In today’s briefing:
- Zhihu (ZH US/2390 HK): Negative EV Play Launches a Share Buyback at HK$9.11/US$3.50
- Over Capacity in Chinese Auto Market
- Last Week in Event SPACE: Gulf Energy/Intouch, CK Infra, Zhongsheng, Thai Beverage, Fraser & Neave
- Brilliance China Automotive (1114 HK, NEUTRAL, TP:HKD3.90): Go for the >15% Dividend Yields
- China Healthcare Weekly (July.21)-Rumor About Akeso, Takeover Bid for Legend Bio, InnoCare’s Trouble
- LiAuto (LI US, BUY, TP:USD25.0): High Growth + Deep Value Stock
- Zhongsheng Group Holdings (881 HK, BUY, TP:HKD15.0): Challenging Outlook and Reflected in Valuation
Zhihu (ZH US/2390 HK): Negative EV Play Launches a Share Buyback at HK$9.11/US$3.50
- Zhihu Technology (ZH US) has launched a conditional share buyback offer to acquire a maximum of 46.9m Class A ordinary shares (15.93% of outstanding shares) at HK$9.11 (US$3.50 per ADS).
- The offer is conditional on shareholder approval by a majority of votes cast at the EGM. There is no minimum acceptance condition. The EGM vote is done due to irrevocables.
- Zhihu’s share buyback returns 19% of cash not subject to government controls, below Douyu International Holdings (DOYU US)’s comparable 34%. The minimum pro-ration is expected to be around 34%.
Over Capacity in Chinese Auto Market
- News show that European car makers such as BMW is moving out of China, leaving the Auto market to the local players
- Stocks like Brilliance China will suffer losses as they lose some of the most famous co-brand.
- Foreign firm exits may give relief to local auto makers as it resolves part of the over-capacity problems
Last Week in Event SPACE: Gulf Energy/Intouch, CK Infra, Zhongsheng, Thai Beverage, Fraser & Neave
- The Gulf Energy (GULF TB)/Intouch (INTUCH TB) merger is an opportunistic, bullying method designed to have GULF shareholders buy INTUCH and therefore AIS (ADVANC TB) at too low a price.
- CK Infrastructure Holdings (1038 HK)‘s interest in a possible London listing coincides with the LSE undergoing a listing regime change.
- Management continue to creep their stake in Zhongsheng Group (881 HK), and now hold a shade under 50%.
Brilliance China Automotive (1114 HK, NEUTRAL, TP:HKD3.90): Go for the >15% Dividend Yields
- Business is struggling due to legacy luxury brands such as BMW losing its positioning in China. Local brands are eating into market share fast.
- Thankfully, the company is cash rich and its trading nature enables steady supply of dividends and have been known to pay special dividends.
- Share price has been under pressure, now trading at ~15% dividend yield based on 50% payout, appealing to yield seekers.
China Healthcare Weekly (July.21)-Rumor About Akeso, Takeover Bid for Legend Bio, InnoCare’s Trouble
- There’re rumor that Akeso’s AK112 and AK104 2024 revenue is RMB300 million and RMB1.5-1.6 billion respectively. Sales of AK104 may be below expectations, so Akeso decided to enter NRDL reimbursement.
- Regardless of whether there is a takeover offer, reasonable valuation of Legend Bio is between US$12.5bn-US$15bn based on solid fundamentals. This deal is “a test” for the management of Genscript.
- Current stock price of InnoCare just reflects its essence. If no new catalysts (e.g. breakthroughs in clinical data, new licensing agreement, etc.), we are not optimistic about the prospects of InnoCare.
LiAuto (LI US, BUY, TP:USD25.0): High Growth + Deep Value Stock
- Share price under pressure due to industry challenges and transition of new product line-ups.
- 2024 is a blip, things will normalise 2025 and deliver strong topline and bottomline growth.
- LiAuto is trading at bargain levels for a company delivering 3-year earnings CAGR of 38%, net cash balance sheet and churns high free cash flow.
Zhongsheng Group Holdings (881 HK, BUY, TP:HKD15.0): Challenging Outlook and Reflected in Valuation
- Most brands under control (Mercedes, Lexus, Toyota) are undergoing popularity downtrend by consumers in China.
- There will remain a loyal niche supporter base, every legacy auto does, but it also means Zhongsheng will be a smaller and niche distributor going forward.
- Share price has plunged significantly YTD, trading at only ~5x, which we think is overdone. Yield hunters will like its ~8% DY.
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