Daily Brief China: 21Vianet Group, CALB, Eva Precision Industrial Holdings, 4Paradigm, Jenscare Scientific, First Pacific Co, China Conch Venture Holdings, Modern Dental Group and more

• Back on the 11 April, Chinese internet data center services provider VNET (VNET US) announced a non-binding proposal from Hina Group and Shanghai’s Industrial Bank at an utterly underwhelming US$8.00/ADS.
• Then crickets. A reported tilt from MBK Partners failed to materialise.
• VNET has now announced a preliminary non-binding proposal from founder Josh Sheng Chen, at a similarly underwhelming price of US$8.20/ADS. 

• CALB aims to raise around US$1.5bn in its Hong Kong IPO.
• CALB undertakes design, R&D, production and sales of EV batteries and Energy Storage Systems (ESS) products.
• In this note, we undertake a peer comparison and talk about the company’s expansion plans.

• Eva Precision Industrial Holdings (838 HK) is a beneficiary of EV penetration globally and in China, trading at 9.4x /5.6x FY22/23e and 3.2%/5.3% dividend yield (30% payout ratio).
• H1 2022 was groundbreaking for the company as it commenced strategic cooperation with  BYD (1211 HK) on products and bagged orders from Huwaei and Tesla, with more coming in H2.
• There is additional room for buybacks as the stock price is < 2HKD and the company only completed 3-4% of its 200 mn HKD buyback.

• 4Paradigm (1764934D HK) is a pioneer and leader in enterprise AI. Company offers platform-centric AI solutions to enterprises that can be deployed on a large scale to support decision making.
• The company was ranked the largest player in the platform-centric decision-making AI market in China in 2021 and has filed for a HKEx listing for the third-time this month.
• 4Paradigm’s top line and margins have improved since we last wrote on the company.

• CALB’s revenue surged by 266% YoY to reach 3.9 billion RMB in 1Q 2022. Its  operating profit also increased by 43.5% YoY in 1Q 2022, respectively. 
• CALB also had the highest sales growth rate of 266.5% YoY in 1Q 2022 versus 154% growth YoY for CATL and 63% growth YoY for BYD in 1Q 2022.
• CALB is one of the most interesting large cap IPOs globally in 2022. Despite horrible market conditions, the company is trying to complete its IPO in the next several weeks.

• The main bottleneck in this market in China is the severe shortage of doctors and limited qualified hospitals to carry out such surgery, leading to lower-than-expected market penetration/sales performance.
• Jenscare Scientific (JCS HK)’s products have to face fierce competition, without obvious advantage of development progress, or the progress has already lagged behind the competitors. 
• Overall, good valuation cannot be supported without promising commercialization outlook. We are not sure whether Jenscare can finally achieve the ideal return in the case of unfriendly external environment.

We view First Pacific (FIRPAC) as “Low Risk” on the LARA scale. This is primarily due to the group’s strong assets and tight control over key investee companies, which ensure reliable dividend streams to service debt. The investment holding company has a reasonable track record. Its key assets include Philippine Long Distance Telephone Company, Indofood and Metro Pacific Investments Corp. The group’s asset concentration is offset by the strength of these companies, which are: [1] leaders in their market segments; and [2] stable non-cyclical businesses. Leverage is moderate (measured as Net Debt at Holdco/Market Value of Assets). The investment portfolio has high transparency, with almost all assets (based on NAV) being listed.

Our fundamental Credit Bias is “Stable”​, due to the subsidiaries’ robust performance.

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”. As an investment holding company, FIRPAC does not face substantial regulatory, geopolitical or ESG risks.

• Jenscare Scientific (JCS HK) is developing interventional products for the treatment of structural heart diseases. Its core product LuX-Valve is expected to become the first commercialized TTVR product in China.
• With its comprehensive portfolio and early mover advantage, Jenscare is well-positioned to capitalize on large and underpenetrated China’s structural heart diseases treatment market worth of RMB20.3 billion in 2030.
• Jenscare Scientific plans to raise $30 million (HKD234 million) in its third application for a Hong Kong IPO, with CICC and Citigroup being the joint sponsors.

• China Conch Venture Holdings (586 HK) is now at negative stub value, the low-end since 2020. This is despite a 16.4% growth in 1H22 core earnings to Rmb542m.
• The company’s waste-to-energy (WTE) capacity will increase by 25% in FY23 and its internal target calls for an earnings CAGR of 33% between FY21 and FY25 for WTE segment.
• We should not underestimate the potential from new business initiatives including cathode and anode materials and lithium battery recycling. They have good medium-to-long term exposure to China’s new energy industry.

• Due to better-than-expected VBP results, we saw a decent rally of MDG’s share price last Friday. However, all the medical products that are covered by VBP begin to lose logic. 
• Backwardness in R&D is a bottleneck restricting MDG’s future growth. MDG is more like a manufacturing/processing plant relying on labor dividends than a technology company with high product added value.
• Multiple risks (e.g.pandemic, depreciation of exchange rate against US dollar, economic downturn, etc.) will add more uncertainties to MDG’s 2022 performance. MDG’s share price could remain tepid after temporary rally.