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In today’s briefing:
- TCM (570 HK): Where’s The Floor?
- Brilliance China (1114 HK): Reversing Out of Passive Portfolios
- CMCDI (133 HK): Buybacks And Management Fees Into Focus
- Oriental Watch FY24: Weaker H2, Value Intact But Outlook Challenging
- [Atour Lifestyle (ATAT US, BUY, TP US$36) Target Price Change]: 618-Commerce Sales Set a New Record
- Bond Market Monitor: No Rate Hikes
- Morning Views Asia: New World Development, Softbank Group
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TCM (570 HK): Where’s The Floor?
- Just plain ugly. China Traditional Chinese Medicine (570 HK) (“TCM”) fell 11.7% yesterday. It’s down another 7.9%, on large volume, as I type. The stock is now ~35% below terms
- Depending on who you talk to, the sudden move was triggered by a couple of event pods dumping stock; or the incoming CNPGC chairman is not supportive. Or perhaps both.
- Since rumours surfaced early Feb as to an Offer, a basket of TCM’s peers are up 8% on average. The HSI is up 15%. TCM’s downside from here appears limited.
Brilliance China (1114 HK): Reversing Out of Passive Portfolios
- Brilliance China Automotive (1114 HK) is up 220% on a total return basis since we first published our insight in August 2023.
- The company paid a special dividend in April this year and will pay a large special dividend of HK$4.3/share going ex-div on 3 July.
- The resultant drop in market cap will result in deletion of the stock from large global passive portfolios at the close on 3 July.
CMCDI (133 HK): Buybacks And Management Fees Into Focus
- The recent news on China Merchants China Direct Investments (133 HK) was director Elizabeth Kan narrowly getting re-elected. Of interest, ISS recommended shareholders vote AGAINST. Glass Lewis was FOR re-election.
- The key takeaway here is that the majority of the minorities want change. The next development may occur in the lead up to the management agreement renewal in November.
- In addition, Argyle Street Management, CMSCI’s key shareholder activist, is also requesting the company buy back 20% of shares outstanding at 90% of NAV.
Oriental Watch FY24: Weaker H2, Value Intact But Outlook Challenging
- Oriental Watch (398 HK) reported revenue/profits down 2%/15% YoY for the full year (vs our expectation of 10%). H2 revenue/profitability fell 12%/22% YoY due to a weak Q4.
- Cash and investments fell from 1.1 bn to 920 mn HKD, owing to dividend payments, increased inventories, and reduced payables. Cash represents 55% of market capitalization.
- The company maintains a 100% dividend payout, but dividends declined in line with earnings to 51.5 cents (FY23: 60 cents), representing a 15% dividend yield.
[Atour Lifestyle (ATAT US, BUY, TP US$36) Target Price Change]: 618-Commerce Sales Set a New Record
- Atour recorded steep product sales growth during 618. We raised our C2Q24 revenue by 7.5% and full year by 5.1%, driven by (1) stronger pillow sales during the 618 promotions;
- Thanks to retail, Atour’s RevPAR after including retail sales maintained positive growth of 1.7% YoY, although pure hotel RevPAR dropped 2.9% YoY due to a decline in hotel price.
- We raise TP by US$1 to US$36/ADS and keep the rating as BUY, factoring in the strong growth momentum of Atour’s retail business.
Bond Market Monitor: No Rate Hikes
- As we are entering the second half of 2024, inflation has remained sticky as expected.
- The lingering fear of a global recession has been mitigating rising shipping and production costs and, as a result, kept inflation in check.
- We see more opportunities in selected Chinese bonds in industries away from property and local government financing vehicle (LGFV) sectors and believe non-Asia emerging bonds offer better value.
Morning Views Asia: New World Development, Softbank Group
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.