Daily Brief China: Arashi Vision, Yum China, Iluvatar CoreX, Perfect Medical Health Management, Ingenic Semiconductor, Geely Auto, Shenzhen Longsys Electronics, Guangdong Electric Power Devel, POCO Holding, Transwarp Technology and more

• We screen the STAR Market eligible universe ahead of the STAR50 Sep 2026 review.
• Four stocks stand out as high-conviction ADDs this cycle, all with clear rank cushions.
• We expect 3 high-conviction DELETEs and 2 mid-conviction DELETEs due to their proximity to the edge of DELETE zone.

• Post market close on Friday, Hang Seng Indexes will announce the changes for the Hang Seng Index (HSI INDEX) that will be implemented at the close on 4 September.
• We highlight 7 stocks that have a higher probability of being added to the index. With the index committee entitled to a lot of discretion, there will be differences.
• The Healthcare industry continues to remain the most underweight and there could be more additions from the industry as we near the 100-stock target.

• We screen the HS TECH eligible universe ahead of the September 2026 quarterly review.
• One stock ranks inside the ADD Zone this cycle, paired with one Buffer Zone DELETE.
• Both calls are mid-conviction, as the DELETE candidate is inside the Buffer Zone and close to the DELETE Zone.

• The “Hard-Sell” Engine is Structural, Not Incidental: Perfect Medical’s high margins are structurally dependent on aggressive staff incentives and upsell-heavy consultations. Attempting to pivot to a purely transparent, soft-sell model would cause immediate top-line collapse because first-time client organic retention is extremely low.
• Cross-Border Leakage Shifting Competitive Moats: The post-pandemic outflow of Hong Kong discretionary spend to Shenzhen and South Korea has permanently damaged local mid-tier aesthetic volumes. Perfect Medical is defending its domestic market by aggressively cutting costs and introducing lower-margin, high-turnover “Korean-style” treatments, shifting their premium physician-led brand toward a mass-market value play.
• Strict Private Healthcare Licensing Raising Operational Friction: The rollout of the Private Healthcare Facilities Ordinance (PHFO) licensing regime starting October 13, 2025, forces operators to appoint formal Chief Medical Executives. While Perfect Medical’s doctor-founded legacy provides a compliance buffer, it severely escalates administrative overhead and limits the execution speed of clinic redeployments.

• H-Share bookbuilding is live; pricing 21 Aug, first trade 25 Aug. A-shares surged 34.3% on Day 1 of bookbuilding to CNY155.39 — equivalent to HK$167.82 against the H-offer cap HK$102.80.
• The H-offer cap of HK$102.80 acquires the same economic interest as the A-share at CNY155.39 — a 38.7% structural discount the market closes over 12–24 months as float builds.
• Initiate BULLISH. Fair value HK$112 — A/H compression to the 50% historical median. Fundamental floor HK$90 at 42x FY26E NP of RMB1,016m. Half GigaDevice’s implied forward multiple.

• Amid the impact of oil prices, the car maker recorded a growth rate of 15% YoY in 2Q26.
• Export growth has exceeded 100% YoY over past half year and surged to 200% YoY in July.
• We estimate that the stock price will double at the end of 2027.

• The “Scissor Gap” is Narrowing: Shenzhen Longsys Electronics’ (SLE) spectacular H1 2026 earnings surge—with net profit reaching 10.58 billion yuan up from just 14.76 million yuan in H1 2025—is an “inventory dividend” driven by low-cost wafer stockpiles meeting peak contract prices. This peak is transient; with NAND/DRAM price growth slowing down to 10–15% in Q3 2026, SLE faces a severe margin compression risk in 2027 as cheap inventory is fully depleted.
• Structural Working Capital Squeeze Defeats Cash Flows: Despite massive paper profits, SLE’s operating cash flow plunged to -2.87 billion yuan in Q1 2026 due to a massive 439% increase in wafer prepayments. Top-tier foundries are holding all the leverage, demanding upfront cash to allocate scarce capacity, meaning the proposed $500 million H-share listing is a critical working capital lifeline rather than a pure global expansion play.
• Moat Constraints and Stalled Alliances: SLE’s shift from a commodity price-taker to a high-margin enterprise player remains unproven. While packaging capabilities have improved via PTI Suzhou, its controller technology (e.g., the WM7400) remains low-to-mid tier compared to Phison. Furthermore, the strategic embedded-storage joint venture with Kingston has effectively stalled, leaving SLE struggling to gain high-volume traction in stickier Tier-1 enterprise accounts.

• Guangdong Electric Power Development holds a strategic position as a key power producer in Guangdong, China’s most economically significant province, which is experiencing record-breaking electricity demand.
• The company is in a transitional phase, with a historical reliance on coal-fired power generation, but is actively investing in and expanding its portfolio of clean energy projects, including natural gas, wind, and solar power.
• Financial performance is characterized by high volatility, with strong recent growth in operating cash flow and net income, but this is contrasted by a history of declining long-term profitability, negative free cash flow due to heavy investment, and a sharply reduced dividend payout.

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• POCO is one of the few domestic enterprises that possess the entire production capacity of alloy soft magnetic materials. The three business lines have achieved a “micro-ecosystem” synergy effect
• Global leaders in inductors have overcome the technical shortcomings. Leveraging their strong customer relationships, patent barriers, and scale advantages, they may directly seize orders from core customers such as NVIDIA.
• As POCO is a global leader in its specific field and is in a high-growth sector, A/H discount could be relatively limited. Based on 2026 forecast, P/E could be 50-70x. 

• Sovereign Localization vs. Real AI ROI: Transwarp’s revenue is heavily polarized. State-mandated localization (Xinchuang) initiatives drive roughly 70% of current revenue, primarily through the replacement of legacy legacy products like Oracle and Cloudera. In contrast, commercial generative AI and LLMOps (Sophon) deployments represent less than 20% of revenue, as enterprise buyers remain highly conservative, prioritizing low-cost proof-of-concept (POC) projects over large-scale production deployments.
• Structural Competitive Disadvantage in OLTP: Transwarp lacks pricing power in the traditional transactional database (OLTP) market, where its KunDB has a win-loss ratio of under 20% against dominant rivals like Alibaba’s OceanBase and Huawei’s GaussDB. To secure bundle deals, Transwarp frequently discounts its database products by up to 50% to 60%. Conversely, its pricing power is preserved in multi-model data platforms (TDH) and analytical environments (ArgoDB), where it achieves gross margins exceeding 50%.
• The Capital Runway and the H-Share Pivot: The planned HKEx H-share listing to issue up to 24,583,500 shares (targeting approximately USD 100 million) is a vital liquidity bridge. With cash reserves dwindling to RMB 252 million as of January 2026 and historical operating cash flow consistently negative (-RMB 109.65 million in 2025), the raise is driven by strict A-share refinancing restrictions onshore. Management’s path to positive operating cash flow by late 2026 or 2027 depends on converting high-cost R&D (which accumulated over RMB 654 million between 2023 and 2025) into standardized, repeatable software assets rather than highly customized, low-margin project deliveries.