Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE:Toshiba, Wilmar, Vedanta, Haier, Softbank, Genting, 51job, Appraisal Rights

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

<p>The Hang Seng Indexes Company Limited (HSIL) should announce the results of the 2020 Q3 review of the Hang Seng Family of Indexes on 6 November. The constituent changes will be effective after the close of trading on 4 December.</p><p>With only 3 changes permitted in the September <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> review post the methodology change that included WVR securities and Secondary Listings in the eligible Universe, there could be as many as 9 changes in the December review.</p><p>We see a high probability of <a href="https://www.smartkarma.com/entities/china-overseas-land-invest" target="_blank" data-smartkarma-citation="entities:419:1" rel="noopener">China Overseas Land &amp; Investment Ltd (688 HK)</a>, <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com (HK) (9618 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-health-information-technology-ltd" target="_blank" data-smartkarma-citation="entities:453:1" rel="noopener">Alibaba Health Information Technology (241 HK)</a>, <a href="https://www.smartkarma.com/entities/haidilao-international-holding-ltd" target="_blank" data-smartkarma-citation="entities:27044:1" rel="noopener">Haidilao (6862 HK)</a>, <a href="https://www.smartkarma.com/entities/china-feihe-ltd" target="_blank" data-smartkarma-citation="entities:24413:1" rel="noopener">China Feihe (6186 HK)</a>, <a href="https://www.smartkarma.com/entities/semiconductor-manufacturing" target="_blank" data-smartkarma-citation="entities:14231:1" rel="noopener">Semiconductor Manufacturing (981 HK)</a> and <a href="https://www.smartkarma.com/entities/evergrande-real-estate-group-limited" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a> being included in the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a>, and of <a href="https://www.smartkarma.com/entities/china-taiping-insurance-hldgs-co-ltd" target="_blank" data-smartkarma-citation="entities:489:1" rel="noopener">China Taiping Insurance Hldgs (966 HK)</a>, <a href="https://www.smartkarma.com/entities/china-telecom-corp-ltd-h" target="_blank" data-smartkarma-citation="entities:1015:1" rel="noopener">China Telecom Corp Ltd (H) (728 HK)</a>, <a href="https://www.smartkarma.com/entities/china-minsheng-banking-h" target="_blank" data-smartkarma-citation="entities:8983:1" rel="noopener">China Minsheng Banking H (1988 HK)</a>, <a href="https://www.smartkarma.com/entities/china-vanke-co-ltd-h" target="_blank" data-smartkarma-citation="entities:18368:1" rel="noopener">China Vanke Co Ltd (H) (2202 HK)</a>, <a href="https://www.smartkarma.com/entities/fosun-international-ltd" target="_blank" data-smartkarma-citation="entities:433:1" rel="noopener">Fosun International (656 HK)</a>, <a href="https://www.smartkarma.com/entities/china-citic-bank-corp-ltd-ea6c25fd-4b20-45cb-a4a6-df7a60136f03" target="_blank" data-smartkarma-citation="entities:653:1" rel="noopener">China Citic Bank Corp Ltd H (998 HK)</a> and <a href="https://www.smartkarma.com/entities/china-shenhua-energy-co-h" target="_blank" data-smartkarma-citation="entities:382:1" rel="noopener">China Shenhua Energy Co H (1088 HK)</a> being deleted from the index.</p><p>Depending on price movements between now and 30 September, <a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a> and <a href="https://www.smartkarma.com/entities/hansoh-pharmaceutical-group" target="_blank" data-smartkarma-citation="entities:23675:1" rel="noopener">Hansoh Pharmaceutical (3692 HK)</a> could be included in the index, which would see <a href="https://www.smartkarma.com/entities/want-want-china-holdings-ltd" target="_blank" data-smartkarma-citation="entities:355:1" rel="noopener">Want Want (151 HK)</a> and <a href="https://www.smartkarma.com/entities/picc-property-casualty-h" target="_blank" data-smartkarma-citation="entities:350:1" rel="noopener">PICC Property &amp; Casualty H (2328 HK)</a> being deleted.</p><p>Estimated one-way turnover for the rebalance is 9.63% which is lower than the turnover at the September rebalance, but significant nonetheless.</p><p>The expected review changes will alter the sectoral composition of the index with an increase in the weight of the Consumer Discretionary, Information Technology and Health Care sectors at the expense of Financials and Energy. There will also be an impact on the HSCEI 2021 dividend futures, a large part of which has already been discounted by the market.</p>

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the 2020 Q3 review of the Hang Seng Family of Indexes on 6 November. The constituent changes will be effective after the close of trading on 4 December.With only 3 changes permitted in the September Hang Seng China Enterprises Index (HSCEI INDEX) review post the methodology change that included WVR securities and Secondary Listings in the eligible Universe, there could be as many as 9 changes in the December review.We see a high probability of China Overseas Land &amp; Investment Ltd (688 HK), JD.com (HK) (9618 HK), Alibaba Health Information Technology (241 HK), Haidilao (6862 HK), China Feihe (6186 HK), Semiconductor Manufacturing (981 HK) and Evergrande Real Estate Group (3333 HK) being included in the Hang Seng China Enterprises Index (HSCEI INDEX), and of China Taiping Insurance Hldgs (966 HK), China Telecom Corp Ltd (H) (728 HK), China Minsheng Banking H (1988 HK), China Vanke Co Ltd (H) (2202 HK), Fosun International (656 HK), China Citic Bank Corp Ltd H (998 HK) and China Shenhua Energy Co H (1088 HK) being deleted from the index.Depending on price movements between now and 30 September, NetEase (9999 HK) and Hansoh Pharmaceutical (3692 HK) could be included in the index, which would see Want Want (151 HK) and PICC Property &amp; Casualty H (2328 HK) being deleted.Estimated one-way turnover for the rebalance is 9.63% which is lower than the turnover at the September rebalance, but significant nonetheless.The expected review changes will alter the sectoral composition of the index with an increase in the weight of the Consumer Discretionary, Information Technology and Health Care sectors at the expense of Financials and Energy. There will also be an impact on the HSCEI 2021 dividend futures, a large part of which has already been discounted by the market.

HSCEI Index Rebalance Preview - December 2020: HUGE Number of Changes and Turnover Expected

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

<div><p><a href="https://www.smartkarma.com/entities/nongfu-spring" target="_blank" data-smartkarma-citation="entities:28955:1" rel="noopener">Nongfu Spring (9633 HK)</a> is a leader in the packaged drinking water and beverage business in China. Nongfu had the leading market share in the packaged drinking water market in China for eight consecutive years from 2012 to 2019, according to Frost &amp; Sullivan. Nongfu will commence trading on Tuesday, 8 September. Nongfu priced its IPO at HK$21.50 per share, at the top end of the indicative price range of $19.50-21.50 per H share. Nongfu raised net proceeds of HK$8,149 million ($1.1 billion).</p></div><div><div><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/nongfu-spring-ipo-initiation-still-or-sparkling" target="_blank" rel="noopener">our initiation note</a>, we stated that Nongfu is a play on the attractive growth of the Chinese soft beverage markets, which is underpinned by the increasing urbanisation rate, the growing health awareness and consumption upgrade. In <a href="https://www.smartkarma.com/insights/nongfu-spring-ipo-update-points-to-green-shoots-of-recovery" target="_blank" rel="noopener">our PHIP update note</a>, we opined that the key negative remains the large pre-IPO dividends with RMB7,800 million ($1.1 billion) cash dividend declared on 14 August. Overall, we continue to believe that Nongfu remains attractive at the IPO price due to a reasonable PEG valuation.</p></div></div></div>

Nongfu Spring (9633 HK) is a leader in the packaged drinking water and beverage business in China. Nongfu had the leading market share in the packaged drinking water market in China for eight consecutive years from 2012 to 2019, according to Frost &amp; Sullivan. Nongfu will commence trading on Tuesday, 8 September. Nongfu priced its IPO at HK$21.50 per share, at the top end of the indicative price range of $19.50-21.50 per H share. Nongfu raised net proceeds of HK$8,149 million ($1.1 billion).In our initiation note, we stated that Nongfu is a play on the attractive growth of the Chinese soft beverage markets, which is underpinned by the increasing urbanisation rate, the growing health awareness and consumption upgrade. In our PHIP update note, we opined that the key negative remains the large pre-IPO dividends with RMB7,800 million ($1.1 billion) cash dividend declared on 14 August. Overall, we continue to believe that Nongfu remains attractive at the IPO price due to a reasonable PEG valuation.

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Equity Bottom-Up

<p>Revenue in H120 at <a href="https://www.smartkarma.com/entities/dali-foods-group-co-ltd" target="_blank" data-smartkarma-citation="entities:1082:1" rel="noopener">Dali Foods Group (3799 HK)</a> declined by 8.7% YoY, but margins were relatively stable and the company managed to report net EPS of 0.14 RMB (-9.5% YoY). Dali Foods declared an interim dividend of 0.075 HKD, equivalent to about 47% of net profit. </p>
<p>The company's main three product areas posted wildly divergent results in H120. Sales of <em>Household Consumption</em> items -- soy-based drinks and bread products -- held up well during the pandemic, rising 7.7% YoY. Sales of <em>Snacks</em> declined, but only by 2% YoY. But Dali's <em>Ready to Drink</em><em>Beverages</em> saw sales decline by almost 23% YoY due to intense competition in the segment. </p>
<p>All told, Dali's sales performance in H120 barely outperformed overall retail sales in China (Dali -8.7% versus -10.9% retail sales excluding autos). Certainly the pace of revenue growth will recover here in H2 as pandemic fears subside, but we see few reasons to get excited about the stock. Retain SELL and HK$4.18 target price, implying 16% downside from the closing price on September 4. </p>

Revenue in H120 at Dali Foods Group (3799 HK) declined by 8.7% YoY, but margins were relatively stable and the company managed to report net EPS of 0.14 RMB (-9.5% YoY). Dali Foods declared an interim dividend of 0.075 HKD, equivalent to about 47% of net profit. 
The company's main three product areas posted wildly divergent results in H120. Sales of Household Consumption items -- soy-based drinks and bread products -- held up well during the pandemic, rising 7.7% YoY. Sales of Snacks declined, but only by 2% YoY. But Dali's Ready to DrinkBeverages saw sales decline by almost 23% YoY due to intense competition in the segment. 
All told, Dali's sales performance in H120 barely outperformed overall retail sales in China (Dali -8.7% versus -10.9% retail sales excluding autos). Certainly the pace of revenue growth will recover here in H2 as pandemic fears subside, but we see few reasons to get excited about the stock. Retain SELL and HK$4.18 target price, implying 16% downside from the closing price on September 4. 

Dali Foods (3799 HK): Story Remains Unexciting, Retain SELL

<div><p><a href="https://www.smartkarma.com/entities/nongfu-spring" target="_blank" data-smartkarma-citation="entities:28955:1" rel="noopener">Nongfu Spring (9633 HK)</a> is a leader in the packaged drinking water and beverage business in China. Nongfu had the leading market share in the packaged drinking water market in China for eight consecutive years from 2012 to 2019, according to Frost &amp; Sullivan. Nongfu has launched its IPO at a price range of $19.50-21.50 per H share. At the mid-point of the IPO price range, Nongfu will raise net proceeds of HK$7,768 million ($1 billion).</p></div><div>
<p>In <a href="https://www.smartkarma.com/insights/nongfu-spring-ipo-initiation-still-or-sparkling" target="_blank" rel="noopener">our initiation note</a>, we stated that Nongfu is a play on the attractive growth of the Chinese soft beverage markets, which is underpinned by the increasing urbanisation rate, the growing health awareness and consumption upgrade. In <a href="https://www.smartkarma.com/insights/nongfu-spring-ipo-update-points-to-green-shoots-of-recovery" target="_blank" rel="noopener">our PHIP update note</a>, we opined that the key negative remains the large pre-IPO dividends with RMB7,800 million ($1.1 billion) cash dividend declared on 14 August. Ultimately, we believe that the extent to which pre-IPO dividends detract from the company's fundamentals comes down to each investors’ comfort level with pre-IPO dividends.</p>
<div class="content-highlight"><p>Nongfu’s fundamentals offer more positives than negatives. Overall, we think that a reasonable PEG valuation, a market-leading business and solid cornerstone support makes Nongfu tempting at the proposed pricing range. </p></div>
</div>

Nongfu Spring (9633 HK) is a leader in the packaged drinking water and beverage business in China. Nongfu had the leading market share in the packaged drinking water market in China for eight consecutive years from 2012 to 2019, according to Frost &amp; Sullivan. Nongfu has launched its IPO at a price range of $19.50-21.50 per H share. At the mid-point of the IPO price range, Nongfu will raise net proceeds of HK$7,768 million ($1 billion).
In our initiation note, we stated that Nongfu is a play on the attractive growth of the Chinese soft beverage markets, which is underpinned by the increasing urbanisation rate, the growing health awareness and consumption upgrade. In our PHIP update note, we opined that the key negative remains the large pre-IPO dividends with RMB7,800 million ($1.1 billion) cash dividend declared on 14 August. Ultimately, we believe that the extent to which pre-IPO dividends detract from the company's fundamentals comes down to each investors’ comfort level with pre-IPO dividends.
Nongfu’s fundamentals offer more positives than negatives. Overall, we think that a reasonable PEG valuation, a market-leading business and solid cornerstone support makes Nongfu tempting at the proposed pricing range. 


Hong Kong

Want Want China Holdings Limited is a leading food and beverage company that manufactures and distributes a wide range of products, including rice crackers, dairy products, and various beverages like flavored milk and juices, as well as snack foods. The company primarily serves the Chinese market with exports to other regions. It was founded in 1962 and is headquartered in Kowloon Bay, Hong Kong.

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Want Want China (151 HK)

Last Week in Event SPACE:Toshiba, Wilmar, Vedanta, Haier, Softbank, Genting, 51job, Appraisal Rights

Last Week in Event SPACE ... Plus, other events, CCASS movements and Mood Spins. (This insight covers specific insights & comments...

David Blennerhassett

HSCEI Index Rebalance Preview - December 2020: HUGE Number of Changes and Turnover Expected

The Hang Seng Indexes Company Limited (HSIL) will announce the results of the 2020 Q2 review of the Hang Seng Family of Indexes in mid August. The...

Brian Freitas

Nongfu Spring IPO: Trading Debut

Hangzhou Tigermed Consulting (H) (3347 HK) is a global contract research organisation (CRO). Tigermed is the largest clinical CRO in China with a...

Arun George

Dali Foods (3799 HK): Story Remains Unexciting, Retain SELL

Revenue in H120 at Dali Foods Group (3799 HK) declined by 8.7% YoY, but margins were relatively stable and the company managed to report net EPS of...

Tracking Traffic

Nongfu Spring IPO: Valuation Insights

Nongfu Spring (9633 HK) is a leader in the packaged drinking water and beverage business in China. Nongfu had the leading market share in the...

Arun George

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