Daily Brief China: Alibaba Group Holding , Alibaba (ADR), Prosus NV, BeiGene , Meituan, Cainiao Smart Logistics Network, HSBC Holdings, Xiaomi Corp, Hygeia Healthcare Group and more

• Optimism for improved shareholder returns through IPOs diminishes further as Alibaba (ADR) (BABA US) puts the Cloud spinoff on hold.
• Jack Ma’s sale of 10m ADS, representing 5% of his Alibaba holdings, sparks concern. Investors should worry about his lack of optimism.
• With the Cloud IPO on hold, Alibaba Group Holding (9988 HK) is vulnerable to numerous downside catalysts, as outlined below.

• In-Line results were overshadowed by company’s pullback from March restructuring plan and Jack ma’s family trust selling shares.
• Worst sell-off in a year was over-reaction as abrupt changes unnerved investors who tended to interpret the events  with excessive negative sentiments.
• Valuation almost priced in a scenario where company is overtaken by PDD in faltering Chinese economy. Selling amidst this extreme pessimism is the last thing investors want in our view. 

• The accretion trade is going to plan as Prosus NV (PRX NA) sells Tencent (700 HK); and Prosus and Tencent both back their own shares.
• Preceding my comments on Prosus/Tencent One are the current setup/unwind tables for Asia-Pacific Holdcos
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• Alibaba’s cloud servers experienced downtime for more than three hours.
• Kuaishou achieved success in the Singles Day sales and we expect a high growth rate for “other revenue” in 3Q23.
• Tims China’s revenue grew strongly with aggressive expansion of new stores.

• With the review period complete, BeiGene (6160 HK) could replace Anhui Conch Cement (914 HK) in the iShares China Large-Cap (FXI) (FXI US) in December.
• There will be over 2 days of ADV to buy in BeiGene (6160 HK) and nearly 2 days of ADV to sell in Anhui Conch Cement (914 HK). 
• Short interest has been increasing in BeiGene (6160 HK) and dropping in Anhui Conch Cement (914 HK) over the last few months.

• We expect total revenue will grow by 24% in 3Q23, as catering has been recovering in China.
• We expect Meituan can still earn positive operating profit 3Q23, as the company cut salespeople’s bonuses.
• We also believe that the stock has an upside of 87% for year end 2024.

• Led by international activity, CaiNiao booked +25% Y/Y revenue growth in FYQ2
• FYQ2 EBITA margin improved Y/Y and Q/Q, even as express companies struggled
• Result bolsters CaiNiao status as vehicle to access BABA’s international growth

• HK & China CRE credit impaired loans are rising sharply and high in 3Q23. We believe there is risk that the bank has to take much higher credit costs.
• Not only Mainland China CRE where there are risks. HSBC shows its ECL coverage ratio for HK CRE rising 45% over the past nine months, from 4Q22 to 3Q23.
• LT credit costs shows HSBC’s provisioning is like during a benign environment, at ~1/3 of its LT average. Its +34% QoQ credit costs in 4Q22 is worth keeping in mind.

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.

• Lippo Karawaci
• Softbank Group
• Xiaomi Corp

• Hygeia’s asset-heavy model leads to a situation of expense “front-loading” and profit “back-loading”.Management’s attitude towards profit is “thought-provoking”.It’s best for investors not to have high hope for Hygeia’s profit margin.
• Hygeia can maintain 30%+ growth in short term, but revenue growth could fall to 15-20% in the future due to lack of high-quality M&A targets and uncertainties brought by anti-corruption.
• Revenue forecast is about RMB4 billion in 2023 and RMB5-5.5 billion in 2024. P/E of 30-40 is reasonable range at this stage, which would drop afterwards. Current valuation is expensive.