Daily Brief China: CPMC Holdings, BYD, Shenzhen International, Health And Happiness (H&H), Huawei Technology, Anton Oilfield, S.F. Holding, Tata Steel Ltd, BrainAurora Medical Technology and more

• ORG Technology Co., Ltd. A (002701 CH) has received SAMR clearance, the key regulatory hurdle, for its HK$7.21 voluntary offer for CPMC Holdings (906 HK).
• SAMR approval paves the way for the ORG precondition to be satisfied in September. Changping Industrial’s HK$6.87 offer first close is on 3 September.
• Changping Industrial has little choice but to revise its terms. It has a short window to seize the initiative by bumping its offer before ORG’s competing and higher offer opens. 

• Total revenue increased by 26% in 2Q24, as sales volume grew strongly after March.
• We believe the operating margin will be stable due to the ability of battery production.
• We also believe the tariff penalty from Europe is not a concern in the long run, as BYD’s products have expanded to 77 countries.

• Shenzhen International (152 HK) reported 1H24 net profit of HK$653m. While toll road and other segments are under pressure, the logistics segment has benefited from REIT issuance.
• In 2H24, it may book profit from the initial land appreciation gain from the South China Logistics Park transformation and profit from the 50%-owned Yicheng Zhenwanyue.
• SZI seeks to realise the value of its assets. At 0.4x P/B or 1SD below the 5-year average, the stock, with a 7.5% yield, is deeply undervalued. 

• ORG Technology (002701 CH), via the Offeror Huarui Fengquan Development Limited, has announced SAMR has given its approval. ORG still requires MOFCOM, NDRC, and SAFE to sign off. 
• Interestingly, SASAC/NCSSF-backed Champion Holdings, the competing/initial bidder for CPMC (906 HK), secured MOFCOM, NDRC, and SAFE before SAMR clearance. Champion’s regulatory pre-conditions took a little over seven months to secure.
• What now? SAMR is China’s primary antitrust regulator (overlapping with NDRC). So this is positive for ORG. However, I’d still stick to ORG’s pre-condition long stop in terms of timing. 

Health and Happiness International’s (H&H) H1/24 results were in line with expectations. The company reported weaker earnings and margins from its main Baby Nutrition & Care (BNC) business in Mainland China, amid structural industry challenges stemming from low birth rates in the country. That said, the weakness in BNC was partly offset by growth in the Adult Nutrition & Care (ANC) and Pet Nutrition & Care (PNC) segments. We note that ANC is now H&H’s largest revenue contributor, eclipsing BNC’s numbers. Going forward, we expect the company to continue expanding the ANC and PNC segments in Mainland China and beyond, while seeking to contain the revenue decline at BNC and maintain stable margins for the segment.

H&H has reduced inventory days and generated a small working-capital inflow, which led to positive FCF generation and net debt reduction. The company has adequate liquidity, following its successful refinancing activities in July.

• The valuation of Huawei Technologies Co. Ltd’s smart car unit has surged to 115 billion yuan ($16 billion) only seven months after its launch, following a recent investment.

• Yinwang Intelligent Technology Co. Ltd., a wholly-owned subsidiary of Huawei founded in January, has agreed to sell a 10% stake to Avatr Technology Inc., an electric vehicle (EV) startup backed by China’s state-owned automaker Chongqing Changan Automobile Co. Ltd. (000625.SZ -1.54%) and battery giant Contemporary Amperex Technology Co. Ltd. (CATL). 

• Avatr agreed to pay 11.5 billion yuan for the stake, with the payment to be made in three installments, contingent on conditions such as the introduction of Huawei’s smart car technologies and talent to Yinwang.

Anton Oilfield’s H1/24 numbers were softer than expected in our view, with profitability growth lagging revenue improvement. Positively, there was a surge in new orders. This is the third consecutive quarter showing a significant rise in new orders. We expect the business’ positive momentum to continue in FY 2024. The large (3x revenue) and growing backlog support revenue visibility. The financial risk profile remains stable.

• Chinese parcel volume growth slowed in July (+22%) vs firmer pace in Q2 (+32%)
• At company level, there are signs the steep price declines from H1 are moderating
• If worst of price declines is in rearview mirror, beat down names are worth a look

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.

• MGM China Holdings
• New World Development
• Nickel Industries
• Tata Steel Thailand

• If the System or this treatment method is really effective and accepted by hospitals/doctors, under the coverage of medical insurance catalog already, why BrainAurora’s revenue scale is still so small?
• CSRC questioned BrainAurora’s high selling expenses. Since either SG&A or R&D expenses already exceed revenue, BrainAurora would continue to suffer from losses. The Company hasn’t established a solid profit model.
• BrainAurora completed a total of 7 rounds of financing, with a post investment valuation of RMB2.7 billion. However, it is difficult for BrainAurora to match this high valuation after IPO.