Daily Brief China: Shanghai Fudan Microelectronics Group, Li Auto, XPeng, Jiangnan, Pacific Basin Shipping, Meituan, Lenovo, Haidilao and more

• The index committee has continued to use a 6-month minimum listing history leading to five changes to the SSE STAR50 (STAR50 INDEX) in March.
• One way turnover is estimated at 4.95% and will result in a one-way trade of CNY 4,413m. The estimated impact on the deletes is higher than that on the adds.
• The inclusions have outperformed the deletions over multiple time periods. There will be pre-positions on the stocks and those could be unwound over the next week or two.

• On Friday 24 February 2023, the Hang Seng Index Committee announced changes for the HSTECH Index – Weibo Corp (9898 HK) IN, Ming Yuan Cloud Group (909 HK) OUT.
• Notably, the changes in FAF due to the new treatment for Dual Primary Companies means decent boosts in weight for XPeng (9868 HK) and Li Auto (2015 HK). 
• Of the three “major” indices, this one produces the most fun – US$900mm+ and 8.7% flow one-way. And the big flows are additive to the other indices.

• HSCEI keeps its constituent count at 80 names, adds XPeng (9868 HK) and deletes China Feihe (6186 HK). 
• There are decent flows in this rebal, with Tencent (700 HK) and Alibaba Group (9988 HK) seeing selling, Meituan (3690 HK) seeing buying. Li Auto (2015 HK) sees FAF upweight.
• Janaghan Jeyakumar, CFA had called the deletion of China Feihe, but had another name higher on the ADD list. 3.2% and HK$2.6bn one-way flow.

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads – 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), 111 Inc (YI US), Golden Energy & Resources (GER SP), Origin Energy (ORG AU), Toyo Construction (1890 JP).    
• Lowest spreads – Ihara Science (5999 JP), Tyro Payments (TYR AU), Nitro Software Ltd (NTO AU), Boustead Projects (BOCJ SP), Nissin Electric (6641 JP), Techno Associe (8249 JP). 

• The decline in 2H22 profit (53.1% YoY and 43.8% HoH) for Pacific Basin Shipping (2343 HK) is a matter of the past. Market rates have already rebounded from the trough.  
• Demand recovery on China re-opening, good forward cargo cover, reduction in operating costs, strengthened financial position and diversified customer base are Pacific Basin’s key merits. 
• Lower profit for FY23 should be well anticipated by the market, yet it still generates ROE of 20.9%, making its 1.0x P/B inexpensive. Moreover, yield will stay at 10% level. 

• Meituan has been hiring delivery workers in Hong Kong since February 20.
• JD will provide a subsidy of RMB1.5 billion to customers to compete with Pinduoduo (PDD) in early March.
• Four companies released financial performance for 4Q22, including Baidu, iQiyi, NetEase, and Sohu.

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.

• China Jinmao Holdings
• Lenovo
• China Datang Corp Renewable Power

• Haidilao issued a positive profit alert last Friday which beat our and market expectations by a big margin. Profitability improved  mainly due to shutting restaurants and labor optimization. 
• We expect the news and the street’s earnings revision will drive near-term stock rally. 
• That said, growth challenges remain and will be under spotlight during 2023-24. The expected stock rally will just build more expectations in the price. Take profit from the rally.