China: Tencent, Alibaba Group, JD Health, Gushengtang, Agile Property Holdings, Sea Ltd and more

• Today Prosus announced that it will begin an open-ended share repurchase programme of Prosus and Naspers shares which will be funded by on-market sale of Tencent shares.
• Prosus also announced that it has sold its entire shareholding in JD.com, to raise US$3.67bn, on-market in Jun 2022.
• In this note, we talk about the implication and timing of today’s announcements.

• New Medical Product Rule banned online direct sales of medical products.
• Koolearn’s stock price plunged after surging, as Tencent reduced its shareholdings.
• Alibaba dismissed employees in Freshippo and JD.com downsized its community group purchase.

• China has released a draft rule on 22nd June that would prevent third-party e-commerce platforms from selling drugs directly to consumers online.
• Alibaba Health as well as JD Health’s shares dropped 15% at the end of trade on 22nd June while Ping An Health’s shares lost about 5.7% of its value.
• This is the First of a series of reports where we analyse the impact of the above draft rule on leading digital-healthcare players in China. This report discusses JD Health.

• Prosus (PRX NA)/ Naspers (NPN SJ) hold 28.78% of Tencent (700 HK) and will be selling Tencent stock to fund their own buyback due to the large discount to NAV.
• At 3-5% of Tencent (700 HK)‘s ADV, the selling will last from 9-15 years, though could take much longer (or not complete) if Prosus/Naspers’ discount to NAV shrinks considerably.
• Passive trackers will buy only around 12-14% of the incremental stock and this will lead to a big overhang on Tencent (700 HK) in the near future.

• Through perfect partnership system, Gushengtang locks in the scarce TCM physicians, and then quickly establishes/merges offline medical institutions to occupy the market. Such development mode works well so far.
• The challenges are the risks of losing talents to competitors and the weak sales of healthcare products leading to lower profitability. 
• Gushengtang is in an industry that receives government encouragement/preferential policies. The 2022 revenue growth forecast could fall back to about 25% considering the pandemic/lockdown. The EPS could narrowly turn positive.

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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• Tencent sold US$3bn worth of SEA shares in Jan 22. The rest of its stake was locked up for six months.
• The initial stake sale by Tencent didn’t go down too well and the stock is now trading over 63% below the deal price.
• In this note, we will talk about the lock-up dynamics and recent updates.