Daily Brief China: Jingdong Property, Kuaishou Technology, ZJLD Group, Agile Property Holdings, Lalatech Holdings Co Ltd, Seazen (Formerly Future Land), Tencent, Shanghai MicroPort MedBot Group, Vedanta Resources and more

• Just after Alibaba’s big news of a business split and possible fundraising and IPOs for spun-out entities, JD.com announced that they will list its Properties and Industrials businesses in HK.
• The pre-IPO funding round of $800m, led by Hillhouse and Warburg Pincus valued Jingdong Property (JDP HK) at RMB 7.15 per-share, which valued the company at RMB 46.8bn market cap.
• This implies a price-to-book multiple of 1.1x, which is towards the high side considering that the sector is trading at an average discount of roughly 10% to its book value.

• Time spent on apps increased by 15% in China in 2022.
• In 2022, total advertising market decreased by 9%, but online advertising market increased by 1%.
• We believe online advertising market will grow significantly higher than total advertising market in 2023.

• ZJLD Group (ZJLD HK), a baijiu company in China, is pre-marketing an HKEx IPO to raise upto US$400 million, according to press reports.
• ZJLD is the fourth largest privately-owned baijiu company and ranked third among all baijiu companies with three or more aroma types, in terms of revenue in 2021.
• The key elements of the bull case rest on market share gains, competitive production capacity, premiumization, rising gross margin and inventory days in good shape vs peers.

Agile Group’s FY 2022 earnings were much poorer than expected, as the company reported a 26% y-o-y revenue decline and abysmal gross margin of just 2% (vs. 23% in H1/22 and 26% in FY 2021). The depressed gross margin reflects the company’s operational challenges, as well as aggressive inventory destocking to prioritise cash-flow generation (which has helped Agile avert a default).

The company’s liquidity position remains precarious, though we do not anticipate a default in FY 2023. This considers management’s high willingness to address debt commitments, as well as the industry’s improved financing environment. At FYE 2022, Agile had a CNY 8.5 bn unrestricted cash balance, which was barely sufficient to cover CNY 3.3 bn of short-term onshore bond/ABS and CNY 4-5 bn of interest expense. The company will have to refinance its bank and syndicated loans, with the government’s recent easing policies being supportive. In addition, we expect Agile to continue deferring new land acquisitions, as it still has a relatively large land bank. Still, the company is likely to continue deferring coupons on its perpetual securities, which are subject to a stoppage of dividend payments.

• Lalatech Holdings, one of the largest Asia-based providers of on-demand delivery platform, filed for Hong Kong IPO, with Goldman Sachs, BofA Securities and J.P. Morgan leading the offering.
• I like profitable growth at tremendous scale, hybrid monetization model and leadership position in Mainland China with a 40%+ share, well ahead of its major peers.
• Lalatech Holdings was backed by top-tier VC investors, including Hillhouse Capital Group, Sequoia Capital, Shunwei Capital, MindWorks Capital and Vitruvian Partners, among others. 

Seazen Group’s FY 2022 results were in line with expectations, with sustained weakness in contracted sales and revenue, as well as weaker margins. Total revenue declined 31% y-o-y to CNY 116.5 mn, with contractions in GPM and the EBITDA margin.

Key leverage ratios deteriorated over FY 2022, given the decline in revenue and profitability, despite debt reduction. Revenue/Debt weakened slightly to 137%, from 147% as at FYE 2021. Net Debt/Net Inventory was largely unchanged at a sound 19%. That said, Debt/EBITDA weakened to an aggressive 6.9x, due to the lower profitability. Liquidity was inadequate, with cash covering only 70% of ST debt.

• In Q1 2023, 86 different Hong Kong-listed companies bought back shares either locally or on foreign exchanges. Total buybacks were HK$22.856bn.
• 8 Companies made up 90% of the total. On average, they bought back shares 4 days out of every 10 within the quarter. 
• A lot of the smaller companies doing buybacks were significant portions of their volume.

• No matter how good a story is, it needs to be supported by sales data.If sales of Toumai cannot scale up, the complete closed-loop of surgical robot+consumables+solution/service would be groundless.
• The commercialization dilemma has become “a dark cloud” for Medbot. Before Medbot makes any breakthrough in internationalization or establishes an effective profit model in China, the Company lacks investment logic.
• The catalyst for stock prices from favorable policies is not lasting. Weaker-than-expected financial performance would quickly throw valuations into correction. As things stand, Medbot is only suitable for short-term trade.

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.

• Central China Securities
• Vedanta Resources