Daily Brief China: Sciclone Pharmaceuticals, UBTech Robotics, New Horizon Health, ZJLD Group, JD.com Inc (ADR), NIO Inc, Orient Overseas International, China South City, Miniso and more

• Shareholders have given SciClone Pharmaceuticals (6600 HK)‘s buyback the go-ahead which will result in the major shareholder holding (upward of) 31.63%, and the freedom to creep.
• As such, a concentrated shareholder register, primarily comprising entities that privatised SciClone in 2017, gets even more concentrated.
• Trading inexpensively ahead of the launch of a new (and approved) drug, SciClone is worth a second look. 

• UBTech Robotics (1683374D HK) is engaged in smart service robotics solutions in China and has filed for an IPO on the Hong Kong Stock Exchange.
• Though the company operates across a number of business segments, the growth prospects seems limited for most of these businesses.
• UBTECH’s cashflow and liquidity also seems to be getting drained as the company needs to spend heavily on R&D and marketing to keep up with constantly evolving technology.

For our next Corporate Webinar we are glad to welcome New Horizon Health’s CFO, Yu Gao.

In the upcoming webinar, Mr Gao will share a short company presentation after which, he will engage in a fireside chat with Smartkarma Insight Provider, Ke Yan. The Corporate Webinar will include a live Q&A session.

• ZJLD Group (ZJLD HK) is looking to raise up to US$400m in its upcoming Hong Kong IPO
• ZJLD is a Chinese liquor company primarily producing baijiu. As per F&S, the firm was the fourth largest privately-owned baijiu company in terms of FY21 sales.
• In this note, we will talk about the positive aspects of the deal.

• JD’s post-CNY recovery is slower than expected, based on our checks. We suggest JD would face an unfavourable external environment going forward due to: 1) the comeback of offline commerce; 
• 2) PDD’s growing penetration in high-tier cities and brand products; 3) Meituan Instashopping offers faster delivery than JD.
• We cut JD’s FY23 revenue YoY growth forecast from 13% to 11%. Our top and bottom line estimates for FY23 are (3%) and (5%) below cons. Downgrade to SELL

• ZJLD Group (ZJLD HK) is looking to raise up to US$400m in its upcoming Hong Kong IPO.
• ZJLD is a Chinese liquor company primarily producing baijiu. As per F&S, the firm was the fourth largest privately-owned baijiu company in terms of FY21 sales.
• In this note, we will talk about the not-so-positive aspects of the deal.

• We expect NIO to report 4Q22 top line of RMB 16.7bn and GPM of 13.2%, missing consensus by (4%)/(0.8ppt), primarily due to COVID-related supply-chain issues and lower ASP. 
• We cut TP to US$ 13, due to weak momentum and the ongoing margin pressure in 1H23. We maintain BUY, as 1) intact model cycle starting from 2H23;
• 2) the upcoming ET5 station wagon in 2H23 and the mass-market/low-end brands in 2024 will expand its scale economy, which in turn will justify the sustainability of its business model.

• We believe the 11.4% decline in share price of Orient Overseas International (316 HK) YTD is not sufficient to reflect the plunge in freight rate and weakened load performance.
• Its 4Q22 average revenue/TEU of US$1,822.3 has returned to 2Q21 level; but with latest spot rate already plunged to early-2020 times, there is further downside for OOIL’s realised rate.
• Export outlook is uninspiring as well, indicating pressure on demand. With similar ROE, OOIL only trades at 0.3x P/B in FY20, that makes its current P/B of 0.9x expensive.

We view China South City (CSC) as “High Risk” on the LARA scale given increasing refinancing risk, with significant maturities in the next 12 months. The company’s capital-market access is limited, amid the recent volatile market conditions and heightened yields for the existing bonds. We also note the risks associated with: [1] CSC’s weak financial risk profile; [2] the inherent volatility associated with commercial developments; and [3] potential regulatory changes, including delays in government-led support for infrastructure projects. The company will be increasingly reliant on asset disposals or shareholder support for future payment, especially as property sales have deteriorated.

That said, positives include the: [1] restructuring and introduction of Shenzhen SEZ Construction and Development (SZCDG) as the single largest shareholder following a capital injection in H1/22-23; [2] shift to fast-churn property sales; [3] recurring income from investment properties; [4] above-average, albeit declining, operating margins, thanks to the cheap land bank; and [5] decent geographical diversification in regional centres.

Our fundamental Credit Bias on CSC is “Negative”, given the expected slower recovery in contracted sales for 2023. That said, the company should be able to leverage its relationship with SZCDG for more strategic co-operation and improved access to onshore funding, thanks to its quasi-SOE status. We will look to reinstate a “Stable” Credit Bias on evidence of a turnaround in sales.

Controversies are “Immaterial”. We believe the Chinese property sector has moderate exposure to environmental and social risks. The sector is not energy intensive, but may face social issues related to construction safety and the satisfaction of homebuyers’ requirements. We believe that governance risks are more significant, due to the sector’s generally low transparency and weak internal controls. The ESG Impact on Credit is “Moderately Negative”, mainly owing to CSC’s corporate governance. We highlight that the extensions sought for two bonds due in 2022, and the subsequent extensions for all offshore bonds in July, indicate increasing governance risks.

• We expect Miniso to report C4Q22 top line, non-GAAP operating profit and GAAP net income 1.7%, (1.5%) and in-line vs. consensus. Our C1Q23 top line is 3.7% vs. the consensus; 
• MNSO’s sustained growth driver to be bringing Made-In-China merchandises to the mall economies around the world; We re-evaluate the stock and maintain the Buy rating, with TP at US$22.
• The downward revisions of EPADS：1) slower offline resumption pace from Covid impact in 2022, 2) rescheduled oversea expansion paces, compared to our previous update on Nov. 23rd, 2021.