In today’s briefing:
- The Naspers/Tencent & Prosus/Tencent Stub: Entry Levels so Attractive It Looks Too Good to Be True
- Merger Arb Mondays (22 Jul) – China TCM, GA Pack, Huafa, Samson, CPMC, Fancl, Tatsuta, Capitol
- GAPack (468 HK): Grinding Towards a Stalemate
- A/H Premium Tracker (To 19 Jul 2024): SB Bought, NB Sold, HK Crushed Vs A-Shares
- HK Connect SOUTHBOUND Flows (To 19 Jul 2024); Tencent the Big Buy, but Few Banks and a Long Tail
- Mainland Connect NORTHBOUND Flows (To 19 July 2024): A Big Broad Sell in Third Plenum Week
- Xiaomi Corp (1810 HK): Tops India Smartphone Market; Samsung Falls to Third
- Xiaomi (1810 HK): 2Q24 Shipments – High Growth and High Market Share
- China Consumption Weekly (2024 Jul 22): Xiaomi, Guangzhou Automobile, NIO, AAPL, Starbucks
- Pre-IPO Elpiscience Biopharmaceuticals – Will Investors Still Buy in These Stories?
The Naspers/Tencent & Prosus/Tencent Stub: Entry Levels so Attractive It Looks Too Good to Be True
- Discounts likely set for a re-rating as market continues to overreact to appointment of CEO amid good set of results.
- The discounts of both Naspers and Prosus have continued to widen since the appointment of Fabricio Bloisi to Group CEO was announced in May (effective 10 July).
- At the end of June, the group released its strongest set of results in years, delivering on consolidated ecommerce profitability ahead of target.
Merger Arb Mondays (22 Jul) – China TCM, GA Pack, Huafa, Samson, CPMC, Fancl, Tatsuta, Capitol
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), China Traditional Chinese Medicine (570 HK), Asia Cement China (743 HK), Canvest Environmental Protection Group (1381 HK), Greatview Aseptic Packaging (468 HK).
- Lowest spreads: Tatsuta Electric Wire & Cable (5809 JP), Alumina Ltd (AWC AU), Fancl Corp (4921 JP), Mimasu Semiconductor Industry (8155 JP), Infocom Corp (4348 JP), Hollysys.
GAPack (468 HK): Grinding Towards a Stalemate
- Since announcing Shandong Xinjufeng Technology Packaging (301296 CH)’s pre-conditional voluntary offer for Greatview Aseptic Packaging (468 HK) at HK$2.65 per share, the gross spread has increased.
- The Board’s strategy is to rally shareholders against a hostile offer. However, the recent AGM protest votes suggest that the Board cannot easily thwart the offer.
- Shandong Xinjufeng’s renewed efforts to secure Board representation suggest that its offer is in trouble. Meanwhile, China Mengniu Dairy Co (2319 HK) seems disinclined to engage in a bidding war.
A/H Premium Tracker (To 19 Jul 2024): SB Bought, NB Sold, HK Crushed Vs A-Shares
- The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
- SOUTHBOUND inflow strong but SOEs not leading and Hang Seng down hard. Bank buying minimal. NORTHBOUND saw significant selling, but A-share indices generally strong on the week. Window-dressing?
- AH Premia rose 3.3% on average. Really bad week for H vs A as Liquid Hs underperformed their As by 4%. Stunning week really. Relative performance a sea of red.
HK Connect SOUTHBOUND Flows (To 19 Jul 2024); Tencent the Big Buy, but Few Banks and a Long Tail
- SOUTHBOUND was again a net buyer, for HK$19.2bn this week, on smallish two-way volumes. Tencent and ETFs stood out as large net buys.
- I’ve thought national team was buying banks for months. This week, no banks showed in the top five net buys, and only 1 in the top ten.
- It is somewhat perplexing that the flows just stopped. But that may be a sign of things to come. Confirmation may require a week or two.
Mainland Connect NORTHBOUND Flows (To 19 July 2024): A Big Broad Sell in Third Plenum Week
- The Quiddity Mainland Connect NORTHBOUND Monitor. Like the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor. Lots of Flows/Position Tables and Charts with which to play.
- Last week saw NORTHBOUND net SELL RMB +19.3bn of A-shares. NORTHBOUND sold everything. Consumer, Finance, and Energy hit hardest.
- Net flows as a percentage of value traded are clearly “short gamma”, but the net buys this week were of stocks previously a net sell.
Xiaomi Corp (1810 HK): Tops India Smartphone Market; Samsung Falls to Third
- Xiaomi Corp (1810 HK)‘s smartphone shipments to India surged in Q2 2024, reclaiming the top spot, while Samsung slipped to third.
- Consumer discretionary sales, including smartphones, were weak during the quarter due to elections, subdued demand, and extreme weather.
- The upcoming festive season is crucial for sales, with customers anticipating new launches and better bargains. 5G device upgrades continue to drive growth in 2024.
Xiaomi (1810 HK): 2Q24 Shipments – High Growth and High Market Share
- Xiaomi (XM)’s shipments increased by 29% YoY in 2Q24, which is the most rapid growth among the global top five.
- Xiaomi is the only clear gainer of market share among the global top five.
- We believe the stock has an upside of 35% and the target price is HK$22.30 for the end of 2024.
China Consumption Weekly (2024 Jul 22): Xiaomi, Guangzhou Automobile, NIO, AAPL, Starbucks
- Xiaomi’s global market increased to 15% in 2Q24 compared with 13% in 2Q23.
- GAC Aion began to be produced in Thailand to bypass the new tariff barriers from the US and the European Union.
- Cotti Coffee plans to extend its “RMB9.90” sales to three years.
Pre-IPO Elpiscience Biopharmaceuticals – Will Investors Still Buy in These Stories?
- Elpiscience is incubated by LAV from the very beginning.The Company has strong capital operation capabilities, but the story of “founding team’s decent background + star cornerstone investors” doesn’t work anymore.
- Elpiscience’s pipelines are still in early stage. However, investors are rational. They will no longer believe in those “good stories”, but focus more on cash flow and drug sales revenue.
- Elpiscience’s business model has raised concerns about its future product sales scale and profits.The market may not recognize the post-investment valuation of US$599 million if check the valuation of peers.
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