China

• We do not expect there will be huge selling in JD.com Inc. (9618 HK) immediately. However, there will be an overhang on the stock in the near to medium term.
• JD.com could drop in the next few days as the ADR allotment is sold in the market. Shorts that have been built up could soak up some of the flow.
• The big worry is the US$4bn of JD.com stock that Prosus will receive. It is likely they will look to sell and use the cash to buy back their own stock.

• JD Logistics (JDL) aims to raise around US$1.1bn, with US$400m coming via an institutional placement. The balance will be funded by issuing shares at the same price to JD.com.
• We have covered the stock extensively, links to our previous notes are below.
• In this note, we will run the deal through our ECM framework and talk about the recent updates.

• In the context of both the war and the pandemic, the blood products market would be a field of high-quality investment. 
• Due to strict policy supervision, the number of plasma stations is the core competitiveness of enterprises in this industry, which basically determines the scale and outlook of blood products enterprises. 
• With the background of state-owned enterprise and also having the most plasma stations among peers,Tiantan Biological Products (600161 CH) has an innate advantage over other competitors, with more certainty in long term.

• Cimc Enric Holdings (3899 HK) posted a set of encouraging result for FY21. It achieved a 37.4% YoY growth in 2H21 even after a 77.5% growth in 1H21. 
• Management suggests that gross margin will improve in this year as measures have been taken to cope with the factors that lead to the 2.3pp contraction in FY21.
• Hydrogen energy is a bright spot – though contribution is still small, it expects to at least double its revenue in FY22, and remains bullish on the long term prospects.

• CSPC Pharmaceutical Group (1093 HK) shares climbed nearly one-month highs after strong 2021 results and new drug approval. The company has recommended final dividend of HKD 0.10/share.  
• 2021 revenue increased 12% y/y to RMB28 billion, mainly driven by the growth in the finished drug businesses. This has eased concern of CSPC’s revenue sensibility to pricing headwind.
• The company is on track to launch more than 30 innovative and new-formulation drugs, and over 60 generic drugs in the next five years.

• JD.com Inc. (9618 HK) has been able to sustain its relative market share gains, in Chinese online retail sales, over the past two years, despite increased competitive pressure.
• Recent weakness in its margin progression trajectory has cast doubts on its ability to realise its potential for long-term margin expansion.
• With net cash at 31% of its market cap, relative valuation levels seem attractive.

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.

• Adaro Energy
• Powerlong Commercial Management Holdings
• Ronshine China Holdings
• Sino-Ocean Service
• Sunac China Holdings

• Tencent’s revenue growth continued to slow down to 8% YoY in 4Q21.
• The company used more extraordinary income to bolster EPS in recent years.
• We believe the stock has a downside of 28% within 2022.

• Henderson Land Development (12 HK)‘s shares bounced late last week after the Hong Kong government indicated it would ease strict Covid measures. FY21 results were also released yesterday.
• Preceding my comments on Henderson, are the current setup/unwind tables for Asia-Pacific Holdcos. 
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• Xiaomi Corp (1810 HK) reported 4Q2021 results on Tuesday. Revenue grew 21.4% YoY to RMB85.6bn (vs consensus RMB82.1bn) while reported OP declined 54.0% YoY to RMB4.5bn (vs consensus RMB4.3bn).
• Adjusted OP (excluding fair value adjustment and other gains) grew 21.4% YoY to RMB85.6bn, with an adjusted OPM of 4.0% vs 3.0% in 4Q2020.
• Xiaomi’s smartphone revenues bounced back in 4Q2021 after growing less than 1.0% YoY during the previous quarter. The company also announced a share buyback of HK$10bn.

• On 23rd Dec 2021, Tencent declared a special interim dividend in the form of a distribution in specie of 457.326m Class A ordinary shares of JD.com.
• While Tencent went ex-div on 20th Jan 2022, the actual settlement of the distribution is expected to happen on or about 25th Mar 2022.
• In this note, we talk about the updates since our last note and have a closer look at Prosus and its possible motivation/intention with its JD.com stake.

• Tencent (700 HK) reported 4Q2021 results yesterday. Revenue grew 7.9% YoY to RMB144.2bn (vs consensus RMB146.5bn) while non-IFRS OP decreased 13% YoY to RMB33.2bn.
• This marks the slowest quarterly revenue growth for Tencent since 2004 mainly due to lower VAS revenue growth and decline in revenue from online advertising.
• Tencent’s 4Q revenues were in line with our forecast of RMB144bn while adjusted OPM of 23% was slightly below our estimates of 26%.

Road King’s FY 2021 results were mixed in our view. The company’s gross margin continued to contract, albeit this was in line with industry trends. The increase in net debt persisted, as Road King continued to make sizeable land purchases. While the company’s cash dividends from toll-road JVs have recovered from the low base in FY 2020, we note the amount remains below those for FY 2018 and FY 2019. The FY 2021 dividends were sufficient to cover 24% of interest expense (FY 2020: 18%).

Liquidity appears adequate, and we expect Road King to be able to repay its CNY 869 mn of domestic bonds due in September. Positively, we believe the company does not have to redeem its perpetuals at their respective first call dates. Additionally, Road King has not faced any material allegations of hidden debt to date.

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
• Sunac China Holdings
• Xiaomi Corp

• We see a potential increase in the FIF for Kuaishou Technology (1024 HK), JD Health (6618 HK) and Akeso Biopharma Inc (9926 HK) at the MSCI May SAIR.
• The increase in FIF will require passive funds to buy 79.45m shares of Kuaishou (1024 HK), 57.35m shares of JD Health (6618 HK) and 15.32m shares of Akeso (9926 HK).
• Short interest has started to inch higher on Kuaishou, while short interest is rising sharply on JD Health and Akeso.

• In 4Q21, TME’s revenue decreased YoY for the first time since its IPO.
• We do not believe the music rise will cover the social entertainment decline in 2022.
• Either, we do not believe social entertainment will recover based on its operating data.

• The growth rate of total revenue bounced up and all business lines grew strongly in 4Q21.
• Smartphone revenue grew more rapidly than smartphone shipment, as the high-end strategy worked.
• We set an upside of 56% and a price target of HK$21 for the year end 2021.

• Pinduoduo (PDD US) shares dropped 6.1% yesterday following the 4Q21 results as the company’s revenue fell short of the consensus estimate by 8.9%.
• Pinduoduo’s OP improved 223% QoQ to RMB 6.9bn (consensus RMB 3.2bn) through pushing back sales and marketing investments. However, it affected the company’s user growth as MAUs declined by 8.0m.
• Consensus is yet to factor in the impact on user growth through reduced marketing spend, which makes further downside to Pinduoduo shares possible.

• TME reported 4Q2021 results on Monday. Revenue for the quarter decreased 8.7% YoY to RMB7.61bn (vs consensus RMB7.66bn) and reported OP decreased 47.3% YoY to RMB682m (vs consensus RMB1.3bn).
• Revenue from Online music services grew single digit (4%) for the first time while revenue from Social Entertainment services dropped further during the quarter.
• TME expects its revenues to decline in 2022 as it expects the social entertainment services business to remain under pressure due to competition and regulatory pressure.

• FY21 result of CPMC Holdings (906 HK) indicated it is under pressure from higher input costs in 2H21, as profit growth rate has slowed to 3.1%, from 36.5% in 1H21. 
• 1H22 will stay challenging, but management guided for improvement in 2H22. That said, CPMC expects gross margin for FY22 can be marginally higher than in FY21.
• Structural story of higher can demand, rise in industry concentration and increase de-plasticisation remains intact. We see any pull-back in share price as opportunity. 

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.

• Evergrande
• Ronshine China Holdings
• Sunac China Holdings
• Zhenro Properties

• The major trend, witnessed over the past two years, has been the continued loss of relative market share by Alibaba, and the continued market share gains by JD.com.
• Alibaba has been able to steadily grow its active user base, on its Chinese retail platforms, by above 10%y/y since at least 2019, off an extremely high base.
• Short-Term growth expectations seem relatively conservative, with limited risk for a further negative surprise.

• With the FOL changes implemented at the March rebalance, the next step could be an increase in the number of FTSE China A50 Index (XIN9I) constituents from 50 to 100.
• The June rebalance will also see a change in the index universe from the FTSE China A All Cap Free Index to the FTSE China A All Cap Index.
• If the 50 to 100 stock increase is implemented on one-step, one-way turnover will be around 27.6% and result in a one-way trade of over CNY 13bn.

• 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), Razer Inc (1337 HK), 51 Job Inc Adr (JOBS US), Uniti Group Ltd (UWL AU)
• The lowest gross spreads are CIMIC Group Ltd (CIM AU), Virtus Health (VRT AU), China Logistics Property Holdings (1589 HK), Z Energy Ltd (ZEL NZ), Singapore Press Holdings (SPH SP) 

• Core earnings growth of 14.6% YoY at ENN Energy (2688 HK) is not very exciting. Gas sales gross profit was down 5% while integrated energy looks better with 51.2% growth.
• Management guidance of 12-15% growth in FY22 seems to be optimistic, especially in a period of time where high input cost is likely to eat into margin still.
• Valuations are not too stretched, yet not very appealing. Its net debt position also does not compare well with CR Gas (1193 HK) and Kunlun Energy (135 HK). 

• MicroPort’s net loss widened according to its profit warning. The negative impact of centralized procurement is already being shown. We analyzed the situation of its different business segments.
• After continuous M&A, Microport Scientific (853 HK) could face cash flow pressure in this unfriendly financing environment.
• Due to MicroPort’s development mode, the market value of its subsidiaries could be higher than the parent company. Our view is that the subsidiaries would be a better investment.

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
• ENN Natural Gas
• Ronshine China Holdings

• Today (18 March) is the last day of dealing in China Conch Venture Holdings (586 HK) shares on a cum-entitlement basis for the Conch Environment Protection (CEEP) spin-off.
• CEEP is expected to commence trading on the 30 March. The Listing Document is expected to be issued on or around the 22 March.
• Separately, I see CCV trading at a 14% premium to its NAV, around its most extreme-ever level. 

• Hong Kong-based Finblox has raised US$3.9 million in a new funding round from fintech and crypto-focused investors including Dragonfly Capital, Sequoia Capital India, and Saison Capital
• Launched in December 2021, Finblox said it offers one of the highest interest rates in the digital assets space
• The company generates yield on tokens through a range of strategies, including lending out the assets to financial institutions or trusted decentralized finance protocols.

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. CIFI Holdings
2. China Jinmao Holdings
3. Kaisa Group Holdings
4. Guangzhou R&F Properties
5. Sunac China Holdings

and more…

• China Mengniu (2319 HK) is in discussions regarding its holdings in Yashili (1230 HK) which may result in a number of Potential Transactions, and may include a pre-conditional privatisation offer.
• The Potential Offer would involve a cancellation price of HK$1.20/share, a 31.9% premium to last close, and a 161% premium to the undisturbed price. 
• The recent privatisation of key peer Ausnutria Dairy Corp (1717 HK) provides a guideline to the timeline from here.

• RecBio is an innovative vaccine company with a focus on HPV vaccines. The company is pre-marketing its USD 100-200 million Hong Kong listing.
• In the previous note, we looked at the company’s core products, including its HPV portfolio and the COVID-19 vaccine. Though not impressive, it does provide exposure to China HPV market. 
• In this insight, we provide our thoughts on valuation, including key assumptions.

• Central Financial Working Committee turned friendly to overseas listed internet Companies.
• We believe Meituan will be free from the pressure of anti-monopoly rules.
• Meituan stock has fallen significantly and we upgrade it to BUY.

• Foreign investments in China’s government bonds had been on the rise in recent years with the market appearing to acquire a safe-haven status as it became more accessible and liquid.
• Russia’s invasion of Ukraine may have changed this as the country is likely to default despite its large international reserves, which presents spillover risks to others, particularly China.
• After suffering heavy losses in Russian holdings, investors are likely to factor in political and geopolitical risks more explicitly going forward, which would work against China.

• China’s environmental watchdog has named and shamed four firms for faking carbon emission reports, in the latest sign that data fraud continues to threaten the nation’s green ambitions.
• The Ministry of Ecology and Environment (MEE) said the data verification agencies manipulated reports and falsified testing dates, emissions data and carbon footprint results
• Such agencies are crucial to the measurement, reporting, and verification system used to keep a lid on carbon emissions and allocate quotas to high-emission sectors such as power and chemicals

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
• Sunac China Holdings

• Short notional in Hong Kong is HK$488bn and has been falling mainly as a result of a falling market. Short interest has increased substantially from end January.
• From 31 January to 4 March, the largest shorts have been built on Tencent, China Merchants Bank, AIA Group Ltd, Alibaba, JD.com, Meituan, Xiaomi, JD Health and Xinyi Solar.
• Over the same period, shorts have covered on COSCO Shipping Holdings, HKEX, Longfor Properties, China Construction Bank, Ping An Insurance, Yanzhou Coal Mining Company and HSBC Holdings.

• Layoff rumors are spreading, which shadow two departments and 10% of Tencent’s employees.
• China Banking Regulatory Commission (CBRC) will fine Tencent for money laundering.
• Short video apps are taking time on site from Tencent’s WeChat app.

• Yashili International Holdings (1230 HK) announced its controlling shareholder, China Mengniu Dairy Co (2319 HK), is in discussions regarding its holdings in Yashili and several potential transactions.
• If the transactions proceed, the potential privatisation offer is HK$1.20 per Yashili share, a 31.9% premium to the last close price of HK$0.91 (prior to the trading halt).
• The potential transactions are subject to a number of pre-conditions and conditions. We think the potential offer is attractive.  

• Ping An Health (SEHK:1833) reported 2H2021 earnings on Tuesday after market close. The company’s revenue declined by 14.7% YoY with a 7.5% decline in gross margins.
• On a full-year basis, 2021 revenue grew by 6.8% despite a 3.9% decline in gross margins. We are concerned on the slowdown of revenue growth and margin decline.
• The company is trading at a significant discount to historical median and peers. Withou clarity regarding segments, we think it is too soon to take a completely negative stance.

• Our bear call on Tencent met the reverse target at 320 at macro support to go long with some choppy trade expected in coming weeks. Volume spikes to induce volatility.
• Hong Kong tech index also met the 3,500 rally support. 4,500 represents immediate resistance that will induce a rejection and pullback. Magnitude of this rise will need a give back.
• Tencent 390/400 is near resistance to sell (tactical short) and sets up the bigger buy in the lower range quadrant. 400 is the level to clear for bull traction.

• The main performance contributor in 2021 was CanSino’s COVID-19 vaccine.However, the high vaccination rates, new alternatives (e.g. oral COVID-19 pills) and concerns on capacity make the future sales highly uncertain.
• The commercialization performance of MCV2 and MCV4 would largely determine when CanSino could truly shift to relying on conventional vaccine business rather than COVID-19 vaccine to contribute performance.
• Objectively speaking, CanSino’s pipeline, R&D capability and technology platforms do have advantages and investment value.

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.

• Greenland Holdings Corp
• Guangzhou R&F Properties

• Green Tea Group (GT HK) is looking to raise about US$150m in its upcoming Hong Kong IPO. 
• Green Tea Group is a restaurant chain operator for fusion cuisine in China. 
• As of the latest practicable date (LPD), it had a restaurant network of 236 restaurants covering 18 provinces, four municipalities and three autonomous regions in the PRC.