In today’s briefing:
- Prosus/Naspers – The ουροβóρος Is Dead! Long Live The Ouroboros!
- Final Hang Seng Index Flows for 1 Sep Rebal (AAC, EastBuy, BABA, Sinopharm, Trip.com)
- HSI, HSCEI, HSTECH: Rebalance Flows Post Capping (Sep 2023)
- Pinduoduo (PDD): 2Q23, Revenue Significantly Higher Than Consensus, Buy
- Shougang Fushan Resources (639 HK): Partial Offer Is Unconditional
- Chongqing Hongjiu Fruit Lockup Expiry – Price Has Come Back Down to Earth but Expect More Selling
- EQD | Hang Seng Index (HSI) WEEKLY Weak Bounce: Resistance Analysis
- Wuliangye (000858 CH): Classic Value Trap
- ZTO Express Q2 Results: Strong on Volume | Weak on Price | Margins Up in Q2, But H2 Much Tougher
- Shenzhen Intl (152 HK): Brighter Outlook in 2H23 Not to Be Overlooked
Prosus/Naspers – The ουροβóρος Is Dead! Long Live The Ouroboros!
- Shareholders of Prosus NV (PRX NA) and Naspers (NPN SJ) approved AGM agenda items late last week to enable the two Capitalisation Issues and Naspers’ Share Consolidation to move forward.
- What Will Happen: Prosus will issue new N shares to its shareholders and Naspers will reject them. Naspers will issue new shares to its shareholders, and Prosus will reject them.
- Naspers will own ~42.9% of Prosus, Prosus will own 0.02% of Naspers. Sales of Tencent shares will continue. Share Buybacks too. But the ouroboros will have spit out its tail.
Final Hang Seng Index Flows for 1 Sep Rebal (AAC, EastBuy, BABA, Sinopharm, Trip.com)
- The Hang Seng announces changes along with prospective flows 2wks before the actual change. Capping flows are calculated off the close three days before implementation. That was today.
- There have been some minor movements in the rankings. Nothing major. There is still just over US$1bn to trade, one-way.
- Enclosed are totals for each of the three major indices (Hang Seng, HSCEI, and HS Tech) and then netted flows. The biggest is US$470mm of BABA to sell. Spreadsheet attached.
HSI, HSCEI, HSTECH: Rebalance Flows Post Capping (Sep 2023)
- The September rebalance of the HSI, HSCEI and HSTECH indices will use today’s closing prices to cap the index constituent weights at 8%. This will lead to large flows.
- The largest passive inflows will be on East Buy (1797 HK), JD.com (9618 HK), Ping An (2318 HK), Sinopharm (1099 HK), BYD (1211 HK), Lenovo (992 HK) and Trip.com (9961).
- The largest passive outflows will be on Alibaba (9988 HK), Li Auto (2015 HK), Meituan (3690 HK), AAC Technologies (2018 HK), Kuaishou (1024 HK), COGARD (2007) and CG Services (6098).
Pinduoduo (PDD): 2Q23, Revenue Significantly Higher Than Consensus, Buy
- PDD’s revenue increased by 66% YoY to RMB52 bn, significantly higher than the market consensus RMB43 bn.
- The operating margin declined to 24% in 2Q23 from 28% in 2Q22 due to aggressive expansion outside China.
- We believe the stock still has an upside of 47% for year end 2023. Buy.
Shougang Fushan Resources (639 HK): Partial Offer Is Unconditional
- Shougang Fushan Resources (639 HK) shareholders approved the partial offer to acquire a maximum of 125.0 million shares (2.47% of outstanding shares) at HK$2.40 per share and the whitewash waiver.
- The partial offer is now unconditional and will close on 12 September. Considering the irrevocables not to tender, a 100% minority participation rate implies a minimum proration of 2.98%.
- If the partial offer’s acceptance rate mirrors today’s general meeting minorities participation rate of 63.6%, it would imply a minimum proration of 4.69%.
Chongqing Hongjiu Fruit Lockup Expiry – Price Has Come Back Down to Earth but Expect More Selling
- Chongqing Hongjiu Fruit (6689 HK) was listed on 5th Sep 2022, where it raised around US$71m in its Hong Kong IPO. Its one-year lockup will expire on 4th Sep 2023.
- Chongqing Hongjiu Fruit (CHJF) is a multi-brand fresh fruit distributor in China with an end-to-end supply chain. As per CIC, it was the largest fruit distributor by revenue in 2022.
- In this note, we will talk about the lock-up dynamics and updates since our last note.
EQD | Hang Seng Index (HSI) WEEKLY Weak Bounce: Resistance Analysis
- HSI reversal was overdue, but the bounce looks weak: so far it did not even reach Q1 resistance on week 1 and on week 2 (current).
- Resistance level to watch where the current bounce could end is 18874, or any price around that area at Close, at the end of this week. High probability SHORT.
- If some unexpected catalyst pushes the index to rally, look for resistance at 19459 on week 3, we think this won’t happen but a tail is always possible.
Wuliangye (000858 CH): Classic Value Trap
- Wuliangye Yibin Co Ltd A (000858 CH), the second largest Chinese liquor company in China, trades at one of the lowest PE multiples in the space.
- Kweichow Moutai (600519 CH), the largest Chinese liquor company trades at 26x 2024 expected earnings, and most other listed Chinese liquor names trade above 20x 2024 expected earnings.
- Upon closer look, Wuliangye is actually a classic case of value trap – slow growth with no change or slowly deteriorating PE multiples.
ZTO Express Q2 Results: Strong on Volume | Weak on Price | Margins Up in Q2, But H2 Much Tougher
- Solid Q2 results from ZTO, with deep unit cost reductions offseting weak pricing
- But ultimately, Q2/H1 results are merely in-line with guidance — not better, nor worse
- In this environment, it’s difficult to see what will move ZTO out of recent trading range
Shenzhen Intl (152 HK): Brighter Outlook in 2H23 Not to Be Overlooked
- Poor 1H23 result at Shenzhen International (152 HK) should have been anticipated, and we believe there is good room for sharp earnings improvement in 2H23.
- Completion of logistics projects, more asset value realisation (through REIT and private equity funds), contribution from Yicheng Qiwanli and lower finance costs should underpin outlook.
- SZI is an asset play with significant upside and this is reflected in the undemanding 0.42x P/B. Against its historical average of 0.67x, such a level is almost -2SD below.
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