In today’s briefing:
- On China Shengmu (1432)’s Conditional MGO
- Happy Singles’ Day! How Alibaba (9988 HK) And JD.com (9618 HK) Move After 11/11
- STAR Chip Index Rebalance Preview: One Change for December
- FXI Rebalance Preview: New Listings, Potential Inclusions, H/A Premiums
- ChiNext/ChiNext50 Index Rebalance Preview: Maxing Out the Changes
- China Shengmu (1432 HK): Possible Offer, Potentially Problematic 50% Min Acceptance Condition
- LONG GDS: A High-Beta Asia Digital Infrastructure DC Operator
- Lucror Analytics – Morning Views Asia
- Pre-IPO LongBio Pharma (Suzhou) – Thoughts on The Pipeline and The Commercialization Outlook
- Pre-IPO Eastroc Beverage Group – The Outlook Is Not Optimistic, with More Valuation Decline Ahead
On China Shengmu (1432)’s Conditional MGO
- On the 30th October, China Modern Dairy (1117 HK) (CMD) entered into a conditional SPA to acquire a 1.28% stake in raw milk producer China Shengmu Organic Milk (1432 HK) (CSM).
- CMD currently holds 29.99% in CSM. Should the SPA complete, CMD clears 30% and will be obligated to make an Offer for all shares not held.
- The Offer Price will be A$0.35/share, a 14.75% premium to undisturbed. The Offer will be conditional on a 50% acceptance hurdle.
Happy Singles’ Day! How Alibaba (9988 HK) And JD.com (9618 HK) Move After 11/11
- Alibaba (9988 HK) and JD.com (9618 HK) often see heightened volatility following Singles’ Day (11 November), though performance varies by year.
- Alibaba’s post-event returns are mixed, averaging nearly twice its normal four-day move, while JD.com has shown stronger and more consistent gains.
- Option markets imply elevated short-term volatility—especially for JD.com—with potential trading opportunities around the 14 November expiry.
STAR Chip Index Rebalance Preview: One Change for December
- There could be 1 constituent change for the STAR Chip Index at the December rebalance. There will also be a few capping changes.
- Estimated one-way turnover is 2.3% resulting in a round-trip trade of CNY 2.5bn (US$352m). Passives need to trade between 0.3-0.4x ADV in the potential changes.
- The forecast add and delete will have same-way flows from passive trackers of other indices and that will increase the impact on the stocks.
FXI Rebalance Preview: New Listings, Potential Inclusions, H/A Premiums
- There could be 3 constituent changes for the iShares China Large-Cap (FXI) (FXI US) ETF in December. That could easily increase to 4.
- Two of the forecast inclusions will also have inflows from the FGlobal Index at the same time, increasing the impact. The third is a potential HSCEI INDEX add in December.
- The HA premiums for CATL (3750 HK) and Jiangsu Hengrui (1276 HK) have dropped ahead of lock-up expiry and there could be premium expansion closer to index/ETF inclusion.
ChiNext/ChiNext50 Index Rebalance Preview: Maxing Out the Changes
- With the review period complete, we forecast 10 changes for the ChiNext Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in December.
- The largest flows will be in 2 stocks that are forecast adds for both indices. There are 14 stocks with over 0.5x ADV to trade from passive trackers.
- The forecast adds outperformed the forecast deletes from June to August, but there has been significant underperformance since then. Outperformance could resume as positioning kicks in prior to announcement.
China Shengmu (1432 HK): Possible Offer, Potentially Problematic 50% Min Acceptance Condition
- On 30 October, China Modern Dairy (1117 HK) announced a conditional share purchase agreement to acquire 1.28% of outstanding China Shengmu Organic Milk (1432 HK) shares at HK$0.35 per share.
- The SPA is conditional on SAMR and independent CMD shareholder approval. SPA completion will trigger a mandatory conditional cash offer at HK$0.35 per share.
- Post-Completion, CMD and concert parties will hold a 31.26% stake. The offer is conditional on a 50% minimum acceptance condition, which is problematic as the offer is not particularly attractive.
LONG GDS: A High-Beta Asia Digital Infrastructure DC Operator
- We like GDS holdings, a high-beta play on Asia data center market, on the back of strong AI and hyperscale cloud infra growth across Asia
- GDS is a high beta play through 3 ways: flexible capital deployment, high velocity AI growth, as well as diversification
- We think AI growth and utilization may surprise on the upside. Also, establishment of a C-REIT platform will enable asset recycling at a high multiple
Lucror Analytics – Morning Views Asia
- In today’s Morning Views publication we comment on developments of the following high yield issuers: Fosun International
- A group of moderate Senate Democrats have reportedly agreed to support a deal to re-open the US government as well as fund some departments and agencies for the next year, which could end the government shutdown.
- Under the agreement, Congress would pass full-year funding for the departments of Agriculture, Veteran Affairs and Congress, while funding other agencies until 30 January 2026.
Pre-IPO LongBio Pharma (Suzhou) – Thoughts on The Pipeline and The Commercialization Outlook
- LP-003’s indications are small if compared with big indications in autoimmune diseases.So, LP-003 needs to demonstrate excellent efficacy. Otherwise, it would face fierce competition from Xolair/biosimilars, leaving limited market space.
- The core advantage of LP-005 is that multi-target complement inhibitor has superior efficacy potential compared to single-target ones. The downside is the concerns on safety profile and slow R&D progress.
- Post-Money valuation of LongBio Pharma reached about RMB2 billion after Series C Financing. A comfortable valuation range could be RMB3-5 billion, or about 50%-150% upside from Series C Financing.
Pre-IPO Eastroc Beverage Group – The Outlook Is Not Optimistic, with More Valuation Decline Ahead
- Based on 25Q3 results, the biggest problem lies in the continuous slowdown of its core business (energy beverages), which has led to the overall performance slightly falling short of expectations.
- The upper limit of Eastroc Super Drink could be around RMB23-27 billion. Since energy beverages’ annual revenue has approached RMB16 billion, it’s becoming increasingly difficult to achieve the remaining growth.
- The future growth of Eastroc may not support the current valuation. A more comfortable valuation range could be P/E of 20-25x, which will provide investors with sufficient margin of safety.
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