Daily Brief China: JD.com Inc (ADR), Jinxin Fertility Co Ltd, Sun Hung Kai Properties, Shenzhen International, Greentown China, WuXi XDC Cayman Inc, Everest Medicines, Evergrande and more

• We expect JD to report C2Q23 revenue in-line vs. cons., and non-IFRS net income 6% vs. consensus.
• Although we raised our GMV estimate, our 5% YoY revenue growth estimate is unchanged as we expect 3P take rate decline to partially offset GMV growth.
• We maintain SELL and TP but cut FY23 non-GAAP net margin to 3% due to the greater share of lower margin 1P revenue vs. our prior estimate.

• China has started taking measures to optimize fertility policies. The inclusion of assisted reproduction technologies in medical insurance is a general trend, which would generate increasing demand in the future.
• From the current domestic assisted reproductive industry chain, there is significant import substitution space and growth potential in the fields of related drugs, prenatal/newborn genetic testing, and downstream medical services.
• Companies such as Livzon/BGI/Jinxin would be the direct beneficiaries of related policy. We analyzed the industry characteristics, investment rationale, key risks and comparison with peers of these companies. 

• In this insight, we conducted fundamental analysis for SHKP, which is a proxy for Hong Kong given 70% of its GAV comes from Hong Kong
• SHKP has well diversified businesses in residential, retail and office in Hong Kong and China, and there are a lot of share price drivers
• We would recommend a BUY as long as the stock trades below HKD100, as the stock has a trading range of HKD100 to HKD 130

• We expect Shenzhen International (152 HK) to sustain efforts in realising and releasing the value of its assets, and this will be positive in narrowing its discount to book.
• The plan to issue REIT by using Hangzhou and Guizhou logistics projects as underlying assets will add to earnings. We estimate they account for 14% of SZI’s total project area.
• Subscription to A-share issuance of Shenzhen Expressway Co (548 HK) will increase its book value by Rmb5bn. This will lower its P/B multiple to 0.46x, from 0.54x.

We view Greentown China as “Medium Risk” on the LARA scale. The company is an established residential property developer targeting high-end markets, mainly in Eastern China (i.e. Zhejiang province). Greentown has an SOE background, with its largest shareholder China Communications Construction Group (CCCG; 28% stake) being an SOE under the central government. Greentown also has strong branding.

Our Credit Bias on the company is “Stable”, on account of the: [1] resilient contracted sales and revenue growth; [2] adequate liquidity; and [3] access to diversified onshore financing channels. We believe Greentown is well-supported by CCCG. That said, we remain concerned over the high JV usage, which diminishes financial transparency.

We maintain our “Hold” recommendation on the GRNCH curve. We note that Greentown no longer issues USD perpetuals and has limited offshore maturities. We also note that the GRNCH 2025 bonds are trading c. 150 bps wider than the notes by peer China Jinmao (BBB-). This is likely due to a three-notch rating difference, given Greentown’s higher leverage. However, the two developers share the same ultimate central state parent, and we believe Greentown does not lack financial access or liquidity.

• WuXi XDC Cayman Inc (1877628D HK) is looking to raise >US$100m in its upcoming Hong Kong IPO. The bookrunners on the deal are Morgan Stanley, Goldman Sachs, and JP Morgan.
• WuXi XDC Cayman (WXDC) is a contract research, development, and manufacturing organization (CRDMO) focused on the global antibody drug conjugates (ADC) and broader bioconjugate market providing integrated and end-to-end services.
• As per Frost & Sullivan (F&S), the firm was the second largest CRDMO for ADCs and other bioconjugates globally in terms of FY22 sales.

• As the core candidate in Everest Medicines’s current pipeline, the peak sales of Nefecon could be significantly lower-than-expected, mainly due to low diagnostic rate, limited applicable patient population, high price, competition from latecomers.
• For the rest late-stage candidates, such as Etrasimod, Eravacycline, Taniborbactam, their peak sales would all be lower than that of Nefecon. So, they are unable to bring enough imagination space.
• Based on license-in mode, cost of Everest Medicines is higher than independent-R&D companies. Whether products would be returned to licensors again because of weak sales prospects is also uncertain factor.

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.

• Evergrande