Daily Brief China: Li Auto, Meituan, XPeng, JD.com Inc (ADR), China Southern Airlines, NIO Inc, AiSpeech, Central China Real Estate, Xiaomi Corp and more

• The March rebalance of the HSI, HSCEI and HSTECH indices will use today’s closing prices to cap the index constituent weights at 8%. This will lead to large flows.
• The largest inflows will be on Li Auto (2015 HK), Meituan (3690 HK), XPeng (9868 HK), JD.com (9618 HK), Alibaba (9988 HK), BYD (1211 HK) and Kuaishou Technology (1024 HK). 
• The largest outflows will be on Tencent (700 HK), HSBC Holdings (5 HK), Baidu (9888 HK), Xiaomi Corp (1810 HK), NetEase (9999 HK), CNOOC (883 HK) and SMIC (981 HK).

• On 16th Nov 22, post-market close, along with its 3Q22 results Tencent declared an interim dividend by way of distribution in specie of Class B Ordinary shares of Meituan.
• At the time of declaration, the dividend amounted to US$20bn or 15.5% of Meituan’s outstanding shares. Its value has since declined to US$17bn.
• In this note, we talk about the implications of the deal and what one can glean from looking at the previous dividend payout for JD.com.

• From the time of Tencent (700 HK) announcement of the in-specie dividend, Meituan (3690 HK) has underperformed Tencent (700 HK) and Alibaba Group (9988 HK) by around 35%.
• Surprisingly, short interest on Meituan (3690 HK) has dropped in the last few months as the stock has continued to drop.
• As with JD.com Inc. (9618 HK), Prosus (PRX NA) could sell Meituan (3690 HK) in the months following settlement. Or they could remove the overhang by placing a block.

• On 24 February 2023, the Hang Seng Indices released their changes for the March rebalance. No changes in HSI, which was unexpected, and small changes elsewhere.
• Capping flows and the rule changes on treatment of Dual Primary Listed stocks are responsible for the interesting flows. Yesterday’s closing prices are used for final capping.
• Li Auto (2015 HK) and XPeng (9868 HK) are the interesting trades. Still. 

• JD launched “10bn subsidy” campaign on March 5th. Smartphone and electronics is the main product category and the prices for comparable products are relatively the same as PDD. 
• We estimate that total GMV generated from subsidized products may reach to about 1.5% in 2023, and the incremental cost will be about RMB5bn in 2023.
• We cut our forecast of JD’s non-GAAP net income to RMB21bn in 2023, which is 34% below cons. Maintain SELL with an updated TP of US$42, which implies 22x P/2023E.

• At TMA we deliver high probability outcomes by focusing on our 3 pillars of technical analysis. •1) Response to key levels. •2) Price action. •3) Momentum confirmation.
• The 2021/2023 period has produced definitive evidence of bullish LT trend change. We see this in both trend structure and also LT momentum triggers.
• Since 2015, peaks have been in the 8.50/11.00 range. Conservatively, the 2023 uptrend targets the top of the parallel uptrend channel in the 7.25/7.45 range (20%+), likely in H2 2023.  

• We expect NIO to see a share loss in 2023 due to 1) late delivery of its key models; 2) conservative channel expansion plan; 3) uncompetitive pricing. 
• We see headwinds for NIO’s 2023 GPM, including 1) ~10% discount on its legacy models in Q1; 2) weaker product mix toward low-price ET5 into Q3.
• 3) limited expansion of scale economy due to diminished momentum. ● DG to SELL for weak momentum and ongoing margin pressure into 3Q22.

• AISpeech is a high-tech start up specializing in computer speech recognition and AI chip design in China.
• The company is developing intelligent voice interaction technology designed to improve human-machine interaction. It is also developing human-computer dialogue operating system and artificial intelligence chip modules to improve speech recognition.
• AISpeech is in the process of listing in the Shanghai Star Market, aiming to raise about US$1.5 billion.

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.

• Anton Oilfield
• Central China Securities
• Yuexiu Property

• JD’s “10bn subsidy” program mainly subsidizes uncleared stale (avg. 339 days since launch) Xiaomi smartphone inventory for JD’s 1P/3P distributors but is not conductive for incremental Xiaomi unit demand. 
• Although JD subsidies help clear stale inventory, Xiaomi itself doesn’t benefit as these devices were sold last year and were already considered a sale.
• JD’s program is not conductive of unit volume sell-through for new Xiaomi phone sales given its shallow breadth of stale SKU.  Re-iterate our SELL rating and HK$7.3 TP.