Daily Brief China: Guangdong Investment, Tencent, Magic Empire Global, Zhangzhou Pientzehuang Pharmaceutical Co., Ltd., Sino-Ocean Group and more

• S&P DJI commenced a market consultation for the S&P Global Water Index on 29 July and that could lead to quite a few changes to the index in October.
• We currently see 14 deletions and 10 inclusions for the index in October. Most of the changes will have a high impact from passive fund trading.
• There could be more changes in April 2023 once stocks listed in Emerging Markets are included in the index.

• Tencent short from 390 is rewarding and reaching for new chart lows now that the 310 pivot support has given way and leading the likes of BABA.
• MACD target support is the key input to align with a terminal wave 5 low to set up the macro long entry in September.
• Undershoot risk to lower channel support with a low due in September and rally hurdles toward year end at 370/390. 420 remains the forward macro barrier to challenge/clear.

• Just days after AMTD Digital (HKD US) was ramped 30,000% to a ridiculous valuation only weeks after its IPO, Magic Empire Global (MEGL US) IPOed and rose 2000+ on Day1.
• MEGL is a corporate advisory, helping smallcaps IPO then helping them comply with listing rules. 2 principals, 2 professionals, 5 staff with no moat had US$2.16mm in revenue in 2021.
• And it is worth US$2.3bn – 1000 x revenues and 10,000x earnings?  This is not OK. And it smacks of something unsavoury. 

• Reuters and several other news media outlets reported that Tencent (700 HK) is looking to raise its stake in French game publisher Ubisoft as it seeks to expand overseas.
• Tencent owns approx. 5.0% of Ubisoft which was acquired in 2018 and is said to have reached out to the founding family Guillemot to buy a stake from their ownership.
• As we mentioned in our previous insight, Tencent has been excluded for the fourth time from new game approvals which had impacted its online games biz.

• Due to the lockdown/pandemic, Pientzehuang Pharmaceutical’s 2022H1 performance slowed down. Considering the economic downturn and people’s cutting back spending on non-rigid consumption, the full-year revenue growth could be around 10%-20%.
• The Company’s key challenge lies in revenue growth. However, it is not easy to increase sales largely due to the scarcity of raw materials, which limits the expansion of production.
• Pien Tze Huang is overvalued. Share price could continue to fall,but it will bounce back due to its high moat. 2022 is a good time for bottom fishing this stock.

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.

• China SCE
• KWG Living Group
• Longfor Properties
• Sino-Ocean Service