China/Asia TMT

Shawn Yang

China growth and global non-US Internet equities

Blue Lotus Research Institute

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

Equity Bottom-Up

<ul>
<li>We expect Luckin to report 2Q23 rev. at 75.0% YoY and 30.1% QoQ to RMB5,771mn. We expect GPM, non-GAAP OPM, non-GAAP NPM to decline 3.7ppt, 3.6ppt, and 3.9ppt QoQ .</li>
<li>Luckin is putting scale ahead of profitability, surpassing 10k total stores in 2Q23 and heading to 12k total stores in 2023, while maintaining a decent margin. </li>
<li>We maintain the stock as BUY rating and cut TP by US$3.5 to US$37.5 (36x PE in 2024) to factor in the margin dilution effect from sales promotion.</li>
</ul>


We expect Luckin to report 2Q23 rev. at 75.0% YoY and 30.1% QoQ to RMB5,771mn. We expect GPM, non-GAAP OPM, non-GAAP NPM to decline 3.7ppt, 3.6ppt, and 3.9ppt QoQ .
Luckin is putting scale ahead of profitability, surpassing 10k total stores in 2Q23 and heading to 12k total stores in 2023, while maintaining a decent margin. 
We maintain the stock as BUY rating and cut TP by US$3.5 to US$37.5 (36x PE in 2024) to factor in the margin dilution effect from sales promotion.


Luckin Coffee (LKNCY US, BUY, TP US$37.5) TP Change:Promotion and Expansion Are the Main Theme

Macroeconomics

<ul>
<li>We continue to chat with venture capitalists (VC’s) and hedge fund managers in our tour of China.</li>
<li>Our takeaway is that Chinese government intend to nurture local governments into VC’s to (partially) replace land finance as a pillar of fiscal revenue;</li>
<li>The resulted policy measures and shifts will benefit STAR SSE as a politically oriented destination and EV/renewable sectors as national championships, at the expense of the consumer sector.</li>
</ul>


We continue to chat with venture capitalists (VC’s) and hedge fund managers in our tour of China.
Our takeaway is that Chinese government intend to nurture local governments into VC’s to (partially) replace land finance as a pillar of fiscal revenue;
The resulted policy measures and shifts will benefit STAR SSE as a politically oriented destination and EV/renewable sectors as national championships, at the expense of the consumer sector.


Blue Lotus Macro: No Short-Term Investors in the Short Term, Summary of Our Tour of China.

Forensic Analyst

Jason Yap, CFA

Forensic Accounting

Kangmei Pharmaceutical Co Ltd / Forensic Accounting

<ul>
<li>Kangmei Pharmaceutical is a large drugmaker listed on the Shanghai Stock Exchange and was embroiled in a USD4 billion accounting fraud in 2019</li>
<li>On 12 November 2021, the Guangzhou court made a landmark ruling on Class Action Lawsuit against Kangmei Pharmaceutical </li>
<li>This increases the costs of fraud (including potential criminal charges) for delinquent issuers and should reduce fraud occurrences and boost investor confidence in China's capital markets  </li>
</ul>


Kangmei Pharmaceutical is a large drugmaker listed on the Shanghai Stock Exchange and was embroiled in a USD4 billion accounting fraud in 2019
On 12 November 2021, the Guangzhou court made a landmark ruling on Class Action Lawsuit against Kangmei Pharmaceutical 
This increases the costs of fraud (including potential criminal charges) for delinquent issuers and should reduce fraud occurrences and boost investor confidence in China's capital markets  


Kangmei Pharmaceutical (600518 CH) - First Class Action Lawsuit in China and Its Implications

China Forestry Holdings Co / Forensic Accounting

<p>If you asked anyone whether they think stealing is wrong, most of them would answer “Yes”.  Yet, the Association of Certified Fraud Examiners’ recent report highlighted that organisations globally lost an estimated total of USD4.5 trillion to fraud in 2020 and the truth is, this was not the work of an exceptional few.  Why does fraud happen?  This article explores the use of the Fraud Triangle framework to evaluate and detect fraud risks in a capital markets context. </p>

If you asked anyone whether they think stealing is wrong, most of them would answer “Yes”.  Yet, the Association of Certified Fraud Examiners’ recent report highlighted that organisations globally lost an estimated total of USD4.5 trillion to fraud in 2020 and the truth is, this was not the work of an exceptional few.  Why does fraud happen?  This article explores the use of the Fraud Triangle framework to evaluate and detect fraud risks in a capital markets context. 

Forensics 101: Using the Fraud Triangle Framework to Detect Fraud Risks

Blue Lotus China New Economy Research, Blue Lotus Research Institute

Eric Wen

Blue Lotus China New Economy Research

Thematic (Sector/Industry)

<ul>
<li>1810HK/LI:Tesla cuts prices of all series by 14,000yuan to compete with Xiaomi SU7 and LI L6,with the fomer facing long time of delivery and the latter had a mediocre start(//-)</li>
<li>LI US: LI cuts price for all series, might be due to difficulty to achieve delivery targets (/)</li>
<li>LKNCY US: New products fail to bring meaningful incremental DAU growth, bodes ill for 2Q24 sales(-)</li>
</ul>


1810HK/LI:Tesla cuts prices of all series by 14,000yuan to compete with Xiaomi SU7 and LI L6,with the fomer facing long time of delivery and the latter had a mediocre start(//-)
LI US: LI cuts price for all series, might be due to difficulty to achieve delivery targets (/)
LKNCY US: New products fail to bring meaningful incremental DAU growth, bodes ill for 2Q24 sales(-)


[Blue Lotus Daily]:1810HK/LI US/LKNCY US/AAPL/TSM/1810 HK

China

Luckin Coffee Inc. provides non-alcoholic beverages. The Company offers various types of coffee. Luckin Coffee serves customers in China.

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Luckin Coffee (LKNCY US)