Smartkarma Daily Briefs

• In this insight, we take a look at the potential index changes and the resultant capping flows for the HSTECH Index in September 2023.
• Based on the latest available data, I see two ADDs and two DELs. 
• For the September 2023 rebalance, I expect one-way capping flows to be around US$234mn.

• In this insight, we take a look at the potential index changes and the resultant capping flows for HSCEI in September 2023.
• Based on the latest available data, I expect two ADDs and two DELs for HSCEI in the September 2023 Rebalance.
• I estimate one-way flow to be US$276mn. Only the two ADDs and two DELs involved in the index changes are likely to have more than one day to trade. 

• Oriental Watch is a prominent luxury watch retailer in the Greater China region.
• While the company offers various brands, the majority of its sales, over 80%, come from its core brands, particularly Rolex and Tudor, a sister brand of Rolex.
• Over the past two years, Oriental Watch has benefited greatly from the strong popularity of Rolex watches and has rewarded its shareholders with a dividend payout of over 100%.

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads  111 Inc (YI US), Mason Group Holdings (273 HK), United Malt Group Ltd (UMG AU), HKBN Ltd (1310 HK), Silk Laser Australia (SLA AU), Chindata Group (CD US). 
• Lowest spreads – Healius (HLS AU), Liontown Resources (LTR AU), Musgrave Minerals (MGV AU), Lian Beng (LBG SP), Toyo Construction (1890 JP), Mincor Resources NL (MCR AU). 

• Mason Group Holdings (273 HK) announced a privatisation offer from Red Emerald Capital at HK$0.0338 per share, a 20.7% premium to the undisturbed price of HK$0.0280 per share (30 May). 
• The key conditions are SFC approval and the scheme being approved by at least 75% disinterested shareholders (<10% disinterested shareholders rejection). The offer price has not been declared final.
• Four shareholders hold a blocking stake – three have provided irrevocables while the other will accept due to the attractive ROI. Therefore, there is a clear pathway to completion.

• We explored the primary share price drivers for HKL, the prime office landlord in Hong Kong, including share buybacks, HK office recovery and as a reopening/ESG thematic play. 
• HKL has been constantly evaluating its capital management strategy.  Despite interest rate environment has changed substantially, HKL still sees buyback (7% earnings yield) as a good option
• Valuation remains attractive.  Part of the risks is priced in.  Although it can remain as a value trap, it can unlock its value and re-rate over the long term.

• Anhui Conch Cement (914 HK) has been facing numerous challenges, but at 0.5x P/B (2SD below average) and 36.4% of share price is net cash, it pays not overly bearish. 
• Government stimulus measures may not be effective immediately, but should pave the way for better cement demand. A 16.5% increase in special purpose bond issuance in 4M23 is positive.  
• Depressed cement price is bad, but this will drive small and inefficient players out of the market. This will bring more orderly competition and allow Conch Cement gain market share. 

• After broker Mason Group (273 HK) was suspended pursuant to Hong Kong’s Takeovers Code on the 31 May, it has now announced a privatisation by way of Scheme at HK$0.0338/share.
• The Offer price is only a 20.7% premium to last close, and a 12.7% premium to the three-month average closing price. It has not been declared final.
• The Offeror is Red Emerald. Shareholders with 47.55% of shares out have given irrevocables in support of the Scheme. 

• 2022 was a turning point for China Resources Pharmaceutical (CRP), because performance of core subsidiaries saw a historic improvement.After China reopens, CRP is expected to achieve double-digit growth in 2023.
• CRP’s development history indicates that its current scale/industry position are mainly due to continuous M&A based on SOE resource advantages/background, but holding platform companies have valuation discounts in secondary market.
• Different business models lead to different valuation logic. But Sinopharm/SH Pharma/CRP all enjoy SOE background dividends+valuation system with Chinese characteristics. If investors mainly focus on industry trend, they can all be invested.  

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Central China Securities
• Powerlong Commercial Management Holdings
• Sunny Optical