Daily Brief China: L’Occitane, Dekon Food and Agriculture Group, Perfect Medical Health, Meituan, YSB, Prosus NV, Miniso, Sino-Synergy Hydrogen Energy Technology, Prudential PLC and more

• L’Occitane (973 HK) reported FY1H24 (fiscal year ending March 31) results yesterday after market, with net profit down 45% yoy. 
• The sharp drop in earnings is mainly due to a 48% yoy increase in marketing costs, as well as increased finance costs.
• The company maintained the FY24 outlook of 17% topline growth and an operating profit margin of 12% (FY1H24:  7.2%). 

• Dekon Food and Agriculture Group (DFAG CH) is looking to raise up to US$128m in its Hong Kong IPO.
• Dekon Food and Agriculture Group (DFAG) is a vertically integrated livestock farming enterprise in China.
• In this note, we will look at past performance, and share our thoughts on valuation.

• Perfect Medical Health (1830 HK) results showed 7% revenue growth and 10% YoY profit (27% YoY adjusted profit for subsidies) growth in H1 FY24.
• The company declared a 14.2 cent/share interim dividend. H2 dividends usually are higher, so we expect a 32-35 cent dividend for FY24. 
• This is another dividend-yielding gem, trading at 12.0x PE FY24e, a 9% dividend yield, and 15% of the market cap in cash and investments with a >50% ROE. 

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.

• Meituan

• YSB would be added to KraneShares CSI China Internet ETF.Cornerstone investors could opt to cash out directly,taking advantage of improved liquidity, which means even they’re not optimistic about YSB’s prospects.
• YSB’s profit margin is disappointing. It would be hard for YSB to deliver decent profits in the end. This business does not make money. YSB is also short of money.
• Since going public, YSB’s share price has been on a rollercoaster, which has deviated from the fundamentals, but it should be pointed out eventually stock prices will return to fundamentals.

• Meituan (3690 HK) ‘s 3Q2023 revenues beat estimates while OP for the quarter was well below consensus estimates.
• There were clear signs of slowdown in earnings growth due to macroeconomic challenges and weaker demand. 4Q earnings are expected to decline further.
• Meituan’s share price went down by about 11% following its earnings announcement as slowdown in core local commerce and weakening earnings have concerned investors.

• Improved transparency from management is an important positive. Additional disclosures were included on entity IRR in the results presentation (attached, not previously disclosed). 
• Profitability target for the consolidated ecommerce businesses moved forward to H2 FY24 from H1 FY25. Significant narrowing of trading losses in H1 FY24 to $36m from $256m in H1 FY23.
• As management ‘commit to highlight value where and when possible’, we think an IPO could very well be on the horizon.

• MNSO reported C3Q23 revenue in line with our estimate/consensus, and non-GAAP operating income in line with our estimate.
• However, stock fell 14% over two days, mainly on concern of slowdowns in overseas distributors;
• Based on our channel checks, overseas distributor inventory has always been a problem, more so when heightened US interest rate pricking the consumption bubble in developing markets.

• Sino-Synergy Hydrogen Energy Technology (9663 HK) (SHET) is looking to raise around US$200m in its Hong Kong IPO. 
• SHET is a hydrogen fuel cell company in the PRC focusing on research, development, production and sales of hydrogen fuel cell stacks and hydrogen fuel cell systems.
• In this note, we will look at the company’s background and talk about valuations.

• Pru is currently trading below its embedded value, with the valuation assigning a negative value for the group’s new business profits.
• Given its quality franchise across all key markets in Asia and continued strong new business recovery (to pre-Covid levels), this doesn’t seem to make sense at all.
• We would continue underwriting the investment case of Pru in the coming year, with the stock offering significant upside potential.