Daily Brief China: ZJLD Group , Bank Of China Ltd (H), China Overseas Property and more

In today’s briefing:

ZJLD Lock-Up – KKR’s US$680m Stake to Be Unlocked, Although the PE Could Opt to Wait
Bank of China – Surging LDR, Falling NIM, ROE, with Higher Base of Credit Costs/Operating Income
China Overseas Property (2669 HK): Questionable Acquisition From Sister Company

ZJLD Lock-Up – KKR’s US$680m Stake to Be Unlocked, Although the PE Could Opt to Wait

ZJLD Group (6979 HK) raised US$676m in its Hong Kong IPO in April 2023. Its six-month lockup will expire on 26th Oct 2023.
ZJLD is a Chinese liquor company producing baijiu. As per F&S, the firm ranked third among all baijiu companies with three or more aroma types in terms of FY21 sales.
In this note, we will talk about the lock-up dynamics and updates since our last note.

There is little in the long-term and current figures of Bank Of China Ltd (H) (3988 HK) that leaves one assured of strength, stability, earnings power, and rather the opposite.
Sharply expanding LDR is an increase in loans relative to deposits, and it tends to drive rising NIM. Where LDR expands (a lot) but NIM contracts, it is a concern.
The bank appears to have a 2-3x higher base of credit costs/operating profit, with an ROE of 10% now vs 18% some years ago – with much more geopolitical risk.

China Overseas Property (2669 HK) announced an acquisition on October 11 of a technical consultancy business from China State Construction Development (830 HK), a sister company.
The deal consideration will be not higher than HKD950m, which amounts to a PE ratio of 17.5x based on estimated 2023 earnings of the acquired business.
In the current extremely shaky market, this kind of deal is very damaging to the market confidence of the stock. Further derating is likely.

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