Daily Brief China: Alibaba Group Holding , China Traditional Chinese Medicine, IMAX China Holding, WuXi AppTec, China Bluechemical Ltd H, ENN Energy and more

• We feel consensus overstates margin pressure for Alibaba’s March quarter results. We expect its group adjusted EBITA to deliver single-digit growth vs. investors’ concern about earnings retreat.
• March quarter should mark start of an earnings recovery cycle in our view, as improving China macro and well-executed business revamp plan put Alibaba back on growth track.
• This also means an end to its multiple contraction which lasted for five quarters. We see 50% upside on double-digit earnings growth and multiple expansion over next 12 months.

• On 21 February, China Traditional Chinese Medicine (570 HK) announced a privatisation offer from the Sinopharm-led consortium at HK$4.60 per share, a 47.4% premium to the undisturbed price.
• The wide gross spread (7.0%) reflects risks around the re-rating of peers, the slow pace of satisfying the pre-condition, the completion timetable and Ping An’s blocking stake. 
• The key risk is the deal close timing due to the slow pace of regulatory approvals, which increases the chance that the vote will held after the August interim.   

• IMAX Corp, listed on the NYSE, is a 71% shareholder of IMAX China, a HKEX listed subsidiary – in charge of the release of IMAX films in Greater China.

• IMAX HK is rather illiquid – 7.15 HK is a mere $0.93 USD – with no investor presentations, no earnings calls – again, as is common with ideas in this blog, we are dealing with a company that is more or less “unownable” for most, flies under the radar, and therefore sports a, for a lack of a better word, shite valuation.

• Whilst IMAX Corp, the parent company, trades at ~8x EBITDA, the “backwater” subsidiary IMAX HK, trades at a mere ~5x EBITDA, despite margins being more than 10 pts higher.

• The growth of TIDES business slowed down, and revenue decreased QoQ despite increasing production capacity.As the main growth point of WuXi AppTec’s future performance, this is not a good signal.
• Due to BIOSECURE Act, US companies have been negotiating with other contract manufacturers so as to reduce reliance on WuXi AppTec.Let’s see the situation of new orders in following quarters.
• WuXi AppTec’s performance recovery is closely related to the pace of Fed’s interest rate cuts. From the perspective of growth outlook/macro environment/geopolitical conflicts, WuXi AppTec is still in “dangerous period”.

• A play on higher food and energy prices going forward
• Natural Gas moving up from multi-year lows will support fertiliser prices going forward
• A Low valuation with a solid balance sheet lowers the risk

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.

• ENN Energy
• ENN Natural Gas
• Indofood CBP Sukses
• West China Cement
• Wynn Macau Ltd