Daily Brief China: Yuexiu Property, China Shenshan Orchard, Alibaba Group, Oriental Watch, JD Health, Hua Hong Semiconductor, JD Logistics, Semiconductor Manufacturing International Corp (SMIC), Growatt Technology, Wynn Macau Ltd and more

• The Yuexiu Property (123 HK) Rights start trading today. Last day is next Monday. There is a general pattern to the flows and it behooves investors to be aware.
• There is a pattern to these trades which is worth understanding.
• In this case, I expect it is worth going long Yuexiu Rights vs Short peer basket equity earlier in the cycle.

For our next Corporate Webinar, we are glad to welcome China Shenshan’s Executive Director, David Zhao.

In the upcoming webinar, David will share a short company presentation after which, he will engage in a fireside chat with Smartkarma Insight Provider, Angus Mackintosh. The Corporate Webinar will include a live Q&A session

The webinar will be hosted on Tuesday, 23 May 2023, 17:00 SGT/HKT.

About China Shenshan Orchard

China Shenshan Orchard Holdings Co. Ltd. is a horticultural marketing company in the business of planting, cultivating and sale of kiwifruits in the People’s Republic of China (“PRC”). The Group holds forest use rights for 8 strategically located orchards, spanning a total land area of 9,805 mu (approximately 6.5 million sqm), which is believed to be one of the largest domestic kiwifruit orchards concentrated in the Chibi City, Hubei, the PRC.

• On 28th Mar 2023, Alibaba Group (9988 HK) announced that it would adopt a new organizational and governance structure, splitting into six major business groups and other investments.
• Alibaba also stated that each of the business groups would be set up as an independent entity with its own board and the groups will eventually seek to list.
• Having looked at the past performance of its division, some appear more worthy than others of undertaking a listing in the next year or two.

• Q1 CY23 watch and jewelry sales for HK were up 88% YoY. HK sales for Oriental Watch (30% of revenues but less volatile) will benefit from the recovery in HK.
• We estimate China sales will continue to remain resilient as cross-border travel is yet to pick up in a big way. 
• Trading at 7.5x FY23e and a 14.2% dividend yield, with more than 50% of the market capitalization in cash, the company can pay solid future dividends despite weaker earnings.

• The previously stockpiled drugs/medical devices require a long cycle of digestion. As the industry beta brought by COVID-19 dividend would fade away, JD Health’s performance growth could slow down accordingly.
• Although JD Health divides its buiness into product revenue and service revenue, drug/product sales are still the underlying logic and business model, which is difficult to maintain high growth expectations.
• Current valuation is in reasonable range. Since JD Health will be added to HSI INDEX, it could help boost share price. However, if business transformation fails, high valuation is unsustainable. 

• Q1’23 revenues of US$630.8 million, up 6.1% YoY and flat sequentially.
• Gross margin was 32.1%, up 5.2 points YoY but down 6.1 points sequentially.
• HH is playing a blinder through the downturn and likely beyond…

• JDL reported 1Q23 revenue that is 2.2% vs. our est. and cons., and non-IFRS net loss that was 32% vs. our est., and 18% vs. cons. 
• We have concerns about 1) the declining number of external integrated supply chain (ISC) customers; 
• And 2) declining gross margin, which demonstrate the effects of JD’s low-price strategy, in our view; We maintain JDL’s SELL rating and HK$ 9.20 TP.

• SMIC reported C1Q23 top-line, GAAP EBIT and non-IFRS net profit 4.7%, 17% and 75% vs. our est., and 1.9%, (19.5%), and 25% vs. cons。 
• We expect 1Q23 to be the bottom for SMIC, improving quarterly on the back (1) IC supply chain localization, and (2) domestic economic improvement. 
• Despite high-inventory levels at most clients, SMIC continues to receive wafer orders for new IC products. We maintain BUY rating and HK$ 24 TP.

• Growatt Technology (1833969D CH) is looking to raise about US$400m in its upcoming Hong Kong IPO, after downsizing from an earlier US$1bn float in Nov 2022.
• Growatt Technology is a global distributed energy solution provider, specializing in sustainable energy generation, storage and consumption, as well as energy digitalization. 
• Previously, we looked at the company’s past performance, peer comparison and shared our earlier thoughts on valuation. In this note, we will provide our latest thoughts on valuation.

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.

• Hopson Development
• Melco Resorts & Entertainment
• Wynn Macau Ltd