Smartkarma Daily Briefs

• Hang Lung (10 HK) recently announced it had acquired 1.3% in Hang Lung Properties (101 HK) over a one-year period, increasing its holding to 59.5%.
• HLG currently trades at a 62% discount to NAV, a level last seen around the Covid lows in May 2020.
• HLG is the most basic of Holdco structures – there is almost a 100% overlap in the stub ops with HLP’s property investments. 

• The index changes for the FTSE UK Indices for the September 2022 Rebalance were announced yesterday. There will be 3 changes for FTSE 100 and 8 changes for FTSE 250.
• These index changes are mostly in line with our expectations in FTSE UK Quiddity Leaderboard Sep 2022: Avast, Meggitt, Brewin, and a Busy Rebalance Month. 
• However, there a couple of surprises. In this insight, we take a closer look at our expectations for index flows and potential trading ideas

• Onewo Space-Tech (ONEWO HK), China Vanke (000002 CH)’s property management unit, has begun pre-marketing a US$2.0 billion HKEx IPO.
• Onewo ranked first in China’s property management services market as measured by revenue from basic property management services, with a market share of 4.28% in 2021.
• The key elements of the bull case rest on the solid financial health of the parent, strong growth, growth runway from undelivered GFA, share gains, renewal rates and cash generation.

• The decision to not invest in BitKrub, crypto currency exchange, is highly positive
• Net interest margins are rising, with better loan yields, stable deposit costs
• Stage 2 loan decline is substantial, positive for future NPL outlook

CCRE’s results were poor, albeit in line with expectations as the company had issued a profit warning in August. The company was significantly impacted by several headwinds specific to Henan (e.g. the floods in H2/21 and COVID-19 lockdowns in H1/22), as well as the nationwide deterioration in homebuyer and investor sentiment. As a result, net debt and leverage worsened by more than expected.

Going forward, we believe that CCRE’s debt repayment prospects remain highly uncertain, given the company’s depleted liquidity and poor operating cash flows (due to the weak sales and very low margins). In addition, we believe the planned convertible bond issuance would help to enhance the company’s liquidity, but is insufficient to cover the large funding gap in FY 2023. Positively, Chairman Wu Po Sum has displayed a strong willingness to honour the company’s commitments. We highlight that the development of synergies with Henan Railway to achieve new business and financing opportunities may be critical for CCRE to continue staving off default.

• The perpetual futures market serves as the battleground for institutions, risk-hedgers and speculators alike.
• In the bull run of 2021, perpetual futures acted as one of the main catalysts for all time highs as new money piled into the market with excessive leverage.
• Flash forward to September 2022 and we’re seeing this new money return to perpetual futures markets more ferociously than ever, specifically for ETH, with open interest recently breaking all time highs, ahead of one of the biggest idiosyncratic catalysts crypto has seen in some time, the Ethereum Merge. 

• After a steep correction in the past few months, Block is trading sideways but continues to remain a highly volatile script.
• The company delivered an all-around beat but the sideways trajectory has continued.
• In the quarter, within Cash App, Block introduced an innovative investing feature named ‘Round Ups’ to make investing accessible and relatable to everyone.

China SCE’s H1/22 results were reasonable, considering the industry weakness. Positively, the company has maintained a good repayment track record. It repaid the USD bonds due in March on a timely basis, and repaid CNY 953 mn that was put back for CNY 1.46 bn puttable bonds in July. This reflects positively on management’s willingness to fulfil obligations, which could increase the company’s likelihood of surviving the property crisis. Moreover, the Yangtze River Delta region accounted for 36% of SCE’s existing land bank, while the West Taiwan Strait Economic Zone and Greater Bay Area accounted for another 30% in total. These regions have growth potential and will likely rebound once operating conditions improve.

Negatively, SCE was not among the companies selected by authorities for the issuance of state-backed guaranteed bonds. Hence, it is unclear if the company can continue to raise financing on its own, without explicit government support. That said, management said it will work to be included in the next batch of developers if possible. The company also intends to dispose of assets to alleviate the liquidity pressure, albeit this might entail execution risk.

CIFI Holdings’ H1/22 results were slightly below our expectations. The company reported a moderate increase in net debt, which appears to contradict its deleveraging plans. Moreover, we believe CIFI’s liquidity is tight, as only one-third of its cash on hand is freely available. We note the company has to bear the burden of ensuring property deliveries at its JV projects (particularly if the JV partner is under distress). This may add to CIFI’s cash outflows as it acquire stakes from JV partners. The tight liquidity is also evidenced by the company’s failure to call the perpetual securities in August 2022, as well as the new share placement at a 12% discount.

Positively, CIFI enjoys relatively good access to financing (compared to other private developers), which greatly enhances its near-term debt repayment prospects. In this regard, the company expects to complete the issuance of CNY 1.5 bn in onshore state-guaranteed bonds around mid-September 2022. We expect CIFI to repay its sole maturing bond in the next 12 months (the USD 300 mn CIGIHF 5.5 23 coming due in January 2023).