Daily Brief China: Brilliance China Automotive, ImmuneOnco Biopharmaceuticals (Shanghai), Lenovo, AAC Technologies Holdings, Semiconductor Manufacturing International Corp (SMIC) and more

• Brilliance China Automotive (1114 HK) was deleted from local and global indices following its prolonged trading suspension from April 2021 to September 2022.
• Following the resumption of trading, Brilliance China Automotive (1114 HK) was added to the HSCI in March and subsequently to Southbound Stock Connect.
• The stock should be bought by global passive trackers over the next few months and there should be substantial passive inflows.

• ImmuneOnco’s execution/R&D efficiency is far from satisfactory. After about seven years since the establishment in 2015, there are no candidates entering phase III trials or close to market launch.
• The biggest concerns are druggability and safety profile of CD47-targeted candidates. There could be potential R&D failure risks. The pipeline layout around CD47 also makes it hard to diversify risks.
• It’s challenging for ImmuneOnco Biopharmaceuticals (Shanghai) (IOB HK) to hit high-quality license-out deals with reputable big pharma, leading to uncertainties on internationalization. We’re conservative about the outlook. 

We view Lenovo as “Low Risk” on the LARA scale, mainly due to the business’ large size, track record and strong balance sheet. Lenovo is the world’s largest PC maker, with the PC segment being the company’s key profit centre. The Mobile segment has been scaled back to certain markets, and has turned profitable. The Data Centre/Server business is promising and has grown impressively, albeit still suffering losses.

Negatively, all three of the company’s market segments are becoming commoditised. The PC markets, having previously experienced a structural decline due to changes in user behaviour as well as substitutes (smartphones and tablets), has enjoyed strong demand as more people have been working from home amid the pandemic.

Our Credit Bias on Lenovo remains “Stable”, as the growth outlook is subdued due to weak post-COVID-19 PC demand. We do not expect the credit to improve further. That said, the strong balance sheet, sound liquidity and solid working-capital management would cushion Lenovo from the PC segment’s inventory adjustment period.

Controversies are “Immaterial” and the ESG Impact on Credit is “Moderately Positive”. ESG-compliant funds may find Lenovo attractive due to its strong ESG. The company has done very well in terms of environmental factors, with a strong management team as well as a long and positive track record. Lenovo is mainly exposed to geopolitical risk, albeit it has managed this very well amid the US-China trade war.

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.

• AAC Technologies Holdings
• Sino-Ocean Service

• SMIC reported C2Q23 top-line, EBIT, and non-IFRS net profit in-line, (10%), and (20%) vs. our est., and in-line, (35%), and (8%) vs. cons., respectively.
• SMIC guided 3Q revenues up 3-5% QoQ, but gross profit flattish QoQ. This suggests SMIC is shipping 8” wafers with low, or negative profit per wafer.
• We maintain BUY on Huawei exposure but cut our TP to HK$ 24 to reflect the low profitability of 8” wafer orders that could persist given weak demand.