Daily Brief China: Alibaba (ADR), Yashili International Holdings, HKEX, Sa Sa International Hldgs, Hong Kong Hang Seng Index, Pinduoduo, Agile Property Holdings and more

• Today PCAOB announced that they had secured complete access to inspect and investigate Chinese Firms for the first time in history.
• This was on back of the Aug 2022 agreement between PCAOB, CSRC and MOF, which was followed up with a Hong Kong visit by PCAOB officials over Sep-Nov 2022.
• We wrote about this on 14th Dec 2022 and expected the results to be out on Friday (16th Dec), they have come out a day earlier than we expected.

• Back on the 6 May, Yashili International Holdings (1230 HK) announced a pre-conditional Offer, by way of a Scheme, from China Mengniu Dairy Co (2319 HK).
• Pre-Conditions concern three sales and purchase agreements, all of which Yashili shareholders voted through on the 16 August.
• From a regulatory standpoint, various conditions attached to Dumex China remain outstanding. But the wording in the most recent monthly update suggests the process is getting to the pointy end.

• After getting ‘unprecedented access’ to inspect and investigate audit firms in the PRC, the PCAOB is vacating their 2021 determinations; there will be no ADR delistings in the near future.
• PCAOB inspectors have identified numerous potential deficiencies that are consistent with what the PCAOB has encountered in other first-time inspections around the world.
• The iShares MSCI China ETF (MCHI US), KraneShares CSI China Internet ETF (KWEB US) and NASDAQ Golden Dragon China Index (HXC INDEX) are trading lower in the U.S.

• We think Sa Sa International Hldgs (178 HK)‘s risk-return payoff still look favourable even after the recent rally, which rides on the expectations of HK-mainland China border opening.  
• Assuming net profit returns to 70% of pre-pandemic level in FY25, and applying a peak PER of 25x over 2011-2018, its share price still has 63% upside.
• Release of pent-up demand, stabilisation of gross margin trend, improved cost dynamics and manageable financial position are all positive factors for Sa Sa. 

• After the sharp rally comes the pause; almost all constituents and leading indices are forming an inside week or a weekly Doji (small or long body with very little difference in open and close levels) [based on mid-day Thursday].
• These two formations are a typical indication of market indecision.
• However, it is unlikely to be quiet for the rest of December. 

• This is our first report on Chinese internet giant, Pinduoduo.
• In the past few months, various product categories of Pinduoduo, such as beauty and cosmetics, consumer electronics, and agriculture, have performed particularly well.
• During the harvest festival, Pinduoduo worked with CCTV as well as assembled professors from China Agricultural University and the Chinese Academy for Agricultural Sciences to promote agricultural products.

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.

• Kawasan Industri Jababeka