In today’s briefing:
- Merger Arb Mondays (20 May) – L’Occitane, China TCM, SciClone, Malaysia Airports, I’rom, Hollysys
- HSTECH Index Rebalance: Float & Capping Changes Result in 8% Turnover & US$2.5bn Round-Trip Trade
- Lalatech Holdings: FCF Growth Accelerated, Margins Improved, Fair Value May Be North of $10B
- A Market with Small Value Stocks and Investment Opportunities Due to Delisting, Although Taking Time
- Pinduoduo（PDD US): Growth Stock Priced as Value Play
- Giant Biogene (2367.HK) Placement – A Turning Point in Performance Growth Has Emerged
- China Consumption (20 May 2024): Leapmotor, Stellantis, GAC, Honda, Li Auto, ZTO, Tencent Music
- The Hershey Company: How Are The Latest North America Confectionery Market Developments Impacting Them? – Major Drivers
- The Walt Disney Company: DTC Streaming Growth
Merger Arb Mondays (20 May) – L’Occitane, China TCM, SciClone, Malaysia Airports, I’rom, Hollysys
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), Hollysys Automation Technologies (HOLI US), QV Equities Ltd (QVE AU), Ansarada Group Ltd (AND AU), Malaysia Airports Holdings (MAHB MK).
- Lowest spreads: Chilled & Frozen Logistics Holdings (9099 JP), Mma Offshore (MRM AU), Great Eastern Holdings (GE SP), Mimasu Semiconductor Industry (8155 JP), Boral Ltd (BLD AU).
HSTECH Index Rebalance: Float & Capping Changes Result in 8% Turnover & US$2.5bn Round-Trip Trade
- As expected, there are no constituent changes for the Hang Seng TECH Index (HSTECH INDEX) in June. However, there are float and capping changes.
- Estimated one-way turnover is 8% leading to a round-trip trade of HK$19.2bn (US$2.46bn). There is over 3x ADV to buy in Li Auto (2015 HK).
- Short interest is quite elevated on a lot of stocks both in terms of days of ADV and in terms of free float.
Lalatech Holdings: FCF Growth Accelerated, Margins Improved, Fair Value May Be North of $10B
- Lalatech Holdings, a technology based global logistics company, has updated its application for Hong Kong IPO and disclosed financial results for 2023.
- Lalatech Holdings is aiming to raise up to $1B and the company’s IPO looks imminent in the coming months as cash flow growth accelerated, while margins and profitability improved.
- My fair valuation of Lalatech Holdings is close to $10B and investors should buy into upcoming IPO given the company’s substantial scale, massive network effects and operating efficiency.
A Market with Small Value Stocks and Investment Opportunities Due to Delisting, Although Taking Time
- Excluding the special factor of companies applying transitional measures moving to standard, the pace of natural decrease of prime market listed companies is moderate.
- Companies with high foreign shareholdings and large market capitalization are already highly valued. Companies that are not have investment opportunities that are often at a discount due to liquidity.
- Nearly half of the companies are companies with large shareholders holding more than 20% equity; investment opportunities are expected to increase as companies go private through TOBs and MBOs.
Pinduoduo（PDD US): Growth Stock Priced as Value Play
- We are more bullish on PDD’s 1Q24 results on the back of better monetization of domestic e-commerce business and fast and quality growth of TEMU.
- We now expect 1Q24 adjusted earnings to almost double yoy to RMB20 billion, much higher than our previous estimate of 50% yoy growth and exceeding consensus by ~30%.
- Moreover, we believe earnings growth will be steady throughout 2024 instead of slowing down as we thought. 10x FY24 earnings against 80% yoy growth lead us to see 50%+ upside.
Giant Biogene (2367.HK) Placement – A Turning Point in Performance Growth Has Emerged
- Despite high growth in 2023, the accelerated growth of Giant Biogene has entered a turning point, and its performance has begun to slow down. Long-term growth momentum is highly uncertain.
- Giant Biogene plans to prioritize the market entry of Class III medical device products.Due to increasing competition/challenges in marketing/promotion, it takes time to verify if the second growth curve works.
- Reasonable valuation for Giant Biogene is P/E of 20-30x.If based on RMB1.8 billion 2024, market value is RMB36-54 billion. Short-term catalyst is the Online 618 Shopping Festival and 24H1 report.
China Consumption (20 May 2024): Leapmotor, Stellantis, GAC, Honda, Li Auto, ZTO, Tencent Music
- Stellantis invested in Leapmotor and their joint venture will sell electric cars in Europe.
- Two vehicle producers, GAC and Li Auto, are dismissing employees.
- Tencent Music’s music revenue grew by 43% YoY in 1Q24.
The Hershey Company: How Are The Latest North America Confectionery Market Developments Impacting Them? – Major Drivers
- The Hershey Company reported optimistic market share trends in their Q1 2024 earnings.
- The firm has seen strong performances especially in seasonal sales and takeaway, with innovation being a significant growth driver.
- Its Reese’s Caramel product was quite popular among customers, with it not only being well received, but also helping drive strong merchandising especially around the Super Bowl season.
The Walt Disney Company: DTC Streaming Growth
- The Walt Disney Company reported a strong performance in the first quarter of 2024.
- Disney’s CEO, Bob Iger, and the company’s CFO, Hugh Johnston, discussed their strategic focus on transitioning ESPN into a leading digital sports platform, developing streaming into a profit-generating business, reviving film studios, and enhancing growth in parks and experiences.
- Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.
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