Daily Brief China: China Huarong Asset Management, Chindata Group, DPC Dash, Fu Shou Yuan International, Kuaishou Technology, ZTO Express Cayman Inc, Seazen (Formerly Future Land) and more

• China Huarong Asset Management (2799 HK) has announced the full conversion of 8.358bn Domestic Shares to H-shares. The increased float could help the stock get added to the MSCI/FTSE indices.
• Depending on when the conversion is completed, the stock could be added to the MSCI China Index at the February QCIR though inclusion in May is more likely.
• There is a high probability of inclusion in the FTSE indices at the March SAIR – though it remains to be seen if that’s to the All-World or All-Cap Index.

• Chindata Group (CD US)’s 3Q22 results beat both revenue and adjusted EBITDA consensus estimates. Chindata raised its full-year guidance for the second time this year.
• Chindata continues to attract rumours of takeover interest, most recently from China Merchants. Its track record of beating guidance, modest leverage and beaten-down rating make it a target. 
• A forward EV/EBITDA multiple of 10.8x, in line with 21Vianet Group (VNET US)’s multiple implied by its founder’s offer (at US$8.20), would imply Chindata’s price of US$8 per ADS.  

• DPC Dash aims to raise around US$100m in its Hong Kong IPO. 
• The company is the exclusive master franchisee for Domino’s Pizza in China, HK and Macau. DPC operated 562 stores across 13 cities, as of Nov 2022.
• In this note, we will talk about the positive aspects of the deal.

• China funeral industry has large growth potential.The total market scale would be about RMB400 billion if based on annual death toll of 10 million and per capita expenditure of RMB40,000.
• Information asymmetry weakens the bargaining power of buyers. Administrative barriers raise the threshold of market access and weaken competition. So, related companies usually have high profitability and return on capital.
• Changes in population structure would have a negative impact on most consumer goods, but demand of funeral industry would continue to rise. Investors would have both alpha and beta superposition.

• There are three positive signs in online marketing despite the business slowed down.
• For living streaming, both active user base and time spent grew rapidly.
• The operating margin improved significantly to -13% in 3Q22 from -37% in 3Q21.

• ZTO Express Cayman Inc (2057 HK)‘s 63.1% surge in 3Q22 adjusted net profit demonstrated its ability to thrive even amid the challenging operating environment.  
• It is positive on FY23 outlook and believes industry volume can return to double-digit growth. ZTO is confident of market share gain, better cost management and stable pricing. 
• We think its premium valuations are highly justified by strong cash generating ability. The increase of US$500m and lengthening of one year in share repurchase are very welcomed.

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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