Daily Brief China: Pop Mart International Group L, IntelliCentrics Global Holding, NetEase , Xiaomi Corp, Kuaishou Technology, BaishanCloud, Road King Infrastructure and more

• The thesis for Pop Mart International Group L (9992 HK) is the successful expansion of its international business, which made up 13% of sales in 1H23 but is growing exponentially. 
• This has been proved true in the latest announced 2023 results, with a 135% growth in 2023 for the international business, and a further >100% growth guidance for 2024.
• The company is trading at 24x 2024 earnings, assuming a 35% net profit growth in 2024. 

• Back on 9th Feb 2024, healthcare technology platform IntelliCentrics Global Holding (6819 HK) announced the proposed disposal of its key operations to Symplr Software Holdings for at least US$246.5mn.
• Upon completion of the sale, IntelliCentrics will declare a special dividend, then seek a listing withdrawal. A key condition to the sale was FTC/DOJ approval. That is now satisfied. 
• The sale/dividend/delisting requires a Scheme-like vote, with 72.1% of shares out supportive. This is a super-clean pseudo arb. Pushback? Very illiquid.

• Despite a disappointing 4Q2023 earnings report, NetEase (9999 HK) remains firmly amid an earnings upgrade cycle.
• With NetEase touching on being oversold, near-term momentum indicators are displaying bullish signals.
• NetEase currently trades more than one standard deviation below its rolling 5-year historic average PE ratio.

Xiaomi Corp’s FY 2023 results were better than expected in our view, with much-improved profitability. The balance sheet remains healthy, and liquidity is sound. We expect the company to continue performing well, driven by a projected recovery in the smartphone market, Xiaomi’s premiumisation strategy and strong demand in overseas markets. Global smartphone shipments remain weak, but may be bottoming out. We believe the company is well-positioned for future growth.

The smart EV development has drained less cash than we had expected so far. Xiaomi has been able to fund the investment using internal cash flow. Pricing for the SU7 (scheduled to be launched next week) has not been disclosed. The EV market in China is extremely competitive, with over 150 carmakers. Apple has exited the EV business due to a lack of competitive advantage, and Xiaomi may face the same issue. While it is unclear if Xiaomi will be successful in the EV business, we believe it may not be as detrimental to the credit as originally feared.

• Operating profit and its margin reached historical high in 4Q23.
• Monthly active user base continued to expand, which is rare for other apps.
• GMV (Gross Merchandise Value) of the live broadcasting sales increased rapidly by 29% YoY in 4Q23.

• Baishan Cloud, China’s independent edge cloud service provider, filed to go public in Hong Kong. CICC and investment bank Haitong are the lead underwriters in this offering.
• Founded in 2015, BaishanCloud (1568617D HK) is led by its CEO and Founder, Mr. HUO Tao, and a highly experienced founding team.
• I believe the company will achieve a break-even this year, coupled with a strong international expansion, potential revenue acceleration and gross margin improvement as the business continues to scale up.

Road King’s FY 2023 results were poor, with the company’s gross margin plunging to negative 5% (FY 2022: 17%). The EBITDA and net profit margins were negative 13% and negative 30%, respectively. While Road King has continued to reduce net debt, liquidity is poor. In addition, we view negatively the company’s downbeat statement of “significant debt repayment pressure due to a lack of refinancing channels”.  

We believe it is difficult to ascertain management’s willingness to honour repayments, amid the bleak business prospects. Road King has a small and dwindling land bank that might suffice for only another 1-2 years of development. Moreover, the negative gross margin suggests that the business is no longer profitable. In our view, this increases the risk that the company may opt for a holistic restructuring of the USD notes (which account for 65% of total debt) to reduce its debt load.

We move to “Not Recommended” from “Hold” on the ROADKG 6.7 ’24s.