China

• Pinduoduo Holdings, Inc. closed its fiscal year of 2023 in a positive trajectory.
• The company reported sustained growth in consumer engagement on its platform in its fourth quarter results.
• High-quality development remains a key strategy for the company.

• On the 6th Dec 2023, packaging play CPMC Holdings (906 HK) announced a pre-conditional Offer from SASAC and the National Council for Social Security Fund of China (NCSSF). 
• A decent premium (32.1%), presumed rubber-stamped regulatory approvals, and a 50% acceptance condition with 29.7% in the bag – this Offer looked done. Then ORG announced a possible competing proposal.
• Nearly four months have elapsed and details on ORG’s Offer remain unknown. SASAC/NCSSF chip away at reg approvals. Shares are down 2.6% from its recent peak. That makes sense.

• Sciclone Pharmaceuticals (6600 HK) disclosed a scheme privatisation offer from GL Capital at HK$18.80 per share, a 33.9% premium to the undisturbed price (HK$14.04 on 15 March).
• The key condition is approval by at least 75% of disinterested shareholders (<10% of all disinterested shareholders rejection). The Bank of China, which holds a blocking stake, should be supportive.
• The offer price has been declared final. It is reasonable, aligning with the all-time high and the IPO price. This is a done deal.

• Citic Securities, China’s leading brokerage, has shifted over 100 investment bankers from initial public offering (IPO) roles to other divisions, in a major overhaul to address slowing business amid the stock market downturn.
• Most of the employees affected were transferred to debt financing business while the rest were relocated to mergers and acquisitions, and investment departments, a person close to the matter said.
• “The adjustment is an internal optimization of personnel, involving a broad range of investment banking positions,” said the person.

• Hywin [NASDAQ:  HYW] announced a broad business transformation plan in response to overall market and regulatory conditions in China.
• The stock price, under considerable pressure since November last year, has clearly anticipated some of this uncertainty.
• As part of its transformation, Hywin will shift is wealth management product distribution away from asset-backed products.

• The looming threat of a business ban on TikTok in the United States is driving millions of users and advertisers to seek alternatives to the popular short video platform, presenting a significant opportunity for rivals such as YouTube and Meta.

• Data released by Sensor Tower in March indicates that, over the past 90 days, nearly 94% of TikTok users in the U.S. have begun using Alphabet’s YouTube.

• Additionally, 80% of TikTok users have shifted their attention to Instagram, 68% to Facebook, and 55% to Snapchat.

China Jinmao has released FY 2023 numbers that were weak in our view, as the company reported a lower top line and reduced margins. However, the earnings decline was in line with expectations, as it reflected industry trends and the company had issued a profit warning in March 2024.

Negatively, leverage further deteriorated to a very weak level. In addition, we are concerned about whether Jinmao would be able to maintain access to domestic bond markets. This is as the company has seemingly stopped issuing domestic notes since July 2023. Instead, it issued perpetual bonds to immediate parent Sinochem HK in December. Going forward, Jinmao may have to increase its reliance on Sinochem for financing.

• Shenzhou Intl Group Holdings (2313 HK) reported 2023 results yesterday.  2H23 continued to be weak, with sales down 6% yoy.  Net profit grew 10% yoy in 2H23.
• Most importantly, the company sounded quite bullish on 2024 during the results briefing, which greatly improves the visibility in the order recovery thesis of the company.
• I continue to believe that Shenzhou is the best proxy for gaining exposure to the global sportswear sector, especially given the improved visibility now. 

• I mentioned Noah holdings as a trade to buy before earnings since I anticipated an announcement of significant capital returns.
• This has worked out well with over $2 in dividends announced. Half of that dividend will be recurring.
• So I sold out all of my shares at just under $12. This was never a high conviction investment, but merely a trade. Marking it as a 18% return.

• Full -year 2023 results  and 2024 forecasts indicate business going to plan
• The Baijiu division, key to a rerating, grew sales 50% y/y in the first two months of the year
• The beer division continues to reap the benefits of its premiumisation strategy

• Despite a 3.8% decline in FY23 net profit, China Everbright Environment (257 HK)‘s profitability has still outperformed its peers by significant magnitudes. 
• Positive notes in the result are an increase in operation service revenue proportion, expansion in EBITDA margin, improvement in financial position, and addition of new projects.
• It is easy for CEE to achieve the market expectation of a 9.8% growth in FY24. Yet, it just trade on 3.6x PER, 8.5% yield, and 0.34x P/B. 

Yuexiu Property’s (YXP) FY 2023 results were largely stable and in line with our expectations. The company reported strong contracted sales and top-line growth, albeit the margins weakened in tandem with industry trends. Leverage was mixed, as net debt crept up slightly. Importantly, liquidity appears sound, supported by YXP’s healthy access to financing. The company remains active in land acquisitions and has a good quality land bank, with 95% of its projects in Tier 1 and 2 cities.

• The industry in which LANTIAN operates has basically bid farewell to the era of high-speed growth. The baby diaper products market is nearing saturation, with limited future growth potential.
• The economy baby diaper products market is the last segment to bring alpha. However, it’s not easy for LANTIAN to break through considering strong international big names and local brands.
• Profit margin of LANTIAN is low. If this is the characteristic of this industry, then baby diaper products isn’t a profitable business.Investors could have other options to achieve higher returns.

• Beijing Wantai Biological Phar (603392 CH) announced that its net profit for 2023 declined 71–75% YoY to RMB1.20–1.35B mainly due to the market competition.
• China’s HPV vaccine market is highly competitive. Beijing Wantai has no presence in higher valent HPV vaccine segment, which dominates the domestic market.
• Although the company will be one of the early movers in domestically developed nonavalent HPV vaccines, at least three more players will follow soon, thereby making the space more competitive.

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.

• China Oil And Gas
• Meituan

• Sichuan Baicha Baidao Industrial (SBBI) is looking to raise up to US$300m in its upcoming HK IPO.
• SBBI sells new-style tea drinks through its ChaPanda stores. According to F&S, SBBI ranked third in China’s new-style tea shop market with a market share of 6.8% in FY23.
• We have looked at the company’s past performance in our earlier notes.  In this note, we provide our initial thoughts on valuations.

• Since my previous insight on March 5, the share price is up 32% in less than a month.
• The company reported 2023 results on March 26, as net profit was up 15% yoy while sales growth was flat for the year. 
• The company also announced a strong dividend payout ratio of 90% compared to below 30% previously, making the dividend yield of the stock at 6%. 

• Total revenue increase by 42% and automobile revenue increased by 49% in 2023.
• The gross margin improved significantly in 2023, especially in 4Q23.
• We believe BYD will move its focus from ‘low price for sales volume’ to ‘development of new vehicle models’.

• At noon time today, Anta Sports Products (2020 HK) released strong 2023 results which beat expectations. 
• Anta currently trades at a forward PE of 18x based on estimated 2024 earnings (assuming a conservative 15% yoy growth in 2024 earnings). 
• I expect the company’s net profit to grow 15-20% CAGR in 2024-2026.  Anta’s historical forward PE is around 24x since 2017. 

• CIMC Vehicle Group Co Ltd (1839 HK) has despatched the offer document, and the H Share HK$7.50 offer is open. The H Shareholders class vote is on 18 April.  
• The key condition is approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders rejection) along with a 90% minimum acceptance condition.  
• The de-rating of peers and ongoing US investigation favours meeting the 90% threshold. However, the dire minority AGM/EGM participation rates suggest that retail apathy may derail the offer. 

• Tencent reported C4Q23 revenue, IFRS operating profit, and non-IFRS net income in-line with our estimates and in-line with consensus, with non-game revenues exceeding while game revenue missing expectations;
• We believe the shift from game to non-game should enhance Tencent multiples but the market might have concerns on the sustainability of this change. 
• We believe this change is sustainable with game revenue reaccelerating and non-game revenue continues to gain weight. We cut TP by 3% to reflect slow game recovery in C1H24.

• Alibaba Pictures (1060 HK) is expanding rapidly into complimentary areas such as online ticketing of cinema and live events with the recent acquisition of  Damai.cn from parent Alibaba.
• Alibaba Group Holding (9988 HK) is considering injecting other media platform assets like Youku  to realize synergies among its portfolio of companies.
• Ali Pictures (Alipics) legacy film production business continues to expand globally with its American film production company, Amblin which is a partnership with Steven Spielberg.

• Cost and business optimisations lead to increased profits as revenues drop due to freight rate declines
• Successfully pivoting by geography as the global trading environment changes
• The company increases its dividend payout in a sign of confidence for the future

• Meituan reported C4Q23 revenue beat our estimate/consensus by 0.7%/1.4%; operating profit beat our estimate/consensus by 37.3%/48.6%, mainly due to order volume surprise, which is unsustainable in our view.
• However, we think Meituan’s near term pressures did not change: (1) core biz OPM drop due to rising low-price orders and subsidies; (2) resuming competition from Eleme/Douyin/PDD
• We maintain the stock as SELL rating but raise TP by HK$13 to HK$70 to factor in the loss cutting commitment in the community group buying biz.

Greentown China’s FY 2023 performance was satisfactory in our view, given the above-industry sales, stable top line and acceptable (albeit reduced) gross margin. Importantly, its access to onshore financing appears healthy and liquidity is adequate. In addition, the company remains active in land acquisitions and has a good quality land bank, mostly in high-tier cities in the Yangtze River Delta.

That said, leverage remained somewhat weak. Moreover, Greentown is more exposed to a prolonged industry downturn (vs. peers such as Longfor Group and China Vanke), due to its low recurring income and outsized exposure to the property development segment. This means that the company’s contracted sales and margins are likely to remain soft despite outperforming the industry. In the meantime, Greentown will likely focus on improving operating efficiency by maintaining a high sell-through rate and fast churn for its projects.

We revise our fundamental Credit Bias to “Negative” from “Stable”, and move our trade recommendation on the GRNCH 5.95 ’24s to “Buy” from “Hold” .

• Despite weaker 2H23 results, CIMC Enric Holdings (3899 HK) guided for solid recovery in FY24. Order backlogs reached Rmb22.9bn, which almost equals the full-year revenue.
• Clean energy segment will be supported by vessel demand, hydrogen orders, and Angang Steel project contribution. Chemical and environmental segment should rebound in 2H24.
• Liquid food spin-off is in process and it has won several domestic whiskey projects. As net cash equals 13% of share price, payout will be maintained at 50% (FY22: 40%). 

• Binjiang Service Group (3316 HK) posted a 42% YoY increase in revenue and 19% YoY in profits for FY23, aided by 170% revenue growth in VAS services (24% of revenues).
• Margin decline remains a concern, with a GPM(%) decline of 510 bps to 24.8%, with declines across all business segments. 
• Net cash increased to 74% of market capitalization, with the company declaring a dividend of 1.37 HKD/share ( implying an 8% trailing yield). 

• Xiaomi released healthy financial results inspite of the shrinking market.
• Alibaba Freshippo founder, Mr. Hou, retired from his role as the CEO of Freshippo.
• JD began to provide aftermarket service to BYD, the largest new energy vehicle producer.

• It’s time to revisit the network of Alibaba’s ( Alibaba Group Holding (9988 HK) ) affiliated listed companies for near term investment opportunities
• After investing in an ecosystem of online and offline companies over the last 10 years, Alibaba is rapidly restructuring its businesses to refocus on its most profitable opportunities
• Sun Art Retail (6808 HK) will benefit from the synergies of Baba’s restructuring

• Total revenue grew by 22.6% YoY in 4Q23, three percentage points higher than we expected.
• MT’s operating profit broke even for the fiscal year 2023.
• We conclude an upside of 113% and a price target of HK$188. Buy.

• Strong uptick in price momentum in February reflects booming spot market
• February container throughput growth in key regions also firm, up 7.4% Y/Y
• We suggest Short Evergreen vs Long Maersk (or ZIM) pair trade idea

Longfor Group’s FY 2023 results were acceptable in our view. The earnings decline was in line with expectations, driven by reduced revenue from the property development segment. The gross margin for property development was decent at 11%, relative to some distressed peers with negative to low single-digit gross margins. Recurring revenue from rentals and services rose by 6%, with recurring operating profit covering 1.4x of interest expense. Net debt declined marginally, supported by slightly positive FCF generation.

Liquidity was adequate, with Unrestricted Cash/ST Debt of 1.4x. We note positively that the company has been repaying some debt well in advance of maturity, possibly using cheaper and longer tenor loans backed against its commercial properties. We believe near-term default risk for Longfor is low, albeit its financial flexibility would gradually diminish as the company pledges more assets for funding.

• Kunlun Energy (135 HK)‘s 2.2% drop in core earnings in FY23 is distorted by the expiry of exploration rights of oilfield projects. All other segments have done well.  
• FY24 outlook is positive – reduction in E&P distortion, addition of more city gas projects, higher utilisation of LNG plants and terminals, and optimisation of gas pricing mechanism.
• Net cash of Rmb20.4bn equals 29% of market capitalisation, providing room for a higher dividend payout. A re-inclusion into the HSI is not totally out of the cards.

• Headline February numbers look pretty good — but they’re misleading
• On a combined basis, January-February data show ASPs still under pressure
• Recent results from ZTO and J&T Global have been unimpressive, in our view

• The real market space of China’s HPV vaccines is much smaller-than-expected. Investment logic of vaccine companies is different from biotech – They either become large vaccine enterprises or are eliminated.
• Low-Valent HPV vaccines would easily enter a price war or be included in National Immunization Program. 9-valent HPV vaccines would be the main battlefield, which is a highly competitive market.
• Health Guard is facing increasing survival risks. Based on the concerns about the commercialization outlook of HPV vaccines, we’re not sure if the Company would bring expected returns to investors.

Meituan has released FY 2023 numbers that were excellent in our view, with significantly improved profitability and solid cash generation. The financial risk profile has strengthened further, with a large and growing net cash position coupled with robust leverage and coverage ratios. Liquidity is sound. We expect FY 2024 to be a better year for the company.

We revise our Credit Bias on Meituan to “Positive” from “Stable”, given the material increase in profitability and strong cash-flow generation following the pandemic. That said, we do not expect ratings upgrades in the near future.

• GL-Carlink Technology (1818017D CH) is looking to raise >US$100m in its upcoming HK IPO. The deal will be run by CCBI.
• GL-Carlink (GLC) is a connected services provider for players within the automotive aftermarket industry in China, selling in-vehicle hardware products and the provision of SaaS marketing and management services.
• As per CIC, connected services refer to connecting vehicles with the Internet and providing comprehensive hardware products, software services, and value-added services for customers such as 4S stores. 

• A shares were down small on the week. Larger caps down more. H-shares down more after a hard Friday.
• Net SOUTHBOUND buying was +HK35.8bn after $21.4bn the week before. SOUTHBOUND has net bought every day since the end of Chinese New Year.
• The flavour of SOUTHBOUND buying has been high-div SOEs for months and months. That is starting to change slightly. Tencent was the top net buy this week.

• The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
• SOUTHBOUND a net buyer every day since the end of Chinese New Year. Still. NORTHBOUND a huge net seller this week, but net buyers in size (RMB +86bn) over 8wks.
• For the first time in a while, AH premia among liquid stocks fell convincingly. Narrow AH premia pairs saw Hs outperform more than wide AH premia Hs (vs As).

• Travelsky Technology Ltd H (696 HK) share price has recovered by 25% since January 2024 sell off
• CNY travel data indicates a huge potential of revenue increase for Travelsky.
• At 18x PER, Travelsky has become a bargain in the travel sector that is clearly rebounding. 

• Concerns around slowdown in growth are behind the disconnect between PDD’s stellar 4Q23 results and lackluster share performance, in our view.
• We have seen this before. If history is a guide, its valuation will improve after growth hits bottom in 1Q24.
• We expect PDD to deliver 50% plus growth for 2024 and generate US$14 billion adjusted net profit. Reiterate US$240 billion target market cap or 50% upside.

• Organic growth in J&T’s China operations exceeded that of peers…
• …but the implosion of New Markets and X-Border is a shock
• Lower margins from SE Asian cash cow also a surprise, in our view

• Benefiting from changes in pandemic prevention policies and favorable reimbursement policy support, TCM injections market would end its years of continuous decline and enter a period of rapid growth again.
• After Novo Nordisk acquires Catalent, China CXOs would be less likely to obtain the global GLP-1 orders. As MNCs rethink supply chain issues, China CXOs would face more challenges.
• Against the backdrop of anti-corruption/import substitution, investment logic of United Imaging is solid. However, the biggest issue is high valuation. Fundamentals’re difficult to support more than RMB100 billion market value.

• The Quiddity Mainland Connect NORTHBOUND Monitor. Like the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor. Lots of Flows/Position Tables and Charts with which to play.
• Last week saw NORTHBOUND net SELL RMB 7.8bn of A-shares on decent volume after buying RMB 32.8bn the week before. This is a small sell vs 6 weeks of buying.
• The volume now is still chasing momentum. CATL the big buy, and less passive-feeling than last week.

• Fu Shou Yuan (1448 HK)‘s net profit grew 20.1% in FY23; and if not a withholding tax of Rmb87.4m, its net profit would have increased by over 30%.  
• Including a special DPS of HK$0.2139, full-year payout ratio reached 98.5%. Still, it has net cash of Rmb2.7bn or 24% of its market capitalisation.
• Profitability outlook is encouraging – structural demand increase, higher ASP, and well-contained costs. Its land reserve is enough to be consumed for 82 years.

• Sanjiu’s 2023 performance was below expectations, mainly due to the VBP of TCM formula granules and the anti-corruption since 23Q3. But dividend payout ratio reached 51.96%, the highest since 2001.
• The prescription drug business would be the core of Sanjiu’s performance changes in next two years, especially TCM injection business, which would be benefit from favorable medical insurance reimbursement policy.
• Sanjiu’s management expects to achieve double-digit revenue growth in 2024, with net profit matching the level of revenue growth.We think 2024 performance growth would be lower than that in 2023.

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.

• China Vanke
• Hopson Development

• PDD reported C4Q23 top-line, non-GAAP EBIT, and non-GAAP net income (2.4%), 12.4%, and 24% vs. our est., and 11.6%, 37.0%, and 50.3% vs. cons., respectively;
• We estimate the beat was driven by (1) improved take rate on the China platform following ad tool adjustments, and (2) Temu margin expansion;
• We remove Temu US from our model from 2025+, as restrictions seem more than likely following the TikTok ban and cut TP to US$ 159 to reflect this;

• Tencent Holdings Ltd. (腾讯) reported weaker-than-expected results in the fourth quarter of 2023, as the Chinese internet behemoth faced challenges growing its gaming business, particularly in China’s domestic market.
• During the three-month period, Hong Kong-listed Tencent generated 155.2 billion yuan ($21.9 billion) in revenue, up 7% from 2022, according to its earnings report released Wednesday. That missed the average estimate of 157.4 billion yuan by analysts surveyed by Bloomberg.
• Quarterly net profit also fell short of expectations, down 75% year-on-year at 27 billion yuan, compared to average analysts’ predictions of 33.3 billion yuan.

• On 21 March, Bloomberg reported that TPG and MBK had restarted a strategic review to reduce their HKBN Ltd (1310 HK) shareholdings. Previous privatisation rumours have fizzled out.
• The options include going private, attracting new investors, or raising cash through some of HKBN’s assets. Infrastructure-focused funds and one Chinese telco (likely China Mobile (941 HK)) were approached.
• The probability of an offer is low as TPG and MBK will need to accept a material discount on their cost per share and financing challenges due to high leverage. 

• The Hang Seng Index is at a turning point: investors want to know if the current rally can continue into April.
• Our MONTHLY seasonal matrix model indicates that to see the index rallying in April, usually we should have a negative close in March, so this week will be crucial.
• Buy between 16281 and 15924 to ride the continuation of the rally in April.

• Chinese fintech giant Ant Group Co. Ltd. has completed the reshuffle of its consumer lending businesses Huabei and Jiebei, wrapping up a years-long, government-driven overhaul, a person close to the matter told Caixin.
• Ant’s two wholly owned small loan business units, the operators of Huabei and Jiebei, have fully exited the businesses during the past year.
• The two brands have been incorporated into Chongqing Ant Consumer Finance Co. Ltd. (CACF), a subsidiary set up in 2021 that is 50% owned by Ant, according to the person close to CACF.

• Kuaishou reported C4Q23 revenue, IFRS OP, and IFRS net income in line, 31%, and 51% vs.  our estimates; and in line, 43%, and 67% vs. consensus.
• The significant profit beat was mainly due to the rich content supply on the platform that led to organic traffic influx, resulted in marketing costs reductions. 
• We raised our TP by HK$2 to HK$81, implies 20X PE, vs. current trading at 13X PE for 2025.

Shui On Land’s (SOL) FY 2023 results were slightly weak, in our view. Positively, the company’s rental income increased moderately, supported by contributions from new commercial assets and China’s re-opening from the pandemic. Recurring operating income from rentals and property management covered 0.8x of interest expense. In addition, the gross margin remained very strong, even as revenue from the property development segment was halved on account of lower sales and deliveries.

Negatively, SOL’s net debt climbed 14% from FYE 2022, owing to lower cash collections and its acquisition of a Shanghai project in April 2023. Moreover, the company’s increased asset encumbrance would reduce its financial flexibility. Liquidity is weak, considering the thin unrestricted cash balance and substantial refinancing needs over the next 12 months. That said, the company might be able to pledge or dispose of more assets to raise cash.

Sunny Optical has released its FY 2023 numbers, which were weak but in line with expectations. Revenue declined 4.6% y-o-y to CNY 31.7 bn, due to lower shipments of handset-related products. Gross profit tumbled c. 30% to CNY 4.6 bn, with the margin shrinking to 14.5%. OCF plunged 64% to CNY 2.7 bn, while capex decreased slightly. FCF was therefore positive, albeit significantly lower. That said, the financial risk profile and liquidity remain healthy, supported by a large net cash position.

We believe the industry operating environment will stabilise. The company marked seven consecutive months of double-digit shipment volume growth in February 2024, indicating that the recovery in the smartphone market is continuing. We expect shipments to stabilise at this level, which will represent a robust increase from the FY 2023 numbers. We project positive revenue and earnings growth in FY 2024.

• ZTO reported C4Q23 top-line, GAAP EBIT, and non-GAAP net income (2.2%), (3.8%), and in-line vs. cons., respectively;
• There are two concurrent trends in the last-mile market: (1) improved service quality, and (2) smaller parcel sizes. Both are favorable to ZTO, in our view;
• ZTO announced new shareholder return plans, which we estimate could return US$ 1.4bn to investors in 2024 for a 7.7% yield;

• The thesis for Pop Mart International Group L (9992 HK) is the successful expansion of its international business, which made up 13% of sales in 1H23 but is growing exponentially. 
• This has been proved true in the latest announced 2023 results, with a 135% growth in 2023 for the international business, and a further >100% growth guidance for 2024.
• The company is trading at 24x 2024 earnings, assuming a 35% net profit growth in 2024. 

• Back on 9th Feb 2024, healthcare technology platform IntelliCentrics Global Holding (6819 HK) announced the proposed disposal of its key operations to Symplr Software Holdings for at least US$246.5mn.
• Upon completion of the sale, IntelliCentrics will declare a special dividend, then seek a listing withdrawal. A key condition to the sale was FTC/DOJ approval. That is now satisfied. 
• The sale/dividend/delisting requires a Scheme-like vote, with 72.1% of shares out supportive. This is a super-clean pseudo arb. Pushback? Very illiquid.

• Despite a disappointing 4Q2023 earnings report, NetEase (9999 HK) remains firmly amid an earnings upgrade cycle.
• With NetEase touching on being oversold, near-term momentum indicators are displaying bullish signals.
• NetEase currently trades more than one standard deviation below its rolling 5-year historic average PE ratio.

Xiaomi Corp’s FY 2023 results were better than expected in our view, with much-improved profitability. The balance sheet remains healthy, and liquidity is sound. We expect the company to continue performing well, driven by a projected recovery in the smartphone market, Xiaomi’s premiumisation strategy and strong demand in overseas markets. Global smartphone shipments remain weak, but may be bottoming out. We believe the company is well-positioned for future growth.

The smart EV development has drained less cash than we had expected so far. Xiaomi has been able to fund the investment using internal cash flow. Pricing for the SU7 (scheduled to be launched next week) has not been disclosed. The EV market in China is extremely competitive, with over 150 carmakers. Apple has exited the EV business due to a lack of competitive advantage, and Xiaomi may face the same issue. While it is unclear if Xiaomi will be successful in the EV business, we believe it may not be as detrimental to the credit as originally feared.

• Operating profit and its margin reached historical high in 4Q23.
• Monthly active user base continued to expand, which is rare for other apps.
• GMV (Gross Merchandise Value) of the live broadcasting sales increased rapidly by 29% YoY in 4Q23.

• Baishan Cloud, China’s independent edge cloud service provider, filed to go public in Hong Kong. CICC and investment bank Haitong are the lead underwriters in this offering.
• Founded in 2015, BaishanCloud (1568617D HK) is led by its CEO and Founder, Mr. HUO Tao, and a highly experienced founding team.
• I believe the company will achieve a break-even this year, coupled with a strong international expansion, potential revenue acceleration and gross margin improvement as the business continues to scale up.

Road King’s FY 2023 results were poor, with the company’s gross margin plunging to negative 5% (FY 2022: 17%). The EBITDA and net profit margins were negative 13% and negative 30%, respectively. While Road King has continued to reduce net debt, liquidity is poor. In addition, we view negatively the company’s downbeat statement of “significant debt repayment pressure due to a lack of refinancing channels”.  

We believe it is difficult to ascertain management’s willingness to honour repayments, amid the bleak business prospects. Road King has a small and dwindling land bank that might suffice for only another 1-2 years of development. Moreover, the negative gross margin suggests that the business is no longer profitable. In our view, this increases the risk that the company may opt for a holistic restructuring of the USD notes (which account for 65% of total debt) to reduce its debt load.

We move to “Not Recommended” from “Hold” on the ROADKG 6.7 ’24s. 

• Last month, a Cheng family vehicle with 24.06% of Giordano (709 HK), requisitioned an SGM to remove CEO Peter Lau, and install Colin Currie as CEO, plus three other NEDs/INEDs.
• That SGM will be held on the 3rd April. The director resolutions – both the removal and appointments – are “ordinary”, requiring a simple majority vote. 
• The outcome will likely pivot off how the shareholders under Halcyon Securities will vote. So I dug a little deeper as to who these shareholders are, with some surprising results.  

• On 9 February, IntelliCentrics Global Holding (6819 HK) announced the disposal of most of its assets to symplr software. On 19 March, the antitrust condition was satisfied.
• The consideration will be distributed to shareholders as a special dividend. The minimum and maximum special interim dividends are US$0.52 (HK$4.08) and US$0.55 (HK$4.30) per share.
• The key condition is EGM shareholder approval. Due to the irrevocables from key shareholders, the EGM vote should comfortably pass. This is a done deal.

• In 4Q23, Tencent experienced a one-digit growth, but its margin improved significantly.
• We believe Tencent’s social networks will stop shrinking after the company sold movie assets to China Literature.
• We believe the stock will have an upside of 37.5% and a price target of HK$397 for year end 2024. Buy.

• Akeso’s product sales grew rapidly in 2023, mainly driven by off-label use of AK104. Since AK104’s commercialization potential on other indications was “overdrawn” in advance, sales growth would slow afterwards. 
• The key investment logic of Akeso is whether/how much its BsAb pipelines would grab shares from PD-1. The high valuation has somewhat priced in AK112’s successful head-to-head trial with pembrolizumab.
• If AK112 does beat Keytruda, valuation will reach a new level. If AK112 fails in critical clinical trials, it would cast a shadow on the entire BsAb pipeline of Akeso.

• Tencent (700 HK) reported 4Q results today. Both revenues and OP increased 7.1% and 42.0% YoY, however, both revenue and OP fell below consensus estimates.
• The company also announced an increase to 2023 dividends and more than doublethe size of the company’s share buyback in 2024 compared to 2023.
• We expect Internet VAS to grow at single-digits in 2024, however, high-margin new products to help boost margins in 2024.

• Akeso Biopharma Inc (9926 HK) is looking to raise US$155m from its primary placement.
• Proceeds from the deal would be geared towards R&D expenditure for its preclinical programs, expediting clinical trials, and towards commercializing its existing approved products.
• Accounting for 3% of shares outstanding, and representing 5.7 days of its three month ADV, the deal would be a relatively small one for the firm to digest.

• Xtep International (1368 HK) announced in-line 2023 results, with net profit up 12% yoy and sales up 11% yoy.  2024 outlook was also satisfactory. 
• The company paid out 50% of its earnings in dividend, which amounted to a 5% dividend yield at current share price of HKD5.04.
• The company is currently trading at 10x 2024 PE (assuming a conservative 10% net profit growth in 2024).

• Both advertising revenue and commission revenue grew dramatically in 4Q23.
• Chinese consumers are seeking low price goods, after the economy went weak.
• PDD’s overseas brand, TEMU, is expanding rapidly in the U.S.

• Carote Ltd (CARO HK) is looking to raise around US$150m in its upcoming Hong Kong IPO. The bookrunners on the deal are BNP Paribas, and CMB International.
• Carote is a distributor of kitchenware products. Expanding its lineup of products, the firm aims to meet its customers’ varied kitchen scenarios and enhance their culinary experience.
• Initially engaged to provide original equipment manufacturing (OEM) overseas, the firm has since ventured into the online retail sector, introducing kitchenware products under its own brand name “CAROTE”.

• Another quick trade idea. A continuation of the China theme (see my last post for more info).  Lufax holdings (LU). Again courtesy of JohnTill on Stocktwits.
• A Chinese lending company, lending out directly and providing a peer to peer lending platform for the Chinese market.
• With Ping An being a ~41% shareholder.