ChinaDaily Briefs

China: Alibaba Group, Pinduoduo, JD Health, KE Holdings Inc, Tencent Holdings, Beijing Jingneng Clean Energy, Brilliance China Automotive and more

In today’s briefing:

  • Alibaba (9988 HK): FTSE and MSCI Switch from BABA Coming
  • Pinduoduo Placement – Should Do Well If, It Corrects Beforehand
  • JD Health: Framing the Valuation Discussion
  • Pinduoduo Placement: A Bigger War Chest
  • KE Holdings/​​​​​Beike Placement – Too Much, Too Soon. Front Running the Lock-Up Expiry
  • Tencent: Listed Associates Continue to Outperform
  • Tencent Holdings – After The AGM
  • Beijing Jingneng Clean Energy’s Voluntary Conditional Offer
  • Brilliance China (1114.HK): Restructuring Could Provide a New Start
  • JD Health IPO: PHIP Data Re-Affirms Our Positive View on the Company

Alibaba (9988 HK): FTSE and MSCI Switch from BABA Coming

By Brian Freitas

After the inclusion of Alibaba’s Hong Kong listing Alibaba Group (9988 HK) in the Hong Kong Hang Seng Index (HSI INDEX), Hang Seng China Enterprises Index (HSCEI INDEX) and FTSE China 50 indices, the big listing switch from Alibaba Group (BABA US) to Alibaba Group (9988 HK) in the FTSE and MSCI indices could be less than 6 months away.

We see Alibaba Group (9988 HK) passing all requirements for the FTSE GEIS and the change from Alibaba Group (BABA US) should happen at the March 2021 semi-annual review. We are still in the review period for the MSCI, but based on current numbers there is a very high probability of Alibaba Group (9988 HK) passing the requirements for a switch from Alibaba Group (BABA US) to the HK listing at the May 2021 SAIR.

The gradual switch from the US ADRs to HK shares took a big jump couple of weeks back with 5% of the US shares being converted to HK shares. This process will continue over the next 6 months and result in a liquidity shift towards Hong Kong that could result in Alibaba Group (9988 HK) being classified as dual-primary listed in April 2022.

Alibaba Group (9988 HK) has been trading at a premium to Alibaba Group (BABA US) and the increased number of shares listed in HK along with increased liquidity could result in the premium contracting over the next few months.

Pinduoduo Placement – Should Do Well If, It Corrects Beforehand

By Sumeet Singh

Pinduoduo (PDD US) plans to raise around US$5bn via a mix of issuing shares and convertible bonds.

The stock has been a one-way street since listing and has risen by 27% since it announced its 3Q20 results on 12th Nov 2020. 

In this insight, we will run the deal through our ECM framework and talk about valuations. 

JD Health: Framing the Valuation Discussion

By Kemp Dolliver, CFA

This Insight discusses the assumptions required to justify JD Health’s reportedly target valuation of US$20 billion. Our analysis indicates that the online pharmacy business could be worth US$10 billion assuming some degree of margin improvement. Further, the online healthcare services business will have to penetrate roughly 2% of healthcare services spending to justify the balance (US$10 billion) valuation, which we think is achievable.  

Pinduoduo Placement: A Bigger War Chest

By Arun George

Pinduoduo (PDD US) is seeking to raise as much as $4.85 billion through an issue of shares and convertible note. Pinduoduo will offer $1,750 million five-year notes, which is callable and puttable from December 2023. Concurrently with the notes offering, Pinduoduo is also offering 22 million ADSs which is worth around $3.1 billion at the last close price of $142.03 per ADS. The funds will be invested in agricultural logistics infrastructure and responsive manufacturing to capitalise on the online migration of retail, in particular consumers desire to buy fresh grocery more conveniently and frequently. Pinduoduo’s newest business, Duo Duo Maicai, a next-day self pick-up grocery service, is a natural extension of its e-commerce model to agriculture.

Pinduoduo is a rare beast – a China new economy company which lives up to the hype. The financial performance is heading in the right direction with the 3Q20 results showing a re-acceleration in revenue growth and narrowing losses. The balance sheet is strong with cash of RMB45,575 ($7.0 billion) and net cash (including lease liabilities and convertibles) of RMB36,723 ($5.6 billion) as of 3Q20. A successful offering will further add to Pinduoduo’s war chest to take on Alibaba Group (BABA US) and Inc (ADR) (JD US)

We remain bullish on Pinduoduo’s prospects and believe that potential new antitrust rules curbing market dominance in China will benefit relatively smaller challengers like Pinduoduo. Our DCF-based price target is $165 per ADS, implying a 16% upside to the last close. Overall, we would participate in the placement.

Tencent: Listed Associates Continue to Outperform

By Wium Malan, CFA

Tencent Holdings (700 HK) listed associates have continued their exceptional share price performance over the past 6 months, led by Meituan (3690 HK), Pinduoduo (PDD US)  and (HK) (9618 HK). I estimate that Tencent’s associates currently contribute c.23% to its market cap, which would imply that their consolidated operations are currently trading at only 23.1x rolling 12-month forward earnings.

Please also refer to Tencent: A Closer Look at Investees Reveals a Discount Rating and Future Value Unlock Potential for more detail on this analysis.

Tencent Holdings – After The AGM

By Thomas J. Monaco

*More Transformation To Come: What a magnificent amazing six months this has been for Tencent Holding’s (700.HK) [Tencent] Afterpay Touch (APT.AU) [Afterpay]. Afterpay provided positive commentary at its Annual General Meeting (AGM) where the next six months look to be even more transformational with operations beginning in the European Union, launches of banking products, and potentially the launch of the business in Asia (likely under the tutelage of Tencent); and

*More Magic Fairy Dust: Tencent continues to hit it out of the park with its Afterpay stake. In addition to a superb return on investment of 394% over the past five plus months since the stake announcement, this alliance with Australia’s premier financial technology Buy Now Pay Later (BNPL) company is paying dividends to Tencent in numerous other ways.

Beijing Jingneng Clean Energy’s Voluntary Conditional Offer

By Arun George

Beijing Jingneng Clean Energy (579 HK)/BJCE is the largest gas-fired heat and power supplier in Beijing and the leading wind power operator in China. After market close, BJCE announced a conditional voluntary cash general offer from Beijing Energy Holding, the controlling shareholder. Beijing Energy Holding will offer HK$2.70 in cash for each H-share, a premium of 11.57% to the last close price of HK$2.42 per H-share and a premium of 70.89% to the unaffected price of HK$1.58 per H-share (6 July prior to the announcement of a possible privatisation bid). This potential privatisation joins a list of recent SOE privatisations of clean energy companies – Huadian Fuxin Energy Corp (816 HK),  Huaneng Renewables Corp H (958 HK) and CP Clean Energy.

The key condition precedent will be approval by at least 75% disinterested H-shareholders (<10% of all disinterested H-shareholders rejection) and minimum acceptance of at least 90% of H-shares held by disinterested H-shareholders. Due to an attractive offer price, we think that offer will garner enough acceptances to become unconditional.  

Brilliance China (1114.HK): Restructuring Could Provide a New Start

By Victoria Li

For the last two days there has been news that a bankruptcy petition with reference to Brilliance Group (which is now the listed co’s “grandparent” company), was submitted by its supplier, because Brilliance Group failed to service its corporate bonds.

Irrespective of the acceptance or rejection of this petition, short term pain on the listed Co (and consequent pressure on its share performance) is unavoidable – due to uncertainty on the management team and business strategy of the listed Co. 

However, we believe Brilliance Group is planning to initiate a corporate restructuring. It furnished its most valuable asset, the shares of Brilliance China (1114.HK) as loan guaranty. This means the group might want to use it as a key attractive asset for potential strategic investors. 

Weakness on share performance would be a good investment opportunity on Brilliance China (1114.HK)

JD Health IPO: PHIP Data Re-Affirms Our Positive View on the Company

By Shifara Samsudeen, ACMA, CGMA

JD Health (JDH HK) , the largest online healthcare platform and retail pharmacy in China has filed for an IPO to list its shares on the Hong Kong Stock Exchange.

In our previous two insights on the JD Health, we examined the company’s business model, financials and also compared the company’s financials against its rivals Ping An Healthcare Technology and Alibaba Health Information Technology. Find below an extract from our previous insight on the company’s IPO:

Having analysed the company’s business model and its financials, we remain positive on the company’s future growth prospects. The online retail pharmaceutical and healthcare market is undergoing structural changes in China where the market is increasingly shifting towards digitisation. The Covid-19 outbreak has further accelerated this transition towards online channels, and we believe the company’s business is sustainable beyond Covid-19. JD Health launched its telehealth platform in December 2017, and we expect the telehealth business to drive part of the company’s future growth as people have become increasingly reluctant to visit hospitals and out-patient clinics with the outburst of the pandemic.

JD Health released its post-hearing information pack (PHIP) on Sunday (15th November) and this insight focuses on the company’s new data points from the PHIP.

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