China: Tianqi Lithium, SenseTime Group, West China Cement, China Power International, Gaush Meditech, Weilong Delicious Global, Hopson Development and more

• We see 8 potential inclusions and 1 potential deletion for the MSCI Standard index at the August QIR. Announcement on 12 August (Asia time) and implementation on 31 August.
• Largest passive inflows expected on Gcl Poly Energy (3800 HK), Kasikornbank (KBANK TB), Tianqi Lithium (002466 CH) and Qinghai Salt Lake Industry (000792 CH). 
• There are a few of the China/ Hong Kong listed stocks that could have same way flows from the FTSE trackers a couple of weeks later at the September SAIR.

• AI software company SenseTime’s share price dropped more than 50% over the last one week with the expiry of lock-up period as pre-investors of the company took some profits.  
• The company was placed in an investment blacklist by the US government prior to the IPO which forced to launch the IPO without investors from the US.
• The company also priced the IPO at the bottom of the price range and despite all of this, shares quickly went up to HK$8.20 from IPO price of US$3.85.

We view West China Cement (WCC) as “Medium Risk” on the LARA scale. The company has a leading market position in Shaanxi in China, as well as a small but expanding presence in Xinjiang and Guizhou. It also has a plant in Mozambique, which commenced operations in December 2020. The cement industry in Shaanxi has favourable supply/demand dynamics, as producers have been able to coordinate production cuts to boost ASP despite overcapacity. That said, there could be event risks related to WCC’s expansion plans, particularly in Africa (where industry trends are less well-understood). Moreover, the company may be exposed to geopolitical and execution risks in frontier markets.

Our fundamental Credit Bias on WCC is “Stable”, on account of its strong OCF and still-healthy leverage. That said, we believe leverage will weaken in FY 2022 and FY 2023 before recovering, given the company’s plans for continued investments in Africa. Moreover, WCC’s new plants in Africa would require time to ramp up before they can generate meaningful earnings.

Controversies are “Immaterial”. We note that cement production is a major source of carbon emissions. According to IEA, the cement industry contributes 7% of global CO2 emissions and is the second-largest industrial emitter (behind the iron and steel industry). That said, there is a lack of suitable alternatives for cement as an input of concrete. Moreover, WCC’s main markets (China and Africa) will likely remain heavily dependent on cement for infrastructure developments. Hence, we assess the ESG Impact on Credit as “Neutral”. 

• China Power International (2380 HK) will acquire 2.15GW clean energy capacity from its parent SPIC for a total of Rmb7.5bn. This will add 14.3% to its end-FY21 clean energy portfolio.
• We think the assets are priced attractively at 12.5x PER for FY21, a discount to peers’ average of 14x. The acquired capacity has an impressive 45.8% YoY earnings growth.
• CPI targets to have 70% of end-FY23 capacity from clean energy, and this implies a 46.3% CAGR between FY21 and FY23, which is a very exciting momentum. 

• Gaush Meditech (GMT HK) is a leading total solution provider of ophthalmic medical devices industry.
• The irreplaceability of Gaush in the whole industrial chain is actually not high based on its current business model.The proprietary product business may also need to face different policy risks.
• Together with other uncertainties such as increasing market competition and medical reform policy in China, we are conservative about Gaush’s outlook at the current stage.  

• Weilong Delicious Global (WDG), a spicy snack food company in China, aims to raise around US$500m in its Hong Kong IPO.
• According to F&S, WDG ranked first among spicy snack food enterprises in China, with a market share of 6.2%, and in the seasoned flour product and spicy vegetable snacks categories.
• In this note, we talk about the updates from its refiled PHIP.

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.

• Hopson Development
• KWG Living Group
• Powerlong Commercial Management Holdings
• Times China
• Yuexiu Property