Daily Brief China: Inner Mongolia Yitai Coal Company Ltd, Tencent, Alibaba Group, KE Holdings Inc, BeiGene, AviChina Industry & Technology H, Sino-Ocean Group and more

• Back on the 29 March, Inner Mongolia Yitai Coal Company Ltd (3948 HK) announced a possible H-share buyback at HK$17/share, a 50.4% premium to the undisturbed price.
• Yitai Coal is PRC-incorporated, therefore it is not afforded compulsory acquisition rights. To buy back ALL H-shares, either a Merger by Acquisition or a Voluntary Conditional Offer is required.
• The Offer/buyback, should it proceed, is subject to various PRC regulatory approvals, including SAFE; together with approval from Yitai Coal’s A/H shareholders. To date, the SAFE Registration has been completed.

• Inner Mongolia Yitai Coal Company Ltd (3948 HK)‘s H Share buyback offer is at HK$17.50, a 54.9% premium to the undisturbed price and a 9.0% premium to the last close. 
• The key conditions are approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders rejection). There is a 90% minimum acceptance condition.  
• The three independent H shareholders holding a blocking stake will be supportive of the attractive offer (9-year H Share price high). The price is final. Timing is the key risk.

• We believe total revenue will grow by 6% in 1Q23, compared to four stagnant quarters in 2022.
• We also believe operating margin will improve by 2 percentage points YoY in 1Q23 due to the layoff in 1Q22.
• We believe the stock has an upside of 48%, but we reduce our price target from HK$563 to HK$505.

• Timing is everything. Yesterday afternoon I flagged Inner Mongolia Yitai Coal Company Ltd (3948 HK)‘s possible H-share buyback at HK$17/share.
• Roughly five hours later a firm HK$17.50/share Offer was announced. The Offer Price is final.
• Other terms and approvals were largely as expected. Payment under the Offer may occur mid-August.

• We believe revenue will grow by 5.6% YoY in 4Q23 and by 9% in FY2023 versus 2.7% in FY2022.
• We also believe operating margin will improve slightly to 8.9% in 4Q23 versus 8.2% in 4Q22.
• We believe the stock has an upside of 63% for March 2024.

• China government guided no commission capping on real estate brokerage business, but the ladder-pricing system may lead to moderate commission rate reduction for Beike.
• We estimate that 0.1% of Lianjia commission rate cut can imply to 1.2% of revenue reduction for Beike in 2023. 
• Therefore, we lowered revenue by (2.8%) and net income by (5.3%) to factor in the potential changes.  We maintain BUY rating but cut the TP by US$2 to US$21.  

• BeiGene (BGNE) reported C1Q23 top line 7% and gross margin 1.5ppt above our estimates, leading to non-GAA operating loss 23% narrower than our estimate. 
• We raise BRUKINSA’s peak year sales from US$5bn to US$5.8bn while cutting Tislelizumab’s peak sales from US$1.5bn to US$1.2bn. 
• With transition to a biopharma complete, BGNE should enjoy a higher multiple; We raised TP from US$219 to US$254 and maintain BUY.

• AviChina Industry & Technology (2357 HK) remains cheap with 3-year earnings CAGR of 17.4% but only 11x PER. It also trades on 55% discount to value of its A-share subsidiaries.
• Aggregate earnings for its four A-share listed subsidiaries grew a solid 26.8% in 1Q23, even faster than AviChina Industry’s FY23F earnings growth of 21.5%. 
• China is expected to increase military spending to narrow the gap against the US going forward. AviChina stays best exposed to such growth in defense demand.

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.

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