Daily Brief China: IntelliCentrics Global Holding, Sciclone Pharmaceuticals, China Communications Construction, Midea Group Co Ltd A, Tcl Multimedia Technology, Dream International, Legend Biotech Corp, China Vanke , Horizon Robotics, Nickel Industries and more

• Soon-To-Be ex-healthcare technology platform play IntelliCentrics Global Holding (6819 HK) is a pseudo risk arb. 
• IntelliCentrics is selling its key ops, declaring a special dividend from the sale proceeds, subsequently being wound up, then delisted. 
• Shareholders have the option of voting on a raft of resolutions on the 18th April. Irrevocables total 72.1%. This is done. Just the final dividend amount needs to be confirmed.

• Zadaxin is the biggest performance driver of SciClone. However, due to the challenge of generic drugs/VBP, sales of Zadaxin wouldn’t maintain strong growth momentum.  SciClone’s revenue/profit would face a significant decline.
• The capital participating the IPO had reduced their holdings or exit entirely. Considering the low valuation/poor liquidity in HKEX, we think this privatization provides investors with a great exit opportunity.
• For arbitrage investors, the annualized return depends on the time it takes to complete the privatization (e.g. about 5%-10%). If the privatization fails, share price could fall back to HK$14.

• China Communications Construction (1800 HK) believes its FY24 new contracts and revenue growth can be faster than FY23, particularly fuelled by strategic new industries and overseas. 
• Its end-FY23 contract backlog of Rmb3.45trn (+1.8% YoY) translates into coverage of 4.1x of FY24F revenue, providing a secured stream of revenue over the next few years.
• Its improving cash flow allows for a 1pp increase in the payout ratio. Efforts in realising underlying asset value should narrow its 82% discount to book value.

• Midea Group Co Ltd A (000333 CH) posted strong 4Q23 results, with net profit up 18% yoy and sales up 10% yoy. 
• In terms of 2024 outlook, management targets a 5-10% yoy growth in both the top and bottom line. 
• The stock is has rerated up to 12x 2024E earnings, compared to an average of 13x over the last 10 years. 

• Spirits were high as we attended the TCL Electronics (1070.HK ) (“TCL”) investor conference last Thursday (28 March) at the Shangri-La in Hong Kong, following its after-market earnings release.
• The results topped our own expectations in some areas, which we outlined in our recent write-up on the Company .
• We decided to summarize the results, as well as management insights shared at the conference for added context.

• We like Dream International (1126 HK), the plush toy maker listed in HK for its long-term association with Disney and revenue growth profile (12% CAGR over 15 years).
• The 15-year ROE has averaged 18%, and the company currently has 40% of the market capitalization (1.3 bn HKD) in net cash on the balance sheet. 
• Trading at 3.7x FY23 PE, with a 12% dividend yield (and the company’s high likelihood of maintaining a payout ratio), this is an idea worth exploring.

• The sBLA of Carvykti is under review by FDA with a target PDUFA date of April 5. If approved for 2L therapy, Carvykti would become “a game changer” in MM treatment.
• The peak sales of US$5 billion is becoming possible. From this perspective, as Carvykti advances towards earlier line treatment, the subsequent valuation leap of legend Bio is becoming more certain.
• However, considering lower gross margin and Legend Bio/J&J’s 50/50 split ratio, Legend Bio’s market value performance could be inferior to BeiGene. Investors should also closely monitor the changes in macro.

China Vanke’s FY 2023 numbers were somewhat soft in our view. While its top line and profitability declined in tandem with industry trends, the company’s property development gross margin remained robust (relative to peers) at c. 15%. Negatively, OCF (after interest and tax) was weak and net debt continued to rise. Leverage and coverage metrics deteriorated, but remained at reasonable levels (vs. peers).

Vanke’s liquidity at the holdco level is likely tight. In particular, the migration of bank borrowings to the project level has pressured the company’s holdco-level financing. The development may also indicate lenders’ reduced risk appetite towards Vanke. In addition, we view negatively that management did not disclose the amount of cash held under escrow restrictions. Moreover, it is unclear whether the Shenzhen government would provide extraordinary support (above and beyond market-oriented measures) to the company.

• Horizon Robotics is looking to raise US$500m in its upcoming Hong Kong IPO. The bookrunners on the deal are GS, MS and China Securities International.
• Horizon Robotics (HR) is a provider of advanced driver assistance systems (ADAS) and autonomous driving (AD) solutions for passenger vehicles, empowered by its proprietary software and hardware technologies.
• HR was the first and the largest Chinese company providing integrated ADAS and AD solutions in terms of annual installation volume since 2021, according to CIC.

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 Hongqiao
• Nickel Industries