Daily Brief China: Wuxi Biologics, Meituan, Vipshop Holdings, iQIYI Inc, Road King Infrastructure, China UnionPay and more

• Wuxi Biologics (2269 HK) recorded 8% YoY revenue growth to RMB8.5B in 1H23. Strong momentum continued in the base business, with the non-COVID revenue achieving a 60% YoY growth.  
• Ramping up of new manufacturing facilities, maintenance shutdown of existing facilities, slowdown in funding environment in China, and increasing expenses have negatively impacted the profitability.
• Total number of integrated projects reached a new record of 621 with 46 integrated projects added to the pipeline. As of June 30, backlog increased 9% YoY to $20.1B.

• Total revenue grew by 33% YoY, which is the highest growth rate in the past seven quarters.
• The company achieved a higher operating profit in 2Q23 after turned the profit positive in 1Q23.
• The stock price has risen by 20% since our last buy rating, but we believe there will be still 38% upside for yearend 2024.

• Over the last decade, VIPShop proved it is the undisputed leader in China’s online discount retail business with the longest streak of profitability and impressive ROE among China internet names.
• Investors are misplaced to look to the stock for growth. Rather, it is cash cow in mature business with deep moat and run by disciplined management who cares about shareholders.
• Trading at 4.5x our FY23 earnings excluding net cash, it valuation is attractive even compared to depressed sector comps. Expect 20% CAGR of return by 2025 driven by intrinsic value.

• IQ reported 2Q23 revenue and non-GAAP net income 0.2%/28.5% vs cons.
• We cut our projections for 3Q23’s membership services revenue, but increased estimations for online ads services revenue, and raised margin forecasts for 2023.  
• We maintain our US$ 6.25 TP, implying 16.2X PE in 2023.

Road King’s H1/23 results were mixed in our view. The company reported robust top-line growth, albeit gross profit plunged due to lower ASP of properties delivered. In addition, cash dividends from toll roads declined materially, owing to the non-renewal of the Tangjin expressway concession upon expiry in April.

Positively, Road King’s net debt continued to decrease, as it repaid borrowings using cash collection from property deliveries. The company could sustain its sales momentum in H2/23, as it is poised to launch the So Kwun Wat project (its sole remaining undeveloped project in Hong Kong) for sale.

We believe Road King will remain current on its obligations for the next 12 months. That said, the company’s medium-term prospects appear dim. Moreover, the small and dwindling land bank might suffice for only another two years of development. In the meantime, the company is likely to continue repurchasing offshore bonds.

We move our LARA to “High Risk”. We maintain our “Hold” recommendation on the ROADKG 2024 notes, but move to “Not Recommended” on the remaining notes.

• Regulators cleared state-backed bank card giant China UnionPay, the world’s largest provider of debit cards, to more than triple its registered capital to almost 10 billion yuan ($1.37 billion).
• Such a capital increase usually is intended to improve a payment institution’s risk control system and ensure the safety and stability of the business, a senior analyst in the payment industry said.
• People at UnionPay told Caixin that the capital increase was a distribution of unrealized shareholder equity and was a normal financial adjustment with no impact on its shareholding structure.