In today’s briefing:
- Hong Kong Stocks Priced For Liquidation
- CSI300 Index Rebalance Preview: Potential Changes and Close Names
- Ping An A/H Premium: Outpacing the Market
- Giant Biogene IPO – Reasonable Valuation but in Unreasonable Markets
- China/HSI Uptick Short Levels
- Giant Biogene IPO: Peer Comparison and Valuation
- Tencent (700 HK): Game Market Weak in 3Q22 and to Be Worse in 2023
- Giant Biogene IPO: Valuation Insights
- Sunshine Insurance Group Pre-IPO – The Negatives – Lacks Growth
- Alibaba ADR: Initiation of Coverage – Business Strategy & Key Drivers
Hong Kong Stocks Priced For Liquidation
- With investors chucking in the towel and the HSI touching a thirteen-year low, it’s time for some old school perspective.
- This insight looks at Benjamin Graham’s Net Nets, (current assets less current liabilities), then subtract any debt not included in current liabilities. More simply, current assets less total liabilities.
- Graham would conclude these stocks are priced for liquidation. Stocks discussed include Sinopec Engineering (2386 HK), PC Partner (1263 HK), Linklogis (9959 HK), Antengene (6996 HK) and property service companies.
CSI300 Index Rebalance Preview: Potential Changes and Close Names
- Near the end of the review period, we see 16 potential changes to the CSI 300 Index at the December rebalance. There are other stocks very close to the cutoffs.
- We estimate a one-way turnover of 3.04% at the December rebalance leading to a one-way trade of CNY 8.4bn.
- The potential adds have outperformed the potential deletes, though the gap has narrowed in the last few weeks. We’d position for outperformance post the end of the review period.
Ping An A/H Premium: Outpacing the Market
- The selloff in the broader market has led to the A/H premium on PingAn blowing out to levels not seen in the last few years and outpacing the HSASP Index.
- At a 24% premium, the risk/reward for a long Ping An Insurance (H) (2318 HK) / short Ping An Insurance Group (601318 CH) trade has never been better.
- The shift from A-shares to H-shares is already taking place – Southbound Stock Connect holdings have been increasing while the Northbound Stock Connect holdings have been decreasing.
Giant Biogene IPO – Reasonable Valuation but in Unreasonable Markets
- Giant Biogene (GB) is now looking to raise around US$80m in its Hong Kong IPO, down from its earlier target of US$500m raising.
- GB is a leader in the bioactive ingredient-based professional skin treatment product industry in China.
- We had looked at the company’s past performance and undertaken a peer comparison in our previous notes. In this note, we’ll talk about valuations and other deal dynamics.
China/HSI Uptick Short Levels
- Bear impulse in China/HK sets up a sell on a squeeze. Sell volumes ignited on the A50 12,400 support break. HSI has been our top short in Asia and rewarded.
- We did trim our HSI short at the 15k target but still represents 10% of our book. RSI is oversold with short squeeze risk (then re cycle short).
- Hong Kong likes to bottom on big impulsive downside moves so will be interesting how our price and timing models converge.
Giant Biogene IPO: Peer Comparison and Valuation
- Giant Biogene Holding (GBH HK) designs, develops and manufactures professional skin treatment products with recombinant collagen as the key bioactive ingredient in China.
- The company’s IPO offering has been downsized and now plans to raise approx. US$80m through issuing 22.6m shares at an indicative IPO price range of HK$24.3-27.7 per share.
- Our analysis shows that Giant Biogene’s IPO is attractively priced compared to domestic and international peers, however, we expect the upside to be limited given the current market volatility.
Tencent (700 HK): Game Market Weak in 3Q22 and to Be Worse in 2023
- In 3Q22, the game market size shrank in China and globally.
- The limitations on time spent on games by juveniles, imposed earlier by the authorities, severely impacted the domestic market.
- We believe the key impact for 2023 is the predictable license approval.
Giant Biogene IPO: Valuation Insights
- Giant Biogene Holding (GBH HK) has launched its HKEx listing atHK$24.30-27.70 per share to raise up to US$80 million, materially below previous expectations of a US$500 million raise.
- We previously discussed the IPO in Giant Biogene IPO: The Bull Case, Giant Biogene IPO: The Bear Case andGiant Biogene IPO: Valuation First Look.
- The China A Share peers have derated due to the sharp sell-off in the last few days. Nevertheless, Biogene is attractively valued at the IPO price range. We would participate.
Sunshine Insurance Group Pre-IPO – The Negatives – Lacks Growth
- Sunshine Insurance Group (SIG), a life, health and P&C insurance company, aims to raise up to US$1bn in its HK IPO.
- SIG is an integrated insurance provider which offers both life and health (L&H) and property and casualty (P&C) insurance in China.
- In this note, we talk about the not-so-positive aspects of the deal.
Alibaba ADR: Initiation of Coverage – Business Strategy & Key Drivers
- This is our first report on global tech giant, Alibaba.
- The company is currently trading close to its 52-week low with its results just around the corner.
- Tmall GMV and Taobao experienced a percentage decline in the mid-single-digit in the last quarter.
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