In today’s briefing:
- Tencent (700 HK): 2Q24 Preview, Both Growth and Margin to Improve
- The Heat Is On: News Flow and Sentiment in CHINA / HONG KONG (August 10)
- Hang Seng Index (HSI) Rebalance Preview: Inclusion Candidates for September
- HK Connect SOUTHBOUND Flows (To 9 Aug 2024); Tencent the Big Buy Again
- CPMC (906 HK) Responds To Champion’s Offer
- A/H Premium Tracker (To 9 Aug 2024): Global Market Vol. SB Bought. NB Sold. Premia Down.
- WeRide (WRD US) IPO: The Bear Case
- Alibaba (BABA US): 1Q25 Preview, Stable Growth and Margin, But Overly Impacted
- China Consumption Weekly (12 Aug 2024): Geely, Li Auto, JD.com, Alibaba, Tencent, DDL
- Mainland Connect NORTHBOUND Flows (To 9 Aug 2024): Back to Net Selling of Renewables and Consumer
Tencent (700 HK): 2Q24 Preview, Both Growth and Margin to Improve
- We believe total revenue will grow by 9% YoY and game revenue began to rise in 2Q24.
- We believe the operating margin will continue to improve YoY in 2Q24 after the seven-year high in 1Q24.
- We set the upside at 35% and the price target at HK$496 for the end of 2025.
The Heat Is On: News Flow and Sentiment in CHINA / HONG KONG (August 10)
- The epicenter of the Asian ETF selloff last week was Japan, recording an outflow of nearly $100B from equity funds taking the net flows back to breakeven for the YTD.
- Seazen (Formerly Future Land) (1030 HK) and Swire Properties (1972 HK) had positive announcements while New Oriental Education & Techn (9901 HK) and Yum China Holdings (9987 HK) announced earnings.
- China Unicom Hong Kong (762 HK) shares are under pressure as the telco sector goes through a price war in cloud services and investors take profits from high dividend names.
Hang Seng Index (HSI) Rebalance Preview: Inclusion Candidates for September
- Post market close on Friday, Hang Seng Indexes will announce the changes for the Hang Seng Index (HSI INDEX) that will be implemented at the close on 6 September.
- With no constituent changes in March and 1 add/1 delete in June, there could be more changes in September with Health Care stocks among the potential inclusions.
- Changes to the Hang Seng Industry Classification System (HSICS) will be implemented from the September rebalance and that will alter industry coverage.
HK Connect SOUTHBOUND Flows (To 9 Aug 2024); Tencent the Big Buy Again
- SOUTHBOUND was again a net buyer, for HK$15.2bn this week (now 27wks in a row of net buying), on smallish two-way volumes. Better than the previous month but still low.
- Bank net buying, which had spiked the previous week, didn’t follow through.
- There were three ETFs in the top 15 SOUTHBOUND net buys this past week, reversing last week, which reversed the week before’s flows.
CPMC (906 HK) Responds To Champion’s Offer
- On the 30th July 2024, packaging play CPMC Holdings (906 HK) dispatched the Composite Document for the HK$6.87/share, in cash, Offer from SASAC/NCSSF-backed Champion.
- The Response Document, including the IFA opinion (with a fair & reasonable conclusion) has now been dispatched.
- However, the focus remains on ORG Technology Co., Ltd. A (002701 CH)‘s superior HK$7.21/share Offer, which is currently negotiating the necessary regulatory approvals.
A/H Premium Tracker (To 9 Aug 2024): Global Market Vol. SB Bought. NB Sold. Premia Down.
- Delayed this week because of the long (Japanese holiday, which I took for myself) weekend, as were the SOUTHBOUND and NORTHBOUND monitors.
- SOUTHBOUND inflow strong. Tencent strong inflows. Net buying every day for two weeks. NORTHBOUND outflows large. Record foreign investor outflows from China’s capital markets this year.
- As expected (with AH 20d Premia returns at multi-year highs last week), AH Premia fell slightly, with narrow premia falling more than wide premia. I’d expect more H-vs-A gains.
WeRide (WRD US) IPO: The Bear Case
- WeRide (WRD US), a provider of autonomous driving products and services, seeks to raise up to US$119 million through a Nasdaq IPO and US$321 million through a concurrent private placement.
- In WeRide (WRD US) IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
- The bear case rests on a volatile revenue profile, high customer concentration risk, widening losses that raise doubts on the path to profitability, elongated cash collection cycles and cash burn.
Alibaba (BABA US): 1Q25 Preview, Stable Growth and Margin, But Overly Impacted
- We believe revenue will increase by 8% YoY in 1Q25, as most business lines have been growing.
- We believe the operating margin will be stable, as cost cut plans came to an end.
- We set an upside of 94% for March 2025, as we believe the stock is overly impacted.
China Consumption Weekly (12 Aug 2024): Geely, Li Auto, JD.com, Alibaba, Tencent, DDL
- The retail deliveries of NEV (new energy vehicle) increased by 37% YoY in July.
- One of Alibaba’s supermarket chains, Freshippo, will sell its OEM goods, on Lazada.
- Tencent will formally start the game, Arena Breakout: Infinite, in August.
Mainland Connect NORTHBOUND Flows (To 9 Aug 2024): Back to Net Selling of Renewables and Consumer
- The Quiddity Mainland Connect NORTHBOUND Monitor. Like the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor. Lots of Flows/Position Tables and Charts with which to play.
- Last week saw NORTHBOUND net SELL RMB 14.8bn of A-shares. It was a big net sell week in relatively low gross NORTHBOUND volume.
- HK large caps outperformed Mainland large caps generally. Tech (HSTECH vs Star50 and ChiNext) saw even better HK outperformance.
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