In today’s briefing:
- Midea Group H Share Listing: AH Discount Views
- PC Partner: Relocating HQ and Listing to Singapore, 81% of Market Cap Is Cash
- FXI Rebalance: China Tower (788 HK) Will Replace CICC (3908 HK)
- China TCM (570.HK) Privatization Update- Pre-Conditions Won’t Be “An Obstacle” to the Entire Process
- China A50 ETF Rebalance: Two Adds, Two Deletes, as Expected
- GoFinTech (290 HK)/Jinhai Medical (2225 HK): Double Bubble Trouble
- China Tourism Group (601888 CH | BUY | CNY): When Falling Knife Turns into Value Investing
- Zai Lab (9688 HK): Vyvgart Is Not the De-Risking Tool; Future Is Still Uncertain
- [Atour (ATAT US, BUY, TP US$36) Review]: Retail Business Bigger and Longer than Market Thinks
- Carote Limited Pre-IPO – PHIP Updates – Recent Growth Led by International Markets
Midea Group H Share Listing: AH Discount Views
- Midea Group Co Ltd A (000333 CH), the world’s biggest home appliances maker, is premarketing an H Share listing to raise US$3 billion.
- In Midea Group H Share Listing: Latest Updates Points to a Business in Rude Health, we noted that Midea is in good health, with strong growth, margins, and cash generation.
- In this note, we examine the likely discount that Midea will offer its H Shares compared to the A Shares.
PC Partner: Relocating HQ and Listing to Singapore, 81% of Market Cap Is Cash
- PC Partner showed a significant improvement in its 1H24 results YoY.
- The company will be relocating HQ to Singapore and move its primary listing from HK to Singapore. If this move is successful, it will improve AI chips allocation from Nvidia.
- Why Singapore? PC Partner is preparing itself for a future where China/USA political relationship does not improve.
FXI Rebalance: China Tower (788 HK) Will Replace CICC (3908 HK)
- China Tower (788 HK) will replace China International Capital Corporation (3908 HK) in the iShares China Large-Cap (FXI) (FXI US) at the close on 20 September.
- The appears to be a lot more positioning and short interest in China International Capital Corporation (3908 HK) compared to China Tower (788 HK).
- The listing of Midea Group Co Ltd A (000333 CH) H-shares could result in another change for the ETF prior to the next scheduled rebalance in December.
China TCM (570.HK) Privatization Update- Pre-Conditions Won’t Be “An Obstacle” to the Entire Process
- We have seen positive progress of the privatization of China TCM, which is still considered an important project on the agenda. CNPGC’s new leadership is very supportive of the deal.
- The SAMR process has begun. There should be no problem to meet the Pre-Conditions. If the approval process takes more time, Long Stop Date would be extended.
- Considering China Resources has decided to acquire Tasly, we think the integration of TCM business by CNPGC is expected to accelerate. We remain optimistic and this deal will get up.
China A50 ETF Rebalance: Two Adds, Two Deletes, as Expected
- The iShares A50 China (2823 HK) and CSOP China A50 (2822 HK) ETFs will rebalance their holdings at the close on 20 September.
- China National Nuclear Power (601985 CH) and Huaneng Lancang River Hydropow (600025) will replace China Tourism Group Duty Free (601888 CH) and Yihai Kerry Arawana (300999 CH) in the ETFs.
- Passive trackers are estimated to buy between 0.3-0.5 days of ADV in the adds and sell between 0.4-1.1 days of ADV in the deletes.
GoFinTech (290 HK)/Jinhai Medical (2225 HK): Double Bubble Trouble
- Sanergy (2459 HK), a graphite electrode manufacturer, was added to the MSCI Small-Cap Index on 30th August; and was due to enter the Hang Seng Composite Index on 9th September.
- However, the SFC announced a concentration warning on the 2nd September. Shares promptly cratered ~98% yesterday (the 3rd September). Expect the HSCI inclusion to now be yanked.
- This Sanergy debacle should refocus investors on other heavily concentrated stocks, such as Jinhai Medical (2225 HK), in which GoFintech (290 HK) (another heavily concentrated stock) has inexplicably been buying.
China Tourism Group (601888 CH | BUY | CNY): When Falling Knife Turns into Value Investing
- China Tourism Group Duty Free Corp Ltd (601888 CH) (CTG) share price on downtrend due to negative sentiment, increased competition, and Chinese being more frugal in their consumption
- 2024 and 2025 consensus earnings declined by -2%/-17%, but CTG will deliver +16% YoY earnings growth in 2025. CTG remains a growths stock, a fact we think many investors forget!
- We revise our target price to CNY71.3 pegged to 18.5x FY25 PE (1.5 standard deviation below mean). We think the share price decline is overdone and ignores its strong fundamentals.
Zai Lab (9688 HK): Vyvgart Is Not the De-Risking Tool; Future Is Still Uncertain
- Zai Lab (9688 HK) recorded Vyvgart revenue of $10M, $13M, and $23M in 4Q23, 1Q24, and 2Q24, respectively. The company raised 2024 Vyvgart revenue guidance to $80M from $70M earlier.
- Despite strong momentum from Vyvgart, Zai Lab still has a lot of pain points. Decelerating revenue growth from Zejula is one of them.
- Due to its in-licensing business model, Zai Lab has lower gross profit margin of 64–65%, compared with ~80% for a typical innovator biotech company.
[Atour (ATAT US, BUY, TP US$36) Review]: Retail Business Bigger and Longer than Market Thinks
- Atour (ATAT) reported C2Q24 revenue 2.2%/8.3% higher than our est./cons., and non-GAAP NI 6.8%/12.3% higher than our est./ cons, driven by stronger hotel supply chain sales and better retail efficiency.
- We keep 2024 revenue growth estimate at 53% YoY vs. the uplift company guidance at 48%-52% YoY. Potential catalysts are stronger off-season travel,old hotel renovation scheme, and new brand launch.
- We keep TP unchanged at US$36/ADS and maintain the BUY rating.
Carote Limited Pre-IPO – PHIP Updates – Recent Growth Led by International Markets
- Carote Ltd (CARO HK) is looking to raise around US$120m in its upcoming Hong Kong IPO.
- Carote Ltd is a distributor of kitchenware products. Expanding its lineup of products, Carote aims to meet its customers’ varied kitchen scenarios and enhance their culinary experience.
- We had looked at the firm’s past performance in an earlier note. In this note, we discuss its PHIP updates.
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