In today’s briefing:
- Geely Stalls As ZEEKR Spins Off
- Zeekr Pre-IPO – Thoughts on Valuation
- 2024 High Conviction: Anta Sports (2020 HK)
- Xiaomi (1810 HK): Outperformance Leads to Passive Selling & Opens Up Trading Opportunities
- Kuaishou: Strong Earnings With Further Improvement in Profitability
- 2024 High Conviction – China Healthcare: It’s Time to Embrace a New Era
- Sunpower: Resilient Growth Story; Direct Competitor IPO’s in China and Highlights Sunpower Value
- China Dongxiang (3818 HK): Turned Around on Sports Business
- Legend Biotech (LEGN US): Mixed 3Q23 Result; Carvykti Is Flying High; New Licensing Agreement
Geely Stalls As ZEEKR Spins Off
- Geely Auto (175 HK)‘s share price has largely swatted away the pending US-listing of ZEEKR (ZK US).
- ZEEKR was valued at US$13bn after a US$750mn fund raising in February. At that value, Geely’s 54.7% stake is worth 58% of its market cap.
- Geely is trading around a six and half year low, and below its five average trailing/forward metrics.
Zeekr Pre-IPO – Thoughts on Valuation
- ZEEKR (ZK US), a premium EV brand by Geely Auto (175 HK), aims to raise around US$500m in its US listing.
- Zeekr was formed in Mar 2021 as a JV between Geely and its founder. Its first model was launched in Apr 21 with deliveries starting in Oct 21.
- We have looked at the company’s past performance and undertaken a peer comparison in our earlier notes. In this note, we will talk about valuations.
2024 High Conviction: Anta Sports (2020 HK)
- Anta Sports Products (2020 HK) is the second largest China sportswear company at 20% market share in 2022.
- The thesis for Anta lies in Anta’s above-industry earnings growth for the next 3 years, low market expectations on China sportswear sector, and flexible multi-brand strategy.
- Anta trades at a forward PE of 17x based on estimated 2024 earnings, with around 15-20% expected net profit growth in 2024-2026.
Xiaomi (1810 HK): Outperformance Leads to Passive Selling & Opens Up Trading Opportunities
- Xiaomi Corp (1810 HK) is a member of the Hang Seng Index, Hang Seng China Enterprises Index and Hang Seng TECH Index, among others.
- Capping of stocks at 8% of the index weight will lead to selling in Xiaomi (1810 HK) at the close on 1 December, mainly from Hang Seng TECH Index trackers.
- Relative underperformance vs the HSTECH Index from now to Tuesday will require passive to sell less stock, while outperformance will lead to increased passive selling. That opens up trading opportunities.
Kuaishou: Strong Earnings With Further Improvement in Profitability
- Kuaishou’s 3Q2023 earnings beat consensus estimates with significant improvement to the company’s profitability driven by growth across all business segments.
- Operating losses of the overseas segment has further reduced, and new offerings such as paid mini dramas have been driving strong growth for the company.
- Though Kuaishou’s share price has moved up during the last few months, valuation multiples are at a steep discount to historical multiples, suggesting there is further upside.
2024 High Conviction – China Healthcare: It’s Time to Embrace a New Era
- After COVID-19, China healthcare has been under pressure for a long time. High interest rate environment is unfriendly to companies, but the current situation is not entirely devoid of opportunities.
- GLP-1s has reignited investors’ interest in this industry, which will be long-term opportunity and bring alpha. With rich domestic/overseas catalysts ahead, related share price performance is worth looking forward to.
- Among the domestic GLP-1s companies, Innovent is our top pick. The “concept validation” of Innovent’s business model has been completed. A qualitative change in the Company is coming soon.
Sunpower: Resilient Growth Story; Direct Competitor IPO’s in China and Highlights Sunpower Value
- Sunpower reported 9M23 results which showed the company performing strongly as a 100% GI business.
- Revenues +15% and EBITDA +46% YoY. Earlier this month a competitor listed in China at a massive premium to Sunpower’s valuation.
- The uncertainty over the CB due in April 2025 will be an overhang but management believes there are multiple ways to resolve this in FY2024.
China Dongxiang (3818 HK): Turned Around on Sports Business
- The turnaround of sports business at China Dongxiang (3818 HK) is very welcoming. We are glad that sales trend in Oct-Nov is sustained and Phenix brand is well-received.
- Reported losses widened as poor market environment enlarged investment losses. However, net cash and investment portfolio are still valued at Rmb8.5bn, or 5.9x its market capitalisation.
- CNDX looks comfortably at over 6% full-year dividend yield. Together with just 0.15x P/B, there are enough protections for the downside of the stock.
Legend Biotech (LEGN US): Mixed 3Q23 Result; Carvykti Is Flying High; New Licensing Agreement
- Legend Biotech Corp (LEGN US) has reported mixed 3Q23 result, with revenue missing and EPS beating consensus. For 3Q23, partner Janssen reported Carvykti worldwide revenue of $152M, up 30% QoQ.
- Legend entered an exclusive, global license agreement with Novartis, which grants Novartis the rights to develop, manufacture, and commercialize LB2102 and other potential CAR-T therapies for upfront payment of $100M.
- The company is expanding manufacturing capacity for Carvykti. As of September 30, 2023, Legend has cash balance of $1.4B, which should provide a runway through 2025.
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