In today’s briefing:
- Huafa Property Services (982 HK): What’s Going on as Shares Trades Very Wide Ahead of the Vote?
- Merger Arb Mondays (26 Aug) – China TCM, Henlius, Canvest, GA Pack, Huafa, Tohokushinsha
- Henlius (2696 HK): Was There Any Doubt?
- Naspers X Prosus Discount Update Post Tencent 2Q FY24 Results, Narrowing Gains Momentum
- Yadea (1585): Ready for New Standard
- Shanghai Henlius Biotech (2696.HK) – Privatization Has Taken a Positive Step Forward
- China Power International (2380 HK): Firing on All Cylinders
- China Consumption Weekly (26Aug2024): 2Q24 Rev Up By – PopMart 62%, Zeekr 58%, Tongcheng 48%, Etc.
- Consumer Tales Aug Wk#4: Beer in China, Ola’s Path to Profits, Kalyan Jewellers’ Quiet Confidence
- CIMC Enric (3899 HK): Things Are Getting Better
Huafa Property Services (982 HK): What’s Going on as Shares Trades Very Wide Ahead of the Vote?
- The Huafa Property Services Group (982 HK) vote on Huafa Industrial Co., Ltd. Zhuhai (600325 CH)’ HK$0.29 offer is on 28 August. However, shares trade wide ahead of the vote.
- Several readers have enquired about the unusually high spread ahead of the vote of a seemingly clean deal. The conversations raised several concerns.
- The concerns are unwarranted, and this remains a clean deal. At the last close and for the 30 September payment, the gross/annualised spread was 5.5%/68.9%.
Merger Arb Mondays (26 Aug) – China TCM, Henlius, Canvest, GA Pack, Huafa, Tohokushinsha
- 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: Yichang HEC Changjiang Pharma (1558 HK), China Traditional Chinese Medicine (570 HK), Canvest Environmental Protection Group (1381 HK), Malaysia Airports Holdings (MAHB MK), Capitol Health (CAJ AU).
- Lowest spreads: Tohokushinsha Film (2329 JP), Fuji Soft Inc (9749 JP), Descente Ltd (8114 JP), Second Chance Properties (SCE SP), Fancl Corp (4921 JP), C.I. TAKIRON Corporation (4215 JP).
Henlius (2696 HK): Was There Any Doubt?
- Roughly six weeks ago, Shanghai Henlius Biotech (2696 HK) announced the scrip option condition was met. Just that Shanghai Fosun Pharmaceutical (2196 HK) (the Offeror) was weighing its options
- This situation mirrored L’Occitane (973 HK)‘s (eventual) scrip option. And in place of Pleasant Lake in that transaction; Henlius has Loyal Valley Capital (5.8309% shareholder) behind the scenes.
- Late Friday, Henlius updated the terms of Fosun’s Offer to now include the scrip option alternative. We expected nothing less. 1H24 results will also be out later today.
Naspers X Prosus Discount Update Post Tencent 2Q FY24 Results, Narrowing Gains Momentum
- Tencent reported a softer set of results for Q2 relative to Q1. Revenue for the quarter was up 1% QoQ and 8% YoY.
- Since our last discount update mid-August, the discounts of both Naspers and Prosus have continued to narrow.
- Naspers’ discount is trading well off the lows reached at the end of July (~45%).
Yadea (1585): Ready for New Standard
- The 1H result was poor due to the inventory clearance from the new product standards, which rendered older products less desirable.
- Management has proven to be able to manage costs carefully during a down cycle.
- Yadea Group Holdings (1585 HK) used to trade around 35x PER; now it is only 10x PER.
Shanghai Henlius Biotech (2696.HK) – Privatization Has Taken a Positive Step Forward
- The Share Alternative is necessary to improve success rate of privatization. Our guess is Henlius Biopharmaceuticals/Lin Lijun would vote for this privatization, but we’re not sure about Qatar Investment’s decision.
- Due to its “flaws”, undervaluation of Henlius is difficult to fundamentally change. So, those conservative and cautious investors would choose the Cash Alternative considering the risks behind the Share Alternative.
- Even if there’re plans of re-listing, it may be based on a new entity formed after integrating Henlius and other assets within Fosun Pharma. So, the value of Rollover Entities/Securities remains uncertain.
China Power International (2380 HK): Firing on All Cylinders
- China Power International (2380 HK) kicked off FY24 with an impressive 51.5% surge in 1H24 net profit. All business segments improved YoY, with hydropower being the best.
- Both volume growth and cost reduction are the key drivers, supporting a 7.2pp gross margin expansion. The 5pp increase in the proportion of hydropower sold also lifted profitability.
- CPI will grow its capacity to 52GW by end FY24, a 15.5% YoY and 7.8% HoH increase. Moreover, the upside will come from more asset injection from its parent.
China Consumption Weekly (26Aug2024): 2Q24 Rev Up By – PopMart 62%, Zeekr 58%, Tongcheng 48%, Etc.
- Pop Mart’s total revenue increased by 62% YoY due to the promising overseas market.
- Tongcheng’ revenue grew by 48% YoY in 2Q24, as new businesses are successful.
- Alibaba’s Freshippo plans to set up frontline warehouses, which is a way back to online.
Consumer Tales Aug Wk#4: Beer in China, Ola’s Path to Profits, Kalyan Jewellers’ Quiet Confidence
- Welcome to Consumer Tales & Trends, your weekly roundup of the latest corporate developments, investment reports and sector events in the consumer industry.
- With fewer young people and a growing number of older adults, the target market for alcoholic beverages is shrinking in many markets including China.
- Upsides from vertical integration could give Ola Electric (OLAELEC IN) a significant cost advantage over local competitors. Strong pricing power can allow it to decide whether to prioritize growth or margins.
CIMC Enric (3899 HK): Things Are Getting Better
- CIMC Enric Holdings (3899 HK)‘s 1H24 result is below expectations, but the growth outlook is promising. Management also guided for a solid recovery in 2H24.
- Backlog and new orders rose 42.5% and 29.4%, respectively, with chemical and environmental orders rebounded sharply QoQ. The overall margin will be better in 2H24.
- Hydrogen revenue should reach Rmb1bn in FY24 (1H24: Rmb450m). New coke oven gas (COG) to hydrogen projects may generate Rmb10bn revenue by FY27, or 43% of FY23 revenue.
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