China Archives | Page 28 of 153 | Smartkarma

• L’Occitane (973 HK) reported FY1H24 (fiscal year ending March 31) results yesterday after market, with net profit down 45% yoy. 
• The sharp drop in earnings is mainly due to a 48% yoy increase in marketing costs, as well as increased finance costs.
• The company maintained the FY24 outlook of 17% topline growth and an operating profit margin of 12% (FY1H24:  7.2%). 

• Dekon Food and Agriculture Group (DFAG CH) is looking to raise up to US$128m in its Hong Kong IPO.
• Dekon Food and Agriculture Group (DFAG) is a vertically integrated livestock farming enterprise in China.
• In this note, we will look at past performance, and share our thoughts on valuation.

• Perfect Medical Health (1830 HK) results showed 7% revenue growth and 10% YoY profit (27% YoY adjusted profit for subsidies) growth in H1 FY24.
• The company declared a 14.2 cent/share interim dividend. H2 dividends usually are higher, so we expect a 32-35 cent dividend for FY24. 
• This is another dividend-yielding gem, trading at 12.0x PE FY24e, a 9% dividend yield, and 15% of the market cap in cash and investments with a >50% ROE. 

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.

• Meituan

• YSB would be added to KraneShares CSI China Internet ETF.Cornerstone investors could opt to cash out directly,taking advantage of improved liquidity, which means even they’re not optimistic about YSB’s prospects.
• YSB’s profit margin is disappointing. It would be hard for YSB to deliver decent profits in the end. This business does not make money. YSB is also short of money.
• Since going public, YSB’s share price has been on a rollercoaster, which has deviated from the fundamentals, but it should be pointed out eventually stock prices will return to fundamentals.

• Meituan (3690 HK) ‘s 3Q2023 revenues beat estimates while OP for the quarter was well below consensus estimates.
• There were clear signs of slowdown in earnings growth due to macroeconomic challenges and weaker demand. 4Q earnings are expected to decline further.
• Meituan’s share price went down by about 11% following its earnings announcement as slowdown in core local commerce and weakening earnings have concerned investors.

• Improved transparency from management is an important positive. Additional disclosures were included on entity IRR in the results presentation (attached, not previously disclosed). 
• Profitability target for the consolidated ecommerce businesses moved forward to H2 FY24 from H1 FY25. Significant narrowing of trading losses in H1 FY24 to $36m from $256m in H1 FY23.
• As management ‘commit to highlight value where and when possible’, we think an IPO could very well be on the horizon.

• MNSO reported C3Q23 revenue in line with our estimate/consensus, and non-GAAP operating income in line with our estimate.
• However, stock fell 14% over two days, mainly on concern of slowdowns in overseas distributors;
• Based on our channel checks, overseas distributor inventory has always been a problem, more so when heightened US interest rate pricking the consumption bubble in developing markets.

• Sino-Synergy Hydrogen Energy Technology (9663 HK) (SHET) is looking to raise around US$200m in its Hong Kong IPO. 
• SHET is a hydrogen fuel cell company in the PRC focusing on research, development, production and sales of hydrogen fuel cell stacks and hydrogen fuel cell systems.
• In this note, we will look at the company’s background and talk about valuations.

• Pru is currently trading below its embedded value, with the valuation assigning a negative value for the group’s new business profits.
• Given its quality franchise across all key markets in Asia and continued strong new business recovery (to pre-Covid levels), this doesn’t seem to make sense at all.
• We would continue underwriting the investment case of Pru in the coming year, with the stock offering significant upside potential. 

• CIMC Vehicle Group Co Ltd (1839 HK) possible H Share buyback offer, excluding China International Marine Cntnrs Gp (2039 HK)’s shares, is HK$7.00, an 8.7% premium to the undisturbed price. 
• The key condition is approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders rejection). There could also be a 90% minimum acceptance condition.
• The offer is light, but independent H shareholders holding blocking stakes will likely be supportive. The final offer will be made on “same or better terms”, suggesting a potential bump.

• The final datapoints for the December Hang Seng Indices rebalances were recorded today, slightly altering the initially expected weights and flows. 
• The expected flows have slightly increased since the initial estimates on 15 then 17 November.
• Across all three indices, I see a net total of roughly HK$13.4bn a side to trade. 

• The December rebalance of the HSI, HSCEI and HSTECH indices will use today’s closing prices to cap the index constituent weights at 8%. This will lead to large flows.
• Li Auto (2015 HK) will have the largest inflows due to the HSI inclusion while Xiaomi (1810 HK) will have the largest outflow due to HSTECH capping.
• There will be passive selling in HSBC Holdings (5 HK) for yet another rebalance due to capping of the stock in the Hang Seng Index (HSI INDEX). 

• CIMC Vehicles (1839 HK) is currently suspended pursuant to Hong Kong’s Code on Takeovers and Mergers.
• SOE-Backed CIMC Group controls ~74% of CMIC Vehicle’s H-shares. Presumably, if any Offer was to unfold, it would be from the parent.
• And what price for the H-shares? Around HK$9/share, a life-time high, would be in keeping with premiums seen in precedent PRC-incorporated privatisations. 

• After CIMC Vehicle Group Co Ltd (1839 HK) was suspended yesterday pursuant to Hong Kong’s Takeover Code, the expectation was an H-share Offer from its parent, SOE-backed CIMC Group.
• CIMC subsequently announced an indicative Offer yesterday evening, from its parent, at a $7.00/share for each H-share, a pitiful 8.6% premium to last close. There is no concurrent A-share Offer.
• CIMC traded around $7.00 late September, and comfortably traded through the indicative terms for most of July. 

• In 3Q23, total revenue surged by 94% YoY, as Temu started operations in nine European countries in August.
• Operating profits increased by 60% YoY in 3Q23, so we believe overseas businesses have made profits.
• The stock price reached our last target, but we believe there is still an upside of 40% for 2024.

• Even China’s consumption market is tough, Bosideng Intl Holdings (3998 HK) has still achieved a 25.1% profit growth. Revenue maintained a healthy trend while gross margin was stable.
• Sales trend stayed solid in 2H FY24, and it ranked first in major online channels in various categories of apparel sales during the “double-11” shopping festival.
• Store efficiency improved as revenue saw double-digit growth despite a 9.7% YoY fewer retail network. It is encouraging to see its 3-year target is to outperform the last 5 years.

• Some investors are disappointed with 23Q3 performance, but we think Dong-E-E-Jiao is getting back on track. The de-stocking has achieved great results and pressure on distribution channels has been alleviated.
• Since Dong-E-E-Jiao’s contract liabilities hit a record high, we are optimistic about the performance in 23Q4 and 24Q1. China Resources could further improve Dong-E-E-Jiao’s dividend rate, making it more attractive.
• Since Dong-E-E-Jiao’s performance is continuously improving, valuation still has room to grow. A significant increase in valuation in the short term depends on whether there would be M&A deal emerges.

• The Hang Seng Index is down 1 week and going towards Q2 support at 17098. Not yet OVERSOLD, but it could be soon, WEEKLY and MONTHLY.
• Once the OVERSOLD states begins, it’s time to go LONG: the index has been mildy downtrending for 3 months, it looks like it could be bottoming.
• If the index reaches below 17112.48 (October’s MONTHLY Close), it would be a good area to go LONG, the probability of a rally in December, from there, would be good.

• Huawei’s decision to accept investments to its Intelligent Automotive Solution (HI) has no impact on its Harmony Intelligent Mobility Alliance (HIMA). It might actually strengthen it, in our view;
• We also believe it concludes Huawei’s internal battle of visions.
• The newly integrated business has short term impacts on Li, Nio and XPeng and long-term impact on Baidu and Xiaomi.

• Reportedly, Chinese investors, as well as Middle Eastern sovereign wealth funds, have expressed interest in acquiring a “significant ” minority stake in PCCW Ltd (8 HK)‘s fibre ops. 
• Preceding my comments on PCCW are the current setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• There are 3 changes for the CNI Semiconductor Chips Index that will be implemented at the close on 8 December.
• This is yet another index inclusion for Hygon Information Technology C (688041 CH) – the stock continues to move higher on expected passive buying over the next two weeks.
• Over the last 6 months, the adds have underperformed the deletes but there has been a significant improvement in performance over the last 2 months.

• There will be 6 changes for the ChiNext Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index. Implementation is at the close on 8 December.
• There is a lot of overlap between the adds and deletes across both indices with the one-way trade across both indices estimated to be CNY 2.4bn.
• The adds and deletes have drifted lower over the last few months. However, the adds have outperformed the deletes significantly in the last month.

• ZEEKR (ZK US), a premium EV brand by Geely Auto (175 HK), aims to raise around US$500m in its US listing.
• Zeekr was formed in Mar 2021 as a JV between Geely and its founder. Its first model was launched in Apr 21 with deliveries starting in Oct 21.
• We have looked at the company’s past performance and valuations in our earlier notes. In this note, we talk about the updates from its recent filings.

• Baidu reported revenue/non-GAAP operating profit/GAAP net income inline/7.72%/66.1% vs. our estimation.
• We believe short term cyclical and medium term AIGC-led upswing in advertising can bridge Baidu’s long-term business, which we do see them difficult to monetize.
• We maintain a BUY rating and adjusted TP to US$157, implying a 14.6x PE. It is currently trading at 11.4x PE in 2024.

• Wuxi Lead Intelligent Equipmen (300450 CH) is looking to raise around US$300m in its upcoming Switzerland GDR listing.
• As per media reports, Wuxi Lead was said to be looking to raise US$495m via a Swiss GDR issuance, having secured approval to sell up to 78.3m shares.
• Given the decline in its share price over the year, the eventual deal size could come to around US$300m as of its current last close.

• Full Truck Alliance reported strong growth in Q3, from the right sources
• Improved sales mix & progress on expense control lifted core margins
• With 22% upside to US$9.5 based on 21x PER, our high conviction pick

• In October, the sluggish recovery in outbound tourism demand continued
• Outbound capacity growth also timid; but domestic recovery is mostly complete
• As growth stock, Trip.com’s disappointed; maybe it can attract value investors?

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.

• China Water Affairs

• China Education Group (839 HK) appears to be facing the headwinds from higher USD interest rate and reduction in capitalised interest. The intangible write-off is another drag on FY23.
• Newly registered students increased 17.8% for FY24. With better average fees, this will help the topline. Our concerns are high finance and operating costs will erode revenue growth.
• Consensus is overly aggressive and there are risks of downgrade. Earnings may re-accelerate in the future, but weaker 1H FY24F keeps us on the sideline in the short term. 

• There are 14 changes for the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX) at the upcoming rebalance that will be implemented at the close of trading on 8 December.
• While most changes are in line with forecasts, there are some stocks that have not been added or deleted as the index committee has used their discretion.
• The adds outperformed the deletes in the first half of the year with performance staying stable over the second half of the year. Position for outperformance ahead of implementation.

• The December rebalance of the KraneShares CSI China Internet ETF (KWEB US) will take place at the close of trading on 8 December.
• Fenbi Ltd (2469 HK) and YSB (9885 HK) will be added to the index and there are no deletions.
• There is a big lock-up expiry in YSB (9885 HK) soon after the index inclusion and this could be an opportunity to access liquidity in the stock.

• After market close on Friday 24th November 2023, the December 2023 index review results for CSI 300/500 and SSE 50/180 were announced.
• CSI 300 and CSI will have 14 and 50 changes while SSE 50 and SSE 180 will have 5 and 18 changes respectively. There are many overlapping flows.
• In this insight, I have presented the details of the index changes and aggregated the expected flows attributable to the four indices mentioned above.

• There are 50 changes a side for the CSI Smallcap 500 Index at the upcoming rebalance that will be implemented at the close of trading on 8 December.
• There are 15 stocks that overlap between the CSI 300 Index and the CSI Smallcap 500 Index and there will be opposing flows from passive trackers.
• One way turnover at the rebalance is estimated at 9.56% leading to a one-way trade of CNY 6.04bn. Industrials and Information Technology gain index spots while Materials and Financial lose.

• There are 4 changes for the CSI Medical Service Index that will be implemented at the close on 8 December.
• The constituent changes plus capping result in one-way turnover of 5.9% and in a one-way trade of CNY 1.86bn (US$261m).
• Some stocks will have passive flows from global trackers at the end of November while there will be flows from other local passive trackers at the close on 8 December.

• Tesla Motors (TSLA US) market share in China has decreased and its 3Q23 operational data suggested it offered discounts to defend its market share. 
• Albeit losing some market share, BYD (1211 HK) operational data is much more solid, even expanded its profit margin during a difficult environment in China. 
• Tesla share price has outpaced BYD’s this year by 70%, it should reverse in the next year.

• Tongcheng Travel Holdings (780 HK) is best positioned to capture post-COVID travel, especially in lower-tier cities. This is reflected in a 146.5% growth in 3Q23 adjusted net profit.
• The cooperation with Tencent (700 HK) continues to bear fruits and will drive accelerated momentum as it leverages on QQ Browser, Weixin mini-program, and Tencent Docs.
• 3Q23 net cash increased 1.5x from the end-FY22 level and now represents 10.9% of market capitalisation. Its earnings valuations are attractive relative to both growth and peers.

• It is the upfront payment rather than the total or subsequent milestone payments that indicates the gold content of license-out collaborations. We analyzed our criteria.
• Investors actually don’t need to worry too much about the NRDL negotiation results, because the NRDL price of domestic innovative drugs has become relatively stable. There are basically three levels.
• We analyzed key points about China Resources Sanju. Considering the impact of anti-corruption in 23Q3 and the weak performance of TCM formula granules business, 23H2 performance could be under pressure. 

• From 2020 to 2022, Yan Palace has spent RMB831 million on advertising and promotion, while total net profit of the Company during the same period was only about RMB500 million.
• OneNest is the main product with the highest gross margin, which is driven by price increase strategy.However, raising price may not work. Revenue growth in 2023H2/2024 could further slow down.
• The question is are investors really satisfied with such low-margin business for a company with strong consumption attributes? Valuation of Yan Palace should be lower than Dong E E Jiao.

• Trip.com’s domestic hotel bookings increased by 70% over pre-COVID 3Q19.
• Xiaomi’s revenue began to grow in 3Q23 after decreasing for five quarters.
• China home appliance export surged in October, for example, fridge export amount growing by 42% YoY.

• There are 3 changes for the CES China Semiconductor Chips Index that will be implemented at the close on 8 December.
• Hygon Information Technology C (688041 CH) will be added to a global index in a week and then there will be multiple index inflows at the close on 8 December.
• After underperforming from May to September, the adds have gained ground on the deletes over the last two months and there could be further outperformance over the next two weeks.

• The capping for the Hang Seng family of indices will use closing prices from 28 November while implementation will take place at the close on 1 December.
• The changes for the next S&P/ASX 200 (AS51 INDEX) rebalance will be announced after the close of trading on 1 December.
• It was another week of inflows for the iShares Emerging Markets (EMXC US) to take units outstanding to a new high.

• As expected, the index committee has used a 6-month minimum listing history and that results in one change to the SSE STAR50 (STAR50 INDEX) in December.
• Sichuan Biokin Pharmaceutical (688506 CH) will replace Ninebot (689009 CH) in the index at the close on 8 December.
• One way turnover is estimated at 2.18% and will result in a one-way trade of CNY 3,065m. Sichuan Biokin Pharmaceutical (688506 CH) has moved up and there will be pre-positioning.

• The New and Better (17 weeks old) A-H Monitor has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
• Hs with H/A pairs under-perform their As on average. H/A Pair intracorrelation is up and A premia continue to trend better.
• SOUTHBOUND and NORTHBOUND were net sells overall. Everybody sold tech.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• In the IPO space, Tata Technologies didn’t disappoint Tata Group fans, at least on the subscription front.
• The placements continued to flow in this week as well in Japan.

• This is the somewhat-brand-spanking-new Quiddity Mainland Connect NORTHBOUND Monitor. We work off the same presentation as the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor.
• The same few names continue at the top of the gross flows list – Kweichow Moutai, Contemporary Amperex, Zhongji Innolight, etc, but the nets are changing (and Chongqing Changan)
• Last week, NORTHBOUND were again net sellers (RMB -3.16bn), but Shanghai saw net buys. The top two flows were Chongqing Changan Automobile Company (200625 CH) to buy, BYD to sell.

• This is the somewhat brand-spanking-new Quiddity HK Connect SOUTHBOUND Monitor. We work off the same presentation as the A/H Premium Monitor and Mainland Connect NORTHBOUND Monitor.
• SOUTHBOUND flows the last several weeks clearly indicated a momentum move. The top net sells were all down. The top buys were all up. We saw a pause, then continued.
• SOUTHBOUND sees more net selling this week of stocks. Last week ETF selling turned flows negative. This week, ETF flows flattered the net sell. Tech still being sold.

• The property management unit of Dalian Wanda Group Co. wants to push back the maturity of a $600 million bond by nearly a year, highlighting the property conglomerate’s deepening liquidity crunch.

• Dalian Wanda Commercial Management Group Co. said Tuesday that it is seeking to delay the payment on the 7.25% note by 11 months due to liquidity pressures.

• The 10-year dollar-denominated notes, issued by its subsidiary Wanda Properties International Co., are set to mature on Jan. 29, 2024, Wanda Commercial, the guarantor of the bond, said in a filing to the Hong Kong stock exchange.

• There are 5 changes for the SSE50 Index (SSE50 INDEX) that will be implemented at the close on 8 December. There is over 1x ADV to trade on some stocks.
• We estimate a one-way turnover of 5.4% at the December rebalance leading to a one-way trade of CNY 4.85bn. Index arb activity could add to the impact on the stocks.
• The adds, deletes and SSE50 Index (SSE50 INDEX) have moved nearly in lockstep since May and the passive flows could move things around a bit.

• All positives from management: strong demand, loads and yields strong, cargo improving, costs are high but can cope, big profits coming but have to redeem preference shares  
• The near-term future is a golden runaway for Cathay Pacific. All the parameters are in the right place and we think this will persist until 1H-2024 at the very least 
• Cathay Pacific is a value BUY, our target price of HK$9.90 (+21% UPSIDE) implies 10x FY2024 PE, parity multiple against its arch-rival Singapore Airlines (SIA SP). 

• We expect Meituan to report C3Q23 top line, non-GAAP operating profit and GAAP net income 2%, 4% and 20% vs. consensus. Our C4Q23 estimates are 6%, 19%, and 30% …
• Douyin’s in-store GMV growth decelerated in September/October, per local media. We believe there are two main causes, (1) local life’s share of Douyin video views is around 10%~, which…
• Douyin’s next threat to Meituan is food delivery, but GMV is less than 1% of Meituan food delivery in 3Q, we estimate. At the current trajectory, we expect Douyin…

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Agung Podomoro Land
2. China Jinmao Holdings
3. Geely Auto
4. First Pacific Co
5. Reliance Industries

and more…

• EM Fund ownership in JD.com continues to fall. Average weights slip to 4-year low as managers close out in large numbers.
• Between February 2023 and October 2023, there were 56 closures versus 6 openings in JD.com, led by managers at the growth end of the spectrum.
• Despite this, JD.com is still the 16th most widely held stock globally, with combined AUM among the funds in this analysis of $1.27bn.

• New Horizon reported a strong 1H2023 results. Company has upgraded its ’23 sales guidance.
• The company will continue to deliver strong sales growth despite recent anti-corruption movement in China.
• We believe that the evidence presented by the recent short-selling report is not sound. We believe the impact is over. 

• Weekly summary of vol changes and moves across Global Markets
• Analysing ATM volatility and skew changes over the last 5 days
• We suggest a few trades to take advantage of the implied vol surfaces

• Kuaishou reported revenue/non-GAAP operating profit/GAAP net income 1.13%/35.0%/52.2% vs. our estimation.
• The bottom-line beats were primarily due to reduced S&M costs related to effective user retention strategies and the operation of the newly constructed data centre in Ulanqab…
• We maintain our BUY rating and raised TP to HK$78 for a positive outlook in the e-commerce business and viral playlets, stimulating advertising growth…

The Asia Trade Book for November 2023 includes a summary of our recommendations, as well as our high-conviction ideas. The report also features relative-value charts and lists of the bonds across Asia HY and crossover credits.

Please reach out to our analysts to discuss any of these ideas, or other trade recommendations from our Asia coverage.

• Oriental Watch (398 HK) reported an 8% YoY profit decline for H1 FY24 (Vs. our expectation of 10-15% growth) due to a higher taxation rate and lower margins in HK. 
• Despite that, the company distributed 100% of its profits for a 28.5 cent HKD/share dividend (15% annualized) and built net cash/investments to 1.25 bn HKD (62% of market cap). 
• Trading at 7x FY24e PE with abundant cash and real estate with a 15% yield, the stock is worth exploring with the perspective of building a high-yield portfolio.

• Giant Biogene was listed in Hong Kong IPO in 2022. It has done well since and is now trading 45% above its IPO price, but its still cheap.
• GB is a leader in the bioactive ingredient-based professional skin treatment product industry in China.
• In this note, we will talk about the company’s past performance and future prospects.

• Xiaomi reported C3Q23 top-line, non-GAAP EBIT, and GAAP net profit (2%), 7% and in-line vs. our est., and in-line, 4%, and 13%, vs. consensus respectively.
• Xiaomi’s recent run could be short lived, as (1) Huawei will soon launch mid-range 5G handsets, (2) the Mi 14 will soon face new high-end Android competition;
• And (3) its underinvested EV project could disappoint. We maintain our SELL rating and HK$ 12.6 TP, implying 28x CY24 P/E.

• In Apr 2023, ZJLD Group (6979 HK) raised around US$676m in its HK IPO. While it initially had a turbulent listing, the shares are now trading above its IPO price.
• ZJLD Group (ZJLD) is a Chinese liquor company primarily producing baijiu. 
• In this note, we will talk about the company’s past performance and future prospects.

• BOC Aviation (2588 HK) (BOCA) is the highest-quality aircraft leasing company, with a young asset portfolio, quality clientele, cheapest credit facility, and superb risk management.      
• Outlook is attractive, strong demand and scarce supply ensures high lease rates and profits. Asset disposals have all recorded a healthy surplus, a potential earnings surprise. 
• Our TP of HKD70/share implies 0.94x FY24 (22% UPSIDE) potential 

• Geely Auto (175 HK)‘s share price has largely swatted away the pending US-listing of ZEEKR (ZK US).
• ZEEKR was valued at US$13bn after a US$750mn fund raising in February. At that value, Geely’s 54.7% stake is worth 58% of its market cap.
• Geely is trading around a six and half year low, and below its five average trailing/forward metrics. 

• ZEEKR (ZK US), a premium EV brand by Geely Auto (175 HK), aims to raise around US$500m in its US listing.
• Zeekr was formed in Mar 2021 as a JV between Geely and its founder. Its first model was launched in Apr 21 with deliveries starting in Oct 21.
• We have looked at the company’s past performance and undertaken a peer comparison in our earlier notes. In this note, we will talk about valuations.

• Anta Sports Products (2020 HK) is the second largest China sportswear company at 20% market share in 2022.
• The thesis for Anta lies in Anta’s above-industry earnings growth for the next 3 years, low market expectations on China sportswear sector, and flexible multi-brand strategy.
• Anta trades at a forward PE of 17x based on estimated 2024 earnings, with around 15-20% expected net profit growth in 2024-2026.

• Xiaomi Corp (1810 HK) is a member of the Hang Seng Index, Hang Seng China Enterprises Index and Hang Seng TECH Index, among others.
• Capping of stocks at 8% of the index weight will lead to selling in Xiaomi (1810 HK) at the close on 1 December, mainly from Hang Seng TECH Index trackers.
• Relative underperformance vs the HSTECH Index from now to Tuesday will require passive to sell less stock, while outperformance will lead to increased passive selling. That opens up trading opportunities.

• Kuaishou’s 3Q2023 earnings beat consensus estimates with significant improvement to the company’s profitability driven by growth across all business segments.
• Operating losses of the overseas segment has further reduced, and new offerings such as paid mini dramas have been driving strong growth for the company.
• Though Kuaishou’s share price has moved up during the last few months, valuation multiples are at a steep discount to historical multiples, suggesting there is further upside.

• After COVID-19, China healthcare has been under pressure for a long time. High interest rate environment is unfriendly to companies, but the current situation is not entirely devoid of opportunities.
• GLP-1s has reignited investors’ interest in this industry, which will be long-term opportunity and bring alpha. With rich domestic/overseas catalysts ahead, related share price performance is worth looking forward to.
• Among the domestic GLP-1s companies, Innovent is our top pick. The “concept validation” of Innovent’s business model has been completed. A qualitative change in the Company is coming soon.  

• Sunpower reported 9M23 results which showed the company performing strongly as a 100% GI business.
• Revenues +15% and EBITDA +46% YoY. Earlier this month a competitor listed in China at a massive premium to Sunpower’s valuation.
• The uncertainty over the CB due in April 2025 will be an overhang but management believes there are multiple ways to resolve this in FY2024.

• The turnaround of sports business at China Dongxiang (3818 HK) is very welcoming. We are glad that sales trend in Oct-Nov is sustained and Phenix brand is well-received.
• Reported losses widened as poor market environment enlarged investment losses. However, net cash and investment portfolio are still valued at Rmb8.5bn, or 5.9x its market capitalisation. 
• CNDX looks comfortably at over 6% full-year dividend yield. Together with just 0.15x P/B, there are enough protections for the downside of the stock.  

• Legend Biotech Corp (LEGN US) has reported mixed 3Q23 result, with revenue missing and EPS beating consensus. For 3Q23, partner Janssen reported Carvykti worldwide revenue of $152M, up 30% QoQ.
• Legend entered an exclusive, global license agreement with Novartis, which grants Novartis the rights to develop, manufacture, and commercialize LB2102 and other potential CAR-T therapies for upfront payment of $100M.
• The company is expanding manufacturing capacity for Carvykti. As of September 30, 2023, Legend has cash balance of $1.4B, which should provide a runway through 2025.  

• Trip.com reported strong Q3 earnings, reflecting 2023’s ongoing tourism revival
• Net Income beat expectations, and company made progress on expense control
• But we don’t see “game-changing” numbers in Trip.com’s latest earnings release

• Haitong International Securities Group (665 HK)’s scheme meeting is on 15 December. The IFA considers Haitong Securities Co Ltd (H) (6837 HK)’s HK$1.52 per share offer fair and reasonable. 
• Key conditions include approval by at least 75% of independent shareholders (<10% of independent shareholders rejection) and a headcount test. No shareholder holds a blocking stake.
• The high takeover premium ensures a done deal. At the last close and for the 18 January 2024 payment, the gross and annualised spread is 2.7% and 18.2%, respectively.

• NetEase reported revenue/non-GAAP operating profit/GAAP net income inline/5.24%/16.2% vs. our estimation.
• The bottom-line beats were primarily attributed to the operational efficiency achieved through the usage of AIGC tools, and reduced S&M expenses resulting from organic traffic generated by high-quality game content.
• We maintain our BUY rating and raised TP to $138 for future game releases, implying 19x PE, and it is currently trading at 17x PE in 2024

• Once the pre-cons were satisfied on the 15th November, it seemed pessimistic to stick to the delayed 29 December dispatch date for Haitong International Securities Group (665 HK)‘s Scheme Document. 
• And right on cue, the Doc was issued last night (21 Nov). The Court Meeting is the 15 December. with an expected cash despatch on or around the 18 January.
• Trading at a gross spread to terms of 2.7%. The headcount test applies. But this should comfortably get up. 

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.

• With P/B back to the 5-year average of 1.9x but ROE surpassing the last five years, Air China Ltd (753 HK) is our High Conviction pick for 2024.
• Lower US interest rates next year will reduce interest expenses as 18.7% of debt is USD-denominated. Potential Rmb appreciation vs. USD may bring significant exchange gain too.
• Supportive government policies will further drive domestic traffic. For international traffic, more capacity resumption will power recovery. Cathay Pacific Airways (293 HK) is another profit accelerator.

• BZ reported 3Q23 cash billing 0.8% higher than our est., revenue beat our estimate/consensus 5.2%/3.8%, non-GAAP NI beat our estimate/consensus by 103%/50%.
• Cost saving and investment income are the main reasons for bottom-line beat, which we think are not sustainable.
• Even BZ can deliver its “3 years with 100mn new users” target until 2025, we think its 20% earnings CAGR in 2023-25E still cannot justify its high valuation (TBC)

• Total revenue grew by 21% YoY in 3Q23, as both advertising and e-commerce expanded strongly.
• KS achieved historical high operating margin and operating profit, as the company continue to cut all operating expenses.
• We believe the stock has an upside of 63% and a price target of HK$95. Buy.

• JD Health’s 23Q3 results were below expectations. Due to the high base of 22H2 (especially 22Q4), revenue growth could become negative in 23Q4, thus dragging down 2023 full year growth.
• Considering the high base in 23H1, performance pressure could continue until 24H1. JD Health’s past high growth will be gone. Investors may need to get used to the lower-than-expected growth.
• Share price of JD Health is now in the bottom range. Current valuation is attractive. Despite the performance headwind, P/S is expected to return to about 3 to 4.

AGBA’s Q323 results continued to be affected by the weak recovery in China and consequent subdued mainland demand for Hong Kong health and wealth products. As a result, revenues were flat year-on-year at US$13.2m, but down from US$17.4m in Q223. The pre-tax loss was US$12.9m, putting the company on track to meet its US$49m projected loss for FY23. AGBA also announced that it has entered into term sheets for a US$6.2m private share placing with a new institutional investor, AGBA’s group president and AGBA management at US$0.70 per share plus warrants with an exercise price of US$1.00/share. The amount could expand subject to ongoing conversations with additional potential investors. The significant premium to the current share price signals management’s confidence in AGBA’s long-term value. The capital will go towards funding organic growth, strategic acquisitions and managing liquidity until projected material profitability in FY25.

• Optimism for improved shareholder returns through IPOs diminishes further as Alibaba (ADR) (BABA US) puts the Cloud spinoff on hold.
• Jack Ma’s sale of 10m ADS, representing 5% of his Alibaba holdings, sparks concern. Investors should worry about his lack of optimism.
• With the Cloud IPO on hold, Alibaba Group Holding (9988 HK) is vulnerable to numerous downside catalysts, as outlined below.

• In-Line results were overshadowed by company’s pullback from March restructuring plan and Jack ma’s family trust selling shares.
• Worst sell-off in a year was over-reaction as abrupt changes unnerved investors who tended to interpret the events  with excessive negative sentiments.
• Valuation almost priced in a scenario where company is overtaken by PDD in faltering Chinese economy. Selling amidst this extreme pessimism is the last thing investors want in our view. 

• The accretion trade is going to plan as Prosus NV (PRX NA) sells Tencent (700 HK); and Prosus and Tencent both back their own shares.
• Preceding my comments on Prosus/Tencent One are the current setup/unwind tables for Asia-Pacific Holdcos
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• Alibaba’s cloud servers experienced downtime for more than three hours.
• Kuaishou achieved success in the Singles Day sales and we expect a high growth rate for “other revenue” in 3Q23.
• Tims China’s revenue grew strongly with aggressive expansion of new stores.

• With the review period complete, BeiGene (6160 HK) could replace Anhui Conch Cement (914 HK) in the iShares China Large-Cap (FXI) (FXI US) in December.
• There will be over 2 days of ADV to buy in BeiGene (6160 HK) and nearly 2 days of ADV to sell in Anhui Conch Cement (914 HK). 
• Short interest has been increasing in BeiGene (6160 HK) and dropping in Anhui Conch Cement (914 HK) over the last few months.

• We expect total revenue will grow by 24% in 3Q23, as catering has been recovering in China.
• We expect Meituan can still earn positive operating profit 3Q23, as the company cut salespeople’s bonuses.
• We also believe that the stock has an upside of 87% for year end 2024.

• Led by international activity, CaiNiao booked +25% Y/Y revenue growth in FYQ2
• FYQ2 EBITA margin improved Y/Y and Q/Q, even as express companies struggled
• Result bolsters CaiNiao status as vehicle to access BABA’s international growth

• HK & China CRE credit impaired loans are rising sharply and high in 3Q23. We believe there is risk that the bank has to take much higher credit costs.
• Not only Mainland China CRE where there are risks. HSBC shows its ECL coverage ratio for HK CRE rising 45% over the past nine months, from 4Q22 to 3Q23.
• LT credit costs shows HSBC’s provisioning is like during a benign environment, at ~1/3 of its LT average. Its +34% QoQ credit costs in 4Q22 is worth keeping in mind.

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.

• Lippo Karawaci
• Softbank Group
• Xiaomi Corp

• Hygeia’s asset-heavy model leads to a situation of expense “front-loading” and profit “back-loading”.Management’s attitude towards profit is “thought-provoking”.It’s best for investors not to have high hope for Hygeia’s profit margin.
• Hygeia can maintain 30%+ growth in short term, but revenue growth could fall to 15-20% in the future due to lack of high-quality M&A targets and uncertainties brought by anti-corruption.
• Revenue forecast is about RMB4 billion in 2023 and RMB5-5.5 billion in 2024. P/E of 30-40 is reasonable range at this stage, which would drop afterwards. Current valuation is expensive.