Daily Brief China: Midea Group Co Ltd A, Haitong Securities Co Ltd (H), Anta Sports Products, Guangzhou Automobile Group, Stella International, JNBY Design Ltd, Hive Box Holdings, China Vanke and more

• The Midea Group (300 HK) IPO is being offered at a price range of HK$52-54.8/share, a discount of 20.9%-25% to Midea Group. That will raise US$3.28bn-US$3.46bn for the company.
• Midea Group (300 HK) will not get Fast Entry to the HSCI but will be added to Southbound Stock Connect on 14 October once the price stabilisation period has ended.
• Midea Group (300 HK) should get Fast Entry to one global index and that could lead to inclusion in the iShares China Large-Cap (FXI) (FXI US) too.

• On 6 September, Guotai Junan Securities (2611 HK) and Haitong Securities Co Ltd (H) (6837 HK) entered a legally binding agreement to merge through absorption and share exchange. 
• The high-profile merger aligns with the Chinese government’s ambition to reform the brokerage sector and create world-class investment banks. The merger would result in the largest China broker by assets.
• In this note, we evaluate the potential share exchange ratio and the risks to satisfying the conditions for implementing the potential merger.

• SOUTHBOUND was a net buyer this week, again, after a small net sell week broke the 28-week buying streak. This week, over four days, it was +HK$9.3bn.
• ETFs were a net buy this week; CCB, ICBC, Meituan, China Mobile, as well as BYD, Nonfu Spring, and ANTA Sports stand out among net buys. Sells were small. 
• This week sees Alibaba Group Holding (9988 HK) eligible for SOUTHBOUND buying. And what was supposed to be the HSI/HSCEI/HSTECH rebals Friday are pushed to Monday (link here).

• China’s home appliance industry is facing challenges. Even with large-scale “trade in” activities, its expansion effect on market size still appears limited, making it difficult to trigger significant growth momentum.
• However, Midea still achieved strong performance growth in 24H1. Both revenue and net profit showed double-digit growth rates. Midea’s business expansion and product profitability are much better than peers.
• Performance drivers are overseas business and air conditioners. Our forecast is Midea’s 2024 net profit would reach about RMB37 billion. Valuation of Midea could be higher than Haier Smart Home.

• Repeat of last week: Miserable economic data continues. Trade geopol is mixed. Territorial geopol getting more serious. SOUTHBOUND gross volumes and net back up, but not high.
• AH Premia rose slightly as HK-listed shares underperformed mainland share indices. Hs underperform their As consistently compared to relative index performance.
• It is not clear what impetus there might be for better H performance.

• We compile a list of ten high-yielding/net cash or low-net debt stocks in the apparel/footwear value chain. Just because HK has become a pariah for investors, trailing dividend yields are approaching 6-20%.
• We track recent developments of these companies; for given their low valuations any incremental recoveries could spark huge share price returns.
• Crystal International (2232 HK), Stella International (1836 HK), and Yue Yuen Industrial Holdings (551 HK) stand out – they have had positive inflections in their earnings/dividend payouts and capital allocation.

• JNBY Design Ltd (3306 HK) is successful in capturing China’s niche designer fashion segment. Its FY24 net profit surged 36.4%, despite the challenging retail market.
• Gross margin reached a record high of 67.3% in 2H24 on higher purchases from loyal members. Operating cash flow surged 70.7% YoY, affirming its status as a cash cow.
• Including special dividends, FY24 payout ratio was 95%. At 75% ordinary payout for FY25, it sits on a 10.9% yield. Net cash equals 22% of the share price.

• Aequitas Research’s weekly update on the IPOs, placements, lockup expiry and other ECM linked events that were covered by the team over the past week.
• On the IPO front, we looked at Midea Group Co Ltd A (000333 CH) and Bajaj Housing Finance (BHF IN), which are two relatively large listings coming up. 
• Placement were flowing through again this week, across the region.

• A change in depreciation policy boosted reported profits in Jan-May 2024
• But Adjusted EBITDA margins have declined consistently in recent periods
• Among our growing list of questions: why hasn’t Hive Box grown faster?

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 Vanke