China: Gcl Poly Energy Holdings Limited, Meituan, JD Health, Lepu Biopharma, China Gas Holdings, Bosideng International Holdings, China South City and more

• After being suspended for 7 months for not publishing its 2020 annual results, Gcl Poly Energy Holdings Limited (3800 HK) resumed trading on 1 November 2021.
• We expect Gcl Poly Energy Holdings Limited (3800 HK) to be added to the MSCI China Index in August and to the FTSE All-World Index in September.
• Passive index trackers will need to buy over US$1.1bn of stock over the next few months. The stock has run-up inline with peers and this demand could keep it supported.

• Meituan is starting to show waning upside momentum as it near key resistance at 220/230 (sell or short zone) ahead of a harder pullback cycle that will be choppy initially.
• Meituan has outperformed its peer group but due for a pullback. Price and RSI rising wedges are maturing and nearing a bearish inflection point to short (watch poor buy volume).
• Tactical rally window in mid July with a better rally cycle slated for August head of a negative September.

• The exposure draft about online drug sales activities on third-party digital healthcare platforms would add uncertainties on JD Health’s business. We analyzed the potential impact and the logic behind.
• Keeping both self-run and third-party business is the optimal option because JD Health cannot afford losing either one. The exact impact will have to wait until policy details are released.
• As main revenue contributor, there are concerns on JD Pharmacy in terms of profitability and policy risks. Before second growth point emerges, expectation on long-term valuation expansion would be discounted.

• Lepu Biopharma (2157 HK) has filed NDA for its lead drug candidate pucotenlimab (HX008) for two indications in China, having a combined estimated market opportunity of RMB8 billion by 2030.
• Overcrowded PD-1 mAb drugs market in China, with 10 marketed drugs, may limit the growth potential of pucotenlimab. However, pucotenlimab has better efficacy than existing drugs.
• Lepu’s other core assets are also progressing and the company has sufficient cash to fund its R&D and commercialization initiatives.

• We continued to be cautious on China Gas Holdings (384 HK) given the challenges faced. It guided for a flat dollar margin in FY23 but we think this is optimistic.
• Connection fees are likely to stay under pressure after a 42.1% decline in FY22. It only projects 2.6-2.9m new residential connections for FY23, compared with 2.9m in FY22.
• Although China Gas is now the cheapest Hong Kong-listed China gas utilities company, it takes time to regain market confidence. At similar valuation, Kunlun Energy (135 HK) looks more interesting. 

• The healthy FY22 result of Bosideng International Holdings (3998 HK) showed its ability to solidify leadership position and ride through higher costs with margin expansion. 
• Management expects double-digit profit growth for FY23 as it pursues targeted “2+13” expansion strategy and increase push for online sales. New spokespersons and flagship store will add to promotional impacts.
• Net cash of Rmb7.8bn and strong FCF generation ability can ensure high dividend payout (FY22: 80.2%) to sustain. Premium valuation over local apparel peers is well justified. 

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 South City
• HPCL-Mittal Energy Ltd