China: DiDi Global, Meituan, Tencent, Air China Ltd (H), Sino Biopharmaceutical, China Vanke, Kwg Property Holding and more

• The company was told a year ago that it had data problems. It was then told in June it had serious data problems and was given 15 days to fix.
• It did not. It listed itself, against the wishes of the regulators. Then it got in serious hot water. And it has only been getting hotter. 
• A hoped-for HK Listing By Introduction was nixed 5 weeks ago. Now the Company is simply going to delist to try to solve its problems behind closed doors before relisting.

• DiDi Global (DIDI US) will hold an EGM on 23 May to vote to delist the ADS from the NYSE. The shares will not be listed on another exchange before delisting. 
• Due to the regulatory restrictions, DiDi is losing market share and pricing power to competitors in China. The 4Q21 results were poor. 
• Directors and key pre-IPO investors together account for 48.2% of outstanding shares, suggesting that the ordinary resolution will pass. 

• Nikkei reported that Meituan intends to pay better compensation to small-and-medium restaurants and to delivery workers to prove that the company is in line with Beijing’s common prosperity measures.
• As Shanghai is under strict Covid lockdown, Meituan has seen a sharp rise in demand for grocery deliveries, however, margins are expected to be thin due to additional costs.
• The company has been under tremendous pressure to improve its cost structure and is undertaking 10-20% job cuts across all its business units.

• Tencent’s increase in investment acquisition activity has coincided with a general weakness in equity prices and valuation levels.
• Tencent management’s assessment of the fair value of its listed investee holdings, of RMB982.8bn on 31 December 2021, equates to roughly 27.4% of its market cap.
• The market value of Tencent’s investee holdings in more-mature, Chinese-listed, internet-orientated holdings equates to roughly 9% of its current market cap.

• Air China Ltd (H) (753 HK) has weaker passenger traffic in Mar and 1Q22 when compared with China Southern Airlines (1055 HK), and this is mostly due to the Olympics.
• We expect one-off factors to remove starting Apr and traffic gap against CSA will narrow going forward. Its associate Cathay Pacific (293 HK) has also seen good pick-up in Mar. 
• Air China outperformed CSA by 8pp YTD. There are signs of quarantine requirement relaxation for incoming passengers, and we anticipate gradual international traffic recovery to bode well for Air China.

• As the “the king of generics”, Sino Biopharmaceutical (1177 HK) is lucky to have three “golden eggs”(Entecavir, Anlotinib, CoronaVac) to contribute huge performance over the years.
• The promotion of VBP and fierce competition make Sino Biopharmaceutical’s products lose pricing power. Due to little revolutionary technology/slow product iteration/weak R&D, it’s unlikely to have another Anlotinib level asset.
• The Company’s development mode, the mindset of management, and other concerns could be more serious problems, causing investors to distrust the management level and preventing it from getting high valuation.

We view China Vanke as “Low Risk” on the LARA scale, given the company’s: [1] leading market position in terms of sales and branding; [2] sound financial profile; and [3] diversified geographical coverage. Vanke is transitioning to become a more diversified company, with increased exposure outside the residential project sector and higher participation in the “Rail+Property” development model. Furthermore, the company is able to acquire land at lower cost amid the current bleak environment, and has lower financing costs due to its ties to the state.

Our fundamental Credit Bias on Vanke is “Stable”, given its adequate liquidity and sound credit metrics. We expect the company to have good access to funding, thanks to its status as a state-owned enterprise. That said, negative sentiment in the industry could weigh on Vanke’s performance.

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