China: Orient Overseas International, JD.com Inc (ADR), JD.com Inc., Minth Group Ltd, Shanghai Jin Jiang Capital Company Limited, Meituan, Xiaomi Corp, Xinjiang Goldwind Science & Technology H, Shui On Land, Hutchison China MediTech Ltd and more

• Given the market volatility, there have been quite a few changes to the potential inclusions and exclusions at the MSCI May SAIR, especially for China.
• There are now three weeks to the start of the review period and we see 40 potential inclusions and 49 potential deletions. Most of the expected changes are in China.
• The largest potential inclusions are Powerchip Semiconductor Manufacturing, Orient Overseas International, Pop Mart International, Eva Airways, China Airlines, Emtek, KT Corp, Sumber Alfaria Trijaya, Hyundai Heavy Industries and Xtep International.

• On 23rd Dec 2021, Tencent declared a special interim dividend in the form of a distribution in specie of 457.326m Class A ordinary shares of JD.com.
• While Tencent went ex-div on 20th Jan 2022, the actual settlement of the distribution is happened on 25th Mar 2022.
• In this note, we talk about the updates since our last note and the actual number of shares in CCASS.

• JD.com Inc. (9618 HK) shares from the Tencent (700 HK) in-specie dividend settled on 25 March. That has increased the number of CCASS shares and the Hong Kong free float.
• Given the large trading volumes in JD.com Inc. (9618 HK) on 25 March and 28 March, we expect most of the forced selling from the ADR allotment is done.
• There will be selling in JD.com Inc. (9618 HK) from active investors and the overhang from the Prosus (PRX NA) holding. Buying from HSI/HSCEI trackers in June could help a bit.

• Share price sell-off is overdone as the prospect of the war worsening is less likely.
• Channel checks have shown that EV sales remain upbeat despite the war.
• The long-term prospect to participate in the growing EV industry through battery housing and body parts remain intact. 

• Shanghai Jin Jiang Capital Company Limited (2006 HK)’s privatisation offer from Jin Jiang International Holding is HK$3.10 per H share. The pre-condition was fulfilled on 28 March.  
• The key conditions for the delisting will be approval by at least 75% of independent H-shareholders (<10% of all independent H-shareholders rejection). There is no minimum acceptance condition.  
• At last close and for a May end effective date (composite document despatched on 1 April), the gross and annualised spread to the offer is 4.7% and 32.1%, respectively.

• Meituan (3690 HK) reported 4Q2021 results on Friday. Revenue grew 30.6% YoY to RMB49.5bn (vs consensus RMB49.0bn) and reported operating losses of RMB5.0bn vs RMB2.9bn in 4Q2020 (vs consensus RMB7.0bn).
• Since 2Q2022, Meituan’s revenue growth has started decelerating with demand for online and food and grocery deliveries has been slowing down.
• Meituan’s 4Q2021 results were better than expected but we expect the company’s earnings to remain under pressure with new regulation on food delivery commission and resurgence of Covid-19.

We view Xiaomi Corp as “Low Risk” on the LARA scale, driven by: [1] the company’s leading market position in smartphones and smart hardware; [2] its increasing market share, scale and brand name; and [3] the company’s strong financial metrics with large positive FCF, solid balance sheet with net cash, as well as sound liquidity position. Xiaomi has a strong track record of execution and innovation, along with the entrance into and success in new verticals (e.g. cleaning robots, smart speakers, smart TVs and smart routers). The company also has fast-growing revenue streams from Internet services and gaming. On the other hand, the mobile phone industry is very competitive with low switching costs, particularly for Android phones (Blackberry and Nokia have gone out of business despite having been leading players). The credit is further weighed down by: [1] potential trade sanctions from the US; and [2] execution risk related to Xiaomi’s entry into the increasingly competitive electric vehicle market.

Our Credit Bias is “Stable”, given the company’s robust business risk profile and strong balance sheet.

• FY21 result of Xinjiang Goldwind (2208 HK) is healthy, though behind expectations due to impairments. We see them not recurrent into FY22, and this should be positive to earnings.  
• Management sees some margin decline for WTG segment but the expectation of over 30% volume growth should offset the impact. Orderbook is secured at 16,874.4MW.
• Growth in power servicing is the bright sport with target revenue growth for 50%. Goldwind also plans to also add 0.5-1GW of generating capacity annually at wind farm development segment.

In our view, Shui On’s FY 2021 results were somewhat strong. The company reported robust earnings growth, albeit this was due to a low base in FY 2020. Still, we expect revenue to increase further in FY 2022, given the good contracted sales. Leverage metrics improved, supported by a significant reduction in net debt. We view positively management’s intention to repay the USD 600 mn 6.4% perpetual securities on the first call date in June. After the repayment, Shui On will not have any perps on its balance sheet.

The credit profile continues to be underpinned by the company’s large and high-quality investment property portfolio, which covered adjusted debt by 1.4x and net debt by 2.7x at FYE 2021.

We move our recommendation to “Buy” from “Hold” on the SHUION 5.75 23 and SHUION 6.15 24, and maintain our “Hold” on the rest of the curve.

• For the three commercialized products (fruquintinib, surufatinib and savolitinib), they are facing challenges from different aspects. 
• The lack of blockbuster products and promising targets indicates that Hutchmed’s current pipeline does not have core competitiveness, which means Hutchmed’s position in the industry is not in first echelon.
• In fact, Li Ka-shing’s positioning and original intention for Hutchmed is not on innovative drugs. So, big but not strong has always been the pain point of the Company.