Daily Brief China: Sichuan Tianyi Science & A, Jinke Smart Services, Shandong Fengxiang, Hong Kong Hang Seng Index, Dongfang Electric, Alibaba Group, Guangzhou Kingmed Diagnostics, Vedanta Resources and more

• With a day left in the review period, we forecast 50 changes (the maximum permitted) for the CSI500 Index at the close on 9 December.
• We estimate a one-way turnover of 13.53% at the December rebalance leading to a one-way trade of CNY 8.01bn. The Materials, Consumer Discretionary and Information Technology sectors are net gainers.
• The potential adds and potential deletes have performed in line over the last few weeks, and we’d look to position for outperformance post the end of the review period.

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads – 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), 111 Inc (YI US), Genex Power Ltd (GNX AU), O2Micro International (OIIM US), Shandong Fengxiang (9977 HK).
• Lowest spreads – Tyro Payments (TYR AU), Tassal (TGR AU), China Vast Industrial Urban Development (6166 HK), Singapore Medical (SMG SP), PTB Group Ltd (PTB AU), Nearmap Ltd (NEA AU).

• PAG Capital has won the judicial auction to acquire 70.92% of Shandong Fengxiang (9977 HK). 
• The acquisition remains subject to regulatory clearance (including SAMR). Once greenlit, PAG will be required to make an unconditional Offer for the H-shares at HK$1.5132/share.
• Separately, it is PAG’s intention to delist Fengxiang which involves Scheme-like delisting resolutions. 

• Two Week summary of vol changes and moves across Global Markets
• Analysing ATM volatility and skew changes over the last 10 days
• We suggest a few trades to take advantage of the implied vol surfaces

• Dongfang Electric (1072 HK) logged a 40.1% growth in reported profit and a 36.5% increase in new orders in 3Q22, both represent excellent sequential momentum.
• A 0.5pp 3Q22 gross margin expansion demonstrated order execution and cost control strengths. We also forecast end-FY22 backlog at 1.8x FY22F revenue, well securing outlook.  
• DEC is set to see accelerated growth momentum from rising power storage, particularly pumped storage, demand in the medium term. Yet, it only trades on cheap 8.1x FY23F PER.

• In 3Q22, S. F. Holdings’s revenue grew by 45% YoY and net profit increased by 89% YoY.
• Alibaba resumed its link on Kuaishou’s live streaming sales before Singles’ Day.
• Tencent denied the rumor that it would be acquired by China Mobile.

• Driven by the demand for nucleic acid testing due to COVID-19, Kingmed’s 22Q3 performance continued to grow. However, its accounts receivable also increased sharply, which would be a risk. 
• Kingmed has to switch business in time when the huge demand for nucleic acid testing fades away.The YoY growth of other businesses would be the key to decide its outlook.
• The current valuation of Kingmed isn’t attractive. After COVID-19 is under control, Kingmed’s YoY revenue growth could fall back to below 40%. Net profit margin could reduce to above 10%.

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.

• Vedanta Resources
• Yankuang Energy Group