In today’s briefing:
- HK Connect SOUTHBOUND Flows (To 24 May 2024); Strong Bank Buying and Tech Selling Continues
- A/H Premium Tracker (To 24 May 2024): HK Stocks Have a BAD Week and AH Premium Rebounds In
- Merger Arb Mondays (27 May) – L’Occitane, SciClone, GA Pack, KFC Japan, CF Logistics, Best World
- Offshore China ETFs Rebalance Preview: Three Changes in June; Cutoff Today
- FXI Rebalance Preview: Cutoff Today; Two Changes Likely in June
- Shanghai Henlius Biotech (2696.HK) – Behind the Trading Halt and Privatization Rumor
- Mainland Connect NORTHBOUND Flows (To 24 May 2024): Weak Net Buy, Weak Gross, Idiosyncratic Flows
- China Healthcare Weekly (May.26)-VBP Scope Expands, Optimistic About Glove Industry, China Resources
- Baidu: Priced to Fail
- China Consumption Weekly (27 May 2024): Xpeng, Tongcheng, Kanzhun, Gaotu, KE, Bilibili, and Weibo
HK Connect SOUTHBOUND Flows (To 24 May 2024); Strong Bank Buying and Tech Selling Continues
- SOUTHBOUND was again a net buyer for HK$18.6bn on strong two-way volumes. The top three net buys of the week were SOE banks. Some may be Central Huijin.
- Some of this may be driven by the dividend w/h tax cancellation on H divs and by significant H-share discounts, but high-div CNOOC was the biggest net sell.
- No end to the inflows, and HK valuations are not at a place where they would hamper continued flows. Alibaba making HK a Primary will spur more inflows over time.
A/H Premium Tracker (To 24 May 2024): HK Stocks Have a BAD Week and AH Premium Rebounds In
- The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
- SOUTHBOUND’s buy streak continued this past week; every day was net positive. NORTHBOUND was net positive too. It is not clear how much is National Team buying. Much may be.
- AH Premia rebounded off multi-year lows, on average, this past week as Hang Seng and other HK indices fell sharply and A-shares did not fall as much.
Merger Arb Mondays (27 May) – L’Occitane, SciClone, GA Pack, KFC Japan, CF Logistics, Best World
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), Hollysys Automation Technologies (HOLI US), Ansarada Group Ltd (AND AU), Malaysia Airports Holdings (MAHB MK), China Traditional Chinese Medicine (570 HK).
- Lowest spreads: Chilled & Frozen Logistics Holdings (9099 JP), Mma Offshore (MRM AU), Great Eastern Holdings (GE SP), Mimasu Semiconductor Industry (8155 JP), Boral Ltd (BLD AU).
Offshore China ETFs Rebalance Preview: Three Changes in June; Cutoff Today
- Based on the close of 24 May, there could be three changes for the iShares A50 China (2823 HK)/ CSOP China A50 (HKD) (2822 HK) in June.
- COSCO SHIPPING (601919 CH), CRRC (601766 CH) and China National NuclearPower (601985 CH) could replace LONGi GreenEnergy (601012 CH), CSC Financial (601066 CH) and China Tourism Group DutyFree (601888 CH).
- There are a couple of stocks that are close adds and could become adds if they outperform higher ranked stocks in trading today.
FXI Rebalance Preview: Cutoff Today; Two Changes Likely in June
- With a day to go in the review period, there could be 2 changes for the iShares China Large-Cap (FXI) (FXI US) in June.
- There should be more than 1x ADV to buy on one of the adds while there will be nearly 5x ADV to sell on one of the deletes.
- There will be positioning in all the potential changes but there appears to be higher interest in one of the potential adds and one of the potential deletes.
Shanghai Henlius Biotech (2696.HK) – Behind the Trading Halt and Privatization Rumor
- There are many rumors about Henlius’s trading halt, but Fosun Pharma had applied for the resumption of trading in H Shares, which makes us confused whether this is really privatization.
- Henlius is in “an awkward position” in capital market. Fosun is to blame for Henlius’s low valuation. The high debt problem makes the profits generated from drug sales meaningless.
- If Henlius cannot break away from the system controlled by Fosun, the complexity of corporate governance brought about by the relationship between Henlius and Fosun would inevitably affect investment judgment.
Mainland Connect NORTHBOUND Flows (To 24 May 2024): Weak Net Buy, Weak Gross, Idiosyncratic Flows
- The Quiddity Mainland Connect NORTHBOUND Monitor. Like the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor. Lots of Flows/Position Tables and Charts with which to play.
- Last week saw NORTHBOUND net BUY RMB 0.8bn of A-shares on lower gross volumes. NORTHBOUND bought CATL, China Yangtze Power, and Luxshare. AH Premia bounced, but net volumes are suspect.
- There is some question as to whether the NORTHBOUND volumes to the buy side are all foreigners. Some suspect there is national team buying mixed in, as was expected.
China Healthcare Weekly (May.26)-VBP Scope Expands, Optimistic About Glove Industry, China Resources
- The NHSA issued a Notice on “improving the quality and expanding the scope of VBP”. The trend of full coverage of VBP of conventional drugs/consumables is determined.TCM is under pressure.
- We analyzed the potential demand growth rate of the glove industry, which is already better than most cyclical stocks. Therefore, we see no need to remain pessimistic about this industry.
- Holding platform companies have valuation discounts.HK$50-60 billion is reasonable market value for China Resources Pharmaceutical.Better to go long when share price is below HK$5 and then hold to receive dividends.
Baidu: Priced to Fail
- Since late 2020, Search’s share of digital advertising revenue has stabilised at around 8-10%, seemingly retaining its core advertising customers and industries.
- Baidu management expects AI Cloud to maintain strong revenue growth momentum in the upcoming quarters.
- Baidu trades on a 3.6x NTM EV/EBITDA multiple, well below one standard deviation lower than its 5-year historical average trading range and the lowest it has ever been.
China Consumption Weekly (27 May 2024): Xpeng, Tongcheng, Kanzhun, Gaotu, KE, Bilibili, and Weibo
- In 1Q24, Revenues of Xpeng, Tongcheng, Kanzhun, and Gaotu grew by 62% YoY, 50%, YoY, 43% YoY and 34% YoY.
- KE’s revenue decreased by 20% YoY in 1Q24 due to the weak property market.
- Bilibili’s value added services revenue grew by 17% YoY and advertising revenue grew by 31% YoY.
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