Daily Brief China: Jiangnan, Alibaba (ADR), FTSE China A50 Index, Kuaishou Technology, CATL (A), Lenovo, Luye Pharma and more

• Jiangnan (1366 HK) disclosed a scheme privatisation offer from Mr Chu Hui (Chairman and CEO) at HK$0.40 per share, a 107.3% premium to the undisturbed price (HK$0.193 on 13 February).
• The key condition is approval by at least 75% of disinterested shareholders (<10% of all disinterested shareholders rejection). The shareholder with a blocking stake will be supportive. 
• The price is final and attractive in the context of historical prices and multiples. The scheme meeting is likely in mid-May. At last close, the gross spread is 12.7%.

• Alibaba Group (9988 HK)‘s 3QFY23 results scheduled to release this Thursday is yet again going to be somewhat disappointing with our analysis indicating around RMB35.0bn OP cf. RMB49.7bn in 3QFY21.
• Nevertheless, 3QFY23 results could beat the conservative consensus revenue estimate by 2.8% while the OP is likely to be in line with consensus.
• Having risen 100%+ in few months, a small beat is unlikely to drive-up the share price any longer. Renewed US-China tensions are likely going to be a much bigger driver.

• A50 sell res near 14,100. Hard down close followed by 3% squeeze needs some digestion off of dual MA support. Our take is to sell strength.
• HSI is trading heavy after a muted bounce with 19,600 targeted and remains our top short.
• SPX needs a nudge and firm close below 4,080 to induce downside momentum and tip the global cycle.

• Kuaishou Technology (1024 HK) will report 4Q2022 and full-year results on 23rd March 2023.
• The company’s livestreaming revenues have made significant progress since 4Q2021 while its domestic business reported an operating profit for the first time in 3Q2022.
• Though the company’s share price has not moved up yet, we think there is further upside to the current share price driven by improved earnings.

• Contemporary Amperex Technology Co. Ltd. (CATL), the world’s largest electric-vehicle (EV) battery-maker, is in talks to offer automakers steeply discounted prices in exchange for sourcing the vast bulk of their power cells from the company in a bid to stave off growing competition from smaller rivals, Caixin has learned.
• If the plan goes ahead, CATL will sell the strategic clients EV batteries made from self-manufactured lithium carbonate at a low price.
• In return, they will be required to sign a contract committing them to buy 80% of their EV batteries from CATL over the next three years, a person close to the company told Caixin on Sunday.

• After shares gained 63% in the morning session of the 16 Feb, then subsequently suspended, Chu Hui, the chairman and major shareholder, has made his move on Jiangnan (1366 HK).
• Chu is offering HK$0.40/share by of a Scheme, a 12.68% premium to last close, but a whopping 83.49% over the last full trading day’s closing price. This price is final.
• This is done. Expect payment around late July based on precedent Cayman-incorporated privatisations. 

Lenovo has posted weak Q3/22-23 results. Revenue dropped 24% y-o-y to USD 15.3 bn, with gross profit down 22% at USD 2.6 bn and operating profit declining 20% to USD 750 mn. Net profit fell 32% to USD 437 mn. Positively, liquidity remains sound, with over USD 5 bn of cash and USD 20 bn of undrawn credit facilities. OCF stayed positive at USD 74 mn.

• The decline in revenue from multiple categories of drugs due to VBP indicates that Luye Pharma (2186 HK) urgently needs a group of new products to reverse the overall weak performance. 
• Without the advantages in R&D efficacy and product competitiveness, the current pipeline would generate little value. It’s hard to convince people that the fundamentals of Luye have truly changed.
• We are not optimistic about Luye’s outlook, which lacks long investment logic. Meanwhile, we think that this Placement is not cost-effective due to more potential downside to valuation.