Daily Brief China: ESR Group , Bio-Thera Solutions Ltd, Trip.com, China Traditional Chinese Medicine, Alibaba (ADR), Luckin Coffee, Ping An Healthcare and Technol, Powerlong Real Estate Holdings, QuantumPharm and more

• On 21 February, Bloomberg reported that due to the steep share price declines, major ESR Group (1821 HK) shareholders are considering options for their stakes, including ESR’s privatisation.
• The reports also noted buyer interest in ESR’s significant assets. Past share dealings suggest that Warburg Pincus and the co-founders are the likely consortium to lead a potential privatisation. 
• The offer probability is low as a scheme would likely require a HK$16.00 offer, posing a funding challenge. Nevertheless, the upside remains as ESR trades at an undemanding valuation. 

• There are 10 changes for the STAR100 Index in March. We correctly forecast all 10 deletes and got 8 of the 10 adds right.
• Estimated one-way turnover is 6.8% and that results in a one-way trade of CNY 1.79bn. Nearly all constituent changes have more than 1 day of ADV to trade.
• The adds have started to outperform the deletes and the index over the last couple of weeks and there could be more outperformance in the next two weeks.

• Trip.com reported a strong set of Q4 and FY23 earnings results last week
• Company has held the line on SG&A expenses; look for strong H124 growth
• We believe shares are cheap and recommend investors buy below US$43/ADS

• 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  Probiotec Ltd (PBP AU), JSR Corp (4185 JP), Shinko Electric Industries (6967 JP), CSR Ltd (CSR AU), China Traditional Chinese Medicine (570 HK), Lithium Power International (LPI AU). 
• Lowest spreads – Tietto Minerals Ltd (TIE AU), Orecorp Ltd (ORR AU), Pact Group Holdings (PGH AU), CPMC Holdings (906 HK), T&K Toka Co Ltd (4636 JP), Snow Peak.    

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• On the IPO front, we looked at Trial Holdings (5882 JP) refiling and Xiaocaiyuan International Holding .
• For placements, it was an action packed week in India, again, with Australia joining in as well.

• Luckin Coffee (LKNCY US) concluded FY23 with a 203.3% surge in non-GAAP net profit to Rmb3.2bn, benefiting from higher store count and monthly transacting customers.
• Luckin plans to lift store count by at least 23%, with total to reach over 20,000 in FY24. Product innovation, promotional discount reduction, and better store efficiency are profit drivers. 
• Net cash reached Rmb3.8bn, or 7% of market cap. With a consensus EPS forecast of 28% CAGR in the next two years, its 15.1x and 11.7x PERs are not stretched.

• Fang Weihao’s departure means PAGD’s strategic transformation failed. The business model of being a “vassal” of Ping An Group seems hard to bring high valuation due to “discounted” growth potential.
• PAGD is at a crossroads. The question is which development path will the new CEO choose – Follow Fang Weihao’s strategy or return to the traditional Internet healthcare business model?
• Both directions have painful costs that investors will not be happy with. Therefore, we recommend that investors remain sober and rational in the face of the bullish view on PAGD.

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.

• Powerlong Commercial Management Holdings

• QuantumPharm (QUP HK) (Xtalpi) is looking to raise US$200m in its upcoming Hong Kong IPO.
• QuantumPharm is a R&D platform, utilizing quantum physics-based first-principles calculation, advanced AI, high-performance cloud computing, and scalable and standardized robotic automation to provide drug and material science R&D solutions.
• In this note, we will talk about the positive aspects of the deal.