Daily Brief China: Baidu , Sinopharm Group Co Ltd H, China Vanke , West China Cement and more

• The Chinese economy looks weak according to the data from the statistics bureau.
• However, many big Chinese internet companies began to recover in Q2 as we mentioned in August.
• Here we list five recovering companies that investors may not pay attention to.

• Sinopharm’s performance growth in 23H1 was satisfactory, but both gross profit margin and net profit margin decreased, which was mainly related to generic drugs VBP and medical device centralized procurement.
• Profitability could continue to be under pressure in the short term. In the long term, Sinopharm’s business transformation and new value-added businesses are expected to help improve profit margin performance.
• Due to the low base last year, we think Sinopharm Group Co Ltd H (1099 HK) would achieve double-digit growth in 2023. We’re optimistic about its stock price performance accordingly.

China Vanke’s H1/23 results were in line with our expectations, with single-digit growth in overall revenue but ongoing margin pressure. The company realised CNY 201 bn of revenue in the period, up 2.9% y-o-y, while attributable profit fell 19.4% to CNY 9.87 bn. Booked revenue from property development was CNY 171 bn (-4.5%), owing to weakness in settlement area (-5.2%) and settlement gross margin (-1.6 ppts).

LTM adjusted debt climbed 2.3% y-o-y to CNY 347 bn at end-June, leading to weakened credit metrics. That said, the developer managed to optimise its debt structure in H1/23, with less exposure to short-term and offshore debt. The LTM cash balance declined 11% to CNY 120 bn, but covered short-term debt by 2.4x (FYE 2022: 2.0x). The company has no offshore debt due in H2/23 but will have two USD bonds coming due in 2024, with total outstanding principle of USD 1.2 bn.

We believe Vanke faces ongoing destocking and margin pressure. That said, the company appears to have smooth access to external funding, with prudent cash-flow management. We see limited near-term repayment risk. Our fundamental Credit Bias on Vanke is “Stable”. We maintain our “Buy” recommendation on the 2024 bonds, as the yields for these notes appear to be more attractive, but revise our recommendation on the rest of the curve to “Hold” from “Buy”.

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.

• West China Cement