In today’s briefing:
- HSI, HSCEI, HSTECH: Rebalance Flows Post Capping (Dec 2022)
- SONY (6758) | Regulators – Duty Calls
- Pinduoduo: The Odd One Out
- China Education Group (839 HK): Shining Through
- Theme International Holdings (990 HK): Getting To Know You
- J Front Gets into Gaming to Drive Young Customers to Buildings
- Haier Smart Home (6690 HK): Further Updates from Management
- Philip Morris/Swedish Match: Squeeze-Out
HSI, HSCEI, HSTECH: Rebalance Flows Post Capping (Dec 2022)
- The December rebalance of the HSI, HSCEI and HSTECH indices will use today’s closing prices to cap the index constituents at 8%. This will lead to large flows.
- The largest inflows will be on Alibaba Group, Haier Smart Home, Kuaishou Technology, Li Auto, PetroChina, Tencent, JD.com, China Resources Mixc Lifestyle Services and Tingyi Holding.
- The largest outflows will be on SMIC, NetEase, AIA Group, HSBC Holdings, China Construction Bank, Alibaba Health Information Technology, Innovent Biologics, China Mobile, Ping An Insurance and ICBC.
SONY (6758) | Regulators – Duty Calls
- The next six months will be critical for the future of the global gaming industry as Regulators carry out further investigations into the Microsoft acquisition of Activision
- This is particularly important for SONY, where games account for around one third of consolidated revenue and profits
- This is a battle for the future of subscription services and cloud streaming – Call of Duty yields unprecedented power over the industry. Regulators need to do their Duty.
Pinduoduo: The Odd One Out
- Pinduoduo (PDD US)’s 3Q22 mirrored its strong previous quarter with revenue of RMB 35.5bn (consensus: RMB 30.8bn) and OP of RMB 10.4bn (consensus: RMB 6.7bn).
- CCP’s anti-monopoly drive and common prosperity measures are helping Pinduoduo to outperform the competition.
- Nonetheless, we refrain from being outright positive on any of the Chinese e-commerce names with the economy heading into a slowdown and the lowest sector-multiple at above 12x FY+1 OP.
China Education Group (839 HK): Shining Through
- China Education Group (839 HK)‘s 27.8% growth in net profit affirmed its solid fundamentals and minimal exposure to regulatory risks. We also welcome its resumption of dividends.
- Management expects profitability will be driven by the 48% new student enrollment growth, potential for tuition increase and global education segment recovery. Consensus forecasts are currently too conservative.
- Weaker 2H FY22 profit is due to higher depreciation and finance costs but will be absorbed with higher enrollment. Capex will be light and we also like its deleveraging move.
Theme International Holdings (990 HK): Getting To Know You
- Commodities trader Theme International Holdings (990 HK) is up 670% since the inset of Covid, and that is after declining 52% from the July 2021 peak.
- A sharp increase in iron ore prices since 2020 resulted in FY21 net income of HK$1bn against HK$146mn in FY19. Net cash is currently HK$4.2bn, 38% of Theme’s market cap.
- You Zhenhua is Theme’s largest shareholder. Theme recently acquired a 6.6% stake in You Zhenhua-controlled Esteel, which in turn holds a 61% stake in BRC Asia Ltd (BRC SP).
J Front Gets into Gaming to Drive Young Customers to Buildings
- J Front has acquired a stake in an e-sports management business and will use this to target younger people, drawing them into its buildings through themed events.
- Event marketing has become a key weapon for department stores and shopping buildings and should help bring in more young people.
- J Front is also using technology to bring in more HNWIs – where the real profits lie.
Haier Smart Home (6690 HK): Further Updates from Management
- Haier Smart Home Co Ltd (6690 HK) revealed that domestic sales are performing well in the “Double-11” festival and overseas sales have outperformed peers in Black Friday.
- The high-end brand Casarte has maintained good market shares in refrigerators, drum washing machines and air-conditioners. Overseas market also saw positive upgrade demand.
- Its digitalisation strategy has enhanced customers’ shopping experience and increased repurchases. HSH has also achieved improvements in overall efficiency through such efforts.
Philip Morris/Swedish Match: Squeeze-Out
- At the end of the further extended acceptance period, PMHH owns 93.11% of the shares of Swedish Match (obtained both through shares tendered and market purchases).
- PMHH intends to initiate compulsory redemption under the Swedish Companies Act to acquire all remaining shares in Swedish Match and request delisting from Nasdaq Stockholm. PMI wins again.
- Although the shares are still liquid, gross spread is 2 bps, and therefore there is no trade worth considering, in my view.
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