China: Tencent, Henderson Land Development, Xiaomi Corp, JD.com Inc (ADR), Road King Infrastructure, Sunac China Holdings and more

• Tencent’s revenue growth continued to slow down to 8% YoY in 4Q21.
• The company used more extraordinary income to bolster EPS in recent years.
• We believe the stock has a downside of 28% within 2022.

• Henderson Land Development (12 HK)‘s shares bounced late last week after the Hong Kong government indicated it would ease strict Covid measures. FY21 results were also released yesterday.
• Preceding my comments on Henderson, are the current setup/unwind tables for Asia-Pacific Holdcos. 
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• Xiaomi Corp (1810 HK) reported 4Q2021 results on Tuesday. Revenue grew 21.4% YoY to RMB85.6bn (vs consensus RMB82.1bn) while reported OP declined 54.0% YoY to RMB4.5bn (vs consensus RMB4.3bn).
• Adjusted OP (excluding fair value adjustment and other gains) grew 21.4% YoY to RMB85.6bn, with an adjusted OPM of 4.0% vs 3.0% in 4Q2020.
• Xiaomi’s smartphone revenues bounced back in 4Q2021 after growing less than 1.0% YoY during the previous quarter. The company also announced a share buyback of HK$10bn.

• 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 expected to happen on or about 25th Mar 2022.
• In this note, we talk about the updates since our last note and have a closer look at Prosus and its possible motivation/intention with its JD.com stake.

• Tencent (700 HK) reported 4Q2021 results yesterday. Revenue grew 7.9% YoY to RMB144.2bn (vs consensus RMB146.5bn) while non-IFRS OP decreased 13% YoY to RMB33.2bn.
• This marks the slowest quarterly revenue growth for Tencent since 2004 mainly due to lower VAS revenue growth and decline in revenue from online advertising.
• Tencent’s 4Q revenues were in line with our forecast of RMB144bn while adjusted OPM of 23% was slightly below our estimates of 26%.

Road King’s FY 2021 results were mixed in our view. The company’s gross margin continued to contract, albeit this was in line with industry trends. The increase in net debt persisted, as Road King continued to make sizeable land purchases. While the company’s cash dividends from toll-road JVs have recovered from the low base in FY 2020, we note the amount remains below those for FY 2018 and FY 2019. The FY 2021 dividends were sufficient to cover 24% of interest expense (FY 2020: 18%).

Liquidity appears adequate, and we expect Road King to be able to repay its CNY 869 mn of domestic bonds due in September. Positively, we believe the company does not have to redeem its perpetuals at their respective first call dates. Additionally, Road King has not faced any material allegations of hidden debt to date.

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.

• AAC Technologies Holdings
• Sunac China Holdings
• Xiaomi Corp