In today’s briefing:
- Stock Connect Changes and MSCI/FTSE Deletes on Friday
- Country Garden Placement – Hot on the Heels of the Last Deal, Momentum Has Shifted
- Sunpower: 2023 China Re-Opening Stock, but CB Conversion Uncertainty Needs To Be Resolved
- Negative EVs: JOYY & Sohu’s Steep Discount To Net Cash
- FTSE China A50 Index Rebalance: Stock Connect Deletion to Drive Change
- Binjiang: Set up for a Good Move From Here
- Pinduoduo (PDD): High-Performing Financials, But Low-Profile Management, 23% Downside
- CTG Duty Free (1880 HK): Near-Term Positive but It Is Not Cheap at All
- Weilong Delicious IPO: Peer Comparison and Valuation
- STAR50 Index Rebalance Preview: Another Five Potential Changes in March
Stock Connect Changes and MSCI/FTSE Deletes on Friday
- The SSE180, SSE380 and SZSE1000 indices rebalance at the close on Friday and that will lead to changes to the list of stocks eligible for Northbound Stock Connect.
- Deletion from the Northbound Stock Connect Buy and Sell list will result in MSCI and FTSE deleting stocks from their indices. That selling will take place at the close Friday.
- We expect 37 stocks to be deleted from the MSCI and FTSE indices at the close on 9 December – the announcements should be made later today or tomorrow.
Country Garden Placement – Hot on the Heels of the Last Deal, Momentum Has Shifted
- Country Garden Holdings Co (2007 HK) aims to raise around US$500m via a primary placement
- This will be the third placement by the company this year and the second one within a month’s time.
- In this note, we will run the deal through our ECM framework and talk about the recent updates.
Sunpower: 2023 China Re-Opening Stock, but CB Conversion Uncertainty Needs To Be Resolved
- Sunpower has had a rough +/-18 months as input cost rises coincided with Force Majeure issues at some of its clients due to never-ending rolling Chinese lockdowns.
- Mr. Market has pushed Sunpower back below 0.27 SGD/share (-43% YTD) despite revenue- and EBITDA growth continuing at its GI division. Profits have been compressed due to rising input costs.
- As China re-opens in FY23 Sunpower should benefit from normalization and recovery in demand from its industrial base customers. However, CB conversion details are needed for re-rating to start.
Negative EVs: JOYY & Sohu’s Steep Discount To Net Cash
- Screening US-listed China plays with negative EV and positive tailing EBITDA generates eight names.
- Of these companies, only two are expected to be EBITDA positive in FY22.
- They are JOYY (YY US) and Sohu.com (SOHU US). This insight looks at both names.
FTSE China A50 Index Rebalance: Stock Connect Deletion to Drive Change
- Beijing-Shanghai High Speed Railway-A (601816 CH) will be deleted from the Northbound Stock Connect Buy and Sell list from the close on 9 December.
- Beijing-Shanghai High Speed Railway will be deleted from the SSE180, MSCI and FTSE indices. Plus a deletion from the FTSE China A50 Index (XIN9I INDEX).
- The replacement for Beijing-Shanghai High Speed Railway-A (601816 CH) will be determined at the close of trading today and the announcement will be made post market close.
Binjiang: Set up for a Good Move From Here
- A recent rally in property management companies due to measures taken by the government has set Binjiang Service Group (3316 HK) for a big move upwards.
- The stock is cheap and trades at 10.5x/8.1x FY22/23e PE with 37% of the market cap in cash and a 5.8%/7.4% FY22e/23e dividend yield.
- Catalysts for the company are further loosening on the property by the government and a profit alert of 38-40% earnings growth for FY22.
Pinduoduo (PDD): High-Performing Financials, But Low-Profile Management, 23% Downside
- The revenue growth accelerated and the operating margin improved in 3Q22.
- However, management said the performance may not continue and profit is not their target.
- We believe the stock has a downside of 23% for year end 2023.
CTG Duty Free (1880 HK): Near-Term Positive but It Is Not Cheap at All
- In the near-term, China’s relaxation of COVID-combating measures will boost consumption and demand for cross-province travel. China Tourism Group Duty Free Corp Ltd (1880 HK) is a beneficiary.
- Hotel bookings in Sanya have surged over the last two days, reflecting positive demand reaction. However, China’s full border opening likely in 2023 is a challenge to CDFC.
- Low base in FY22 will drive 45% earnings growth for FY23. However, valuations are not cheap at 33.8x PER for FY23, a significant premium to consumption sector and international peers.
Weilong Delicious IPO: Peer Comparison and Valuation
- Weilong Delicious has downsized its IPO to raise around HK$942m (US$121.3m). The company also has the flexibility to set its IPO price at a 10% discount to the bottom.
- The company’s top line growth has slowed down in 1H2022 and margins have been under pressure with increased S&M spending to further penetrate into online channels.
- Weilong’s IPO is priced at a significant premium to domestic as well as multinational peers which do not justify the growth prospects.
STAR50 Index Rebalance Preview: Another Five Potential Changes in March
- Nearly 85% of the way through the review period, we see 2 changes using a 12-month minimum listing history, and 5 changes using a 6-month minimum listing history.
- Given the significantly higher market cap of the inclusions using a 6-month minimum listing history, we expect the index committee will continue to use the shorter listing history requirement.
- With 5 changes a side, one-way turnover is estimated at 5.15% and will result in a one-way trade of CNY 3,994m. Impact on some deletions is quite high.
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