Daily Brief China: Swire Pacific (A), Sciclone Pharmaceuticals, Tencent, Sun Art Retail, Longfor Properties, West China Cement, WuXi AppTec, Taste Gourmet and more

• Swire Pacific (19 HK)‘s discount to NAV is around a one-year high; and its implied stub (net of Swire Properties (1972 HK) has just rolled over from a multi-year high. 
• 45%-Held Cathay Pacific Airways (293 HK) recently reported its highest annual profit in more than a decade.
• Reportedly (Bloomberg) Air China Ltd (A) (601111 CH) is mulling a stake increase in the Hong Kong carrier. This is inevitable. It’s just a question of timing. 

• A little over a year ago, shareholders approved Sciclone Pharmaceuticals (6600 HK)‘s buyback, which lifted GL Capital’s holding to 31.63% from 28.09%, enabling creep provisions.
• After the share price gained 14% yesterday, SciClone was suspended pursuant to the Code on Takeovers and Mergers before trading commenced this morning. Mmm.
• GL Capital, together with CDH Investments, Ascendent Capital Partner, Ocean Falcon Limited, and Boying Investments Limited, took SciClone private in 2017. Time for another privatisation?

• Tencent is due to release FY23 results tomorrow morning after the HK close. The earnings call is scheduled for 14:00 SAST.
• The market is expecting 1.8% QoQ revenue growth, 8.6% YoY. Strong QoQ revenue growth of 10% is expected for the advertising segment.
• QoQ revenue growth for the gaming sector is expected to decline by 4.9%. Domestic gaming revenue is expected to fall by 7.6%, international gaming revenue expected to increase by 9.6%.

• After rising 14% on Monday, Sciclone Pharmaceuticals (6600 HK) entered a trading halt “pending the release of an announcement pursuant to the Code on Takeovers and Mergers.”
• SciClone US was listed on NASDAQ in March 1992 and was privatised in October 2017 by a GL Capital-led consortium. It was relisted on the HKEx on 3 March 2021.
• A GL Capital-led consortium will likely once again lead the privatisation. An offer price at or slightly above the IPO price (HK$18.80) would be sufficient to get the vote up.

• According to public news two days ago, COFCO Group is rumored to be a potential suitor for Alibaba’s 78% stake in Sun Art Retail (6808 HK).
• Alibaba wants to eventually get rid of the Sun Art stake, especially after Alibaba’s management change in late 2023.  
• Given limited downside, I believe it is worth a bet on the uncertain timeline but certain intention of the eventual divestiture of Sun Art by Alibaba.

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.

• Adani Green Energy
• Azure Power Global Ltd
• Greenko Energy Holdings

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.

• Adani Green Energy
• Azure Power Global Ltd
• Greenko Energy Holdings

West China Cement’s (WCC) FY 2023 results were soft, but in line with expectations. The company’s profitability in Mainland China continued to weaken, albeit this was partly offset by rising sales volumes and ASP from its African operations. As a result, operating profit in Africa climbed above that for Mainland China for the first time, with the African segment accounting for 31% of total revenue and 74% of operating profit.

In our view, the key risk for investors is WCC’s seemingly relentless expansion in Africa, which is likely to further weaken its leverage. Moreover, we are concerned that further expansion in this region will fundamentally change WCC’s risk profile from a relatively stable infrastructure-led Chinese business to one that is highly exposed to event risks in frontier markets. The company’s African businesses could be exposed to higher geopolitical, regulatory and ESG risks, which are less well understood by investors.

• WuXi AppTec’s 2023 results were disappointing. The decline in performance in 23H2 was quite severe. 2024 performance guidance could be meaningless because the biggest concern now is the geopolitical conflicts.
• If the bill is passed, valuation logic would completely change – not based on DCF/PE, but on PB, market value falling below RMB100 billion. We cannot rule out another privatisation.
• We hope that WuXi AppTec can prepare contingency plans for the worst-case scenario that may occur, rather than simply denying or mitigating the impact of BIOSECURE Act on the Company

• Taste Gourmet (8371 HK) will report its FY24 results in the third week of June. We estimate revenue/earnings growth of 38%/40% YoY. 
• We expect the company to end FY24 with >180 mn HKD of net cash on the balance sheet, representing 32% of the mkt cap (9MFY23 cash 148 mn HKD)
• Maintaining a 50% dividend payout ratio, we expect the company to declare a final DPS of 7 cents ( H1FY24 5.5 cents HKD), representing an 8.5% yield for FY24