In today’s briefing:
- Canvest Environmental (1381 HK): Possible Privatisation at HK$4.90
- Merger Arb Mondays (08 Jul) – China TCM, L’Occitane, A8 Media, GA Pack, Asia Cement, Hollysys, MMA
- SHEIN/Temu/AliExpress: As US Mulls Reforming “De Minimis” Rules, EU Could Take Similar Action
- HK Connect SOUTHBOUND Flows (To 5 Jul 2024); SOE Bank and SOE Petro-Energy Flows Dominate
- Shanghai Henlius Biotech Update (2696.HK) – The Story Behind Privatization
- Mainland Connect NORTHBOUND Flows (To 5 July 2024): Finance, Consumer, IT Sold, Utilities Bought
- STAR100 Index Rebalance Preview: Outright Adds Outperforming Outright Deletes
- Cathay Pacific (293 HK, BUY, TP:HKD):
- Shenzhen Yuejiang Technology IPO Preview: Dobot Files to List IPO on Hong Kong Stock Exchange
- China Consumption Weekly (8 Jul 2024): BYD, Seres, Tesla, Microsoft, XHS, Mixue
Canvest Environmental (1381 HK): Possible Privatisation at HK$4.90
- Grandblue Environment Co A (600323 CH) disclosed a potential pre-conditional privatisation of Canvest Environmental Protection Group (1381 HK) at HK$4.90 per share, a 20.7% premium to the last close price.
- Completing the capital injection from SOE entities into the offeror is a precondition. Grandblue also proposes that the controlling shareholder roll over 7.23% of its effective 44.75% stake.
- While not a knockout bid, the offer is reasonable. Shareholders with blocking stakes should support a binding proposal. Timing is the key risk.
Merger Arb Mondays (08 Jul) – China TCM, L’Occitane, A8 Media, GA Pack, Asia Cement, Hollysys, MMA
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), China Traditional Chinese Medicine (570 HK), A8 New Media (800 HK), Greatview Aseptic Packaging (468 HK), Asia Cement China (743 HK).
- Lowest spreads: Fancl Corp (4921 JP), Great Eastern Holdings (GE SP), Chilled & Frozen Logistics Holdings (9099 JP), Tatsuta Electric Wire & Cable (5809 JP), Kfc Holdings Japan (9873 JP).
SHEIN/Temu/AliExpress: As US Mulls Reforming “De Minimis” Rules, EU Could Take Similar Action
- EU, like the US, is considering lowering “de minimis” import threshold, soon
- Lowering import value thresholds or raising reporting requirements could make SHEIN/Temu/AliExpress goods more expensive, and fulfillment more onerous
- Threat of “de minimis” changes coming just as SHEIN reportedly seeks an IPO
HK Connect SOUTHBOUND Flows (To 5 Jul 2024); SOE Bank and SOE Petro-Energy Flows Dominate
- SOUTHBOUND was again a net buyer, for HK$10.9bn this week, on smallish two-way volumes. Banks were a big buy.
- The more I watch, the more I think the last few months have had serious national team buying of banks and energy, perhaps ahead of shareholder return policy changes.
- But valuations are acceptable. Flows are good. Policy changes are afoot. SOUTHBOUND may continue to see inflows – national team and otherwise.
Shanghai Henlius Biotech Update (2696.HK) – The Story Behind Privatization
- Fosun’s preferred arrangement for Henlius is to list the Company in A-shares.Since IPO in A-shares failed and Henlius has begun to generate profits, Fosun finally feels the need for privatization.
- Due to its “flaws”, undervaluation of Henlius in the Hong Kong stock market is difficult to fundamentally change. So, for conservative/cautious investors, Fosun’s one-time acquisition at a 30% premium is attractive.
- The Potential Share Alternative Offer seems a good option, but it is uncertain whether investors are still willing to believe in Fosun’s “good story” – the future re-listing is uncertain.
Mainland Connect NORTHBOUND Flows (To 5 July 2024): Finance, Consumer, IT Sold, Utilities Bought
- The Quiddity Mainland Connect NORTHBOUND Monitor. Like the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor. Lots of Flows/Position Tables and Charts with which to play.
- Last week saw NORTHBOUND net SELL RMB 13.9bn of A-shares. NORTHBOUND bought utilities and raw materials and sold everything else, especially consumer names. Appliances remain on the sell side.
- It is notable that net flows as a percentage of value traded are clearly “short gamma”, which is to say, sector underperformers are being sold, not bought.
STAR100 Index Rebalance Preview: Outright Adds Outperforming Outright Deletes
- The review period for the September rebalance ends 30 July. We expect the changes to be announced 30 August with the implementation taking place after the close on 13 September.
- We forecast 6 changes for the index, including migrations between the STAR 100 Index and the SSE STAR50 (STAR50 INDEX).
- Excluding the migrations, the potential adds have outperformed the potential deletes since the start of the calendar year and there could be further outperformance over the next few weeks.
Cathay Pacific (293 HK, BUY, TP:HKD):
- Operations are on track with earlier guidance given during FY23 results, loads and yields are healthy, with UK and North American performing better than expected
- Will buyback and cancel remaining 97.7m preference shares for a sum of HKD10b by end of July 2024. Shareholder dilution has been avoided
- Cathay Pacific is a value BUY, our target price of HK$9.90 (+24% UPSIDE) implies 10x FY2024 PE, parity multiple against its arch-rival Singapore Airlines (SIA SP)
Shenzhen Yuejiang Technology IPO Preview: Dobot Files to List IPO on Hong Kong Stock Exchange
- Shenzhen Yuejiang Technology (Dobot), a China-based cobot company, filed for a Hong Kong IPO. Cobots are robots with operational robotic arms intended for collaboration within a shared space.
- Dobot was backed by CICC, CRRC VC, Greenpine Growth, Qianhai Equity, and China Internet Investment Fund, among others. The company was founded in 2015 in Shenzhen, PRC.
- The offering may attract significant investor interest after South Korea’s robotics company Doosan Robotics could raise ~$318M in October 2023.
China Consumption Weekly (8 Jul 2024): BYD, Seres, Tesla, Microsoft, XHS, Mixue
- BYD’s sales volume increased by 35% YoY in June and by 39% YoY in 2Q24.
- Tesla’s Model Y is on the state-owned corporation procurement catalogs.
- Microsoft plans to close its franchised store chain in China due to the weak demand for Surface.
💡 Before it’s here, it’s on Smartkarma
Sign Up for Free
The Smartkarma Preview Pass is your entry to the Independent Investment Research Network
- ✓ Unlimited Research Summaries
- ✓ Personalised Alerts
- ✓ Custom Watchlists
- ✓ Company Data and News
- ✓ Events & Webinars
