In today’s briefing:
- Pinduoduo (PDD US): Resetting Expectations
- Quiddity Primer for CSI 300/500 Index Rebalance Events
- China Resources Beer (291 HK): High Visibility; Steady Growth; Reasonable Valuation
- Huawei Launches AI for Commercial Use in Mining Sector
- China Gas Holdings (384 HK): Worth a Bet Now
Pinduoduo (PDD US): Resetting Expectations
- We think the tailwinds of China’s consumption downgrade for PDD are overblown, while TEMU will be more of a drag than a support for bottom-line in quarters ahead.
- 2Q results to be announced next month will finally validate our thesis on the company’s earnings risk which we flagged back in last December.
- The markets have been pricing in a sharp slowdown after a short-lived euphoria around its seemingly strong 1Q results, yet downside surprises could still catch investors off guard. Stay neutral.
Quiddity Primer for CSI 300/500 Index Rebalance Events
- CSI 300 represents the 300 largest stocks by market capitalization and liquidity from the entire universe of Shanghai and Shenzhen Stock Exchanges. CSI 500 represents the next largest 500 names.
- During the periodic index rebalance events, a large number of stocks move into or out of these indices giving rise to significant flow events and attractive trading opportunities.
- In this insight, we take a brief look at the index selection methodology and the historical price and volume performance of the CSI 300/500 index rebalance baskets.
China Resources Beer (291 HK): High Visibility; Steady Growth; Reasonable Valuation
- China Resources Beer Holdings (291 HK) is a USD21bn red-chip company, and the largest beer company in China in terms of sales volume.
- The company is a perfect fit for the GARP (growth at a reasonable price) strategy, and visibility in earnings is also high for the next 3-5 years.
- Weak sentiment in H-share stocks and in overall China macro/consumption numbers provide a good entry opportunity for the stock.
Huawei Launches AI for Commercial Use in Mining Sector
- Huawei Technologies Co. Ltd. on Tuesday launched the first commercial use of its artificial intelligence (AI) large language model (LLM) Pangu for the mining industry, as it seeks to make use of the next-generation technology to improve the sector’s safety and productivity.
- Developed in partnership with state-owned Shandong Energy Group Co. Ltd. and its unit Yunding Technology Co. Ltd. (000409.SH), the Pangu Mine Model has been deployed in the coal giant’s mines in East China’s Shandong province, Huawei said in a press release Wednesday.
- It also touted the launch as the world’s first commercial large AI model for the energy sector.
China Gas Holdings (384 HK): Worth a Bet Now
- Dismal share price performance for China Gas Holdings (384 HK) has created an opportunity for bottom fishing. Management also looks positive with 30% profit growth guidance for FY23.
- There are rooms for good dollar margin recovery, unit sales rebound and improvement in free cash flow in FY24. Spin-off of value-added services is also a value-enhancing move.
- De-Rating over the last three years has put the stock on undemanding multiples of 8x PER and 0.75x P/B. Its 14.8% 3-year EPS CAGR is also better than sector average.
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