China

• On August 7th, Meituan’s on-demand order volume reached a historical high of 98mn on surging orders from street drinks. Meituan has connected to the backend systems of street drink vendors;
• Delivery order is a double-edged sword. It boosts volume at the expense of margin. Further, the ownership of the volume is questionable;
• With Pin-hao-fan, Meituan already atomized the small restaurants. Now Meituan is playing the same trick with street drinks. The result will be more dramatic to the benefit of Meituan.

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments: BrainBees Solutions (0172540D IN) and WeRide (WRD US) IPOs.
• Event-Driven developments: Greatview Aseptic Packaging (468 HK), C.I. TAKIRON Corporation (4215 JP), Descente Ltd (8114 JP), Fancl Corp (4921 JP), Fuji Soft Inc (9749 JP), Trend Micro Inc (4704 JP). 

• Consumer sectors in China are gaining more focus as the government lays out steps to increase domestic consumption.
• Hong Kong markets performed well relative to region during recent market turmoil.
• China Education Group (839 HK) and China Reinsurance (Group) (1508 HK) experienced breakouts and China Telecom (H) (728 HK) had a breakdown. Anhui Conch Cement (914 HK) is more positive.

• Swire Pacific (A) (19 HK), 82%-held Swire Properties (1972 HK), and Cathay Pacific Airways (293 HK) all announced interim results this week. 
• Of interest was Swire Prop announcing a HK$1.5bn share buyback. Shares popped 12% on the news. 
• Swire Pac remains cheap on a look-through P/B of 0.34x. However, the implied stub and simple ratio (Pac/Props) have just rolled over from multi-year peaks. 

• We believe Yum China remains the best long-term China catering play. 2Q24 results highlight the resiliency and agility of its business model and management to navigate tough environment.
• While cost optimization drove bottom-line beat, we share management’s view that it is not one-off exercise but will strengthen the company’s operation efficiency moat and market leadership.
• Macro concerns are well known and fully priced in in our view. Otherwise investors won’t have the opportunity to own the name for low double-digit P/E.

• In a previous insight we forecasted a rally for the Hang Seng Index in August. The picture has not changed, a positive close above 17344.60 is still possible.
• Looking at our MRM SHORT WEEKLY model for the HSI we can see that it has not yet reached overbought levels, so it could rise further in the next weeks.
• Conversely a SHORT trade will be possible from the levels we will indicate below.

• Expected sequential revenue growth of 13% to 15%, gross margin expected between 18% and 20%.
• The company has not increased capacity utilization through price cuts but supports customers in facing competition to maintain market share.
• Inventory replenishment behavior will end in the third quarter, and fourth-quarter orders will more accurately reflect actual demand rather than the impact of restocking.

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

• WeRide (WRD US), a provider of autonomous driving products and services, seeks to raise between US$200 to US$300 million through a Nasdaq IPO.    
• WeRide is the most commercially successful L4 autonomous driving company globally, measured by commercialization revenue in 2021, 2022 and 2023.
• The bull case rests on a large TAM, strong product capabilities, near-term mass commercialization, articulation of a path to profitability, improving earnings quality and presence of blue-chip investors. 

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 Vanke
• SK Hynix
• Softbank Group
• Tata Motors ADR
• UPL Ltd
• Wynn Macau Ltd

• In its last update, Alibaba Group announced that the company was preparing for its primary listing in Hong Kong and the process was expected to complete by the end August.
• The Board meets on 14 August to approve results for the three months ending June. Could there be an announcement on the dual primary listing too?
• Mainland Chinese own between 3.5%-15.5% of companies that converted from Secondary to Dual-Primary in the last few years. Similar buying in Alibaba could take the stock higher from here. 

• Low Volatility and High Dividend yield stocks in Hong Kong outperformed the region during recent global market sell off.
• MGM China Holdings (2282 HK) is outperforming its peers with revenue now exceeding pre-COVID levels.
• Weibo (9898 HK) maintains a high cash flow and dividend yield in China’s tech sector.  Zhuzhou CRRC Times Electric Co., Ltd. (3898 HK) benefits from China’s new large-scale maintenance cycle.

• The China equity markets have continued to trade lower with the CSI 300 Index outperforming other mainland indices as the National Team continues to pump money into ETFs tracking the index.
• We currently estimate selling of around US$1.39bn across 74 stocks listed on the mainland and in Hong Kong. There could be fewer deletions depending on the review date chosen.
• The potential deletes have dropped a lot since the start of the calendar year with big underperformance versus the HSCEI Index, CSI 300 Index and CSI Smallcap 500 Index.

• China Resources Sanjiu plans to acquire 28% stake in Tasly for RMB6.21 billion at RMB14.85/share. The acquisition of Tasly is in line with the strategic direction of 14th Five-Year Plan.
• China Resources is positioned as a leading enterprise in modern industrial chain of TCM by the SASAC.Due to policy support, TCM assets are more likely to be favored by SOEs.
• The deal is positive for Tasly, whose valuation has room to rise further, but the market seems “skeptical” about China Resources Sanjiu’s decision, leading to a lackluster share price reaction. 

• Yum China Holdings (9987 HK) reported a marginal 1% year-on-year increase in 2Q2024 revenue, driven by new store additions despite a decline in same-store sales.
• Despite a challenging business environment, it achieved 8% year-on-year profit growth in Q2 and stabilised margins through sharp cost management and operational efficiency initiatives.
• Without a clear visibility in improvement in consumer sentiment and spending, expect the tough operating environment to limit Yum China’s revenue and profit growth potential.

• Black Sesame Technologies (BLACKSES HK) raised around US$133m in its Hong Kong IPO, after pricing its IPO at the low-end.
• Black Sesame International Holdings (BSIH) is an automotive-grade computing SoC and SoC-based intelligent vehicle solution provider.
• We have covered various aspects of the deal in our previous note. In this note, we will talk about the demand and trading dynamics.

• We believe revenue will grow by 11% YoY and the company will make money for the fifth consecutive quarter in 2Q24.
• We believe both adverting and e-commerce revenue will grow strongly in 2Q24.
• We set an upside of 140% and a price target at HK$104 for the end of 2025. Buy.

• 1HFY24 net profit declined -15% YoY to HK$3.4 billion, in-line with consensus 
• Interim dividend of HK$0.20/share, at 38% payout ratio. Typically, Cathay pays 50% payout ratio, and we can expect final dividend to be much larger
• Maintain BUY with target price of HK$9.90 (+26% UPSIDE) implies 10x FY2024 PE, parity multiple against its arch-rival Singapore Airlines (SIA SP). 

• HLP malls, which focus on China luxury retail consumption, is facing headwind from slowing China economy and weaker consumption
• The retail sales in its malls slowed down and recorded -13% yoy growth for 1H 2024.  Dividend cut was a negative surprise
• However, market is forward looking and stock valuation is too cheap to ignore, we recommend long-term investors can look at this name

• Market underestimates the size of China’s stimulus packages, which consist of Rmb150bn of EV trade-in’s by year end and Rmb3tn worth of industrial equipment upgrades over 5 years;
• Consolidation by BYD, LI and Huawei in marketing share shall continue, profitably. Our TOP PICK is BYD.
• Consolidation by BYD, LI and Huawei in marketing share shall continue, profitably. Our TOP PICK is BYD.

• Greatview Aseptic Packaging (468 HK) disclosed that Mr Bi Hua Jeff (CEO) and Mr Hong Gang (co-founder) are contemplating a possible voluntary conditional offer. The terms and conditions were not disclosed.
• Due to the recent AGM protest votes, management needed to provide a credible alternative to shareholders to ensure that Shandong Xinjufeng Technology Packaging (301296 CH)’s offer failed.   
• Shandong Xinjufeng’s likely game plan is to wait for a binding counteroffer, focus on satisfying the preconditions, and requisition an EGM again to get Board representation.

• To say Greatview Aseptic Packaging (468 HK)‘s management and Shandong Xinjufeng (301296 CH) (XJF) don’t get along is an understatement. GAPack has labelled XJF’s pre-conditional Offer hostile and unwelcome.
• Last night (6th August), co-founders Jeff Bi and Gang Hong tabled a non-binding Offer. No price was mentioned. Collectively they hold 14.72% of shares out compared to XJF’s 26.8%.
• A firm Offer (and price) would have been welcome, and this probably reflects on-going funding negotiations. But the announcement will give minorities pause if/when tendering into XJF’s Offer.

• WeRide Corp (WER CH) is looking to raise around US$300m in its upcoming US IPO.
• WeRide provides autonomous driving products and services from L2 to L4 of driving automation.
• We had looked at the firm’s past performance in an earlier note. In this note, we will undertake a peer comparison.

• Horizon Robotics, a leading provider of ADAS and AD solutions for passenger vehicles, plans to raise up to $500M in Hong Kong IPO.
• I expect Horizon Robotics will price its IPO below last round valuation of ~$8.7B as revenue growth will slow below 50% y/y in 2024, down from 71% y/y in 2023.
• The company’s key competitors, including Mobileye and Microchip Technology, revised their revenue guidance downwards for the second half of 2024.

• In this update, we analyzed recent NWD’s corporate actions, which show their de-leveraging plan is on track
• NWD, having the highest gearing among HK RE names, will become the biggest beneficiary if Fed starts a new rate cut cycle
• Valuation is compelling.  There is ample upside assuming a bear case scenario.  It is a BUY

• Eternal Beauty Holdings Limited (EBHL12 HK) is looking to raise about US$200m in its upcoming Hong Kong IPO. The deal will be run by BNP Paribas, Citic, CMBI and DBS.
• Eternal Beauty is the largest brand management company of perfumes in the combined markets of Mainland China, Hong Kong and Macau, in terms of retail sales in 2023.
• The company has a diverse portfolio of iconic brands of not only perfumes, but also color cosmetics, skincare products, personal care products, eyewear and home fragrances under management.

• Fruquintinib US sales continue to be the main performance driver. License-out expectations for surufatinib is low.Highlight for savolitinib is the combination with osimertinib for NSCLC, which would bring high growth.
• Future playbook of HUTCHMED is “continued sharp reduction of expenses + milestones from Takeda based on fruquintinib overseas sales = rapid narrowng of losses”.2024 overseas market sales may exceed US$300m.
• There is not much problem with HUTCHMED completing its performance guidance for the year 2024. Reasonable market value range for HUTCHMED is US$1.75-3.75 billion. Breakeven is expected in 2025.

• China Resources Beverage is looking to raise US$1bn in its upcoming Hong Kong IPO.
• China Resources Beverage manufactures and sells packaged drinking water and RTD soft beverages in China.
• In our earlier note, we talked about the company’s past performance. In this note, we will undertake a peer comparison.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Road King’s ESG as “Adequate”, in line with the Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure 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.

• Greentown China
• Medco Energi
• Vedanta Resources

• What disappoints investors is that privatization progress is slower-than-expected. Since approval is in “advanced stage”, August update is eye-catching. Investors may need more patience with this type of SOE deal. 
• The key to the success of this privatization lies in whether CNPGC is willing to abide by its commitments. If yes, CNPGC will take all measures to solve the problems.
• According to our valuation calculation, even without this privatization, HK$3.5/share is fair for China TCM. Reasonable share price is above HK$5/share. Don’t forget, the privatization is still on the agenda.

• In July, BYD’s deliveries increased by 31% YoY and Tesla’s deliveries in mainland China increased by 47% YoY.
• Alibaba Taobao will soften its “refund only” rule, but Alibaba Hellobike raised its usage price.
• New Oriental revenue increased by 32% YoY and TAL revenue increased by 50% YoY in the May quarter.

• China ETF flows were steady for the week, however Southbound Connect flows were negative for the first time since February.
• Prada S.P.A. (1913 HK)  shares standout in the luxury brand sector as Miu Miu sales surged.  WuXi AppTec (2359 HK) slightly beat estimates but still have BioSecure Act overhang.
• Property development firms Hang Lung Properties (101 HK) and Wharf Holdings (4 HK) were hurt by poor results, while New Oriental Education & Techn (9901 HK) saw earnings miss estimates.

• Market’s muted response to the airport’s worse-than-expected 1H24 losses suggest investors are looking beyond.
• While non-aviation businesses will remain under pressure in the near-term, potential for earnings growth from fare hike could be significant and is not at all reflected at current valuation.
• Free cash flow turning positive in 2024 also open to door for restoring dividend payments, which will be another catalyst for stock re-rating. Risk reward payoff gets increasingly positive.   

• MDL Wholesale (WMHGCZ CH) is looking to raise about US$100m in its upcoming Hong Kong IPO. The deal will be run by UBS, CMS, CMBI, Deutsche Bank, BOCI, and China Galaxy.
• MDL Wholesale is a leading food and FMCG distribution solution provider in China, providing a broad range of customers and retailers with high-quality merchandise and convenient solutions
• Its solutions mainly include (i) food service and distribution, (ii) welfare and gifting, (iii) retailer distribution (comprising product sales to retailers and supply chain services) and (iv) merchandise wholesale. 

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.

• Adani Ports & Special Economic Zone
• Indika Energy
• New World Development
• Tata Steel Thailand

• Saint Bella, a premium postpartum care service provider, filed to go public in Hong Kong. UBS and CITIC Securities are leading the offering.
• Saint Bella operates ultra-premium postpartum centers in Asia, which are located at luxury hotels and detached villas. The company opened its first postpartum center in Hangzhou in 2017.
• With strong multi-brand strategy and asset-light business model, Saint Bella is uniquely positioned in premium segment under Saint Bella, Bella Isla and Baby Bella brands.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess China Oil & Gas’ ESG as “Adequate”, in line with the Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Adequate”.

• TCM formula granules VBP would cause some disturbance to related enterprises’ performance, but the substitution of TCM formula granules for TCM decoction pieces is a trend, indicating long-term optimistic growth.
• Keymed’s CM310 would probably miss the NRDL negotiation this year, which will put the Company in passive situation. Based on competitive landscape, we are worried about the performance of Keymed.
• Unsatisfactory performance of Taiji’s shares is related to concerns on China TCM’s privatization/24H1 results.However, even without the integration with China TCM, Taiji’s market value should be more than RMB20 billion.

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), China Traditional Chinese Medicine (570 HK), Asia Cement China (743 HK), Canvest Environmental Protection Group (1381 HK), Shanghai Henlius Biotech (2696 HK). 
• Lowest spreads: Fancl Corp (4921 JP), Second Chance Properties (SCE SP), Tatsuta Electric Wire & Cable (5809 JP), Mimasu Semiconductor Industry (8155 JP), Alps Logistics (9055 JP). 

• Black Sesame Technologies (BLACKSES HK) is looking to raise US$143m in its Hong Kong IPO.
• Black Sesame International Holdings (BSIH) is an automotive-grade computing SoC and SoC-based intelligent vehicle solution provider.
• In our earlier notes, we looked at the past performance of the deal. In this note, we discuss peers and share our thoughts on valuation.

• Baosteel’s choice to maintain its original Offer may partly reflect its “confidence” in the deal. If investors bet that Huarui Offer will succeed, they need to bear some risks.
• If investors choose to arbitrage at HK$7.21/share, annualized return is 9% assuming privatization would be completed in mid-Jan 2025.Such return may not be attractive considering the uncertainties behind the deal. 
• If investors are optimistic about Baosteel’s final acquisition of CPMC, they can consider buying Baosteel shares, as Baosteel will become the new industry leader, with greater upside potential for valuation.

• SOUTHBOUND was again a net buyer, for HK$9.2bn this week (now 26wks in a row of net buying), on smallish two-way volumes.
• I’ve thought national team was buying banks for months. They were gone for a couple of weeks. Feels like they are back. 
• There were three ETFs in the top five SOUTHBOUND sells this past week, reversing last week. Energy, Utilities, Telecoms bought. 

• The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
• SOUTHBOUND inflow strong. SOEs, Tencent, and Xiaomi leading. NORTHBOUND down four of five days this week, but net inflows on the week. Consumer discretionary bad.
• Hs underperformed As again. 20d AH Premia performance is at the top of its multi-year range. I’d expect AH Premia to decline the next couple of weeks.

• Asia Cement China (743 HK)’s IFA opines that Asia Cement (1102 TT)’s HK$3.22 privatisation offer is fair and reasonable. The scheme vote is on 26 August. 
• The IFA valiantly justifies that an offer materially below net cash is fair and reasonable. The crux of the justification lies in the fortuitous disclosure of material capex requirements.
• While no shareholder holds the 10% blocking stake, the high AGM minority participation rates, retail opposition and unconvincing IFA report suggest a high chance of a deal break.

• Back on the 5th June, Chinese cement play Asia Cement China (743 HK) announced a rubbish HK$3.22/share Offer from its parent Asia Cement (1102 TT).
• This best & final cash Offer was a ~ 45% premium to undisturbed, and a 37% discount to FY23’s net cash. It’s a 39% discount to 1H24’s net cash.
• The Scheme Doc is now out, with a 26th August independent shareholder vote. And payment (if it were to occur) on 20th September. The IFA (unsurprisingly) says fair and reasonable. 

• The Quiddity Mainland Connect NORTHBOUND Monitor. Like the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor. Lots of Flows/Position Tables and Charts with which to play.
• Last week saw NORTHBOUND net BUY RMB 3.2bn of A-shares. Wednesday was a BIG buy day. Every other day was a net sell. 
• HK and Mainland large caps generally performed equally, down but much better than the rest of the world, but Hs in H/A pairs underperformed.

• Continued stub losses are one thing. Ballooning PCCW Ltd (8 HK) parent debt is another. 
• Preceding my comments on PCCW and HKT Ltd (6823 HK) 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%.

Edison Investment Research is terminating coverage on AGBA (AGBA) and Norcros (NXR). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant. Previously published reports can still be accessed via our website.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We view Agile Group’s ESG as “Adequate”, in line with its Environmental and Social scores. That said, Governance is “Weak”. Controversies are “Immaterial” and Disclosure is “Adequate”.

• WeRide Corp (WER CH) is looking to raise around US$300m in its upcoming US IPO.
• WeRide provides autonomous driving products and services from L2 to L4 of driving automation.
• In this note, we will talk about the positive aspects of the deal.

• Budweiser Brewing APAC (1876 HK)‘s  performance could improve from 2H2024, driven by a likely recovery in China’s premium beer market and favourable commodity prices.
• Stock’s upside potential from current price levels seem to outweigh downside risk.
• With a high dividend payout and strong free cash flow generation, Budweiser trades at a 5% dividend yield and an 11% FCF yield.

• Company issued 1H24 profit alert after market yesterday which significantly beat even the high-end sell-side expectations. 
• Impressive SSSG and store-level unit economics imply sizable potential for operating leverage and earnings growth in the mid to long term.
• The profit alert, along with 2Q operating data released earlier, reinforced our confidence in earnings estimates of RMB130 million/RMB300 million for FY24/25 respectively. 

• WeRide Corp (WER CH) is looking to raise around US$300m in its upcoming US IPO.
• WeRide provides autonomous driving products and services from L2 to L4 of driving automation.
• In this note, we will talk about the not so positive aspects of the deal.

• Luckin’s SSSG declined 20.9%YoY in the peak season, indicating diseconomies of scale for Luckin and a deteriorated competitive environment. We do not expect a quick turnaround in the near term.
• We think Luckin has limited capability to further raise its prices in 3Q24, and expect its NPM to be 11.9%/7.1% in 3Q24/4Q24 as the new norm.
• We keep SELL rating and lower TP to US$16.5/ADS. The stock trading at 20x/16x PE in 2024/2025, and we expect the NI to increase 15%CAGR in the next 2 years.

• China’s state-owned shipbuilding giant, China Shipbuilding Industry Co. Ltd. (601989.SH +2.12%), is to invest more than 5 billion yuan ($690 million) in two acquisition deals to expand its shipyard capacity and meet rising demand.
• China Shipbuilding Industry, the Shanghai-listed arm of China State Shipbuilding Corp. Ltd. (CSSC), announced Saturday a 4.04 billion yuan acquisition of Tianjin Xingang Shipbuilding Heavy Industry Co. Ltd.’s assets in Lingang, northern China’s port city Tianjin.
• The purchase includes a 500,000-ton and a 300,000 ton dry dock, each equipped with two gantry cranes, as well as associated plants, outfitting quays, ship repair docks, sea outlet docks and other shoreline facilities, according to the company’s filing.

• FY24 marked a new low in earnings for International Housewares Retail (1373 HK), with core earnings falling 38% YoY to 101 mn HKD, placing it at 8.8x PE trailing.
• Management continues to maintain an 80% payout, placing the stock at a ~9% dividend yield. It has more than 300 mn HKD of net cash (34% of Mkt cap).
• The stock has been decimated and is down 63% from its peak in 2021. Earnings inflection looks around the corner.