ChinaDaily Briefs

China: Tencent Holdings, Alibaba Group, Xiaomi Corp, Trip.com, Postal Savings Bank of China, China Conch Venture Holdings, Intco Medical Technology Co., Ltd-A and more

In today’s briefing:

  • Tencent Placement – Another Reluctant but Well-Flagged Sell Down, Lifting the US$14.5bn Overhang
  • Tencent Placement – Limited Passive Flow; HSI, HSCEI Trackers to Sell in June
  • China ADRs Quick Update – SEC, Archegos, Blocks – Showing Signs of Life
  • Xiaomi (1810 HK): No Longer Concerned About High Prices of New Smartphones, A Store Visit
  • ADR/HKEX Analysis: Lower Trading Volumes on HKEX Show Limited Liquidity Compared to the US
  • Trip.com Secondary Listing: HK-ADS Premium/​​(Discount) Views
  • StubWorld: Naspers/Tencent – And Another Three Years
  • Postal Savings Bank of China – Growing Into Recovery
  • Conch Venture (586 HK): Still Very Well Placed
  • Intco Medical IPO Initiation: Riding the Cycle

Tencent Placement – Another Reluctant but Well-Flagged Sell Down, Lifting the US$14.5bn Overhang

By Sumeet Singh

Prosus NV (PROSY US) aims to raise around US$14.5bn via selling a 2% stake in Tencent Holdings (700 HK).

The deal comes nearly three years, and right after the lock-up expiry, from the previous placement when on 22nd March 2018, Naspers (NPN SJ) reluctantly sold US$10bn worth of Tencent Holdings (700 HK) shares.  We have covered the previous placement in our earlier note, Tencent Placement – Huge Deal in Size, Small in Relative Terms – Succumbing to the HoldCo Discount.

We have been covering the lock-up expiry since Feb 2021 in:

In this note, we will talk about the deal dynamics.


Tencent Placement – Limited Passive Flow; HSI, HSCEI Trackers to Sell in June

By Brian Freitas

Last evening, Prosus (PRX NA) announced that it would sell up to 191.89m shares in Tencent Holdings (700 HK), raising up to US$14.6bn. This would bring its stake down to 28.9% and Prosus (PRX NA) has committed not to sell any more Tencent Holdings (700 HK) shares for at least the next three years.

Tencent Holdings (ADR) (TCEHY US) dropped 7.54% overnight, Naspers (NPN SJ) fell 5.03% and Prosus (PRX NA) lost 4.61%.

Apart from buying from FTSE passive trackers, we do not see any other passive inflows for Tencent Holdings (700 HK) in the near term. The MSCI increase in free float could only happen at the May 2022 SAIR, while any increase in the free float in the Hong Kong Hang Seng Index (HSI INDEX), Hang Seng China Enterprises Index (HSCEI INDEX) and Hang Seng Tech Index (HSTECH INDEX) will be offset by a lower capping factor.

The stock faces many headwinds: unwanted attention from SAMR, an increased number of floating shares, little passive buying flow to alleviate the impact of a larger float, and a reduction in the capped index weight in the HSI and HSCEI indices from 10% to 8%. The stock could remain under pressure in the near future.


China ADRs Quick Update – SEC, Archegos, Blocks – Showing Signs of Life

By Sumeet Singh

On 29th Mar 2021, we spoke about the Archegos driven correction in some of the China ADRs,  China ADRs- Blocks, Liquidation, Buyback – Implications. That in turn had followed close on the heels of the SEC driven correction for the sector, which we looked at in China ADRs – SEC Notice – Instead of Three, Probably Have Four Years till 2025 – Correction Overdone.

In this note, we’ll talk about the updates since our previous note.


Xiaomi (1810 HK): No Longer Concerned About High Prices of New Smartphones, A Store Visit

By Ming Lu

  • Most Xiaomi new smartphones are priced high.
  • At a Xiaomi store, we found customers were very interested in the highly-priced products.
  • The risk is the competition from Apple, Oppo, and Vivo.

Our previous coverage on Xiaomi:

Xiaomi (1810 HK): Market Was Wrong After 4Q20 Result, Upgrade to Buy 

Xiaomi (1810 HK): Terminate Contracts with Small Authorized Stores 

Xiaomi (1810 HK): Taking Advantage of Huawei’s Sale of Smartphone Brand, But Overvalued 


ADR/HKEX Analysis: Lower Trading Volumes on HKEX Show Limited Liquidity Compared to the US

By Shifara Samsudeen, ACMA, CGMA

Hong Kong Stock Exchange has become the beneficiary of tightening listing requirements and accounting rules for foreign companies by the US regulatory authorities. Chinese companies that are listed in the US are forced to comply with US accounting standards and as a result, a large number of US-listed Chinese companies have sought secondary listings on the Hong Kong Stock Exchange over the last two years.

Autohome, Baidu and Bilibili conducted secondary listings earlier this year and several other companies including Trip.com (TCOM US) , Tencent Music (TME US) and Vipshop Holdings (VIPS US)  are said to be in the process of securing secondary listings in Hong Kong due to the fear of being delisted from the US Exchange.

As these companies rush for secondary listings in Hong Kong, in a series of reports, we analyse 10 of the secondary listings on the Hong Kong Stock Exchange over the last 2-years. These 10 companies include Autohome Inc (Adr) (ATHM US) , GDS Holdings (ADR) (GDS US) , Zai Lab Ltd (ZLAB US) , Baozun Inc. (BZUN US) , ZTO Express (ZTO US) , Huazhu Group (HTHT US) , JD.com Inc (ADR) (JD US) , NetEase Inc (NTES US) , Alibaba Group (BABA US) and BeiGene (BGNE US) .


Trip.com Secondary Listing: HK-ADS Premium/​​(Discount) Views

By Arun George

Trip.com (TCOM US) has launched a $1.4 billion secondary listing in Hong Kong by offering 31.6 million ordinary shares. Bookbuilding is scheduled to run until the pricing on 13 April. The net proceeds will be used to fund the expansion of its travel offerings, improve user experience and invest in technology. 

In Trip.com Secondary Listing: No Heads in the Clouds, we outlined our views on Trip.com’s fundamentals and valuation. Trip.com is a play on the expected reopening and recovery of travel in 2021 due to the global rollout of vaccines. In combination with the potential valuation upside to the last close price (based on SoTP), we concluded that the equity story is attractive. 

In this note, we will look at Trip.com’s potential HK-ADS premium/(discount). As per the norm, Trip.com will price its H-shares at a discount to its ADSs to entice investors to participate in the secondary listing. However, market conditions remain volatile and Chinese tech names are losing their shine due to the US delisting threat and the trend of investors rotating out of tech stocks. The NASDAQ Golden Dragon China Index is down -18% since March 2021. Trip.com shares are up 15% YTD but down -2% since March 2021.  

Due to the weakening market sentiment on Chinese tech names, Trip.com will likely price its H-shares at a wider discount than the median of past secondary listings. Trip.com pricing its H-shares at a discount of 3-4% to its ADSs will be reasonable, in our view.


StubWorld: Naspers/Tencent – And Another Three Years

By David Blennerhassett

A double dose of StubWorld this week…

As expected, Prosus (PRX NA) launched another Tencent Holdings (700 HK) offer. It is the same 2.0% as previously, but at a price 50% higher. Prosus has also committed not to sell any further Tencent shares for at least the next three years. 

Preceding my comments on Naspers/Prosus/Tencent are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.


Postal Savings Bank of China – Growing Into Recovery

By Daniel Tabbush

If one presumes the backdrop is improving, than de-risking would not be the best path during FY20. This large China bank not only shows some of the most robust credit growth, but also robust growth in loan loss reserves. 


Conch Venture (586 HK): Still Very Well Placed

By Osbert Tang, CFA

We take the FY21 guidances for China Conch Venture Holdings (586 HK) positively and believe they are more important than the FY20 result. In fact, despite a slowdown from 40-50% YoY growth in the previous two years, Conch Venture’s 24.6% growth in its core environmental business in FY20 is still a very decent show under a COVID-19 impacted situation.

Conch Venture is expecting 76% growth in solid waste treatment volume and a 65% growth in municipal waste treated in its waste incineration business in FY21, on the back of capacity completion. We believe such volume growth should easily support over 80% surge in core environment profit in this year. Its solid project pipeline will further ensure growth beyond FY21. Adding low gearing and undemanding valuation multiples, Conch Venture is well placed in China’s environment sector. 


Intco Medical IPO Initiation: Riding the Cycle

By Arun George

Intco Medical Technology Co., Ltd-A (300677 CH) is the largest disposable gloves provider in China and the third-largest in the world as measured by production capacity as of 31 December 2020, according to Frost & Sullivan. Intco which listed its A Share on the Shenzhen Stock Exchange on 21 July 2017, is seeking an H Share listing to raise $1 billion, according to press reports. 

Intco along with its global peers have benefited tremendously from the demand-supply imbalance for gloves due to the COVID-19 pandemic. Most peer share prices have declined since the start of the year in expectation of peak quarterly earnings in the second or third quarter of 2021. The glove industry has gone through two previous cycles but has re-rated at each cycle – sector average P/E of 11x in 2007-11 and P/E of 18x in 2013-17. As the industry continues to be underpinned by structural growth drivers, the sector will likely re-rate as sector earnings normalise. Overall, we think that Intco has attractive fundamentals to benefit from these market dynamics. 


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