Daily Brief China: Samsonite, ZJLD Group, AVIC (Chengdu) UAS Co Ltd, JD Industrials, Beijing Kingsoft Office Software-A, Horizon Construction Development, Tata Motors Ltd, Bilibili Inc and more

• Hang Seng Indexes has started a consultation on the eligibility of Foreign Companies in the Hang Seng Index, a review of the seven Industry Groups and number of HK constituents.
• We agree that foreign companies should be added to the index, no change needed to the Industry Groups, and the cap on the number of HK constituents should be removed.
• There are a few potential adds due to the removal of the cap on HK companies, while there are potential foreign company additions later this year or in 2024.

• ZJLD Group (ZJLD HK) raised around US$676m in its Hong Kong IPO.
• ZJLD Group (ZJLD) is a Chinese liquor company primarily producing baijiu.
• In this note, we will talk about the trading dynamics and valuation.

• ZJLD Group (ZJLD HK) priced its IPO at HK$10.82 per share to raise net proceeds of HK$5.0 billion (US$636 million). The shares will start trading tomorrow.
• We previously discussed the IPO in ZJLD Group IPO: The Bull Case, ZJLD Group IPO: The Bear Case and ZJLD Group IPO: Valuation Insights. 
• We expect a muted debut as A Share baijiu peers have derated since the release of the prospectus. The shares remain attractive at the IPO price. 

• The review period for the June rebalance ends 28 April. We expect the changes to be announced 26 May with the implementation taking place after the close on 9 June.
• Using a 12-month minimum listing history results in no index changes. Using a 6-month minimum listing history results in two changes – we think this is what will be used.
• The potential adds have outperformed the potential deletes but both sets of stocks have underperformed the SSE STAR50 (STAR50 INDEX) and the CSI Smallcap 500 Index – Shanghai (SH000905 INDEX). 

• JD Industrials is looking to raise about US$1bn in its upcoming HK IPO. 
• JD Industrials (JDI) is a leading industrial supply chain technology and service provider in China in terms of GMV in each year during the Track Record Period, according to CIC.
• In this note, we talk about the not-so-positive aspects of the deal.

• With 2 trading days left in the review period, we see 7 potential adds/5 potential deletes in June. However, there can be a maximum of 5 changes at a rebalance.
• We estimate one-way turnover of 5.58% at the June rebalance leading to a one-way trade of CNY 4.22bn. Index arb balances could increase the impact on the stocks.
• The potential adds have outperformed the potential deletes over the last couple of months and have underperformed over the last week.

• Horizon Construction Development (1887128D HK)/HCD, a subsidiary of Far East Horizon (3360 HK), is pre-marketing an HKEx IPO to raise US$200-250 million, according to press reports.
• In Horizon Construction Development IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
• The key elements of the bear case rest on core business margin decline, unexplained headcount reduction, cash burn, long receivable days and stretched balance sheet.

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.

• Country Garden Holdings Co
• Tata Motors ADR
• Xiaomi Corp

• Horizon Construction Development (1887128D HK) is looking to raise US$250m in its upcoming Hong Kong IPO.
• HCD is an equipment operation service provider in China. It provides services covering the full cycle of projects.
• In our previous note, we looked at the company’s past performance. In this note, we take a look at the company’s refiled PHIP updates.

• We estimate that BILI’s 1Q23 rev./adj. net income are 3%/11% vs cons. 
• We raise gaming/ads revenue starting from 2Q23 because of 1) an increasing number of newly approved games; and 2) increasing possibilities that pre-roll ads could be launched. 
• Yet, we still maintain SELL rating and TP unchanged because of concerns about its content ecosystem. Our TP implies 1.7X PS in 2023.