HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Many have missed out on the 14%, or 2,300 points, rally of the HSI in the last 9 trading days. There are still several stocks that look interesting now.</li>
<li>
<a href="https://www.smartkarma.com/entities/li-auto-inc-3dbe6187-544f-40dd-b9f9-72fba9c0110e" target="_blank" data-smartkarma-citation="entities:33811:1" rel="noopener">Li Auto (2015 HK)</a>, <a href="https://www.smartkarma.com/entities/link-reit" target="_blank" data-smartkarma-citation="entities:872:1" rel="noopener">Link REIT (823 HK)</a>, <a href="https://www.smartkarma.com/entities/china-mengniu-dairy-co" target="_blank" data-smartkarma-citation="entities:354:1" rel="noopener">China Mengniu Dairy Co (2319 HK)</a>, <a href="https://www.smartkarma.com/entities/hang-lung-properties-ltd" target="_blank" data-smartkarma-citation="entities:49:1" rel="noopener">Hang Lung Properties (101 HK)</a> and <a href="https://www.smartkarma.com/entities/galaxy-entertainment-group-limited" target="_blank" data-smartkarma-citation="entities:806:1" rel="noopener">Galaxy Entertainment Group (27 HK)</a> are massive laggards YTD.</li>
<li>As they have only experienced limited rebounds from the 19-Apr trough, they are set to catch up. Also, their earnings prospects look positive this year. </li>
</ul>


Many have missed out on the 14%, or 2,300 points, rally of the HSI in the last 9 trading days. There are still several stocks that look interesting now.

Li Auto (2015 HK), Link REIT (823 HK), China Mengniu Dairy Co (2319 HK), Hang Lung Properties (101 HK) and Galaxy Entertainment Group (27 HK) are massive laggards YTD.
As they have only experienced limited rebounds from the 19-Apr trough, they are set to catch up. Also, their earnings prospects look positive this year. 


HK Strategy: Where Are the Short-Term Opportunities?

External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

Equity Bottom-Up

<ul><li>We expect WuXi Bio’s revenue to grow by 11% YoY in 1H23E and attributable adjusted net income to stay flat in 1H23E, mainly due to the relatively high base in 1H22 and the reduced revenue from COVID-related projects.</li><li>In 5M23, the Company added 25 new projects into its pipeline, including 8 external projects under its “Win-the-Molecule” strategy. Despite the sizable capacity additions in 2022 (i.e., MFG7 in Ireland and MFG8 in Shijiazhuang, each with a capacity of 48k L), we forecast WuXi Bio to maintain a satisfying margin level thanks to effective cost controls through the continuous execution of WBS (WuXi Biologics Business System) which targets to improve gross profit margin (GMP) by 300bps in 2023.</li><li>WuXi Bio management maintained its full-year guidance unchanged with revenue growth of 30% YoY and attributable adjusted net income of 26% YoY for 2023E. </li></ul><p><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></p>

We expect WuXi Bio’s revenue to grow by 11% YoY in 1H23E and attributable adjusted net income to stay flat in 1H23E, mainly due to the relatively high base in 1H22 and the reduced revenue from COVID-related projects.In 5M23, the Company added 25 new projects into its pipeline, including 8 external projects under its “Win-the-Molecule” strategy. Despite the sizable capacity additions in 2022 (i.e., MFG7 in Ireland and MFG8 in Shijiazhuang, each with a capacity of 48k L), we forecast WuXi Bio to maintain a satisfying margin level thanks to effective cost controls through the continuous execution of WBS (WuXi Biologics Business System) which targets to improve gross profit margin (GMP) by 300bps in 2023.WuXi Bio management maintained its full-year guidance unchanged with revenue growth of 30% YoY and attributable adjusted net income of 26% YoY for 2023E. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

WuXi Biologics (2269 HK) – 2023E growth outlook remains intact

HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

<ul>
<li>A major reason for investors' disappointment is that the number of new projects in 23H1 were significantly lower-than-expected. The impact of slowdown in financing activity began to show in 23H1.</li>
<li>Higher revenue growth of non-COVID projects is needed to achieve the performance guidance target.If the management fail to fulfill the commitment to accelerate business recovery in 23H2,they may lose creditability.</li>
<li>It’s unlikely to receive AD drugs orders this year. The market would react directly to short-term sentiment. Without big catalysts, it’s difficult for WuXi Bio’s stock price to perform well.</li>
</ul>


A major reason for investors' disappointment is that the number of new projects in 23H1 were significantly lower-than-expected. The impact of slowdown in financing activity began to show in 23H1.
Higher revenue growth of non-COVID projects is needed to achieve the performance guidance target.If the management fail to fulfill the commitment to accelerate business recovery in 23H2,they may lose creditability.
It’s unlikely to receive AD drugs orders this year. The market would react directly to short-term sentiment. Without big catalysts, it’s difficult for WuXi Bio’s stock price to perform well.


Wuxi Biologics (2269.HK) - Investor Day Brings New Surprises

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

<ul>
<li>Industrials and Consumer Staples Remain Top Overweights, Though Sentiment Fragile for Both.</li>
<li>Energy sector shows signs of a turnaround from long-term decline, whilst Financials remain unloved by China investors.</li>
<li>Real Estate allocations have hit record lows, with average holdings at just 2.93%, while Consumer Discretionary sector approaches all-time highs.</li>
</ul>


Industrials and Consumer Staples Remain Top Overweights, Though Sentiment Fragile for Both.
Energy sector shows signs of a turnaround from long-term decline, whilst Financials remain unloved by China investors.
Real Estate allocations have hit record lows, with average holdings at just 2.93%, while Consumer Discretionary sector approaches all-time highs.


<ul>
<li>Recent business updates of WuXi Bio led to a decline in WuXi AppTec's share price and changed investors' expectations for CXO. Now is the time to adjust forecasts.</li>
<li>We analyzed the growth rate of various business of WuXi AppTec in 2024. In a neutral scenario, growth next year could fall short of management's guidance.Reversal in 2025 is uncertain.</li>
<li>If WuXi AppTec "unexpectedly" receives blockbuster orders, which are large enough to hedge against the downward trend of WuXi AppTec’s other businesses, then it will help to change performance expectations.</li>
</ul>


Recent business updates of WuXi Bio led to a decline in WuXi AppTec's share price and changed investors' expectations for CXO. Now is the time to adjust forecasts.
We analyzed the growth rate of various business of WuXi AppTec in 2024. In a neutral scenario, growth next year could fall short of management's guidance.Reversal in 2025 is uncertain.
If WuXi AppTec "unexpectedly" receives blockbuster orders, which are large enough to hedge against the downward trend of WuXi AppTec’s other businesses, then it will help to change performance expectations.


WuXi AppTec (2359.HK/603259.CH) - How Bad Things Could Be?

China

WuXi Biologics (Cayman) Inc. is a leading open-access R&D capability and technology platform company serving the pharmaceutical, biotechnology, and medical device industries, with operations in China, U.S., and Iceland.  We provide a broad and integrated portfolio of laboratory and manufacturing services throughout the drug and medical device R&D process.  Our services are designed to help our global partners in shortening the cycle and lowering the cost of drug and medical device R&D through cost-effective and efficient solutions. 

Wuxi Biologics (2269 HK)

HK Strategy: Where Are the Short-Term Opportunities?

Li Auto, Link REIT, China Mengniu, Hang Lung Properties, and Galaxy Entertainment are massive laggards YTD but the recent rebound from the trough...

Osbert Tang, CFA