In today’s briefing:
- China ETF Inflows & Impact: Concentrated, Then Diversified; Central Huijin Steps Up
- TCM (570 HK): We’ve Been Here Before
- EDU/TAL: China Tutoring – Here Comes The Policy Tailwind
- Alibaba (BABA US): Upzised Share Repurchase to Support Share Price
- SMIC (981.HK): The GM Reaches a New Low of 9-11% in 1Q24F, Despite Revenue Growing by 2% QoQ.
- [Meituan (3690 HK, SELL, TP HK$57) Rating Change]: No Quick Skip to the Near-Term Pressures
- Chinese Startup Raises $943 Million to Fund Race with Starlink
China ETF Inflows & Impact: Concentrated, Then Diversified; Central Huijin Steps Up
- Nearly US$37bn has flowed into mainland China listed ETFs since 2 January and could be driven by the National Team supporting the market. Central Huijin has announced their ETF buying.
- Most of the inflows have been focused on large cap indices including CSI 300, SSE50, CSI 500, CSI 1000, ChiNext, STAR50 and Chinext50 indices.
- While the inflows were initially focused on the CSI 300, there has been a diversification recently with big inflows to the SSE50, CSI 500, CSI 1000 and ChiNext indices.
TCM (570 HK): We’ve Been Here Before
- China Traditional Chinese Medicine (570 HK) (“TCM”) is the traditional Chinese medicine arm of SASAC-managed China National Pharmaceutical Group Corporation (CNPGC), one of the largest healthcare groups in China.
- By my reckoning, TCM has fielded three Offers in the past decade, all from Sinopharm Hongkong, an indirect wholly-owned subsidiary of CNPGC and TCM’s major shareholder.
- TCM was suspended “pursuant to the Code on Takeovers and Mergers” earlier today. The Real McCoy? A no-deal again from CNPGC/Sinopharm? And why didn’t the last Offers complete?
EDU/TAL: China Tutoring – Here Comes The Policy Tailwind
- Today, after Hong Kong market close, the Ministry of Education issued a new draft regulation on K12 tutoring.
- I have written before on New Oriental Education & Techn (EDU US) and China Beststudy that there is now a equilibrium reached between all parties on tutoring in China.
- The new draft regulation basically puts it into concrete policy, which should alleviate investor concern on the sector.
Alibaba (BABA US): Upzised Share Repurchase to Support Share Price
- Alibaba reported a largely in-line December quarter as lower take rate and widened loss from international commerce businesses resulted in pressured bottom line.
- The results also suggest a persisting pattern of China consumers trading down, which – along with the company’s ongoing internal overhaul – will continue to be headwind in 1H24.
- That said, we see increase of US$25 billion share repurchase program and dividend policy to well support share price at current valuation.
SMIC (981.HK): The GM Reaches a New Low of 9-11% in 1Q24F, Despite Revenue Growing by 2% QoQ.
- The 1Q24F outlook is still showing a decline, with a slightly increase in revenue of 2% QoQ. However, the GM is expected to decrease to 9-11% from 16.4% in 4Q23.
- Management predicts that there will be a double U-shaped recovery in 2024F. Revenue in 2024F is expected to grow annually by mid-single-digit.
- The main areas of growth for SMIC in 2024F will be in mobile phones, smart homes, IoT, and computing.
[Meituan (3690 HK, SELL, TP HK$57) Rating Change]: No Quick Skip to the Near-Term Pressures
- We expect Meituan continue under pressure in the medium term due to the intensified competition with Douyin, and Meituan’s low price defending strategy in both food delivery and IHT businesses.
- Our non-IFRS net profit is roughly in-line with consensus in 4Q23 but 20%/25% lower than consensus in 2024/25.
- We downgrade the stock to SELL rating and cut TP to HK$57/share.
Chinese Startup Raises $943 Million to Fund Race with Starlink
- Shanghai Spacecom Satellite Technology, a space tech startup backed by the Shanghai municipal government, has raised 6.7 billion yuan ($943 million) to fund the construction of a low-orbit satellite constellation that will provide broadband access to the internet
- The Series A funding round was led by Shanghai Alliance Investment Ltd., an investment fund backed by the Shanghai government and a founding investor of Spacecom.
Other investors include CAS Investment Management Co. Ltd., Hengxu Capital, Guotai Junan Securities Co. Ltd. and CAS Star.
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