China

• Not an overreaction after all. After shares closed down 19.2% on the 8 November, 20% adrift of indicative terms, that appeared overdone.
• Now 51 Job Inc (JOBS US) has announced the Offeror has proposed reducing the merger consideration from US$79.05 in cash per common share to US$57.25.
• Shares closed up, but still at a 14.5% gross spread to terms. The new construct, and the reasons for doing so, are decidedly baffling.

• JL Mag Rare-earth Co. Ltd (JLM) raised around US$544m via its H-shares listing. 
• JLM is a producer of high-performance REPMs. It ranked first in the world by high-performance REPM production volume in 2020 with a market share of approximately 14.5%.
• In this note, we look at the allocation results and trading dynamics.

• A share pop a flash in the pan and still shows heavy price action as the bull wedge matures into late January.
• HSI is meeting the fresh short target zone near 24,700 with a minor new low in store for late January.
• HK tech is making strides to bottom as RSI divergence matures but still needs some final strokes for a higher conviction base.

• The consortium’s updated transaction has lowered the offer price -27.6% to $57.25 in cash per ADS, a 24.92% premium to the last trading price (11 January 2022).
• The combination of the dramatically lower price, spurious justification for lowering the price and the shares recently trading higher than the revised price is unlikely to win over minorities.
• Meeting the two-thirds shareholder approval threshold is likely a challenge due to the need to convince around 27% of disinterested shareholders to vote in favour of the transaction. 

• Bioer designs, manufactures and sells three categories of PCR products: instruments, reagents and consumables. With the spread of COVID-19, the company experienced strong growth in revenue and margin improvements. 
• The company has filed for an IPO to list its shares on the Hong Kong Stock Exchange and plans to raise proceeds of around US$200m
• Strong growth in Bioer’s revenue over the last two years was predominantly driven by the spread of COVID-19. We are concerned on the company’s ability to maintain its revenues post-COVID.

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
• Shui On Land
• Sino-Ocean Service

• Sunac is looking to raise around US$500m via a top-up placement.
• The company last raised cash in Nov 21 when it undertook a top-up placement worth US$500m and raised another US$270m via  selldown in Sunac Services.
• That deal didn’t end up doing well and this deal as well won’t move the needle much, in terms of bringing down debt.

• Water Oasis (1161 HK) trades at a 6x FY22 ( Sept end ) PE with 31% of its market capitalization in cash ( implying ex-cash 4x PE ). 
• For FY21, Water Oasis (1161 HK) paid a 22 cent dividend implying a 12.43% dividend yield. We forecast a forward yield of 14%.
• The company will continue to execute as it opens newer stores and beds down its M&A for a 15% CAGR revenue growth.

• Alibaba backed B2B e-commerce business, Huitongda (1566215D CH) is looking to test the HK IPO market with its $500m IPO while Beijing is on the attack on Chinese new economy stocks.
• The company’s focus on rural and lower tier markets sounds a promising prospect amidst the Chinese’s government’s push for common prosperity.
• Nevertheless, we think that investors are more likely to focus on the barrage of regulatory assaults and the fragilities of Huitongda’s business model.

This month, we review the developments of 2021, and give our outlook for the year ahead. 

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.

• Bilibili launched a shopping cart feature (Xiaohuangche) recently on its livestreaming platform which enables users to purchase goods while watching a live-stream.
• This comes at a time; China’s common prosperity crackdown has set its eyes on livestreaming e-commerce.
• Bilibili has been looking at ways to improve its monetisation to reduce losses, but we think the new initiative will likely add further pressure on deteriorating margins.

• Huitongda (1566215D CH) is a fast-growing commerce and service platform focused on China’s lower-tier retail market. It is pre-marketing an HKEx IPO to raise US$400-500 million.
• The positives are a large addressable market, solid top-line growth and profitability. The key negative is the low margin profile which reflects a fragmented and competitive market. 
• Overall, we think that the positives outweigh the negatives and this IPO is worth a closer look.   

• With its nationwide distribution and delivery network, Sinopharm Group Co Ltd H (1099 HK) remains a beneficiary of increasing adoption of China’s VBP scheme for drug procurement.
• Despite decreasing demand for Sinopharm’s COVID-19 vaccine, its pharmaceutical distribution business is expected to remain stable, driven by the steady recovery in China’s healthcare industry.
• The company is successfully promoting fast-growing oncology products. Its strategic partnership with I-Mab (IMAB US) further strengthens competitive edge, as I-Mab has a robust pipeline for China market.

• Qingdao Ainnovation Technology Group Co Ltd (1853807D CH) is looking to raise up to US$200m in its Hong Kong IPO.
• Qingdao AInnovation Technology Group is an AI solutions provider offering full-stack AI-based products and solutions. 
• While revenue has grown since inception, margin improvement can’t be attributed solely to better cost controls. It also has an unproven track record and operates in a highly fragmented market. 

• If the R&D pipeline projects are not recognized by international capital,the main reason could be either the product development progress is lagging behind or the projects are not good enough.
• The real innovative drugs would not be affected by generics that easily, and are to overturn the size of the old drug market.
• The real risk of Betta would be revealed in the next few years as VBP promotes. So, we are conservative about the Company’s outlook at the current stage.

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.

• Powerlong Commercial Management Holdings
• Tata Motors ADR
• West China Cement
• Yuzhou Group

• China’s NDRC approval, a key condition to the Share Purchase Agreement, has been obtained.  SAMR clearance had previously been fulfilled, leaving MoC and SAFE approvals yet to be secured.
• The turnout at Ausnutria Dairy Corp (1717 HK)‘s recent EGM would suggest there is a sufficient number of shares for the MGO to turn unconditional. 
• Provided the Offer becomes unconditional, trading at a gross/annualised spread of 4.4%/22.1%, assuming late 1Q22 completion.

• After shares were halted midday on the 30 December pursuant to the Takeovers Code, China Infrastructure & Logistics Group (1719 HK) (“CILG”) has announced a possible MGO from Hubei Ports.
• Hubei Ports has entered into a SPA with co-chairman Yan Zhi to acquire his 74.81% stake in CILG. Upon completion, this will trigger an unconditional MGO. The price is HK$1.15/share.
• A key condition to the SPA is approval from SASAC of Wuhan, which is turn controls 82.8571% of Hubei Ports. This transaction is done.

• Competitor Call Reveals Numerous Additional Risks Which Will Weigh On Results. 
• No Clarity On Go Forward Core Bottom-Line, Especially Gains and Loss Provisions.
• Reserve to NPLs Looks Overstated, as WMP and Securities Are Included In Loan Reserves.

• Nov and Dec wind generation continue to accelerate on a YoY basis, and it is also noteworthy that other renewable energy generation surged 346% MoM and 992% YoY in Dec.
• SASAC’s latest guidance for the centrally-owned SOEs on installed renewable capacity target of over 50% of total by 2025 is another signal of strong government support on wind power.
• Acceptance by Shenzhen Stock Exchange of Inner Mongolia PingZhuang Energy Resources (000780 CH) listing withdrawal application marks another step towards China Longyuan Power Group Corp (916 HK) return to A-share.

• Huitongda (1566215D CH) is looking to raise up to US$500m in its upcoming Hong Kong IPO.
• While the numbers from the growth of member stores look promising, it did not translate to stronger revenue from member stores and HTD did not give a clear explanation.
• In this note, we look at PHIP updates and competitive landscape.

• Last year end, Beijing Chunlizhengda Medical Instruments (1858 HK) was listed on the SSE STAR Market, but fell on debut. 
• The major concerns include performance slowdown, loss of bidding in centralized procurement, problematic sales model, poor gross profit margin, single products risk and weak innovation capability and international business.
• Our view is that there is no immediate prospect of significant improvement. With too many uncertainties and concerns, we are conservative about Chunlizhengda’s outlook despite the large A/H premium.

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.

• Guangzhou R&F Properties
• Lippo Karawaci
• Sawit Sumbermas Sarana
• Seazen (Formerly Future Land)
• Sunac China Holdings

• China Mobile (600941 CH) listed on 5 January after raising CNY 56bn in its A-share IPO. The stock could get Fast Entry to the CSI300, SSE50 and SSE180 indices.
• Stocks will be deleted from these indices to maintain the number of index constituents. Jonjee High-Tech could be deleted from the CSI300 and Shandong Gold Mining from the SSE50.
• China Mobile (600941 CH) trades at a 41.7% premium to China Mobile (941 HK), substantially lower than the 89% premium for China Telecom (601728 CH)/China Telecom (H) (728 HK). 

• With half of Nasdaq stocks down 50% from the top, is further meltdown ahead?  Valuation compression is already larger than recent big growth selloffs.  
• We like a balance of highest quality high growth (CRWD, SNOW, RBLX) and attractive relative valuations (PANW, NOW, BABA)
• Amazon is poised for a big 2022 as 1 day Prime shipping reaccelerates growth, and price increases hike profits.

• Shanghai Junshi Bioscience Co. Ltd. (1877 HK) announced that it has terminated its PD-1 commercialization partnership with AstraZeneca. Lower-than-expected sales performance is seen as the key reason.
• Junshi’s commercialization team is the weakest among the domestic Top Four.As the FDA’s attitude may have changed, the logic of exporting innovative domestic drugs to foreign markets could be shaken.
• Given the poor financing environment,it’s challenging for Junshi to afford large investment in R&D and licensing deals by just relying on cash in hand and cashflow generating from commercialized products.

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
• China SCE
• Guangzhou R&F Properties
• China Datang Corp Renewable Power
• Ronshine China Holdings
• Yanlord Land

• Viya, China’s livestreaming queen, was fined RMB1.34 billion (USD210 billion) for tax evasion and related offences in 2019 and 2020 and her internet presence erased 
• This exposes existing risks in the livestreaming sector including over-dependence on top KOLs, additional layer of costs and sector-specific regulatory crackdown
• In this Insight, we examine the cost structure of livestreaming e-commerce and discuss the Viya incident’s implications on the livestreaming e-commerce sector

• Bad To Worse:Under mainland China’s real estate development law, the government has the right to repossess idle land sold to any developer without compensation;
• Demolition Man: Danzhou City is now in on the act, forcing China Evergrande Group (3333.HK) [Evergrande] to demolish 39 buildings for various violations; and
• Banks To Eat This As Well: Without any compensation to Evergrande, mainland Chinese banks no doubt will finally be writing down their exposure on Evergrande’s now non-existent buildings.

• JL Mag Rare-Earth Co Ltd (300748 CH) is a leading producer of high-performance rare earth permanent magnets. It has launched an H-Share listing to raise $570 million at the mid-point. 
• In JL Mag Rare-Earth Secondary Listing: Magnetic Moments, we stated that it has attractive fundamentals and the secondary listing is worth a closer look. 
• Our valuation analysis suggests that the H-Share price range is fair. Pricing is expected on 17 January with an H-Share listing on 14 January.

• The main question, for yet another rebalance, is whether the index committee chooses a 6 month minimum listing history or increases it to 12 months in line with the methodology.
• That decision will result in either 4 or 5 changes at the rebalance. The deletions remain the same, while there is only 1 inclusion common across both lists.
• There is a fair bit to trade on the potential inclusions and exclusions and we expect the inclusions to outperform the deletions over the next couple of months.

• Porton made a successful turnaround and the CGT business layout is also in the right direction. The US$217 million new order would improve the certainties of its 2022 performance.
• The concerns on potential deterioration of international relations and the broken logic in CXO sector also apply to Porton Pharma Solutions (300363 CH), which should be aware of by investors.
• So, there is a long way to go for Porton to truly get into the first tier. It may not be a good buying point currently considering the high valuation.

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
• China South City
• Future Retail Ltd
• Tata Motors ADR