Daily Brief China: Cafe De Coral Holdings, Enm Holdings, Golden Eagle Retail, CStone Pharmaceuticals, Shanghai Pharmaceuticals Holding, T.S. Lines, Health And Happiness (H&H) and more

• Fenbi Ltd (2469 HK) was added to the Hang Seng Composite Index (HSCI) at the close Friday and will be added to Southbound Stock Connect from open of trading today.
• We see 22 potential adds, 19 potential deletes, couple of close deletes, 5 deletes on prolonged suspension and 4 close liquidity deletes for the HSCI in September.
• There are 11 potential deletions where holdings via Stock Connect are more than 20% of shares outstanding. There could be some unwinding of positions over the next couple of months.

• Enm Holdings (128 HK) announced a privatisation offer from Chime Corporation at HK$0.58 per scheme share, a 54.7% premium to the undisturbed price of HK$0.375 per share (24 May). 
• The key condition is the scheme be approved by at least 75% disinterested shareholders (<10% disinterested shareholders rejection). No shareholder holds a blocking stake. The offer price is final.
• Detractors will argue the offer is low due to ENM’s net cash (75% of the market cap). However, the offer is reasonable compared to historical multiples and share prices. 

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads – 111 Inc (YI US), Enm Holdings (128 HK), United Malt Group Ltd (UMG AU), Estia Health (EHE AU), HKBN Ltd (1310 HK), Hailan Holdings (2278 HK).
• Lowest spreads – Healius (HLS AU), Liontown Resources (LTR AU), Challenger Technologies (CHLG SP), Lian Beng (LBG SP), SBI Shinsei Bank (8303 JP), Newcrest Mining (NCM AU). 

• In the second half of this year, innovative device companies could be listed on the SSE STAR Market one after another, which is a systematic opportunity.
• Shareholders’ reduction in CXO will continue. Then, CXO could become a company mainly controlled by various funds, with the original owners all cashing out and leaving, such as WuXi AppTec. 
• We analyzed some key points of CStone Pharmaceuticals (2616 HK). We remain conservative about the Company, and its stock price may continue to remain weak.

• Different from peers whose pharmaceutical assets are scattered in different listed companies, all assets/resources of SH Pharma are integrated within the Company. The intrinsic value of this model is greater.
• SH Pharma is in a traditional industry, facing weak profitability and negative policy impacts, Thus, the Company lacks attractiveness and imagination space for investors, leading to long-term undervaluation. 
• Considering the transformation to more high-margin businesses, SH Pharma’s performance/profitability would improve. Since China hopes to establish a valuation system with Chinese characteristics, there’s valuation repair opportunity for SH Pharma.

• In terms of fleet characteristics, market exposure, and recent financial performance, we believe T.S. Lines (TSL HK) and Taiwan’s Wan Hai Lines (2615 TT) are directly comparable
• WHL has more exposure to the Transpacific, but still boasts a much larger Intra-Asia operation owing to its scale advantage (fleet and revenue about four times the size of TSL)
• Given the similarities we outline in this insight, we believe TSL’s shares should trade at EV/Fleet and EV/Revenue multiples in line with WHL’s; no premium is justified, in our view

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.

• NagaCorp Ltd