China: Alibaba Group, Poly Real Estate Group Co.,, Yashili International Holdings, ENN Energy, Microport Scientific, China Hongqiao and more

• 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