In today’s briefing:
- Alibaba (9988 HK): Value Proposition Looks Clean
- Li Auto (LI US): 4Q23, High Growth and Profit, A Winner of Market Concentration, Upgraded to Hold
- China Consumption Weekly (26 Feb 2024): Alibaba, Xpeng, HiPhi, Tuhu Car, Luckin
- Chinese Education Giant Urged to Repay Bondholders Early as Default Fears Mount
- Sitoy (1023 HK) Disappointing H1 FY24, 6x PE, 67% of Mkt Cap in Cash,~9% Div Yield: Good Trade
- Pre-IPO 160 Health – The Lack of Moat Has Led to Development Falling Far Short of Expectations
- MIXUE/ChaPanda/Good Me Pre-IPO – Peer Comparison
- QuantumPharm (Xtalpi) Pre-IPO – The Negatives – Requires Deep Pockets to Fund Its Cash Burn
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Alibaba (9988 HK): Value Proposition Looks Clean
- It is well-known that Alibaba (ADR) (BABA US) is cheap (9x FY24 PE, fiscal year ending March; 8x FY23 free cash flow; net cash 25% of market cap).
- Taking into account all of the major moving parts, I believe Alibaba can now be categorized as a good value stock.
- Shareholder returns through buyback and dividend, minus stock-based compensation in 2023 calendar year equal to around 5% yield.
Li Auto (LI US): 4Q23, High Growth and Profit, A Winner of Market Concentration, Upgraded to Hold
- In 4Q23, revenue grew by 136% and operating profit was significantly higher than the market consensus.
- Li Auto grew the most rapidly among the top-ten Chinese NEV sellers.
- We believe Li Auto will be one of the winners after the market gets more concentrated. Upgrade to Hold.
China Consumption Weekly (26 Feb 2024): Alibaba, Xpeng, HiPhi, Tuhu Car, Luckin
- Alibaba plans to provide operational services to third-party sales broadcasters.
- Xpeng will hire 4,000 employees and raise research budget by 40%.
- Tuhu Car expected that its net profit will turn positive in 2023.
Chinese Education Giant Urged to Repay Bondholders Early as Default Fears Mount
- Some global investors are urging Chinese private education giant XJ International Holdings Co. Ltd. to redeem half of its $350 million in bonds before maturity, as the creditors fear the Hong Kong-listed firm may intentionally default on repayments.
- The bonds are due in 2026, but the creditors asked for the early redemption to be completed by March 2 in a letter sent to the Chinese company last month by their legal adviser, Chicago-headquartered global law firm Kirkland & Ellis LLP.
- The creditors are a group of large international investors who collectively hold no less than $154 million, or about 50%, of the bonds’ outstanding principal amount, according to the letter seen by Caixin.
Sitoy (1023 HK) Disappointing H1 FY24, 6x PE, 67% of Mkt Cap in Cash,~9% Div Yield: Good Trade
- In the search for good value stocks to invest in for the long run, a good long-term ROIC is essential. It ascertains the moat or execution quality of the company.
- Unfortunately, with a 5 Yr/10 Yr average ROIC of 4%/8%, the company did not satisfy all our criteria, yet the value seems appealing (66% of market cap cash, 8.8% yield).
- The persistent structural challenges in H1 FY24 in the industry (resulting in the subpar ROIC) convince us that the stock is only a good trade, but long-term a value trap.
Pre-IPO 160 Health – The Lack of Moat Has Led to Development Falling Far Short of Expectations
- 160 Health collaborates with medical institutions and then get access to high-caliber medical professionals, which helps to attract patients/other business parties. So, its business model is B2B2C, similar to ClouDr.
- However, ClouDr has much better performance than 160 Health, because ClouDr has established moat/barriers to more effectively monetize medical resources, while 160 Health is clearly lagging behind in this regard.
- 160 Health’s revenue mainly comes from sales of pharmaceutical and healthcare products, whose gross margin is very low. As the competition intensifies, the C-end customer acquisition cost would also increase.
MIXUE/ChaPanda/Good Me Pre-IPO – Peer Comparison
- Mixue Group is looking to raise about US$1bn in its Hong Kong IPO, while Sichuan Baicha (ChaPanda) and Guming Holdings (Good me) are said to be looking to raise US$300m each.
- All three are primarily focussed on providing freshly-made drinks, including freshly-made fruit drinks, and tea, with some selling ice cream, coffee, baked goods and ready to drink beverages as well.
- In this note, we will undertake a peer comparison, including the Hong Kong listed peer, Nayuki Holdings (2150 HK).
QuantumPharm (Xtalpi) Pre-IPO – The Negatives – Requires Deep Pockets to Fund Its Cash Burn
- QuantumPharm (QUP HK) (Xtalpi) is looking to raise US$200m in its upcoming Hong Kong IPO.
- QuantumPharm is a R&D platform, utilizing quantum physics-based first-principles calculation, advanced AI, high-performance cloud computing, and scalable and standardized robotic automation to provide drug and material science R&D solutions.
- In this note, we will talk about the not so positive aspects of the deal.