Daily Brief China: Piotech , CIMC Enric Holdings, Playmates Toys, Sinotrans, NetEase Inc, Meituan, Hainan Meilan International Airport, Trip.com, Wuxi Biologics, Longfor Properties and more

• As expected, the index committee has used a 6-month minimum listing history and that results in two changes to the SSE STAR50 (STAR50 INDEX) in September.
• Piotech (688072 CH) and Hwatsing Technology (688120 CH) will replace Suzhou Nanomicro Technology (688690 CH) and Zhuhai CosMX Battery (688772 CH) in the index.
• One-Way turnover is estimated at 2.83% and will result in a one-way trade of CNY 3,562m. There does not appear to be a lot of pre-positioning on the stocks.

• We like the 17.7% core earnings growth for CIMC Enric Holdings (3899 HK) as this has demonstrated its operating strengths under a challenging environment in 1H23. 
• With orders on hand of Rmb20.6bn (+18.8% YoY), we see forward earnings well-covered. Also, management has turned even more positive on earnings and margin outlook in 2H23. 
• The hydrogen energy business maintains solid momentum with order backlog surging 116.9%. The spin-off of CIMC Safeway Technologies on the ChiNext Board is a near-term catalyst.

• Playmates Toys (869 HK) reported strong 1H23 results on the back of initial demand for TMNT toys. Revenues were up 30% and operating profits increased 3x.
• Management remains optimistic for 2H23 on the back of continued excitement for TMNT movie and follow-up series on Paramount+.
• Playmates Toys trades at 5x FY23 P/E and >1x P/E on an ex-cash basis. The company also declared another 2c interim dividend.

• The 1H23 result of Sinotrans (598 HK) is unexciting as recurring profit contracted 9.8%. The decline has also accelerated to 13.5% in 2Q23, from just 4.6% in 1Q23. 
• Weak export (-14.5% YoY in Jul) and poor airfreight price (-45% YoY in Jul) did not bode well for profitability. The flattening of DHL-Sinotrans’ contribution also limits earnings upside.
• Valuations are inexpensive at 5.3x PER and 9% yield for FY23, but growth outlook is not encouraging. We think it is a good time to take money off the table.

• NetEase’s 2Q rev. miss cons. by (3.08%) and non-GAAP net income beat cons by 50.6%.
• We anticipate that former legacies will continue to be under pressure. However, the 3Q23 is expected to show strong performance with new titles like “Justice Mobile” and “Racing Master.”
• We have raised our annual revenue expectations for “Justice Mobile” and maintain an optimistic view of NetEase’s upcoming pipeline. We increased to TP US$ 105, implying 17x PE in 2023

• Meituan reported CY2Q23 rev./non-IFRS net income in-line/70% vs. cons., and in-line/28% vs. our estimate. Increased spending on in-store competition was offset by abundant rider supply that lowered food delivery cost. 
• We raise our 3Q net margin est. by 3ppts as (1) the in-store counterattack against Douyin has been a success, (2) CGB spending to counter Duoduo Maicai has remained restrained.
• Initial results of the in-store counterattack showed positive results, while FD margin continues to benefit from ample riders. We maintain Meituan’s BUY rating and HK$ 165 TP.

• 1H23 results missed our expectation because stronger-than-expected revenue was outweighed by surge in operating costs as company took from its parent the overall operation of Phase I and II.
• We expect slow recovery in duty-free sales and elevated cost base will continue pressuring its bottom line in 2H23 and see possibility to return to profitability by 1H24.
• While recent share price correction has priced in the weak outlook somehow, we can’t rule out further volatility post results. We are now neutral on the stock.

• Compared to depressed traffic from last year, outbound travel in July was up dramatically; strong M/M growth versus June suggests the outbound recovery still has legs 
• Does China’s relaxation of group travel to Japan and Korea matter? We offer context and conclude the change is helpful, but not a “game-changer” for overall travel demand
• We also review July domestic traffic and preview Trip.com’s Q2 results (out Sept 4th)

• The market is clearly satisfied with WuXi Bio’s interim results. Growth of both non-COVID revenue and new projects were beyond expectations. This makes us look forward to 2023 full-year result.
• There’s a significant strength gap between WuXi Bio and Lonza/Samsung Biologics in undertaking commercial-stage orders, which puts WuXi Bio at a disadvantage in competition,making it more vulnerable to financing environment.
• It’s not impossible to restore the high growth before COVID,but WuXi Bio needs to meet two conditions.Instead of betting on a V-shaped reversal, it’s wiser to take profits in time.

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.

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