In this briefing:
- HK Connect Discovery Weekly: Eligibility Adjustment (2019-03-15)
- China Risun (中国旭阳) – Quick Post-IPO Trading Update
- Re-Launching Coverage of ZTO Express with Sell Rating and US$13.31 Target Price
- Foreign Investment Law/Trade War/Huawei/Eu Vs PRC
- GDS Holdings (GDS US): Placing a Good Opportunity to Gain Exposure to a High Growth Story
1. HK Connect Discovery Weekly: Eligibility Adjustment (2019-03-15)
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
In this insight, we will provide an analysis of the performance of selected stocks that just joined the Stock Connect last week.
2. China Risun (中国旭阳) – Quick Post-IPO Trading Update
China Risun (1907 HK) raised USD 202 million at HKD 2.80 per share, near the low end of its IPO price range. We have previously covered the IPO in:
In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.
3. Re-Launching Coverage of ZTO Express with Sell Rating and US$13.31 Target Price
ZTO Express (ZTO US)‘s earnings will fail to meet the high expectations of sell-side analysts and investors who seeit as a cheap proxy for Chinese e-commerce activity.
China’s express sector revenue grew 43.5% YoY in 2016, the year ZTO went public. Last year, revenue growth was just half that (21.8%), and we expect the sector’s growth to continue to moderate over the next few years.
The express sector is also evolving in ways that will put downward pressure on profitability and require greater investment from the express companies.
We expect the profitability of ZTO’s express business to decline in the medium-term as the company adjusts to slowing demand and emerging sector trends. Our earnings estimates, which are far below consensus figures, reflect these challenges.
ZTO suffers from declining earnings quality and two accounting issues that we feel make it a risky, unattractive investment. Our 12-month target price for ZTO is US$13.31, based on 16 times our blended 2019-20 EPS estimates. We rate the stock Sell.
4. Foreign Investment Law/Trade War/Huawei/Eu Vs PRC
China News That Matters
- NPC approves “rushed” foreign investment law
- Trump in no hurry as “China threat” grows
- Huawei struggles to build trust
- EU takes a stand: China as “systemic rival”
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.
5. GDS Holdings (GDS US): Placing a Good Opportunity to Gain Exposure to a High Growth Story
Last Friday, Gds Holdings (Adr) (GDS US), the largest third-party data centre operator in China, announced the placing price of its public offering of 11.9 million ADS. At the placing price of $33.50 per share, GDS will raise net proceeds of $385.5 million which will be used for the development and acquisition of new data centres.
We are positive on GDS as the business remains in rude health due to strong revenue growth, rising margins and high revenue visibility. Overall, we would participate in the public offering at the placing price.
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