Daily Brief China: Poly Culture Group Corp H, Perfect Medical Health, Kelun Biotech, Swire Pacific (A), Mobvoi, Hopson Development, China Water Affairs and more

• After shares were suspended on the 20 June, art and culture play Poly Culture Group Corp H (3636 HK) has 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, which incorporates a Scheme-like vote. There is no tendering condition.
• The premium to last close is 77.6%; and a 112.5% premium to the five-day closing average. 

• Perfect Medical Health (1830 HK) reported a steady earnings growth of 3.5% YoY for FY23 despite the interruption of operations in China.
• Since its listing, the company has consistently maintained a ROCE of >25%, with FY23 being no exception. Net cash and investments at 738 mn HKD represent 18% of market capitalization. 
• The company declared a final dividend of 17 cents (Full year dividend FY23: 30 HKD cents Vs. FY22: 25 cents), representing an 8% yield with a 118% payout ratio. 

• Kelun-Biotech is a China-based integrated innovative biopharmaceutical company. The company launched a deal to  raise up to US$200m via a Hong Kong listing.
• In our previous note, we looked at the company’s product lines and provided a brief overview on the company’s valuation.
• In this note, we provide an update for the book building. We provide our quick thoughts on the valuation and deal dynamics.

• Swire Pacific (19 HK) has announced it is selling its US Coca-Cola ops to its parent for HK$30.4bn (US$3.9bn). That’s 40% of its market cap.
• Preceding my comments on Swire 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%.

• Mobvoi is a leading AI company with generative AI and voice interaction technologies at the core of its business. The company has filed for an IPO on the HKEx.
• Unlike a lot of the AI start-ups, Mobvoi has already begun commercialising its products and services and the company has started generating operating profits in 2022.
• The advent of ChatGPT and Midjourney have created a hype for AI. Mobvoi has taken the right decision to go public at the right time.

We view Hopson Development as “High Risk” on the LARA scale. Our assessment primarily reflects the company’s constantly evolving business strategy and financial risk profile. Positives include Hopson’s high-quality land bank in premium locations (acquired at low cost) and the cash-generating investment property portfolio. Margins are robust given the company’s positioning as a high-end property developer, although this also exposes Hopson to high regulatory and market risk.

Our “Stable” Credit Bias is underpinned by the company’s resilient contracted sales, which are supported by the large and high-quality land bank, improving sales and abundant saleable resources. That said, we remain cautious on Hopson’s aggressive expansion and increasing involvement in equity investments, which may be debt-funded and could introduce significant performance volatility. Controversies are “Material”, while the ESG Impact on Credit is “Moderately Negative”.

While the company’s credit fundamentals appear to be healthy, we believe its bond price could be volatile due to negative impact from weak market sentiment and poor technicals. We therefore maintain our “Hold” recommendation on the HPDLF curve.

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