Daily Brief China: New World Development, J&T Global Express, China Oil And Gas, Concord Healthcare Group, CALB Group and more

• New World Development (17 HK) nudges an all-time low P/B and implied stub; as the privatisation of NWS Holdings (659 HK) moves gradually forward. 
• Preceding my comments on NWD/NWS are the current setup/unwind tables for Asia-Pacific Holdcos
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• J&T Global Express (1936374D CH), a leading express delivery business in Southeast Asia and China, is pre-marketing a HKEx IPO to raise US$500 million, according to press reports.   
• We previously discussed the IPO in J&T Global Express IPO: The Bull Case and J&T Global Express IPO: The Bear Case. 
• The PHIP filing favours the bull case due to a return to organic growth across the main geographies, maiden profitability, stabilization in contract liabilities and declining FCF burn.

We view China Oil and Gas (COG) as “Medium Risk” on the LARA scale. This takes into account: [1] regulatory risk, with the company having experienced over three years of delays in cost pass-throughs for tariffs in Qinghai (albeit these have since been resolved); [2] COG’s exposure to oil price volatility in the small upstream oil & gas segment; and [3] the company’s track record of aggressive debt-funded acquisitions, albeit management has said that it is not keen on increasing indebtedness for expansion or acquisitions.

COG’s main asset is its 51% interest in downstream gas provider China City Natural Gas, with the remaining 49% held by Kunlun Energy, a subsidiary of SOE PetroChina. Hence, cash leakage from dividends is significant. We believe the relationship with Kunlun helps secure COG’s gas supply and improves the company’s ability to obtain gas distribution concessions. In addition, PetroChina’s parent, China National Petroleum Corporation, previously provided financing to CCNG at competitive rates.

Our Credit Bias on COG is “Stable”, given the company’s solid revenue growth from natural gas sales and distribution, despite volatilities associated with the upstream oil exploitation and production business. COG has historically maintained a sound liquidity profile and reasonable access to funding. That said, we remain cautious over the financial performance of Shandong Shengli (for which COG is the single largest shareholder at 22%). This is as COG has provided guarantees for Shengli’s banking facilities, which could impact COG’s credit profile.  

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”.

• Concord Healthcare Group (CHG HK)’s hospital business is not strong enough to contribute strong performance consistently, leading to unsatisfactory profit margin considering its weak hospital operation and management capability.
• The network business could face some legal risks based on our analysis. In the context of anti-corruption campaign in China healthcare, Concord’s business and patients flow could be affected.
• Together with potential policy risks such as DRGs/centralized procurement, we tend to be conservative about Concord’s outlook. In terms of valuation, Concord’s valuation should be lower than Inkon Life Technology.

• CALB Group (3931 HK) raised around US$1.2bn in its Hong Kong IPO in Oct 2022. The lockup on its pre-IPO shareholders will expire tomorrow.
• CALB undertakes design, R&D, production and sales of EV batteries and Energy Storage Systems (ESS) products in China.
• In this note, we will talk about the lock-up dynamics and updates since our last note.