Daily Brief China: Giordano International, BYD, Shaanxi Coal Industry, Yankuang Energy Group, Biocytogen Pharmaceuticals (Beijing), CanSino Biologics Inc, Country Garden Holdings Co, Leapmotor, First Solar Inc, Anton Oilfield and more

• The Cheng-family Offer for Giordano International (709 HK) became open to tendering after the Composite Doc was issued on the 15 August.
• With the first close less than a week away, acceptances are minimal – ~3.6%.
• Separately, David Webb, who definitely will not be tendering, has increased his stake to 5.79%.

• BYD (1211 HK)’s shares declined by -8% on disclosure that Berkshire Hathaway Inc Cl B (BRK/B US) trimmed its stake from 20.04% to 19.92% of outstanding H Shares. 
• Berkshire will likely follow its PetroChina (857 HK) playbook and materially sell down over the next few months. Buffet stated that the PetroChina exit was “a decision based on valuation.”
• Berkshire will apply the same investment discipline to the BYD stake. While the shares are trading at a discount to historical multiples, the Berkshire stake is an overhang.

• EVE Energy (300014 CH), PetroChina (601857 CH) and Shaanxi Coal (601225 CH) replace Anhui Conch (600585 CH), CPIC (601601 CH) and Zhangzhou Pientzehuang (600436 CH) at the close 16 September.
• Estimated one-way index turnover at the rebalance is 3.1% and will result in a one-way trade of CNY 1,678m.
• PetroChina (601857 CH) is also an inclusion to the FTSE All-World Index while China Pacific Insurance (2601 HK) is a delete from the Hang Seng China Enterprises Index (HSCEI INDEX). 

• Yankuang Energy Group (1171 HK) will replace Shenzhou Intl Group Holdings (2313 HK) in the FTSE China 50 Index at the close on 16 September.
• Passive trackers will need to buy over 1 day of ADV on Yankuang Energy Group (1171 HK) while selling over 1 days ADV on Shenzhou Intl Group Holdings (2313 HK).
• Short interest on Yankuang Energy Group (1171 HK) is over 10 days of ADV to cover and around 10% of float. That could help the stock move higher.

• Biocytogen raised HKD 471m (USD 60.77m) from its global offering and will list on the Hong Kong Stock Exchange on Thursday, September 1st.
• In the previous note, we looked at the company’s business lines including biotech and animal model businesses.
• In this note, we provide an update for the IPO before trading debut.

• CanSino’s performance declined in 22H1 due to decreased demand of COVID-19 vaccine. Since we have analyzed our concerns on performance in prior insight, there should be psychological expectations for the decline.
• The COVID-19 vaccine business brings CanSino rich cash flow and helps it establish commercial team. Together with MCV2/MCV4/mRNA/PCV13i, it’s too early to be completely bearish on CanSino.
• The market has exaggerated the impact of performance decline of COVID-19 vaccine on CanSino. Although 2022 is a difficult year, it is a good time to bottom fish this stock.

Country Garden’s H1/22 results were in line with our expectations. Contracted sales plunged 40% y-o-y, in line with the industry average of 30-40%. Positively, the company managed to maintain the cash collection rate at above 90%, and the leverage metrics remained broadly stable. That said, the H1/22 gross margin came under pressure at 11% (lower than most peers). Additionally, the average sell-through rate stood at only 50%, which could result in cash being trapped in developments with low demand.

• We visited a Leapmotor store in Shanghai China last weekend.
• Model C11 instead of T03 was popular despite the fact that T03 shows a large sales volume on prospectus.
• We believe pure electricity vehicle is promising in cities, especially in large cities.

• First Solar’s second quarter results were positive and it delivered an all-around beat.
• During the quarter, the management kept up their booking pace, strengthening their backlog of anticipated future deliveries, which now totals a record 44.3 gigawatts.
• The management is working on setting up the necessary supply chain to support the eventual launch of a bifacial CadTel module.

In our view, Anton Oilfield’s H1/22 results were robust and in line with expectations. In FY 2021, the company shifted its focus to profitability and an asset-light strategy. This shift in focus explains the softness in new orders, while the backlog continued to grow. All four business segments grew steadily, as the company benefited from the supportive operating environment with high and rising oil prices. Earnings still failed to catch up with revenue growth, and Anton will need to work through the old backlog before new orders with higher profitability kick in. Cash flows were good, while the company’s credit metrics improved and were modest. Liquidity is adequate.