ChinaDaily Briefs

China: Allied Properties (H.K.),, Lufax Holdings, MINISO Group Holdings, Hang Lung, Douyu International Holdings, Nexteer Automotive, China Tourism Group Duty Free Corp Ltd and more

In today’s briefing:

  • Allied Properties (56 HK): Amateur Hour
  • China Internet Weekly (12Oct2020): Tourist Number Recovered to 80% of Last National Day Holidays
  • China’s ‘Golden Week’: Headline Tourism Numbers Hardly Shine
  • Lufax IPO Initiation: Lost in Transition
  • MINISO Valuation: Valued Like MINISO Merchandise – Bang for the Buck
  • Hang Lung Underdog to Challenge Trend Breakout Barrier
  • Lufax Pre-IPO – The Positives – Able to Grow Despite the Headwinds
  • Huya and DouYu’s Merger Is Game On
  • Nexteer (1316): China Recovery to Help
  • CTG Duty Free Corp (601888 CH): 3Q20 Profit to Grow 141.9% YoY

Allied Properties (56 HK): Amateur Hour

By David Blennerhassett

After the sanctioning of Allied Properties (H.K.) (56 HK)‘s (APH) Scheme (Allied Prop (56 HK): Scheme Done. AGL Next?) was thrice delayed by the High Court and further updates from the company shed no light on the issues faced, what was inconceivably feared became apparent last Friday night when the Court declined to sanction the Scheme.

This afternoon, the High Court judgment appeared on the Hong Kong Judiciary website. 

It is ultimately a frustrating read, one in which some of the Offeror’s (Allied (373 HK)) preparatory work was sloppy or poorly prepared.

But the great double-take in this ruling is a large portion of the judgment devoted to the headcount test at the Scheme vote.

APH is incorporated in Hong Kong. S674(c) of the Hong Kong Ordinance says “subject to subsection 2(a)…”.  Subsection 2(a) replaced the headcount rule with the 10%-of-float veto. The headcount test was abolished in 2012 after a decision was reached on a Companies Bill.

It is not clear why Allied’s counsel did not raise this abolishment; but instead, butchered an attempt to show a majority in number had occurred, and as a result of this off-piste analysis, negatively influenced the court on sanctioning the Scheme.

I expect Allied to appeal. I do not expect shares to resume trading during an appeal. 

Unfortunately for shareholders who approved the Scheme, payment under the offer appears some way off.

China Internet Weekly (12Oct2020): Tourist Number Recovered to 80% of Last National Day Holidays

By Ming Lu

  • Tourist number in National Day holidays recovered to 80% of last year.
  • Food delivery orders increased significantly in scenic spots during National Day holidays.
  • Pinduoduo (PDD) is not in the list of e-commerce law drafters.
  • Chinese game developers earned 29% of global game revenue on App Store and Google Player.
  • iQiyi (IQ) denied a short-seller accusation.

China’s ‘Golden Week’: Headline Tourism Numbers Hardly Shine

By Daniel Hellberg

Chinese media reports Chinese tourism activity during the long Golden Week + National Day holiday period declined by about 21% YoY to 637 mn person-visits. Spending on tourism during the period reportedly fell by 28% YoY to 466 bn RMB. 

Some observers are suggesting these numbers show a strong continued recovery in tourism demand since activity collapsed in Q1 this year due to the Covid19 pandemic.

But we disagree.

In our view, the headline 2020 Golden Week+ numbers we have seen so far are not as strong as we would have expected, given a number of factors that actually should have flattered this year’s overall activity and spending numbers. 

A closer analysis of the numbers actually suggests tepid tourism demand, in our opinion, and we do not believe the recovery has gained momentum in October.  

Lufax IPO Initiation: Lost in Transition

By Arun George

Lufax Holdings (LU US) is a leading personal financial services platform in China with a focus on retail borrowing and wealth management. In retail credit, Lufax is the second-largest non-traditional financial service providers in China as measured by outstanding balances of retail credit facilitated, according to Oliver Wyman. Lufax has filed for an NYSE IPO to raise an estimated $3 billion, according to press reports. 

The Chinese consumer finance sector has gone through a corona-induced extreme stress test in 1H20. The sector has proved to be more often than not value destructive for public market investors and continues to remain hostage to regulatory change. While Lufax has several attractive attributes, it is a business in transition which magnifies the risk profile.  

MINISO Valuation: Valued Like MINISO Merchandise – Bang for the Buck

By Oshadhi Kumarasiri

MINISO Group Holdings (MNSO US) is the leading variety retailer of lifestyle products globally with an aggregate GMV of RMB 19.0 billion (US$2.7 billion) and revenue of RMB 9.0 billion (US$1.3 billion).

Last week, the company filed an updated prospectus with the SEC announcing the price range for the NYSE IPO. The price range was set at $16.50-$18.50 per ADS, which translates to $4.125-$4.625 per share.

MINISO plans to raise $502m-$562m via issuing 16.5m new ADS (122m-140m new shares). An overallotment option, if exercised, could increase the IPO by $75m-$84m (4.6m new ADS).

Previously, we discussed MINISO’s business model and financials in MINISO IPO: Long Term Growth Prospects Secured By a Sustainable Competitive Advantage and MINISO IPO: As Appealing As MINISO Products.

This insight will focus on valuation and assess if it is worthwhile subscribing to the IPO.

Hang Lung Underdog to Challenge Trend Breakout Barrier

By Thomas Schroeder

Hang Lung (10 HK) has been retaking ground in recent weeks with a more serious pressure test on intermediate resistance a 20.20 in the cards, representing the bull/bear line in the sand. Good risk to reward buy support comes in near 18 with a conviction stop point.

20.20 represents trendline and price resistance, if cleared would open the way higher to upside targets.

The biggest negative is the lack of buy volumes, which must pick up to increases odds of clearing trendline and price resistance.

Macro pivots lies at 20.20 and 22 with 17 pivot support.

Lufax Pre-IPO – The Positives – Able to Grow Despite the Headwinds

By Sumeet Singh

Lufax Holdings (LU US) (Lufax) aims to raise around US$3bn via its US listing. The company is backed by Ping An Insurance (H) (2318 HK) (Ping An).

Lufax is a technology-empowered personal financial services platform in China. The company aims to address the demand for personal lending among small business owners, as well as salaried workers in China. It also provides wealth management solutions to China’s middle class and affluent population.

Despite having to change its funding model and loan mix over the past few years, the company has still managed to grow its loan book and revenue. 

In this insight, I’ll talk about the positive aspects of the deal.

Huya and DouYu’s Merger Is Game On

By Arun George

HUYA Inc (HUYA US) and Douyu International Holdings (DOYU US) have entered into a merger agreement to create a Chinese game live streaming giant. The proposed share exchange ratio is 0.73 Huya ADS for each DouYu ADS. Based on Friday’s close prices, the share exchange ratio values DouYu at $18.83 per ADS, a 35% premium to the Friday close price. On completion, the shareholders of Huya and DouYu will each hold 50% shares of the combined company on a fully diluted basis, respectively. Tencent Holdings (700 HK)‘s voting power in the combined company will be 67.5% on a fully-diluted basis.

With Tencent owning more than two-thirds of the votes in Huya, the approval of the merger largely comes down to securing the backing of DouYu shareholders. As DouYu is incorporated in the Cayman Islands, for the merger to succeed, DouYu shareholders representing two-thirds of shares present and voting need to approve the deal. Tencent collectively has the support of 54.6% of DouYu’s voting rights. In our previous note, we outlined that the merger makes a lot of sense due to potential revenue and cost synergies. In combination with an attractive share exchange ratio, we expect DouYu’s shareholders to support the merger. The merger is expected to close during the first half of 2021.

Nexteer (1316): China Recovery to Help

By Henry Soediarko

With the ongoing COVID-19 cases in the US, its auto sector is unlikely to recover this year that is a drag to Nexteer Automotive (1316 HK) ‘s earnings but it has recently penetrated the Chinese auto market, supplying to Geely Auto (175 HK) for Electric Power Steering component, that could help to increase the company’s overall profitability. From a credit perspective, Nexteer’s debt-to-equity ratio is also very low compared to the Japanese small-cap peers such as Futaba and KYB and even compared to its two largest customers, General Motors Co (GM US) and Ford Motor Co (F US) at 202% and 390% debt to equity ratio respectively. 

Nexteer is trading at a 30-37% discount to its peers and compared to the Chinese auto suppliers such as Minth, Fuyao and Huayu, Nexteer is also trading at a 55% discount in EV/EBITDA, 33% discount in PER, and 61% in PBR. 

As the Chinese auto sector recovers earlier compared to the US, the company’s earnings should start to recover and its profitability should also increase, therefore, its share price should increase correspondingly. BUY. 

CTG Duty Free Corp (601888 CH): 3Q20 Profit to Grow 141.9% YoY

By Osbert Tang, CFA

China Tourism Group Duty Free Corp Ltd (601888 CH) made an announcement on the express report of 9M20 result after market close of 12 Oct, suggesting a growth of 141.9% YoY in attributable recurring profit to Rmb2.23bn in 3Q20. We see this result at the high-end of the market expectation, and believe there is room for full-year earnings upgrade by the street. 

Primarily driven by the favourable duty free policy in Hainan starting 1 Jul, its 3Q20 revenue was up 40.8% YoY and operating margin also expanded to 19.2% (vs. 13% in 3Q19). There is still room for margin expansion as driven by the encouraging sales during the “double festival” Golden Week this year, in our view. 

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