Daily Brief China: Aquila Acquisition Corporation, Oriental Watch, Mason Group Holdings , Tuhu Car, Tongcheng Travel Holdings , Luckin Coffee, Beijing Enterprises Clean Energy Grp, Huawei Technology, AAC Technologies Holdings and more

• SPACs – remember them? US offerings in 2021 topped ~US$150bn, falling to US$13bn in 2022. Singapore joined the bandwagon in January 2022  and Hong Kong two months later.
• That Hong Kong stock is Aquila Acquisition Corporation (7836 HK), and it recently announced a merger with ZG Group, a Chinese steel trading website.
• That’s positive. Less positive is how de-SPACed shares tend to trade in the US. 

• Rolex acquisition of Bucherer signals the company’s intention to own retail distribution and gain access to what its competitors are doing, with the battleground currently being Europe.
• We believe it will take years for Rolex to digest this acquisition before foraying into other markets, but with a similar approach, potentially making Oriental Watch (398 HK) a target.  
• Trading at 6.9x PE with 50% of the market cap in cash and a ~15% dividend yield, the company presents a great investment opportunity. 

• Mason Group Holdings (273 HK)‘s scheme document is out, with the vote scheduled for 3 October. The IFA considers Red Emerald Capital’s HK$0.0338 per share offer fair and reasonable. 
• The key conditions are SFC approval and the scheme approved by at least 75% disinterested shareholders (<10% disinterested shareholders rejection). Peer de-rating has helped the attractiveness of the offer.
• Shareholders with blocking stakes have provided irrevocables or will accept due to the attractive ROI. At the last close and for the 21 November payment, the gross/annualised spread is 9.0%/52.1%.

• Tuhu Car (2007986D HK) is looking to raise up to US$300m in its upcoming Hong Kong IPO. 
• Tuhu is an integrated online and offline platform for automotive services in China.
• We have looked at the firm’s past performance and PHIP updates in earlier notes. In this note, we undertake a peer comparison.

• In this insight, we take a look at the potential index changes and the resultant capping flows for the HSTECH Index in December 2023.
• There could be one ADD and one DELETE for HSTECH in December 2023 but I would treat them as low-conviction changes.
• At present, I see one-way flows for the December 2023 rebalance to be around US$250mn but as prices change, our index change and flow expectations will change too.

• Aquila Acquisition Corporation (7836 HK) agreed to a De-SPAC transaction with ZG Group (formerly Zhaogang.com), the world’s largest digital platform for third-party steel transactions.
• ZG has a questionable business model, struggling to generate profits or underlying FCF. This dynamic suggests that ZG has not established a sustainable competitive advantage. 
• The negotiated value of ZG in the De-SPAC transaction is HK$10,004 million (US$1,277 million). Our valuation analysis suggests that this negotiated value is unrealistic.

• Luckin Coffee is creating a stir with an unusual offering to capture the attention of Chinese coffee drinkers: lattes with a nip of Kweichow Moutai’s baijiu.
• The coffee chain partnered with China’s luxury liquor maker Kweichow Moutai to launch an alcohol-infused coffee drink, the so-called “sauce-flavored latte,” referring to the popular savory notes of Moutai liquors.
• The tie-up between Luckin and Moutai, the maker of China’s national liquor baijiu, triggered a buying frenzy. Discussions about whether it is safe to drive after consuming the alcohol-infused drink topped China’s social media Monday with 430 million views.

• In this insight, we take a look at the potential index changes and the resultant capping flows for HSCEI in December 2023.
• Based on the latest available data, I expect one ADD and one DEL for HSCEI in December 2023. 
• There is more than one potential ADD in the top 40 according to my estimates but recent history tells us some of these names are not “index-provider-friendly.“

• Chinese consumers have been buying Huawei’s latest flagship smartphone faster than stores can keep up with online and in some parts of the country, sources tell Caixin, amid mounting speculation the telecom giant has been able to weather U.S. sanctions.
• Huawei Technologies Co. Ltd. began shipping the new Mate 60 Pro Sunday, several people familiar with the matter told Caixin, five days after the phone’s discreet launch.
• A number of distributors told Caixin on Monday that the Mate 60 Pro had immediately sold out upon delivery.

The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks. The Asia Monthly is intended to broaden investors’ understanding of the Asian USD high-yield market.