In today’s briefing:
- Meituan (3690 HK): Out of the Woods and Light a Fire
- Alibaba: Our Take on 4QFY24
- Hang Seng Index (HSI) Rebalance Preview: Inclusion Candidates for June
- Alibaba (9988 HK): Dual Primary Listing & Potential Southbound Flows
- Shortlist Of High Conviction Ideas: Income, Value, and Margin of Safety – May 2024
- Alibaba (BABA US): Taobao/Tmall Is Back
- Vipshop: Net Cash at 40% of Market Cap, Now Paying Dividends and Buying Back Shares
- HEC CJ Pharma (1558.HK)’s Merger Deal with Sunshine Lake Pharma – Almost No Investment Value
- Leapmotor (9863 HK): Global Aspirations in JV with Stellantis – An Opportunity to Leapfrog?
- Lalatech Holdings Limited Pre-IPO – Refiling Updates – Continues to Improve, Valuation Gap Narrowing
Meituan (3690 HK): Out of the Woods and Light a Fire
- We notice a pickup in consumer acceptance of instrashopping, as result of COVID-cultivated behavior. We notice similar business model worked outside of China (Coupang) for densely populated urban upper-middle-class customers;
- Meituan’s launch of membership is a wise step towards strengthening user stickiness and emphasizing transaction soundness over impulsive buying. Meituan’s portfolio in food, dining, hotel & travel offer unparalleled value;
- We see Meituan’s success in Hong Kong honed a replicable business model targeting single and low priced segment. Consolation on a global scale now seems a possibility.
Alibaba: Our Take on 4QFY24
- Alibaba Group Holding (BABA US)‘s FQ4 announcement portrays a resilient comeback to growth, suggesting the past four years’ challenges barely impacted its dominance in Chinese e-commerce.
- However, a closer look beyond the surface of Alibaba Group Holding (9988 HK)‘s FQ4 results announcement reveals that little has actually changed in recent months.
- Taobao and Tmall face challenges in a tough, stagnant market; AIDC’s growth largely covers for other Alibaba units’ failings, while AliExpress’s expansion cuts into margins.
Hang Seng Index (HSI) Rebalance Preview: Inclusion Candidates for June
- Post market close tomorrow, Hang Seng Indexes will announce the changes for the Hang Seng Index (HSI INDEX) that will be implemented at the close on 7 June.
- There were no constituent changes to the index in March. We highlight ten profitable and eligible stocks that could be added to the index in June.
- Changes to the Hang Seng Industry Classification System (HSICS) could lead to inclusions for the Information Technology industry while there could also be inclusions for the underweighted Healthcare industry.
Alibaba (9988 HK): Dual Primary Listing & Potential Southbound Flows
- Along with its fiscal 2024 results, Alibaba (9988 HK) announced that they were preparing for their primary listing in Hong Kong and the conversion was expected to complete by August.
- If the conversion is completed by the end of August, Alibaba (9988 HK) could be added to Southbound Stock Connect in September and that could bring in significant flows.
- We do not forecast any passive inflows due to the change with Alibaba Group Holding (9988 HK) capped at 8% of the HSI, HSCEI and HSTECH indices.
Shortlist Of High Conviction Ideas: Income, Value, and Margin of Safety – May 2024
- We compile our selection of small and mid-cap names with our desired characteristics of high dividend yields, value, and margin of safety.
- Our top picks are Perfect Medical Health (1830 HK), Water Oasis (1161 HK), Taste Gourmet (8371 HK), Uchi Technologies (UCHI MK), and Ginebra San Miguel (GSMI PM).
- After a massive recent correction for HK stocks, we are more constructive on the names, and yields there look very attractive.
Alibaba (BABA US): Taobao/Tmall Is Back
- Alibaba reported in-line revenue but disappointed adjusted net income for 4QFY24.
- Yet a closer look shows strong core Taobao/Tmall performance was offset by higher-than-expected losses incurred by peripheral businesses.
- We remain convinced BABA is on track to turn around and an earnings upgrade cycle is one or two quarters away. We are buyer at this price.
Vipshop: Net Cash at 40% of Market Cap, Now Paying Dividends and Buying Back Shares
- The slowdown in Chinese retail sales of apparel seems to have been factored into Vipshop Holdings (VIPS US) 1Q 2024 revenue growth expectations whilst bottom-line is supported by margin expansion.
- With net cash at ~40% of its market cap, the share price should be supported by the ongoing share repurchase program and its inaugural annual dividend policy.
- Its 6.6x NTM PE ratio (~4x ex-cash) seems extremely attractive for a highly cash-generative business set to (conservatively) grow earnings at high-single-digits whilst buying back shares and paying dividends.
HEC CJ Pharma (1558.HK)’s Merger Deal with Sunshine Lake Pharma – Almost No Investment Value
- Sunshine Lake Pharma plans to privatize HEC CJ Pharma in the form of merger by absorption with conditions. After privatization, CJ Pharma will be delisted from the Stock Exchange.
- Sunshine Lake Pharma’s pipeline has been “disconnected” from the level of domestic biotech in recent years, and is completely lagging behind the average speed of innovative drug development in China.
- Due to “outdated” pipeline and lack of prospects, even if CJ Pharma is merged into Sunshine Lake Pharma, valuation performance of the new entity would be disappointing in the future.
Leapmotor (9863 HK): Global Aspirations in JV with Stellantis – An Opportunity to Leapfrog?
- Stellantis, the European automotive group, unveiled plans to distribute EVs made by Zhejiang Leapmotor Technology (9863 HK) across Europe, India, Asia Pacific, MEA, and South America via a 51/49 JV.
- This could help Leapmotor (9863 HK) leapfrog regulatory hurdles and hasten access to EV markets globally by leveraging Stellantis NV (STLA IM) ‘s distribution network and manufacturing facilities.
- Leapmotor could likely qualify and stand to benefit from Indian Government’s recently announced policy initiatives for budget EVs.
Lalatech Holdings Limited Pre-IPO – Refiling Updates – Continues to Improve, Valuation Gap Narrowing
- Lalatech Holdings is looking to raise about US$1bn in its upcoming HK IPO.
- Lalatech operates via a marketplace model serving merchants and carriers. Its platform facilitates closed-loop transactions from online shipping order booking to intelligent order matching, and automated dispatching to after-sale services.
- We have looked at the company’s past performance in our earlier notes. In this note we will talk about the updates from its refiling.
💡 Before it’s here, it’s on Smartkarma
Sign Up for Free
The Smartkarma Preview Pass is your entry to the Independent Investment Research Network
- ✓ Unlimited Research Summaries
- ✓ Personalised Alerts
- ✓ Custom Watchlists
- ✓ Company Data and News
- ✓ Events & Webinars
