ChinaDaily Briefs

China: HKBN Ltd, Tencent, Xiaomi Corp, ADICON Holdings Limited, Avic Shenyang Aircraft and more

In today’s briefing:

  • HKBN (1310 HK): KKR & PAG’s Pipe Dreams
  • Tencent Short Poses Risk of 320 Break
  • HKBN in the Crosshairs of KKR and PAG
  • Xiaomi (1810 HK): 1Q22, Revenue Down Due to Weak Smartphone Market, 26% Downside
  • Shanghai/Shenzhen Southbound Connect: Weekly Moves (20 May 2022)
  • Pre-IPO ADICON Holdings Limited – Uncertain Growth and Outlook in Post-COVID Era
  • AVIC Shenyang (600760 CH): Defense Is Defensive
  • Morning Views Asia: Xiaomi Corp

HKBN (1310 HK): KKR & PAG’s Pipe Dreams

By David Blennerhassett

  • According to Bloomberg, KKR and PAG are considering bids for Hong Kong broadband play HKBN Ltd (1310 HK).
  • Private equity firms, possibly including Stonepeak, are understood to be conducting due diligence on HKBN, which has a current market cap of ~US$1.6bn. 
  • Increased broadband usage became a Covid trend. That looks set to continue. This is a steady business, with an attractive yield. 

Tencent Short Poses Risk of 320 Break

By Thomas Schroeder

  • Tencent bear/short call from 395 remains valid with risk we pierce the 310-320 support. Bear triangulation stands out as the key bear driver.
  • Flat/Triangulation in price and the RSI rising wedge is a set up for a major new chart low.
  • This wave 4 triangle will be followed by a hard wave 5 decline into a terminal low this summer.

HKBN in the Crosshairs of KKR and PAG

By Arun George

  • Bloomberg reportedKKR & Co Inc (KKR US) and PAG are carrying out due diligence on HKBN Ltd (1310 HK), with a view to launching a privatisation bid.
  • HKBN has a relatively concentrated shareholder register which suggests a requirement for a high takeover premium.
  • Precedent transactions suggest a privatisation forward EV/EBITDA multiple of at least 10x, implying a minimum offer price of HK$11.80 per share, a 23% premium to the last close. 

Xiaomi (1810 HK): 1Q22, Revenue Down Due to Weak Smartphone Market, 26% Downside

By Ming Lu

  • In 1Q22, Xiaomi’s revenue decreased by 5% YoY in 1Q22 and the main business, smartphone, decreased by 11% YoY.
  • Both global and domestic markets shrank and the competitor “Honor” came back.
  • We conclude a downside of 26% and price target of HK$8.10.

Shanghai/Shenzhen Southbound Connect: Weekly Moves (20 May 2022)

By David Blennerhassett

  • Inside is a recap of movements in the last week relating to the Shanghai and Shenzhen-Hong Kong Stock Connect facilities, broken down by company and industry. 
  • Overall, the total value increased US$12.5bn in the past week, with Shanghai accounting for US$5.7bn and Shenzhen US$6.8bn. Tencent (700 HK) is the dominant holding across both programs
  • Glory Sun Financial Group Limited (1282 HK) saw the biggest upward movement as the chairman sold to pay off debt. China South City (1668 HK) was reduced by both programs. 

Pre-IPO ADICON Holdings Limited – Uncertain Growth and Outlook in Post-COVID Era

By Xinyao (Criss) Wang

  • The revenue generated from COVID-19 business would not be sustainable in the long term. The lower price of COVID-19 tests, DRGs, centralized procurement and fierce competition would drag down margins.
  • ADICON hasn’t established enough advantage and moat to secure its leading position and could be overtaken by competitors.The weak R&D makes ADICON difficult to gain an edge in esoteric tests.
  • Considering the fierce competition, lower margins, the decline of COVID-19 business revenue, and poor liquidity and IPO market sentiment in HKEX, the PE could be below 10.

AVIC Shenyang (600760 CH): Defense Is Defensive

By Osbert Tang, CFA

  • As a major player in China’s defense sector with established franchise in combat aircraft, Avic Shenyang Aircraft (600760 CH) will enjoy earnings stability, reflecting positively on its defensiveness.
  • We believe it will benefit from China’s efforts to narrow military gap against the US and the increase in military spending due to rising geopolitical tension globally. 
  • AVIC Shenyang is less affected by pandemic lockdowns and has showed good capability to improve profitability, which are reflected in the solid 61% growth in 1Q22 recurring profit.

Morning Views Asia: Xiaomi Corp

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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