In today’s briefing:
- Hang Seng Index Rebalance: Sinopharm (1099 HK) Added, Country Garden (2007 HK) Deleted
- HSTECH Index Rebalance: East Buy (1797 HK) Replaces AAC Tech (2018 HK); Big Shorts on Both Stocks
- Week 2 of the Brand New and Extra Spiffy 🦄 H/A-Share Discount/Premium Weekly (As of 18 Aug 2023)
- Dali Foods (3799 HK): Widening Spread Ahead of the 23 August Vote
- Hang Seng TECH Sep23 Index Review – A Few BIGLY Events and One-Way Flow of 3.4%
- HSI Sep23 Index Review/Flows – Sinopharm (1099) IN, CoGard (2007) OUT; 100 Names a Loooong Way Off
- Why Evergrande’s Bankruptcy Filing Is a Positive Development
- HSCEI Sep23 Index Review/Flows – Trip.Com (9961) Added, CG Svcs (6098) Deleted; ~2.5% One Way
- JD Logistics (2618 HK): 2Q23, External Revenue Still Grew Rapidly, 70% Upside
- Fu Shou Yuan (1448 HK): More than Just a Recovery from Low Base
Hang Seng Index Rebalance: Sinopharm (1099 HK) Added, Country Garden (2007 HK) Deleted
- Sinopharm Group Co Ltd H (1099 HK) will be added to the Hang Seng Index (HSI INDEX) on 1 September while Country Garden Holdings Co (2007 HK) will be deleted.
- Both changes are a surprise, but the impact on Sinopharm Group Co Ltd H (1099 HK) will be much larger. Given the recent increase in shorts, there could be covering.
- Estimated one-way turnover is 1.9% leading to a one-way trade of HK$3.65bn. Capping will result in selling on Alibaba Group Holding (9988 HK), Tencent (700 HK) and HSBC (5 HK).
HSTECH Index Rebalance: East Buy (1797 HK) Replaces AAC Tech (2018 HK); Big Shorts on Both Stocks
- As expected, East Buy Holding (1797 HK) replaces AAC Technologies Holdings (2018 HK) in the Hang Seng TECH Index (HSTECH INDEX) at the close on 1 September.
- Estimated one-way turnover is 3.5% leading to a one-way trade of HK$3.4bn (US$435m). There are 4 stocks with over 1 day of ADV to trade.
- Short interest is 15% of float on both stocks. Short covering could take East Buy Holding (1797 HK) higher while providing support for AAC Technologies (2018 HK) closer to deletion.
Week 2 of the Brand New and Extra Spiffy 🦄 H/A-Share Discount/Premium Weekly (As of 18 Aug 2023)
- This is the Brand Spanking New and Improved and Extra Spiffy H/A-Share Discount/Premium Weekly designed to help investors see H/A relationships easily.
- We used to do it and decided to bring it back better. There are lots of cool interactive tables, and charts, heat maps, and comparative data. And 19 Trade Recommendations.
- We hope this new version serves readers even better. Improvements this week due to popular demand, and updated format. Further feedback is welcome/appreciated.
Dali Foods (3799 HK): Widening Spread Ahead of the 23 August Vote
- Dali Foods Group (3799 HK)‘s gross spread on the Founder’s (Mr Xu Shihui) HK$3.75 per share offer has sharply increased and stood at 5.3% at the last close.
- The rising gross spread is due to the recent market selloff (the gross spread of all HKEx merger arbs we track increased this week) and vote risk.
- The vote risk is due to no interim results, the high AGM minority participation rate and a modest offer. There is little evidence that these risks will derail the vote.
Hang Seng TECH Sep23 Index Review – A Few BIGLY Events and One-Way Flow of 3.4%
- The Sep 23 review results for the Hang Seng Tech Index were announced on Friday 18 August after the close.
- East Buy Holding (1797 HK) (formerly Koolearn) was an ADD. AAC Technologies Holdings (2018 HK) is a DELETE.
- AAC is a significant flow event, and worth looking at. There are a few odds and ends too.
HSI Sep23 Index Review/Flows – Sinopharm (1099) IN, CoGard (2007) OUT; 100 Names a Loooong Way Off
- On Friday, Hang Seng Indices announced the changes to the benchmark Hang Seng Index, the index in the family with the largest AUM.
- Sinopharm Group Co Ltd H (1099 HK) is ADDED, Country Garden Holdings Co (2007 HK) – in no surprise, is deleted.
- I see HK$4bn a side to trade, and the only “compelling” trade by ADV here is Sinopharm, but correlations with a Peer Basket are low.
Why Evergrande’s Bankruptcy Filing Is a Positive Development
- Evergrande’s filing in itself does not signify a deterioration in its financials; it was already insolvent as of end 2021.
- The bankruptcy filing provides the benefits of automatic stay and is a necessary step to validate the Group’s offshore restructuring plan.
- Evergrande’s long term viability still depends on recovery of the China property market.
HSCEI Sep23 Index Review/Flows – Trip.Com (9961) Added, CG Svcs (6098) Deleted; ~2.5% One Way
- The HSCEI Review for Sep 2023 was announced on Friday 18 August. There is one ADD Trip.com Group (9961 HK) and one DELETE Country Garden Services (6098 HK).
- Neither of these two are a surprise. Neither are hugely impactful.
- There is about 2.5% one-way to trade. Alibaba (ADR) (BABA US) is a sell across all three major indices.
JD Logistics (2618 HK): 2Q23, External Revenue Still Grew Rapidly, 70% Upside
- In 2Q23, total revenue grew by 31% YoY and revenue from external customers grew by 56% YoY.
- The operating margin can still breakeven during the rapid growth.
- We believe the stock has an upside of 70% for yearend 2024. Buy.
Fu Shou Yuan (1448 HK): More than Just a Recovery from Low Base
- Fu Shou Yuan (1448 HK) has a solid 1H23 with net profit jumped 78% YoY. Its margin reached the highest level, reflecting resurgance in demand and good cost control.
- Both volume and ASP growth led us to believe there is positive room for profitability improvements. Its balance sheet has also strengthened with net cash equals 17% of share price.
- A 18.4% increase in pre-need contracts signed suggests encouraging underlying demand. More M&As are added drivers to earnings prospects.
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