China Archives | Page 55 of 154 | Smartkarma

• HKEX (388 HK) has announced that the expansion of Northbound Stock Connect eligible stocks will take effect from the start of trading on 13 March.
• 598 stocks listed on the Shanghai Stock Exchange and 436 stocks listed on the Shenzhen Stock Exchange will be added to Northbound Stock Connect.
• Currently, we see 43 stocks being added to the MSCI China Index in May (inflows of US$1.42bn), further increasing China’s weight in the MSCI Emerging Markets Index. 

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads  21Vianet Group (VNET US),Alliance Aviation Services (AQZ AU), 111 Inc (YI US), Toyo Construction (1890 JP), Origin Energy (ORG AU), HKBN Ltd (1310 HK),  Jiangnan (1366 HK)
• Lowest spreads – Ihara Science (5999 JP), Nitro Software Ltd (NTO AU), GK Goh Holdings (GKG SP), Boustead Projects (BOCJ SP), Techno Associe (8249 JP), Nissin Electric (6641 JP).

• It’s unrealistic to turn losses into profits by relying on BRUKINSA alone. BeiGene needs to have three blockbuster products with US$1 billion sales, which is difficult considering current pipeline situation. 
• If investors are optimistic about BeiGene, to some extent, they are betting on the success of BeiGene’s model, but of course, they should also bear the corresponding risks and costs. 
• BeiGene is overvalued, and its current market value has already priced in all positive factors. In this position, we think the risks far outweigh the benefits, because miracles don’t always happen.   

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.

• Adaro Energy
• China Vanke
• Hopson Development

• Founded in 2012, Beijing Yunzhisheng Information Technology Co. (also known as Unisound) is a Chinese company focused on AI powered voice and speech processing technologies.
• Unisound provides voice recognition, language processing and big data solutions to home appliances, automobile, healthcare and education companies.
• Since the inception of the company, it has raised US$361 million in funding. 

• The General Office of the State Council issued favorable policy for TCM industry. However, TCM still has to face VBP, therefore Zhangzhou Pientzehuang Pharmaceutical Co. (600436 CH) and Gushengtang are our top picks..
• Pfizer is in talks to acquire Seagen in a deal worth over US$30 billion, but we remain conservative about whether this transaction would ultimately bring expected contributions to Pfizer.
• Haohai’s business model fails to bring ideal performance. Increasing competition/declining gross margin cast doubts on the outlook of medical aesthetics business. We’re not optimistic about its potential valuation upside.

• 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

• Yashili International Holdings (1230 HK) has announced that the disposal of Dumex China to Danone SA (BN FP) has been completed.
• This satisfies the second of three SPAs announced last May, leaving the sale of Danone’s 25% stake in Yashili to China Mengniu Dairy Co (2319 HK) outstanding. 
• This stake sale should conclude next week, to be followed by the launch of the Scheme later this month, early next.

• Yashili International Holdings (1230 HK) announced that the Dumex China Disposal was completed. The completion will result in the satisfaction of the last pre-condition, likely within five business days.
• China Mengniu Dairy Co (2319 HK)’s offer is HK$1.20 per share. Due to the upcoming release of full-year results, the scheme document will be likely despatched by early April. 
• This is a done deal and timing is the key risk. At the current price and for a late-May payment, the gross and annualised spread is 2.6% and 11.3%, respectively.

• Bilibili reported 4Q2022 results. Net revenue increased 6.2% YoY to RMB6,142m (vs consensus RMB6,154m) while operating losses expanded to RMB2,327M (vs consensus RMB1,905.9m).
• Mobile Games revenues declined 11.5% YoY in 4Q2022 due to the restructuring of the games biz to focus on self-developed gaming titles.
• We expect Bilibili’s earnings to remain under pressure with aggressive cost controls to impact growth and Mobile games to slow-down in 2023E with lack of new titles for launch.

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. China Jinmao Holdings
2. Lifestyle International Holdings
3. Geely Auto
4. First Pacific Co
5. Tata Motors Ltd

and more…

• NetEase delivered a mediocre set of results for the last quarter as it failed to meet market expectations with respect to net revenues.
• The company’s legacy titles, including the Westward Journey Online series and Fantasy Westward Journey Online did perform well and helped deliver an earnings beat.
• The company’s new game, the Egg Party, hit the Chinese market by storm this quarter.

• We believe the revenue growth rate would still be low at 8.5% YoY in 4Q22, even lower than 11.4% YoY in 3Q22.
• However, we believe the growth rate of total revenue will be 10% in 2022, 15% in 2023, and 18% in 2024.
• We believe the stock has an upside of 47% for year end 2023.

• JF Wealth Holdings (9636 HK) is looking to raise US$143m in its Hong Kong IPO.
• JF Wealth (JFW) is an online investment decision-making solution provider in China, focusing on the online investor content services market. 
• In this note, we discuss our earnings estimates, and thoughts on valuation.

• Baidu managed to deliver an all-around in the last quarter beat despite the fact that its financial performance was impacted by a challenging environment because of a rapid rise in COVID-19 cases as well as its impact on the broader economy.
• Both feeds distributed through the Baidu app and mobile search queries continued experiencing double-digit growth in the quarter.
• Baidu is expected to launch Ernie Bot, its new conversational AI bot, powered by its latest in-house large language models, to counter ChatGPT.

• Alibaba managed to deliver an all-around beat despite experiencing significant challenges because of the rapid change in the Covid situation.
• The company delivered double-digit growth in its free cash flow and adjusted EBITA through operating efficiency and cost optimization.
• The strong net cash position of Alibaba is supported by its healthy cash flow generation.

The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks. The Asia Monthly is intended to broaden investors’ understanding of the Asian USD high-yield market.

• BILI’s 4Q results missed expectations across key metrics from revenue and MAU growth to guidance for 2023
• The results suggest fast growth will not return in 2023 and an uncertain road to breakeven by 2024.
• Reiterate our bearish view on the stock and see further downside risks ahead.

• The fourth quarter looks like a weak quarter according to the growth and the loss.
• However, deducting the termination cost for game studios, we believe the financials will be promising in 2023.
• We believe the stock has an upside of 19% for the yearend 2023.

• Weigao formed a diversified product lines through a series of acquisitions and capital operation. Its performance is more driven by sales not R&D, with limited core competitiveness.
• Weigao’s orthopaedic products business is under pressure due to VBP, which would drag down the overall gross margin. The acquisition of Weigao New Life is hard to turn things around.
• Weigao is a holding platform, which is worthless in secondary market.There could be some temporary rebounds but share price could still underperform or its valuation is lower than comparable companies.

• ZaiLab reported C4Q22 top line 3% above our estimate. Operating profit was worse than our estimate and consensus while net income was better mainly due to government grant; 
• We maintain ZLAB’s business model is inherently flawed because each blockbuster drug it signed needs comprehensive sales support.
• As a result, ZLAB’s pipeline needs to be heavily discounted; We maintain our SELL and cut TP from US$30 to US$25.

• We revise our recommendations for FOSUNI 6.75% Jul 2023, FOSUNI 5.5% Aug 2023, FOSUNI 6.85% Jul 2024 to Hold from Sell. FOSUNI 5.95% Oct 2025 and FOSUNI 5.05% Jan 2027 remain on Hold recommendations and Credit Direction remains Negative. 
• The new RMB12b credit line provides some liquidity relief and improves the likelihood of Fosun’s ability to meet its debt obligations in 2023.
• However, more offshore asset disposals or pledges for loans need to be done to cover the remaining offshore bond maturities during the year.

• China Vanke aims to raise around US$500m in its H-share primary placement.
• Vanke had recently stated that it aimed to raise around US$2bn via an A-share private placement, so a placement was expected for sure.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• News reports indicate that China Vanke (H) (2202 HK) is looking to place 300m shares at a price range of HK$12.93-13.20/share to raise around US$500m.
• The 300m shares is nearly 33 days of ADV, but around 11-12% of the new shares will be bought by passive trackers early next week and provide near-term support.
• China Vanke (H) (2202 HK) trades cheaper than its peers on EV/Sales, EV/EBITDA and forward PE. Shorts have ticked higher in the last couple of weeks.

• Reportedly (Bloomberg) Hong Kong broadband play HKBN Ltd (1310 HK) has received a takeover offer from  I Square’s HGC Global Communications. 
• HKBN’s shares were halted in the late afternoon trading session yesterday after gaining 11.6%. The reason stated for the suspension was “possible inside information“, not pursuant to the Takeovers Code. 
• Last May, Bloomberg reported that KKR, PAG, and Stonepeak – amongst others – were considering bids for HKBN. The market cap at the time was US$1.6bn versus US$934mn now.

• Meilan Airport issued a profit warning last night expecting a net loss of not more than RMB280 million for 2022. 
• While the magnitude of loss surprised us, positive share price reaction suggests investors are ready to look beyond.
• We incorporate both higher passenger throughput and financial expenses estimate in our model and trim our net profit forecast for 2023 from RMB600 million to RMB500 million. Maintain Buy. 

• Weaker 2H22 and FY22 earnings are primarily caused by disruption from the pandemic, and the 18.7% share price retreat since 2022 should have well factored in an unexciting year.
• Recovery of construction revenue, rebound in margin, completion of pipeline projects, increase in water tariffs and faster receivable collections are the key positive factors to watch. 
• China Everbright Water (1857 HK) will generate ROE of 9.8% and 10.3% for FY23 and FY24. Such return profile renders its 3.5x PER and 0.35x P/B for FY23 inexpensive. 

• Beisen Holdings (1667838D CH) is looking to raise about US$200m in its upcoming HK IPO. The deal will be run by Morgan Stanley and CICC.  
• Beisen Holdings is the largest provider of cloud-based HCM solutions in China in terms of revenues in 2021, according to CIC. Its platform iTalentX delivers cloud-native SaaS products. 
• Its platform is the first and the only in the industry to offer a suite of cloud-based applications covering organization’s HCM needs throughout the entire employee lifecycle, according to CIC. 

• JF Wealth Holdings (9636 HK) is looking to raise US$143m in its Hong Kong IPO.
• JF Wealth (JFW) is an online investment decision-making solution provider in China, focusing on the online investor content services market.
• With total gross billings of RMB2bn in 2021, it was the second largest online investment decision-making solution provider in China with a 5.9% market share.

• Miniso reported its C4Q22 revenue at RMB2,494mn, (2.6%)/1.1% vs. our estimate/consensus,  non-GAAP net income at RMB373mn, 27.8%/29.0% higher than our estimate/consensus; 
• We expect Miniso’s revenue to achieve 33% YoY in C2023, driven by 1) the store expansion in both domestic and overseas market, 2) domestic single store revenue recovered;
• We maintain the stock as BUY rating, and raise TP by US$2 to US$24, reflecting Miniso’s expansion of domestic store network in low tier cities

• Leading Chinese drug-ingredients supplier Northeast Pharmaceutical Group Co. Ltd. was fined 133 million yuan ($19 million) for abusing its dominant market position in materials used to make a treatment for kidney dialysis patients.
• The market regulator in northeastern China’s Liaoning province conducted a three-year investigation of Northeast Pharmaceutical’s monopoly in the market for ingredients to make levocarnitine.
• The medicine is used to treat dialysis patients for a lack of carnitine, a substance that helps the body convert fat into energy

• VIPS reported C4Q22 total revenue largely in line. Non-GAAP net profit beat our est. and cons. by 12%, mainly due to gross margin improvement and reduction in G&A cost. 
• The loyal customers of Super VIP program and strong focus on apparel category make the platform relatively immune to the pricing competition in eCommerce space.  
• Despite intensifying competition, VIPS would maintain stable margin while enjoying gradual return of discretionary spending. Upgrade to BUY with TP of US$16.3, which implied 10x P/2023E.

• Bloomberg reportedHKBN Ltd (1310 HK) has received a takeover offer from HGC Global Communications at a valuation of more than US$1 billion (implies around HK$6 per share).
• The shares rose 11.6% to HK$5.59 before entering a trading halt. The rumoured price is underwhelming compared to historical multiples and share prices. 
• HKBN has a relatively concentrated shareholder register which suggests that the rumoured takeover premium of around 20% is not going to cut it.

• IQIYI Inc (IQ US) ‘s share price is up 30.8% YTD primarily driven by upbeat 4Q2022 results. The main highlight was strong increase in members alongside improvement in OPM.
• The company’s aggressive cost cutting measures have helped reach operating profits, however, we don’t think this is sustainable given user growth depends on content.
• We expect iQiyi’s 1Q2023E results to be strong driven by the launch of The Knockout series, however, further cutting down costs will impact the company’s long-term prospects.

• Despite the rally in share price after trading resumption and a reasonable FY22 result, there are still several tough issues faced by China Yuhua Education (6169 HK). 
• Cash management, especially for offshore; no dividend payout in the near term; availability of CB refinancing and weakened margins are just some of the challenges. 
• Conversion to profit-basis for its schools and the operating outlook for new schools are also added issues that it needs to address. In our view, risks still outweigh return.

• Trip.com reported a strong growth in booking volumes during CNY. Booking volumes remain strong in Feb 2023
• Outbound travel is likely to accelerate in 2H 2023
• Ending almost three-years of zero-Covid policy, China’s domestic and outbound travel enjoyed a long-awaited boom post China’s reopening and lifting of travel restrictions.

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 Jinmao Holdings
• Vedanta Resources

• We conducted interviews with Temu and Shein merchants. We expect Temu to be more aggressive in expansion. Most metrics of Temu are improving, and it creates increasing pressure on Shein. 
• Yet, investors should be aware about Temu’s widening losses and the possible margin drag in the domestic eCommerce business due to the subsidy campaign launched by JD.
• We revised our forecasts on Temu’s GMV/non-GAAP net loss in 2023 from USD 2bn/(1)bn to USD 5bn/(3)bn. We cut PDD’s TP to US$100.

• BeiGene (BGNE) reported C4Q22 top line missing our estimate by 13%. Main reason for the miss is weaker than expected BRUKINSA and Tislelizumab sales in China; 
• While China growth does appear to be a drag, international sales is robust and has potential. Consensus is also reasonable with gross margin having upside;
• We cut TP from US$225 to US$219 and maintain BUY. Reliance on international sales heightens BGNE’s political risk.

• PCCW Ltd (8 HK)‘s FY22 revenue, EBITDA, and profit increased by 2%, 6%, and 11% to HK$36.1bn,  HK$12.4bn, and HK$834mn.
• HKT Ltd (6823 HK)‘s revenue, EBITDA, and profit increased by 0.5%, 3%, and 0.4% to HK$34.1bn,  HK$13.1bn, and HK$4.7mn.
• The dividend pass-through is 100%. PCCW’s current discount to NAV is in line with its 52-week average.

• BABA reported F3Q23 (C4Q22) total revenue largely in line with our est. and cons. Non-GAAP net profit beat our est. and cons. by 5% and 13% YoY.
• Taobao will face pricing pressure against JD and PDD. We expect BABA to focus on user content, which leads to improvement in app time spent and advertising. 
• We cut TP from US$130 to US$110 to reflect intensified competition in eCommerce. Maintain BUY rating due to recovery in CMR and international retail, and rebound in cloud business. 

• Investor interest in Pinduoduo (PDD US)  has surged, hitting record-high levels of fund ownership this month.
• Over the period from the recent lows in March 2022 to today, Pinduoduo’s +20% increase in the percentage of funds invested was the highest across all stocks in China.
• New positions from JSS All China (+7.49%) and Tamaq China Champions (+4.99%) were complemented by increased weights from China Fund (+5.35%) and GAM China Evolution (+5.26%).

• Baidu delivered 4Q22 results with top line beating cons. by 3.2% and non-GAAP net income beating cons. by 13.4%. 
• We expect both its ads and AI cloud businesses to recover with accelerated pace, which could partially offset the increase of R&D investment in AI related technologies.
• Reiterate BUY rating and slightly raise TP to US$ 172 to reflect the on-track recovery and AIGC synergy. Our TP implies 17.9x PE in 2023.

• Lu Daopei Medical Group (1816743D CH) is looking to raise around US$400m in its upcoming Hong Kong IPO. 
• Lu DaoPei Medical Group (LDPM) is a hospital operator focusing on hematology healthcare services. As per F&S, it was the largest hematology healthcare services provider in China by 2021 revenue.
• LDPM has supported its growth through its flagship hospital. However, it is unclear whether the firm will be able to sustainably maintain profitability in the long term. 

• China’s securities regulator is investigating auto component supplier Nanjing Aolian AE&EA Co. Ltd. (300585.SZ -3.76%) after its stock price fell more than 30% this week when questions arose about its expertise in a key solar panel technology. 
• The China Securities Regulatory Commission (CSRC) has started scrutinizing the firm on suspicion of providing false information to the public about its new business, according to a note that Nanjing Aolian received Thursday night.
• The investigation added to doubts about the company’s expertise in perovskite batteries at a time when it is defending itself from a separate regulatory inquiry into whether it took advantage of market interest in the technology to inflate its stock price.

• NetEase’s 4Q22 revenue was in-line with cons., while its non-GAAP net income missed cons. by (8%) because of a one-off, non-renewal contract with Blizzard.
• We still see NetEase as a BUY because of <Eggy Party>’s overseas publishing and <Justice Mobile>, which we estimate will contribute about 1-2bn/3-4bn RMB for annual gross billing, respectively. 
• We maintain BUY and TP US$ 87, which implies 16.0X PE in 2023.

• Chinese food delivery giant Meituan launched a recruitment campaign in Hong Kong signaling a push into the Asian financial hub dominated by foreign on-demand service leaders foodpanda and Deliveroo.
• Meituan is hiring delivery workers including motorcycle and bike riders as well as so-called foot soldiers who can dispatch orders by foot, a recruitment document showed.
• As an incentive, Meituan said new riders who complete a certain volume of orders will receive a bonus of HK$2,500 ($319).

• IceKredit, a Chinese AI-focused credit risk and management company, plans to export its AI-powered products and solutions to financial institutions in Southeast Asia.
• Founded in 2015, IceKredit helps lenders to establish an automated end-to-end digital lending process – from application pre-screening to collections – by providing risk mitigation products and services.
• In the past two years, the firm has raised over US$58 million in series C funding, a large part of which will be used for its Southeast Asian expansion, the company says.

• At TMA we deliver high probability outcomes by focusing on our 3 pillars of technical analysis. •1) Response to key levels. •2) Price action. •3) Momentum confirmation.
• The HSCEI has produced 2 material failures below 5000 in the last 17 years, in October 2008 and October 2022. Aggressive bullish multi-month reversals followed in both cases. 
• The 2008 upswing paused when a bearish monthly reversal pattern was delivered in January 2009, but only for 2 months. The bearish monthly reversal pattern in February 2023 appears similar. 

• The index committee has continued to use a 6-month minimum listing history leading to five changes to the SSE STAR50 (STAR50 INDEX) in March.
• One way turnover is estimated at 4.95% and will result in a one-way trade of CNY 4,413m. The estimated impact on the deletes is higher than that on the adds.
• The inclusions have outperformed the deletions over multiple time periods. There will be pre-positions on the stocks and those could be unwound over the next week or two.

• On Friday 24 February 2023, the Hang Seng Index Committee announced changes for the HSTECH Index – Weibo Corp (9898 HK) IN, Ming Yuan Cloud Group (909 HK) OUT.
• Notably, the changes in FAF due to the new treatment for Dual Primary Companies means decent boosts in weight for XPeng (9868 HK) and Li Auto (2015 HK). 
• Of the three “major” indices, this one produces the most fun – US$900mm+ and 8.7% flow one-way. And the big flows are additive to the other indices.

• HSCEI keeps its constituent count at 80 names, adds XPeng (9868 HK) and deletes China Feihe (6186 HK). 
• There are decent flows in this rebal, with Tencent (700 HK) and Alibaba Group (9988 HK) seeing selling, Meituan (3690 HK) seeing buying. Li Auto (2015 HK) sees FAF upweight.
• Janaghan Jeyakumar, CFA had called the deletion of China Feihe, but had another name higher on the ADD list. 3.2% and HK$2.6bn one-way flow.

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads – 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), 111 Inc (YI US), Golden Energy & Resources (GER SP), Origin Energy (ORG AU), Toyo Construction (1890 JP).    
• Lowest spreads – Ihara Science (5999 JP), Tyro Payments (TYR AU), Nitro Software Ltd (NTO AU), Boustead Projects (BOCJ SP), Nissin Electric (6641 JP), Techno Associe (8249 JP). 

• The decline in 2H22 profit (53.1% YoY and 43.8% HoH) for Pacific Basin Shipping (2343 HK) is a matter of the past. Market rates have already rebounded from the trough.  
• Demand recovery on China re-opening, good forward cargo cover, reduction in operating costs, strengthened financial position and diversified customer base are Pacific Basin’s key merits. 
• Lower profit for FY23 should be well anticipated by the market, yet it still generates ROE of 20.9%, making its 1.0x P/B inexpensive. Moreover, yield will stay at 10% level. 

• Meituan has been hiring delivery workers in Hong Kong since February 20.
• JD will provide a subsidy of RMB1.5 billion to customers to compete with Pinduoduo (PDD) in early March.
• Four companies released financial performance for 4Q22, including Baidu, iQiyi, NetEase, and Sohu.

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 Jinmao Holdings
• Lenovo
• China Datang Corp Renewable Power

• Haidilao issued a positive profit alert last Friday which beat our and market expectations by a big margin. Profitability improved  mainly due to shutting restaurants and labor optimization. 
• We expect the news and the street’s earnings revision will drive near-term stock rally. 
• That said, growth challenges remain and will be under spotlight during 2023-24. The expected stock rally will just build more expectations in the price. Take profit from the rally. 

• There are 35 adds and 28 deletes for the Hang Seng Composite Index (HSCI) at the March rebalance to take the number of index constituents up to 527.
• We expect 29 of the 35 inclusions to the HSCI will be added to Stock Connect, while 20 of the 28 HSCI deletions will be removed from Southbound Stock Connect.
• 19 stocks could be deleted from Stock Connect only since their average market cap has dropped below HK$5bn- unless the new threshold of HK$4bn is approved in the next week.

• As expected, XPeng (9868 HK) replaces China Feihe (6186 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the close on 10 March.
• Using prices from the close on 24 February, estimated one-way turnover is 3.28% and will result in a one-way trade of HK$2,162m at the close on 10 March.
• Short interest on XPeng (9868 HK), Li Auto (2015 HK), China Feihe (6186 HK) is quite high in terms of days of ADV to cover and in terms of float.

• BABA’s December results highlighted how the performance of this e-commerce giant – as a proxy for China consumption – increasingly tracks Chinese economy.
• The Alibaba that suffered from China’s slump in 2022 should also be the Alibaba that stands to reap the fruits from China’s recovery in 2023.
• Trading at 12x PE on the cusp of economic recovery, the payoff of BABA is much better for bulls than bears. Maintain $500 billion target valuation. Buy.

• 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

• Jehoshaphat’s short report has alleged that Techtronic Industries (669 HK)/TTI has been inflating its profits dramatically for over a decade with manipulative accounting.
• Our forensic analysis of the allegations suggests that some are credible red flags while others are essentially an exaggeration.
• TTI’s response to Jehoshaphat is pitiful. Valuation is meaningless until management adopts more conservative accounting or compelling disprove the allegations.

• Alibaba’s 3QFY23 results marginally topped consensus. With the share price dropping 0.65% cf. +0.35% for the index, both results and the price reaction were in line with our expectations.
• Yesterday’s results confirm that Alibaba (ADR) (BABA US)’s core businesses, Taobao and Tmall are in trouble and cost-cutting elsewhere is insufficient to offset the short-term weakness.
• Therefore, we do think that this is a good opportunity to profit on the short side with Alibaba shares having the potential to fall another 40-45% in the short term.

• Techtronic Industries (669 HK) was targeted by Jehoshaphat Research (JR) accusing that the company’s profits are inflated dramatically over a decade with manipulative accounting.
• As per the report, routine expenses incurred have been booked under various asset accounts such as deferred development costs thereby showing ever increasing margins for a cyclical business.
• We have assessed the merits of some of these claims using our forensic accounting framework and it appears that most of the claims are very difficult to refute.

• Troubled coalbed methane play Sino Oil And Gas Holdings (702 HK) is currently suspended pursuant to the Hong Kong Code on Takeovers and Mergers. 
• Sino Oil is burdened with a large convertible note and a winding-up petition.  Its auditor has disclaimed accounts since 2017 over its ability to continue as a going concern.
• Jiangxi Jovo Energy (605090 CH) is interested in taking more than 50% of Sino Oil (via new shares), but less than 75%. Sino Oil is up >100% in the past month. 

• In our latest int’l reports we have preached caution, and since January we have discussed our expectations for $93 to cap upside on the ACWI-US
• Thus far, $93 has proven to be rock-solid resistance, and ACWI-US now displays a 4.5-month uptrend violation signaling the pullback has officially begun.
• We would expect this pullback to continue down to $86-87 at minimum, and potentially $84 (December 2022 low). Even $75-77 (the 2022 lows) is not out of the question.

• Tencent faced formidable resistance at 385 where old lows and old highs coincided and was our short level outlined on January 17.
• 300 is our base line downside target. March will be a bearish month. Buy zone at sub-300.
• Macro is constructive if 270 holds. Current decline is labeled a deep correction of the October to late January rally.

We view Shui On as “Medium Risk” on the LARA scale. Our opinion is underpinned by the company’s portfolio of high-quality assets situated in prime locations in major Chinese cities. Shui On has a large investment property portfolio, which generates sufficient recurring revenue to cover more than 1x of adjusted interest expense. The investment properties were worth CNY 51.2 bn as at end-June 2022, covering net debt by 1.7x. Moreover, the company can dispose assets to boost cash flow if needed. These positive factors are balanced against Shui On’s small scale and lumpy earnings profile.

Our fundamental Credit Bias on Shui On is “Stable”, supported by the improved operating and financing environment for stronger Chinese developers. The company has a high-quality asset base and sizeable investment property portfolio, which would support access to bank financing. We also believe Shui On’s differentiated business model (compared to peers with heavy reliance on property development) will thrive in the post-property crisis environment.

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”. Shui On’s management appears to place a strong emphasis on ESG issues, and we note positively the company’s high level of disclosure and transparency.