Daily Brief China: Tencent, Jinke Smart Services, Swire Pacific (B), Vipshop Holdings, Poly Real Estate Group Co., Ltd, Medlive Technology, Road King Infrastructure and more

• Multiple new agencies have been reporting that Tencent (700 HK) plans to trim its investment portfolio over the remainder of the year. 
• The reports have been coming in since the second half of the year and the company has been duly denying these rumors.
• In this note, we look at Tencent’s shareholding in various companies to try and gauge which ones it could sell out of and how.

• PRC-Incorporated property management play Jinke Smart Services (9666 HK) has announced a voluntary cash offer at HK$12/share, a 33.04% premium to last close.
• The Offeror (Boyu) and concert parties collectively hold more than 50%. The Offer is contingent on regulatory approvals and 7.71% of shares out tendering. The tendering condition can be waived.
• The Offer appears geared to bring Boyu’s stake in line with Jinke Property Group (000656 CH)‘s. 

• The Swire buyback has been impressive. In 27 trading days they have bought back 26.8% of teh HK$4bn promised. In that period, participation has been aggressive.
• Swire has bought back As at a pace of 52% of pre-buyback one-year ADV. For Bs, it has been 105%. But Bs have dramatically underperformed As on “HK Re-opening” trades.
• Historically, when B/A gets more than 6% from 3mo Avg VWAP Ratio, there is statistically significant reversion. We are now at 6.8%. I’d buy B vs A.

• Jinke Smart Services (9666 HK) announced a voluntary conditional general offer from Boyu Capital at HK$12.00 per share, a 33.0% premium to the undisturbed price.
• The offer is conditional on 7.71% valid acceptances (such that Boyu represents 30.40% of outstanding shares) and anti-trust approval. The conditions can be waived.  
• The offer is designed to flush out minorities unwilling to wait for the industry headwinds to dissipate. A low threshold suggests that the offer will be declared unconditional.

• Tencent known to outspend its peers on strategic investments, has made only around 80 investments and acquisitions so far this year compared to more than 200 deals done in 2021.
• Tencent’s vast investment portfolio has attracted regulatory scrutiny and it’s the market’s belief that Tencent was asked to divest some of its stake in other leading tech players in China.
• However, over the last few months, Tencent has been increasingly investing on companies operating in the medical field.

• Following a contraction in Chinese apparel sales since 3Q21, and similar negative GMV and product revenue growth for Vipshop, we have witnessed a recovery to growth since June.
• Current sell-side forecasts are, however, still for a -10.8%y/y contraction in product revenue for Vipshop in 3Q22f, followed by a -4.4% contraction in 4Q22f which seems overly pessimistic.
• Given the conservative nature of near-term top-line growth expectation, and management guidance, the probability for positive earnings surprise seems high.

• Poly Real Estate Group Co., Ltd (600048 CH) sits at the edge of the inclusion zone for the FTSE China A50 Index (XIN9I INDEX) December rebalance.
• That inclusion could result in the deletion of any one of four stocks since they are all clustered within 0.7% of each other on full market cap.
• There are a few other stocks that are close to inclusion zone and a 5-10% rally in these stocks could result in more changes to the index in December.

• The improvement of Medlive’s profitability in 22H1 seems more related to the large decreased income tax expense rather than any obvious improvement of main business or any other logic.
• The single main business structure and insufficient core competitiveness add uncertainty to the Company’s long-term prospects, which makes it difficult to significantly improve the valuation.
• Medlive is under double pressure of “squeezing bubble” in healthcare industry and “the fading of traffic dividend” in Internet industry.Its growth logic/business model will be more scrutinized by the market.

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.

• Road King Infrastructure