ChinaDaily Briefs

China: Tencent, Broncus, Evergrande Real Estate Group, Pinduoduo, NetEase Inc, Sinotruk Hong Kong, China Construction Bank H, InnoCare Pharma Ltd, Guangzhou R&F Properties and more

In today’s briefing:

  • Tencent 410 as HSI Digs for a New Low
  • Broncus (堃博医疗) IPO: Long Term Faith Needed
  • Evergrande’s Dollar Bonds Jump 30% On Promise to Redeem WMPs at the Earliest
  • Pinduoduo (PDD): Made Profit After Giving up Direct Sales and User Accumulation
  • Epic Apple Esque Duel in China? or Nah?
  • Sinotruk (3808.HK): Sluggish Sector Demand Ahead
  • CCB: Familiar Results – Do You Follow the Dividend Yield or the PH Score™?
  • InnoCare Pharma Ltd (9969.HK) – Risk of Becoming Mediocre
  • Morning Views Asia: Geo Energy Resources, Guangzhou R&F Properties, Lippo Karawaci

Tencent 410 as HSI Digs for a New Low

By Thomas Schroeder

Tencent call to re test the 410-20 macro support in our August 25 insight. The ideal long set up faces regulatory headwinds but needs a washout low in the HSI and HK tech.

HSI short targets a potential triple low at 24,600 but a washout low to 24,000 is favored to set the stage for a short squeeze rise. If Tencent can hold 410 key support during this process, it sets the stage for a higher conviction long in Tencent (re test of the 410 buy support).

510 is near resistance and the short zone (500). Conviction rests with buying a macro support re test with policy headwinds into year end.

Below 400 opens the way lower to 330-20.

Broncus (堃博医疗) IPO: Long Term Faith Needed

By Ke Yan, CFA, FRM

Broncus Holding is a leading interventional pulmonology company in China and globally. The company launched book building to raise up to USD 215m via a Hong Kong listing.

In our previous note, we discussed that the company’s core product, InterVapor, is a minimally invasive surgery that uses heated water vapor to treat the chronic obstructive pulmonary disease (COPD). In addition to the COPD indication, the company plans to further develop the product for the treatment of lung cancer. Another core product, RF-II uses radio frequency to treat lung cancer. Besides InterVapor and RF-II, the company also has a commercialized lung navigation system which has a leading market share in China. However, we believe the market for the lung navigation system is still in the early stage of development in China and hence the small market size.  We think the company has a strong pre-IPO investor line-up with backing from the founder of VenusMedtech and its management team is experienced. We also provided our thoughts on valuation of Broncus.

In this note, we provide an update for the book building. We will run the deal through our ECM framework and provide an update on the deal.

Evergrande’s Dollar Bonds Jump 30% On Promise to Redeem WMPs at the Earliest

By BondEvalue

China Evergrande’s dollar bonds jumped ~30%, its largest rise since October 2020, after the company came out with a statement saying that they promise to redeem all wealth management products (WMPs) as soon as possible. Bloomberg also reports that some investors bet the government will prevent the developer’s liquidity crisis from ending in a worst-case scenario. At the Evergrande Wealth Conference on September 10, the Chairman, Hui Ka Yan said that at while the developer has encountered unprecedented difficulties, the fundamentals of Evergrande have not changed. He said that the strong combat effectiveness of the staff, the land bank with sufficient scale and reasonable layout, and the ability to build high-quality communities have not changed. He added, “I can have nothing, but the investors of Evergrande Wealth can’t have nothing!”As per Reuters ,  investigative agency REDD reported that Evergrande had outlined an interim repayment plan for retail investors on Thursday. The plan suggested it would repay matured WMPs of less than RMB 100,000 ($1,550), but those holding more than that will have their payments extended by two to four years and amortized, with the first payment to be made next year, while payments to institutional investors will be suspended to an undecided date.

Pinduoduo (PDD): Made Profit After Giving up Direct Sales and User Accumulation

By Ming Lu

  • PDD made profit for the first time after IPO.
  • PDD shrank its direct sales.
  • PDD stopped actively accumulating users.
  • We believe total revenue will grow by 45% in 2022.
  • We believe PDD’s operating margin will turn positive in 2022.
  • We also believe PDD’s stock price has a downside of 15%.

Epic Apple Esque Duel in China? or Nah?

By Jason Yap, CFA

The Epic Apple duel has recently concluded its first inning. The latest US ruling disrupts Apple’s stranglehold over the App Store and consequently its cut of developer revenues but fell short of confirming that Apple operated as an illegal monopoly.  An Epic appeal is underway.  While a certain segment of the US population gushed with anger over Apple’s 30% cut of revenue charged to developers, elsewhere in China the situation is starkly different.

China app developers typically aim to secure all available distribution channels at all costs, which means simultaneous pre-launch conversations with multiple app store vendors.  The most popular apps often gain the most traction through push adverts on these app stores, or so the developers rationalise to themselves as they fork up to 50% commission fees to app stores and mobile carriers. By this measure, Apple seems almost benevolent!  But, why?

This article explores the App Store dynamic in China, which is dominated by Android smartphone manufacturers, and discusses whether an Epic Apple esque duel might unravel in China. 

Sinotruk (3808.HK): Sluggish Sector Demand Ahead

By Victoria Li

China’s HDT (heavy duty truck) sales accelerated declining in the past two months. The reasons behind include largely brought forward demand in earlier months of this year, weak demand from commodity transportation, infrastructures and property, etc. We believe HDT demand would remain weak in 2021-2022E until the market fully digest the over-purchased trucks.

Although Sinotruk kept gaining market share YTD, its monthly sales growth turned negative in July due to poor market demand. We estimate Sinostruk’s market share gain could not offset the decline of sector demand. Its earnings would turn weak in 2H2021. 

Sinotruk’s share performance was nearly halved from this year’s peak. Currently it trades at 5.4x P/E 2021E on Bloomberg consensus. However, if Sinotruk’s earnings down 50% yoy in 2022E in bear case, current share price might still have some downside potential.

CCB: Familiar Results – Do You Follow the Dividend Yield or the PH Score™?

By Paul Hollingworth

PH Score™   8.9

According to our model PH Score™CCB seems headed in the right direction.  The valuation variable within the model helps the Score but other variables are benign. Adding technical factors and the low valuation, CCB ranks in the top quartile globally of our VFM (Valuation, Fundamentals, Momentum) universe. As with ICBC, the PH Score™ has not been as elevated as this for years. In contrast to say Turkey, where scores can be high, the System does not seem to be grappling with solvency challenges.

Elsewhere in China, recent bank results show mixed or subpar fundamental momentum and trends. This is not the case though with the SOEs or Globally Systemic entities, in particular CCB or at ICBC though we recognise NCOs are high and LLPs are arguably too low. It would be strange if this most systemic of banks did not reflect trends elsewhere. And it is with Asset Quality that the bank shows stress with aforementioned NCOs and continuing bad asset migration.

Elsewhere, on a LTM basis, the bank’s PH Score™ of 8.9 reflects progression in Profitability, in Efficiency, in Capital Adequacy, in Provisioning as well as the positive valuation variable though NIM/Spread compressed, Asset Quality deteriorated somewhat, and Liquidity eroded. Having said that, the LDR is at a “sweet spot” level. Profitability though may be flattered by low Asset Writedowns.

A FV of 5% and a PBV of 0.51x are not unattractive. These are below thresholds of 10% and 1x, respectively. An Earnings Yield of 23.4% and a Dividend Yield of 6.7% underpin the valuation thesis.  

Results continue to unsurprise and have a very familiar look. Disclosure is sufficient for such a globally systemic entity. For those who want to lend money to China, the Dividend Yield alone may provide sufficient compensation for systemic risks. As with ICBC, the picture seems to be solid though FX needs to be hedged. But high Dividend Yields (and these are very high) do not normally equate to higher stock price appreciation. They equate to higher risk: we see this in Asset Quality data. A high PH Score™ though can equate to stock price appreciation. That’s the dilemma. Maybe they just neutralise each other.

InnoCare Pharma Ltd (9969.HK) – Risk of Becoming Mediocre

By Xinyao (Criss) Wang

Recently, InnoCare Pharma Ltd (9969 HK) released 2021/1H financial results. The revenue was RMB102 million, up 13490.51% YoY, which was mainly due to the sales growth of orelabrutinib. Net loss was narrowed from RMB337 in 2020/1H to RMB213 million in 2021/1H, indicating improvement. Meanwhile, InnoCare is also going to be listed on the SSE STAR market, which is expected to be another biopharmaceutical company with “A+H” shares listing. This insight mainly analyzed the core product, pipeline and the concerns of the Company.

Morning Views Asia: Geo Energy Resources, Guangzhou R&F Properties, Lippo Karawaci

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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