China

• On 2nd Apr 2022, CSRC put out a draft for public comments on the revision of certain provisions which would allow easier access by overseas regulators to China ADRs audits.
• On 8th Mar 2022, Securities Exchange Commission (SEC) had added five China ADR names to its provisional list of issuers under HFCAA, which set the clock ticking for their delisting.
• In this note, we’ll talk about the latest developments and its implications.

• The YoY growth rate of product revenue accelerated in 2H21, compared to 1H21.
• In China, many cities are locked down; therefore, we believe people need online medical shopping.
• However, the stock is overvalued compared with other online and offline medical stores.

• The new draft of the e-cigarette law will crack down the domestic market.
• The revenue growth rate plunged in 2H21 despite the fact that the growth rate accelerated for the whole year 2021.
• We set a downside of 27% and a price target of HK$13.90 for 2022.

• JCET has reported 2021 annual results, and there was RMB$8.59bn/9.5% of revenue/NM percentage in 4Q21. JCET 2021 grew 6.0% QoQ and 11.5% YoY respectively.
• Despite US-China trade war, the revenue from US clients are taking 50.2% in 2021, which is growing 23% from 2020 to 2021. 
• Given the 5G and China Automotive are developing actively, we believe these two applications shall be keeping the energetic momentum.

Times China’s top line strengthened in FY 2021, owing to higher ASP and an increase in property sales. We note that H2 sales remained resilient against the negative headwinds in the industry, with aggregated contracted sales amounting to CNY 96 bn in FY 2021 and H2 contracted sales to CNY 51 bn.

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.

• Country Garden Holdings Co
• Guangzhou R&F Properties
• KWG Living Group

SCE’s FY 2021 results were satisfactory, with sustained contracted sales and revenue despite weaker margins. The pace of property delivery remained decent, reflecting the company’s efficient execution and good access to financing to support construction works. The softer margins stemmed from price controls and increasing land prices. Going forward, management’s strategy includes progressing steadily to deal with the volatility in the industry.

• The continuous increase of backlog and CMO projects would provide high visibility and certainty for the growth of Wuxi Biologics (2269 HK) in 2022.
• Given the complex international relations, it is possible that the US may add WuXi Biologics to any sanctions list again in the future, which means large stock price volatility.
• There could be some short-term rally, but due to the lack of clear positive “signals” in the industry, we do not think it means a complete “reversal” for WuXi Biologics. 

• Lenovo (992 HK) could replace Hansoh Pharmaceutical (3692 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the June rebalance to be implemented on 10 June.
• If Sunac China Holdings (1918 HK) remains suspended, it could be deleted from the index and Great Wall Motor (2333 HK) could be added to the index.
• Passive Hang Seng China Enterprises Index (HSCEI INDEX) trackers will need to buy around 2.45% of Lenovo (992 HK)‘s real float. Short interest is over 17 days of ADV.

• NIO Inc (9866 HK) passes the velocity test and could replace ASM Pacific Technology (522 HK) in the Hang Seng Tech Index (HSTECH INDEX) at the June rebalance.
• Given the low trading volumes and the large assets tracking the Hang Seng Tech Index (HSTECH INDEX), passive trackers will need to buy around 10 days of ADV on NIO. 
• Passive trackers need to sell around 7 days of ADV on ASM Pacific Technology (522 HK). Given implementation is two months away, sell the stock on rallies. 

• China Communications Construction (1800 HK) targets for at least 6% growth in revenue with slight operating margin expansion for FY22; and these should sustain its stable growth trend. 
• It will increase focus on “big city” projects where there are more opportunities. We think its target of at least 11.8% new contract value growth in FY22 is conservative.
• Reduction in losses at concessionary projects, improvement in operating cash flow and lowering of gearing levels all indicate that CCCC is moving in the right direction.

• The biggest characteristic of Innovent Biologics Inc (1801 HK) is its strong ability of resources integration. Besides, when it comes to execution, clinical efficiency and R&D productivity, Innovent deserves credit.
• If having 10 big commercialized drugs are the threshold for becoming a biopharma, Innovent’s upgrade from biotech to biopharma is almost complete. 
• Innovent has enough cash flow over the next few years to support development, and may even turn losses into profits. So, we think that Innovent could get through “this winter”. 

• Hotel operator Shanghai Jin Jiang Capital Company Limited (2006 HK)‘s Composite Doc is out. The H-Class meeting on the 26 April, with expected payment on the 17 May.
• The IFA considers the Offer to be fair and reasonable. 
• This is done and trading tight at a gross/annualised spread of 1.6%/14%. 

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
• Hopson Development
• Tata Motors ADR

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• Placements continued to flow in, at a slower pace than last week, with Malaysia and ANZ chipping in.
• While the HK IPO scene failed to produce anything noteworthy with its two listing, South Korea appears to be leading the charge, once again.

• There are two weeks to the start of the review period for the MSCI May SAIR. There are expected to be many changes to the stocks and their FIFs.
• There will be passive buying in JD.com Inc. (9618 HK) from Hang Seng trackers in June, while KT Corp (030200 KS) is a high probability MSCI inclusion in May.
• There were big inflows to the iShares MSCI Emerging Markets (EEM US) ETF and iShares Core MSCI Emerging Markets ETF (IEMG US) during the week.

• Shanghai Junshi Bioscience Co. Ltd. (1877 HK)’s oncology drug candidate toripalimab marketing application is currently under priority review by the FDA, with a target action date of April 30, 2022.
• However, FDA may reject toripalimab application, as it is predominantly based on China clinical trial data. Toripalimab may also face delay in FDA decision due to delayed regulatory inspection.
• PD-1 drug market in the U.S. is intensely competitive, making the commercialization prospect of a new drug quite difficult. Toripalimab reported muted performance in China due to pricing headwind.

• Shanghai Jin Jiang Capital Company Limited (2006 HK)‘s H Shareholders’ class meeting is scheduled for 26 April. The IFA considers the offer to be fair and reasonable. 
• The 10% blocking stake is 2.50% of outstanding shares (10.00% of H Shares). The two H Shareholders with blocking stakes will be supportive. There is no minimum acceptance condition.
• At last close and for a 17 May payment date, the gross and annualised spread to the total offer is 1.6% and 15.7%, respectively.

• SMIC will spend ~US$5bn in Capex in 2022, of which only the Beijing Fab is 12”, and Shenzhen and Tianjin are 8” Fabs.
• SMIC has three major trends: 1) the local demand is booming rapidly, 2) Auto, industry and others have developed actively, and 3) Huawei’s event had made a great impact.
• We note SMIC’s capacity of each Fab is an estimation because 1) the local governments’ subsidies are somewhat complicated, and 2) it is involved with three local governments in 2022.

• Vipshop has underperformed, on a 12-month basis, due to a slowdown in active user growth, which has spilt over into slower revenue growth and contracting earnings.
• Material equity investments, accompanied by strategic cooperation agreements, by Tencent and JD.com in December 2017 catalysed significant user growth over the subsequent 3 years.
• The recent de-rating once again flags Vipshop as an attractive takeover target for its current strategic shareholders and broader eCommerce rivals, including nascent disruptors and live-streaming operators.

• In my last note, I thought China Conch Venture Holdings (586 HK) (CCV) appeared fully-priced. If I had been long CCV, I recommended getting out. 
• CCV shed HK$11.35/share after going ex- the China Conch Environment Protection Holdings (587 HK) (CCEP) water treatment in-specie spin-off. CCEP closed at HK$9.77/share on its first day of trading.
• CCV is trading back to around levels prior to the announcement of the spin-off. Separately, CCEP appears to be trading rich relative to waste treatment peers.

Seazen’s FY 2021 results were in line with our expectations, with the company accelerating the pace of property delivery and maintaining a reasonable pace of debt growth to facilitate expansion during H1. It halted land acquisitions and focused on building up liquidity amid market volatility in H2.

We view the company’s refinancing risk as moderate, with Seazen having access to onshore funding. ​Seazen is likely to slow its expansion in the commercial property segment, given the resurgence of COVID-19 cases and poor market sentiment. We believe the company will resume land acquisitions in 2022, in order to replenish the land bank. Going forward, Seazen is committed to maintaining stability in its operations and having strong liquidity, so as to weather the volatile market conditions.

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. First Pacific Co
2. Yanzhou Coal Mining Company Limited H
3. Indika Energy
4. Lippo Karawaci
5. Agile Property Holdings

and more…

• On the 1 March, 51 Job Inc (JOBS US) said it had entered into a revised merger agreement at US$61.00/share, 22.8% down from the initial terms. 
• 51job has now announced that it has called an extraordinary general meeting of shareholders to be held on April 27.
• Despite regulatory opacity, this transaction appears done. Separately, 51job’s FY21 financials will be released tomorrow.

• The EGM to approve the 51 Job Inc Adr (JOBS US)’s privatisation offer of $61.00 in cash per ADS will be held at 9 am (Shanghai time) on 27 April.
• The transaction is expected to close during the second quarter of 2022. The continuing shareholders represent 56.2% of the voting rights according to the proxy statement.
• Based on 67.5 million ADS entitled to vote at the EGM, around 21% of disinterested shareholders are required to vote in favour to meet the two-thirds voting threshold.

• Most companies have announced their final dividends for 2021 and most of those have announced ex-dates. Banks and oil companies have announced higher dividends than last year.
• CNOOC Ltd (883 HK) has not declared a dividend yet due to its IPO, while Sunac China Holdings (1918 HK)‘s suspension could lead to index deletion in June or July. 
• Using current/proforma index compositions and conservative estimates for interim dividends, we estimate fair value at 240.73 DIPS for 2022. This is a sell at the last close or higher.

• Jiangsu RecBio raised HKD 672m (USD 86m) from its global offering and will list on the Hong Kong Stock Exchange on Thursday, March 31st.
• In the previous note, we looked at the company’s core products, including its HPV portfolio and the COVID-19 vaccine. 
• In this note, we provide an update for the IPO before trading debut.

• Sinotrans (598 HK) has a record year in FY21 with recurring earnings increased 44% YoY. Margin for 4Q21 has shown some improvements against 9M21. 
• Management is generally cautiously optimistic for this year, but also highlighted weaker visibility for the outlook given high base, sporadic COVID-19 outbreak and geopolitical uncertainties. 
• We expect slower earnings growth in FY22, with e-commerce segment being the best-performing. We see lesser credit and asset impairments, and it is cheap at 3.7x PER and 10% yield. 

• Shenzhen International (152 HK) posted 11% profit decline for FY21, with Shenzhen Airlines the main drag. Stripping this and one-off items out, its bottom line would have grown by 46.6%.
• Logistics growth pipeline is highly visible, and this adds to potential gains from logistics park transformation and strategic offload of matured and suitable projects through REIT or private fund.
• The stock remains a deeply undervalued asset play at just 0.48x P/B. Its willingness to share gains with investors has put its dividend yield at 10.4% on current share price.

• V3 Brands Asia (V3 HK) is looking to raise about US$500m in its upcoming Hong Kong IPO. It was previously listed on the SGX between 2000-2016.
• V3 Brands Asia is a lifestyle and wellness firm, it is most known for its flagship massage chairs which are sold under the OSIM brand.
• It has also recorded a bounce back post-COVID as average revenue per store surged. Margins have expanded as well owing to operating leverage and the firm’s partnership with Daito-OSIM.

Anton Oilfield’s FY 2021 results were in line with expectations, with higher profitability offsetting a revenue decline as the company focused on quality and profitable orders. The financial risk profile has improved and guidance for 2022 is very positive. Liquidity appears to be adequate, considering that the company may have just enough cash to pay back the USD 2022 notes (USD 177 mn outstanding). Once the notes have been repaid, leverage should improve significantly.

We move our recommendation to “Buy” from “Hold” on the ANTOIL 7.5 22.

Central China Real Estate’s (CCRE) FY 2021 results remained weaker than expected, albeit slightly improved from H1. The company’s net debt deteriorated y-o-y, and it has now breached all of the regulator’s Three Red Lines thresholds. Moreover, liquidity is inadequate and Cash/ST Debt has fallen below 1x.

Going forward, we expect CCRE to focus on reducing leverage and increasing cash flows. We view positively Chairman Wu Po Sum’s intention to receive his dividends in shares instead of cash, as well as management’s improved transparency and disclosures over the last six months. CCRE is optimistic that it can generate sufficient cash collections to repay the USD 500 mn bonds due in August, on the back of supportive measures recently implemented by the Henan government.

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 Jinmao Holdings
• CIFI Holdings
• Greenko Energy Holdings
• Honghua Group
• Soechi Lines
• Zhenro Properties

• Hotel operator Shanghai Jin Jiang Capital Company Limited (2006 HK) announced yesterday that all pre-conditions to the Offer from Shanghai SASAC have been satisfied.  
• The Composite Document is expected to be dispatched on or before the 1 April.
• Based on precedents for the privatisation of PRC incorporated companies, absent a tendering condition, payment is expected around the third week of May, on the assumption the vote gets up.

• Kunlun Energy (135 HK) posted a 43.6% YoY growth in net profit for FY21, which is ahead of peers like ENN Energy (2688 HK) and CR Gas (1193 HK). 
• While 2H21 gas sales segment is weaker, the contraction of dollar margin for Kunlun is light at 3.8% YoY. The other gas utilities companies are seeing 12-15% decline.
• Its net cash reached Rmb3.3bn at end-FY21, and number of new city gas projects reached 17 in 2H21, vs. 13 only in 1H21, indicating good pick-up in momentum. 

• Belle Fashion (BF) aims to raise around US$1bn in its Hong Kong listing, which would mark its return to the stock market after five years.
• Belle Fashion is the largest China-based fashion footwear and apparel group based on 2020 retail sales value, according to Frost & Sullivan (F&S). 
• In this note, we will talk about the positive aspects of the deal.

• Shougang Fushan Resources (639 HK) is in deep value territory with coking prices averaging over 2600 RMB/ton for the year ( Vs. last years average of 2000 RMB/ton)
• The stock trades at 2.6x PE, 0.8x EV-EBITDA with a 22% dividend yield at current spot prices of 2950 RMB/ton, making this an extremely cheap value play. 
• Further buffer is provided by net cash of 6.7 bn HKD, representing 44% of the market capitalization. Fushan can trade up to 3.50 HKD (20% upside) in the near term.

• Both monthly active users and time on site grew strongly in 4Q21.
• Live streaming revenue recovered quarter over quarter in 3Q21 and 4Q21.
• Operating loss decreased in 4Q21, compared to the first three quarters in 2021.

WCC’s FY 2021 results were somewhat weak, due to the gross margin contraction amid high coal costs. That said, we do not foresee much room for further margin compression, given the already high base for coal prices. Meanwhile, the weaker leverage was within expectations, given that the company continues to invest heavily for its expansion in Africa.

In our view, WCC’s expansion in Africa will improve geographical diversification and profitability, as management highlighted that the projects in this region can fetch high margins. That said, leverage is likely to continue deteriorating, as the projects will take time to ramp up. The company may also be exposed to geopolitical and execution risks in the frontier markets. In addition, there is a development lead time of c. 2 years before the projects can generate meaningful earnings.

• JD Health (6618 HK) reported results on Monday. Revenue grew 60.7% YoY to RMB17.0bn (vs consensus RMB14.9bn) while OP losses expanded to RMB808m from RMB48m a year ago.
• Similar to 1H2021, huge share-based payment expenses were the reason for increase in Operating losses, excl. these, JDH made a healthy OP of RMB1.8bn, an OPM of 10.4%.
• JDH’s online healthcare business is still at an early stage and the company has taken several initiatives to explore more opportunities and capitalise on digital transformation in the healthcare sector.

• Due to the lack of differentiated and frontier enough target layout, the commercialization potential would be more easily questioned, with high uncertainty of having the next NBP level products.
• CSPC has made easy money from a few large varieties/generic drugs for many years, but is destined to make the business transformation more difficult, because the “opportunity cost” is high.
• CSPC’s products have lost their pricing power. Therefore, when its valuation is very low or the entire sector is moving upward, this stock could be traded due to positive momentum.

We view AAC Technologies as “Low Risk” on the LARA scale, mainly due to the company’s market position in the acoustics segment, healthy financial profile and diversified product range. AAC is a supplier to reputable brands such as Apple, Samsung, Lenovo, LG Electronics, Huawei Technologies and Xiaomi Corp. The acoustics business is the company’s key profit centre. That said, AAC will need to further diversify its products to keep up with clients’ needs, as well as expand the customer base to boost revenue. The company’s operations and expansion plans could be disrupted by the resurgence of COVID-19 cases.

Our Credit Bias on AAC is “Stable”, given the company’s leading position in the acoustics segment, solid business fundamentals and healthy financial profile. That said, AAC may face supply disruptions due to the resurgence of COVID-19 cases, especially since Greater China is one of the company’s largest markets.

• Kuaishou reported 4Q2021 results yesterday. Revenue grew 35.0% YoY to RMB24.4bn (vs consensus RMB23.1bn) while operating losses for the quarter dropped to 23.7% of revenues to RMB5.8bn (vs consensus RMB5.72bn).
• The company’s operating losses widened to 36.1% of revenues in 3Q2021 while revenue from livestreaming further declined during the last quarter.
• In our previous insight, we highlighted Kuaishou’s cost cutting measures to help improve operating efficiency and forecasted operating losses to be in the range of 22-25% of revenues in 4Q2021

• The coming week has the implementation of the NIFTY indices at the close on 30 March and the Nikkei 225 (NKY INDEX) implementation at the close on 1 April.
• 31 March is the review cut-off date for the June rebalance of the Hang Seng indices. We expect one change to the HSCEI/HSTECH and few adds to the HSI.
• There were large inflows to the Ishares Core Msci Emerging (IEMG US), iShares MSCI Emerging Markets (EEM US) and KraneShares CSI China Internet ETF (KWEB US) ETFs during the week.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• Placements were back with a bang this week with multiple blocks across the region. All eyes will be on JD.com Inc. (9618 HK) in the coming week.
• Farm Fresh Berhad (FF MY)‘s IPO got off to a good start, while Hong Kong IPOs continue to be lackluster.