Equity Analyst, Event-driven, Quiddity Advisors

Janaghan Jeyakumar, CFA

Equity Analyst, Event-driven

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<ul>
<li>The HSCEI serves as a benchmark to reflect the overall performance of the top 50 "Mainland China" Securities listed in Hong Kong.</li>
<li>In a couple of weeks, the official index changes and the indicative weights for the final index members for the December 2023 rebalance will be announced.</li>
<li>In this insight, we take a look at the potential index changes and the resultant capping flows for HSCEI in December 2023.</li>
</ul>


The HSCEI serves as a benchmark to reflect the overall performance of the top 50 "Mainland China" Securities listed in Hong Kong.
In a couple of weeks, the official index changes and the indicative weights for the final index members for the December 2023 rebalance will be announced.
In this insight, we take a look at the potential index changes and the resultant capping flows for HSCEI in December 2023.


Quiddity HSCEI Dec 23 Rebalance: Zhongsheng Vs China Grand Pair Interesting if Deletion Is Confirmed

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

<ul>
<li>Chinese automotive maintenance services platform Tuhu Car has announced the terms for its HKEx IPO. Tuhu plans to raise net proceeds of HK$1.0-1.1bn (US$132-161m) through the issuance of 40.62m shares.</li>
<li>
<a href="https://www.smartkarma.com/entities/tuhu-car" target="_blank" data-smartkarma-citation="entities:36012:1" rel="noopener">Tuhu Car (2007986D HK)</a> 's franchised business model seems to have worked well, while its focus on high margin products/services have helped improve profitability.</li>
<li>In this insight, we discuss our forecasts and valuation for the company, and our analysis suggests that Tuhu Car’s IPO is priced reasonably.</li>
</ul>


Chinese automotive maintenance services platform Tuhu Car has announced the terms for its HKEx IPO. Tuhu plans to raise net proceeds of HK$1.0-1.1bn (US$132-161m) through the issuance of 40.62m shares.

Tuhu Car (2007986D HK) 's franchised business model seems to have worked well, while its focus on high margin products/services have helped improve profitability.
In this insight, we discuss our forecasts and valuation for the company, and our analysis suggests that Tuhu Car’s IPO is priced reasonably.


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.

<ul>
<li>
<a href="https://www.smartkarma.com/entities/tuhu-car" target="_blank" data-smartkarma-citation="entities:36012:1" rel="noopener">Tuhu Car (2007986D HK)</a>, a leading integrated online and offline platform for automotive service in China, is set to open books for its US$300 million IPO.   </li>
<li>Among independent aftermarket (IAM) stores in China, Tuhu ranked first in terms of both number of stores as of 31 December 2022 and annual automotive service revenue in 2022.</li>
<li>The investment case rests on the return to growth, improving gross margin, a shift to profitability and a return to cash generation.</li>
</ul>



Tuhu Car (2007986D HK), a leading integrated online and offline platform for automotive service in China, is set to open books for its US$300 million IPO.   
Among independent aftermarket (IAM) stores in China, Tuhu ranked first in terms of both number of stores as of 31 December 2022 and annual automotive service revenue in 2022.
The investment case rests on the return to growth, improving gross margin, a shift to profitability and a return to cash generation.


Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

<p>The speculation and conjecture continues in the takeover of <a href="https://www.smartkarma.com/entities/soho-china-ltd" target="_blank" data-smartkarma-citation="entities:4123:1" rel="noopener">Soho China Ltd (410 HK)</a>'s tier-1 property assets.</p>
<p>The last piece of positive news occurred on the 3 August 2021, when Blackstone received a <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0806/2021080600685.pdf" target="_blank" rel="noopener">notice</a> from SAMR dated 2 August that the case concerning its notification under the PRC Anti-Monopoly Law (AML) had been formally accepted by SAMR for review. </p>
<p>The announcement, however, stopped short of stating the review was simplified, and simply said the application has been formally accepted, and "<em>notwithstanding such formal acceptance, the Offeror and the Company may still be requested to provide further information and materials for the regulators’ review</em>".</p>
<p>In 2020, simple cases took 14 days on average to process. By the middle of last month, you knew you were in for the long haul, and the 30-day Phase 1 period expired on the 1 September.</p>
<p>I'm not aware an official announcement occurs when the review spills into Phase 2 (ostensibly another 90 calendar days); but Blackstone/SOHO were expected to clarify proceedings in its monthly update announcement.</p>
<p>On the 6 September, SOHO <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0906/2021090600341.pdf" target="_blank" rel="noopener">announced</a> its SAMR application was still ongoing, and that...</p>
<blockquote>
<p>The Offeror has received further requests to provide additional information for the regulators’ review. It is uncertain when the review process will be completed.</p>
</blockquote>
<p>The Composite Document is now expected to be dispatched on or before the 31 December 2021. </p>
<p>Without either party expounding on the situation, the application now moves into Phase II.</p>
<div>
<div>China's AML provides the following periods for review:</div>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<div>
<div>
<div>Phase I. The initial review period is for 30 calendar days. Under the simplified procedure, SAMR generally grants clearance in Phase I.</div>
</div>
</div>
</li>
<li>
<div>
<div>
<div>Phase II. If necessary, the Phase I period will be followed by an additional 90-calendar day review period</div>
</div>
</div>
</li>
<li>
<div>
<div>
<div>Phase III review period. The review period may then be extended for a further 60 calendar days if need be.</div>
</div>
</div>
</li>
</ul>
</div>
<p>Additional information? One media source reckoned this was in regards to Blackstone providing more details  - such as GFA - on its property interests.</p>
<p>This is doubtful - SAMR would likely know Blackstone's property exposure, right down to the last wastepaper basket.</p>
<p>More likely the "additional info" concerns the seller, although pertaining to what, it's unclear. Cue all the rumours and the ensuing backlash from Pan Shiyi son's comments last year (see <a href="https://skr.ma/nQLF3" target="_blank" rel="noopener">here</a> for more detail). </p>
<p>The takeaways from all of this? At the very least, there is a modicum of dialogue between the parties and the regulator. Often the clock runs down on the review process with little to no information made public, before a deal is blocked/prohibited.</p>
<p>Perhaps there are alternative means to lock-up the proceeds to Pan in escrow - sort of like an elevated withholding tax applied in the <a href="https://www.smartkarma.com/entities/baoxin-auto-group-ltd" target="_blank" data-smartkarma-citation="entities:20829:1" rel="noopener">Grand Baoxin Auto (1293 HK)</a> case (see further details below) - so as to progress the deal.</p>
<p>The negatives, apart from the extended review process over property assets, which historically have not triggered similar treatment - SOHO sold Sky SOHO to Gaw Capital Partners in <a href="https://www.mingtiandi.com/real-estate/finance-real-estate/gaw-closes-on-798m-purchase-of-sky-soho-in-shanghai/" target="_blank" rel="noopener">2018</a> for RMB5bn, plus entered into an <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0930/ltn20190930413.pdf" target="_blank" rel="noopener">agreement</a> to sell car parking spaces for RMB761mn, none of which attracted security concerns - is that the clock does indeed run down to the long-stop date (31 December 2021), and both parties agree to terminate negotiations.</p>
<p>But I'd be surprised to see Blackstone walk. The underlying assets on a stand-alone basis are worth considerably more, potentially &gt;HK$8/share by some asset valuation models. </p>
<div class="content-highlight">
<p><strong>The Trade?</strong> I still like SOHO here - a high probability of a break is already priced in. I just don't see Beijing setting a precedent and outright blocking the deal on anti-trust grounds.</p>
</div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/229/063/original/image_47029318541631239524443.png?1631239525" class="editor-image img-responsive" data-smartkarma-image-id="229063"></figure>

The speculation and conjecture continues in the takeover of Soho China Ltd (410 HK)'s tier-1 property assets.
The last piece of positive news occurred on the 3 August 2021, when Blackstone received a notice from SAMR dated 2 August that the case concerning its notification under the PRC Anti-Monopoly Law (AML) had been formally accepted by SAMR for review. 
The announcement, however, stopped short of stating the review was simplified, and simply said the application has been formally accepted, and "notwithstanding such formal acceptance, the Offeror and the Company may still be requested to provide further information and materials for the regulators’ review".
In 2020, simple cases took 14 days on average to process. By the middle of last month, you knew you were in for the long haul, and the 30-day Phase 1 period expired on the 1 September.
I'm not aware an official announcement occurs when the review spills into Phase 2 (ostensibly another 90 calendar days); but Blackstone/SOHO were expected to clarify proceedings in its monthly update announcement.
On the 6 September, SOHO announced its SAMR application was still ongoing, and that...

The Offeror has received further requests to provide additional information for the regulators’ review. It is uncertain when the review process will be completed.

The Composite Document is now expected to be dispatched on or before the 31 December 2021. 
Without either party expounding on the situation, the application now moves into Phase II.

China's AML provides the following periods for review:






Phase I. The initial review period is for 30 calendar days. Under the simplified procedure, SAMR generally grants clearance in Phase I.






Phase II. If necessary, the Phase I period will be followed by an additional 90-calendar day review period






Phase III review period. The review period may then be extended for a further 60 calendar days if need be.





Additional information? One media source reckoned this was in regards to Blackstone providing more details  - such as GFA - on its property interests.
This is doubtful - SAMR would likely know Blackstone's property exposure, right down to the last wastepaper basket.
More likely the "additional info" concerns the seller, although pertaining to what, it's unclear. Cue all the rumours and the ensuing backlash from Pan Shiyi son's comments last year (see here for more detail). 
The takeaways from all of this? At the very least, there is a modicum of dialogue between the parties and the regulator. Often the clock runs down on the review process with little to no information made public, before a deal is blocked/prohibited.
Perhaps there are alternative means to lock-up the proceeds to Pan in escrow - sort of like an elevated withholding tax applied in the Grand Baoxin Auto (1293 HK) case (see further details below) - so as to progress the deal.
The negatives, apart from the extended review process over property assets, which historically have not triggered similar treatment - SOHO sold Sky SOHO to Gaw Capital Partners in 2018 for RMB5bn, plus entered into an agreement to sell car parking spaces for RMB761mn, none of which attracted security concerns - is that the clock does indeed run down to the long-stop date (31 December 2021), and both parties agree to terminate negotiations.
But I'd be surprised to see Blackstone walk. The underlying assets on a stand-alone basis are worth considerably more, potentially &gt;HK$8/share by some asset valuation models. 

The Trade? I still like SOHO here - a high probability of a break is already priced in. I just don't see Beijing setting a precedent and outright blocking the deal on anti-trust grounds.



SOHO China (410 HK): At Least There Is Dialogue

Bond market data and technology, BondEvalue

BondEvalue

Bond market data and technology

BondEvalue is a Singapore-based Fintech that specializes in bond market data and technology. The company's information services business offers bond market data on hard-currency corporate & sovereign bonds across Asia, Middle East, Europe and the Americas. The data, which includes bond prices, yields, news and analytics, is offered to end investors via interactive Mobile and Web Apps. Investors can sign up for a free trial of the service either via the company's website (https://bondevalue.com) or by downloading the BondEvalue Mobile App (http://onelink.to/wej7jq). BondEvalue is also developing an electronic bond exchange, BondbloX in Singapore that allows investors to trade bonds electronically in smaller sizes (US$1,000 or equivalent). For more information, visit https://www.bondblox.com/

Bond Market Data and Technology

Credit

US markets rebounded, making up most of Monday’s losses as the S&amp;P and Nasdaq gained 1.5% and 1.6% respectively. Industrials and Financials led the charge and were up 2.7% and 2.4%. Real Estate, Consumer Discretionary, IT, Energy, Materials, Healthcare and Communication Services were up more than 1%. Earnings reports continued with Netflix, UBS and United Airlines reporting their quarterly numbers (scroll down for details). US 10Y Treasury yields were flat at 1.21%. European indices also climbed more than 0.5% – CAC was up 0.8% and DAX and FTSE were up 0.5% each. US IG CDS spreads tightened 1.6bp and HY tightened 5.1bp. EU Main and Crossover spreads tightened 0.1bp and 1.45bp respectively. Brazil’s Bovespa was up 0.8%. Gulf markets remained closed for Eid and oil prices remained sub $70/bbl. A Chinese Finance Ministry official said that China’s fiscal revenue growth  is likely to slow significantly in the second half. Asian markets were upbeat – Nikkei was up 1.4% and  Shanghai,  HSI and Singapore’s STI were up between 0.2%-0.6%. Asia ex-Japan CDS spreads were 1.7bp wider.

Indonesia; Lai Sun, China Grand Auto Launch $ Bonds; Macro; Rating Changes; New Issues; Talking H...

China

China Grand Automotive Services Group Co., Ltd. operates as an auto dealership. The Company sells luxury passenger cars, second hand cars, and auto parts. China Grand Automotive Services Group also conducts vehicle maintenance and financial leasing businesses.

China Grand Automotive Services (600297 CH)

China Grand Automotive Services (600297 CH)

Quiddity HSCEI Dec 23 Rebalance: Zhongsheng Vs China Grand Pair Interesting if Deletion Is Confirmed

I see China Unicom Hong Kong (762 HK) as an Expected ADD and Zhongsheng Group (881 HK) as an Expected DEL. My current estimate for one-way capping...

Janaghan Jeyakumar, CFA

Tuhu Car IPO: Forecasts and Valuation

Tuhu Car priced its IPO at HK$28.00 per share, at the bottom end of the IPO price range and raised net proceeds of HK$1,081m (US$138m) excluding...

Shifara Samsudeen, ACMA, CGMA

TUHU Car IPO: The Investment Case

The investment case rests on the return to growth, improving gross margin, a shift to profitability and a return to cash generation.

Arun George

SOHO China (410 HK): At Least There Is Dialogue

I still like SOHO here - a high probability of a break is already priced in. I just don't see Beijing setting a precedent and outright blocking the...

David Blennerhassett

Indonesia; Lai Sun, China Grand Auto Launch $ Bonds; Macro; Rating Changes; New Issues; Talking H...

US markets rebounded, making up most of Monday’s losses as the S&P and Nasdaq gained 1.5% and 1.6% respectively. Industrials and Financials led...

BondEvalue