Daily Brief China: Alibaba Group, Inner Mongolia Yili Industrial Group (A), Dongfang Electric, Giant Biogene Holding, Central China Real Estate, Hygeia Healthcare Group, Semiconductor Manufacturing International Corp (SMIC) and more

• Alibaba (ADR) (BABA US) Cloud will cut prices for its elastic computing services using Arm and Intel-based chips by 15-20% and Nvidia’s V100 and T4 graphics processing units by 41-47%.
• It seems like the company is trying to combat increasing competition in the only way it knows how, by further subsidizing its already-subsidized cloud services.
• Price may not be the main reason for companies to avoid using Alibaba Group (9988 HK)‘s Cloud services. Government initiatives to nationalize the cloud-computing market could be a bigger factor.

• 4Q22 result beat and 1Q23 result was roughly in line
• Revenue growth to accelerate and margin to improve in 2023
• Long-Term targets remain unchanged and the valuation becomes attractive now

• The market should be happy with the 43.9% YoY growth in recurring earnings at Dongfang Electric (1072 HK) in 1Q23. Gross margin of 18.7% is the highest since 2Q21.
• New orders surged 26.1% YoY and 92.4% QoQ to a record Rmb22.6bn in 1Q23. We estimate backlog equals to 1.42x FY23F consensus revenue, meaning a very secured pipeline.
• While EPS dilution is a concern, this has already been reflected in share price. The acquisitions of subsidiaries will enhance FY23 earnings. Its 8x PER and 0.8x P/B are inexpensive.

• Giant Biogene raised around US$70m in its Hong Kong IPO, after having downsized the deal and priced it at the low-end. Its six-month lockup will expire soon.
• GB is a leader in the bioactive ingredient-based professional skin treatment product industry in China.
• In this note, we will talk about the lock-up dynamics and updates since our last note.

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.

• Central China Securities
• Japfa Comfeed Indonesia

• In 2022, Hygeia maintained stable revenue growth but with lower-than-expected profit performance. We think Hygeia’s profitability would improve gradually in the future as more and more new hospitals become break-even.
• Different from Aier/Topchoice, Hygeia’s acquired hospitals would be directly incorporated into the listed company, which means all aspects of consideration would be prudent. This is clearly more beneficial for investors/shareholders.
• Hygeia’s business model has proven to be replicable.The implementation of DRG policy has no significant impact on profitability. Hygeia is expected to have higher valuation than Aier/Topchoice in the future.

• We expect SMIC to report C1Q23 top-line, IFRS operating income, and non-IFRS net income (2.6%), (31%), and (29%) vs. consensus, respectively.
• Our sample of 1Q23 earnings for A-listed fabless firms found that (1) inventory days grew 18% QoQ to 191 days, and (2) revenues declined 9% QoQ. 
• Despite potential earnings miss, SMIC’s BUY case is strengthened positive externalities. We maintain BUY and raise TP to HK$24.