China: HKEX, JD.com Inc., Gongniu Group Co Ltd, Hengan International Group, Tuhu Car, China Education Group, Greenland Hong Kong Holdings and more

• On 27 May, the SFC and CSRC announced that they had agreed in principle to the inclusion of Exchange Traded Funds by mainland and Hong Kong exchanges in Stock Connect.
• We currently see 6 ETF being eligible for inclusion in Southbound Connect and another couple that could be included at a subsequent review.
• Increased mainland participation in the ETF market could lead to sustained premium/discount on the ETFs and this will be transmitted to index futures and affect pricing of short-term/long-term repo.

• The June rebalance of the HSI, HSCEI and HSTECH indices will use today’s closing prices to cap the index constituents at 8%. This will lead to large flows.
• The largest inflows will be on JD.com Inc. (9618 HK), Tencent (700 HK), Baidu (9888 HK), SMIC (981 HK), Orient Overseas (316 HK), Zhongsheng Group (881 HK), Lenovo (992 HK).
• The largest outflows will be on Meituan (3690 HK), Alibaba (9988 HK), ASM Pacific (522 HK), Kuaishou (1024 HK), AIA (1299 HK), China Construction Bank (939 HK), HKEX (388 HK).

• Changes to the Northbound Stock Connect Buy and Sell list were announced yesterday with 35 SSE-listed stocks becoming sell-only, and 32 SZSE-listed stocks becoming sell-only.
• This will result in the deletion of 45 stocks from the FTSE All-World, All-Cap and Micro-cap indices, while there will be 9 deletions from the MSCI Standard Index.
• There are a few stocks with over 1 day of ADV to sell from passive trackers and these stocks could trade weaker than the market over the next few days.

• Given their market leadership in China’s personal care industry, Hengan International Group (1044 HK) and Vinda International Holdings (3331 HK) arguably make a valid pair trade.
• Yet Hengan’s bottom line is dominated by its sanitary napkin products; whereas Vinda’s tissue segment has a similarly high contribution to its net profit. 
• On various valuation metrics, both companies, relative to listed peers, and their historical trading numbers, appear inexpensive.

• Tuhu Car (2007986D HK) is looking to raise up to US$400m in its upcoming Hong Kong IPO.
• Tuhu is an integrated online and offline platform for automotive services in China.   
• Initially starting as a pure online retail platform, the firm has over time been building its offline network with well-managed stores and technicians to deliver standardized services in-store.

• Despite the 21% spike in share price, we believe good student enrollment outlook and earnings prospects of China Education Group (839 HK) are still yet to be fully reflected.
• The 70.1% YoY surge in approved top-up degree program quotas in China and the guidance for substantial quota increase for bachelor’s degree and junior college programs are both exciting.
• Its comprehensive cooperation agreement with Bank of China Jiangxi Branch adds another peace of mind as this suggests support from the state and lowers regulatory risks, in our view.

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 Vanke
• Vedanta Resources
• Yanlord Land
• Yuexiu Property

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 Vanke
• Vedanta Resources
• Yanlord Land
• Yuexiu Property