China Archives | Page 56 of 154 | Smartkarma

• Jehoshaphat Research (JR) argues the case that Techtronic Industries (669 HK) has been engaged in “snowballing” to maintain margin growth.
• JR flags TTI is the only public company in the world (with over $1bn in revenues) exhibiting positive sequential gross margin change in every semi-annual period over ten years.
• Short interest had been picking up ahead of the short sell report. Shares fell 19% before being suspended in the afternoon session.  

• Revenue grew by 2% YoY in 3Q22, as the decrease of online sales offset the increase of physical stores.
• The operating margin began to improve, as the company cut sales and marketing expenses in minor businesses.
• We believe the stock has an upside of 78% for March 2024 and the price target will be HK$170.

• A correction in Perfect Medical Health’s (1830 HK) share price recently has led to it trading at a decent multiple of 15.2x/11.6x FY23e/24e PE(x) with a 6.9%/9.1% FY23e/24e dividend yield. 
• We estimate the lockdowns in China from Oct-Dec last year will impact the H2 FY23 result, leading to softer revenue growth of 4.8% for FY23 (profit 11% YoY). 
• We are optimistic about China re-opening and cross-border travel and believe that >20% revenue growth can materialize in FY24, led by a recovery in China/HK revenue. 

• Following several years of sustained revenue share loss, Search’s digital advertising revenue market share has stabilised, having seemingly retained its core advertising customers.
• With China’s economic growth recovery, Baidu is perfectly positioned to accelerate its core marketing revenue growth, which is also a high-margin operation.
• Baidu is set up for significant group margin expansion as the higher-margin core marketing business returns to positive annualised growth and it continues to expand AI Cloud margins.

• Fangzhou Group (FANGZHOU HK) is looking to raise about US$300m in its upcoming Hong Kong IPO.
• Fangzhou (FZ) is an online chronic disease management (CDM) service provider in China.
• In this note, we will talk about the not-so-positive aspects of the deal.

• Guangzhou Tinci Materials Technlgy (002709 CH) is looking to raise up to US$1.5bn in its upcoming Swiss GDR listing. Bookrunners on the deal are CICC, HSBC, and JPMorgan.
• As per the firm’s filings, it is to issue no more than 289m A-shares, or not exceeding 15% of the firm’s total ordinary share capital.
• In this note, we discuss the GDR’s timeline, and the firm’s recent financial performance.

• Guangzhou Automobile Group Co. Ltd. (GAC) (601238.SH -0.51%) is working to get more domestically produced microchips into its vehicles.
• It relies on overseas suppliers for about 90% of its automotive chips.
• GAC Capital Co. Ltd. sees plenty of opportunity to increase the share of domestic chips in the automaker’s cars.

• Pharmaron’s disappointing 2022 performance is just a start.Its business layout has always been “one step behind”. CGT cannot become the main cornerstone business supporting valuation growth for the next stage.
• The overall environment of CXO is different from that of the past. Even if Pharmaron finally achieves end-to-end integration,whether the prosperity of CXO industry still exists is a question mark.
• Pharmaron may have entered a vicious circle, so that it is very challenging to generate the expected results no matter which direction the Company tries to break through.  

• Fangzhou initially launched online retail pharmacy to address the needs of chronic disease patients, and then expand to online chronic disease management. However,the investment logic of this business is problematic. 
• Due to the low willingness to pay/high acquisition cost of C-end patients, it is difficult to achieve large-scale profits. Developing To B business would be important for Fangzhou’s future development. 
• Either To B business or To C business, the key point is to accumulate/retain large physician resources, but Fangzhou hasn’t had “a panacea” in this regard.

• Operating costs moved to USD8.9bn in 4Q22 from USD8.0bn in 3Q22
• Continued high growth in QoQ credit costs up 33% QoQ in 4Q22
• Net fee income seems to be shrinking about USD100m quarterly

• Zeekr, a premium EV brand by Geely, aims to raise around US$1bn (estimated) in its US listing in 1H2023. GS, BofA and MS are said to be running the deal.
• 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.
• In this note, we take an early look at the IPO based on publicly avaiable information.

• Alibaba (BABA US) is set to report earnings tomorrow on the 23rd
• Stock has pulled back from the highs but earnings could be the next catalyst to determine direction
• We use the derivatives market to extract market expectations and suggest some suitable trades

• IQ released a set of clean-beat 4Q results, marking the end of turnaround and the start of high-quality growth.
• Years of investments in original content production capabilities paid off and solidified IQ’s leadership in China’s long form video industry. 
• Successful refinancing removed debt overhang. We expect IQ to generate RMB3.5 billion net profit out of RMB32 billion revenue for 2023 and see further upside to share price.  

• Fangzhou Group (FANGZHOU HK) is looking to raise about US$300m in its upcoming Hong Kong IPO.
• Fangzhou (FZ) is an online chronic disease management (CDM) service provider in China.
• In this note, we will talk about the positive aspects of the deal.

• It’s necessary for investors to understand the “true secret” of Topchoice’s success, which is impossible to copy. This is also the core reason why we’re not optimistic about the company. 
• The profit margin decline of dental implant and orthodontics businesses is inevitable, not only due to centralized procurement, but also the fierce competition of private dental hospitals in price war.
• Topchoice is now paying for its ambition to deviate from its main business. The overall performance in 2022 may not be optimistic. We think Topchoice’s good times are over.

• Jiangnan (1366 HK) disclosed a scheme privatisation offer from Mr Chu Hui (Chairman and CEO) at HK$0.40 per share, a 107.3% premium to the undisturbed price (HK$0.193 on 13 February).
• The key condition is approval by at least 75% of disinterested shareholders (<10% of all disinterested shareholders rejection). The shareholder with a blocking stake will be supportive. 
• The price is final and attractive in the context of historical prices and multiples. The scheme meeting is likely in mid-May. At last close, the gross spread is 12.7%.

• Alibaba Group (9988 HK)‘s 3QFY23 results scheduled to release this Thursday is yet again going to be somewhat disappointing with our analysis indicating around RMB35.0bn OP cf. RMB49.7bn in 3QFY21.
• Nevertheless, 3QFY23 results could beat the conservative consensus revenue estimate by 2.8% while the OP is likely to be in line with consensus.
• Having risen 100%+ in few months, a small beat is unlikely to drive-up the share price any longer. Renewed US-China tensions are likely going to be a much bigger driver.

• A50 sell res near 14,100. Hard down close followed by 3% squeeze needs some digestion off of dual MA support. Our take is to sell strength.
• HSI is trading heavy after a muted bounce with 19,600 targeted and remains our top short.
• SPX needs a nudge and firm close below 4,080 to induce downside momentum and tip the global cycle.

• Kuaishou Technology (1024 HK) will report 4Q2022 and full-year results on 23rd March 2023.
• The company’s livestreaming revenues have made significant progress since 4Q2021 while its domestic business reported an operating profit for the first time in 3Q2022.
• Though the company’s share price has not moved up yet, we think there is further upside to the current share price driven by improved earnings.

• Contemporary Amperex Technology Co. Ltd. (CATL), the world’s largest electric-vehicle (EV) battery-maker, is in talks to offer automakers steeply discounted prices in exchange for sourcing the vast bulk of their power cells from the company in a bid to stave off growing competition from smaller rivals, Caixin has learned.
• If the plan goes ahead, CATL will sell the strategic clients EV batteries made from self-manufactured lithium carbonate at a low price.
• In return, they will be required to sign a contract committing them to buy 80% of their EV batteries from CATL over the next three years, a person close to the company told Caixin on Sunday.

• After shares gained 63% in the morning session of the 16 Feb, then subsequently suspended, Chu Hui, the chairman and major shareholder, has made his move on Jiangnan (1366 HK).
• Chu is offering HK$0.40/share by of a Scheme, a 12.68% premium to last close, but a whopping 83.49% over the last full trading day’s closing price. This price is final.
• This is done. Expect payment around late July based on precedent Cayman-incorporated privatisations. 

Lenovo has posted weak Q3/22-23 results. Revenue dropped 24% y-o-y to USD 15.3 bn, with gross profit down 22% at USD 2.6 bn and operating profit declining 20% to USD 750 mn. Net profit fell 32% to USD 437 mn. Positively, liquidity remains sound, with over USD 5 bn of cash and USD 20 bn of undrawn credit facilities. OCF stayed positive at USD 74 mn.

• The decline in revenue from multiple categories of drugs due to VBP indicates that Luye Pharma (2186 HK) urgently needs a group of new products to reverse the overall weak performance. 
• Without the advantages in R&D efficacy and product competitiveness, the current pipeline would generate little value. It’s hard to convince people that the fundamentals of Luye have truly changed.
• We are not optimistic about Luye’s outlook, which lacks long investment logic. Meanwhile, we think that this Placement is not cost-effective due to more potential downside to valuation.

• China Renaissance (1911 HK) was once touted as a “leading investment bank and asset manager dedicated to the new economy“. At the time of its 1Q21 post-IPO high, it was.
• Late last Thursday, the 16 February, CR said it was unable to contact (hours, days, weeks?) Bao Fan, its chairman, CEO, and controlling shareholder. Shares subsequently fell 28%.
• Bao is the face of CR and instrumental in client dealing and complex large-scale deal making. Clarification is recommended before investors dip their toe back in the water.

• Keymed is one of the few enterprises we believe have the strength to develop FIC in the future. Keymed’s “pragmatic” in terms of commercialization,which set it apart from other biotech.
• The current valuation is expensive based on our forecast. The expansion potential of future valuation depends on the progress of overseas R&D/commercialization. This is where Keymed really takes off.
• One big reason we’ve been positive about Keymed is because of its founder, Chen Bo. The down-to-earth style of management makes us full of expectations for Keymed Biosciences (2162 HK).

• 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), Origin Energy (ORG AU), 111 Inc (YI US), Golden Energy & Resources (GER SP), Genesis Minerals (GMD AU). 
• Lowest spreads – Boustead Projects (BOCJ SP), Ihara Science (5999 JP), Nitro Software Ltd (NTO AU), Tyro Payments (TYR AU), Essential Metals (ESS AU), Warrego Energy (WGO AU). 

• The FY22 profit warning for China Longyuan Power (916 HK) reflected mostly items of one-off in nature and the weak result should be a matter of the past.
• The Jan overall generation growth of 30.6% and wind power growth of 44.4% are very solid performance. With economic rebound and low comparison base, we expect growth to sustain.
• Asset injection from CHN Energy and improvement in financial position through subsidy collection are positives, making its below 10x PERs for FY23 and FY24 attractive. 

• The second wave of pandemic is important logic to drive up Fu Shou Yuan’s share price, but the peak value/lethality could be lower than first wave, leading to lower-than-expected demand.
• Whether the second wave can “arrive as expected” may not depend on pandemic itself, but on “whether to let it happen”,especially when China’s making every effort to promote economic recovery.
• Besides solid fundamentals/optimistic performance, hot market sentiment is very essential if Fu Shou Yuan (1448 HK)’s share price is to outperform. Policy changes are also a potential source of unease.

• Chinese online game revenue decreased year over year for the first time since the statistic started.
• From 2018, the Press and Publishing Administration had significantly reduced the number of new game license.
• Short video has been gradually taking time on site from online game.

• The Chinese online game market shrank for the first time in 2022.
• Tencent’s WeChat plans to launch a cooked food delivery platform.
• Douyin dismissed 15% employees in PICO, which is Douyin’s virtual reality team.

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.

• Adani Green Energy
• China SCE
• Lenovo
• O-Net Technologies (Group)
• Yuexiu Property

• Aag Energy Holdings (2686 HK) disclosed a pre-conditional privatisation offer from Xinjiang Xintai Natural Gas (603393 CH) at HK$1.85 per share, a 10.1% premium to the undisturbed price.
• The pre-condition is Xinjiang Xintai shareholder approval. Key condition is approval by at least 75% of disinterested shareholders (<10% of all disinterested shareholders rejection). The price is final but light.
• The total privatisation cost is HK$2,704 million vs AAG’s net cash of HK$2,270 million. The offeror is betting that minorities will not be able to launch a concerted NO vote.

• The announcement of the changes to the FTSE GEIS was made on Friday post market close. Friday was also the cutoff for the March review of the S&P/ASX indices.
• Monday is the review cutoff for some indices, while Friday is the announcement of the changes to the Hang Seng family of indices and the SSE STAR50 (STAR50 INDEX). 
• There were big outflows from the IShares Edge MSCI Min Vol Emerging Markets ETF (EEMV US) for yet another week taking YTD outflows to nearly US$3bn.

• On the 14 May 2018, coalbed methane producer AAG Energy Holdings (2686 HK) announced a partial offer (50.5%) from Xinjiang Xintai Natural Gas (603393 CH) at HK$1.75/share. 
• Xinjiang Xintai has returned to the pit with a $1.85/share Offer by way of a Scheme. The Cancellation Price will NOT be increased.
• This is hardly a knockout price, at a 10.1% premium to undisturbed; and just a 2.2% premium over the highest closing price of HK$1.81/share in the past year.

• 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

• Jiangnan (1366 HK), a manufacturer of wires and cables for power transmission and distribution systems, was suspended yesterday at lunchtime pursuant to Hong Kong’s Code on Takeovers and Mergers.
• But not before the share price gained 63% on clear news leakage.
• Chu Hui, the chairman, CEO, and major shareholder, mulled taking the private six years ago. 

• After Asian indexes met targets we have now turned negative in a domino sequence.
• Our table pounding inflationary higher USD and higher yield thesis is seeing the dollar on the move with yield in hot pursuit.
• Bull divergence in yield and the USD warn or a multi month rise. This is just the beginning of the pain trade to unwind peak inflation and peak rate positioning.

• Jiangnan (1366 HK) entered a trading halt pending the release of an announcement under the Hong Kong Code on Takeovers and Mergers on 16 February. 
• It is likely that Mr Chu Hui (Chairman and CEO), the largest shareholder representing 34.99% of outstanding shares is reattempting to privatise Jiangnan. 
• The 83.9% share price run prior to the trading halt suggests that the offeror is very close to finalising a formal proposal at a hefty premium to the undisturbed price. 

• Strong passenger traffic year-to-date indicates that full-year passenger throughput for 2023 will be on par with 2019.
• Concerns that China resuming outbound travel could turn domestic tourists away from Hainan are overblown, overlooking the huge pent-up leisure travel demand over last three years.
• We expect investors will focus on pace and sustainability of the recovery when company announces 2022 results. Being eligible for Stock Connect Program in 2023 will be a key catalyst. 

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. Alam Sutera Realty
2. China SCE
3. China Jinmao Holdings
4. Lifestyle International Holdings
5. Geely Auto

and more…

• Shareholders have given SciClone Pharmaceuticals (6600 HK)‘s buyback the go-ahead which will result in the major shareholder holding (upward of) 31.63%, and the freedom to creep.
• As such, a concentrated shareholder register, primarily comprising entities that privatised SciClone in 2017, gets even more concentrated.
• Trading inexpensively ahead of the launch of a new (and approved) drug, SciClone is worth a second look. 

• UBTech Robotics (1683374D HK) is engaged in smart service robotics solutions in China and has filed for an IPO on the Hong Kong Stock Exchange.
• Though the company operates across a number of business segments, the growth prospects seems limited for most of these businesses.
• UBTECH’s cashflow and liquidity also seems to be getting drained as the company needs to spend heavily on R&D and marketing to keep up with constantly evolving technology.

For our next Corporate Webinar we are glad to welcome New Horizon Health’s CFO, Yu Gao.

In the upcoming webinar, Mr Gao will share a short company presentation after which, he will engage in a fireside chat with Smartkarma Insight Provider, Ke Yan. The Corporate Webinar will include a live Q&A session.

• ZJLD Group (ZJLD HK) is looking to raise up to US$400m in its upcoming Hong Kong IPO
• ZJLD is a Chinese liquor company primarily producing baijiu. As per F&S, the firm was the fourth largest privately-owned baijiu company in terms of FY21 sales.
• In this note, we will talk about the positive aspects of the deal.

• JD’s post-CNY recovery is slower than expected, based on our checks. We suggest JD would face an unfavourable external environment going forward due to: 1) the comeback of offline commerce; 
• 2) PDD’s growing penetration in high-tier cities and brand products; 3) Meituan Instashopping offers faster delivery than JD.
• We cut JD’s FY23 revenue YoY growth forecast from 13% to 11%. Our top and bottom line estimates for FY23 are (3%) and (5%) below cons. Downgrade to SELL

• ZJLD Group (ZJLD HK) is looking to raise up to US$400m in its upcoming Hong Kong IPO.
• ZJLD is a Chinese liquor company primarily producing baijiu. As per F&S, the firm was the fourth largest privately-owned baijiu company in terms of FY21 sales.
• In this note, we will talk about the not-so-positive aspects of the deal.

• We expect NIO to report 4Q22 top line of RMB 16.7bn and GPM of 13.2%, missing consensus by (4%)/(0.8ppt), primarily due to COVID-related supply-chain issues and lower ASP. 
• We cut TP to US$ 13, due to weak momentum and the ongoing margin pressure in 1H23. We maintain BUY, as 1) intact model cycle starting from 2H23;
• 2) the upcoming ET5 station wagon in 2H23 and the mass-market/low-end brands in 2024 will expand its scale economy, which in turn will justify the sustainability of its business model.

• We believe the 11.4% decline in share price of Orient Overseas International (316 HK) YTD is not sufficient to reflect the plunge in freight rate and weakened load performance.
• Its 4Q22 average revenue/TEU of US$1,822.3 has returned to 2Q21 level; but with latest spot rate already plunged to early-2020 times, there is further downside for OOIL’s realised rate.
• Export outlook is uninspiring as well, indicating pressure on demand. With similar ROE, OOIL only trades at 0.3x P/B in FY20, that makes its current P/B of 0.9x expensive.

We view China South City (CSC) as “High Risk” on the LARA scale given increasing refinancing risk, with significant maturities in the next 12 months. The company’s capital-market access is limited, amid the recent volatile market conditions and heightened yields for the existing bonds. We also note the risks associated with: [1] CSC’s weak financial risk profile; [2] the inherent volatility associated with commercial developments; and [3] potential regulatory changes, including delays in government-led support for infrastructure projects. The company will be increasingly reliant on asset disposals or shareholder support for future payment, especially as property sales have deteriorated.

That said, positives include the: [1] restructuring and introduction of Shenzhen SEZ Construction and Development (SZCDG) as the single largest shareholder following a capital injection in H1/22-23; [2] shift to fast-churn property sales; [3] recurring income from investment properties; [4] above-average, albeit declining, operating margins, thanks to the cheap land bank; and [5] decent geographical diversification in regional centres.

Our fundamental Credit Bias on CSC is “Negative”, given the expected slower recovery in contracted sales for 2023. That said, the company should be able to leverage its relationship with SZCDG for more strategic co-operation and improved access to onshore funding, thanks to its quasi-SOE status. We will look to reinstate a “Stable” Credit Bias on evidence of a turnaround in sales.

Controversies are “Immaterial”. We believe the Chinese property sector has moderate exposure to environmental and social risks. The sector is not energy intensive, but may face social issues related to construction safety and the satisfaction of homebuyers’ requirements. We believe that governance risks are more significant, due to the sector’s generally low transparency and weak internal controls. The ESG Impact on Credit is “Moderately Negative”, mainly owing to CSC’s corporate governance. We highlight that the extensions sought for two bonds due in 2022, and the subsequent extensions for all offshore bonds in July, indicate increasing governance risks.

• We expect Miniso to report C4Q22 top line, non-GAAP operating profit and GAAP net income 1.7%, (1.5%) and in-line vs. consensus. Our C1Q23 top line is 3.7% vs. the consensus; 
• MNSO’s sustained growth driver to be bringing Made-In-China merchandises to the mall economies around the world; We re-evaluate the stock and maintain the Buy rating, with TP at US$22.
• The downward revisions of EPADS：1) slower offline resumption pace from Covid impact in 2022, 2) rescheduled oversea expansion paces, compared to our previous update on Nov. 23rd, 2021.

• HK Electric Investments (2638 HK) will be deleted from the MSCI Hong Kong Index at the close on 28 February. This was largely expected.
• We estimate passive MSCI trackers will need to sell 172.3m shares (US$111m; 19.1 days of ADV to trade). That is a lot. But there are pre-positions on the stock.
• HK Electric Investments (2638 HK) has underperformed its peers and now trades at a lower price to book. There could be outperformance post the MSCI deletion.

• We met with the management of Oriental Watch (398 HK).  HK demand continues to be sluggish, while China sales were resilient with single-digit SSSG growth. 
• The company will continue with its conservative policy of not expanding as Rolex/Patek restrict watch supply. It will only foray into boutique expansions if KPIs on return/brands etc., are met.
• With its generous >100% payout ratio, the stock trades at a 15% dividend yield based on our estimated 6.9x FY23 PE, with >50% of its market capitalization in net cash.

• We estimate JOYY’s 4Q22 top line/bottom line to miss cons. by (3%)/(12%), as TikTok’s influence in major market expands. 
• We suggest that a much slower recovery in 1Q23 does not bode well for its full year outlook. Our top line and bottom line are (2%)/(14%) lower than cons.
• Maintain SELL and cut TP to US$25.1, implying 12.8X PE in 2023.

• We are optimistic about Sonoscape’s 2022 annual results, which was an important turning year. Due to policy catalyst/China reopening, Sonoscape would maintain high growth in 2023, with relatively high certainty.
• Sonoscape has established a high moat in the field of soft endoscopes. Even if new manufacturers enter this market, they are hard to affect the market pattern in short term.
• Although the current valuation is not cheap, based on our forecast of its business lines, there’s still growth space in valuation. Under positive momentum, this stock can be traded repeatedly.

• Link REIT (823 HK) (LREIT) aims to undertake a 1 for 5 rights issue at a subscription price of HK$44.20/unit, to raise around US$2.4bn.
• After announcing a S$2.2bn acquisition in late Dec 2022, the company explicitly mentioned that it didn’t need to raise any new capital. Thus, the rights issue marks an abrupt turnaround.
• In this note, we talk about the right issue, its previous acquisition and the overall implications.

• WuXi AppTec is facing how to keep high growth momentum under the high base of last year’s performance.If there’s no high growth point with certainty,high valuation is hard to sustain.
• The US wouldn’t stop tightening monetary policy until “it’s fully prepared”.Investors need to consider a situation that high interest rate environment is longer than expected,under which CXO remains in trouble.
• Market sentiment towards CXO has changed. We think CXO isn’t suitable for long-term hold but only for short-term trade in 2023. Buying low and selling high is a better strategy.

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.

• CIFI Holdings

• REPT BATTERO Energy (REPT HK) is looking to raise US$1bn in its upcoming Hong Kong IPO.
• REPT BATTERO Energy (REPT) is a lithium-ion battery manufacturer in China, focusing on R&D, production, and sales of EV/ESS lithium-ion battery products such as battery cells, modules and packs. 
• In this note, we will talk about the not-so-positive aspects of the deal.