ChinaDaily Briefs

China: Soho China Ltd, Shanghai HeartCare Medical Technology, Xiaomi Corp, HKEX, New China Life Insurance, Alibaba Group, Road King Infrastructure, Hangzhou Bioer Technology, Anton Oilfield and more

In today’s briefing:

  • SOHO China’s Offer Spread Risk/Reward
  • Shanghai HeartCare (心玮医疗) Pre-IPO: Thoughts on Valuation
  • Xiaomi Beats Apple to Become No. 2 in the Global Smartphone Market in 2Q2021
  • Hong Kong Exchanges & Clearing – Take It When You Can Get It
  • New China Life: The Company’s Latest Strategy Is Taking It Nowhere
  • Understanding Alibaba, Why It’s Better Than Amazon
  • ICBC, Redco, Road King Launch Bonds; Macro; Rating Changes; New Issues; Talking Heads; Top Gainer…
  • Pre-IPO Hangzhou Bioer Technology – Concerns Behind the Outstanding Performance
  • Morning Views Asia: Anton Oilfield, Evergrande Real Estate Group

SOHO China’s Offer Spread Risk/Reward

By Arun George

Soho China Ltd (410 HK) is a real estate company controlled by power couple Pan Shiyi and Zhang Xin. As a reminder on 16 June, SOHO China announced a pre-conditional voluntary conditional cash offer from Blackstone Group (BX US). The offer of HK$5.00 in cash per share is a 31.6% premium over the closing price of HK$3.80 per share on the last trading day (11 June prior to the trading halt). The offer is conditional on the offeror holding more than 50% of the voting rights. The offer will meet the 50+% acceptance threshold as the offeror has secured irrevocables from Pan Shiyi and Zhang Xin representing 54.93% of the outstanding shares.

In SOHO China: Blackstone Makes Its Offer, we stated that Blackstone has driven a hard bargain and secured the irrecovables from Pan Shiyi and Zhang Xin at a relatively good price. Notably, Blackstone’s offer price of HK$5.00 per share is 17% below last year’s rumoured privatisation price of HK$6.00 per share. The lower price likely explains Blackstone’s move to pursue a conditional voluntary offer rather than privatisation via a scheme. While not a knockout offer, we concluded that the offer will resonate with some shareholders. 

However, since the announcement of the offer, the spread has widened from 9% on the first trading day after the deal announcement to 21% at the last close price of HK$4.12. The high spread is due to concerns that the key pre-condition, which is approval by SAMR under the PRC anti-monopoly law, will not be forthcoming. Blackstone has made its submission to SAMR.  

We continue to think that the pre-condition will be satisfied as SOHO China will remain a listed entity, Pan Shiyi and Zhang Xin will continue to retain a meaningful holding, Blackstone has prior experience in closing Chinese real estate deals and SOHO China is a relatively small player in a fragmented commercial property market in China. Based on a deal break price of HK$2.45 per share, the deal probability has reached an all-time low of 65% at the last close price of HK$4.12. An 80% deal probability would imply a price of HK$4.50 per share and an 11% gross spread, which we view as reasonable.

Shanghai HeartCare (心玮医疗) Pre-IPO: Thoughts on Valuation

By Ke Yan, CFA, FRM

Shanghai HeartCare is a neuro-interventional medical device pioneer in China. It has four products approved for marketing and expects 9 products to commercialize in 2021, as well 10 products to commercialize between 2022 and 2025. 

In our previous note, we looked at the company’s two core products Captor and LAA Occluder. We think the Captor, a stent retrieving thrombectomy device, is the main selling point of the deal given its decent efficacy and safety data and it has already been approved by the NMPA. Market structure for Captor is characterized by the early stage of growth and dominance by MNC players and the company’s product is the first approved domestic product with commendable data from head-to-head clinical trials. The company’s management are mainly ex-employee from Microport Scientific, a leading international medical device player in China. 

In this note, we will provide our thoughts on valuation.

Xiaomi Beats Apple to Become No. 2 in the Global Smartphone Market in 2Q2021

By Shifara Samsudeen, ACMA, CGMA

According to market analysis firm Canalys, the Chinese smartphone maker Xiaomi Corp (1810 HK)  has beaten iPhone maker Apple Inc (AAPL US)  to become the second-largest smartphone maker in the world based on the shipment volume in the second quarter of 2021 (preliminary estimates). The global smartphone shipment volume increased by 12% in 2Q2021 with Samsung Electronics (005930 KS)  claiming the largest share of 19% followed by Xiaomi with a 17% market share.

In our previous insight on Xiaomi’s 1Q2021 earnings, we highlighted that Xiaomi narrowed the market share gap with iPhone maker apple with a market share of 14.1% vs 15.1% for Apple in 1Q2021.

Hong Kong Exchanges & Clearing – Take It When You Can Get It

By Thomas J. Monaco

*Exemption Could Add To IPO Pipeline: Mainland China is planning to exempt companies seeking to list on Hong Kong Exchanges & Clearing (388.HK) [HKEX] from first seeking approval from the Cyberspace Administration of China (CAC). The idea behind the exemption is mainland Chinese Hong Kong IPOs were already subject to higher scrutiny and approval from the China Securities Regulatory Commission (CSRC); and 

*Risks Are Increasing: In addition to an extended valuation when ADT has begun to turn and having a new CEO with no exchange experience, HKEX needs to contend with the government’s examination of a stamp duty increase and mainland China’s contemplation of a new stock exchange to attract overseas-listed firms (including Hong Kong) which will bolster Shanghai’s status as a global financial center. 

New China Life: The Company’s Latest Strategy Is Taking It Nowhere

By Alec Tseung

Our bearish view on New China Life Insurance (1336 HK) is due to the following reasons:

  1. The company’s latest strategy undid many good results under the previous strategy (insurance quality and margin improvement).
  2. Its new strategy focuses on wealth management and senior care (and healthcare), in which the company has no competitive advantage and faces keen competition from strong incumbents.
  3. There’s no reason to invest in a mediocre life insurer with a mediocre wealth management business in China.

Understanding Alibaba, Why It’s Better Than Amazon

By James Emanuel

  • Alibaba is entirely misunderstood by most investors. It is more an ecosystem than a company as I shall explain.
  • Combine Amazon including AWS, Ebay, Shopify, Netflix, Paypal, and JPMorgan into a single entity and then you have something similar to Alibaba.
  • Not only does Alibaba have a very wide moat and durable earnings, but due to geopolitics, the entire Chinese tech sector is currently on sale in the market.
  • Alibaba is a veritable bargain right now. Don’t take my word for it – Goldman Sachs, Deutsche Bank, Morningstar, and many others agree.
  • Allow me to guide you to a better understanding of this wonderful opportunity.

ICBC, Redco, Road King Launch Bonds; Macro; Rating Changes; New Issues; Talking Heads; Top Gainer…

By BondEvalue

US markets snapped a three week winning streak after the S&P and Nasdaq fell 0.8% each on Friday, ending the week 1% and 1.9% lower respectively after briefly touching records during the week. Upbeat earnings seemed to be overshadowed by weakness in consumer sentiment – the Michigan consumer sentiment index  came in lower than expectations at 80.8 for the first half of July vs. 85.5 last month. Consumers expect prices to increase 4.8% in the next year, the highest since August 2008. Energy, down 2.8%, led the losses followed by Financials, Consumer Discretionary and IT, down 1.3%, 0.8% and 0.6% respectively. US 10Y Treasury yields dipped 4bp to 1.28%, trending against forecasts. European indices also ended another day in the red with a surge in Delta variant cases even as the inflation cooled to 1.9% in June from 2% in May – the DAX, CAC and FTSE were down 0.6%, 0.5% and 0.1% respectively. US IG CDS spreads widened 0.7bp and HY widened 3.5bp. EU Main spreads widened 0.2bp and Crossover spreads widened 1bp. Brazil’s Bovespa was down 1.2%. In the Gulf, OPEC+ clinched a deal to phase out oil production cuts by September 2022. Saudi TASI was up 0.2% while Abu Dhabi’s ADX was broadly flat. Asian markets followed the cue from the US markets. HSI, Nikkei, Singapore’s STI and  Shanghai were down 2%, 1.5%, 1% and 0.7%. Asia ex-Japan CDS spreads were 0.7bp tighter.

Pre-IPO Hangzhou Bioer Technology – Concerns Behind the Outstanding Performance

By Xinyao (Criss) Wang

On June 11, Hangzhou Bioer Technology (BIOER HK) officially started the IPO process by submitting a prospectus to the HKEX. Bioer was founded in 2002 and has developed for 19 years, but its performance soared during the COVID-19 and ushered in great changes. Therefore, this may be the best time to launch an IPO for Bioer. However, aside from the outstanding financial performance brought by the pandemic, there are also some concerns and potential risks that worth the attention of investors.

Morning Views Asia: Anton Oilfield, Evergrande Real Estate Group

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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