Daily Brief China: Alibaba (ADR), WuXi XDC Cayman Inc, Tencent, Foxconn Industrial Internet, Lianlian DigiTech, SITC International, Tencent Music, Greentown China and more

• Alibaba Group Holding Ltd.’s workplace collaboration platform DingTalk will split from the company’s cloud division and pursue its own IPO, a source familiar with the matter told Caixin, as the tech giant ramps up efforts to unlock growth following its major restructuring.
• DingTalk’s separation is expected to be completed before the Alibaba cloud unit’s own IPO, the source close to the e-commerce firm said.
• Alibaba announced in May that it would spin off its Cloud Intelligence Group via a stock dividend distribution to its shareholders over the next year with an eventual listing.

• WuXi XDC Cayman Inc (1877628D HK) is looking to raise at least US$100m in its upcoming Hong Kong IPO.
• WuXi XDC Cayman (WXDC) is a CRDMO focused on the global antibody drug conjugates (ADC) and broader bioconjugate market providing integrated and end-to-end services.
• In this note, we will talk about the positive aspects of the deal.

• In 2Q23, online advertising and FinTech revenues continued to grow rapidly.
• Game revenue was slow, but two existing games were still at the top of the game market.
• The operating margin improve significantly, benefiting from the layoff last year.

• Tencent (700 HK) reported 2Q2023 results today. Revenue grew 11.3% YoY to RMB149.2bn (vs consensus RMB151.1bn) while reported OP increased 34% YoY to RMB40.3bn (vs consensus RMB44.6bn).
• Rapid growth in ad business, video account monetisation and cost controls have contributed to Tencent’s 2Q2023 earnings despite domestic gaming business has slowed down.
• Though Tencent’s 2Q2023 results show a recovery in earnings, we would interpret the company’s earnings with caution given the slowdown in domestic gaming and social networks businesses.

• SSE 50 and SSE180, respectively, aim to represent the performance of the 50 and 180 largest and most liquid A-share stocks listed on Shanghai Stock Exchange. 
• Earlier this month, I discussed the historical price and volume performance of SSE 50 and SSE 180 Rebalance events in Quiddity Primer for SSE 50/180/380 Index Rebalance Events. 
• In this insight, we take a look at our expectations for potential index changes for SSE 50 and SSE 180 during the December 2023 Rebalance event.

• Lianlian DigiTech (2104619D CH) is looking to raise up to US$500m in its upcoming HK IPO.
• LianLian DigiTech is a digital technology company that provides a range of digital payment services and value-added services to customers in China and around the world.
• Lianlian’s digital payments segment has historically been its largest revenue contributor. However, profitability has been declining on the back of lower gross margins and mounting losses from its Liantong JV.

• While management of SITC International (1308 HK) thinks that the worst is over, we are less positive given the lacklustre demand and the disappointing Jul-Aug market freight rates.
• Its gross margin is still significantly ahead of the pre-COVID levels, and financially, its net cash balance has been coming down. The dividend payout ratio has also lowered slightly.
• The FY23 consensus earnings forecast is too optimistic given 1H23 net profit is only 33.5% of the full-year estimate. The downside risk will cap near-term share price performance. 

• TME reported in-line results with continued divergence in its two major businesses: Online music increased by 48% YoY, while social entertainment declined by 25% YoY.
• We expect these trends to continue, with online music benefiting from price increases and social entertainment facing ongoing challenges from competition, regulations, and macro influences.
• Recently, Douyin has been advancing the integration of its large entertainment division. We anticipate that this will pose pressure on TME. Remain SELL and cut TP to US$ 5.7.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Greentown China