Daily Brief China: Huafa Property Services Group, PDD Holdings, Tencent, Alibaba Group Holding , Kunlun Energy, Delhi International Airport Limited, Longfor Properties, Greentown China, Minth Group Ltd and more

• A state-owned Offeror pitching a lifetime high Offer Price – with a solid premium –  for an illiquid company? Sounds like a slam dunk.
• Yet  property manager Huafa Property Services Group (982 HK) has perennially traded wide to Huafa Industrial Co., Ltd. Zhuhai (600325 CH)‘s terms. This is not justified. 
• The Scheme Meeting/SGM is tomorrow (28 August), with payment on (or before) the 30 September. Or a gross/annualised return of 4%/46%. Buy here. Then buy some more. 

• The stock plunged today after the announcement of excellent performance for 2Q24.
• In 2Q24, revenue grew by 86% YoY and the operating margin improved 10 percentage points YoY.
• We believe investors should buy, as it is just a tactic from major stock sellers.

• SOUTHBOUND was a net seller this past week for HK$1.5bn, the first week in 29 where SB was a net seller. It was all ETFs. Stocks were a net buy.
• Gross volumes remain very low. Net volumes de minimis. Very August-ish. No sectors stood out. 
• The largest net buy was CSPC Pharmaceutical Group (1093 HK) where the net buying was the same size as the fifth largest net sell (Tencent (700 HK)) 

• Hong Kong’s unusual trading channel pattern may be coming to an end and short selling declines.
• Alibaba Group Holding (9988 HK) broke a falling triangle pattern and now trades above near term support levels.  The company’s dual listing announcement and large buyback program are near-term positives.
• GDS Holdings (9698 HK) has broken out of its rounding bottom pattern with a positive earnings announcement.  China Ruyi Holdings (136 HK) has broken out from its triangle pattern.

• Kunlun Energy (135 HK) posted a healthy 2.6% earnings growth for 1H24. If not for the expiry of two oilfields last year, its earnings growth would have reached 6.8%. 
• Natural gas sales pre-tax margin contracted 0.5pp YoY, but has recovered significantly HoH. Other businesses have all seen good margin expansion. 
• The company has further accumulated net cash which increased 8.3% in the last six months. At HK$2.76/share, this equals 35% of the share price.

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.

• ABM Investama
• Nickel Industries
• Road King Infrastructure

Longfor Group’s H1/24 results were acceptable. Earnings declined in line with expectations, driven by lower revenue and margins in the Property Development segment. That said, earnings growth from rentals and services remained robust, with LTM profit from recurring income covering interest expense by 1.6x (FY 2023: 1.4x).

Negatively, net debt increased marginally in H1/24, even though total debt declined. Going forward, we expect the company to continue reducing debt using OCF and refinance its maturing debt using additional operating loans backed by its investment properties. Overall, we believe near-term default risk for Longfor remains low, as the company’s pipeline of new malls should continue to support its access to secured bank loans for refinancing.

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 Oil And Gas
• First Pacific Co

Greentown’s H1/24 results were acceptable, given the above-industry sales and top-line growth. While gross profit declined, the property development gross margin was stable from FY 2023, and remained robust relative to peers. In addition, net debt was stable from FYE 2023. More importantly, the company’s access to onshore financing appears healthy, and liquidity is adequate.

The company remains active in land acquisitions and has a good quality land bank, mostly in high-tier cities in the Yangtze River Delta. Although Greentown is considered a pure-play developer (as its recurring income businesses are small), the company appears to have navigated the industry downturn well, thanks to its cautious approach towards land investments and operating efficiency to support a fast-churn model.

• Minth Group Ltd (425 HK) revenue went up by 14% (almost 3x of China’s passenger vehicle market, which grew 5%) and net income by 20% on 1H 24
• It has developed environmentally friendly collision aluminum, with a carbon emission of less than 2.5 kg CO2 /Kg.AL while typically it produces 16 CO2/kg.AL
• Battery housing business contributed 21% instead of 18% of total revenue with OPM expanded from 18% to 20%.