Category

China

Brief China: Economy/Covid-19/Hong Kong/China-USA/Hainan and more

By | China, Daily Briefs

In this briefing:

  1. Economy/Covid-19/Hong Kong/China-USA/Hainan
  2. JD.com Secondary Listing: HK-ADS Premium/(Discount) Views

1. Economy/Covid-19/Hong Kong/China-USA/Hainan

China News That Matters

  • Beijing relies on Western-style monetary policy
  • Wuhan declared free of coronavirus 
  • Don’t diss the anthem; or remember June Fourth
  • China goads US over protests
  • If paradise is half as nice

In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.

2. JD.com Secondary Listing: HK-ADS Premium/(Discount) Views

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Hot on the heels of NetEase Inc (NTES US), JD.com Inc (ADR) (JD US) has launched a $4.3 billion secondary listing in Hong Kong. JD.com plans to sell 133 million new shares in the secondary listing, which would represent 4.3% of the total shares outstanding, according to press reports. JD.com is set to list in Hong Kong on 18 June, the same day as its annual shopping bonanza.

Like Alibaba Group (9988 HK), Hong Kong will be a meaningful trading venue for JD.com. Notably, Alibaba’s HK freefloat shares as a percentage of HK-registered shares have risen at an increasing pace and currently stands at 36.9% (vs 11.1% at listing). JD.com will likely price its H-shares at a discount to its ADSs to entice investors to participate in the secondary listing. Overall, we think that JD.com pricing its H-shares at a 2.0% to 3.0% discount to its ADSs will be reasonable.

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Brief China: Niu: 2Q Volumes Soar as COVID Accelerates Shift to EV Micromobility, Raise FV to US$31.4 (+42%) and more

By | China, Daily Briefs

In this briefing:

  1. Niu: 2Q Volumes Soar as COVID Accelerates Shift to EV Micromobility, Raise FV to US$31.4 (+42%)
  2. CHINA FLOW: Bubble, Bubble, Toil, & Trouble (Watching Turnover, Margin, and Excess)
  3. SINA’s Opportunistic Privatisation Bid
  4. Chinese Easing Drives Next Phase of Liquidity-Driven Boom. Could EM Soar?
  5. Jinxin Fertility Placement: Sound Fundamentals

1. Niu: 2Q Volumes Soar as COVID Accelerates Shift to EV Micromobility, Raise FV to US$31.4 (+42%)

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Niu shares have soared by ~170% since we initiated coverage on the Company in January 2020. We believe that COVID-19 has validated Niu’s value proposition and is accelerating the shift towards EV micromobility as consumers realize the convenience and increased safety of personal mobility solutions in a post-COVID world.

Despite the major run-up in Niu’s prices, we see 6 trends that can continue accelerating Niu’s growth:

  1. Shift away from public transportation towards personal mobility
  2. Urbanization requiring more energy & space-efficient mobility 
  3. Launch of more affordable entry-level scooters
  4. Higher-margin accessory upsells
  5. Operating leverage and economies of scale
  6. Virtual stores and e-comm live streaming as a more cost-efficient channel

We chose to value Niu at 4x its 2022 sales and brought this to present value at a discount rate of 30%. Our 2022 sales forecast assumes that the Company successfully captures 5.5% of the world’s lithium-ion 2-wheeler market (10% in China, 3% in Europe, 1% in Southeast Asia, 1% in India).

We believe these assumptions are fair given that COVID catalyzed faster adoption for Niu’s products and that the business has been significantly de-risked since our initial valuation.

2. CHINA FLOW: Bubble, Bubble, Toil, & Trouble (Watching Turnover, Margin, and Excess)

Screenshot%202020 07 07%20at%208.29.24%20pm

Monday morning 6 July, the China Securities Journal carried an editorial which was widely reported to stoke bullish fervour.

  • The FT said the editorial “talked up the prospect of a “healthy” bull market. The article said investors could look forward “to the wealth effect of the capital markets”.
  • Bloomberg said the editorial said “fostering a “healthy” bull market after the pandemic is now more important to the economy than ever.”
  • The WSJ quoted it as saying “fostering a “healthy bull market” is important given China’s increasingly complicated international relations, intense financial and technological competition, and the challenge of controlling internal financial risks.”

The editorial is quoted here in Chinese. If anything, it probably is more bullish-minded than the foreign media give it credit for. Importantly, with today’s editorial, the CSJ launched a new series of contributor articles based on the theme “新机, 新局, 新股市” which might be translated to New Mechanism, New Direction, New Stock Market (新局 = 新局面). Any retail investor will tell you that if the China Securities Journal is about to launch a series of articles which will all be represented under a slogan which is designed to elicit bullishness, they think the powers that be pointing at something. To be sure, there are words of wisdom – i.e. “take the long view” amid the positive aspects of significant capital market reform, and moving the economy towards technology, science, digitalization, and the cloud, but the conclusion uses a metaphor to describe the opportunity – “despite the downward pressure on the economy the signs of recovery in June seemed to spark a single match to the woodpile creating a fire to illuminate the road forward for China’s economy.”

Code words such as “new direction”, “new stock market”, “technology”, “digitalization”, “cloud”, “spark a match”, “light a fire” are not exactly subtle. 

People understood that.

It is notable that all the China-based analysts and fund managers quoted in the each of the articles take pains to say that this time is different than 2014-2015 because China’s monetary policy is prudent, and China is wary of creating another bubble and bust like in 2015.

But they also all say they are max long or buying.

This looks like a setup. It is not quite summer 2014, but it is not not that, either. Investors will need to watch what the “official” guidance looks like in terms of speeches and front page contributor editorials in the CSJ. They will also need to watch the CSRC pages to see if there are warnings, like there were in February 2019, and in spring of 2015 in the big runup. 

What Next? It helps to look into the data to see who the players are, what they CAN do, what they WANT to do, and what they NEED to do at different points in time. And then we can look at the plumbing to see how that could or will impact things. It may also help to look at the past, and a series of insights from spring through about mid-late July 2015 looking at the drivers and attributes of the last run-up as it was happening are shown below.


When things got interesting in spring of 2015, I wrote a whole series of articles about China’s bull market and the drivers – especially retail leverage – and the microstructure and behavioural aspects which encouraged the bull move, which in turn helped set the conditions for a fall. If you want a not so quick history of the event from the aspect of leverage, market microstructure, and policy reaction, an hour spent reading most of these in order would probably provide a decent guide.

The Series of Insights on the Rise, Fall, and Subsequent Policy Manoeuvrings
DateTitle
15 April 2015 A-SHARES: Margin Investors are NOT marginal! 
18 April 2015 A-SHARE LEVERAGE: Umbrella Trusts and Margin 
3 May 2015 A-Share Margin: Gorillas and Grandfather Clocks 
7 May 2015

A-SHARES & LEVERAGE – “Index Adjustment Can’t Be Avoided in the Short-Term”? (Xinhua)

22 June 2015 A-SHARES: Margin Investors are STILL not Marginal! 
27 June 2015 A-SHARE QUICKNOTE | A Bag-Holding Exercise Has Begun 
8 July 2015 A-Share Margin: Selloff Hits Individuals, Tech Shares HOW…… Will It End? 
13 July 2015 A-Shares Commentary: To Equanimity And Beyond! 
19 July 2015 China A-Shares – 1, 2, 3 (trillion RMB) 

3. SINA’s Opportunistic Privatisation Bid

Val

On 6 July, Sina Corp (Class A) (SINA US) announced a non-binding privatisation proposal from New Wave MMXV Limited, which is controlled by Mr Charles Chao (Chairman and CEO of SINA). The bid of $41.00 per ordinary share values SINA at a market cap of $2.7 billion. The proposal represents a premium of 11.8% to the undisturbed price on 2 July and a premium of 20% to the average closing price of the ordinary shares during the last 30 trading days.

New Wave currently owns ordinary shares and Class A preference shares representing 58.0% of the aggregate voting power. To reach the two-thirds voting power threshold, New Wave would need shareholders holding a combined 8.6% of the voting power (18.1% of ordinary shares) to support the privatisation. While the privatisation is likely to succeed, the privatisation smacks of opportunism and a poor deal for long-term shareholders, in our view.

4. Chinese Easing Drives Next Phase of Liquidity-Driven Boom. Could EM Soar?

Image 92307970051594125679396

  • PBoC is easing through the ‘backdoor’ while keeping its balance sheet flat
  • Directed lending programs are fueling a step-up in credit growth
  • 20% annualized pick-up in lending fastest since early-2016
  • Chinese equity exposure in portfolios relatively low. Risk assets look attractive
  • EM should also benefit from Chinese easing

5. Jinxin Fertility Placement: Sound Fundamentals

Image 40527453151594124202409

3 shareholders of Jinxin Fertility come to market to sell 207.6 million shares. In this note, we will provide our thoughts on the deal. We like the fundamentals of the company with recent acquisition help expanding the company’s footprint to Central China. We also note that past deal has done well.

Our previous coverage on Jinxin Fertility

You are currently reading Executive Summaries of Smartkarma Insights.

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Brief China: CHINA FLOW: Bubble, Bubble, Toil, & Trouble (Watching Turnover, Margin, and Excess) and more

By | China, Daily Briefs

In this briefing:

  1. CHINA FLOW: Bubble, Bubble, Toil, & Trouble (Watching Turnover, Margin, and Excess)
  2. SINA’s Opportunistic Privatisation Bid
  3. Chinese Easing Drives Next Phase of Liquidity-Driven Boom. Could EM Soar?
  4. Jinxin Fertility Placement: Sound Fundamentals
  5. O-Net Tech (877 HK): Tripping The Light Fantastic

1. CHINA FLOW: Bubble, Bubble, Toil, & Trouble (Watching Turnover, Margin, and Excess)

Screenshot%202020 07 07%20at%208.28.39%20pm

Monday morning 6 July, the China Securities Journal carried an editorial which was widely reported to stoke bullish fervour.

  • The FT said the editorial “talked up the prospect of a “healthy” bull market. The article said investors could look forward “to the wealth effect of the capital markets”.
  • Bloomberg said the editorial said “fostering a “healthy” bull market after the pandemic is now more important to the economy than ever.”
  • The WSJ quoted it as saying “fostering a “healthy bull market” is important given China’s increasingly complicated international relations, intense financial and technological competition, and the challenge of controlling internal financial risks.”

The editorial is quoted here in Chinese. If anything, it probably is more bullish-minded than the foreign media give it credit for. Importantly, with today’s editorial, the CSJ launched a new series of contributor articles based on the theme “新机, 新局, 新股市” which might be translated to New Mechanism, New Direction, New Stock Market (新局 = 新局面). Any retail investor will tell you that if the China Securities Journal is about to launch a series of articles which will all be represented under a slogan which is designed to elicit bullishness, they think the powers that be pointing at something. To be sure, there are words of wisdom – i.e. “take the long view” amid the positive aspects of significant capital market reform, and moving the economy towards technology, science, digitalization, and the cloud, but the conclusion uses a metaphor to describe the opportunity – “despite the downward pressure on the economy the signs of recovery in June seemed to spark a single match to the woodpile creating a fire to illuminate the road forward for China’s economy.”

Code words such as “new direction”, “new stock market”, “technology”, “digitalization”, “cloud”, “spark a match”, “light a fire” are not exactly subtle. 

People understood that.

It is notable that all the China-based analysts and fund managers quoted in the each of the articles take pains to say that this time is different than 2014-2015 because China’s monetary policy is prudent, and China is wary of creating another bubble and bust like in 2015.

But they also all say they are max long or buying.

This looks like a setup. It is not quite summer 2014, but it is not not that, either. Investors will need to watch what the “official” guidance looks like in terms of speeches and front page contributor editorials in the CSJ. They will also need to watch the CSRC pages to see if there are warnings, like there were in February 2019, and in spring of 2015 in the big runup. 

What Next? It helps to look into the data to see who the players are, what they CAN do, what they WANT to do, and what they NEED to do at different points in time. And then we can look at the plumbing to see how that could or will impact things. It may also help to look at the past, and a series of insights from spring through about mid-late July 2015 looking at the drivers and attributes of the last run-up as it was happening are shown below.


When things got interesting in spring of 2015, I wrote a whole series of articles about China’s bull market and the drivers – especially retail leverage – and the microstructure and behavioural aspects which encouraged the bull move, which in turn helped set the conditions for a fall. If you want a not so quick history of the event from the aspect of leverage, market microstructure, and policy reaction, an hour spent reading most of these in order would probably provide a decent guide.

The Series of Insights on the Rise, Fall, and Subsequent Policy Manoeuvrings
DateTitle
15 April 2015 A-SHARES: Margin Investors are NOT marginal! 
18 April 2015 A-SHARE LEVERAGE: Umbrella Trusts and Margin 
3 May 2015 A-Share Margin: Gorillas and Grandfather Clocks 
7 May 2015

A-SHARES & LEVERAGE – “Index Adjustment Can’t Be Avoided in the Short-Term”? (Xinhua)

22 June 2015 A-SHARES: Margin Investors are STILL not Marginal! 
27 June 2015 A-SHARE QUICKNOTE | A Bag-Holding Exercise Has Begun 
8 July 2015 A-Share Margin: Selloff Hits Individuals, Tech Shares HOW…… Will It End? 
13 July 2015 A-Shares Commentary: To Equanimity And Beyond! 
19 July 2015 China A-Shares – 1, 2, 3 (trillion RMB) 

2. SINA’s Opportunistic Privatisation Bid

Val

On 6 July, Sina Corp (Class A) (SINA US) announced a non-binding privatisation proposal from New Wave MMXV Limited, which is controlled by Mr Charles Chao (Chairman and CEO of SINA). The bid of $41.00 per ordinary share values SINA at a market cap of $2.7 billion. The proposal represents a premium of 11.8% to the undisturbed price on 2 July and a premium of 20% to the average closing price of the ordinary shares during the last 30 trading days.

New Wave currently owns ordinary shares and Class A preference shares representing 58.0% of the aggregate voting power. To reach the two-thirds voting power threshold, New Wave would need shareholders holding a combined 8.6% of the voting power (18.1% of ordinary shares) to support the privatisation. While the privatisation is likely to succeed, the privatisation smacks of opportunism and a poor deal for long-term shareholders, in our view.

3. Chinese Easing Drives Next Phase of Liquidity-Driven Boom. Could EM Soar?

Image 92307970051594125679396

  • PBoC is easing through the ‘backdoor’ while keeping its balance sheet flat
  • Directed lending programs are fueling a step-up in credit growth
  • 20% annualized pick-up in lending fastest since early-2016
  • Chinese equity exposure in portfolios relatively low. Risk assets look attractive
  • EM should also benefit from Chinese easing

4. Jinxin Fertility Placement: Sound Fundamentals

Image 8620643841594123895185

3 shareholders of Jinxin Fertility come to market to sell 207.6 million shares. In this note, we will provide our thoughts on the deal. We like the fundamentals of the company with recent acquisition help expanding the company’s footprint to Central China. We also note that past deal has done well.

Our previous coverage on Jinxin Fertility

5. O-Net Tech (877 HK): Tripping The Light Fantastic

Image 75024117241594114142921

O-Net Technologies (Group) (877 HK), a leader in the provision of high-technology products and optical networking components, is currently suspended pursuant to the Code on Takeovers and Mergers.

Its two major shareholders collectively hold 48.31%, down from 72.69% at the time of O-Net’s listing in 2010. O-Net is Cayman incorporated. If a firm Offer is tabled by way of a Scheme, the headcount test applies.

O-Net is up 27% YTD, and just ~3.5% below the recent June high, which was also a two-year high.

As always, more below the fold.

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Brief China: JD.com Secondary Listing: HK-ADS Premium/(Discount) Views and more

By | China, Daily Briefs

In this briefing:

  1. JD.com Secondary Listing: HK-ADS Premium/(Discount) Views

1. JD.com Secondary Listing: HK-ADS Premium/(Discount) Views

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Hot on the heels of NetEase Inc (NTES US), JD.com Inc (ADR) (JD US) has launched a $4.3 billion secondary listing in Hong Kong. JD.com plans to sell 133 million new shares in the secondary listing, which would represent 4.3% of the total shares outstanding, according to press reports. JD.com is set to list in Hong Kong on 18 June, the same day as its annual shopping bonanza.

Like Alibaba Group (9988 HK), Hong Kong will be a meaningful trading venue for JD.com. Notably, Alibaba’s HK freefloat shares as a percentage of HK-registered shares have risen at an increasing pace and currently stands at 36.9% (vs 11.1% at listing). JD.com will likely price its H-shares at a discount to its ADSs to entice investors to participate in the secondary listing. Overall, we think that JD.com pricing its H-shares at a 2.0% to 3.0% discount to its ADSs will be reasonable.

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Brief China: Guangzhou Baiyun Intl Airport (600004 CH): A Strong Show in Last Month and more

By | China, Daily Briefs

In this briefing:

  1. Guangzhou Baiyun Intl Airport (600004 CH): A Strong Show in Last Month
  2. NetEase Solid Uptrend Targets
  3. Economy/Covid-19/Hong Kong/China-USA/Hainan
  4. JD.com Secondary Listing: HK-ADS Premium/(Discount) Views

1. Guangzhou Baiyun Intl Airport (600004 CH): A Strong Show in Last Month

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Guangzhou Baiyun International Airport (600004 CH) reported a 38.8% and 58.2% YoY drop in aircraft movement and passenger throughput in May, respectively. These figures represented solid improvements when compared with 53.6% and 71.7% drop recorded for Apr. Strong domestic demand is the key behind the improvement, but we see a pickup in international aircraft movements after CAAC’s decision to allow more foreign airlines flying to China. The gradual recovery in international traffic will also bring non-aeronautical revenue like F&B, duty-free sales etc to GBIA.

In the first eight days of Jun, GBIA’s anchor airline China Southern Airlines (1055 HK) has doubled its scheduled flight MoM, and this is expected to kick-start another good month for GBIA in Jun and bode well for other Chinese airports. We continue to like the Chinese airport companies and Shanghai International Airport Co, Ltd. (600009 CH) (SIAC) is another major beneficiary of international traffic recovery. 

2. NetEase Solid Uptrend Targets

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NetEase Inc (NTES US) displays a firm uptrend as the tactical cycle moves into a top zone in late June near the 453 area. Near term buy supports are defined as well as macro buy support and the macro projection target for later this year/2021. Use pockets of weakness to add or accumulate.

The shorter term cycle does show signs of a top forming at higher levels in coming weeks due primarily to the RSI beginning to diverge with price.

Trend support is expected to provide positive support for a HK listing.

Buy volumes are strong and trending higher on this rise (bullish).

3. Economy/Covid-19/Hong Kong/China-USA/Hainan

China News That Matters

  • Beijing relies on Western-style monetary policy
  • Wuhan declared free of coronavirus 
  • Don’t diss the anthem; or remember June Fourth
  • China goads US over protests
  • If paradise is half as nice

In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.

4. JD.com Secondary Listing: HK-ADS Premium/(Discount) Views

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Hot on the heels of NetEase Inc (NTES US), JD.com Inc (ADR) (JD US) has launched a $4.3 billion secondary listing in Hong Kong. JD.com plans to sell 133 million new shares in the secondary listing, which would represent 4.3% of the total shares outstanding, according to press reports. JD.com is set to list in Hong Kong on 18 June, the same day as its annual shopping bonanza.

Like Alibaba Group (9988 HK), Hong Kong will be a meaningful trading venue for JD.com. Notably, Alibaba’s HK freefloat shares as a percentage of HK-registered shares have risen at an increasing pace and currently stands at 36.9% (vs 11.1% at listing). JD.com will likely price its H-shares at a discount to its ADSs to entice investors to participate in the secondary listing. Overall, we think that JD.com pricing its H-shares at a 2.0% to 3.0% discount to its ADSs will be reasonable.

You are currently reading Executive Summaries of Smartkarma Insights.

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Brief China: Chinese Easing Drives Next Phase of Liquidity-Driven Boom. Could EM Soar? and more

By | China, Daily Briefs

In this briefing:

  1. Chinese Easing Drives Next Phase of Liquidity-Driven Boom. Could EM Soar?
  2. Jinxin Fertility Placement: Sound Fundamentals
  3. O-Net Tech (877 HK): Tripping The Light Fantastic
  4. Hepalink Pharma IPO: Trading Debut
  5. Sina Corp: Management Buyout Offer

1. Chinese Easing Drives Next Phase of Liquidity-Driven Boom. Could EM Soar?

Image 279044770111594125891957

  • PBoC is easing through the ‘backdoor’ while keeping its balance sheet flat
  • Directed lending programs are fueling a step-up in credit growth
  • 20% annualized pick-up in lending fastest since early-2016
  • Chinese equity exposure in portfolios relatively low. Risk assets look attractive
  • EM should also benefit from Chinese easing

2. Jinxin Fertility Placement: Sound Fundamentals

Image 64950234821594122145523

3 shareholders of Jinxin Fertility come to market to sell 207.6 million shares. In this note, we will provide our thoughts on the deal. We like the fundamentals of the company with recent acquisition help expanding the company’s footprint to Central China. We also note that past deal has done well.

Our previous coverage on Jinxin Fertility

3. O-Net Tech (877 HK): Tripping The Light Fantastic

Image 75024117241594114142921

O-Net Technologies (Group) (877 HK), a leader in the provision of high-technology products and optical networking components, is currently suspended pursuant to the Code on Takeovers and Mergers.

Its two major shareholders collectively hold 48.31%, down from 72.69% at the time of O-Net’s listing in 2010. O-Net is Cayman incorporated. If a firm Offer is tabled by way of a Scheme, the headcount test applies.

O-Net is up 27% YTD, and just ~3.5% below the recent June high, which was also a two-year high.

As always, more below the fold.

4. Hepalink Pharma IPO: Trading Debut

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Shenzhen HepaLink Pharmaceuticals (H) (HEPALINK HK) is a leading China-based pharmaceutical company with global businesses in pharmaceutical, innovative biotech and CDMO (contract development and manufacturing organisation) sectors. Hepalink’s H-shares will commence trading on Wednesday, 8 July. Hepalink priced its IPO at HK$18.40, at the bottom end of the indicative price range of HK$18.40-20.60 per share. Hepalink raised net proceeds of HK$3,805.7 million ($491 million).

In our initiation note, we stated that Hepalink is seeking to raise money on the back of the year that displayed revenue decline and margin pressure, largely due to industry headwinds. Looking into the new year, we think the positives (recovery in growth and margin) outweigh the negative (cash conversion). The PHIP which outlines 2019 and 1Q20 results reinforces our view that Hepalink is heading in the right direction. In our valuation note, we suggested that the IPO valuation is attractive and we would participate in the IPO. Overall, we think at the IPO price,  Hepalink’s H-shares discount to the A-shares is attractively priced. 

5. Sina Corp: Management Buyout Offer

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Sina Corp (Class A) (SINA US) looks sets to join the growing list of Chinese companies seeking to delist in the US and relist, ostensibly in Hong Kong.

Yesterday, Sina announced the receipt of a preliminary non-binding “going private” proposal
from New Wave – a company controlled by its chairman/CEO Charles Chao – at US$41/share,  a ~20% premium to the average closing price during the 30 trading days prior to the announcement.

SINA’s key earnings driver is microblogger Weibo Corp (Adr) (WB US) – China’s Twitter Inc (TWTR US) equivalent – in which it holds a ~45% equity stake but controls ~71% of the vote.

This is, by no stretch, a slam dunk proposal. Optically, the indicative Offer price is highly opportunistic.  However, Chao controls ~58% of the voting power, and an Offer, should one unfold, requires two-thirds approval.

This remains a non-binding proposal. 

As always, more below the fold.

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Brief China: Economy/Covid-19/Hong Kong/China-USA/Hainan and more

By | China, Daily Briefs

In this briefing:

  1. Economy/Covid-19/Hong Kong/China-USA/Hainan
  2. JD.com Secondary Listing: HK-ADS Premium/(Discount) Views
  3. Hong Kong Connect Weekly: Geely, Xiaomi, Meituan, Microport

1. Economy/Covid-19/Hong Kong/China-USA/Hainan

China News That Matters

  • Beijing relies on Western-style monetary policy
  • Wuhan declared free of coronavirus 
  • Don’t diss the anthem; or remember June Fourth
  • China goads US over protests
  • If paradise is half as nice

In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.

2. JD.com Secondary Listing: HK-ADS Premium/(Discount) Views

Spread%202

Hot on the heels of NetEase Inc (NTES US), JD.com Inc (ADR) (JD US) has launched a $4.3 billion secondary listing in Hong Kong. JD.com plans to sell 133 million new shares in the secondary listing, which would represent 4.3% of the total shares outstanding, according to press reports. JD.com is set to list in Hong Kong on 18 June, the same day as its annual shopping bonanza.

Like Alibaba Group (9988 HK), Hong Kong will be a meaningful trading venue for JD.com. Notably, Alibaba’s HK freefloat shares as a percentage of HK-registered shares have risen at an increasing pace and currently stands at 36.9% (vs 11.1% at listing). JD.com will likely price its H-shares at a discount to its ADSs to entice investors to participate in the secondary listing. Overall, we think that JD.com pricing its H-shares at a 2.0% to 3.0% discount to its ADSs will be reasonable.

3. Hong Kong Connect Weekly: Geely, Xiaomi, Meituan, Microport

Image 62905957051591533848147

In our weekly HK Connect Flow series, we aim to highlight key stocks and sectors which the mainland investors traded via the southbound Hong Kong Connect, as analyzed by our proprietary data engine.

Since the opening of Hong Kong Connect scheme in 2014, southbound Chinese money started to play an increasingly important role in the Hong Kong stock market. In a Hong Kong exchange report released in July 2019, the exchange highlighted that flows from mainland China accounted for 12% of the total trading volume in the market and is ahead of the US investors’ 10% and UK investors’ 7% share respectively. 

We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.

In this insight, we will highlight inflows into Geely Auto (175 HK), Xiaomi Corp (1810 HK), and Weimob Inc. (2013 HK), as well as outflows from Meituan Dianping (3690 HK), Microport Scientific (853 HK)Guangzhou Automobile Group (2238 HK).

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Brief China: O-Net Tech (877 HK): Tripping The Light Fantastic and more

By | China, Daily Briefs

In this briefing:

  1. O-Net Tech (877 HK): Tripping The Light Fantastic
  2. Hepalink Pharma IPO: Trading Debut
  3. Sina Corp: Management Buyout Offer
  4. Shenzhen Hepalink (海普瑞) A+H Trading: 20% Upside Thanks to A-Share Performance
  5. HK Short Report: Short Covers for China Pacific Insurance

1. O-Net Tech (877 HK): Tripping The Light Fantastic

Image 93926438831594113153507

O-Net Technologies (Group) (877 HK), a leader in the provision of high-technology products and optical networking components, is currently suspended pursuant to the Code on Takeovers and Mergers.

Its two major shareholders collectively hold 48.31%, down from 72.69% at the time of O-Net’s listing in 2010. O-Net is Cayman incorporated. If a firm Offer is tabled by way of a Scheme, the headcount test applies.

O-Net is up 27% YTD, and just ~3.5% below the recent June high, which was also a two-year high.

As always, more below the fold.

2. Hepalink Pharma IPO: Trading Debut

Wuxi

Shenzhen HepaLink Pharmaceuticals (H) (HEPALINK HK) is a leading China-based pharmaceutical company with global businesses in pharmaceutical, innovative biotech and CDMO (contract development and manufacturing organisation) sectors. Hepalink’s H-shares will commence trading on Wednesday, 8 July. Hepalink priced its IPO at HK$18.40, at the bottom end of the indicative price range of HK$18.40-20.60 per share. Hepalink raised net proceeds of HK$3,805.7 million ($491 million).

In our initiation note, we stated that Hepalink is seeking to raise money on the back of the year that displayed revenue decline and margin pressure, largely due to industry headwinds. Looking into the new year, we think the positives (recovery in growth and margin) outweigh the negative (cash conversion). The PHIP which outlines 2019 and 1Q20 results reinforces our view that Hepalink is heading in the right direction. In our valuation note, we suggested that the IPO valuation is attractive and we would participate in the IPO. Overall, we think at the IPO price,  Hepalink’s H-shares discount to the A-shares is attractively priced. 

3. Sina Corp: Management Buyout Offer

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Sina Corp (Class A) (SINA US) looks sets to join the growing list of Chinese companies seeking to delist in the US and relist, ostensibly in Hong Kong.

Yesterday, Sina announced the receipt of a preliminary non-binding “going private” proposal
from New Wave – a company controlled by its chairman/CEO Charles Chao – at US$41/share,  a ~20% premium to the average closing price during the 30 trading days prior to the announcement.

SINA’s key earnings driver is microblogger Weibo Corp (Adr) (WB US) – China’s Twitter Inc (TWTR US) equivalent – in which it holds a ~45% equity stake but controls ~71% of the vote.

This is, by no stretch, a slam dunk proposal. Optically, the indicative Offer price is highly opportunistic.  However, Chao controls ~58% of the voting power, and an Offer, should one unfold, requires two-thirds approval.

This remains a non-binding proposal. 

As always, more below the fold.

4. Shenzhen Hepalink (海普瑞) A+H Trading: 20% Upside Thanks to A-Share Performance

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Shenzhen Hepalink raised HKD 3,806 million (USD 491 m) from its global offering and will list on the Hong Kong Stock Exchange tomorrow.

In our previous insights, we had discussed that the company is a dominant heparin supplier on a global scale but it is not as prominent in the branded heparin segment.  The company’s biotech products are under its investee companies.

In this note, we will look at the allocation and implications. We think there’s a 20% upside at the IPO pricing given that the A-share has performed well over the last few days.

Our previous coverage on Shenzhen Hepalink:

5. HK Short Report: Short Covers for China Pacific Insurance

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Hong Kong SFC reported today the aggregate short position as of Jun 26. The aggregate short value for equities decreased by $-603m (-1.0%) WoW but increased by $652m (+1.1%) over the preceding four weeks.

Most shorted stocks by aggregate short value of positions are Ping An Insurance (Group) Company Of China, Ltd./2318 HK($8,630m, -5.4% WoW), Tencent Holdings Limited/700 HK($3,343m, +10.2% WoW), Meituan Dianping/3690 HK($2,379m, -2.4% WoW), Zhongsheng Group Holdings Limited/881 HK($1,189m, +2.8% WoW), Ping An Healthcare And Technology Company Limited/1833 HK($1,093m, +8.8% WoW).

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Brief China: JD.com Secondary Listing: HK-ADS Premium/(Discount) Views and more

By | China, Daily Briefs

In this briefing:

  1. JD.com Secondary Listing: HK-ADS Premium/(Discount) Views
  2. Hong Kong Connect Weekly: Geely, Xiaomi, Meituan, Microport

1. JD.com Secondary Listing: HK-ADS Premium/(Discount) Views

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Hot on the heels of NetEase Inc (NTES US), JD.com Inc (ADR) (JD US) has launched a $4.3 billion secondary listing in Hong Kong. JD.com plans to sell 133 million new shares in the secondary listing, which would represent 4.3% of the total shares outstanding, according to press reports. JD.com is set to list in Hong Kong on 18 June, the same day as its annual shopping bonanza.

Like Alibaba Group (9988 HK), Hong Kong will be a meaningful trading venue for JD.com. Notably, Alibaba’s HK freefloat shares as a percentage of HK-registered shares have risen at an increasing pace and currently stands at 36.9% (vs 11.1% at listing). JD.com will likely price its H-shares at a discount to its ADSs to entice investors to participate in the secondary listing. Overall, we think that JD.com pricing its H-shares at a 2.0% to 3.0% discount to its ADSs will be reasonable.

2. Hong Kong Connect Weekly: Geely, Xiaomi, Meituan, Microport

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In our weekly HK Connect Flow series, we aim to highlight key stocks and sectors which the mainland investors traded via the southbound Hong Kong Connect, as analyzed by our proprietary data engine.

Since the opening of Hong Kong Connect scheme in 2014, southbound Chinese money started to play an increasingly important role in the Hong Kong stock market. In a Hong Kong exchange report released in July 2019, the exchange highlighted that flows from mainland China accounted for 12% of the total trading volume in the market and is ahead of the US investors’ 10% and UK investors’ 7% share respectively. 

We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.

In this insight, we will highlight inflows into Geely Auto (175 HK), Xiaomi Corp (1810 HK), and Weimob Inc. (2013 HK), as well as outflows from Meituan Dianping (3690 HK), Microport Scientific (853 HK)Guangzhou Automobile Group (2238 HK).

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Brief China: JD.com Secondary Listing: HK-ADS Premium/(Discount) Views and more

By | China, Daily Briefs

In this briefing:

  1. JD.com Secondary Listing: HK-ADS Premium/(Discount) Views
  2. Hong Kong Connect Weekly: Geely, Xiaomi, Meituan, Microport
  3. Meituan Short Interest Tripled
  4. Hong Kong Buybacks League Table: Evergrande, China Comm Cons, Haohai Biotech

1. JD.com Secondary Listing: HK-ADS Premium/(Discount) Views

Spread%202

Hot on the heels of NetEase Inc (NTES US), JD.com Inc (ADR) (JD US) has launched a $4.3 billion secondary listing in Hong Kong. JD.com plans to sell 133 million new shares in the secondary listing, which would represent 4.3% of the total shares outstanding, according to press reports. JD.com is set to list in Hong Kong on 18 June, the same day as its annual shopping bonanza.

Like Alibaba Group (9988 HK), Hong Kong will be a meaningful trading venue for JD.com. Notably, Alibaba’s HK freefloat shares as a percentage of HK-registered shares have risen at an increasing pace and currently stands at 36.9% (vs 11.1% at listing). JD.com will likely price its H-shares at a discount to its ADSs to entice investors to participate in the secondary listing. Overall, we think that JD.com pricing its H-shares at a 2.0% to 3.0% discount to its ADSs will be reasonable.

2. Hong Kong Connect Weekly: Geely, Xiaomi, Meituan, Microport

Image 62905957051591533848147

In our weekly HK Connect Flow series, we aim to highlight key stocks and sectors which the mainland investors traded via the southbound Hong Kong Connect, as analyzed by our proprietary data engine.

Since the opening of Hong Kong Connect scheme in 2014, southbound Chinese money started to play an increasingly important role in the Hong Kong stock market. In a Hong Kong exchange report released in July 2019, the exchange highlighted that flows from mainland China accounted for 12% of the total trading volume in the market and is ahead of the US investors’ 10% and UK investors’ 7% share respectively. 

We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.

In this insight, we will highlight inflows into Geely Auto (175 HK), Xiaomi Corp (1810 HK), and Weimob Inc. (2013 HK), as well as outflows from Meituan Dianping (3690 HK), Microport Scientific (853 HK)Guangzhou Automobile Group (2238 HK).

3. Meituan Short Interest Tripled

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Hong Kong SFC reported aggregate short position ended on May 29. The aggregate short value for equities increased by $2,980m (+5.3%) WoW and increased by $2,876m (+5.1%) over the preceding four weeks.

Most shorted stocks by aggregate short value of positions are Ping An Insurance (Group) Company Of China, Ltd./2318 HK($9,301m, +0.5% WoW), Tencent Holdings Limited/700 HK($2,984m, -6.7% WoW), Meituan Dianping/3690 HK($2,977m, +268.5% WoW), Baba-Sw/9988 HK($1,652m, +5.2% WoW), Xiaomi Corporation/1810 HK($1,150m, +0.2% WoW).

Top five stocks by increases in short value over the past one week are Meituan Dianping/3690 HK(+$2,169m, +268.5% vs last period), Geely Automobile Holdings Limited/175 HK(+$179m, +69.0% vs last period), Budweiser Brewing Company Apac Limited/1876 HK(+$107m, +28.3% vs last period), Hong Kong Exchanges And Clearing Limited/388 HK(+$102m, +17.0% vs last period), Haidilao International Holding Ltd./6862 HK(+$91m, +31.6% vs last period).

Top five stocks by short cover over the past one week are Tencent Holdings Limited/700 HK(-$214m, -6.7% vs last period), Vitasoy International Holdings Ltd/345 HK(-$156m, -38.6% vs last period), Industrial And Commercial Bank Of China Limited/1398 HK(-$98m, -25.9% vs last period), Sun Hung Kai Properties Limited/16 HK(-$71m, -19.6% vs last period), China Construction Bank Corporation/939 HK(-$47m, -7.1% vs last period).

4. Hong Kong Buybacks League Table: Evergrande, China Comm Cons, Haohai Biotech

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Hong Kong Exchange publishes share repurchases by listed companies on a daily basis. In our weekly note, we will provide statistics on top repurchases over one week, one month, one quarter and one year periods ended on Jun 5th.

In the past 7 days, the top 3 companies that repurchased the most shares from the market were China Evergrande Group (3333 HK) (HKD 557.5 million worth of buybacks), China Communications Construction Company Limited (1800 HK) (HKD 39.6 million worth of buybacks), Haohai Biotec (6826 HK) (HKD 20.5 million worth of buybacks).

In the past 30 days, the top 3 companies that repurchased the most shares from the market were China Evergrande Group (3333 HK) (HKD 1,955.7 million worth of buybacks), Yanzhou Coal Mining Company Limited (1171 HK) (HKD 251.4 million worth of buybacks), Cpmc Holdings Limited (906 HK) (HKD 72.5 million worth of buybacks).

In the past 90 days, the top 3 companies that repurchased the most shares from the market were China Evergrande Group (3333 HK) (HKD 2,113.1 million worth of buybacks), New World Development Co Ltd (17 HK) (HKD 571.5 million worth of buybacks), Xiaomi Corporation (1810 HK) (HKD 499.5 million worth of buybacks).

In the past 365 days, the top 3 companies that repurchased the most shares from the market were Hsbc Holdings Plc (5 HK) (HKD 7,813.7 million worth of buybacks), Link Reit (823 HK) (HKD 4,156.7 million worth of buybacks), Xiaomi Corporation (1810 HK) (HKD 3,213.9 million worth of buybacks).

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