In today’s briefing:
- JD.com (9618 HK): Index Implications of Walmart Placement
- China Traditional Chinese Medicine (570 HK): Never a Dull Moment as Profit Warning Lands
- Xiaomi (1810 HK): 2Q24, Revenue up by 32%, Electric Vehicle Profit to Follow, Buy
- TCM (570 HK): Profit Warning Is No Biggie
- ZTO Express Q224 Results: Slow Top-Line Growth | Margin Compression in Core Express Business | AVOID
- China East Education (667 HK): Rock Solid Improvements
- Shanghai International Airport (600009 CH | BUY | TP:CNY44): Slow but Steady Earnings Recovery
JD.com (9618 HK): Index Implications of Walmart Placement
- Media reports indicate that Walmart (WMT US) is looking to sell 144.5m shares of JD.com (JD US) to raise up to US$3.74bn. That would be substantially all of its stake.
- There will be passive buying from global index trackers at the time of settlement of the placement shares and could absorb around 12% of the placement shares.
- There will be no passive buying from HSI, HSCEI, HSTECH and HSIII trackers in the short-term. An increase in CCASS holdings should result in passive buying in December.
China Traditional Chinese Medicine (570 HK): Never a Dull Moment as Profit Warning Lands
- China Traditional Chinese Medicine (570 HK) profit warning notes that the 1H24 net profit would decrease by 60%-70% YoY due to pricing pressure, higher impairment losses and remedial taxes.
- The profit warning could pose a risk to the scheme, as the consortium can withdraw if there is an adverse material change in China TCM’s profits or prospects.
- If there were a danger of triggering the MAC clause, the consortium would not have made the regulatory submissions. The flip side is that the warning helps the shareholders vote.
Xiaomi (1810 HK): 2Q24, Revenue up by 32%, Electric Vehicle Profit to Follow, Buy
- Excluding the new business electrical vehicle, total revenue increased by 23% YoY in 2Q24.
- Smartphone shipments grew faster than Samsung and Apple in 2Q24.
- We believe electrical vehicle will bring significant gross profit in following two years.
TCM (570 HK): Profit Warning Is No Biggie
- China Traditional Chinese Medicine (570 HK) flagged a 60-70% drop in its 1H24E net profit versus 1H23, due to reduced sales/profit of TCM concentrate, bad debt provisions, and remedial taxes.
- MAC triggers? No – Sinopharm won’t exercise such right, even if one was ostensibly triggered. I’d be surprised if Sinopharm wasn’t fully aware of TCM’s underlying operations.
- Get involved on any dips today. Trading wide at a 11.7%/38.7% gross/annualised spread, assuming Dec-end payment.
ZTO Express Q224 Results: Slow Top-Line Growth | Margin Compression in Core Express Business | AVOID
- Headline numbers for ZTO in Q224 were +10% Revenue, +12% EBITDA
- But gross margin in core express segment fell, as did Operating Cash Flow
- ZTO left guidance unchanged for FY24; we recommend investors AVOID it
China East Education (667 HK): Rock Solid Improvements
- China East Education (667 HK)‘s 1H24 result is impressive with a 58% YoY increase in adjusted net profit. Good cost control is a key contributing factor.
- Profitability has improved in all business segments. Its strategy to focus on higher-value courses has led to further improvement in annualised tuition per student.
- The 1H24 result equals 68% of the full-year consensus, implying an upside in market expectations. Its net cash, at 35% of market capitalisation, is unmatched by peers.
Shanghai International Airport (600009 CH | BUY | TP:CNY44): Slow but Steady Earnings Recovery
- Chinese airports are enjoying a steady passenger traffic growth of 5% YTD; Shenzhen and Shanghai airports are growing much faster.
- Shanghai International Airport (600009 CH)is our top pick given its size, liquidity, strong balance sheet, and its strong earnings growth potential.
- Our target price for Shanghai International Airport (600009 CH) is CNY44, pegged to global airport peer average FY25 EV/EBITDA of 12x.
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