ChinaDaily Briefs

Daily Brief China: Anhui Conch Cement, Cambricon Technologies Corp, PDD Holdings Inc, Meituan, Empyrean Technology, JD Industrials, Changjiu Digital Technology, Growatt Technology, China Resources Land and more

In today’s briefing:

  • StubWorld: China Conch Trades Cheap. As Does Anhui
  • CNI Semiconductor Chips Index Rebalance: Multiple Inflows for the Inclusions
  • Pinduoduo (PDD): 1Q23, Up by 58% YoY, 40% Upside
  • Meituan (3690 HK) –        Break Below 122.55 May Set Up a Most Bearish Month End Close
  • ChiNext/​​ChiNext 50 Index Rebalance: On Expected Lines as Adds Outperform Deletes
  • JD Industrials IPO: The Bear Case
  • Pinduoduo: Margin Downtrend and Temu’s De Minimis Risk
  • Changjiu Digital Technology Pre-IPO Tearsheet
  • Growatt IPO: Peer Comparison and Thoughts on Valuation
  • CR Land 1109 HK: Another SOE Play on China Prop – Dual Growth Engine from DP and IP Mall Business

StubWorld: China Conch Trades Cheap. As Does Anhui

By David Blennerhassett

  • The China Conch Venture Holdings (586 HK) / Anhui Conch Cement (600585 CH) ratio is at an all-time low. The implied stub is re-testing its all-time low.
  • Preceding my comments on China Conch/Anhui are the current setup/unwind tables for Asia-Pacific Holdcos. 
  • These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

CNI Semiconductor Chips Index Rebalance: Multiple Inflows for the Inclusions

By Brian Freitas

  • There are 3 changes for the CNI Semiconductor Chips Index that will be implemented at the close on 9 June.
  • The inclusions will also be added to other indices over the next couple of weeks and there will be inflows from multiple index trackers.
  • The adds have outperformed and with 9 trading days to implementation of the changes and the inclusions also being added to other indices, there could be further outperformance near-term.

Pinduoduo (PDD): 1Q23, Up by 58% YoY, 40% Upside

By Ming Lu

  • In 1Q23, total revenue grew by 58% YoY and the operating margin improved to 18% versus 9% in the same period last year.
  • We believe the company benefited from its low-price products and the low comparison base last year.
  • We conclude the stock has an upside of 40% and a price target of US$100.

Meituan (3690 HK) –        Break Below 122.55 May Set Up a Most Bearish Month End Close

By David Coloretti, CMT

  • At TMA we deliver high probability outcomes by focusing on our 3 pillars of technical analysis. •1) Response to key levels. •2) Price action. •3) Momentum confirmation.
  • Meituan (3690 HK) has been trapped in a symmetrical triangle since bottoming in March 2022. Today the base of the triangle was impulsively broken at 122.55.
  • The base of the triangle also forms part of a much larger LT uptrend that began in 2019. A month end close below 122.55 will target material multi-month downside.

ChiNext/​​ChiNext 50 Index Rebalance: On Expected Lines as Adds Outperform Deletes

By Brian Freitas

  • There will be 10 changes for the Chinext Price Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index. Implementation is at the close on 9 June.
  • One-Way turnover for the Chinext Price Index is estimated at 3.17% while the one-way turnover for the ChiNext50 Index is 6.61%. The one-way trade across both indices is CNY 2.72bn.
  • The adds have outperformed the deletes by a huge margin over the last 3 months and there could be profit taking into implementation.

JD Industrials IPO: The Bear Case

By Arun George

  • JD Industrials (2231713D CH)/JDI, a leading industrial supply chain technology and service provider in China, has filed for a US$1bn IPO. JD.com Inc (ADR) (JD US) owns a 77.95% stake.
  • In JD Industrials IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
  • The key elements of the bear case rest on slowing SME growth, declining key accounts take rate and gross margin, unnecessary factoring and transfer of most cash for treasury management.

Pinduoduo: Margin Downtrend and Temu’s De Minimis Risk

By Oshadhi Kumarasiri

  • PDD Holdings Inc (PDD US) shares rose 19% on last Friday following 1Q23 revenue of RMB 37.6bn (consensus: RMB 31.9bn) and OP of RMB 6.9bn (consensus: RMB 5.0bn).
  • The declining margin trend is a significant concern as Pinduoduo won’t appear cheap if margins fall short of expectations.
  • Meanwhile, the existence of Temu could be at risk if the US government takes measures to address the De minimis loophole.

Changjiu Digital Technology Pre-IPO Tearsheet

By Ethan Aw

  • Changjiu Digital Technology (CDT CH) is looking to raise about US$150m in its upcoming HK IPO. The deal will be run by Citic Securities and ICBC.
  • Changjiu Digital Technology (CDT) provides comprehensive automobile digital risk management services and automobile dealership operation management services in China. 
  • According to CIC, it was the largest digital risk management service provider in China’s automobile sales and distribution industry in terms of revenue as of FY21 (31st Dec 2021).

Growatt IPO: Peer Comparison and Thoughts on Valuation

By Shifara Samsudeen, ACMA, CGMA

  • Growatt Technology (1833969D CH) has downsized it HKEx IPO to about US$400m and in this insight, we have compared the company’s financials against other listed PV inverter players.
  • Our peer analysis reveals that Growatt’s top line has grown at much higher rates compared to No. 1 player Sungrow whose margins were well below the company.
  • By looking at valuation multiples of listed peers, it seems that the company could easily command a valuation of more than US$5bn if it is valued in line with peers.

CR Land 1109 HK: Another SOE Play on China Prop – Dual Growth Engine from DP and IP Mall Business

By Jacob Cheng

  • Besides COLI, we also like CRL, being another SOE play (no bankruptcy risk), with dual growth engine from residential development business and shopping mall business
  • Major share price drivers includes its contract sales trend, retail sales, rental performance as well as property policy from government
  • CRL is trading HKD30, there is no placement risk until it trades at HKD HKD39 (P/B =1x).  We recommend buying if stock trades <HKD35 as a technical indicator

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