China

• Aggressive foreclosure of Evergrande assets suggests a sea change in how mainland China is handling real estate company defaults – especially with foreign creditors;
• Creditor China Cinda’s involvement on the seven-member risk management committee and the appointment of a Cinda senior executive is an alarming conflict of interest; and
• 4Q21 earnings season will be huge tell for mainland Chinese NPLs which likely peak at 20% of total loans.  

This month, we undertake a study of the ratings evolution of all the issuers that have been included in the Lucror Asia HY index (commenced in 2013).

The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks, and discussing specific areas of interest in the “In-Focus” section. The Asia Monthly is intended to broaden investors’ understanding of the Asian USD high-yield market.

• The recent plunge in share price of Anhui Anke Biotechnology  and Changchun High & New Tech (000661 CH) (CCHT) was mainly due to the volume-based purchase (VBP) on recombinant human growth hormone. 
• The best result is both CCHT and Anke quit this VBP.However,if CCHT quits but Anke wins the bidding and applies low-price strategy,CCHT couldn’t keep its price system and market share. 
• Overall, growth hormone is a market with increasing competition and shrinking market size as fewer babies are born in China. So, developing more new indications would be the way out.

• Huitongda (9878 HK) is looking to raise up to US$318m in its Hong Kong IPO.
• Huitongda (HTD) is a leading commerce and service platform serving businesses in the lower-tier retail markets of China.
• In this note, we will look at deal dynamics, assumptions, and share our thoughts on valuation.

• It is worth rejoicing that HeMo Bioengineering (HMB HK) has entered commercialization stage, but some of the key products are in-licensed from other companies, not self-developed.
• In front of fierce competition and policy impact, how to establish its high moat in R&D, innovation and commercialization capability would be the key factors to support long-term development.
• Our view is that opportunities coexist with challenges, and investors should also pay attention to the market sentiment towards new IPOs at that time.

• Substantial disagreements over the video streamer DouYu International’s strategic direction, prompts ownership re-think at Tencent; 
• Tencent is allegedly privatizing Douyu near the bottom of the market; and 
• Unlike the JD.com move, this transaction maximizes shareholder value while getting into regulatory compliance.

• Evergrande’s seven-member risk management committee includes China Cinda, a major Evergrande creditor;   
• Adding insult to injury, a China Cinda senior executive was appointed as an Evergrande director; and 
• This is massive conflict of interest coupled with the local municipality bonepickers give us little confidence that any creditor will be treated fairly.

• Market Research expects that e-commerce will grow 15% and 13% in following two years.
• Big platforms, such as Alibaba and JD.com will still have advantage in the growth.
• The risk is that consumers care significantly more about product brand than platform reputation.

• Beijing Jingneng Clean Energy (579 HK), whose privatisation unceremoniously failed last year, is inexpensive versus its peer basket. 
• The 12-month moratorium restricting Beijing Energy Holding from relaunching an Offer expires on the 1 March.
• The key reason for privatisation remains. A new Offer should be structured such that no tendering condition is present.

• 530.8mn shares of Ausnutria (1717 HK) crossed at the close yesterday at HK$10.06/share. That is the exact number of shares under the SPAs and the stated price under the agreements.
• China’s NDRC approval,  a condition to the SPAs, was obtained earlier this month, leaving MoC and SAFE approvals outstanding. They appear to have been received. 
• Expect confirmation shortly. The completion of the SPAs triggers an MGO, which is conditional on Inner Mongolia Yili Industrial Group (600887 CH) holding 50% of the voting rights.  

• SenseTime Group (20 HK) listed just prior to review cutoff and will be eligible for inclusion in the Hang Seng Tech Index (HSTECH INDEX) at the March rebalance.
• We expect SenseTime Group (20 HK) to be added to the index and replace Autohome (2518 HK) at the close of trading on 4 March.
• The real float of SenseTime Group is much lower than what HSIL is likely to use. Expect a BIG squeeze if the stock is added at a higher float.

• Aquila Acquisition Corporation (AAC) aims to raise around US$300m via Hong Kong’s first SPAC listing.
• AAC is promoted by CMB International Asset Management Limited (CMBIAM) and AAC Mgmt Holding Ltd (AACMH).
• In this tear sheet, we will talk about the deal background and structure.

• News reported that Alibaba is in talks with Shanghai Media Group to sell its 30% stake in Weibo Corp (WB US), which we have expected since Weibo’s Hong Kong listing.
• Since 2013, Alibaba has started to invest in Weibo before its NASDAQ IPO and continued to increase the holdings. Alibaba remains a strategic partner with Weibo on platform advertisement.
• We view the potential transaction net positive for Weibo Corp (WB US) as it will realign Weibo strategic direction and Alibaba impact will be minimized. Weibo valuation is also attractive.

• Sector outlook is weak with a -20% yoy decline on sales volume expected.
• End demand was largely brought forward in 1H2021. Lots of inventory at dealers are waiting to be sold.
• Sinotruk’s valuation looks fair now. However we see limited positive momentum to drive its share performance this year.

• In this analysis, we review allocations in Contemporary Amperex Technology among 3 sets of active China managers.  MSCI China Funds, China A-Share Funds and Greater China Funds. 
• We find that exposure in Contemporary Amperex Technology has risen to peak levels across all 3 investor sets, making it one of the largest overweight positions in China.
• Outside of dedicated China, we also see ownership growth among Global Emerging Market and Asia Ex-Japan active strategies.

• Qingdao Ainnovation Technology Group Co Ltd (1853807D CH) raised around US$151m after pricing its IPO at HKD26.3/share, at the bottom end of its IPO price range.
• Qingdao AInnovation Technology Group is an AI solutions provider offering full-stack AI-based products and solutions.
• In this note, we will look at the trading dynamics and current valuation.

• For Medbanks, who entered the market from the SMO business and then PBM business, building core competitiveness around this closed loop may be quite challenging.
• The PRS business has growth ceilings; The low margins of PBM and PPS business and the increasing competition make Medbanks difficult to generate solid financial position for future business expansion.
• Therefore, based on the analysis above, we are conservative about this Company’s outlook.

• The China real estate situation remains challenging for banks credit quality, with more real estate developers in financial difficulties, with them either close to, or at default
• The macro-economic picture is challenged by China’s zero-Covid policy hurting supply chains, and PBOC is tightening liquidity despite the recent small cuts to reserve requirements and benchmark rates
• Before 4Q21 results, the larger cap banks’ credit quality snapshot shows that China Minsheng is very challenged, with Postal Savings Bank and China Merchants in strong positions

• The 42% collapse in share price of China Education Group (839 HK) (CEG) seems to be overreaction to the speculated regulatory measures which we think many of them are counter-intuitive.
• These measures center around the legality of Variable Interest Entity, ban on future M&As, ownership of school assets and prohibition of increase in tuition fee at will.
• Higher education, unlike after school tutoring, supports government policy, lightens governments’ financial pressure and enhances common prosperity; and CEG remains the best play on this angle. 

• The review period for the March review of the HSCI ended on 31 December. There are a lot of new listings that should be included in the index.
• SenseTime is a high probability inclusion to the index, though it will only be added to Stock Connect in July once it completes 6 months and 20 trading days.
• Xpeng and Li Auto will be added to Stock Connect in Feb/March if they pass the velocity test. We see Li Auto as failing the test, while Xpeng is close.

• Guodian Technology & Environment Group (1296 HK) announced a pre-conditional privatisation offer from China Energy at HK$1.08 per H share, a 47.59% premium to the last close. 
• The key conditions for the delisting will be approval by at least 75% independent H-shareholders (<10% of all independent H-shareholders rejection). There is no minimum acceptance condition.  
• The offer is attractive in comparison to long-term historical share prices and multiples. We think that the privatisation proposal will likely succeed. 

• Alibaba Group (9988 HK) backed B2B e-commerce business, Huitongda (1566215D CH) is looking to go public to raise $500m to save the business.
• With churn rates as high as 50%, things could get ugly rather quickly if customer acquisition falls below sub optimal levels.
• We fear this is an attempt to save a failing business that could be worthless in few years.

• Venus MedTech (2500 HK) is taking the lead in TAVR industry, but Peijia Medical (9996 HK) has advantages in development progress of future products. So, the market pattern is not yet determined.
• The high cost of TAVR surgery is the main reason for lower-than-expected sales performance of related companies and low market penetration. The fierce competition would also bring more challenges. 
• A good solution is to enter developing markets with CE mark, which would offer a new commercialization option and also a wider expansion beyond just European and American markets.

• Beijing Yuanxin Tech (BYT) is looking to raise US$500m in its upcoming Hong Kong IPO.
• As per F&S, the firm is the No. 1 integrated healthcare fulfilment platform in China focusing on prescription drugs
• In this note, we look at the company’s fundamentals and operations and share our thoughts about the IPO.

• OrbusNeich Medical Group focuses on coronary and peripheral interventional instruments, such as balloons and stents used in PCI (coronary)/PTA (peripheral) procedures.
• Comprehensive and innovative product portfolio for endovascular interventional procedures, established global sales network, and robust pipeline are the major strength of OrbusNeich.
• Fierce competition, commoditized nature of the offering, centralized procurement leading to substantial price drop are some of the concerns for the company.

• Microport NeuroTech is a leading neuro-interventional device company in China. The company is looking to raise up to USD 300m via a Hong Kong listing.
• We look at the company’s key segments and products. We like the company’s comprehensive coverage of neuro-interventional devices.
• Its management team has decent experience as it is a spin-off from Microport. We also highlight the risk of the stock.

• We see three potential changes at the March rebalance. One is a high probability change while the other two are close to the cutoff ranks.
• Then there will be changes to the investability weight of the stocks following the Ground Rule change that will cap stocks at their Foreign Ownership Limits.
• The combined impact of all changes at the rebalance will result in a one-way turnover estimated at 17.55% and will result in a one-way trade of CNY 9,744m.

• The parent company of China Mobile (941 HK) has announced a plan to increase its holding. This is not surprising given the contents of the RMB Share Issue Circular.
• If they spend the midpoint of the RMB 3.0-5.0bn plan at a 20+% premium to current price, it is 8% of the RMB Share float. 
• The H-share buyback program is eligible to start after 8 Feb deadline for RMB Share greenshoe allocation. The stock is HK$51. Anything under HK$70/share is accretive vs the IPO.

• Mainland Chinese municipalities and authorities continue to find numerous ways to bone pick the Evergrande carcass without compensation; 
• Evergrande’s offshore bondholders are now threatening legal enforcement of collateral over the company’s “opaque” debt restructuring process; and
• Guangdong province is seeking to segregate Evergrande’s offshore assets in a fire sale to cover what they can of the company’s offshore debt. 

• RC48’s commercialization performance in China market could be lower than expected. The breakthrough point is whether the deal with Seagen can bring any surprise in the global markets.
• Due to large R&D and selling expenses, Remegen Co Ltd (9995 HK) is facing cash flow pressure, indicating that this IPO in SSE STAR market is very important for the Company.
• Let’s see if RemeGen would in-license some unique late-stage candidates or reach new blockbuster license-out deals that surprise us again, both of which would help turn things around.