China: Shanghai Jin Jiang Capital Company Limited, Kunlun Energy, Belle International Holdings, Shougang Fushan Resources, Kuaishou Technology, West China Cement, JD Health, CSPC Pharmaceutical Group, AAC Technologies Holdings and more

• Hotel operator Shanghai Jin Jiang Capital Company Limited (2006 HK) announced yesterday that all pre-conditions to the Offer from Shanghai SASAC have been satisfied.  
• The Composite Document is expected to be dispatched on or before the 1 April.
• Based on precedents for the privatisation of PRC incorporated companies, absent a tendering condition, payment is expected around the third week of May, on the assumption the vote gets up.

• Kunlun Energy (135 HK) posted a 43.6% YoY growth in net profit for FY21, which is ahead of peers like ENN Energy (2688 HK) and CR Gas (1193 HK). 
• While 2H21 gas sales segment is weaker, the contraction of dollar margin for Kunlun is light at 3.8% YoY. The other gas utilities companies are seeing 12-15% decline.
• Its net cash reached Rmb3.3bn at end-FY21, and number of new city gas projects reached 17 in 2H21, vs. 13 only in 1H21, indicating good pick-up in momentum. 

• Belle Fashion (BF) aims to raise around US$1bn in its Hong Kong listing, which would mark its return to the stock market after five years.
• Belle Fashion is the largest China-based fashion footwear and apparel group based on 2020 retail sales value, according to Frost & Sullivan (F&S). 
• In this note, we will talk about the positive aspects of the deal.

• Shougang Fushan Resources (639 HK) is in deep value territory with coking prices averaging over 2600 RMB/ton for the year ( Vs. last years average of 2000 RMB/ton)
• The stock trades at 2.6x PE, 0.8x EV-EBITDA with a 22% dividend yield at current spot prices of 2950 RMB/ton, making this an extremely cheap value play. 
• Further buffer is provided by net cash of 6.7 bn HKD, representing 44% of the market capitalization. Fushan can trade up to 3.50 HKD (20% upside) in the near term.

• Both monthly active users and time on site grew strongly in 4Q21.
• Live streaming revenue recovered quarter over quarter in 3Q21 and 4Q21.
• Operating loss decreased in 4Q21, compared to the first three quarters in 2021.

WCC’s FY 2021 results were somewhat weak, due to the gross margin contraction amid high coal costs. That said, we do not foresee much room for further margin compression, given the already high base for coal prices. Meanwhile, the weaker leverage was within expectations, given that the company continues to invest heavily for its expansion in Africa.

In our view, WCC’s expansion in Africa will improve geographical diversification and profitability, as management highlighted that the projects in this region can fetch high margins. That said, leverage is likely to continue deteriorating, as the projects will take time to ramp up. The company may also be exposed to geopolitical and execution risks in the frontier markets. In addition, there is a development lead time of c. 2 years before the projects can generate meaningful earnings.

• JD Health (6618 HK) reported results on Monday. Revenue grew 60.7% YoY to RMB17.0bn (vs consensus RMB14.9bn) while OP losses expanded to RMB808m from RMB48m a year ago.
• Similar to 1H2021, huge share-based payment expenses were the reason for increase in Operating losses, excl. these, JDH made a healthy OP of RMB1.8bn, an OPM of 10.4%.
• JDH’s online healthcare business is still at an early stage and the company has taken several initiatives to explore more opportunities and capitalise on digital transformation in the healthcare sector.

• Due to the lack of differentiated and frontier enough target layout, the commercialization potential would be more easily questioned, with high uncertainty of having the next NBP level products.
• CSPC has made easy money from a few large varieties/generic drugs for many years, but is destined to make the business transformation more difficult, because the “opportunity cost” is high.
• CSPC’s products have lost their pricing power. Therefore, when its valuation is very low or the entire sector is moving upward, this stock could be traded due to positive momentum.

We view AAC Technologies as “Low Risk” on the LARA scale, mainly due to the company’s market position in the acoustics segment, healthy financial profile and diversified product range. AAC is a supplier to reputable brands such as Apple, Samsung, Lenovo, LG Electronics, Huawei Technologies and Xiaomi Corp. The acoustics business is the company’s key profit centre. That said, AAC will need to further diversify its products to keep up with clients’ needs, as well as expand the customer base to boost revenue. The company’s operations and expansion plans could be disrupted by the resurgence of COVID-19 cases.

Our Credit Bias on AAC is “Stable”, given the company’s leading position in the acoustics segment, solid business fundamentals and healthy financial profile. That said, AAC may face supply disruptions due to the resurgence of COVID-19 cases, especially since Greater China is one of the company’s largest markets.

• Kuaishou reported 4Q2021 results yesterday. Revenue grew 35.0% YoY to RMB24.4bn (vs consensus RMB23.1bn) while operating losses for the quarter dropped to 23.7% of revenues to RMB5.8bn (vs consensus RMB5.72bn).
• The company’s operating losses widened to 36.1% of revenues in 3Q2021 while revenue from livestreaming further declined during the last quarter.
• In our previous insight, we highlighted Kuaishou’s cost cutting measures to help improve operating efficiency and forecasted operating losses to be in the range of 22-25% of revenues in 4Q2021