Daily Brief China: Meituan, Xinjiang Daqo New Energy, Yashili International Holdings, China Tourism Group Duty Free Corp Ltd, Xiamen International Port H, Shenzhen Dianxiaomi Network Technology, Sinopharm Group Co Ltd H, Country Garden Holdings Co and more

• Reuters this afternoon carried an article that Tencent (700 HK) was seeking to divest “US$24bn” (17%) of $78bn market cap delivery company Meituan (3690 HK) by year-end to mollify domestic regulators.
• Tencent would seek to launch a share sale within 2022 “if market conditions are favourable.” Meituan shares tanked 9%, immediately.
• The article suggests disposal via block sale (faster than negotiating with a private buyer), odd given Tencent’s Q1 2022 experience with the JD.com unwind. But it leads to BIG flows.

• Past the midway mark in the review period, we see 18 potential changes to the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) at the December rebalance.
• We estimate a one-way turnover of 3.32% at the December rebalance leading to a one-way trade of CNY 8.55bn.
• The potential adds have outperformed the potential deletes and the Shanghai Shenzhen CSI 300 Index over the last few months, with the outperformance widening over the last few weeks.

• Yashili International Holdings (1230 HK) independent shareholders unanimously approved the proposed transactions at the 16 August EGM, a crucial step for China Mengniu Dairy Co (2319 HK)’s HK$1.20 offer.
• The remaining pre-condition is the completion of the 25% Yashili acquisition. The completion conditions suggest that this pre-condition is low risk and will likely be completed soon.
• The value test is only applicable to the scheme. At last close and for a November completion, the gross and annualised spread to the offer is 8.1% and 29.6%, respectively.

• Tencent (700 HK)‘s reported sale of its Meituan (3690 HK) stake led to a selloff on Meituan and on other companies that Tencent has invested in.
• There are 10 listed companies where Tencent (700 HK)‘s holding is over US$1bn. Some stakes are more likely to be sold than others. 
• A complete stake sale will benefit some companies more than others since they are part of a wider array of indices and that will bring in passive flow.

• CTG Duty Free Group has filed for a HKEx listing and plans to raise net proceeds of US$1.98bn at the midpoint of the IPO price range of HK$143.5-165.5 per share.
• The company’s indicative IPO price range is at a 27-37% discount to the company’s last close of RMB194.75 per share.
• In this insight, we discuss our key concerns on CTG’s financials and our thoughts on the company’s valuation.

• The pre-condition for Xiamen International Port H (3378 HK)’s privatisation offer from Xiamen Port Holding is satisfied. The offer is HK$2.25 per H share. 
• The key conditions are approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders’ rejection). There is no minimum acceptance condition.
• The offer is attractive. At last close and for a 21 October payment, the gross and annualised spread to the offer is 2.7% and 16.0%, respectively.

• Dianxiaomi, a China-based ecommerce software-as-a-service platform, has bagged US$110 million in a series D round.
• With the latest investment, Dianxiaomi has raised a total of US$210 million this year. In March, the company closed a US$100 million series C round.
• Founded by Du Jianyin in 2014, the firm specializes in developing infrastructure for cross-border ecommerce

• Over the past few years, Sinopharm’s revenue scale has continued to grow, but its gross profit margin declined due to negative policy pressure. Actually, it isn’t a highly profitable business.
• As industry leader, Sinopharm will benefit from the increasing industry concentration and further expand market share. The challenge is Sinopharm will face a situation of increasing revenues without increasing profits.
• For 2022 forecast, revenue YoY growth could be about 5%-7%. Net profit YoY growth could be below 10%., High valuation expectations cannot be supported considering the future industry trend.

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.

• Central China Securities
• Country Garden Holdings Co
• Meituan