Daily Brief China: BYD, Anta Sports Products, CIMC Vehicle Group Co Ltd, Tencent, Alibaba Pictures, Sinotrans, Meituan, Greentown China, CIMC Enric Holdings, Binjiang Service Group and more

• Total revenue increase by 42% and automobile revenue increased by 49% in 2023.
• The gross margin improved significantly in 2023, especially in 4Q23.
• We believe BYD will move its focus from ‘low price for sales volume’ to ‘development of new vehicle models’.

• At noon time today, Anta Sports Products (2020 HK) released strong 2023 results which beat expectations. 
• Anta currently trades at a forward PE of 18x based on estimated 2024 earnings (assuming a conservative 15% yoy growth in 2024 earnings). 
• I expect the company’s net profit to grow 15-20% CAGR in 2024-2026.  Anta’s historical forward PE is around 24x since 2017. 

• CIMC Vehicle Group Co Ltd (1839 HK) has despatched the offer document, and the H Share HK$7.50 offer is open. The H Shareholders class vote is on 18 April.  
• The key condition is approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders rejection) along with a 90% minimum acceptance condition.  
• The de-rating of peers and ongoing US investigation favours meeting the 90% threshold. However, the dire minority AGM/EGM participation rates suggest that retail apathy may derail the offer. 

• Tencent reported C4Q23 revenue, IFRS operating profit, and non-IFRS net income in-line with our estimates and in-line with consensus, with non-game revenues exceeding while game revenue missing expectations;
• We believe the shift from game to non-game should enhance Tencent multiples but the market might have concerns on the sustainability of this change. 
• We believe this change is sustainable with game revenue reaccelerating and non-game revenue continues to gain weight. We cut TP by 3% to reflect slow game recovery in C1H24.

• Alibaba Pictures (1060 HK) is expanding rapidly into complimentary areas such as online ticketing of cinema and live events with the recent acquisition of  Damai.cn from parent Alibaba.
• Alibaba Group Holding (9988 HK) is considering injecting other media platform assets like Youku  to realize synergies among its portfolio of companies.
• Ali Pictures (Alipics) legacy film production business continues to expand globally with its American film production company, Amblin which is a partnership with Steven Spielberg.

• Cost and business optimisations lead to increased profits as revenues drop due to freight rate declines
• Successfully pivoting by geography as the global trading environment changes
• The company increases its dividend payout in a sign of confidence for the future

• Meituan reported C4Q23 revenue beat our estimate/consensus by 0.7%/1.4%; operating profit beat our estimate/consensus by 37.3%/48.6%, mainly due to order volume surprise, which is unsustainable in our view.
• However, we think Meituan’s near term pressures did not change: (1) core biz OPM drop due to rising low-price orders and subsidies; (2) resuming competition from Eleme/Douyin/PDD
• We maintain the stock as SELL rating but raise TP by HK$13 to HK$70 to factor in the loss cutting commitment in the community group buying biz.

Greentown China’s FY 2023 performance was satisfactory in our view, given the above-industry sales, stable top line and acceptable (albeit reduced) gross margin. Importantly, its access to onshore financing appears healthy and liquidity is adequate. In addition, the company remains active in land acquisitions and has a good quality land bank, mostly in high-tier cities in the Yangtze River Delta.

That said, leverage remained somewhat weak. Moreover, Greentown is more exposed to a prolonged industry downturn (vs. peers such as Longfor Group and China Vanke), due to its low recurring income and outsized exposure to the property development segment. This means that the company’s contracted sales and margins are likely to remain soft despite outperforming the industry. In the meantime, Greentown will likely focus on improving operating efficiency by maintaining a high sell-through rate and fast churn for its projects.

We revise our fundamental Credit Bias to “Negative” from “Stable”, and move our trade recommendation on the GRNCH 5.95 ’24s to “Buy” from “Hold” .

• Despite weaker 2H23 results, CIMC Enric Holdings (3899 HK) guided for solid recovery in FY24. Order backlogs reached Rmb22.9bn, which almost equals the full-year revenue.
• Clean energy segment will be supported by vessel demand, hydrogen orders, and Angang Steel project contribution. Chemical and environmental segment should rebound in 2H24.
• Liquid food spin-off is in process and it has won several domestic whiskey projects. As net cash equals 13% of share price, payout will be maintained at 50% (FY22: 40%). 

• Binjiang Service Group (3316 HK) posted a 42% YoY increase in revenue and 19% YoY in profits for FY23, aided by 170% revenue growth in VAS services (24% of revenues).
• Margin decline remains a concern, with a GPM(%) decline of 510 bps to 24.8%, with declines across all business segments. 
• Net cash increased to 74% of market capitalization, with the company declaring a dividend of 1.37 HKD/share ( implying an 8% trailing yield).