Daily Brief China: Midea Group Co Ltd A, Tencent, Hengan International Group, Geely Auto, Orient Overseas International, Jiangsu Hengrui Medicine, Samvardhana Motherson Automotive Systems Group BV and more

• Midea Group Co Ltd A (000333 CH) priced its H Share at HK$54.80 to raise HK$31,014 million (US$4.0 billion) in gross proceeds. The H Share will be listed tomorrow.
• The H Share listing price implies an AH discount of 21.4% at the A Share price of RMB63.51. This compares to Haier Smart Home (6690 HK)‘s AH discount of 13.8%.
• Futu grey market data shows that the H Shares closed 5.1% higher at HK$57.60. Our valuation analysis suggests that the H Share listing price is attractive.

• Midea Group Co Ltd A (000333 CH) raised around US$4.6bn in its H-share listing (including over-allocation), after the deal was upsized.
• Midea Group is one of the world’s largest home appliance manufacturing companies with a presence in over 200 countries. Its A-shares have been listed since 2013.
• We have covered the deal background in our previous notes. In this note, we talk about the trading dynamics.

• Alibaba’s Taobao and Tmall apps decide to accept WeChat Pay, the online payment way from Tencent.
• JD announced that it will raise employee salaries up to 20 months within two years.
• Hive Box, the market dominator of parcel locker in China, submitted its IPO proposal.

• Hong Kong Conglomerate Sector is showing renewed strength with Materials and Energy under pressure.  HK market 30 day volatility at 5 year low as market continues to de-risk.
• Hengan International Group (1044 HK) chart broke down from its Descending Triangle pattern after reporting its 1H24 results. J&T Global Express (1519 HK) broke down from its double bottom pattern.
• China Galaxy Securities (H) (6881 HK) price relative to the MSCI China index broke to a new high.  The company reported good results in a difficult environment for China brokers.

• The sales volume growth rate began to accelerate in August.
• Geely’s revenue grew strongly by 39% YoY in 2Q24 and 47% YoY in 1H24.
• The operating margin had improved YoY for the past one year and a half.

• Orient Overseas International (316 HK) sits on decent yields of 12% for FY24 and 9.6% for FY25. Its net cash (66.2% of the share price) can support such dividends.
• Despite the retreat from the recent peak, the spot freight rates are 9.7% and 145% higher than 1H24 and 2H23 respectively, pointing to better 2H24 earnings.
• Operationally, it recorded the first YoY realised rate increase in 2Q24 after 6 quarters of consecutive decline. Its load factor also grew 2.3pp YoY in the quarter.

• On the surface, it seems that Hengrui’s performance growth in 24H1 is very high, but if excluding the upfront payment from Merck, the Company’s performance actually falls short of expectations.
• Our forecast of revenue growth in 2024, 2025, 2026 (excluding Merck’s upfront payment) is 12% YoY, 8% YoY, 15% YoY, respectively. By 2026, Hengrui may still suffer from VBP.
• Hengrui is overvalued and reasonable P/E is about 30 (or lower). We also don’t think Hengrui’s valuation should be higher than that of BeiGene. Current high valuation cannot be justified.

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.

• Meituan
• Samvardhana Motherson International Ltd