Daily Brief China: Air China Ltd (H), Hang Seng Index, Concord Healthcare Group and more

In today’s briefing:

2024 High Conviction: Air China (753 HK) – Update on Proposed Share Placement
EQD | The LONG Case for the Hang Seng Index
Pre-IPO Concord Healthcare Group (PHIP Updates) – Some Points Worth the Attention

2024 High Conviction: Air China (753 HK) – Update on Proposed Share Placement

Air China (H) (753 HK) is proposing a new share placement to raise Rmb6bn and HK$2bn. EPS dilution is manageable at 6% so we view the proposal positively.
The new equity will enhance book value by 11.5% and lower its gearing by 103pp to 399.8%. The full subscription by the parent is also a vote of confidence.
Recent share price weakness is due to the overall weakness in the Chinese equity market, but both macro and operating environments are improving. Selldown is unjustified.

The HSI INDEX closed last week down (CC=-1) at 16340.41, it is now down 5 months in a row (CC=-5), very OVERSOLD.
If this week the index keeps going down, it may find support soon and bounce next week. The alternative scenario is a longer correction, 2 weeks.
Support for a LONG trade, possibly pushed by a MONTHLY reversal, should be found between 16200 and 15950: this is a highly speculative setup given the stubborn downtrend.

Concord’s financial performance seems improving on the surface,but a closer look reveals that the sudden explosive revenue increase in 2021 was mainly due to an acquisition, with potential risks behind.
We’ve doubts about Concord’s endogenous growth capability. If Concord’s hospitals cannot make a profit, then any further expansion is just a beautiful story and cannot bring expected returns to investors.
Concord conducted a total of four rounds of financing, with a valuation of approximately RMB7.2 billion. However, based on our analysis, its valuation could be lower than peers.

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