Daily Brief China: New World Development, Xingda International, Midea Group Co Ltd A, Baidu, Samvardhana Motherson Automotive Systems Group BV, NetEase , Medco Energi, Shui On Land and more

• 0.08x P/B. That’s where New World Development (17 HK) is currently trading. Less than half the P/B of the next comparable real estate peer.
• So, what’s going on? Announcing an expected HK$19-20bn loss for FY24 last week didn’t help matters. Shares are down 14% this week and 85% since Covid.
• Landlords need to drastically cut rents to jumpstart the retail sector. That translates to further impairment losses for property developers. 

• Back on the 7 Dec 2023, Xingda International (1899 HK)  announced a partial Offer from a consortium comprising management at HK$1.88/share.
• The consortium, at the time, held 45%, with the objective to hold >50.01% at the close of the Offer. The final % was 50.42%. 
• The consortium was then free to take their stake up to 75%. However the shareholder structure has materially changed in 2024. Xingda is suspended (again) pursuant to the Takeovers Code.

• Xingda International (1899 HK) entered a trading halt pending the release of an announcement under the Hong Kong Code on Takeovers and Mergers. 
• Significant changes in substantial shareholders have occurred since the previous partial offer closed on 10 March 2023, which could be the catalyst for an offer. 
• Management is likely reloading a partial offer to exercise statutory control and bypass the 2% creeper rule. The partial offer price could be around HK$1.60-1.70 per share. 

• Chinese appliance maker Midea’s application to list its shares on the HKEx has been approved and the company plans to list up to 10% of its shares to raise $4bn.
• Midea Group Co Ltd A (000333 CH)  has a diversified product portfolio,  well-balanced exposure to domestic as well as overseas markets and M&A’s that have helped significantly grow its business.
• Our analysis on previous secondary listings of Chinese-listed companies on HKEx shows that the HK listings were priced at a significant discount to their A-Shares.

• Baidu has reported its financial results for the second quarter of fiscal year 2024, showcasing resilience with its Baidu Core which posted a modest revenue growth to RMB 26.7 billion.
• This growth was driven by the accelerating performance in the AI Cloud sector, which somewhat counterbalanced the drag provided by the online marketing segment.
• Notably, there was an 8% year-over-year increase in non-GAAP operating profit for Baidu Core, reflecting continued operational efficiencies.

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.

• Samvardhana Motherson International Ltd
• West China Cement
• Yuexiu Property

• NetEase’s 2024 second quarter earnings report revealed considerable strategic progress, although accompanied by some operational challenges typical for a growing enterprise.
• The company reported a total revenue of RMB 25.5 billion, indicating a 6% year-over-year increase, driven largely by the success in its gaming division and expanded efforts in international markets.
• Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.

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.

• Greentown China
• Medco Energi

Shui On Land’s (SOL) H1/24 results were weak, as the company reported reduced earnings, higher net debt and weaker leverage. Positively, rental income continued to grow. As a result, recurring operating income from rentals and property management covered 0.9x of interest expense for LTM June (FY 2023: 0.8x). In addition, asset values were stable, with consolidated investment properties covering 1.7x of net debt. We expect cash flows to improve in H2/24, supported by the planned delivery of two projects.  

That said, liquidity is poor. We view negatively management’s cautious tone during the earnings call. Going forward, we believe that SOL could seek to monetise its 100% stake in its property investment and management arm, Shui On Xin Tian Di. In addition, the company may raise fresh funding by further increasing the LTV on its investment property portfolio to the maximum of 45%, albeit this is uncertain (depending on its arrangements with banks). SOL may also carry out more asset sales.

Meanwhile, we believe that the company may be considering potential liability management exercises for the USD bonds in the event it fails to obtain sufficient financing for repayment.