In today’s briefing:
- Alibaba (9988 HK/BABA) Dual Primary Listing: Are We There Yet?
- BUY/SELL/HOLD: Hong Kong Stock Updates (August 6)
- China: Passive Selling Expected Later This Month
- CR Sanjiu (000999.CH) To Acquire Tasly Pharma (600535.CH) – SOEs Have High Enthusiasm for TCM Assets
- Yum China (9987 HK): 2Q 2024 – Market Expansion Can’t Mask Macro Woes
- Black Sesame IPO Trading – Lackluster Demand, Combined with Bad Timing
- KS/Kuaishou (1024 HK): 2Q24 Preview, 2-Digit Growth, 5th Profitable Quarter, and Significant Upside
- Cathay Pacific (293 HK, BUY, TP:9.90HKD): Decent Results, Stay the Course
- Hang Lung Properties 101 HK: Dragged by China Slowing Luxury Retail, but Stock Too Cheap to Ignore
- [Blue Lotus Transportation Sector Update]: Consolidation by BYD, LI and Huawei Continue
Alibaba (9988 HK/BABA) Dual Primary Listing: Are We There Yet?
- In its last update, Alibaba Group announced that the company was preparing for its primary listing in Hong Kong and the process was expected to complete by the end August.
- The Board meets on 14 August to approve results for the three months ending June. Could there be an announcement on the dual primary listing too?
- Mainland Chinese own between 3.5%-15.5% of companies that converted from Secondary to Dual-Primary in the last few years. Similar buying in Alibaba could take the stock higher from here.
BUY/SELL/HOLD: Hong Kong Stock Updates (August 6)
- Low Volatility and High Dividend yield stocks in Hong Kong outperformed the region during recent global market sell off.
- MGM China Holdings (2282 HK) is outperforming its peers with revenue now exceeding pre-COVID levels.
- Weibo (9898 HK) maintains a high cash flow and dividend yield in China’s tech sector. Zhuzhou CRRC Times Electric Co., Ltd. (3898 HK) benefits from China’s new large-scale maintenance cycle.
China: Passive Selling Expected Later This Month
- The China equity markets have continued to trade lower with the CSI 300 Index outperforming other mainland indices as the National Team continues to pump money into ETFs tracking the index.
- We currently estimate selling of around US$1.39bn across 74 stocks listed on the mainland and in Hong Kong. There could be fewer deletions depending on the review date chosen.
- The potential deletes have dropped a lot since the start of the calendar year with big underperformance versus the HSCEI Index, CSI 300 Index and CSI Smallcap 500 Index.
CR Sanjiu (000999.CH) To Acquire Tasly Pharma (600535.CH) – SOEs Have High Enthusiasm for TCM Assets
- China Resources Sanjiu plans to acquire 28% stake in Tasly for RMB6.21 billion at RMB14.85/share. The acquisition of Tasly is in line with the strategic direction of 14th Five-Year Plan.
- China Resources is positioned as a leading enterprise in modern industrial chain of TCM by the SASAC.Due to policy support, TCM assets are more likely to be favored by SOEs.
- The deal is positive for Tasly, whose valuation has room to rise further, but the market seems “skeptical” about China Resources Sanjiu’s decision, leading to a lackluster share price reaction.
Yum China (9987 HK): 2Q 2024 – Market Expansion Can’t Mask Macro Woes
- Yum China Holdings (9987 HK) reported a marginal 1% year-on-year increase in 2Q2024 revenue, driven by new store additions despite a decline in same-store sales.
- Despite a challenging business environment, it achieved 8% year-on-year profit growth in Q2 and stabilised margins through sharp cost management and operational efficiency initiatives.
- Without a clear visibility in improvement in consumer sentiment and spending, expect the tough operating environment to limit Yum China’s revenue and profit growth potential.
Black Sesame IPO Trading – Lackluster Demand, Combined with Bad Timing
- Black Sesame Technologies (BLACKSES HK) raised around US$133m in its Hong Kong IPO, after pricing its IPO at the low-end.
- Black Sesame International Holdings (BSIH) is an automotive-grade computing SoC and SoC-based intelligent vehicle solution provider.
- We have covered various aspects of the deal in our previous note. In this note, we will talk about the demand and trading dynamics.
KS/Kuaishou (1024 HK): 2Q24 Preview, 2-Digit Growth, 5th Profitable Quarter, and Significant Upside
- We believe revenue will grow by 11% YoY and the company will make money for the fifth consecutive quarter in 2Q24.
- We believe both adverting and e-commerce revenue will grow strongly in 2Q24.
- We set an upside of 140% and a price target at HK$104 for the end of 2025. Buy.
Cathay Pacific (293 HK, BUY, TP:9.90HKD): Decent Results, Stay the Course
- 1HFY24 net profit declined -15% YoY to HK$3.4 billion, in-line with consensus
- Interim dividend of HK$0.20/share, at 38% payout ratio. Typically, Cathay pays 50% payout ratio, and we can expect final dividend to be much larger
- Maintain BUY with target price of HK$9.90 (+26% UPSIDE) implies 10x FY2024 PE, parity multiple against its arch-rival Singapore Airlines (SIA SP).
Hang Lung Properties 101 HK: Dragged by China Slowing Luxury Retail, but Stock Too Cheap to Ignore
- HLP malls, which focus on China luxury retail consumption, is facing headwind from slowing China economy and weaker consumption
- The retail sales in its malls slowed down and recorded -13% yoy growth for 1H 2024. Dividend cut was a negative surprise
- However, market is forward looking and stock valuation is too cheap to ignore, we recommend long-term investors can look at this name
[Blue Lotus Transportation Sector Update]: Consolidation by BYD, LI and Huawei Continue
- Market underestimates the size of China’s stimulus packages, which consist of Rmb150bn of EV trade-in’s by year end and Rmb3tn worth of industrial equipment upgrades over 5 years;
- Consolidation by BYD, LI and Huawei in marketing share shall continue, profitably. Our TOP PICK is BYD.
- Consolidation by BYD, LI and Huawei in marketing share shall continue, profitably. Our TOP PICK is BYD.
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