Daily Brief China: China Shenhua Energy Co H, Haier Smart Home Co Ltd, China Pacific Insurance, Hansoh Pharmaceutical, Wuxi Biologics, ENN Energy, Alibaba Group, Agile Property Holdings and more

• The Hang Seng Index Team announced four changes to the Hang Seng Index, bringing membership to 73 from 69, on its way to 80, but later than originally targeter mid-2022. 
• Additions are China Shenhua Energy Co H (1088 HK), Chow Tai Fook Jewellery (1929 HK), Hansoh Pharmaceutical (3692 HK), and Baidu (9888 HK). 
• Official placeholder turnover is about 3.8%. Small changes due to capping updates still to come. China Shenhua and possibly Chow Tai Fook look interesting as trades.

• The Hang Seng Index Team announced the index review for the Hang Seng Tech Index Friday after the close. There were no additions or deletions.
• However, there is a 4.9% one-way turnover on reasonably heavy FAF and capping changes. Sensetime sees a huge FAF increase. Tencent, Meituan, and Kuaishou get re-capped higher. Xiaomi lower.
• There is a fair bit of flow, but the obvious big name – SenseTime Group (20 HK) – has potential overhang. Watch Haier Smart Home Co Ltd (6690 HK). 

• On Friday the Hang Seng announced the changes to the HSCEI for the September rebalance. SenseTime Group (20 HK) is an ADD. China Pacific Insurance (2601 HK) a DELETE.
• Meituan (3690 HK) and Tencent (700 HK) see their weights re-capped upwards. Alibaba Group (9988 HK) capped slightly lower. There are a number of FAF changes.
• Little stands out other than the China Pacific Insurance (2601 HK) deletion. It runs low volatility vs Peers so could be a good buy on dip.

• Hansoh Pharmaceutical (3692 HK) is strengthening its innovative drug pipeline. In August the company in-licensed one clinical stage drug candidate for women health, having large addressable market opportunity in China.
• Earlier in May, entered into an exclusive license agreement with NiKang Therapeutics and obtained an exclusive license to develop and commercialize NKT2152 for the treatment of cancer within China.
• Hansoh’s self-developed oncology drug is getting closer to the UK approval through its partner EQRx. The company received approval for one generic oncology drug in China.

• WuXi Biologics released 2022H1 results. The Company maintained its growth momentum. We highlight some positive sides. However, gross profit margin decreased. Considering the future trend, margin performance is not optimistic.
• A drop in demand has already occurred. Meanwhile, after the biologic drug boom has passed, the “low-hanging fruit” is gone, there could be more magnified cyclical problems for WuXi Biologics.
• As an old generation CXO, it’s difficult for WuXi Biologics to achieve V-shaped rebound or hit new highs.2022 is a good time to offload. Investors can take advantage of it.

• Core net profit rose a healthy 10.9% at ENN Energy (2688 HK) in 1H22 despite challenges from pandemic lockdowns and surge in input costs.
• We expect to see sequential improvement in both dollar margin for gas sales and overall gross margin in 2H22. Excellent integrated energy pipeline should add to earnings momentum.
• Gearing improved 2.2pp in 1H22 and there is more room to deleverage in 2H22. While the stock’s valuation is not particularly cheap, it has probably already hit the trough. 

• Logistics companies’ revenue grew by over 10%, which reflects the recovery of e-commerce.
• The market size of Chinese online game continued to shrink in July.
• Alibaba’s Ele.me sets up a mini-program on TikTok to fight Meituan.

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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