Daily Brief China: Li Ning, REPT BATTERO Energy, China South City, Pharmaron Beijing , iMotion Automotive Technology, Yunda Holding and more

• Li Ning (2331 HK) announced yesterday that the company has acquired a HK office project, the Harbour East, from Henderson Land, for a total consideration of HKD2.2bn. 
• The acquisition is quite unexpected given that Li Ning has had a clean corporate governance track record.
• The company now trades at 11x foward PE, assuming no growth in 2023 and 2024 earnings.  It is now a value stock, though the visibility is very low. 

• REPT BATTERO Energy (1998104D CH), a leading EV battery manufacturer, has launched an HKEx IPO to raise up to US$306 million. Pricing is on 14 December.
• We previously discussed the IPO in Rept Battero IPO: The Bull Case and Rept Battero IPO: The Bear Case. 
• There are no cornerstone investors. Our valuation analysis suggests that the IPO price range is unattractive. Therefore, we would pass on the IPO.

We believe China South City’s (CSC) proposed bond extension is overall acceptable to bondholders. The company plans to continue paying coupons in cash, albeit at a reduced coupon rate. In addition, the absence of a haircut would preserve bondholders’ claims.

We note negatively that the amortisation payments would only begin in 2026. This reflects the company’s very tight liquidity, considering its failure to pay the coupon in November 2023 and the dismal H1/23-24 results. Moreover, CSC is not proposing to add new credit enhancement measures, even though the latest extension has demonstrated the failure of the existing keepwell deed and asset pledge to ensure offshore debt repayment.

CSC has ceased disclosure of quarterly contracted sales since 2022, and we believe it has now fully shifted business focus to commercial properties. However, the company’s commercial properties were affected by a depressed macro market and lower demand for leasing, and we do not foresee a related turnaround in the near future. Liquidity was extremely weak, with Cash/ST Debt of only 9% as of end-September.

• Pharmaron’s performance has shown a clear downward trend this year, and the growth in 23Q4 may be even lower. That means this year’s results could fall short of management’s expectations.
• The essence of unsatisfactory profit margin is due to low capacity utilization/management efficiency.The underlying reason is the sharp decline in drug R&D demand due to the deterioration of financing environment.
• Pharmaron seems ill-prepared in peptide CDMO, and its performance would further lag behind Wuxi AppTec in the future. Pharmaron may not be able to contribute alpha during industry downturns.

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.

• China South City
• NagaCorp Ltd

• IMotion Automotive Technology (1812706D CH) is looking to raise about US$100m in its upcoming HK IPO, after downsizing from an earlier reported float of US$300m.
• The company possesses advanced full-stack R&D capabilities including self-developed algorithms and hardware-software co-design capabilities. It provides two AD domain controller product lines, and the self-designed iDC series.
• We had covered the company’s performance and PHIP updates in our earlier notes. In this note, we talk about its refiled PHIP updates.

• Recently, Yunda Holding has lost volume share to rival STO Express 
• One reason could be Alibaba’s transfer of its 25% stake in STO to CaiNiao
• For Yunda, this dynamic adds to intense near-term pressure on margins