Daily Brief China: Alibaba (ADR), Golden Eagle Retail, S.F. Holding, Anta Sports Products, Kuaishou Technology, Health And Happiness (H&H), Sunny Optical Technology Group, Baidu, China Oil And Gas, Miniso and more

• Alibaba (ADR) (BABA US)‘s New Retail strategy stumbled, prompting the company to revert to its e-commerce origins with a renewed emphasis on social commerce.
• Creating a social media platform could be relatively simple, yet turning it into a prosperous venture amid established social media giants could be challenging.
• Branching out from social media to e-commerce might be straightforward, but Alibaba Group Holding (9988 HK)‘s unprecedented reverse path could present unique challenges.

• Golden Eagle Retail (3308 HK)‘s scheme document is out, with the court meeting scheduled for 15 September. The IFA considers the HK$6.88 per share offer fair and reasonable. 
• The key condition is approval by at least 75% of disinterested shareholders (<10% of all disinterested shareholders rejection). The shareholder with a blocking stake has provided an irrevocable.
• This is a done deal which help by the material derating of peers. At the current price of HK$6.75 and for the 17 October payment, the gross/annualised spread is 1.9%/13.4%.

• S.F. Holding (002352 CH), the largest Asian integrated logistics service provider, has filed for an H Share listing to raise US$2-3 billion, according to press reports.   
• SF is the largest integrated logistics service player in China and Asia, and the fourth largest player globally, in terms of revenue in 2022, according to Frost & Sullivan.
• The key elements of the investment case rest on the primary business’ improving fundamentals, margin trajectory, cash generation, modest leverage and undemanding PEG multiples.

• Anta Sports Products (2020 HK) reported a set of resilient earnings in 1H23, with net profit up 32% yoy.
• Management reconfirmed 2023 guidance for Fila and Anta at double-digit retail sales growth, and increased 2023 guidance for other brands to 40% yoy compared to 30% before. 
• Anta’s sales growth has been the most resilient in previous industry down-turns in China.  China macro worries should not be overly read through to Anta’s future results.

• Kuaishou Technology (1024 HK) reported 2Q2023 results yesterday which beat consensus estimates. The company reported an OPM of 4.7% with net profits for the first time.
• The company’s domestic business continues to see improvement in operating profits while losses of the overseas business have reduced significantly over the last few quarters.
• Though livestreaming growth has decelerated, the company’s online marketing and e-commerce businesses continue to expand driving Kuaishou’s earnings.

H&H International’s H1/23 results were stronger than expected. The company managed to deliver y-o-y growth of 17% in total revenue to CNY 7 bn, driven by an optimised product mix with strong growth (above 40%) in nutrition supplements across all product categories. As a result, revenue from nutrition supplements further expanded to account for 60.1% of total revenue (H1/22: 49%). The top-line increase was boosted by double-digit expansion across all regional markets, in Mainland China (H1/23: +15.4%), Australia & New Zealand (ANZ; +19.4%), North America (+20.9%) and other territories (+13.7%).

Problems in baby nutrition & care (BNC) persisted, with revenue down 2% y-o-y in H1/23. IMF sales dropped 10% in Mainland China and fell 55% in ANZ, in line with our expectations. We expect adult nutrition & care (ANC) and pet nutrition & care (PNC) to continue being H&H’s key growth segments, while BNC should remain challenging.

That said, we believe H&H faces very limited short-term repayment risk, with 1.4x LTM Cash/ST Debt as at end-June 2023. The company had CNY 2.1 bn in cash, compared to c. USD 210 mn in repayment needs over the next 12 months. Liquidity could also be supported by enhanced working capital efficiency, which would lead to stronger operating cash flow.

Our Credit Bias on H&H is “Stable”, given the company’s solid business fundamentals, strong market positions and moderate financial profile. The BTSDF notes are trading at c. 94.5, yielding 10-16%. We view the notes as fairly priced, and maintain our “Hold” recommendation.

Sunny Optical has released H1/23 numbers that were worse than expected in our view, with revenues and earnings below street estimates. Revenues declined 15.9% y-o-y to CNY 14.3 bn. Meanwhile, gross profit dropped 39.5% to CNY 2.1 bn, with a margin of 14.9%. Net profit plunged 68% to CNY 437 mn. A detailed cash-flow statement was not provided. Positively, the financial risk profile and liquidity remain healthy, supported by a large net cash position. Gross Debt/EBITDA rose to 3.9x, which is too high for a Baa1 credit in our view. We note that this has crossed Moody’s 2.0x negative rating trigger, which should cause downgrade pressure to build up.

• Baidu reported 2Q23 revenue/non-GAAP net income 2.3%/38.1% vs cons., Baidu core’s online marketing revenues and other revenues grew 7.1%/13.0% YoY, respectively. 
• We expect that Baidu’s ads growth will continue into 2H23, supported by recovery of key advertisers. 
• We slightly increase FY23 EPS estimates and maintain our TP of US$162, which implies 17.8X PE.

The H1/23 results of China Oil and Gas (COG) were broadly in line with our expectations. The credit profile remains satisfactory, supported by a decrease in borrowings. We view positively management’s goal of reducing long-term debt.

Overall, the operating environment was favourable as expected. That said, there was a dip in residential sales vis-a-vis H1/22, given unusually high sales in 2022 due to COVID lockdowns. According to the company, volume growth was 15% y-o-y in January and February 2023.

COG is keen to reduce financing costs and extend its maturity profile by refinancing the USD 290 mn syndicated loan that falls due on December 31st. The company is in discussions with banks and is planning to launch a new syndicated loan to take out the USD 290 mn. The new syndicated loan is likely to be priced at a similar level as the existing facility.

• C2Q23 revenue (1.9%)/2.6% vs. our estimate/consensus, its non-GAAP NI is 18.5%/18.3% higher than estimate/consensus. 1) GPM improvement from revenue mix ; 2) less than expected OPEX from IP licensing fee. 
• We think Miniso’s strategy to open more flagship stores is in-line with its brand upgrade strategy for seeking price premium beyond value-for-money, which bodes well for its long-term brand value. 
• We maintain Buy rating and maintain TP at US$26. We raise 2024 EPADS by 6.4% to project lower OPEX with efficiency improvement.