Daily Brief China: Playmates Toys, Chindata Group, Hong Kong Hang Seng Index, Bilibili Inc, Times China, YSB Inc, Trip.com, CNY, China Jinmao Holdings and more

In this next installment of our #webinar Wednesdays, we welcome Smartkarma Insight Provider, Nicolas Van Broekhoven, as he shares his thoughts and insights on three different small cap stock ideas. From Hong Kong to Canada, tune in as Nicolas delves deeper into stock ideas from across the globe.

The webinar will be hosted on Wednesday, 14 June 2023, 17:00 SGT/HKT.

Nicolas Van Broekhoven was on the buyside for 15 years, and most recently at a medium-sized boutique asset management firm. Having grown up in Europe, attending university in the US and living in Singapore for the last 7 years, this has given him a broad scope on the world and investing in general. He considers himself as a generalist investor with a preference for small and mid-cap companies and special situations. However, a large cap that has gone temporarily out of favor might also pique his interest. His style of investing could be categorized as more of value investor, rather than growth at any cost. Learning from Charlie Munger on the importance of quality of a company has been of tremendous value over the years. Nicolas likes businesses with real earnings, cash flows, dividends, book value and insider ownership.

• Chindata Group (CD US) disclosed a preliminary non-binding proposal from Bain Capital at US$8.00 per ADS, a 27.4% premium to the undisturbed price of US$6.28 per ADS.
• For privatisation to succeed, shareholders representing two-thirds of the shares present and voting need to approve the deal. The offeror represents 87.39% of the total voting power. 
• While the offer is unattractive, Bain Capital’s voting rights ensure that the vote will pass. The key risks are regulatory approvals and timing. 

• HSI has been our top short bet where we locked in some short gains at 18,100/300 and now see this bounce as an opportunity to re set the HSI short.
• Underlying weakness in China A shares sets the tone for HK.
• Trend and price resistance at 19,300/500 stand out as a key turn zone with a little help from an SPX give back sequence.

• Further evidence of BILI’s user base peaking reinforces our bearish view on its growth outlook.
• BILI’s business model is broken and we believe significant downsizing is unavoidable in the next 12- 18 months to achieve profitability.
• The company will survive as a leaner and slightly profitable business valued at high single-digit P/E. We still see tremendous downside from here and advise investors to avoid the stock.

• Chinese data centre outfit Chindata (CD US) has no end of alleged suitors, rumoured to include SOE-backed China Merchants, GDS (GDS US), PE outfit PAG, and EQT (EQT SS)-backed EdgeConneX.
• Now Bain Capital, Chindata’s largest shareholder with 42.17% (and 87.39% of the voting power) has made a non-binding proposal of $8/share per ADS, a 33% premium to last close.
• Chindata’s board has made no decision on the proposal. It’s hardly a knockout Offer. But the key question is whether Bain will get regular approval to take Chindata private. 

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Times China’s ESG as “Adequate”, in line with its “Adequate” Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Adequate”.

• YSB Inc (YSB HK) is a digital pharmaceutical platform serving businesses outside of hospitals in China. The company operates a self-operating business as well as an online marketplace.
• The company’s application for a HKEx IPO has been approved and according to news media outlets, the company plans to raise proceeds of around US$300-500m.
• The company’s core business; Self-operations accounts for around 95% of revenues, however, it is a low-margin business and the other businesses help absorb most of the costs.

• Q123 Net Revenue was strong, exceeding Q119 (pre-Covid) levels by over 12%
• Almost six months into recovery, Trip.com (TCOM US) has also managed SG&A expenses well
• A good result for the company, but we see no reason to alter our long-term view

• The industrial sector is exhibiting signs of a prolonged slowdown, similar to Real Estate and Household trends.
• This Note is the third in a series on China’s econChina’scovery; we update key charts and add charts relevant to the Industrial sector.
• Qingdao City on Friday reduced the deposit requirement for purchasing homes, following a trend set by several other cities.

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 Hongqiao
• China Jinmao Holdings
• Greentown China
• Times China