ChinaDaily Briefs

China: CNOOC Ltd, Datang International, Times Neighborhood, Yidu Tech Inc, Pinduoduo, ByteDance, New Horizon Health, ZTO Express, Powerlong Real Estate Holdings and more

In today’s briefing:

  • CNOOC – MSCI and FTSE Deletion Looming Along with NYSE Delisting
  • Quiddity Weekly H/A:  Nat’l Team Buys MSCI Deletions, Cyclicals Jump; Avg Trade +0.90%, 55+ Recos
  • Times Neighborhood: Beneficiary of Policy
  • ECM Weekly (10 January 2021) – RLX Technology, Roiserv, Yidu Tech, and Placements
  • China Internet Weekly (11Jan2021): PDD Employee Died at Frozen Deep Night, US Banned 8 Chinese Apps.
  • Aequitas 2021 Asia IPO Pipeline – More Mega IPOs to Come
  • New Horizon Health IPO Initiation: Screening for Cancer
  • How Chinese Authorities Measure the Development of the Express Sector, & Why It Matters to Investors
  • Morning Views Asia: Bayan Resources, China Fortune Land, Pan Brothers

CNOOC – MSCI and FTSE Deletion Looming Along with NYSE Delisting

By Brian Freitas

Post the US market close on Friday, OFAC updated the Non-SDN Communist Chinese Military Companies List to specifically name China Mobile (941 HK)/ China Mobile Ltd Spon Adr (CHL US), China Telecom Corp Ltd (H) (728 HK)/ China Telecom Corp Ltd (Adr) (CHA US) and China Unicom Hong Kong (762 HK)/ China Unicom Hong Kong (Adr) (CHU US). More importantly, CNOOC Ltd (ADR) (CEO US)/ CNOOC Ltd (883 HK) / CNU CA was also added to the list.

OFAC also issued a General License that authorizes transactions in entities whose name closely matches the name of a Communist Chinese military company identified in the Annex to Executive Order 13959 but that has not been listed on the OFAC’s Non-SDN Communist Chinese Military Companies List, through 9.30am EST on January 28, 2021.

FTSE and MSCI made announcements that they were reviewing the latest OFAC update and would issue further updates in the event of changes to their indices. In FTSE’s case, the announcement will be made in the coming week.

The timing of the CNOOC Ltd (883 HK) deletion is uncertain at the moment. The stock was not included in the Annex to EO 13959 and the latest date it can be deleted is the close of trading on 8 March, though we expect the deletion to happen sooner than that. Impact is pretty big through pre-positions are already being built up on the stock.

The stock is trading cheaper than its peers, both domestic and international. While there could be further downside in the near term due to active and passive selling, there could be upside once the deletion from the MSCI and FTSE indices is out of the way.


Quiddity Weekly H/A:  Nat’l Team Buys MSCI Deletions, Cyclicals Jump; Avg Trade +0.90%, 55+ Recos

By Travis Lundy

This week saw a gentle rebound in Quiddity H/A Share Recommendations (mixed long/short the spreads).

  • Spread momentum was no longer the big factor. The big factors this week were the New Year leading to a) big jumps in spivvy sectors, and b) large selldowns in MSCI deletions of Trump China Military Names and the last-minute deletions of the three China telcos.
  • The National Team / Southbound AGAIN bought the Trump EO names, this week in magnificent size as the MSCI deletions took effect. SMIC (981 HK) and the three names in Industrials (1800 HK, 1766 HK, and 1186 HK) all saw very significant net southbound buying. 
  • Every H-share in a liquid H/A pair in the Energy, Materials, and Utilities space were up. 
  • In addition, the H-shares in Health & InfoTech were up strongly too. 
  • Spreads narrowed in all sectors except Consumer, which saw its average pulled negative due to a wider spread in its least liquid pair. Generically, spreads were tighter everywhere.
  • All four utilities spreads were tighter as all four H utilities gained. It was a party. The discounts in the internationally investable portion (i.e. non-Trump name utilities) are still greater than 50% and could tighten.
  • The fact that the Trump EO China Military names saw huge net buying by southbound, and rebounds in price after the selldown, and the three telcos saw big net buying on Friday before the ADRs pointed up on the last day tells people that there is an effort underway to make the selldowns a success for non-US Person investors. 
  • The flows Friday were telling.

Last week there were 58 delta-neutral spread recommendations which gained 0.90% on average. 

We have 55+ spread recommendations for next week.

The H-Share/A-Share Spread Monitor and Recommendation List is published every weekend for the data ending the last trading day of the previous week. It includes all H-Share/A-Share pairs where the H-Share has a 90-day average daily value-traded of US$1.0mm or more. It shows basic data per H/A spread stock by sector, with H/A Discount, movement in H/A Discount over 5 and 20 days, a 52-week Z-score for the spread, charts with evolution of the H/A spread over the last 20 days, Southbound shares held (mm and %), Net Change in Southbound (Shanghai/Shenzhen combined) shares held (mm), and contribution of Net Southbound Volume to HK-traded volume over the past five days and 20 days, and a chart showing the average sector spread and the individual spreads within each sector over the last three years. 

Trump Executive Order Names

A recent addition is the possible status of H/A-share companies in the monitor which are subject to the Trump Executive Order on Securities Investments that Finance Chinese Military Companies. They are separated into three types (Possible Direct Qualifying Entity, Possible Indirect Qualifying Entity, and 20+%-owned by Qualifying Entity). They are color-coded as below (note that CGN has since moved to co.

For more on the list of Trump names, please see the following insights:

The H/A Spread Market

This past week saw mixed movement in H/A spreads but on average 98 spreads were +0.75% narrower over one week and an average of 1.75% tighter over the past four weeks. Two thirds narrowed on the week. Just under three-quarters have narrowed over the past four.

Consumer Sector

The first sector discussed is Consumer, where liquid H/A spreads widened on average 0.43% this past week. and are now 2.18% wider over four weeks. 

Price movement in the first week of the year was dramatic. BYD (1211 HK) rose 18% in the Hs and similar in the As. Great Wall Motor (2333 HK) and Tsingtao Brewery Co Ltd H (168 HK) were up 11% and 10% respectively in the Hs but only moved just over 1% in the H/A spread. 

BYD and Great Wall Motor are at the narrow end of their 52-week range, but GWM is still reasonably wide and there is a FTSE index event upcoming.

Southbound accounts were decent net sellers on the week, buying Tsingtao Brewery Co Ltd H (168 HK) and Fuyao Glass Industry Group (3606 HK) to 22-23% of volume and net selling Guangzhou Automobile Group (2238 HK) despite it being the auto name to fall in the sector Hs whereas the others rose. 

Last week, I recommended staying long the Great Wall Motor (2333 HK) and Guangzhou Automobile Group (2238 HK) H vs A , and short BYD (1211 HK) H vs A.

Those three trades lost an average of 0.33% on the week with 2 of 3 in negative territory.

For this week’s recommendations on Consumer, and discussion of the Energy, Financials & Real Estate, Health Care, Tech, Industrials, Materials, and Utilities sectors, and all trade recommendations, please read on.


Times Neighborhood: Beneficiary of Policy

By Sameer Taneja

Times Neighborhood (9928 HK) is a direct beneficiary of the favorable policies published by The Ministry of Housing and Urban-Rural Development (MOHURD). In his insight, China Property Management Services – Green-Light to Grow, Zhen Zhou Toh detailed the policies that will benefit the property management service companies.

Times Neighborhood (9928 HK) has corrected 40% from its peak of 13.30 HKD/share and has underperformed the MSCI index since September 2020, despite executing well and raising guidance that its earnings will grow 73% CAGR from 2019-2022e. ( Vs. previous guidance of 69%).  Based on its guidance, the stock trades at 16x FY21 and 11x FY22 ( and PEG of 0.2x).

Source: Bloomberg, Share price in HKD

With tailwinds on policy, we see an easy path for the company to recover to its highs of 13.30 HKD/share. 


ECM Weekly (10 January 2021) – RLX Technology, Roiserv, Yidu Tech, and Placements

By Zhen Zhou, Toh

Aequitas Research puts out a weekly update on the deals that have been covered by the team recently along with updates for upcoming IPOs.

To kickstart the new year, we shared Aequitas 2020 IPOs and Placements results. 2020 marked our second full year of operations as an Independent Research Company, and our fifth year covering Equity Capital Markets (ECM). Even though ECM started off on a precarious note, it ended with very strong momentum. 

Hong Kong ECM kicked off the year on a strong note with Yidu Tech Inc (2158 HK) closing its bookbuild a day earlier than stipulated. The deal was launched on the last day of 2020. Roiserv Lifestyle Services (2146 HK), the property management arm of Risesun Real Estate Devel A (002146 CH), also launched its bookbuild on the same day. 

There are a few IPOs looking to launch their IPOs soon such as Beijing Kuaishou Technology Co Ltd (1496219D CH)MicroPort CardioFlow (1844972D HK), and New Horizon Health (NHH HK). There is also another wave of secondary listings. We heard that Baidu (BIDU US), Autohome Inc (Adr) (ATHM US), and Bilibili Inc (BILI US) will likely come to market soon.

Other than IPOs, Hong Kong companies/shareholders were eager to sell to lock in some cash. Shareholders of Wuxi Biologics (2269 HK) was back on the market, ahead of lock-up to sell again whereas Haidilao (6862 HK)‘s cofounders, Shi Yonghong and Li Haiyan, sold about 1.4% stake in the company and locked in US$600m in cash on Friday. 

There was also a big block in Korea, sold by the ten shareholders of Doosan Fuel Cell Co Ltd (336260 KS) who had earlier failed to sell their entire shareholding last year. Hence, this was likely an expected selldown.

In the US, despite the uncertainty surrounding China ADRs as evidenced from the deletion of the three Chinese telcos from MSCI and FTSE, RLX Technology Inc (RLX US) is looking to raise about US$1bn from its IPO. The company was said to be premarketing its IPO.

In Thailand, market will likely see more deals coming their way after Kerry Express Thailand (KEX TB) strong debut towards the end of 2020. We are hearing that PTT Oil and Retail (PTTOR TB) will likely launch its bookbuild early next week.

Accuracy Rate:

Our overall accuracy rate is 73.5% for IPOs and 66.9% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings this week

  • Chaoju Eye Care (Hong Kong, ~US$200m)
  • Linklogic Inc. (Hong Kong, >US$100m)
  • Toplist (Hong Kong, re-filed)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

News on Upcoming IPOs

Analysis on Upcoming IPOs

Name Insight
Hong Kong
ByteDance

ByteDance (字节跳动) IPO: How Jinri Toutiao Paves The Way for a Bigger Empire (Part 1)

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

ByteDance

ByteDance (字节跳动) Pre-IPO: How Has It Done in 1H? 

ByteDance

ByteDance: The Unlisted Company’s Video Apps Leading the Market and Threatening Internet Giants 

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) Pre-IPO – Globally the Most Downloaded App for Jan 2020 Driven by India 

ByteDance

ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges 

Dida

Dida Pre-IPO – Making Hay While Big Brother Retreats 

E-Star Comm

E-Star Commercial Management Pre-IPO – Better Disclosure in New Prospectus 

E-Star Comm

E-Star Commercial Management Pre-IPO – Still Largely Reliant on Galaxy, Poor Disclosure Doesn’t Help 

Kilcoy

Kilcoy Global Foods Pre-IPO – Rapid Earnings Growth on the Back of Margin Improvement 

Kilcoy

Kilcoy Global Foods Pre-IPO – A Lot of Things Still Remain Unexplained 

Kuaishou

Kuaishou Technology Pre-IPO – The Positives – Hot Segment, Fast Growth 

Kuaishou

Kuaishou Technology Pre-IPO – The Negatives – Ample Doubts Remain 

Megvii Megvii (旷视) Pre-IPO – Remarkable Growth (Part 1) 
Megvii Megvii (旷视) Pre-IPO – A Bet on the Future – Segments, Revenue Drivers and Growth Potential 
Megvii Megvii (旷视) Pre-IPO – The Real Race Is in Research – Founders’ Profile and Talent 
Megvii Megvii (旷视) Pre-IPO – Competitive Landscape and Peer Analysis 
Megvii Megvii (旷视) Pre-IPO –  Initial Thoughts on Valuation 
Ocumension Ocumension (欧康维视) Pre-IPO: All Ready for a Great Listing Except a Block Buster 
RemeGen RemeGen (荣昌生物) Pre-IPO: Thoughts on Valuation of RC18 and RC48 
Toplist Toplist China Pre-IPO – Overwhelmingly More Negatives than Positives 
Tasly Tasly Biopharm (天士力生物) IPO: Visible Growth from Approved Drug but Lacks Blockbusters 
WeDoctor WeDoctor (微医) Pre-IPO -App Walk Through – The Online Medical Directory and More 
WeDoctor WeDoctor (微医) Pre-IPO – A More Focused Online Medical Svc Provider than Ping An Good Doctor 
India
ASK ASK Investment Managers Pre-IPO – Riding on a Wave of Wealth 
Anmol Ind Anmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotel

Bharat Hotels Pre-IPO – Catching up with Peers 

Brookfields REIT

Brookfields India Real Estate Trust Pre-IPO – The Positives- Provides Different Geographic Exposure 

Brookfields REIT

Brookfields India Real Estate Trust Pre-IPO- The Negatives- Asset Details Leave Questions Unanswered 

Bajaj En

Bajaj Energy Pre-IPO – Supposed to Deliver Steady Performance if Only Its Sole Client Would Let It 

CMS Info CMS Info Systems Pre-IPO – When a PE Sells to Another PE… Only One Gets the Timing Right
Crystal Crop Crystal Crop Protection Pre-IPO – DRHP Raises More Questions than in Answers
ESAF SFB ESAF Small Finance Bank Pre-IPO – Growing Fast but Remains Highly Dependant on a Related Party 
Flemingo  Flemingo Travel Retail Pre-IPO – Its a Different Business in Every Country
Emami Cem Emami Cement Pre-IPO – Still in Ramp Up Phase but Shares Pledge Might Lead to an Early IPO 
IRFC Indian Railway Finance Pre-IPO – Low Risk, Low Margin Business 
NSE NSE IPO Preview- Not Only Fast..its Risky and Expensive
NSE National Stock Exchange Pre-IPO Review – Bigger, Better, Stronger but a Little Too Fast for Some
Mrs. Bector Mrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Sta

LIC

Life Insurance Corporation of India Pre-IPO – Early Take on India’s Largest IPO 

Lodha

Lodha Developers Pre-IPO – Second Time Lucky but Not Really that Much Affordable
Lodha Lodha Developers IPO: Presence in Affordable Segment Saves Lodha the Blushes in a Sluggish Mkt
Penna Cem Penna Cement – Aggressive Expansion Plans Even Though Past Performance Has Been Tepid 
PNB Met PNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Samhi Hotels Samhi Hotels Pre-IPO – Assets and Borrowings Are Growing, but Earnings Haven’t Kept Pace 
Malaysia
QSR QSR Brands Pre-IPO – As Healthy as Fast Food
Thailand
PTTOR PTT Oil and Retail IPO – F&B Business Is the Profit Driver 
The U.S
CDP CDP Holdings Pre-IPO Review – Highly Reliant on Best Inc. 
CloudMinds CloudMinds Inc Early Thoughts – Still Nascent

China Internet Weekly (11Jan2021): PDD Employee Died at Frozen Deep Night, US Banned 8 Chinese Apps.

By Ming Lu

  • Pinduoduo (PDD)’s employee died a sudden death on the way home at a frozen deep night.
  • Donald Trump banned transactions with 8 Chinese apps.
  • Chinese developers’ global income increased by 45% yoy, higher than 28% yoy of the global market size.

Aequitas 2021 Asia IPO Pipeline – More Mega IPOs to Come

By Zhen Zhou, Toh

In this note, we aim to highlight the Asia Pacific IPO pipeline for 2021. This list has been compiled on a best effort basis from tracking the company filings and through various media and other sources.

For readers who are not familiar with our coverage, we aim to cover all IPOs and placements with a minimum deal size of US$100m across Asia-Pacific (ex-Korea and A-shares), including China ADRs. Hence, our pipeline will only include companies that fit these criterion.

Feel free to drop us a message for additional information (bookrunners and coverage) on these IPOs


New Horizon Health IPO Initiation: Screening for Cancer

By Arun George

New Horizon Health (NHH HK) is a leading player in China’s colorectal cancer screening market. It has two self-developed cancer screening tests – Pupu Tube and ColoClear. It will have a listing hearing for a $300 million Hong Kong IPO this week, according to press reports.

New Horizon is a play on the rapid growth of the cancer screening market in China, particularly the colorectal cancer screening market. Colorectal cancer is one of the deadliest cancer types in China, both by incidence and mortality rates. The colorectal cancer screening market in China is expected to grow significantly to be worth RMB19.8 billion in 2030 (18.7% CAGR between 2019 to 2030) due to the availability of more effective screening solutions and increased awareness of cancer screening, according to Frost & Sullivan. We believe that New Horizon has the right ingredients to capitalise on this market opportunity. 


How Chinese Authorities Measure the Development of the Express Sector, & Why It Matters to Investors

By Daniel Hellberg

In this note, we explain how authorities in China measure the development of the country’s express parcel delivery industry using the China Express Development Index, or CEDI. 

We believe CEDI is worth watching. Its December 2020 performance suggests sector growth is moderating, and that express companies must continue to invest aggressively to lift service levels. 

CEDI’s recent trends support our investment thesis for the sector, which is that pressure to consolidate is rising here in 2021. We believe BEST Inc (BEST US) may become an attractive acquisition target over the next 12 months; we rate its shares Buy. 


Morning Views Asia: Bayan Resources, China Fortune Land, Pan Brothers

By Charles Macgregor

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.


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