In today’s briefing:
- Weiqiao Textile (2698 HK): Pre-Condition Satisfied as Prudence Edges Towards a Blocking Stake
- MIXUE Group Pre-IPO – The Positives – Leading by a Mile
- HSBC – Gap of USD15bn on Carrying Value Vs Fair Value of BoCom, as China Economy Weakens More
- Weiqiao Textile (2698 HK): Pre-Cons Done. Payment (Perhaps) Late March
- [Luckin Coffee(LKNCY US, BUY, TP US$43) TP Change]: Weak Earnings in 4Q23 but Better Outlook in 2024
- Perfect Medical: Updates, Stock at 10% Dividend Yield Post Correction
- APAC Insurers Series (#4): How We See the 3 Insurance Stocks in 2024
- MIXUE Group Pre-IPO – The Negatives – Declining GMV Share
- Pre-IPO Guming Holdings – The Current Market Position Is Not Secure
Weiqiao Textile (2698 HK): Pre-Condition Satisfied as Prudence Edges Towards a Blocking Stake
- Weiqiao Textile Co (2698 HK)’s offer pre-condition is satisfied. Prudence has increased its shareholding to 3.39% of the outstanding shares (9.79% of H Shares), marginally short of a blocking stake.
- The HK$3.50 offer has been declared final, which rules out a bump. Therefore, Prudence’s strategy could be to play the gross spread or to block the deal.
- The Shandong Luoxin Pharmaceutical (8058 HK) precedent supports the gross spread play view. However, unlike the precedent, Prudence is marginally short of a blocking stake in Weiqiao Textile.
MIXUE Group Pre-IPO – The Positives – Leading by a Mile
- Mixue Group is looking to raise about US$1bn in its upcoming Hong Kong IPO.
- MIXUE Group (MIXUE) is a freshly-made drinks company providing affordable products to consumers, including freshly-made fruit drinks, tea, ice cream and coffee, typically priced at around one USD per item.
- In this note, we talk about the positive aspects of the deal.
HSBC – Gap of USD15bn on Carrying Value Vs Fair Value of BoCom, as China Economy Weakens More
- HSBC holds 19% of BoCom and still carries it with a value of USD23.3bn despite the stock market valuation putting it closer to USD8.1bn on YE22 figures.
- The bank cites its Value In Use testing as the justifiable reason for this gap, and this testing will include major assumptions like discount rates and long term growth rates.
- Goodwill and other intangible charges were USD10.6bn in FY08, USD3.4bn in FY16, and USD7.4bn in FY19 for HSBC.
Weiqiao Textile (2698 HK): Pre-Cons Done. Payment (Perhaps) Late March
- Back on the 4th December, Weiqiao Textile Co (2698 HK) announced a pre-conditional privatisation at HK$3.50 per H-share, a chunky 104.68% premium to last close and around a six-year high
- Pre-Conditions – regulatory approval from NDRC, MoC and SAFE – have now been fulfilled. The Composite Doc is expected to be dispatched on or before the 24 January.
- This Offer is a Merger by Absorption incorporating a Scheme-like vote. There is no tendering condition. Prudence Investment Management, which has now built a 9.79% stake, will be supportive.
[Luckin Coffee(LKNCY US, BUY, TP US$43) TP Change]: Weak Earnings in 4Q23 but Better Outlook in 2024
- In 4Q23, we expect Luckin Coffee revenue to increase 93% YoY to RMB7.1bn, and expect GPM/OPM to decline (5.8)/(1.3) ppt YoY to 19.0%/8.2%, respectively.
- We cut 4Q23 operating income by 12%. In 2024, we raised our revenue estimate by 5% due to the speed up of new store opening schedule.
- Furthermore, as price competition eased, we expect Luckin to offer less low-priced drinks, thus driving up OPM in 2024.
Perfect Medical: Updates, Stock at 10% Dividend Yield Post Correction
- Negative China sentiment from where Perfect Medical Health (1830 HK) derives about 15-20% of its revenue is causing the company’s share price performance to remain lackluster.
- Stock trades on a 10% dividend yield with 15% of the market capitalization in cash, despite the outlook for HK, where it derives >75% of its revenue, is slightly better.
- With a 10-year average ROE of the business >40% and a 10.8x PE for FY24e, this stock is a dividend gem worth exploring.
APAC Insurers Series (#4): How We See the 3 Insurance Stocks in 2024
- PICC P&C’s Q3 underwriting profitability deteriorated due to typhoon/catastrophe-related losses in both motor and non-motor business.
- Samsung Life’s new business growth momentum continued in Q3’23; new business CSM margin slightly improved QoQ.
- Prudential disclosed limited details in its Q3 results but we can see the growth trend of new business volume and profits continuing in the quarter.
MIXUE Group Pre-IPO – The Negatives – Declining GMV Share
- Mixue Group is looking to raise about US$1bn in its upcoming Hong Kong IPO.
- MIXUE Group (MIXUE) is a freshly-made drinks company providing affordable products to consumers, including freshly-made fruit drinks, tea, ice cream and coffee, typically priced at around one USD per item.
- In this note, we talk about the not-so-positive aspects of the deal.
Pre-IPO Guming Holdings – The Current Market Position Is Not Secure
- Guming generates revenue mainly from the sales of goods/equipment to its franchisees (or ToB business). So, Guming’s future growth depends significantly on its ability to operate and expand store network.
- China’s freshly-made beverage market is highly competitive. Guming is unlikely to catch up with MIXUE, but Guming will be overtaken by the rest players if it fails to compete effectively.
- Due to Guming’s business model, investors’re hard to see the real picture of Guming solely based on its revenue/profits. Guming’s valuation should be higher than Nayuki but lower than MIXUE.
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