Daily Brief China: Poly Culture Group Corp H, Innovent Biologics Inc, Alibaba (ADR), Li Auto , 4Paradigm, China Unicom Hong Kong, Foshan Haitian Flavouring & Food, KE Holdings , China Jinmao Holdings and more

• Back on the 27 June, art and culture play Poly Culture Group Corp H (3636 HK) announced a pre-conditional privatisation at HK$8.88 per H-share.
• This Offer from SOE Poly Group is by way of a Merger by Absorption, incorporating a Scheme-like vote. There is no tendering condition.
• The pre-cons have now been fulfilled. The Composite Document, including the H Share Class meeting/EGM date and IFA opinion, is expected to be despatched on or before the 30 September. 

• Innovent is actually not short of money, so the Placing this time looks “strange”.If Innovent is unable to deliver performance that matches expectations, investors would reconsider its future financing needs.
• Innovent is undergoing important transition from quantitative change to qualitative change as turning losses into profits is within reach. So, the “concept validation” of Innovent’s business model has been completed.
• Innovent decides to place the shares at this moment reflects that its stock price is already high. Based on our forecast, there could be limited upside room for share price.  

• News broke yesterday that Daniel Zhang is no longer leading Alibaba (ADR) (BABA US)‘s Cloud Business unit.
• The statement from Alibaba’s current chairman, in which he mentions that Zhang would “switch to a different approach and continue to fight alongside us at Alibaba” raises skepticism.
• We also think that the $1.0bn Alibaba committed to a technology fund could be seen as a form of compensation to ensure Daniel Zhang’s silence.

• With no stocks in inclusion or deletion zone, we do not expect any constituent changes for the Hang Seng TECH Index (HSTECH INDEX) in December.
• Capping changes will result in a one-way turnover of a touch below 1% and that will result in a round-trip trade of US$255m.
• The impact on the stocks is relatively small for now but that could increase till the end of November when the stocks will be capped.

• 4Paradigm is a pioneer and leader in enterprise AI. The company offers platform-centric AI solutions to enterprises that can be deployed on a large scale to support decision making.
• The company’s application for HKEx IPO has been approved and this insight focuses on new data points from the company’s latest PHIP release (dated 07th Sep 2023).
• 4Paradigm (1764934D HK) revenues have continued to expand with significant reduction in operating losses, and we remain positive on the company’s growth prospects.

• Zhongsheng Group (881 HK) is a potential deletion in December and that could result in China Unicom Hong Kong (762 HK) being added to the index.
• Estimated one-way turnover at the rebalance is 1.36% resulting in a one-way trade of HK$845m. Passives will need to trade over 1x ADV on both stocks.
• There is a very small impact on the fair value of the HSCEI 2023 dividend futures but there will be a larger impact on the dividend futures expiring in 2024.

• Foshan Haitian Flavouring & Food (603288 CH), the largest condiment player in China is facing structural weakening of moat from a changed operating environment post-COVID. 
• Both catering and home consumption segments are faced with structural growth pressures that are difficult to solve for the company. 
• Expect further earnings weakness and derating in valuation multiple in the near term. 

• 4Paradigm (1764934D HK), a leader in enterprise artificial intelligence (AI) in China, is pre-marketing a US$150-200 million HKEx IPO.  
• 4Paradigm was the largest player by revenue in China’s platform-centric decision-making AI market with a market share of 22.6% in 2022, according to CIC. 
• The bull case rests on the success in increasing key account customer numbers, net dollar expansion rates, improving revenue visibility, strong growth in application development services and reducing loss margin.

• We think the mild recovery is driven by the delayed orders in Jul. and Aug, thus expect transaction volume to be flattish MoM in Sep.
• We think the recovery is on-track and expect Oct. volume to begin recovery and expect more meaningful rebound in Mar.-Apr. 2024, supported by 1) strong leading indicators from property agents, 
• 2) refer to the recover trajectory in 2014-2015.  We maintain the stock as BUY rating and maintain TP at US$24/ADS.

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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