Daily Brief China: China Jinmao Holdings, Huawei Technology, Alibaba (ADR), Evergrande Auto, Xiaomi Corp, BrainAurora Medical Technology, Agile Property Holdings and more

China Jinmao’s H1/23 results were in line with projections, with the company reporting robust contracted sales and cash collections despite the industry downturn. The gross margin narrowed to 14% (H1/22: 22%), albeit this was in line with industry trends. We expect the gross margin to remain weak, as Jinmao has to clear existing inventory (with higher land costs) in the subdued market.

We expect Jinmao’s debt to remain largely stable going forward, as the company will likely control land spending to shore up its balance sheet. Positively, the land bank has remained sufficiently large and should provide for 4-5 years of development. We expect Jinmao to continue reducing its offshore borrowings, and to redeem the perpetual securities.

Overall, Jinmao’s credit profile is underpinned by its SOE status, which supports the company’s access to financing. Moreover, the CHJMAO bonds are supported by the presence of cross-acceleration clauses with parent Sinochem Holdings’ offshore notes in the event of default. We move our recommendation to “Buy” from “Hold” on the CHJMAO notes, with a preference for the 2024 and 2025 notes (both yielding close to 15%).

• Huawei Technologies Co. Ltd. launched a new flagship smartphone on Tuesday, in a discreet fashion and ahead of schedule, said to be powered by a self-developed chip that can rival the speed of 5G handsets, as the tech giant tries to shrug off the impact of U.S. sanctions and capitalize on robust quarterly sales growth in China.
• The company began offering the Mate 60 Pro at 6,999 yuan ($962) in its stores and online around noon, without prior advertisement other than an open letter that cited the early launch as a celebration of its Mate series reaching 100 million units in cumulative shipments.
• The company gave no detail about what kind of system-on-a-chip (SoC) the smartphone uses and whether the handset is compatible with 5G wireless networks.

• Alibaba Group Holding Limited managed to exceed expectations in terms of revenue and earnings.
• Their team’s efforts to create a thriving ecosystem and realize technology-driven innovation methods also show promising results.
• The overall sales growth for the Alibaba International Digital Commerce Group was 41%, and the retail division had revenue growth of 60% year over year.

• The electric-vehicle unit of defaulted property developer China Evergrande Group reported that in the first half of 2023 it delivered 760 cars and its net loss narrowed by almost half from a year earlier to 6.87 billion yuan ($942 million).
• China Evergrande New Energy Vehicle Group Ltd.’s revenue jumped more than fivefold to 155 million yuan, mainly from mass production and delivery of its flagship model, the Hengchi 5, starting last October.
• The electric-car company has been plagued by production delays and setbacks since touting its first Hengchi model as early as 2019 and pledging to rival Tesla within three to five years.

• Users are enthusiastic about the return of 5G Huawei smartphones, and thus we expect sales volume of Huawei devices to improve. 
• If the combined share of Huawei+ Honor can reach 30/32% we estimate Xiaomi’s current 12.5% share of the China smartphone market could decline 0.8/1.3ppts, respectively.
• We maintain Xiaomi’s SELL and HK$ 8.2 TP, implying 26x FY23 PE. The increase in CY23 EPS reflects lowered OPEX, improved gross margin due to the impact of IC oversupply.

• DTx industry is still in the early stages of development. The establishment of a matching operation/service system is a very difficult task. There is a long distance from mature commercialization. 
• BrainAurora’s sales scale is small because its products haven’t received widespread recognition from medical system in China. Internationalization is challenging because it requires cross-border transfer of personal or scientific data.
• BrainAurora’s business prospects is still unclear.As the attitude of capital market towards DTx has become more rational, investors have begun to doubt if this field could really bring good return.

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.

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