In today’s briefing:
- Offshore China ETFs Rebalance Preview: Two Changes in September
- China Catering Sector: Positioning for Interim Results
- CKA (1113 HK): A Strong Conglo, Focus on Capital Mgmt & Consistently Create Value for Shareholders
- Shortlist Of High Conviction Ideas: Income, Value, and Margin of Safety – August 2023
- Yuexiu Property – Tear Sheet – Lucror Analytics
- China Traditional Chinese Medicine (570.HK) 23H1-Positive Profit Alert Reinforce Optimism About 2023
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Offshore China ETFs Rebalance Preview: Two Changes in September
- As of 1 August, there could be two changes for the iShares A50 China (2823 HK)/ CSOP A50 (2822 HK) in September.
- There should be over 1x ADV to buy on NARI Technology Co Ltd A (600406 CH) and over 1x ADV to sell on Shaanxi Coal Industry (601225 CH).
- There are a few stocks bunched around similar market caps among the potential adds and there could be changes to the list over the next few weeks.
China Catering Sector: Positioning for Interim Results
- Positive profit alerts from both Jiumaojiu and Haidilao reflect strong gain in operating efficiency but also point to looming growth deceleration as brands mature.
- We see valuation more reasonable due to a combination of sector de-rating in 1H23 and higher visibility into earnings recovery post these profit alerts.
- Yum China remains best long-term play in China catering sector in our view. While both Haidilao and Xiabuxiabu present trading opportunity, we are still cautious about Jiumaojiu.
CKA (1113 HK): A Strong Conglo, Focus on Capital Mgmt & Consistently Create Value for Shareholders
- CKA is a well diversified conglomerate with residential DP and IP (office and retail) in HK and China, with sizable business in UK (pubs) and infra assets in EU
- CKA focuses on capital mgmt (share buybacks, M&As, disposals), and consistently unlock value for shareholders. CKA is in net cash, its strongest balance sheet position for 20 years
- Valuation is extremely compelling. We recommend CKA as a long-term buy and hold for investors and traders
Shortlist Of High Conviction Ideas: Income, Value, and Margin of Safety – August 2023
- We compile our selection of small and mid-cap names with our desired characteristics of high dividend yields, value, and margin of safety.
- Our top picks are Perfect Medical Health (1830 HK), Water Oasis (1161 HK), Taste Gourmet (8371 HK), Uchi Technologies (UCHI MK), and The Keepers Holdings (KEEPR PM).
- We expand our list coverage into Multi Bintang Indonesia (MLBI IJ), Delta Djakarta (DLTA IJ), and Sheng Siong (SSG SP) as quality high ROCE names worth looking at.
Yuexiu Property – Tear Sheet – Lucror Analytics
We view Yuexiu Property (YXP) as “Low Risk” on the LARA scale. Our assessment takes into account the company’s: [1] parental support from Guangzhou Yuexiu (GYX), which is an SOE; [2] sound operating track record; [3] good contracted sales performance; and [4] geographical diversity, with a focus on the Greater Bay Area. These are balanced against weak market sentiment and a change in government policy.
Our fundamental Credit Bias on YXP is “Stable”. We expect its near-term credit profile to be supported by stable sales and cash collection, with Transit-oriented Development being a key factor underpinning the company’s growth. While YXP likely has limited room for margin improvement given the industry trends, we believe YXP could still outperform most of its competitors in terms of profitability. In addition, we expect the developer to have good funding access, given parent GYX’s SOE status and close relationship with the municipal government.
Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”.
We maintain our “Buy” recommendation on the YUEXIU curve. We like the company’s fundamentals and its support from GYX. We also expect YXP’s near-term credit profile to be supported by stable sales and cash collection.
China Traditional Chinese Medicine (570.HK) 23H1-Positive Profit Alert Reinforce Optimism About 2023
- The rebound of China TCM’s performance in 23H1 could be mainly driven by its core concentrated TCM granules business as well as the recovery of other businesses after China reopens.
- We analyzed the potential performance changes that may occur in 23H2. The full year performance of 2023 will be worth looking forward to. We expect the share price to rebound.
- TCM VBP is always an issue. Due to the high base in 2023, the YoY performance growth in 2024 could decline, which may put pressure on valuation at that time.