Daily Brief China: ESR Group , Tianjin Port, Sinopec Engineering Group H, CPMC Holdings, Greatview Aseptic Packaging, Hang Seng Index, Zhejiang Expressway Co H, AviChina Industry & Technology H, CIFI Holdings and more

• ESR Group (1821 HK) provided a positive update on the indicative proposal. The update notes that the consortium has expanded from three to six, representing 39.91% of outstanding shares.
• The addition of new consortium members is a positive. While the recent market rally is not a dealbreaker, it should give the consortium renewed impetus to launch an acceptable offer.   
• The downside to a deal break is low as ESR’s valuation is undemanding, which is supported by the potential earnings recovery in a more benign interest rate environment.

• Seven & I Holdings (3382 JP) is currently “in limbo” as the initial Alimentation Couche-Tard (ATD CN) (“ACT”) has been rejected, some news is out, and we await earnings/presentations.
• The news last week was that 7&i might sell down a stake in Seven Bank Ltd (8410 JP) and could sell its retail/superstore business to PE rather than an IPO.
• Both selldowns mean the focus on CVS everyone seems to want. That’s good news. And the shares are trading at/below ACT terms which “grossly undervalued” the company. Bullish. 

• The WisdomTree Emerging Markets SmallCap Dividend Index is a fundamentally weighted index that measures the performance of small cap stocks within Emerging Markets.
• The changes at the October rebalance were announced after market close on 4 October with implementation scheduled at the close on 16 October.
• There are 8 trading days to implementation and there are a bunch of stocks with over 2x ADV to trade.

• Acquiring CPMC at low price is in line with Baosteel’s strategic goals and the new assessment indicators of Baowu Group. This explains why Baosteel didn’t choose to raise its Offer 
• ORG intends to acquire 100% equity of CPMC. This means state-owned capital needs to withdraw completely from CPMC. So, would China Foods/COFCO (both SOEs) agree to be acquired by ORG?
• If ORG is “forced to” acquire CPMC due to Baosteel’s low Offer Price, will ORG change mind and choose to withdraw midway?Such “potential unwillingness” from ORG makes the deal “tricky”.

• 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: Shanghai Henlius Biotech (2696 HK), Greatview Aseptic Packaging (468 HK), Canvest Environmental Protection Group (1381 HK), Shinko Electric Industries (6967 JP), Capitol Health (CAJ AU). 
• Lowest spreads: Dyna Mac Holdings (DMHL SP), Platinum Asset Management (PTM AU), Xingda International (1899 HK), Trancom Co Ltd (9058 JP), Fuji Soft Inc (9749 JP). 

• Hang Seng Index (HSI INDEX), Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX EQUITY) and Nikkei 225 (NKY INDEX) all have elevated implied vols vs their peers and vs historical observations for October.
• NIFTY Index (NIFTY INDEX) , S&P 500 INDEX (SPX INDEX) and S&P/ASX 200 (AS51 INDEX)  implied vols are on the low end of what is typically realized in October.
• Most markets see price weakness in the 3rd week of the month with realized volatility underperforming over the back half of the month.

• By way of its 54.79% ownership in Zheshang Securities (601878 CH), Zhejiang Expressway Co H (576 HK) is an attractive indirect vehicle to access the mainland securities sector.  
• The attributable market cap of Zheshang equals 90% of ZJE’s market cap, implying that the toll road business is almost free. However, Zheshang only contributed 16% of ZJE’s 1H24 profit.
• ZJE trades on 6.7x FY24F PER, vs. 31.3x for Zheshang and 17.6x for H-share securities companies. A stable toll road business also minimises the risk for ZJE.

• Given its holdings in four A-share subsidiaries, AviChina Industry & Technology H (2357 HK) will benefit from the surge in their share prices as mainland markets re-open.
• These A-share all lagged benchmark Indices YTD. Avichina’s holdings in them are already valued at 2.23x its own market capitalisation. 
• The historical discount range is 51-70% and currently stands at 55%, suggesting AviChina’s share price has not yet excessively priced in the post-Golden Week rally.

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.

• CIFI Holdings
• Vedanta Resources