In today’s briefing:
- Henlius (2696 HK): NDRC Approval Should Calm Nerves
- HSTECH Index Rebalance: Midea (300 HK) Replaces Weibo (9898 HK); US$1.5bn Round-Trip Trade
- Hang Seng Index (HSI) Rebalance: Still Baby Steps to Get to 100 Members
- HK Connect SOUTHBOUND Flows (To 22 Nov 2024); Volumes Much Lower But Broad-Based Buying Continues
- A/H Premium Tracker (To 22 Nov 2024): AH Premia Rise Sharply; Hs Shellacked Vs As In Most Sectors
- Henlius (2696 HK): The Spread Should Narrow After NDRC Approval
- Travelsky (696): Sleepy Giant
- China Healthcare Weekly (Nov.24) – 10th VBP, Biotech Valuation Logic, China Resources Reorganization
- China Consumption Weekly (25 Nov 2024): Xiaomi, Haier, Autohome, Xpeng, Full Truck, Tongcheng
- [Kuaishou (1024 HK, BUY, TP HK$72) TP Change]: C3Q24 Review: Value Stocks Face Picky Investors
Henlius (2696 HK): NDRC Approval Should Calm Nerves
- Due to several factors, the gross spread of Shanghai Fosun Pharmaceutical (Group) (2196 HK)’s HK$24.60 offer for Shanghai Henlius Biotech (2696 HK) has widened to 21.5%.
- The wide gross spread reflects the China TCM deal break hangover, slow progress in satisfying the precondition, Fosun Pharma’s potential funding challenges, and the shareholder vote.
- NDRC approval should calm nerves about precondition satisfaction. Even with lingering deal-break concerns, a 21.5% gross spread is excessive.
HSTECH Index Rebalance: Midea (300 HK) Replaces Weibo (9898 HK); US$1.5bn Round-Trip Trade
- In a surprise, Midea Group (300 HK) will replace Weibo (9898 HK) in the Hang Seng TECH Index (HSTECH INDEX) after the close of trading on 6 December.
- Estimated one-way turnover at the rebalance is 4.5% resulting in a round-trip trade of HK$11.72bn (US$1.51bn). Passives need to buy 9x ADV in Midea Group (300 HK).
- The Midea Group Co Ltd A (000333 CH) / Midea Group (300 HK) premium could drop due to the index inclusion providing an entry point into an AH expansion trade.
Hang Seng Index (HSI) Rebalance: Still Baby Steps to Get to 100 Members
- Kuaishou Technology (1024 HK) and New Oriental Education (9901 HK) will be added to the Hang Seng Index in December while New World Development (17 HK) will be deleted.
- Estimated one-way turnover is 2.7% and the estimated round-trip trade is HK$10.89bn (US$1.4bn) with over 1 day of ADV to trade in the adds and the delete.
- The index committee has net added 1 stock to the Hang Seng Index this year to go from 82 to 83 constituents. Reaching the 100-member target will drag into 2026.
HK Connect SOUTHBOUND Flows (To 22 Nov 2024); Volumes Much Lower But Broad-Based Buying Continues
- SOUTHBOUND gross trading activity dropped sharply but net SOUTHBOUND buying remains very strong and very broad-based.
- The trend continues to be net buying of tech though Friday saw a lot of profits taken in Tech names by SOUTHBOUND holders.
- I expect HK-listed tech to continue getting bought. Alibaba, Tencent, Xiaomi, etc are safe havens against Trump tariffs as they don’t compete in the US. Still.
A/H Premium Tracker (To 22 Nov 2024): AH Premia Rise Sharply; Hs Shellacked Vs As In Most Sectors
- Huge volumes continue to be traded on the mainland share markets. SOUTHBOUND volumes dropped sharply but net buying continued strongly.
- Stocks in HK and mainland markets fell heavily with HK’s main indices down 6-7% and China’s blue chip indices down 3.3-3.6% (CSI 500 – 4.8%).
- Within H/A Pairs, after outperforming the HK/mainland spread for weeks, spreads got shellacked. Worst week in a long time (-3.7%), perhaps on the back of “disappointing” lack of stimulus measures.
Henlius (2696 HK): The Spread Should Narrow After NDRC Approval
- On the 24th June, Fosun Pharmaceutical (2196 HK) made a HK$24.60/share Offer, in cash, for H-shares not held in Shanghai Henlius Biotech (2696 HK). A scrip alternative was subsequently afforded.
- This is a pre-conditional Offer, subject to NDRC, Mofcom and SAFE – followed by a Scheme-like vote for independent H-shareholders. Henlius has announced that NDRC approval has now been secured.
- Trading at a massive gross spread of ~21.5% compared to ~10% just prior to China Traditional Chinese Medicine (570 HK)‘s capitulation. This is excessive.
Travelsky (696): Sleepy Giant
- Despite being a key beneficiary in travel and tourism in China, the rather muted growth in the first half does not bode well for Travelsky Technology Ltd H (696 HK) .
- YTD share price performance has reflected the above, but the deep discount valuation to Trip.com (TCOM US) might be temporary.
- In the near term, the company’s share price will not rebound as the company has less upside participation compared to Airlines and OTA.
China Healthcare Weekly (Nov.24) – 10th VBP, Biotech Valuation Logic, China Resources Reorganization
- The 10th national VBP officially begins. Enterprises involved in this VBP include Shanghai Fosun Pharmaceutical (2196 HK)Shanghai Pharmaceuticals (2607 HK), Sichuan Kelun Pharmaceutical (002422 CH), CSPC (1093 HK), etc..
- We analyzed Chinese Biotech companies’ P/S range based on different product revenue growth. Due to low profitability, there is “a valuation discount” if they are included in global valuation system.
- KPC has agreed to acquire 51% interest in CR Shenghuo from CR Sanjiu. Due to good performance, we are full of expectations for the future acquisition/integration within China Resources.
China Consumption Weekly (25 Nov 2024): Xiaomi, Haier, Autohome, Xpeng, Full Truck, Tongcheng
- Haier plans to acquire all shares of Autohome and dismiss 30% of Autohome’s employees.
- In 3Q24, Xiaomi’s revenue grew by 30% YoY or 17% YoY without electric vehicle.
- In 3Q24, Tongcheng Travel’s revenue increased by 51% YoY with gross profit up by 29% YoY.
[Kuaishou (1024 HK, BUY, TP HK$72) TP Change]: C3Q24 Review: Value Stocks Face Picky Investors
- Kuaishou reported C3Q24 revenue, IFRS operating profit,and IFRS net income in-line with our estimates and consensus.The only negative was that C4Q24 guidance for operating margin missed consensus and our estimate;
- Within mid-sized Internet platforms, Kuaishou lacks fresh secular driver, putting its stock under pressure. Advertising and GMV growth still outpace the industry and some peers. The stock is undervalued;
- We maintain our BUY rating and slightly revised down TP to HK$72 to make up for the higher-than-expected OPEX guidance.
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