Daily Briefs

On Friday, Hang Seng Indices announced the changes to the benchmark Hang Seng Index, the index in the family with the largest AUM.
Li Auto (2015 HK) and WuXi AppTec (2359 HK) are added. There are no deletions.
I see 3.4% a side to trade and across the three major indices there are larger net flows, but few compelling ones given possible pre-positioning.

Origin Energy (ORG AU): State of Play

By Arun George

The Origin Energy (ORG AU) scheme vote is on 23 November. Brookfield/EIG’s best and final offer is A$6.59 and US$1.86 per share, currently worth A$9.45.
With AusSuper reportedly increasing its stake past 17% on Friday, the scheme vote remains too close to call. Brookfield/EIG will need a large YES vote turnout for a successful vote.
If the scheme is voted down, there are mainly three Plan Bs – Brookfield/EIG’s alternate transaction structure, Board-initiated strategic review or maintaining the status quo.

Hang Seng Tech Dec23 Index Review/Flows – No Name Changes, Some Big Capping Flows

The Dec 23 review results for the Hang Seng Tech Index were announced on Friday 17 November after the close.
There were no ADDs to or DELETEs from the index, in something of a surprise.
The “big flow” on HS TECH is the downweight on Xiaomi Corp (1810 HK) due to sharp capping after significant outperformance since the August review.

HSCEI Index Rebalance: Zhongsheng (881 HK) Uses Up Another Life

For a second review running, Zhongsheng Group (881 HK) has avoided being deleted from the Hang Seng China Enterprises Index (HSCEI INDEX).
That means China Unicom Hong Kong (762 HK) misses out on index inclusion, but there is still hope for the next one.
There does not appear to be any significant positioning on either stock and any large moves early in the coming week could be short lived.

A/H Premium Tracker (To 17 Nov): H up Vs A Despite SOUTHBOUND Net Selling; High Div SOEs Normalising

The New and Better (16 weeks old) A-H Monitor has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
Hs with H/A pairs outperform their As on average with higher-liquidity Hs outperforming more. High Premium As not seeing shrinking premia on average.
SOUTHBOUND and NORTHBOUND were net sells overall. It looked like the combination of NORTHBOUND and SOUTHBOUND put on a long H short A in the non-bank financial sector.

HSCEI Dec23 Index Review/Flows – NO ADDs, No DELETEs; ~2.5% One Way

The HSCEI Review for December 2023 was announced on Friday 17 November.
There were no ADDs and no DELETEs, which was a bit of a surprise.
There is about 2.8% one-way to trade. Alibaba (ADR) (BABA US) is a sell across all three major indices.

Merger Arb Mondays (20 Nov) – Eoflow, Origin, OreCorp, Azure, Hollysys, Toyo, Amara, Haitong Intl

By Arun George

We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads – Eoflow (294090 KS), 111 Inc (YI US), Irc Ltd (1029 HK), Hollysys Automation Technologies (HOLI US), Origin Energy (ORG AU), JSR Corp (4185 JP), Healius (HLS AU).
Lowest spreads – Azure Minerals (AZS AU), Pact Group Holdings (PGH AU), Tietto Minerals Ltd (TIE AU), T&K Toka Co Ltd (4636 JP), IJTT Co., Ltd. (7315 JP).

HSCI Index Rebalance: Keep (3650 HK) & TUHU Car (9690 HK) Added

Keep Inc (3650 HK) and Tuhu Car (9690 HK) will be added to the Hang Seng Composite Index (HSCI) after the close of trading on 1 December.
Keep (3650 HK) will be added to Southbound Stock Connect from the open on 4 December while Tuhu Car (9690 HK) will only be added to Stock Connect in April.
There are lock-up expiries on both stocks, prior to or after inclusion in Stock Connect, and trading strategies will need to take that into account.

HK Connect SOUTHBOUND (To 17 Nov 23); High-Div SOEs Pause, Tech + ETFs Break 16wk Inflow Streak

This is the somewhat brand-spanking-new Quiddity HK Connect SOUTHBOUND Monitor. We work off the same presentation as the A/H Premium Monitor and Mainland Connect NORTHBOUND Monitor.
SOUTHBOUND flows the last several weeks clearly indicated a momentum move. The top net sells were all down. The top buys were all up. This week that trend moderated significantly.
SOUTHBOUND breaks a 17-week inflow streak with HK$2.1bn of net outflows entirely driven, it appears, by relatively few accounts punting large size in local (HK-listed) ETFs

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Nov 20

Daily Brief Equity Bottom-Up: ZTO Express Q3: Margins Plunge Vs Q2 | Abandons Pursuit of Share Gains | Is There a New Strategy? and more

By Smartkarma Daily Briefs | Daily Briefs, Equity Bottom-Up

In today’s briefing:

ZTO Express Q3: Margins Plunge Vs Q2 | Abandons Pursuit of Share Gains | Is There a New Strategy?
OpenAI Boardroom Battle: Safety First
Sa Sa Intl (178 HK): Many Bright Spots in 1HFY24 Result
Keepers Holdings Concall Highlights: Soft Q3 2023, Build Up to Seasonally High Q4

ZTO Express Q3: Margins Plunge Vs Q2 | Abandons Pursuit of Share Gains | Is There a New Strategy?

By Daniel Hellberg

Non-Core items boosted Q3 earnings, but core margins plunged vs Q2
In a surprise move, ZTO has abandoned its aggressive pursuit of share
Medium term growth is likely to slow, and pressure on margins remains

OpenAI Boardroom Battle: Safety First

By Douglas O’Laughlin

OpenAI was founded in 2015 by investors, including Elon Musk, Reid Hoffman, Peter Thiel, AWS, and YC Research.
The goal was to pursue Artificial General Intelligence (AGI) safely for the benefit of humanity.
There was an initial pledge of $1 billion, but the money that came in was $100 million from Elon Musk and $30 million from Open Philanthropy.

Sa Sa Intl (178 HK): Many Bright Spots in 1HFY24 Result

By Osbert Tang, CFA

Besides turnaround in the bottom line, Sa Sa International (178 HK) achieved good store efficiency improvement and enviable cost control. It will enjoy further operating leverage.
The 5.3pp sequential increase in sales contribution from tourists highlights its position to benefit from revival of tourist arrivals. Three to-be-opened stores will boost sales momentum.
Initial sales figures for 3QFY24 point to 27% overall sales growth, which is encouraging. Sa Sa stays in a very solid financial position with HK$196m of net cash.

Keepers Holdings Concall Highlights: Soft Q3 2023, Build Up to Seasonally High Q4

By Sameer Taneja

The Keepers Holdings (KEEPR PM) reported a soft Q3 2023 with revenue up 6.7% YoY and profits 4.5% YoY (ex-one offs of 38 mn pesos profits up 11% YoY).
The company guided a good build-up into Q4 2023 as the festive season showed signs of a good pick-up.
Trading at 8.2x/7x FY23e/24e with a 5.4%/6.3% dividend yield, we like the name, although there are a few short-term risks on working capital that the company needs to address.

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Nov 20

Daily Brief Macro: Steno Signals #74 – Did King USD Just Break? and more

By Smartkarma Daily Briefs | Daily Briefs, Macro

In today’s briefing:

Steno Signals #74 – Did King USD Just Break?
Fed’s Policy Rate Benchmark Under Scrutiny: Goodbye to the Federal Funds Rate?
How Far Can This Rally Run?
Assessing Economic Risk Through the Biden-Xi Meeting Lens

Steno Signals #74 – Did King USD Just Break?

By Andreas Steno

The sharp move in USDJPY and other USD pairs towards the end of last week has caught our attention and it arrives on the back of Powell letting go of the steering wheel on USD real rates.
The weekly credit data from the US economy keeps weakening and we are en route for a credit contraction in the US during Q1/Q2 next year.
Powell is probably right to let go of the tightness in USD real rates, but the question is whether he could be tempted to take back control in December in a final policy error?

Fed’s Policy Rate Benchmark Under Scrutiny: Goodbye to the Federal Funds Rate?

By Said Desaque

The poor results from the US Treasury’s latest 30-year bond auction highlights limited private investor appetite. Pressure on the Treasury to persist with high levels of short-term borrowing has increased.
Aggressive quantitative easing and interest on reserves have significantly lowered trading in the federal funds market by US banks, while Federal Home Loan Banks currently dominate lending.
The Fed’s policy rate could shift to the Secured Overnight Funding Rate. Functionality could be impacted by shifting perceptions about the collateral quality of Treasury securities due to high borrowing.

How Far Can This Rally Run?

By Cam Hui

The U.S. equity rally off the bottom in late October is characterized by strong price momentum and shows a high degree of upside potential.
Point and figure charting signifies measured objectives indicating percentage gains in the high teens or low 20s.
We also offer a series of sell signal triggers that indicate possible inflection points in risk/reward potential.

Assessing Economic Risk Through the Biden-Xi Meeting Lens

By Cam Hui

The Biden-Xi meeting in San Francisco exposed the growth risks and vulnerabilities of each country’s economy.
The recent bond market rally and falling oil prices could be a signal of a growth slump.
A review of the U.S. and Chinese economies shows that slowdown risks are low. Consequently, investors should embrace the recent risk-on tone in the markets.

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Nov 19

Daily Brief Thailand: Bangkok Dusit Medical Services and more

By Smartkarma Daily Briefs | Daily Briefs, Thailand

In today’s briefing:

Bangkok Dusit Medical Services (BDMS TB): Highest Ever Quarterly Sales in 3Q; 2023 Guidance Raised

Bangkok Dusit Medical Services (BDMS TB): Highest Ever Quarterly Sales in 3Q; 2023 Guidance Raised

By Tina Banerjee

Bangkok Dusit Medical Services (BDMS TB) reported Q3 revenue of RHB26.7 billion, up 11% YoY, driven by international and Thai patients revenue growth of 19% and 9%, YoY, respectively.
International patient revenues increased from a recovery of fly-in patients from Qatar (+81% YoY), China (+42% YoY), and Cambodia (+11% YoY). Moreover, Thai patient revenue was aided by seasonal epidemics.
BDMS has revised 2023 hospital revenue growth guidance upward to 9–10% YoY from 6–8% previously. However, EBITDA margin guidance was kept unchanged at ~24%.

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Nov 19

Daily Brief South Korea: SK Square and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

SK Square: Two Remaining Credible Options for 11 Street

SK Square: Two Remaining Credible Options for 11 Street

By Douglas Kim

We discuss the two remaining options for 11 Street post the cancellation of its sale to Qoo10 Pte.
As these strategic sale of 11 Street to Qoo10 Pte. has failed, the possibility of a forced sale of 11 Street by the financial investors has increased.
The higher probability event is for the Nile Holdings consortium to try to sell 11 Street to other financial investors.

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Nov 19

Daily Brief United States: S&P 500 INDEX and more

By Smartkarma Daily Briefs | Daily Briefs, United States

In today’s briefing:

EQD | Here Is Why the S&P500 MONTHLY Rally Could Continue in December

EQD | Here Is Why the S&P500 MONTHLY Rally Could Continue in December

By Nico Rosti

The S&P 500 INDEX will probably continue to rally in December (as long as the November rally does not reach extreme OVERBOUGHT conditions.
The OVERBOUGHT condition begins at around 4600, so the index is NOT overbought (yet).
The index will probably pullback soon for 1 or 2 weeks and then you can buy to ride the continuation of the rally into December (classic Christmas Rally).

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Nov 19

Daily Brief China: Alibaba (ADR), Tencent, JD.com Inc (ADR), WuXi AppTec, HKEX, XPeng , JD Health International , Intco Medical Technology Lt, Tencent Music, Atour Lifestyle Holdings and more

By Smartkarma Daily Briefs | China, Daily Briefs

In today’s briefing:

[Alibaba (BABA US, SELL, TP US$72) Rating Change]: The Casualty of Era…Downgrade to SELL
[Tencent(700 HK, BUY, TP HK$432)Target Price Change]: More Sustained Growth Doesn’t Mean Slow Growth
[Blue Lotus Multi-Platform Sector Update]: Key JD Categories Will Grow Again in 2024
Hang Seng Index Rebalance: Li Auto (2015) & WuXi AppTec (2359) Added
Index Rebalance & ETF Flow Recap: FRTIB, Japan, CSI300, CSI500, STAR50, WuXi XDC, Asahi
[XPeng Inc. (XPEV US, SELL, TP US$9) Rating Change]: Strategic Options May Come Late and Uncertain
[JD Health (6618 HK, BUY, TP HK$52) TP Change]: A COVID Hiccup but Environment Is Turning Positive
China Healthcare Weekly (Nov.17) – 2023 NRDL Negotiation, Financing Data Won’t Lie, Intco Medical
[Tencent Music (TME US, BUY, TP US$9.7) Rating Change]: Unique Content Unlocked Paying Potential
[Atour Lifestyle (ATAT US, BUY, TP US$37.5) Target Price Change]: Brand Value Brings Premium Sales

[Alibaba (BABA US, SELL, TP US$72) Rating Change]: The Casualty of Era…Downgrade to SELL

BABA reported C3Q23 revenue, non-GAAP operating profit and GAAP net income in-line, 6% and (7%) vs. our est., and in-line, in-line and (14%);
Instead of appointing capable management to oversee key subsidiaries, BABA backpedalled to call off its spin-off plans;
We cut TP from US$ 127 to US$ 72, and downgrade to SELL.

[Tencent(700 HK, BUY, TP HK$432)Target Price Change]: More Sustained Growth Doesn’t Mean Slow Growth

Tencent reported C3Q23 revenue, non-IFRS operating profit and IFRS net income (2.4%), 8.9% and 17% versus our estimates. The bottom-line beat was mainly due to the growth of high-margin businesses;
We view commercialization of Video Accounts and expansion of overseas gaming are still at early stage.
Progression of these high-margin, high-quality business will persist into 2024; We maintain BUY but raise target price to HK$ 432.

[Blue Lotus Multi-Platform Sector Update]: Key JD Categories Will Grow Again in 2024

JD.com reported in-line revenue and a non-GAAP net profit beat of 12% vs. consensus, mainly due to the 145% beat by subsidiary JD Logistics (JDL).
3Q GMV grew low-single digit and growth could remain similar in 4Q given the high-COVID related FMCG base. JDs GMV may reaccelerate in 2024 as smartphone and FMCG growth returns.
Meanwhile, JD lowered the minimum spend required for free shipping, which we expect to lead to accelerate parcel volume growth for JD Logistic.

Hang Seng Index Rebalance: Li Auto (2015) & WuXi AppTec (2359) Added

Li Auto (2015 HK) and WuXi AppTec (2359 HK) will be added to the Hang Seng at the close on 1 December taking the number of index constituents to 82.
Neither inclusion is a surprise. The non-inclusion of primary listed foreign companies is a bigger surprise – that could take place at the next rebalance.
Estimated one-way turnover is 3.53%, estimated one-way trade is HK$6.88bn (US$882m). Capping leads to buying in Alibaba (9988 HK) and selling in Tencent (700 HK) and HSBC (5 HK).

Index Rebalance & ETF Flow Recap: FRTIB, Japan, CSI300, CSI500, STAR50, WuXi XDC, Asahi

The FRTIB benchmark switch from the EAFE Index to the ACWI IMI ex-USA ex-China ex-Hong Kong Index will result in a round trip trade of around US$56bn.
The changes for the CSI 300, CSI 500, STAR50, SSE50 and a bunch of other mainland China indices will be announced after market close on Friday.
Relatively quiet week for ETF flows with no major creations or redemptions during the week.

[XPeng Inc. (XPEV US, SELL, TP US$9) Rating Change]: Strategic Options May Come Late and Uncertain

By Eric Wen

XPeng C3Q23 top line, non-GAAP operating loss and GAAP net loss in line, 28% and 68% worse than our estimates, main reason is G3’s End-Of-Production charge to the gross margin
We expect XPEV to experience tough transition in 2024 since product line which spans across sedan and SUV, shall experience severe competition at a time when its differentiation is eroding.
We prefer to wait out this period; we cut TP of XPEV from US$18 to US$9 and downgrade to SELL.

[JD Health (6618 HK, BUY, TP HK$52) TP Change]: A COVID Hiccup but Environment Is Turning Positive

By Eric Wen

JDH reported C3Q23 top line and non-IFRS operating profit that are 39% and 34% of our C2H23 estimates. We cut C2H23 top line, non-IFRS operating profit and IFRS net income.
We keep 2024 top line unchanged but cut non-IFRS operating profit by 31% as we believe JDH might need to invest to explore new growth opportunities;
We cut TP from US$65 to US$52 but maintain BUY.

China Healthcare Weekly (Nov.17) – 2023 NRDL Negotiation, Financing Data Won’t Lie, Intco Medical

By Xinyao (Criss) Wang

The 2023 NRDL negotiation has officially begun since Friday. Pharmaceutical enterprises predict the price reduction would be more reasonable. But some company representatives were dissatisfactory with first-day negotiation results.
Although there’re many optimistic judgments about the improved financing environment in both China and overseas markets, this may not be the case. Based on the data, we remain cautious instead.
As the disposable glove market gradually shows a warming trend, we are optimistic that Intco Medical would achieve a performance reversal in the future. The current valuation has bottomed out.

[Tencent Music (TME US, BUY, TP US$9.7) Rating Change]: Unique Content Unlocked Paying Potential