncertain.
• There’s no definite commercialization outlook for InnoCare, with a far distance from becoming a biopharma. InnoCare was overvalued and could be attractive if the market value could be 50% off.

• Uju Holding raised US$103m from its Hong Kong IPO in Nov 2021, where the IPO had been priced at the bottom end.
• The offering was only mildly oversubscribed and the two cornerstones in the deal, Bytedance and Green Better (Xiaomi), had combined to subscribe to 12.6% of the offer shares
• The cornerstones and Pre-IPO investors’ stake are coming up for lockup expiry. The latter will see half of their stakes unlocked, with the remainder locked up for another six months.

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.

• KWG Living Group

• PRC dairy farmer Lanzhou Zhuangyuan Pasture (1533 HK) has announced a Conditional Cash Offer for all H-shares at $10.89/share.
• The Offer is being done via a Voluntary Cash Offer, therefore an onerous 90% tendering condition is present.
• This transaction could potentially be wrapped up late-July. The FY21 dividend may also be added to terms. 

• Despite solid growth in 2021, if seen from prior years, the revenue YoY growth rate and net profit YoY growth rate showed a state of divergence, which is “interesting”.
• Since half of Tigermed’s net profits were from investment income,it’s not logical to apply the valuation methods of traditional CXO to Tigermed. Its CRO and investment should be valued separately.
• The poor IPO sentiment, risk of recession and the domestic healthcare rational return would make investors reconsider if Tigermed’s “CRO + PE/VC business model” would be a safe play.

• Cimc Enric Holdings (3899 HK) has an encouraging 1Q22 with 24.9% revenue growth. If not the impact of the pandemic and lockdowns in Mar, growth would even reach 35.2%.
• Total new orders increased 23.2% in the quarter even in a period disrupted by lockdowns. Backlog stands at Rmb15.5bn, enough to fully cover FY22 revenue with 7% growth.
• Hydrogen energy business, though still small, witnessed 80.5% revenue growth. Good demand drives new orders to Rmb105.4m; and its backlog of Rmb180m equals to 5x of 1Q22 revenue. 

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.

• Delta Dunia Makmur
• Jingrui Holdings
• KWG Living Group

• Guodian Technology & Environment Group (1296 HK)’s privatisation offer from China Energy is HK$1.08 per H share. The pre-condition was fulfilled on 22 April.  
• The key conditions for the delisting will be approval by at least 75% of independent H-shareholders (<10% of all independent H-shareholders rejection). There is no minimum acceptance condition.  
• At last close and for a mid-June effective date (composite document despatched by 29 April), the gross and annualised spread to the offer is 2.9% and 19.9%, respectively.

• Zhihu Technology (ZH US) raised around US$106m via a dual primary listing in Hong Kong. 
• Unlike all the prior dual primary/secondary listings which have been done via offering either only primary or a mix of primary+secondary shares, Zhihu’s offering will consist of only secondary shares.
• In this note, we’ll talk about the demand and trading dynamics.

• Skyrocketing material costs shook the stock of Contemporary Amperex Technology Co. Ltd. (CATL) as investors wiped billions of dollars off the value of the world’s largest electric-vehicle battery manufacturer.
• Word circulated in the market that CATL is set to post net profit of less than 5 billion yuan for the first quarter, a sharp decline from the previous quarter.
• The company hasn’t issued detailed financials for the fourth quarter and all of 2021. An estimate issued in January put annual net profit between 14 billion yuan and 16.5 billion yuan.

• Hong Kong’s hospitality industry has endured three years of upheaval, first with the democracy protestors in 2019, which slowed inbound, followed by the onset of Covid in early 2020.
• Beginning today, 21 April, the Government commenced the relaxation of most social distancing measures, to be eased over three phases.
• This evolving dynamic is welcome, yet the progress and recovery for many operators may be gradual.

• CR Gas (1193 HK)’s privatisation bid for Suchuang Gas Corp (1430 HK) was derailed by the trading suspension due to the disclosure of previously unaccounted for pledges/guarantees by subsidiaries.
• The controlling shareholders have attempted to keep the offer alive by agreeing to fully indemnify CR Gas for losses related to the pledges/guarantees.
• The long stop date of the offer was extended to 31 August 2022. The key risk is that the timeframe to fulfil the resumption guidance exceeds the long stop date. 

• As of the last close, we expect Li Auto (2015 HK) and PICC Property & Casualty H (2328 HK) to replace Smoore International (6969 HK) and Sunny Optical (2382 HK). 
• There are some reasonably large capping changes that will result in one-way turnover estimated at 4.25% and will result in a one-way trade of HK$2,090m.
• Short interest has spiked recently on Smoore International (6969 HK), while there has been short covering on the other potential inclusions and exclusion. 

• JD.com met our 240+ short zone and has gapped below immediate 215 support, opening the way for  C wave decline to our target and buy zone near 180.
• RSI trendline rejection sets up a slide to the sub 30 area which mean we will at least hit 180 if not reach for 160.
• Holding the 160 low sets up an intermediate long trade. Be aware that there will be some wide tactical swing over the turbulent summer cycle.

• On 16 April, the Shanghai Financial Court published the details for the auction of China Zhengtong Auto Services Hldg (1728 HK)’s 71.04% stake in Dongzheng Automotive Finance (2718 HK). 
• If the auction is successful and results in any person and a group of persons acting in concert holding 30%+ of the voting rights, it will result in an MGO.
• The base bid implies an MGO price of HK$1.294 per H Share, a 112.1% premium to the last close. The auction will be held from 18 May to 19 May.

• After both stocks were suspended on the 19 April, the forced liquidation of China Zhengtong (1728 HK)‘s stake in Dongzheng (2718 HK) will occur, via auction, on the 18 May. 
• That minimum bid price is HK$1.294/share, or a 112% premium to last close.
• ZhengTong’s stake is 71.04% of shares out. A mandatory general offer – conditional or unconditional – may materialise from the auction process. 

• Several news media outlets report that ByteDance has launched a new music streaming service in China called Qishui Yinyue.
• Tencent Music (TME US) earnings have come under pressure with ending of exclusive music streaming licensing deals and increased regulatory pressure on its social entertainment biz.
• We expect TME’s 1Q2022E earnings to decline further with increased competition and drop in social entertainment.

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.

• Zhenro Properties

• Both Dongzheng Automotive Finance (2718 HK) and China Zhengtong Auto Services Hldg (1728 HK) issued HKEx suspension notices at the same time yesterday morning.
• In no uncertain terms, the Shanghai office of the China Banking and Insurance Regulatory Commission has forced the liquidation of ZhengTong’s 71.04% stake in Dongzheng.
• That stake “sale” may trigger an Offer for Dongzheng. Dongzheng’s suspension is “pursuant to the Hong Kong Code on Takeovers and Mergers“.

• Tencent short call at 390-400 is a hold but needs to break below the 351 low for bear traction toward our downside targets at 333 and 320 (bull zone).
• The current flat/trapped range shows resistance at 382 and pivot support at 351/350. Below 350 would open the way lower.
• Re test of the low zone is a buying opportunity for a rally to the 320-30 macro barrier. HK tech index sub 4k buy zone is our long counter balance.

We view Meituan as “Low Risk” on the LARA scale, given the company’s: [1] leading market positions in China’s food delivery as well as the in-store, hotel & travel accommodation industries; [2] increasing market share and scale, which should drive operating leverage; and [3] robust balance sheet, with net cash and a strong liquidity position. Meituan benefits from regulations that restrict aggressive pricing to gain market share. In addition, the company has fast-growing revenue streams across its business segments. However, the credit profile is weighed down by: [1] regulatory headwinds in the food delivery business; and [2] the ongoing losses and cash burn from the company’s community group-buying business.

Our Credit Bias is “Stable”, given the robust business risk profile and strong balance sheet.

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.

• Sunac China Holdings

• The company was told a year ago that it had data problems. It was then told in June it had serious data problems and was given 15 days to fix.
• It did not. It listed itself, against the wishes of the regulators. Then it got in serious hot water. And it has only been getting hotter. 
• A hoped-for HK Listing By Introduction was nixed 5 weeks ago. Now the Company is simply going to delist to try to solve its problems behind closed doors before relisting.

• DiDi Global (DIDI US) will hold an EGM on 23 May to vote to delist the ADS from the NYSE. The shares will not be listed on another exchange before delisting. 
• Due to the regulatory restrictions, DiDi is losing market share and pricing power to competitors in China. The 4Q21 results were poor. 
• Directors and key pre-IPO investors together account for 48.2% of outstanding shares, suggesting that the ordinary resolution will pass. 

• Nikkei reported that Meituan intends to pay better compensation to small-and-medium restaurants and to delivery workers to prove that the company is in line with Beijing’s common prosperity measures.
• As Shanghai is under strict Covid lockdown, Meituan has seen a sharp rise in demand for grocery deliveries, however, margins are expected to be thin due to additional costs.
• The company has been under tremendous pressure to improve its cost structure and is undertaking 10-20% job cuts across all its business units.

• Tencent’s increase in investment acquisition activity has coincided with a general weakness in equity prices and valuation levels.
• Tencent management’s assessment of the fair value of its listed investee holdings, of RMB982.8bn on 31 December 2021, equates to roughly 27.4% of its market cap.
• The market value of Tencent’s investee holdings in more-mature, Chinese-listed, internet-orientated holdings equates to roughly 9% of its current market cap.

• Air China Ltd (H) (753 HK) has weaker passenger traffic in Mar and 1Q22 when compared with China Southern Airlines (1055 HK), and this is mostly due to the Olympics.
• We expect one-off factors to remove starting Apr and traffic gap against CSA will narrow going forward. Its associate Cathay Pacific (293 HK) has also seen good pick-up in Mar. 
• Air China outperformed CSA by 8pp YTD. There are signs of quarantine requirement relaxation for incoming passengers, and we anticipate gradual international traffic recovery to bode well for Air China.

• As the “the king of generics”, Sino Biopharmaceutical (1177 HK) is lucky to have three “golden eggs”(Entecavir, Anlotinib, CoronaVac) to contribute huge performance over the years.
• The promotion of VBP and fierce competition make Sino Biopharmaceutical’s products lose pricing power. Due to little revolutionary technology/slow product iteration/weak R&D, it’s unlikely to have another Anlotinib level asset.
• The Company’s development mode, the mindset of management, and other concerns could be more serious problems, causing investors to distrust the management level and preventing it from getting high valuation.

We view China Vanke as “Low Risk” on the LARA scale, given the company’s: [1] leading market position in terms of sales and branding; [2] sound financial profile; and [3] diversified geographical coverage. Vanke is transitioning to become a more diversified company, with increased exposure outside the residential project sector and higher participation in the “Rail+Property” development model. Furthermore, the company is able to acquire land at lower cost amid the current bleak environment, and has lower financing costs due to its ties to the state.

Our fundamental Credit Bias on Vanke is “Stable”, given its adequate liquidity and sound credit metrics. We expect the company to have good access to funding, thanks to its status as a state-owned enterprise. That said, negative sentiment in the industry could weigh on Vanke’s performance.

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.

• KWG Living Group

• 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 Yashili International Holdings (1230 HK), 21Vianet Group (VNET US), Sezzle Inc (SZL AU), Link Administration Holdings (LNK AU), Razer Inc (1337 HK).  
• The lowest gross spreads are China Logistics Property Holdings (1589 HK), Virtus Health (VRT AU), 51 Job Inc Adr (JOBS US), Uniti Group Ltd (UWL AU), Irongate Group (IAP AU). 

• Under the current policy in China, any minor changes to vaccine doses require a series of clinical data support and registration changes. So, WHO’s recommendation won’t affect Zhifei’s short-term performance.
• The increasing domestic competing HPV vaccines in the future would be a big threat to Zhifei’s agency business. Its self-developed products may not be strong enough to compensate. 
• The performance in 2022 is expected to be solid before real challenge comes in 2024. The valuation logic and outlook won’t be brighten unless there’s new breakthrough in agency business.

• Legend Biotech Corp (LEGN US) received FDA approval for its first product Carvykti in February as a fifth-line treatment of relapsed or refractory multiple myeloma.
• Label expansion of Carvykti for earlier line of multiple myeloma treatments should expand addressable market, thereby increasing peak sales opportunity to $5 billion from initial expectation of $1.5 billion.
• The U.S. Securities and Exchange Commission has added Legend to their delisting watchlist last week. The company needs to release required evidence by May 3 to stay listed.

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
• Anton Oilfield
• Central China Securities
• CIFI Holdings
• KWG Living Group
• Ronshine China Holdings

• JD.com (9618 HK)‘s CCASS movements are a thing, and there are things going on in the background, but the things in the foreground are not as menacing as they appear. 
• Suzuki Co Ltd (6785 JP)‘s NAV discount and implied stub plumb new lows. Again.
• Musk has made a non-binding proposal for Twitter Inc (TWTR US) at US$54.20/share. Get it? Get it? Nudge nudge wink wink. That’s all part of the fun for him.

• 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 IPOs front, Zhihu and the SK twins were the main active deals, with LIC being in the pipeline for a potential launch in the coming week.
• Placement flows remained slow over the holiday shortened week. With Japan continuing to favour accelerated book build.