Daily Brief China: Ant Group, Kuaishou Technology, Shui On Land, Sunny Optical Technology Group, ZTO Express Cayman and more

• Chinese fintech giant Ant Group Co. Ltd. has completed the reshuffle of its consumer lending businesses Huabei and Jiebei, wrapping up a years-long, government-driven overhaul, a person close to the matter told Caixin.
• Ant’s two wholly owned small loan business units, the operators of Huabei and Jiebei, have fully exited the businesses during the past year.
• The two brands have been incorporated into Chongqing Ant Consumer Finance Co. Ltd. (CACF), a subsidiary set up in 2021 that is 50% owned by Ant, according to the person close to CACF.

• Kuaishou reported C4Q23 revenue, IFRS OP, and IFRS net income in line, 31%, and 51% vs.  our estimates; and in line, 43%, and 67% vs. consensus.
• The significant profit beat was mainly due to the rich content supply on the platform that led to organic traffic influx, resulted in marketing costs reductions. 
• We raised our TP by HK$2 to HK$81, implies 20X PE, vs. current trading at 13X PE for 2025.

Shui On Land’s (SOL) FY 2023 results were slightly weak, in our view. Positively, the company’s rental income increased moderately, supported by contributions from new commercial assets and China’s re-opening from the pandemic. Recurring operating income from rentals and property management covered 0.8x of interest expense. In addition, the gross margin remained very strong, even as revenue from the property development segment was halved on account of lower sales and deliveries.

Negatively, SOL’s net debt climbed 14% from FYE 2022, owing to lower cash collections and its acquisition of a Shanghai project in April 2023. Moreover, the company’s increased asset encumbrance would reduce its financial flexibility. Liquidity is weak, considering the thin unrestricted cash balance and substantial refinancing needs over the next 12 months. That said, the company might be able to pledge or dispose of more assets to raise cash.

Sunny Optical has released its FY 2023 numbers, which were weak but in line with expectations. Revenue declined 4.6% y-o-y to CNY 31.7 bn, due to lower shipments of handset-related products. Gross profit tumbled c. 30% to CNY 4.6 bn, with the margin shrinking to 14.5%. OCF plunged 64% to CNY 2.7 bn, while capex decreased slightly. FCF was therefore positive, albeit significantly lower. That said, the financial risk profile and liquidity remain healthy, supported by a large net cash position.

We believe the industry operating environment will stabilise. The company marked seven consecutive months of double-digit shipment volume growth in February 2024, indicating that the recovery in the smartphone market is continuing. We expect shipments to stabilise at this level, which will represent a robust increase from the FY 2023 numbers. We project positive revenue and earnings growth in FY 2024.

• ZTO reported C4Q23 top-line, GAAP EBIT, and non-GAAP net income (2.2%), (3.8%), and in-line vs. cons., respectively;
• There are two concurrent trends in the last-mile market: (1) improved service quality, and (2) smaller parcel sizes. Both are favorable to ZTO, in our view;
• ZTO announced new shareholder return plans, which we estimate could return US$ 1.4bn to investors in 2024 for a 7.7% yield;