China

• There are three sets of changes for the FTSE China A50 index at the March rebalance with implementation on 18 March. Two changes were expected while one is a surprise.
• The March rebalance will also see the Foreign Ownership Limits applied to the stocks. Estimated one-way index turnover is 17.39% and will result in a one-way trade of CNY 9,360m.
• As the surprises, we’d keep an eye on China State Construction A (601668 CH) and China Life Insurance (601628 CH) over the next few days.

• As expected, Nongfu Spring (9633), China Overseas Land & Investment (688) and XPeng (9868) will replace Geely Auto (175), China Tower (788) and JD Health (6618) in the index.
• The adds, deletes and capping changes will result in one-way turnover estimated at 9.14% and will result in a one-way trade of HK$4,576m.
• Shorts in Nongfu Spring (9633 HK), JD Health (6618 HK) and China Tower (788 HK) have over 10 days of ADV to cover.

• Back on the 12 January this year, 51 Job Inc (JOBS US) announced the Offeror had proposed reducing the merger consideration from US$79.05 in cash per common share to US$57.25.
• Yesterday 51job said it has entered into a revised merger agreement at US$61.00/share, a 6.55% bump in terms, but still 22.8% down the initial terms. 
• Presumably, the amended proposal still requires no PRC regulatory filing. This transaction appears to be done this time, with completion in the 2Q22.

• The consortium has improved the offer price by 6.6% to $61.00 in cash per ADS. The consortium represents 54.9% of the voting rights.
• The Board intends to recommend shareholders vote in favour of the transaction. The transaction is expected to close during the first half of 2022.
• The combination of the improved offer price and the tech shares sell-off improves the chance of meeting the two-thirds shareholder approval threshold. At last close, the gross spread is 7.0%. 

• We analyzed Suzhou Zelgen Biopharmaceuticals (688266 CH)’s key products(Donafenib, recombinant human thrombin for topical use, Alkotinib, Jaktinib, etc.). They have to face fierce competition, VBP impact and small market size.
• Through Gensun Biopharma, Zelgen has established the ability to develop advanced tumor immunotherapy drugs. Whether it can continue to launch new products is the key to test Zelgen’s R&D system.
• We are cautious about Zelgen because uncertainties led to inaccurate prediction on market size and outlook.Investors can choose to “catch” a rebound, but Zelgen is far from a complete reversal.

• Geek+ is a smart logistics and warehousing robotics developer serving clientele from a number of industry verticals, including, apparel, e-commerce, retail, 3PL, pharmaceutical, manufacturing and automotive (think Amazon Kiva).
• In the latest Series C funding round, the company raised a total of US$200m with the most recent Series C2 round in Jun 2020, raising around US$50m. 
• In the CY2H21, there were news reports regarding an IPO that could raise US$500m. Geek+ was considering either going public in the US or in Shanghai’s Nasdaq-style STAR board.

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.

• Country Garden Holdings Co
• Lenovo
• Vedanta Resources

• The March rebalance of the HSI, HSCEI and HSTECH indices will use today’s closing prices to cap the index constituents at 8%. This will lead to large flows.
• The largest inflows will be on Alibaba Group (9988 HK), JD.com Inc. (9618 HK), Meituan (3690 HK), Nongfu Spring (9633 HK), Li Auto (2015 HK) and Lenovo (992 HK). 
• The largest outflows will be on HSBC Holdings (5 HK), Kuaishou Technology (1024 HK), China Construction Bank H (939 HK) and Tongcheng-Elong Holdings Ltd (780 HK).

• Debt-ridden China Evergrande Group has announced it will sell stakes in four unfinished real estate projects to two state-owned trust firms
• The move shows the lengths Evergrande is willing to go to comply with government directives for developers to complete projects they have already started
• Two Evergrande subsidiaries are selling their 10% and 9.87% stakes in two projects in the cities of Chongqing and Dongguan

• Horizon Robotics is an artificial intelligence chips developer for automobiles, specifically smart vehicles, and robots. 
• Its latest Series C funding round in late 2020-early 2021, raised a combined total of US$900m, led by Great Wall Motors, Hillhouse, Baillie Gifford, CATL, CPE, Yunfeng Capital and others.
• There were news reports doing the rounds that the firm had aimed to look at a potential US listing, in a deal that could raise up to US$1bn.

• New Horizon Health (6606 HK) has made some improvements based on 2021 preliminary financial data. The newly launched UU Tube also enriches the product line. 
• However, the industry is still at the early stage. In front of fierce competition, ColoClear’s bottleneck is obvious. The cheaper products (Pupu Tube, UU Tube) could have more market acceptance. 
• Based on our analysis, our view is that the Company may rebound temporarily, but it is too early for a complete reversal.

• HSI has been a top short in Asia and nearing our 22,200 tactical target to reduce short exposure. A50 represents the perform long to build as the bull wedge matures.
• HSI RSI nearing oversold level where a rally is expected. Intermediate cycle remains down to sell a rally attempt in March.
• A50 15k and 15,350 barriers to clear. Failing would require re setting near lower wedge support.

• Zero COVID policy calls for another lockdown in Hong Kong as the number of cases rises.
• A reduction in the number of services will help to cushion the blow but may not help the overall grim prospect of the firm. 
• Lower traffic is negative for MTR Corp (66 HK)transport revenue as well as the commercial business from the station which combined make up to 50% of total revenue.

• We believe revenue will grow by 23% YoY in 4Q21 and by 18% in 2022.
• We believe JD is the most promising direct-sales e-commerce company in China.
• However, short video apps have been taking advertising market share from e-commerce apps.

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
• Jingrui Holdings
• Tata Motors ADR

SJM Holdings’ FY 2021 results remained weak, in a continuation from the soft H1 numbers. The company continued to report sizeable negative EBITDA in contrast to peers (which are all likely to report small positive EBITDA for the year). Moreover, operating cash burn has persisted in the two months YTD.

Liquidity is weak, given SJM’s low cash balance and lack of RCF availability. Moreover, the company would need to refinance its loans due February 2023. SJM’s delay in obtaining new long-term facilities is disappointing in our view, and reflects negatively on management’s execution. Still, we believe the company would not face issues seeking extensions or an eventual refinancing of its loan facilities, especially since the loans are secured against SJM’s assets.

• Bytedance doesn’t need a whole lot of introduction as it runs one of the most popular global apps, TikTok, and one of the largest domestic apps in China, Douyin.
• The company undertook a funding round in Dec 2020, which valued the company at around US$180bn. Its valuation has touched US$425 bn in June 2021 in private market transactions. 
• Rumours about listing have been doing the rounds since as far back as 2019. Although there are no confirmed listing plans.

• Short video has been taking time on site from game players.
• Main games are shrinking, but the authorities have not been granting license to new games.
• The authorities also banned Chinese players from playing with overseas game players.

• Benefiting from the opportunities brought to the healthcare industry by the COVID-19 pandemic in 2020, Yunkang Group (YK HK) took a ride and ushered in a turning point in performance.
• As the pandemic stabilizes and gets gradually under control, the revenue generated from COVID-19 tests may significantly decrease, which means Yunkang may return to net loss again in the future.
• We currently haven’t seen any new growth point with high certainty. Therefore, we are conservative about Yunkang’s outlook.

• Full-Year earnings growth of 17% suggested a slowdown in 2H21, but this is mostly a result of higher base. A 3pp increase in dividend payout ratio also demonstrated management’s confidence.
• Focus should be on the positive new project momentum – 10 secured in 2H21, versus only 4 in 1H21. More special purpose bonds issuance should drive project pipeline.
• CE Water’s valuations are cheap at 0.43x P/B and 3.8x PER for FY22F. Its prospective dividend yield of 7.9% also provides an appealing income component. 

• Changes to the FTSE All-World/All-Cap were announced over the previous weekend, NIFTY was announced Thursday and STAR50 on Friday. LG Energy’s inclusion to the KOSPI200 was also announced.
• 21 February was the review cutoff for the March rebalance of the FTSE China 50, FTSE China A50, STI, FTSE TWSE Taiwan 50 and the FTSE EPRA Nareit.
• On Friday, FTSE announced that two of the previously announced inclusions would not be added, while there would be 10 new additions to the All-World/All-Cap indices.

• In keeping with tradition, the SSE and CSI have continued to use a 6 month minimum listing history. No one remembers how or why it started, but it carries on.
• There are only 10 trading days to implementation and passive funds will need to trade multiple days of ADV on the inclusions and exclusions.
• The adds, deletes and the SSE STAR50 (STAR50 INDEX) have moved in lockstep since November. The CSI500 Index has outperformed over the period opening up a trading opportunity.

• Alibaba Group (9988 HK)’s 3QFY22 results was disappointing with the company’s revenue growing by 9.7% YoY, the slowest YoY growth since inception and missing the consensus revenue target by 1.3%.
• The situation appears far worse on the profitability side considering that OP (excluding impairment of goodwill) fell more than 34% YoY to RMB 32.2bn in 3QFY22.
• We feel there’s a lot more downside to Alibaba shares over the medium term as the company’s cash cows are starting to falter in these tough conditions.

• Jinmao Property Services (JM HK) is looking to raise around US$105m in its Hong Kong IPO.
• At listing, it is asking for a steep premium and 82% of the deal size has already been taken up by cornerstones, not leaving a whole lot for other investors.
• In this note, we will look at deal dynamics, assumptions, and share our thoughts on valuation.

• Yunkang Group (YK HK) is a medical operation service provider in China and offers a full suite of diagnostic testing services.
• The company’s earnings had a boost in 2020 with the pandemic which resulted in huge demand for Covid-19 diagnostic tests.
• Yunkang has filed for an IPO to raise about US$200m. We expect the company’s earnings to gradually decline with pandemic conditions easing off.

• The HSCEI 2022 dividend futures are trading around our fair value. Larger than expected special dividends from oil and telecom companies could provide some upside.
• The HSCEI 2022/23 div steepener has dropped from -5 to -15 since our last Insight. We see further downside here and would look to add to shorts in the spread.
• With rising interest rates, higher inflation, higher oil prices, a slowdown could lead to a rapid repricing of dividends and there will be opportunities to buy back the spread lower.

• BABA’s app, SDTao, has been taking active users from Pinduoduo.
• We believe BABA’s physical store chain, Freshippo, will go public.
• We believe BABA will stop investing in unprofitable Ele.me as it underperforms Meituan.

• Impressive result with underlying net profit reached US$698m in FY21, up sharply from loss of US$19.4m a year ago. Net gearing dropped to 7% with record-high ROE of 58%. 
• With 48-64% of Handysize and Supramax days covered at TCE slightly below FY21 level, it has well secured FY22 profitability, with upside from higher rate in rest of this year.
• We expect ROE to be over 30% for FY22, making its 1.3x P/B not expensive, especially with an improved balance sheet. Dividend yield of 14% for FY22 is another attraction.

• Yunkang Group (YK HK) is looking to raise about US$200m in its upcoming Hong Kong IPO. 
• Yunkang Group is a medical operation service provider in China and as per F&S, had a market share of 3.7% in China’s medical operation service market as per 2020 revenue.
• While it has managed to grow its on-site diagnostics centers, the firm has to prove that it can still thrive post-COVID.

• Revenue grew strongly due to the new game, Harry Potter.
• We believe NTES has confidence in the growth of cloud music.
• We believe the stock has an upside of 32% for the year end 2022.

• Shanghai Pulse is a leading player in the FFR assessment in China. The company is looking to raise up to USD 200 m via a Hong Kong listing.
• We look at the company’s key products QFR, OFR and UFR. We also provide our thoughts on the investment thesis.
• We think the company has a decent investor backing and meanwhile we also highlight concerns on its management.

• Meituan (3690 HK) share price is down more than 20.0% from Thursday’s close following announcement on new regulations for food delivery platforms.
• New regulation states that food delivery platforms should further reduce the service fee charged from restaurants to lower operating costs for food and beverage businesses.
• Meituan’s food delivery business makes about 88% of its revenues from commissions while the remainder comes from online marketing services.

• Subsidy removal spooked investors but as proven, January 2022 sales number is even higher than last year. 
• The main concern is the expensive valuation among the other Hang Seng Index Constituents rather than anything else.
• In the medium term, and upon the cessation of the Ukraine-Russia tension, BYD (1211 HK)could be an interesting name to have in the portfolio, especially at a lower valuation.

• WuXi AppTec Co. Ltd. (2359 HK) released the preliminary financial data for 2021. It is not surprising that the Company could maintain its outstanding performance.
• We listed some interesting points to ponder, such as projected declining performance of WuXi DDSU and related chain reaction, the change in fair value of financial assets, overseas anticipation, etc..
• It’s understandable if investors choose to start making layout at this point due to attractive valuation and longer “reflection arc”,but need to be patient for WuXi AppTec to achieve reversal.

• China Energy Engineering (3996 HK) and Power Construction Corporation Of China (601669 CH) are the two giants in power construction industry in China; but there are significant differences between them.
• Power China has better business and generation mix while Energy China won in terms of margin and profitability, leverage and financial position, new order momentum and hydrogen energy expansion. 
• We like Energy China “H” for cheap valuation, secured earnings and deep discount to Energy China “A”. For just the A-shares, we prefer Power China “A” to Energy China “A”.