Daily Brief China: PCCW Ltd, Hygon Information Technology C, Eoptolink Technology , ZEEKR, Baidu, Wuxi Lead Intelligent Equipmen, Full Truck Alliance , Trip.com, China Water Affairs, China Education Group and more

• Reportedly, Chinese investors, as well as Middle Eastern sovereign wealth funds, have expressed interest in acquiring a “significant ” minority stake in PCCW Ltd (8 HK)‘s fibre ops. 
• Preceding my comments on PCCW 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%.

• There are 3 changes for the CNI Semiconductor Chips Index that will be implemented at the close on 8 December.
• This is yet another index inclusion for Hygon Information Technology C (688041 CH) – the stock continues to move higher on expected passive buying over the next two weeks.
• Over the last 6 months, the adds have underperformed the deletes but there has been a significant improvement in performance over the last 2 months.

• There will be 6 changes for the ChiNext Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index. Implementation is at the close on 8 December.
• There is a lot of overlap between the adds and deletes across both indices with the one-way trade across both indices estimated to be CNY 2.4bn.
• The adds and deletes have drifted lower over the last few months. However, the adds have outperformed the deletes significantly in the last month.

• ZEEKR (ZK US), a premium EV brand by Geely Auto (175 HK), aims to raise around US$500m in its US listing.
• Zeekr was formed in Mar 2021 as a JV between Geely and its founder. Its first model was launched in Apr 21 with deliveries starting in Oct 21.
• We have looked at the company’s past performance and valuations in our earlier notes. In this note, we talk about the updates from its recent filings.

• Baidu reported revenue/non-GAAP operating profit/GAAP net income inline/7.72%/66.1% vs. our estimation.
• We believe short term cyclical and medium term AIGC-led upswing in advertising can bridge Baidu’s long-term business, which we do see them difficult to monetize.
• We maintain a BUY rating and adjusted TP to US$157, implying a 14.6x PE. It is currently trading at 11.4x PE in 2024.

• Wuxi Lead Intelligent Equipmen (300450 CH) is looking to raise around US$300m in its upcoming Switzerland GDR listing.
• As per media reports, Wuxi Lead was said to be looking to raise US$495m via a Swiss GDR issuance, having secured approval to sell up to 78.3m shares.
• Given the decline in its share price over the year, the eventual deal size could come to around US$300m as of its current last close.

• Full Truck Alliance reported strong growth in Q3, from the right sources
• Improved sales mix & progress on expense control lifted core margins
• With 22% upside to US$9.5 based on 21x PER, our high conviction pick

• In October, the sluggish recovery in outbound tourism demand continued
• Outbound capacity growth also timid; but domestic recovery is mostly complete
• As growth stock, Trip.com’s disappointed; maybe it can attract value investors?

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.

• China Water Affairs

• China Education Group (839 HK) appears to be facing the headwinds from higher USD interest rate and reduction in capitalised interest. The intangible write-off is another drag on FY23.
• Newly registered students increased 17.8% for FY24. With better average fees, this will help the topline. Our concerns are high finance and operating costs will erode revenue growth.
• Consensus is overly aggressive and there are risks of downgrade. Earnings may re-accelerate in the future, but weaker 1H FY24F keeps us on the sideline in the short term.