Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Quantitative Analysis

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<p>The H-Share/A-Share monitor is published every weekend for the data ending the last trading day of the previous week. It includes all H-Share/A-Share pairs where the H-Share has a 90-day average daily value-traded of US$1.0mm or more. It shows basic data per H/A spread stock by sector, with...</p>
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<ul style="list-style-type: disc;">
<li>H/A Discount,</li>
<li>movement in H/A Discount over 5 and 20 days,</li>
<li>a 52-week Z-score for the spread,</li>
<li>A chart showing evolution of the H/A spread over the last 20 days,</li>
<li>Southbound shares held (millions of shares), Net Change in Southbound (Shanghai and Shenzhen combined) shares held by millions of shares, and contribution of Net Southbound Volume to HK-traded volume over the past five days and 20 days, </li>
<li>There is also a chart showing the average sector spread and the individual spreads within each sector over the last three years. </li>
</ul>
<p>On average, </p>
<p>The first sector is <strong>Consumer</strong>, where H/A spreads widened on average 2.7% for the week, more than cancelling out the average 1.7% spread narrowing last week. With the exception of <a href="https://www.smartkarma.com/entities/hisense-home-appliances-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20107:1" rel="noopener">Hisense Home Appliances Group Co., Ltd. H (921 HK)</a>, this happened as the H-shares rose strongly and the A-Shares rose even more strongly.  </p>
<p>Southbound investors through the Shenzhen-HK and Shanghai-HK Connect were significant net sellers during the week in both <a href="https://www.smartkarma.com/entities/tsingtao-brewery-co-ltd-h" target="_blank" data-smartkarma-citation="entities:1296:1" rel="noopener">Tsingtao Brewery Co Ltd H (168 HK)</a> and <a href="https://www.smartkarma.com/entities/hisense-home-appliances-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20107:1" rel="noopener">Hisense Home Appliances Group Co., Ltd. H (921 HK)</a> where the net selling activity amounted to 15.5% and 22% of volume respectively. </p>
<p>Hisense remains at the overbought end of the 52-week range. <a href="https://www.smartkarma.com/entities/great-wall-motor-co-ltd-cb302af9-398c-4d2d-ba39-023e43287eef" target="_blank" data-smartkarma-citation="entities:128:1" rel="noopener">Great Wall Motor (2333 HK)</a> and <a href="https://www.smartkarma.com/entities/guangzhou-automobile-group-co-ltd" target="_blank" data-smartkarma-citation="entities:11082:1" rel="noopener">Guangzhou Automobile Group (2238 HK)</a> are now at 52-week wides. </p>
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<p>Last week's recommendation was to take off Hisense and the H-share fell 7.3% while the spread widened 0.7%. It is still probably worth unwinding. At this point, Great Wall and Guangzhou are worth a buy on a spread basis.</p>
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<p>For Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities, please read on.</p>
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The H-Share/A-Share monitor is published every weekend for the data ending the last trading day of the previous week. It includes all H-Share/A-Share pairs where the H-Share has a 90-day average daily value-traded of US$1.0mm or more. It shows basic data per H/A spread stock by sector, with...



H/A Discount,
movement in H/A Discount over 5 and 20 days,
a 52-week Z-score for the spread,
A chart showing evolution of the H/A spread over the last 20 days,
Southbound shares held (millions of shares), Net Change in Southbound (Shanghai and Shenzhen combined) shares held by millions of shares, and contribution of Net Southbound Volume to HK-traded volume over the past five days and 20 days, 
There is also a chart showing the average sector spread and the individual spreads within each sector over the last three years. 

On average, 
The first sector is Consumer, where H/A spreads widened on average 2.7% for the week, more than cancelling out the average 1.7% spread narrowing last week. With the exception of Hisense Home Appliances Group Co., Ltd. H (921 HK), this happened as the H-shares rose strongly and the A-Shares rose even more strongly.  
Southbound investors through the Shenzhen-HK and Shanghai-HK Connect were significant net sellers during the week in both Tsingtao Brewery Co Ltd H (168 HK) and Hisense Home Appliances Group Co., Ltd. H (921 HK) where the net selling activity amounted to 15.5% and 22% of volume respectively. 
Hisense remains at the overbought end of the 52-week range. Great Wall Motor (2333 HK) and Guangzhou Automobile Group (2238 HK) are now at 52-week wides. 

Last week's recommendation was to take off Hisense and the H-share fell 7.3% while the spread widened 0.7%. It is still probably worth unwinding. At this point, Great Wall and Guangzhou are worth a buy on a spread basis.





For Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities, please read on.


Quiddity Weekly H/​A: Share Spread Monitor 23 Oct 2020

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

Simcere Pharmaceutical / Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/simcere-pharmaceutical-group" target="_blank" data-smartkarma-citation="entities:29186:1" rel="noopener">Simcere Pharmaceutical Group (2096 HK)</a> is engaged in the R&amp;D, production and commercialisation of pharmaceuticals and is primarily focused on generic pharmaceuticals.  At the proposed IPO price range of HK$12.10-13.70 per share, Simcere will have a market cap of HK$31,528.8-35,697.9 million ($4.1-4.6 billion). At the mid-point of the IPO price range, Simcere will raise net proceeds of HK$3,191.3 million ($412 million). </p></div><div id="ember2866">Seven cornerstone investors will subscribe for 43.81% of the offer shares at the mid-point of the IPO price range. The cornerstone investors are Hillhouse Capital, Jiangbei Investment Group, Shenzhen Capital Group, Lake Bleu Capital, OrbiMed, Sage Partners and Jericho Capital. </div><div id="ember2871"></div><div><div><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/simcere-pharmaceutical-ipo-initiation-a-rough-patch" target="_blank" rel="noopener">our initiation note</a>, we highlighted that for investors willing to look past the 2020 results, Simcere is putting in place the right measures to ensure that the weak 1H20 was an exception rather than the rule. Overall, we think that an attractive PEG valuation and solid cornerstone support makes Simcere tempting at the proposed pricing range. </p></div></div></div>

Simcere Pharmaceutical Group (2096 HK) is engaged in the R&amp;D, production and commercialisation of pharmaceuticals and is primarily focused on generic pharmaceuticals.  At the proposed IPO price range of HK$12.10-13.70 per share, Simcere will have a market cap of HK$31,528.8-35,697.9 million ($4.1-4.6 billion). At the mid-point of the IPO price range, Simcere will raise net proceeds of HK$3,191.3 million ($412 million). Seven cornerstone investors will subscribe for 43.81% of the offer shares at the mid-point of the IPO price range. The cornerstone investors are Hillhouse Capital, Jiangbei Investment Group, Shenzhen Capital Group, Lake Bleu Capital, OrbiMed, Sage Partners and Jericho Capital. In our initiation note, we highlighted that for investors willing to look past the 2020 results, Simcere is putting in place the right measures to ensure that the weak 1H20 was an exception rather than the rule. Overall, we think that an attractive PEG valuation and solid cornerstone support makes Simcere tempting at the proposed pricing range. 

Simcere Pharmaceutical IPO: Valuation Insights

<p><a href="https://www.smartkarma.com/entities/simcere-pharmaceutical-group" target="_blank" data-smartkarma-citation="entities:29186:1" rel="noopener">Simcere Pharmaceutical Group (SIMCERE HK)</a> is engaged in the R&amp;D, production and commercialisation of pharmaceuticals and is primarily focused on generic pharmaceuticals. The products are focused on three main therapeutic areas which are oncology (including cell therapy), central nervous system diseases and autoimmune diseases. Simcere will shortly launch a Hong Kong IPO to raise $500 million, according to press reports.  </p><div class="content-highlight"><p>The timing of the IPO is not ideal as Simcere is coming off a weak 1H20. However, for investors willing to look past the 2020 results, Simcere is putting in place the right measures to ensure that the 1H20 was an exception rather than the rule. </p></div>

Simcere Pharmaceutical Group (SIMCERE HK) is engaged in the R&amp;D, production and commercialisation of pharmaceuticals and is primarily focused on generic pharmaceuticals. The products are focused on three main therapeutic areas which are oncology (including cell therapy), central nervous system diseases and autoimmune diseases. Simcere will shortly launch a Hong Kong IPO to raise $500 million, according to press reports.  The timing of the IPO is not ideal as Simcere is coming off a weak 1H20. However, for investors willing to look past the 2020 results, Simcere is putting in place the right measures to ensure that the 1H20 was an exception rather than the rule. 

Simcere Pharmaceutical IPO Initiation: A Rough Patch?

David Blennerhassett

Event-Driven

Postal Savings Bank of China / Event-Driven

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<p data-v-da61000a="" data-v-294dc056="">On the 29 December 2017, the China Securities Regulatory Commission's ("CSRC") <a href="http://www.csrc.gov.cn/pub/newsite/zjhxwfb/xwfbh/201712/t20171229_329955.html" target="_blank" rel="noopener">announced</a> it would launch the H-share Full Circulation Pilot Project in which participating companies would be allowed to convert certain of their domestic shares into H shares, which would then be eligible to be listed and traded on Hong Kong's stock exchange. Up to three companies were expected to be selected in the pilot scheme.</p>
<p data-v-da61000a="" data-v-294dc056="">Back in June 2018, I discussed in <em><a href="https://skr.ma/c7hcH" target="_blank" rel="noopener">Legend's Conversion of Domestic Shares</a></em> 850mn shares entering  <a href="https://www.smartkarma.com/entities/517" target="_blank" data-smartkarma-citation="entities:517:1" rel="noopener">Legend Holdings Corp H (3396 HK)</a>'s share registry via CCASS Participant ID A00002, as opposed to Shanghai and Shenzhen Connect participant IDs A00003 &amp; A00004 respectively.</p>
<p data-v-da61000a="" data-v-294dc056=""><em>(There are ostensibly four types of CCASS participant IDs:  brokers are denominated with "B", custodians'  "C", pledgee participants "P", and clearinghouses "A".)</em></p>
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<p data-v-da61000a="" data-v-294dc056="">These shares are Legend's converted unlisted domestic shares (45% of the total shares out) into H shares under the CSRC Pilot Program. In June of last year, the CSRC <a href="http://www.csrc.gov.cn/pub/csrc_en/newsfacts/release/201907/t20190716_359384.html" target="_blank" rel="noopener">clarified</a> Legend as part of the Pilot Program, along with <a href="https://www.smartkarma.com/entities/avichina-industry-tech-h" target="_blank" data-smartkarma-citation="entities:16315:1" rel="noopener">Avichina Industry &amp; Tech H (2357 HK)</a> and <a href="https://www.smartkarma.com/entities/shandong-weigao-group-medical-polymer-co" target="_blank" data-smartkarma-citation="entities:1465:1" rel="noopener">Shandong Weigao Group Medical Polymer Co (1066 HK)</a>.</p>
<p data-v-da61000a="" data-v-294dc056="">In November of last year - and discussed in greater detail in <em><a href="https://skr.ma/AFA6A" target="_blank" rel="noopener">CSRC Green Lights Full Circulation Of H Shares</a></em>  - the CSRC <a href="http://www.csrc.gov.cn/pub/newsite/zjhxwfb/xwdd/201911/t20191115_366034.html" target="_blank" rel="noopener">announced</a> it will push forward the “full circulation” reform of H shares.</p>
<p data-v-da61000a="" data-v-294dc056="">A subtle change took place last week, potentially suggesting further developments are forthcoming.</p>
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<p data-v-da61000a="" data-v-294dc056="">As always, more below the fold. </p>
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On the 29 December 2017, the China Securities Regulatory Commission's ("CSRC") announced it would launch the H-share Full Circulation Pilot Project in which participating companies would be allowed to convert certain of their domestic shares into H shares, which would then be eligible to be listed and traded on Hong Kong's stock exchange. Up to three companies were expected to be selected in the pilot scheme.
Back in June 2018, I discussed in Legend's Conversion of Domestic Shares 850mn shares entering  Legend Holdings Corp H (3396 HK)'s share registry via CCASS Participant ID A00002, as opposed to Shanghai and Shenzhen Connect participant IDs A00003 &amp; A00004 respectively.
(There are ostensibly four types of CCASS participant IDs:  brokers are denominated with "B", custodians'  "C", pledgee participants "P", and clearinghouses "A".)


These shares are Legend's converted unlisted domestic shares (45% of the total shares out) into H shares under the CSRC Pilot Program. In June of last year, the CSRC clarified Legend as part of the Pilot Program, along with Avichina Industry &amp; Tech H (2357 HK) and Shandong Weigao Group Medical Polymer Co (1066 HK).
In November of last year - and discussed in greater detail in CSRC Green Lights Full Circulation Of H Shares  - the CSRC announced it will push forward the “full circulation” reform of H shares.
A subtle change took place last week, potentially suggesting further developments are forthcoming.

As always, more below the fold. 




Full Circulation Of H Shares: Signs Of Life

<p data-v-da61000a="" data-v-294dc056="">Back in June last year, I flagged (<em><a href="https://skr.ma/c7hcH" target="_blank" rel="noopener">Legend's Conversion of Domestic Shares</a></em>) 850mn shares entering <a href="https://www.smartkarma.com/entities/517" target="_blank" data-smartkarma-citation="entities:517:1" rel="noopener">Legend Holdings Corp H (3396 HK)</a>'s share registry via CCASS Participant ID A00002, as opposed to Shanghai and Shenzhen Connect participant IDs A00003 &amp; A00004 respectively.</p>
<p data-v-da61000a="" data-v-294dc056="">These shares represent the conversion of Legend's unlisted domestic shares (45% of the total shares out) into H shares under the China Securities Regulatory Commission's ("CSRC") Pilot Program.</p>
<p data-v-da61000a="" data-v-294dc056=""><a href="http://www.csrc.gov.cn/pub/csrc_en/newsfacts/release/201907/t20190716_359384.html" target="_blank" rel="noopener">According</a> to CSRC:</p>
<blockquote>
<p data-v-da61000a="" data-v-294dc056="">In order to make the non-tradable shares of overseas listed companies available for trading on the offshore market, the CSRC launched the pilot program of H-share full circulation in 2018 with approval from the State Council. <br><br>The non-tradable shares include the remaining shares held by domestic shareholders prior to the offshore listing, domestic shares offered after the offshore listing, and the unlisted foreign shares transferred from domestic shareholders to foreign shareholders. <br><br>In the pilot program, the 27 shareholders of <a href="https://www.smartkarma.com/entities/avichina-industry-tech-h" target="_blank" data-smartkarma-citation="entities:16315:1" rel="noopener">Avichina Industry &amp; Tech H (2357 HK)</a>, Legend Holdings, and <a href="https://www.smartkarma.com/entities/shandong-weigao-group-medical-polymer-co" target="_blank" data-smartkarma-citation="entities:1465:1" rel="noopener">Shandong Weigao Group Medical Polymer Co (1066 HK)</a> were among the first approved to convert a combined 7.1 billion non-tradable shares into floating H-shares on the Stock Exchange of Hong Kong.</p>
</blockquote>
<p data-v-da61000a="" data-v-294dc056="">The "success" of the pilot program offered useful experience for extending the program on a wider scale. The CSRC has now <a href="http://www.csrc.gov.cn/pub/newsite/zjhxwfb/xwdd/201911/t20191115_366034.html" target="_blank" rel="noopener">announced</a> it will push forward the “full circulation” reform of H shares.</p>
<p data-v-da61000a="" data-v-294dc056="">Full conversion provides the means for (mainly state) investors to exit or reduce their holdings, and improve the liquidity of the listed companies. But it can be viewed as an overhang on those companies given the go-ahead to convert.</p>
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Back in June last year, I flagged (Legend's Conversion of Domestic Shares) 850mn shares entering Legend Holdings Corp H (3396 HK)'s share registry via CCASS Participant ID A00002, as opposed to Shanghai and Shenzhen Connect participant IDs A00003 &amp; A00004 respectively.
These shares represent the conversion of Legend's unlisted domestic shares (45% of the total shares out) into H shares under the China Securities Regulatory Commission's ("CSRC") Pilot Program.
According to CSRC:

In order to make the non-tradable shares of overseas listed companies available for trading on the offshore market, the CSRC launched the pilot program of H-share full circulation in 2018 with approval from the State Council.   The non-tradable shares include the remaining shares held by domestic shareholders prior to the offshore listing, domestic shares offered after the offshore listing, and the unlisted foreign shares transferred from domestic shareholders to foreign shareholders.   In the pilot program, the 27 shareholders of Avichina Industry &amp; Tech H (2357 HK), Legend Holdings, and Shandong Weigao Group Medical Polymer Co (1066 HK) were among the first approved to convert a combined 7.1 billion non-tradable shares into floating H-shares on the Stock Exchange of Hong Kong.

The "success" of the pilot program offered useful experience for extending the program on a wider scale. The CSRC has now announced it will push forward the “full circulation” reform of H shares.
Full conversion provides the means for (mainly state) investors to exit or reduce their holdings, and improve the liquidity of the listed companies. But it can be viewed as an overhang on those companies given the go-ahead to convert.













CSRC Green Lights Full Circulation Of H Shares

China

Livzon Pharmaceutical Group is a comprehensive pharmaceutical company engaged in the research, development, production, and sales of various pharmaceutical products. Its portfolio includes chemical drugs, biological drugs, traditional Chinese medicine, and in vitro diagnostic reagents, covering therapeutic areas such as digestion, cardiovascular, reproductive endocrinology, and mental/nervous systems. The company was founded in January 1985 and is headquartered in Zhuhai City, Guangdong Province, China.

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Livzon Pharmaceutical Group (1513 HK)

Simcere Pharmaceutical IPO: Valuation Insights

We think that an attractive PEG valuation and solid cornerstone support makes Simcere tempting at the proposed pricing range

Arun George

Simcere Pharmaceutical IPO Initiation: A Rough Patch?

The timing of the IPO is not ideal as Simcere is coming off a weak 1H20. However, Simcere is putting in place the right measures to ensure that the...

Arun George

Full Circulation Of H Shares: Signs Of Life

On the 29 December 2017, the China Securities Regulatory Commission's ("CSRC") announced it would launch the H-share Full Circulation Pilot...

David Blennerhassett

CSRC Green Lights Full Circulation Of H Shares

Back in June last year, I flagged (Legend's Conversion of Domestic Shares) 850mn shares entering Legend Holdings Corp H (3396 HK)'s share registry...

David Blennerhassett

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Quiddity Weekly H/​A: Share Spread Monitor 23 Oct 2020

Quiddity H/A Spread Monitor for the week ending 23 October 2020. Spreads widened in Consumer, narrowed in every other sector. Southbound were...

Travis Lundy

Simcere Pharmaceutical IPO: Valuation Insights

We think that an attractive PEG valuation and solid cornerstone support makes Simcere tempting at the proposed pricing range

Arun George

Simcere Pharmaceutical IPO Initiation: A Rough Patch?

The timing of the IPO is not ideal as Simcere is coming off a weak 1H20. However, Simcere is putting in place the right measures to ensure that the...

Arun George

Full Circulation Of H Shares: Signs Of Life

On the 29 December 2017, the China Securities Regulatory Commission's ("CSRC") announced it would launch the H-share Full Circulation Pilot...

David Blennerhassett

CSRC Green Lights Full Circulation Of H Shares

Back in June last year, I flagged (Legend's Conversion of Domestic Shares) 850mn shares entering Legend Holdings Corp H (3396 HK)'s share registry...

David Blennerhassett

Quiddity Weekly H/A: Share Spread Monitor 23 Oct 2020