China

• We have previously commented on Valorant’s relatively unique position in esports due to its high degree of regional parity and that is being further underscored during its ongoing Masters tournament. 
• In particular, Japan, a region not known for any particular prowess in FPS titles secured its first top eight position generating significant buzz on twitter in doing so. 
• The implications look positive here for both Valorant overall and for Japan’s esports ambitions where it is probably now time to truly familiarise yourself with the potential plays.

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.

• Shortly after piped natural gas operator Suchuang Gas Corp (1430 HK) announced a privatisation Offer from CR Gas (1193 HK) last August, shares were suspended. And remain suspended today.
• That suspension pivoted off previously unreleased information that certain bank deposits of Suchuang Gas’ subsidiaries had been pledged. 
• An investigation remains ongoing. A material portion of those pledges have defaulted. Financial results have been delayed. However, the Offer appears to still be moving forward. 

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. China Jinmao Holdings
2. Guangzhou R&F Properties
3. Sunac China Holdings
4. Greenland Hong Kong Holdings
5. Evergrande

and more…

• As China’s leading assisted reproductive service provider, Jinxin Fertility Co Ltd (1951 HK) can be negatively affected by the country’s consistently falling birth rate.
• The company performed 27,354 IVF cycles in 2021, 20% higher than that of 2020. However, it is still lower than 27,854 IVF cycles performed in 2019, pre-COVID era.
• Concern over the fact that the Chinese government may impose restrictions on the for-profit healthcare service providers, like it did for K12 education sector, is souring near-term sentiment.

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. China Jinmao Holdings
2. Guangzhou R&F Properties
3. Sunac China Holdings
4. Greenland Hong Kong Holdings
5. Evergrande

and more…

• Shanghai is in lockdown and citizens are finding it hard to get enough food.
• Community group purchase has been taking consumers from e-commerce apps.
• The central government reiterates the zero-COVID policy, but the Omicron variant is spreading with very few death cases.

• Pacific Basin Shipping (2343 HK) stays positive towards the outlook of the bulk shipping market despite the Russia-Ukraine war, higher inflation and lockdowns in China.
• 1Q22 coverage rates are 117% and 122% higher YoY for its Handysize and Supramax fleet, resepctively, and coverage for 2Q22 is also promising, securing good 1H22 earnings.
• We expect it to turn into net cash by end-FY22, and even with such strong financial position, it will still generate over 30% ROE for the next two years.

• Venus MedTech (2500 HK) is facing competition in China TAVR market and its market share has deteriorated to 70% in 2021 from 79.3% in 2018.
• Due to declining ASP and low pricing power, the company’s gross profit margin has declined to 78% in 2021 from 86% in 2018.
• During 2021, the company’s loss expanded 103% y/y to RMB372 million, mainly due to elevated selling and distribution expenses and R&D costs.

• IVF penetration rate in China is not high and the rate of improvement is very slow. With public hospitals accounting for over 90% market share, Jinxin’s growth space is limited.
• Jinxin has extended its business scope to support the entire fertility and pregnancy lifecycle. But it could drag down the overall net profit margin,resulting in lower-than-expected performance in the end.
• The breakthrough point is internationalization. If COVID-19 is under control and Jinxin continues to expand overseas markets successfully, it could change its valuation logic and open up upward potential.

• There has been an increase of 700m shares held in HK CCASS for JD.com Inc. (9618 HK) on 11 April.
• The largest part of 421.5m shares is likely the conversion of Class B to Class A shares following Richard Liu stepping down as CEO of the company.
• The rest is unknown at this point but could be Prosus (PRX NA) moving their shares to HK to sell-down and use the cash to buy back their own stock.

• The relaxing of restrictions by Hong Kong makes Taste Gourmet Group Ltd (8371 HK) a great reopening play, trading at 8.8x FY22e and 5.6x FY23e. 
• Despite a challenging environment, the company has executed well, maintaining net margins north of 7-8%, which are far superior to other listed competitors.
• With >60% payout ratios, it trades at a dividend yield of 6.7%/11.4% FY22e/FY23e. Since 29% of the market capitalization is cash, we are confident in the dividend payments. 

• Today, CCASS data showed that 700,000,047 Class A Shares of JD.com Inc. (9618 HK) popped into existence in CCASS (from outside of CCASS the day before). Poof!
• They showed up in Deutsche Bank’s CCASS Participant account. Just like the 600,000,000 Class A Shares which popped in on 15 December 2021. 
• There’s a thing here, and there are things going on in the background, but the things in the foreground are not as menacing as they appear. I explore and explain.

• China’s gaming regulator, National Press and Publication Administration granted publication licenses to a list of 45 games, ending the nine-month long freeze on new game approvals in the country.
• While it comes as a relief, The Cyberspace Administration of China has kicked off a formal campaign to investigate and rectify algorithm security issues of tech companies.
• Though any of Tencent (700 HK) games didn’t receive approvals, the company’s shares have moved positively during today’s trade and up 2.1% from yesterday’s close.

• After one month from the March batch of Hong Kong Connect inclusion, we provide an analysis on the stock inclusion for 19 stocks. 
• We analysed the inclusion by performance post announcement, performance post inclusion, inflows and analyst coverage.
• We observed outperformance post the HSCI announcement but not the actual inclusion despite the fact that southbound inflows has a significant impact on the trading volume. 

• Beauty services in Hong Kong will pick up from the 21st of April 2022 post the reopening, due to pent-up demand and the disbursement of Consumption Vouchers by the government. 
• Despite losing three months of H1 2022 and a month of H2 2022, we believe that Water Oasis (1161 HK)  is still trading at 5.4x PE FY22e.
• With an 80% payout ratio, the dividend yield is alluring at 16.4%. Net cash represents 38% of market capitalization. A year of uninterrupted operations implies a 3.8x PE. 

• Zhihu Technology (ZH US) has launched an HKEx dual-primary listing to raise $150-200 million. The H Shares will be priced on 14 April and listed on 22 April.
• In Zhihu Dual-Primary Listing: A Question of Judgment, we stated that while a loss-making tech name is not everybody’s cup of tea, Zhihu has resilient performance and an undemanding valuation.  
• In this note, we will look at Zhihu’s potential HK-ADS premium/(discount). Zhihu pricing its H-shares at a discount of 3-4% to its ADSs will be reasonable, in our view.

• Chinese Internet data center services provider 21Vianet Group (VNET US) has recently received a non-binding proposal letter from the Hina Group and Shanghai’s Industrial Bank Co. 
• The indicative Offer price is US$8.00/ADS, or ~US$1.3333 per ordinary share.
• The Offer Price is utterly underwhelming. A successful outcome will more than likely find its way to the Cayman Court.

• HSI’s bear turn at 22,500 is in line with 21k the level to break for further bear traction.
• HSI downside targets remain at 20,200 and 19,700 but below 19,500 would induce a weaker cycle into May with risk of re testing key lows.
• HK tech index, JD and Tencent levels are reiterated. Summer cycle lows to set up a more bullish second half of 2022.

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.

• Lippo Karawaci
• West China Cement

• Earlier this year, Jardine Matheson Holdings (JM SP) was understood to be exploring the sale of its 28% stake in Greatview Aseptic Packaging (468 HK).
• GA Pack announced its full-year results late last month and for the first time since 2012, opted not to pay a final dividend.
• Shares are down 20% since that non-dividend announcement. That’s convenient.

• CNOOC’s RMB Issue of 2.6bn Shares (about US$5bn with over-allotment) was priced at a 14.2% premium to Friday’s close. Not Great Bob.
• But 31 March indications of Q1 results, and the promises of an H-share buyback noted in the Annual Results a day earlier are worthwhile noting.
• CNOOC continues to trail Global Peers in Price and Forward EBIT multiple since the Executive Order 13959 dampened share demand and booted it from global indices. It’s still cheap though.

• VNET, formerly known as 21Vianet Group (VNET US), is a leading carrier and cloud-neutral data centre services provider in China. 
• It has received a non-binding privatisation proposal from The Hina Group and Industrial Bank Co Ltd A (601166 CH) at $8.00 per ADS, a 48.1% premium to the undisturbed price. 
• The Board has not made any decisions on the offer. Despite the juicy premium, the offer is unattractive in the context of historical multiples and share prices.    

• Zhihu plans to raise around US$130m 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 deal dynamics and structure.

• China announced game approval last night, after 8 months of silence.
• We discussed in our previous note that China would resume game approval.
• There is no game approved for Tencent and Netease this round but we believe their approval will come in due time.

• Zhihu has filed for a dual primary listing on the HKEx through offering of 26m shares (Class A) by existing shareholders at a maximum offer price of HK$51.8 per share.
• Two ADS represent one Class A ordinary share and shares closed at US$2.56 per ADS, and the maximum offer price implies a 31.5% premium to the last close.
• Zhihu’s business model seems to work in favour and the company’s shares are extremely cheap at the current multiples. There is upside but we would remain cautious.

• Following CCEP spin-off and share price decline, China Conch Venture (586 HK) is now at more attractive valuations relative to the stub, on sum-of-the-parts and on PER multiple. 
• Growth profile should improve in next two years and it has an optimistic expectation of of 76% increase in waste treatment and 79% growth in on-grid electricity for FY22.
• New business initiatives including anode and cathode materials of lithium iron phosphate and lithium batteries and used lithium batteries treatment may provide potential medium term upside.

• The three large orders for COVID-19 small molecule drugs are mostly one-off revenues, and after 2022, Asymchem Laboratories (6821 HK)‘s performance could decline from a high base.
• In essence, Asymchem mainly relies on cost advantage of large-scale capacity to obtain orders.Without core leading technology in frontier of medicine, Asymchem is difficult to enjoy sustainable industry development dividend.
• Overall, Asymchem’s moat is not strong enough, and the certainty of the Company’s long-term performance growth is also not high. It could be a short-term trade rather than long-term hold.

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.

• Honghua Group
• Sino-Ocean Service

• Zhihu Technology (ZH US) has launched an HKEx dual-primary listing to raise $150-200 million. Zhihu will not receive any of the net proceeds as it is offering from selling shareholders.
• Zhihu shares are down 73% from the IPO price of $9.50 per ADS (March 2021) largely due to the tech sell-off and regulatory uncertainty on ADR listings.  
• While a loss-making Chinese tech name is not everybody’s cup of tea in the current environment, Zhihu has delivered resilient performance and the valuation is undemanding. 

• Simcere Pharmaceutical Group (2096 HK) reported an 11% y/y revenue growth to RMB5 billion, mainly driven by 54% y/y revenue growth from innovative pharmaceuticals.
• However, gross margin contracted 160 basis point to 78.4%, reflecting pricing headwind. Heavy R&D and selling and distribution expenses are taking toll on operating profit.
• During 2021, Simcere has added six registered clinical trials for phase 3, two trails for phase 2, three trails for phase 1, and obtained 12 clinical trial approvals for drugs.

• Due to its early involvement in license-in mode, Zai Lab could in-license many high-quality candidates at a low price in the early stage, thus leading to today’s achievements.
• However, the increasingly low cost performance of in-licensed products has made the capital “reconsider”, because it is increasingly difficult to maintain high growth as before based on license-in mode.
• Zai Lab could be a good short-term trade,especially when it reaches licensing deals or launch new products,but doubts about long-term prospects could discourages investors from holding it for long term.

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 Jinmao Holdings
• Country Garden Holdings Co
• Gajah Tunggal
• JSW Steel Ltd
• Powerlong Commercial Management Holdings
• Ronshine China Holdings
• Shui On Land
• Tata Motors ADR

• The S&P/ASX 200 (AS51 INDEX) rebalance takes place at the close on Monday, 11 April with HomeCo Daily Needs REIT (HDN AU) replacing CIMIC Group Ltd (CIM AU). 
• The review period for the MSCI May SAIR starts on 18 April. There will be adds/deletes, listing switches, and FIF changes (both big and small).
• There were big inflows to the iShares MSCI Emerging Markets (EEM US), Vanguard FTSE Emerging Markets ETF (VWO US) and iShares Core MSCI Emerging Markets ETF (IEMG US) ETFs.

• Hansoh Pharmaceutical (3692 HK) is increasingly focusing on innovative drug, with revenue from such drugs contributing 42% of total revenue in 2021. R&D accounted for 18% of revenue in 2021.
• Thus far, in this year, Hansoh received approval for one more new rare-disease drug. Its rich pipeline has 25+ clinical programs of innovative drugs.
• With its proven execution on innovative portfolio, sound financial positions, and recent business collaboration effort to enrich the pipeline, Hansoh seems to be an undervalued business.

• MSCI comprehensively evaluates the free float for stocks at the May SAIR. The changes will be announced on 12 May and implemented at the close on 31 May.
• We expect an increase in the FIF for some stocks. Largest inflows are expected on Tencent (700 HK), Kuaishou Technology (1024 HK), JD Health (6618 HK) and KakaoBank (323410 KS). 
• There is reasonably large short interest on some of the stocks and there could be some short covering on stocks where there could be large passive inflows.

• JD dismissed employees in many businesses, such as Retail, International, and Jingxi.
• However, we believe the layoff only covers minor businesses and functions.
• We believe the stock still has a upside of 48%.

• We think the recent price weakness of Dongfang Electric (1072 HK) is overdone, and there is strong value proposition on the stock based on its current multiples.
• DEC’s orderbook has well covered in the next two years, while we see cost management measures will help mitigating the pressure on margin. 
• It is well positioned to capture the wind power boom (26% of FY21 revenue) and remains the prime beneficiary of China’s hydrogen economy and pumped storage demand in the longer-term.

• Financial markets are dominated by uncertainties being created by Russia’s invasion of Ukraine and the potential economic impact of the Fed raising rates and unwinding its balance sheet simultaneously.
• The volatility and level of rates in EM are rising with the US but with differentiation: Asia and Central Europe are underperforming, while Latin America is outperforming.
• The possibility of binary economic scenarios playing out as a result of the current uncertainties makes me pause for more clarity before making new trade recommendations.

• OneConnect Financial Technology (OCFT US) is a leading technology-as-a-service provider for financial services industry in China.
• The company is currently listed in the US and recently filed for a secondary listing in Hong Kong in an attempt to boost the liquidity of its shares.
• OCFT still relies on its parent Ping An to generate most of its revenues and despite seeing strong growth in top line, the company is still far from profits.

• PC Partners has solid bull base line support to stage a fresh bull cycle. Old high support and key lows rest at the 7.50 level. 
• RSI is due to rally off of the bull wedge breakout support. Buy volumes are constructive on strength with weak sell volume on recent weakness (underlying bullish).
• 12.50 and 14 bull targets with the later the hurdle to clear to open the way higher.

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.

• China Hongqiao
• Hopson Development
• Times China

• We expect Baidu (9888 HK), Bilibili (9626 HK), GDS Holdings Ltd (9698 HK) and New Oriental Education & Technology Group (9901 HK) to replace their ADRs in the MSCI indices.
• The subsequent increase in CCASS shares and/or shares held outside the ADR depositary will result in an increase in the weights of the stock in the HSCEI INDEX and HSTECH INDEX. 
• The higher index weight for Baidu (9888 HK) in the HSCEI and potential inclusion of Bilibili (9626 HK) will add downward pressure on the HSCEI 2022/23 dividend steepener.

• With a few weeks to the end of the review period, we see 30 potential changes (the maximum allowed at a review) to the index in June.
• Most of the changes are high probability ones. We estimate a one-way turnover of 4.48% at the June rebalance leading to a one-way trade of CNY 7.86bn.
• The potential inclusions have outperformed the potential deletions over the last couple of months. There could be more to go here as positions are built in the next few weeks.

• Medlive’s shares are currently trading at HK$8.15 per share and lost almost 70% YTD which we think was due to the ongoing regulatory crackdown on tech platforms in China.
• Medlive’s 2021 revenues grew 33.2% YoY to RMB284m while adjusted OP grew 19.0% YoY to RMB123m. Shares reacted negatively due to slowdown in top line growth.
• Medlive is currently trading at FY2 EV/Revenue of 0.97x compared to 34.3x when we last wrote. We think shares are extremely cheap and offers a good entry point.

• China Longyuan Power Group Corp (916 HK) is expected to see an exciting year on the back of faster capacity growth, increase in utilisation hours and higher average tariff.
• Potential asset injection from its parent CHN Energy remains a wild card. It may grow its capacity by an average of 30% over the next three years if materialises.
• Lower funding costs and the return to A-share are positive to Longyuan’s expansion. We think consensus forecasts for next 2 years are too low and represent potential upside surprises.

• The 2021 performance of JD Health (6618 HK) beat market expectation. The scale of annual active users, commodity SKU, warehouse, logistics, medical resources, etc. all had breakthroughs.
• The growth rate and gross margin of service revenue were higher than that of product revenue. So, the performance of service sector can better determine JD Health’s future outlook.
• The outlook of online healthcare service is uncertain.Whether successful or not, JD Health still has other businesses to support future development, and is therefore our top pick in this sector.

This month, we undertake a study of movements in the Lucror Analytics Risk Assessment (LARA) for issuers in the Lucror Asia HY index over the last five years.

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.

First Pacific’s FY 2021 results were robust, with good performance across the investee companies. Management’s guidance is positive for FY 2022 and beyond. The financial risk profile remains stable, with no real improvement as excess cash flows are mainly returned to shareholders. Liquidity is adequate.

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.

• Japfa Comfeed Indonesia
• Jingrui Holdings
• Tata Steel Thailand
• Times China