Daily Brief China: PC Partner, Hang Lung, Leapmotor, Alibaba (ADR), Bilibili, Onewo Space-Tech, China Communications Construction, Burning Rock Biotech, Fosun International, Beijing Continent Pharmaceuticals and more

• Pc Partner reported a strong set of 1H22 results last week and held a conf call with investors this week. Importantly, management sees no impact by US/China Nvidia AI situation.
• 3Q22 results will be weak as old inventory is being discounted in front of the launch of RTX 40 by NVIDIA Corp (NVDA US) in early 4Q22.
• Stock is unlikely to rally before more clarity on inventory situation improvement, but well supported by net cash (5.4 HKD) and high interim dividend (11.4%). 

• Hang Lung (10 HK) recently announced it had acquired 1.3% in Hang Lung Properties (101 HK) over a one-year period, increasing its holding to 59.5%.
• HLG currently trades at a 62% discount to NAV, a level last seen around the Covid lows in May 2020.
• HLG is the most basic of Holdco structures – there is almost a 100% overlap in the stub ops with HLP’s property investments. 

• Leapmotor (LM) aims to raise around US$1.5bn in its Hong Kong IPO. LM is a smart EV company based in China, founded in 2015.
• As of end Jun 22, it had delivered a total of 104,829 cars with most of its sales coming from its mini units, T03.
• In our previous note, we spoke about the company’s past performance,  PHIP updates and undertook a peer comparison. In this note, we will talk about valuations.

• Two big headlines drove the short squeeze, helped by the record level of short selling as a percentage of total volume in recent months.
• The recovery remains a low volume rally and short turnover as share continues to be high.
• Most of the short selling remains in Index ETF and very large-cap stocks.

• In 2Q22, we believe revenue will grow fast, especially for value added service and advertising.
• We believe operating loss will shrink, but far from making profit.
• We believe the stock has an upside of 18% for the end of 2023.

• Onewo Space-Tech (ONEWO HK), China Vanke (000002 CH)’s property management unit, has begun pre-marketing a US$2.0 billion HKEx IPO.
• Onewo ranked first in China’s property management services market as measured by revenue from basic property management services, with a market share of 4.28% in 2021.
• The key elements of the bull case rest on the solid financial health of the parent, strong growth, growth runway from undelivered GFA, share gains, renewal rates and cash generation.

• China Communications Construction (1800 HK) should see positive new contract momentum in 2H22. We also expect softening in cost pressure to bring about better margin. 
• It is actively looking to recycle and realise the value of its assets and good progress are expected in 2H22. Such moves will narrow the currently deeply discounted 0.18x P/B. 
• With order backlog amounting to 4.6x of annualised 1H22 revenue, earnings prospects are well secured, making its FY22F PER of 2.6x and FY23F of 2.3x very cheap.

• Burning Rock Biotech (BNR US) has announced Q2 results. Despite the negative impact from COVID-related restrictions in China, revenue increased 3% y/y to RMB130.8 million, driven by pharma R&D service.
• Gross margin deteriorated due to unfavorable revenue mix and inventory write down. Even upon this, operating expenses grew 19%, thereby widening net loss to RMB262.1 million.
• Encouraged by ongoing business volume recovery, management has reiterated full-year 2022 revenue guidance of approximately RMB620 million, indicating H2 2022 revenue of RMB354 million, which represents 29% y/y growth.    

Fosun International’s H1/22 results appear to be reasonable, with higher revenue but lower earnings. The reported credit metrics are not very representative of the credit profile in our view, given the company’s investment holding nature. Thus, it is difficult to assess Fosun’s credit health. However, we take some comfort from the rate of divestments, which is outpacing the rate of investments. Reported liquidity on a consolidated basis seems adequate. That said, we have no visibility on liquidity at the holdco.

Still, we highlight that Fosun has major assets to be sold, especially those without ample synergies. The company has accelerated its asset sale process since 2021. However, it cannot name the assets currently, as details of the transactions are still confidential. Moreover, Fosun does not wish to affect the morale of employees at these assets. The asset disposals are focused on non-core assets, which are typically not listed.

• With favorable policies and improved intellectual property protection, investors’ attitude towards rare diseases in China has changed significantly and become more interested in this field.
• Since no new candidates would be commercialized until 2024, Beijing Continent Pharmaceuticals (CPH HK) could face increasing competition and financial pressure. The breakthrough point is to develop overseas markets.
• In terms of valuation, Continent is better than CANbridge Pharmaceuticals (1228 HK), so it is expected to have higher valuation than CANbridge after listing.