Daily Brief China: China Shenhua Energy Co H, Eva Precision Industrial Holdings, Pinduoduo, ZKH Group, New World Development, Ping An Healthcare and Technology Company Limited, Trip.com, ADICON Holdings Limited, Fosun International and more

• China Shenhua Energy Co H (1088 HK) could replace Country Garden Holdings Co (2007 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the June rebalance.
• Short interest on China Shenhua Energy Co H (1088 HK) is pretty small while the short interest on Country Garden Holdings Co (2007 HK) is large and possibly getting bigger.
• The change could result in a big increase in the fair value for the HSCEI 2023 dividend futures. Currently, we estimate an increase of up to 9 DIPS.

• After rallying a fair bit at the beginning of 2023, we have seen sharp pullbacks in Eva Precision Industrial Holdings (838 HK) and China MeiDong Auto (1268 HK) share prices.
• We believe the price cuts highlighted by Victoria Li in her insight China Auto: ICE Price War Triggered by Dongfeng, JV Players Under Pressure are a significant cause. 
• While we like both stocks and they are cheap, we feel both companies will face short to medium-term pain in their businesses and share prices as the saga unfolds.

• Questionable marketing practices and cheap counterfeits could make TEMU a legal nightmare for Pinduoduo (PDD US).
• Meanwhile, SHEIN doesn’t seem ready to give in easily to the competition. Thus, TEMU could be a significant burden on Pinduoduo’s profitability in the medium-long term.
• Considering the discounts, advertisements and promotional spending done by TEMU in the fourth quarter, we think it is unlikely that Pinduoduo will meet the 4Q22 consensus OP of RMB 11.7bn.

• ZKH Group (ZKH US) is looking to raise about US$300m in its upcoming US IPO.  
• ZKH Group is a leading maintenance repair and operations (MRO) procurement service platform in China, according to CIC, providing one-stop MRO procurement and management services and digital and fulfillment solutions.
• ZKH Group’s revenue has been primarily driven by its product sales segment during the track record period. However, its GMV growth slowed dramatically and its sales growth doesn’t appear sustainable. 

• NWD has the highest gearing among all HK real estate names.  It has significantly underperformed since the rate hike cycle begun.  Now it has the biggest potential to rebound
• The stock is trading at attractive valuation, 0.27x P/B, like a distressed Chinese developer.  The major market concerns are potential earnings downgrade and dividend cut
• I am quite convicted on the stock for rebound given 1) company has clear de-leveraging plan 2) no plans for equity-raise 3) lots of corporate actions ahead to unlock value

• PAGD intends to switch from 2C model to 2B model and to reduce losses ASAP at the expense of revenue scale, so as to prove its profitability to the market. 
• B-End corporate customers with high quality and sufficient budget are limited. Once the growth of B-end corporate customers meets a bottleneck, its performance may face another decline.
• Despite the improving financial performance in 2022, we still think that we need to further observe the effect of strategic transformation and future performance of PAGD before making judgments.

• Recent pullback of Trip.com (9961 HK) has made this China’s tourism recovery play even more attractive.  Since end-Feb, consensus earnings forecasts have been upgraded by 19-20%.
• It is best positioned to capture the revival in China’s domestic and outbound travels. Forward booking data has pointed to very solid momentum over the next few months.
• We anticipate good margin expansion going forward, and its resilient financial position provides opportunities for value-enhancing M&As. These all justify a premium valuation over peers. 

• ADICON Holdings Limited (ADI HK) is looking to raise about US$400m in its upcoming HK IPO. The deal will be run by Morgan Stanley and CICC. 
• Adicon Holdings is one of the top three independent clinical laboratory (ICL) service providers in China in terms of total revenue during the Track Record Period, according to F&S.
• It offers comprehensive testing services primarily to hospitals and health check centers through an integrated network of self-operated laboratories across China. 

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.

• Fosun International