China

• There are 29 inclusions and 12 deletions for the HSCI at the March rebalance. 26 of the inclusions will be added to Connect while all deletes will leave Stock Connect.
• Some of the Stock Connect deletions have a lot of mainland holdings and there could unwinding of some of the positions ahead of becoming sell-only on the link.
• Orient Overseas International, United Energy, Cloud Village and Gcl Poly Energy Holdings Limited could also move higher over the next couple of weeks before the stocks enter Stock Connect.

• Hang Seng announced the results of the March rebalance post market close Friday. Two adds for the HSI, one set of changes for HSCEI, three sets for HSTECH.
• An ad hoc rebalance was announced for the KOSDAQ150 following Osstem being designated an ‘Administrative Issue’. In IPO world, we have LIC in India and SBI Sumishin NetBank coming up.
• Friday was the review cutoff date for the March rebalance of the ASX200 Index. The ATO has provided Aventus with the tax ruling and that creates a timing issue.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• Life Insurance Corp of India (1248Z IN) and SBI Sumishin Net Bank (7163 JP) are set to keep everyone busy till March.
• On the placement front, Japanese accelerated selldowns continue their stellar record with Persol Holdings (2181 JP). 

• Meituan short near 300 and on the  bear wedge break has paid off. Friday’s price action is disturbing and warrants a downgrade.
• The breakdown below flat range/triangle support is a big negative on the back of sell volume. Bear triangle breaks are often volatile affairs.
• 142 is the fresh downside projection. 200 represents the sell barrier to work with.

• The Hang Seng Index was meant to have 80 constituents by mid-2022 before moving to 100 members. At 66 constituents post the March review, we are not gonna make it.
• Nongfu Spring (9633 HK) and Lenovo (992 HK) will be added to the index. Nongfu’s inclusion was expected while Lenovo is a relative surprise.
• Nongfu Spring (9633 HK) will also be added to the FTSE AW Index at the March SAIR at the close on 18 March. The stock should move higher.

• As expected, Xinyi Solar Holdings (968 HK) replaces Evergrande Property Services (6666 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the close of trading on 4 March.
• Using prices from the close on 18 February to cap the stocks, estimated one-way turnover at the rebalance is 4.37% and will result in a one-way trade of HK$3,350m.
• Short interest on Xinyi Solar Holdings (968 HK) is 13 days of ADV to cover. While the inclusion was expected, short covering could take the stock higher.

The Chinese Property Weekly focuses on providing updates in the Chinese real-estate sector, including recent regulatory and company developments, top and bottom performers, rating actions, as well as a list of bond maturities in the next 30 days.

• Huize’s further acceleration of the “online to offline integration strategy” likely pushes it to compete more directly against China’s insurance giants (e.g., Ping An).
• One key challenge smaller Chinese insurtech players face (when it comes to attracting investors) is that some of the country’s insurance giants are relatively well digitized.
• Ping An still represents a good way to gain exposure to China’s broader insurance/insurtech space, especially given its current low valuation. 

• The sluggish share performance of HKEX (388 HK) underscored the weak trading activities at Hong Kong, its January average daily turnover (ADT) is down 47% year-over-year.
• Hong Kong’s surging COVID cases have already accounted for more confirmed infections than all previous outbreak combined, we believe this will also dampen market sentiment short-term.
• However, we remain bullish on HKEX (388 HK) with the view that China economy will likely rebound in 2022, which will drive the rebound of IPO activities and trading volume. 

• SenseTime Group (20 HK), Li Auto (2015 HK) and XPeng (9868 HK) replace Autohome (2518 HK), Weimob Inc. (2013 HK) and Tongcheng-Elong Holdings Ltd (780 HK) in the HSTECH INDEX. 
• A few changes have been made from the way stocks are treated to ensure the inclusion of Li Auto (2015 HK) and XPeng (9868 HK) in the index.
• SenseTime Group (20 HK) has been included at a much higher float than what it should be and this could take the stock higher in the next couple of weeks.

• At 0.3x price to book, PRC property play Tomson (258 HK) is cheap. 
• It is even cheaper when factoring in its net cash worth 90% of the market cap.
• And it might continue to trade cheaply if not for the fact the controlling family recently privatised a connected company of Tomson’s.

• Huitongda (9878 HK) raised around US$285m in its Hong Kong IPO.
• Overall, we are not comfortable with paying a premium valuation for HTD given its small scale of operations in a highly competitive and fragmented market. 
• In this note, we will look at the trading dynamics and current valuation.

• The world’s largest electric-vehicle battery maker Contemporary Amperex Technology Co. Ltd. (CATL) has announced that it’s considering building more factories overseas
• The news came as CATL (300750.SZ +0.72%), based in East China’s Fujian province, has been trying to ease investor concerns about the recent sell-off of its stock
• The statement also disclosed that the company has been talking with U.S. clients about the possibility of building production lines in the country to bring supplies of CATL products closer to home

• While China Southern Airlines (1055 HK) saw passenger traffic up 17.3% in Jan, this is at the expense of higher capacity, leading to a 1.8pp YoY passenger load contraction. 
• Its cargo traffic underperformed both CEA and Air China with a YoY decline; and this is disappointing in a period of time where airfreight rate is at record-breaking level.  
• We see reduced local travel demand, higher operating costs, weaker cargo business, pressure on yield and higher base of comparison key challenges in 2022, and prefer Air China Ltd (753 HK). 

The Asia HY Trade Book for the month of February includes a summary of our recommendations, as well as our high-conviction ideas. The report also features relative-value charts and lists of the bonds in the Lucror Asia HY index.

• China Mobile (941 HK) announced an H-share buyback program which had as its upper limit the purchase of 37% of the H-share CCASS position. 
• After that, the SOE parent announced a plan to buy RMB shares in Shanghai. 
• The virtuous cycle of shareholder return starts today. Today is the first day China Mobile can start buying its H-shares. 

• The growth rate of the Chinese e-cigarette market bounced up to 73% in 2021 from 7% in 2020. 
• The global e-cigarette market increased by 23% in 2021, but Smoore is only good at vaping components.
• We conclude that Smoore has an upside of 86% for year end 2022.

• Anta benefits from strong tailwinds of the two Olympic events and the Chinese government’s support for citizens’ sports engagement
• Anta’s inventory position has improved relative to H1 2020. However, it remains weaker than pre-pandemic levels in 2019
• We analyse Anta’s inventory and highlight key factors to watch in its upcoming FY2021 results

• With churn rates as high as 50% and wholesale customers declining by 27.7% in 9M21, we are not particularly interested in Huitongda (9878 HK) over long term.
• The valuation looks cheap compared to peers on the surface, but when compared after considering Huitongda’s 1P exposure its at a significant premium to peers.
• Given that the market takes time to pick up similar mispricing situations, we think its advisable to wait and see where Huitongda opens, before arranging a short position.

• The FY21 result of China Everbright Environment (257 HK) (CEE) should look impressive and we see improvement in cash flow to relieve market concerns on leverage and financial position.  
• New project addition is solid over the last three months, adding about 5% to operational project portfolio. Strong special purpose bonds issuance in 4Q21 and 2022 will fuel pipeline momentum.
• Valuations look undemanding at 4.1x PER and 0.65x P/B for FY22F; and by maintaining payout ratio at c.30%, dividend yields are at attractive 6.4% and 7.4% for next 2 years.

• MicroPort is the largest Chinese neuro-interventional medical device company and has filed for an IPO on the Hong Kong Stock Exchange. Its Portfolio consists of 30 commercialised products and candidates.
• Although struggling with margins, the company has an impressive product portfolio with a majority of them having strong competitive advantages.
• As most of the products are poised for growth, we are largely positive on the company.  

• Recently, MicroPort MedBot’s Toumai laparoscopic surgical robot has obtained a registration certificate for launching by NMPA, indicating the hope of breaking the monopoly of Da Vinci robots in the market.
• The strong policy support as well as the medical insurance coverage offer a viable way for the commercialization of surgical robots in China, which is very important. 
• Although it would take some time to improve the overall market penetration in China, we are still optimistic about the outlook of Shanghai MicroPort MedBot Group (2252 HK).

• We have increasing confidence in Oriental Watch (398 HK) paying out a > 74 cent dividend for FY22 ( implied dividend >40 cents for H2 2022, full-year yield 17%). 
• Current net cash (ex-of dividend payable) is 1.1 bn HKD accounting for >50% of the market capitalization ( 2.1 bn HKD ), providing a significant margin of safety. 
• Expanding watch premiums for brands like Rolex and Patek Philippe due to tighter supply could result in better margins for the company, increasing upside potential.

• Time Interconnect Technology (1729 HK) is currently suspended “pursuant to The Hong Kong Code on Takeovers and Mergers“.
• Paul Lo, the chairman, recently increased his stake to ~75% of shares out. A large parcel of shares moved into CCASS late last month. 
• Paul Lo, if he is the Offeror, is unlikely to table an Offer price significantly higher than the last close, given the recent price increase. A take under is possible. 

• China Logistics Property Holdings (1589 HK)‘s Composite Document has now been despatched. The Offer is open for acceptance with a first close on the 25 February.
• The Offer from JD.com is conditional on 50% acceptances, with 66.4% in the bag.
• Done deal and trading through terms. The IFA considers the Offer is fair and reasonable. 

• In last week’s Int’l Compass (Jan. 27) we highlighted that the broad global indexes were breaking down, but that we were watching for potential false breakdowns.
• We are now getting those false breakdowns as major levels have been reclaimed; we view this as a net positive.
• We continue to see select areas that are attractive (namely cyclical value and defensive Sectors) and we expect markets to remain mixed.