Daily Brief China: ZJLD Group, Central China Real Estate, Growatt Technology, ABM Investama, JD Industrials, Hopson Development, Kwg Property Holding, ClouDr Group and more

• ZJLD Group (ZJLD HK), a baijiu company in China, is pre-marketing an HKEx IPO to raise up to US$400 million, according to press reports.
• In ZJLD Group IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
• The key elements of the bear case rest on the sharpest revenue slowdown, lowest operating margin and FCF margin vs peers along with a deterioration in lead growth indicators.

Central China Real Estate’s (CCRE) FY 2022 results were much weaker than expected, as revenue declined 43% y-o-y and the gross margin contracted to a low of 8% (FY 2021: 16%). EBITDA turned slightly negative, and we estimate CFO (after interest and tax) at negative CNY 4.0 bn. Net debt increased due to the negative cash flows, contrary to our expectations of deleveraging. Liquidity is poor, and the company has announced a distressed exchange for USD 897 mn of notes due in 2023.

In our view, CCRE’s poor profitability suggests that its operating challenges are more severe than expected. This could have been exacerbated by the company’s high exposure to lower-tier cities and counties in Henan, despite its established brand position and market share.

We foresee that CCRE’s revenue and gross margin will remain weak in FY 2023. In addition, any improvement in the company’s medium-term prospects would hinge on a recovery in contracted sales and ability to restart land-banking activities in H2, in order to extend its sales pipeline. This is crucial as CCRE is a pure-play property developer. The company’s longer-term prospects could depend on the development of synergies with SOE minority investor Henan Railway, to obtain new business and financing opportunities.

• Growatt is a distributed energy solution provider with the #1 market share for PV inverters and energy storage inverters, allowing them strong potential to benefit from a growing market.
• The company has filed for an IPO on the HKEx with a placeholder value of US$1bn and following the lapse of its application, has refiled for an IPO.
• In this follow-up insight, we have highlighted and discussed some of the key new data points from the company’s latest IPO filing document which contains full-year 2022 results.

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• JD Industrials (2231713D CH) is looking to raise about US$1bn in its upcoming HK IPO. The deal will be run by Bank of America, Goldman Sachs and Haitong International.
• JD Industrials (JDI) is a leading industrial supply chain technology and service provider in China in terms of GMV in each year during the Track Record Period, according to CIC. 
• JDI’s platform offers 48 product categories and approximately 42.5m SKUs as of FY22 (31st Dec 2022). 

Hopson Development’s FY 2022 results were soft as expected, with sustained weakness in contracted sales and revenue, along with a lower gross margin. We note negatively the continued loss in its financial investments, which may point to poor strategy and/or management.

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.

• Central China Securities
• KWG Living Group
• Sino-Ocean Service
• West China Cement

• ClouDr had outstanding performance in 2022, which was mainly due to its unique but effective development model – starting from To B business first and then expanding To C business. 
• ClouDr may become the first company to develop a successful profit model of online medical services. The integration of AI and medical care enables ClouDr to enjoy more policy dividends/catalysts 
• ClouDr Group (9955 HK) has high growth potential with big investment value, and it could even surpass JD Health in the future. The Company is undervalued and deserve investors’ attention.