Daily Brief China: WuXi XDC Cayman , DPC Dash, Sichuan Baicha Baidao Industrial, Hygon Information Technology C, Remegen , Hang Seng Index, Greentown China and more

• WuXi XDC Cayman (1877628D HK) is looking to raise US$470m in its Hong Kong IPO.
• WuXi XDC Cayman (WXDC) is a CRDMO focused on the global antibody drug conjugates (ADC) and broader bioconjugate market providing integrated and end-to-end services.
• In this note, we will look at the deal dynamics and share our final thoughts on valuation.

• We believe the company is well positioned in China’s rapidly growing pizza market thanks to its strong brand and superior store economics. 
• Despite stock rally post 1H23 results, market still underestimates its earnings for both near and long term. We expect RMB250 million net profit for 2024 versus break-even by consensus.  
• History suggests DPC Dash has recipe for attractive stock return driven by its highly visible growth that can shield it from macro situations, which is desperately needed by China investors.  

• WuXi XDC Cayman (1877628D HK) is a leading contract research, development and manufacturing organisation (CRDMO) focused on the global antibody-drug conjugate (“ADC”) and broader bioconjugate market.
• The company has announced the terms for its HKEx IPO and plans to raise proceeds of around US$470m through the IPO.
• Wuxi XDC’s revenues have seen robust growth during the last 3-years driven by growth in ADC market while margins have continued to decline.

• Sichuan Baicha Baidao Industrial (SBBI) is looking to raise up to US$300m in its upcoming HK IPO. 
• SBBI sells new-style tea drinks through its ChaPanda stores. According to F&S, SBBI ranked third in China’s new-style tea shop market with a market share of 6.6%.
• In this note, we talk about the positive aspects of the deal.

• WuXi XDC set terms for an upcoming IPO: the fast-growing CRDMO offers 178.4M shares at the price range of HK$19.90-HK$20.60, implying a market cap of ~HK$23.9B (~$3B) at the midpoint. 
• Cornerstone investors agreed to subscribe and buy ~116M shares, assuming the IPO price of HK$20.25 at the midpoint. WuXi XDC shares will begin trading on Friday, November 17. 
• My PT of HK$25.57 implies a ~26% upside to the IPO price at the midpoint. WuXi XDC’s premium multiples reflect 100%+ top-line growth and the company’s leadership position. 

• With the review period complete, we see 9 stocks in inclusion zone and 10 in deletion zone. However, there can be a maximum of 5 changes at a review.
• We estimate a one-way turnover of 4.7% at the December rebalance leading to a one-way trade of CNY 3.86bn. Index arb balances could increase the impact on the stocks.
• Apart from being added to the SSE50 Index, Hygon Information Technology (688041 CH) could also be added to other local/global indices over the next few weeks and months.

• Although RemeGen’s 23Q1-Q3 sales was better-than-expected, the Company is difficult to achieve management’s performance guidance for 2023. Since RemeGen’s commercialization logic has “undeniable flaws”, net loss would be further widened.
• Cash balance of RemeGen was just RMB600 million by 23Q3, which is not enough to cover its high R&D/SG&A expenses. If RemeGen cannot secure sufficient financing timely, risks are significant.
• The current valuation and investors’ expectations for RemeGen largely rely on the potential license-out deal of RC18. However, we remain caution until RC18 has sufficient evidence to win head-to-head trial.

• The Hang Seng Index closed last week at 17664.12 (CC=+2), currently rallying this week, but there is a chance for a short-lived pullback (i.e. closing this week down).
• The current global equities bounce should continue for the entire month of November: the HSI may continue rallying for +2 weeks (if it does not close down this week).
• Price targets to watch for the end of the rally (i.e. shortable) are between 18300 and 18700.

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.

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