China

• Two days ago, media reported Alibaba Group (9988 HK) / Alibaba (ADR) (BABA US) would split and possibly list several businesses. Last night Cainiao was reported as starting listing preparations.
• Last night, JD.com Inc. (9618 HK) made two announcements it was proposing to spin off and list its JD Property and JD Industrial arms. This is NOT a spinoff war.
• JD raised Series A and B for both companies. These were always going to be spins, like Health, Digits, and Logistics. JD Properties will be biggish.

• While all eyes are on Alibaba splitting its business into six mini-Babas, some were quick to conclude that Tencent could be the next candidate for a similar split.
• Unlike Alibaba (ADR) (BABA US) whose business units have clear divisions and stand on its own, Tencent (700 HK) ’s businesses are interconnected making a similar split very difficult.
• Having looked at Tencent’s business units and past regulatory probe on the company, it seems unlikely for the company to be the next candidate for an Alibaba style separation.

Country Garden has released its FY 2022 results, with revenue and earnings declines as well as margin contraction. Reported debt decreased. EBITDA/Interest and Debt/EBITDA weakened significantly, but Net Debt/Net Property Assets remained sound. In December, the company received HKD 4.74 bn (c. USD 609 mn) from a private placement of 1.78 bn shares, with the funds primarily to be used for offshore debt commitments.

We are not surprised by Country Garden’s poor earnings performance in FY 2022, given that it had been a dire year for the Chinese property industry. We view positively the company’s repayment of debts due in 2022, despite difficulties in property sales and cash collection.

We remain cautious about the likelihood that management can achieve its goal of increasing Country Garden’s market share in higher-tier cities. We also continue to be highly concerned over the recovery trajectory for the group’s margins and property sales in FY 2023, considering the relatively large portion of existing inventory in Tier 3 and 4 cities compared to peers.

• At TMA we deliver high probability outcomes by focusing on our 3 pillars of technical analysis. •1) Response to key levels. •2) Price action. •3) Momentum confirmation.
• PetroChina Co Ltd (857 HK) bottomed in Oct/Nov 2022 around the 61.8% retracement support. The subsequent impulsive multi-month uptrend maintains the bullish LT trend reversal confirmed in 2021.
• March 2023 has delivered new bullish breakouts in price and LT momentum that confirm a sustainable LT uptrend bias. Initial target at 5.28 (+13%). Longer term risk to 6.50/6.80 (+40%).

SCE’s FY 2022 results were as expected, with sustained weakness in contracted sales and revenue, along with weaker margins. Going forward, management’s strategy includes progressing steadily to deal with the volatility in the industry. The delivery of projects will be a key objective, in order to maintain homebuyer confidence.

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Japfa Comfeed Indonesia
2. Yankuang Energy Group
3. Anton Oilfield
4. China Jinmao Holdings
5. Lifestyle International Holdings

and more…

Sino-Ocean’s FY 2022 results were very weak. The decline in property sales revenue and profitability did not come as a surprise, given the moribund state of the property industry. The CNY 4.8 bn increase in gross debt and CNY 5.2 bn write-down on financial investments were, however, somewhat unexpected. These reflect very poorly on management and, needless to say, there have been no changes of note in this regard.

• Alibaba Group (9988 HK)‘s shares rallied after announcing the business split, with investors believing that the sum of parts could be worth more than the current valuation.
• Our analysis shows that NAV is only 12% higher than the current valuation, contrary to the idea of a significantly higher sum of parts value.
• Therefore, we would be looking to short Alibaba (ADR) (BABA US) yet again once this initial excitement settles.

• The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
• Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. Or pledging. However, such disclosures are by no means an absolute.
• Stocks mentioned include Tian An China Investment (28 HK), CSPC Pharmaceutical Group (1093 HK), and Li Auto (2015 HK).

• At TMA we deliver high probability outcomes by focusing on our 3 pillars of technical analysis. •1) Response to key levels. •2) Price action. •3) Momentum confirmation.
• XPeng Inc (9868 HK) has this week broken above the falling wedge pattern that captured its Dec/Mar correction. The bullish trend breakout in the weekly RSI confirms the uptrend bias. 
• Wedge patterns are commonly referred to as “Half Mast” patterns. They typically occur in the middle of trends, making textbook targets easy to calculate. Target 56.10 (+29%) in Q2 2023.

• Lalatech Holdings Co. Ltd., the operator of on-demand delivery services known as Lalamove in Hong Kong and other global markets and as Huolala on the Chinese mainland, filed for an initial public offering Tuesday on the Hong Kong Stock Exchange.
• The company didn’t disclose a fundraising target or a timeline.
• The startup originally filed an IPO application confidentially in U.S. in June 2021 with an aim to raise at least $1 billion, but it later pulled out of the plan after Beijing’s crackdown on overseas share sales.

• Kuaishou’s 4Q22 top line beat our est. by 3.9%, and non-IFRS net income was higher than our est. by 85% due to cost-saving measures.  
• We raise forecasts for its ads and eCommerce growth due to on-track macro recovery. However, we are still concerned about the intensified competition from WeChat Video Account.
• Maintain SELL for competition scenario, but slightly raise TP to HK$ 58 to reflect macro recovery. Our TP implies 2.1X PS/239X PE in 2023.

• Plunge in net profit, high gearing and slowdown in new projects are market concerns, but should have well reflected in its share price. Its 3.6x PER is just too cheap. 
• FY23 will see profit recovery, backed by decent project pipeline and lack of one-offs like impairment and exchange losses. Consensus forecast of 15% profit growth is too conservative.
• Cash flow will improve over the next two years as collection of national subsidies accelerates, capex moderates and contribution from operating projects increases. 

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.

• Indika Energy
• Meituan

COG’s FY 2022 results were in line with our expectations. The credit profile remains satisfactory, supported by a decrease in borrowings. We view positively that long-term debt and time deposits were lower.

We agree with management that the operating environment is likely to be favourable in 2023. According to the company, volume growth was 15% y-o-y in January and February 2023. COG is keen to reduce financing costs and extend its maturity profile by refinancing a portion of bank borrowings with a syndicated loan. Management said that COG is currently in talks with banks over a syndicated loan.

Management confirmed that the company is not keen on increasing indebtedness for expansions or acquisitions.

China Jinmao’s FY 2022 results were slightly weak, but in line with expectations. The company reported a slight top-line decline, while the gross margin contracted further to 16%. In addition, net debt continued to climb, due to acquisitions. For FY 2023, we expect revenue recognition to improve, although margins could remain weighed down by lower profitability at Jinmao’s city operations projects.

Positively, the company’s access to financing remains strong, as it was able to issue onshore bonds at low interest costs without having to provide credit enhancements. According to Jinmao, its average interest cost fell to a record low of 3.9%, despite the generally poor financing environment for the industry.

In other news, there were onshore rumours over the past week that the company may be merged with China Resources Land, with the energy businesses of China Resources Group to be integrated into Sinochem. All of the companies involved have denied the rumours. Still, we note that the business combination (if it materialises) will be positive for the CHJMAO notes, as China Resources Land is a stronger entity than Jinmao. That said, the merger is unlikely to trigger the Change of Control put, as the put option can only be triggered with a ratings downgrade.

• RemeGen reported C2H22 top line in-line with our estimate but 9.4% below consensus. Gross margin, however, beat our estimate by 21ppt. Net-net, non-IFRS operating income missed our expectation by 15%; 
• The result highlighted RemeGen’s investment case hinging on successful license out. Product revenue itself cannot carry the company to profitability; 
• With WACC of 17%, we have already provisioned for the license out absence. But we still cut TP by HK$6 to reflect the increasing spending going forward.

• Meituan (3690 HK) shares hit accounts on Friday, they showed up in the CCASS data. All but about 2.3mm shares worth. Another 248.8mm shares showed up on Monday. 
• That was the Prosus stake, which was expected as of November 2022 (evidently, they did not convert more Tencent shares in the interim. 
• The data tells us some things. It does not tell us much else. Be careful of the details. 

• Back on the 17 February, AAG Energy Holdings (2686 HK) announced an underwhelming Offer of HK$1.85/share (declared final) by way of a Scheme from major shareholder Xinjiang Xintai (603393 CH).
• Yesterday, Xinjiang Xintai shareholders approved the proposal. This was expected – it’s a total bargain. 
• AAG shareholders will likely get to vote on the Scheme in early May. They should vote it down.

• Sunpower Group (SPWG SP) announced it agreed to a 2-year extension of its CBs with two Chinese P/E funds that have been supporting it since 2017
• The extension is unexpectedly favorable to Sunpower equity holders and removes a major overhang
• After two difficult years with spiking coal prices and rolling lockdowns in China, the company can finally be valued on the merits of its GI business once again

• Core earnings of Kunlun Energy (135 HK) rose 25.2% in FY22, providing solid evidence for its strength against peers. We are delighted to see dollar margin even expanded 4.1%.
• Pace of new project addition has not weakened as it secured 25 new projects in FY22. Collectively, they will increase sales volume by 3.2bn cu.m., 7% of FY22 volume.
• Net cash of Rmb13.6bn equals 28% of share price, making 8.9% ROE look decent. Market earnings forecast is too low; and even so, it trades on just 7.2x FY23 PER.

• Capital Expenditure – New Investment in Mexico Plant in 2023
• The company achieved a solid performance in its Recycled Lead business and Power Solutions business with a revenue growth of 18% and 13%, respectively, as compared to 2021.
• The revenue for Recycled Lead business and Power Solutions business was RMB2,413 million and RMB10,433 million respectively. 

• FY22 is definitely bad for Shenzhen International (152 HK) given the 64.9% profit plunge. However, negative contributors like Shenzhen Airlines and exchange losses will be removed in this year.
• Earnings for Shenzhen Expressway (548 HK) will improve and 1Q23 has witnessed good traffic recovery. Logistics profit will benefit from higher occupancy, REIT issuance and new projects.
• Upside will come from logistics park transformation with profit from Yicheng Qiwanli pre-sale potentially to be booked. Consensus earnings forecast of HK$4.1bn is at low-end of our estimate. 

West China Cement’s (WCC) FY 2022 results were overall acceptable. The company reported slightly weaker earnings for its core business in Mainland China, as lower sales volumes (amid COVID-19-related disruptions and the subdued real estate sector) and increased raw material costs more than offset surprisingly positive ASP growth.

Importantly, WCC’s expansion in Africa is taking shape, as its plant in Mozambique has ramped up quickly and achieved high capacity utilisation in the first two years of operations. The company’s plants in Africa enjoy substantially higher ASP than those in China, which should support the overall gross margin.

We expect WCC’s FCF to remain deeply negative in FY 2023, which will lead to a further weakening of its net leverage (2.6x at FYE 2022). We believe FCF may turn positive in FY 2024, when the bulk of the company’s new projects in Africa are due to complete and commence operations.

• The company declared bonus shares of 40% during the annual results announcement in Mar, with shareholders issued 4 shares for every 10 shares by way of conversion of capital reserve.
• The stock went ex-dividend on 1 June 2018.
• Primarily as a result, we have adjusted our target price for the stock to HKD11.3 (from HKD16.3).

• Growatt Technology (1833969D CH) , one of the largest providers of PV and storage inverters globally, plans to go public and may seek $500M+ through Hong Kong IPO.
• I view Growatt Technology (1833969D CH) as a high-quality growth company with best-in-class products and solutions, and see significant opportunity in international markets.
• The company is well-positioned to benefit from fast-growing PV inverter and energy storage markets. I am bullish on Growatt Technology IPO and like long-term energy storage story.

• Core profits +13% y/y due to contribution from newly acquired infrastructure & utility business
• Recurring income +38%, growing ahead of management target and supporting dividend growth
• Strong balance sheet support further share buyback and acquisition.

• Following the settlement of Meituan (3690 HK) shares from Tencent (700 HK)‘s in-specie dividend, nearly all the shares are now in CCASS. 
• Meituan (3690 HK) has underperformed Tencent (700 HK) by nearly 50% and Alibaba Group (9988 HK) by 27% since the announcement of the in-specie dividend.
• Short interest is higher over the last couple of months but is far lower than the selling that could come through, especially on the Prosus (PRX NA) holding.

• DPC Dash (1405 HK) raised around US$75m, after pricing its IPO at the bottom-end. 
• The company is the exclusive master franchisee for Domino’s Pizza in China, HK and Macau. DPC operated 604 stores across 17 cities, as of Feb 2023.
• In this note, we talk about the subscription levels and trading dynamics.

• Aag Energy Holdings (2686 HK) noted that the pre-condition for Xinjiang Xintai Natural Gas (603393 CH) privatisation offer at HK$1.85 per share has been satisfied (which was expected). 
• The gross spread has widened to 16.4% due to concerns that the recent solid FY22 results, lack of dividends and the skinny premium would nudge minorities to vote NO.
• It remains unclear if the dissatisfied retail minorities have enough votes to block the scheme. The downside remains low as the shares are trading 5% below the undisturbed price. 

• On 16th Nov 22, post-market close, along with its 3Q22 results Tencent declared an interim dividend by way of distribution in specie of Class B Ordinary shares of Meituan.
• At the time of declaration, the dividend amounted to US$20bn or 15.5% of Meituan’s outstanding shares.
• We have spoken about the background of the deal in our earlier notes. In this note, we talk about the overnight updates.

• Meituan reported C4Q22 total revenue 4% higher than cons. Non-IFRS net margin beat cons. by 0.4ppt due to strong cost control during lockdowns.  
• Meituan has limited options against Douyin’s fast expansion of new service categories and customized offerings. The competition against Douyin will continue to pressure the in-store business in the long run.
• Maintain SELL and cut TP to HK$125. Our TP implies 3x PS, 10x PE and 1x PS for on-demand delivery, in-store, and new initiatives, respectively.

• In-depth presentation of retail digitalization raises expectation of retail spin-off. Asset disposals and increased DPS potential 2H catalysts
• Limited impact from trade tensions; oil tailwind
• Following 2 years of single-digit earnings growth, growth is likely to accelerate to double digit as headwinds from strong euro/GBP and weak oil prices eases and global economy continues to rebound.

• Yuzhou Properties Company Limited (Yuzhou) is a property developer that focuses on residential housing in West Strait Economic Zone and Yangtze River Delta.
• The company has moved its headquarters to Shanghai from Xiamen.
• The company has been listed on the Hong Kong Stock Exchange since November 2009. As of 31 Mar 2017, market capitalization of Yuzhou stands at HKD12.4b (USD1.6b).

• Parkson Retail Group Ltd (Parkson) is a department store operator with 19 years of operating history in China.
• With an extensive network of 50 stores in 36 cities in China under the “Parkson” brand, the Group is one of the largest store operators.
• It targets the middle- and mid-upper-end of the Chinese retail market, with most of its revenues derived from concessionaire sales (90% of total revenues), while direct sales account for the rest.

• Interim results beat with strong results across most business lines
• Life insurance new business value growth reversed to positive growth in 2Q and should accelerate
• Fair value trimmed to HKD98 but headwinds abating in 2H

• At TMA we deliver high probability outcomes by focusing on our 3 pillars of technical analysis. •1) Response to key levels. •2) Price action. •3) Momentum confirmation.
• Last week complemented November 2022’s  bullish LT confirmation with a bullish MT confirmation, re-instating the MT uptrend after a period of correction in Feb/Mar.
• Tencent Holdings Ltd (700 HK) has likely entered the 2nd leg of a material MT uptrend. Q2 2023 target towards 451.95 (+25%).

• On 16th Nov 22, post-market close, along with its 3Q22 results Tencent declared an interim dividend by way of distribution in specie of Class B Ordinary shares of Meituan.
• At the time of declaration, the dividend amounted to US$20bn or 15.5% of Meituan’s outstanding shares. Its value has since declined to US$17bn
• We have covered the background of the event in our previous notes. In this note, we talk about the recent updates.

• 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 – Alliance Aviation Services (AQZ AU), 111 Inc (YI US), Genesis Minerals (GMD AU), Aag Energy Holdings (2686 HK), Tyro Payments (TYR AU), Estia Health (EHE AU). 
• Lowest spreads – Mincor Resources NL (MCR AU), Healius (HLS AU), Golden Energy & Resources (GER SP), Boustead Projects (BOCJ SP), GK Goh Holdings (GKG SP), Nippon Steel. 

• In 4Q22, the growth rates of total revenue and most business lines are better than our expectation.
• The operating margins have stayed at a low level for the third quarter.
• We believe the stock has an upside of 45% and a price target of HK$204 for year end 2023.

• Meituan (3690 HK) reported 4Q2022 results. Revenue increased 21.4% YoY to RMB60.1bn (vs consensus RMB57.7bn) while reported operating losses dropped to RMB732m (vs consensus RMB1.4bn) from RMB5.0bn in 4Q2021.
• Covid outbreak in China in 4Q2022 led to strong growth in food delivery service revenues, however, losses have widened compared to 3Q2022 due to increased rider costs and others.
• We expect Meituan’s top line growth to slow down and margins to remain under pressure with Douyin’s entry into food delivery and the company’s expansion into Hong Kong.

• After posting a decent FY22 result, earnings momentum for CIMC Enric Holdings (3899 HK) should sustain, underpinned by clean energy recovery and chemical and environmental equipment demand.  
• 2M23 new orders growth stayed healthy at 10.7%, evidencing positive demand outlook. Hydrogen Energy is a growing driver as revenue will reach Rmb700m in FY23 and Rmb3bn in FY25.
• The stock’s PERs of 11.7x and 9.5x for FY23 and FY24, respectively, appear inexpensive in view of 19% earnings CAGR. Net cash position also adds an appeal to us.

• Chinese Apps’ time on site decreased to 26.7 hours in 2022 from 28.5 hours in 2021.
• The Press and Publication Administration approved 27 imported games in March.
• Douyin launched a medium-duration video app, which can be Bilibili’s competitor.

• China Power International (2380 HK) will enjoy another year of strong earnings improvement in FY23, as coal-fired segment returns to profit and new energy capacity drives growth.
• Solar and wind capacity will increase 66.5% and 23.1%, respectively, raising new energy’s proportion to over 70%. Profitability for hydropower also looks to recover in this year.
• There is huge room for asset injection from SPIC given the parent’s new energy capacity of 139GW, with only 20GW in CPI. Its FY23 PER of 8.4x PER is attractive. 

• Kelun-Biotech did not get widespread attention until it reached three license and collaboration agreements with Merck, with upfront and milestone payments totaling up to US$11.8 billion.
• The remaining products have limited investment value. After Kelun-Biotech out-licensed all of its valuable core assets in pipeline, it could mainly remain at the stage of biotech in the future.
• The original core R&D team members have left, which means the “root of Kelun-Biotech is broken”. The lack of sustainable follow-up R&D capability would have negative impact on valuation performance.  

• There are a bunch of implementations in the coming week, the largest being the Nikkei 225 (NKY INDEX) March rebalance.
• There are some ad hoc changes to the KOSPI2 INDEX and KOSDAQ 150 Index following constituent stocks being designated as Administrative Issues and Investment Attention Issues.
• Inflows to the iShares MSCI Emerging Markets ex China ETF (EMXC US) have continued and has taken AUM to a new high.

• Weekly summary of vol changes and moves across Global Markets
• Analysing ATM volatility and skew changes over the last 5 days
• We suggest a few trades to take advantage of the implied vol surfaces

• First quarterly profit in 4Q’22 (first amongst the 3 main emerging brands) has raised expectations of full year profitability in ‘2023
• Launch of BEV will increase production, R&D, platform depreciation and marketing costs
• Despite our expection of revenues doubling y/y in ’23, profitability may not increase accordingly

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• Japan and Indonesia appear to be the hubs of APAC ECM activity with Rakuten Bank (5838 JP) and PT Trimegah Bangun Persada Tbk (Harita Nickel) (2230010D IJ) going live
• On the placements front, this week was comparatively quiet, given the market volatility. There are a few lockup expiries coming up next week.

• JD Health reported 2H2022 results. 2H revenue increased 55.5% YoY to RMB26.5bn (RMB24.2bn) while fall in GPM and an increase in fulfilment costs led to operating losses during the period.
• Product revenues (JD Pharmacy) continues to account for a majority of JD Health’s revenues that generate lower GPM compared to Marketplace and other revenues.
• JD Health’s share price has moved up over the last few months but further decline in GPM  could pull the share price down suggesting it could be a Good Short.

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Evergrande
2. Vedanta Resources
3. Sino-Ocean Group
4. Lippo Karawaci
5. Japfa Comfeed Indonesia

and more…

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Evergrande
2. Vedanta Resources
3. Sino-Ocean Group
4. Lippo Karawaci
5. Japfa Comfeed Indonesia

and more…

• Yilli’s aggressive marketing in 2Q raised market concerns over intensifying competition
• An outright price war is unlikely as its closest competitor, Mengniu, is not willing to follow suit
• Margin remains under pressure on rising input cost
• Trimmed fair value to CNY22.5 (from CNY26.1)

• Having first introduced the three red line guidance in late 2020, the government has begun shifting its stance, and relaxing some of its regulatory oversight.
• In this note, we looked at recent news developments and how some larger developers fared against the three red lines criterion.
• Of the large developers we looked at, there are a few names which stand out which could potentially do a capital raising given their financial standing. 

• At TMA we deliver high probability outcomes by focusing on our 3 pillars of technical analysis. •1) Response to key levels. •2) Price action. •3) Momentum confirmation.
• On 14 February 2023 we published a bearish recommendation in  Xinjiang Goldwind Science & Technology (2208 HK), targeting a 9.1% multi-week decline in Q1 2023.
• 2208 HK declined from 7.62 on 14 February to 6.94 on 10 March (19 trading days), a decline of 9.1%. 

• China Huarong Asset Management Co. Ltd. expects to post a net loss of 27.6 billion yuan ($4 billion) for 2022.
• Citing factors including volatility in the capital markets leading to declines in the value of some assets, business transition and the real estate industry slump.
• The bad-debt manager said it adjusted its business structure last year, resulting in less nonperforming asset acquisition and restructuring and less revenue.

• XPeng Inc. has predicted that revenue and vehicle deliveries will nosedive in the current quarter after the Chinese electric-vehicle (EV) upstart reported slowing sales growth and a loss that nearly doubled in 2022.
• The company’s revenue will likely plunge 43.7% to 46.3% year-on-year to between 4 billion yuan ($581 million) and 4.2 billion yuan in the first quarter of 2023.
• The outlook is based on an estimate that its deliveries will plummet 45% to 47.9% year-on-year in the same quarter to around 18,000 to 19,000 vehicles.

• China approved its first homegrown Covid-19 vaccine using the advanced mRNA technology, months after the country pivoted from its “zero-Covid” strategy toward living with the virus.
• The vaccine, developed by CSPC Pharmaceutical Group Ltd., was approved for emergency use by the National Medical Products Administration.
• The shot, known as SYS6006, primarily targets the omicron variant BA.5 and can be stored at 2 to 8 degrees Celsius (36 to 46 degrees Fahrenheit) “for a long time,”.

• Tencent reported 4Q22 top line/ bottom line of 0.3%/(3.7%) vs cons. Online ads is stronger, while gaming and G&A slightly missed our est. 
• We expect that ads will be the main driver, thanks to video accounts. Gaming will have better performance after more approved game codes.
• We raise 2023 ads growth from 12% YoY to 15% YoY. Raise TP to HK$ 433. Maintain Tencent as one of the top picks in China Internet

• If WuXi Chemistry’s performance shows downward trend, the overall performance growth won’t be satisfactory. The negative growth of WuXi DDSU means that ineffective competition for domestic innovative drugs is decreasing.
• The asset structure is shifting from light asset to heavy asset.It’s particularly crucial whether business model of “one-stop end-to-end service+royalty income” can enable WuXi AppTec to explore new growth points. 
• The current sentiment on CXO is “fragile” because CXO doesn’t have performance sustainability and stability, with “risk discount” problem. Its valuation haven’t reached inflection point. Without industry beta,alpha is useless.

• Payout ratio rise, but expected dividend yield just around 1%
• Mainland DP booked HK$2bn Impairment provision
• Considering uncertainties in Mainland DP market and the construction process slowing down, we cut FY22-23 revenue booking in DP, thus cut revenue forecasts for 3-13% and net profit for 14-20%

• More constructive outlook this year, despite near term impact on activities from current surge in Covid-19 infections as China re-opens.
• Prefer H shares listing (2628 HK) where valuations remain more attractive despite recent rebound.
• Fair value is lifted to CNY26.60.

Road King’s FY 2022 earnings were weaker than expected. The company posted a significant EBITDA decline, owing to a reduction in property deliveries amid the COVID-19 pandemic as well as a gross margin contraction. Looking ahead, we expect Road King’s FY 2023 contracted sales to remain weak, given the absence of land acquisitions in FY 2022 and the uncertain sales pipeline. This could pressure the company’s cash collections and internal cash generation. Positively, we expect Road King’s access to financing to remain sound, supported by its good quality asset base.

Overall, the company’s credit profile remains supported by its toll-road business, with cash dividends from the toll-road JVs covering 28% of FY 2022 interest expense. We expect recurring income from toll roads to increase in FY 2023, supported by the resumption of socio-economic activities in Mainland China and contribution from Road King’s newly acquired expressway in Indonesia. We believe the toll-road assets could be monetised in the event of tight liquidity, though bondholders are unlikely to have recourse to these assets in the event of debt restructuring (given the highly regulated nature of infrastructure assets).

• Our Tencent sell from 385 has formed a flat range with a bias to pressure the 331 pivot support to reach our 300-305 buy (cover) target.
• The descending wedge or channel is the dominant chart pattern that will drive the medium term trend. Global and HK bear pressure will influence Tencent near term.
• From the 300 support zone we see a better macro set up that will see the bull wedge mature and break higher once summer turbulence subsides.

• We believe both 4Q22 and 1Q23 can be weak quarters.
• However, we believe operating losses will shrink significantly in 4Q22 and 2023.
• We believe the stock has an upside of 77% for year end 2023.

• At TMA we deliver high probability outcomes by focusing on our 3 pillars of technical analysis. •1) Response to key levels. •2) Price action. •3) Momentum confirmation.
• The 2018/2020 downtrend was broken in December 2022. Q1 2023 has delivered a correction and opportunity to enter the uptrend at improved entry levels.
• March has the potential to complete a bullish monthly reversal pattern upon a month end close above 44.89 and confirm a likely multi-month 12% uptrend towards 50.67. 

• Despite the topline growth of 20%, Kingsoft Corp (3888 HK) recorded a loss in FY22 after a large impairment for its holding in Kingsoft Cloud (KC US).
• Preceding my comments on Kingsoft are the weekly setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• As we expected in the preview, total revenue stopped decreasing in 4Q22.
• WeChat advertising recovered in 4Q22 earlier than we expected in the preview.
• We believe game-related revenues will grow by 8% in 2023 and 19% in 2024.

• CSPC Pharmaceutical Group (1093 HK) reported 11% YoY revenue growth in 2022. The finished drug business maintained steady growth in 2022, with a continued increase in contribution from new products.
• Within the next 5 years, more than 40 innovative drugs are expected to be approved, which will provide continuous momentum for the company’s development.
• In March 2023, CSPC’s COVID-19 mRNA vaccine SYS6006 has become the first independently developed mRNA vaccine product in China that has been granted for emergency use.

• Tencent (700 HK) reported 4Q2022 results yesterday. Revenue increased 0.5% YoY to RMB145bn (vs consensus RMB)143.5bn while adjusted OP increased 30.1% YoY to RMB28.4bn (vs consensus RMB37.2bn).
• Online advertising revenues saw a 14.8% YoY increase during 4Q2022 after 4-consecutive quarters of decline with January and February showing sustained recovery.
• Though Domestic gaming revenues declined in 4Q2022, with new gaming licenses and international expansion, we expect gaming revenues to start growing from 1Q2023.

• The shareholder with a blocking stake has provided an irrevocable to accept Mr Chu Hui (Chairman and CEO)’s offer to privatise Jiangnan (1366 HK) at HK$0.40 per share
• Key condition is approval by at least 75% of disinterested shareholders (<10% of all disinterested shareholders rejection). There are no other shareholders with a blocking stake. 
• The price is final and attractive in the context of historical prices and multiples. At the last close, the gross spread is 8.1%. Scheme document likely despatched in mid-April.

• While adjusted net profit of Tongcheng Travel Holdings Ltd (780 HK) plummeted in 4Q22, the positive momentum in 1Q23 as revealed supports a sharp recovery in FY23.
• Its huge exposure to lower-tier cities will fuel outlook while increase in monetisation will support profitability rebound. Success at Blackwhale membership program is another growth engine.  
• Management is confident that revenue growth and better efficiency will lead the return of FY23 margin to pre-pandemic levels. Net cash position (12% of share price) is an added strength. 

• Tencent Music (TME US) reported 4Q2022 results yesterday. Revenue decreased 2.4% YoY to RMB7.4bn (vs consensus RMB7.3bn) while reported operating profit more than doubled to RMB1.4bn (vs consensus RMB1.3bn).
• Online music revenues grew 24% YoY while social entertainment business continues to see decline in paying users and ARPU. Margin improvements were driven by spending cuts.
• Social Entertainment is losing its importance and the segment continues to remain under pressure due to competition from other platforms.

• International Housewares Retail (1373 HK) is an interesting value/growth (5-10% CAGR) play with a high-dividend yield of >10%, trading at 8.1x FY23 PE. 
• The claim to fame for this company is the investment of legendary HK mid/small cap investor David Webb (who has a 6.9% stake in this company). 
• At a market cap of 2 bn HKD, the company has about 400 mn HKD net cash (20% of market cap), making it 6.9x ex-cash PE.

• With the impact of cost-cutting and monetisation wearing out, consensus looks overly aggressive to expect revenue and OP CAGRs of 24% and 35% respectively over the next two years.
• Based on Pinduoduo (PDD US)’s revenue and cost trends discussed below, we think the steady state OP margin could be substantially lower than consensus.
• Expecting consensus to downgrade expectations, we don’t think it is worthwhile paying up to 45.0x FY+2 OP (on our steady-state OP margin) for Pinduoduo at its current EV of $80.5bn.

• Over the past 12 months, we have written insights on 14 stocks in the small/mid-cap space with high dividend yields, inexpensive valuations, and a great margin of safety. 
• We re-examine these to shortlist 3-4 names of our highest conviction amidst the current macroeconomic climate.
• Our high conviction shortlist includes Water Oasis (1161 HK), Perfect Medical Health (1830 HK), The Keepers Holdings (KEEPR PM), and Taste Gourmet (8371 HK).

• Fu Shou Yuan (1448 HK)’s 2022 results were below our expectations. Affected by the 22Q4 pandemic, the performance recovery in 22H2 was lower than expected. 
• The high demand due to soaring death rate since 22Q4 would be reflected in 23H1 results. Together with low base last year, strong performance rebound in 23H1 is worth expecting.
• The reason behind short-term trade and long-term hold is different. But considering the Company has no obvious flaws in its long logic, every pullback can be a good buying opportunity.

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.

• Sino-Ocean Service
• Vedanta Resources

• Growatt Technology (1833969D CH) is looking to raise about US$1bn in its upcoming Hong Kong IPO. 
• Growatt Technology is a global distributed energy solution provider, specializing in sustainable energy generation, storage and consumption, as well as energy digitalization. 
• In our previous notes, we looked at the company’s past performance, peer comparison and shared our thoughts on valuation. In this note, we will talk about its refiling updates.

• Onewo (2602 HK) (OST) had raised around US$730m in its Hong Kong IPO in Sep 2022. Its six-month lockup is set to expire soon.
• OST is a property management service provider in China, primarily owned by China Vanke (H) (2202 HK). 
• In this note, we will talk about the lock-up dynamics and updates since our last note.

• PDD reported C4Q22 total revenue and non-GAAP net income (5.1%) and 8.4% higher than cons. Topline miss mainly comes from the deceleration of online marketplace services. 
• We expect that PDD’s domestic eCommerce will experience slowdown in growth.  Temu is likely to grow GMV rapidly with high losses from branding and subsidies.
• PDD still outpaces its peers including JD, BABA and Shein, in both domestic and oversea markets. Maintain BUY rating on PDD with TP of US$95, which implies 24x P/2023E.

• JOYY reported 4Q22 top line of US$ 605 mn, beat our est. by 3.2%, and GAAP net income turned negative mostly due to investment loss. 
• With limited catalyst for top line, increasing operating expense and content cost to cope with competition would put pressure on bottom line. 
• Maintain SELL rating and cut TP to US$ 23.7, implying 12.6X PE in 2023.