In today’s briefing:
- HSCEI Index Rebalance Preview: China Shenhua (1088) Could Replace Country Garden (2007); Div Impact
- Thoughts On The Recent Pullbacks in Meidong and EVA
- TEMU: A Burden on PDD’s Profitability & Possibly a Legal Nightmare
- ZKH Group Pre-IPO – If Only Its Growth Was Sustainable
- New World Development(17 HK):High Leverage in HKRE but Likely the First to Rebound if Rate Peaks Out
- Ping An Healthcare and Technology Company Limited (1833.HK)- To Turn Things Around or to Fail Again?
- Trip.com (9961 HK): The Best Is yet to Come
- Adicon Holdings Pre-IPO Tearsheet
- Morning Views Asia: Fosun International
HSCEI Index Rebalance Preview: China Shenhua (1088) Could Replace Country Garden (2007); Div Impact
- China Shenhua Energy Co H (1088 HK) could replace Country Garden Holdings Co (2007 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the June rebalance.
- Short interest on China Shenhua Energy Co H (1088 HK) is pretty small while the short interest on Country Garden Holdings Co (2007 HK) is large and possibly getting bigger.
- The change could result in a big increase in the fair value for the HSCEI 2023 dividend futures. Currently, we estimate an increase of up to 9 DIPS.
Thoughts On The Recent Pullbacks in Meidong and EVA
- After rallying a fair bit at the beginning of 2023, we have seen sharp pullbacks in Eva Precision Industrial Holdings (838 HK) and China MeiDong Auto (1268 HK) share prices.
- We believe the price cuts highlighted by Victoria Li in her insight China Auto: ICE Price War Triggered by Dongfeng, JV Players Under Pressure are a significant cause.
- While we like both stocks and they are cheap, we feel both companies will face short to medium-term pain in their businesses and share prices as the saga unfolds.
TEMU: A Burden on PDD’s Profitability & Possibly a Legal Nightmare
- Questionable marketing practices and cheap counterfeits could make TEMU a legal nightmare for Pinduoduo (PDD US).
- Meanwhile, SHEIN doesn’t seem ready to give in easily to the competition. Thus, TEMU could be a significant burden on Pinduoduo’s profitability in the medium-long term.
- Considering the discounts, advertisements and promotional spending done by TEMU in the fourth quarter, we think it is unlikely that Pinduoduo will meet the 4Q22 consensus OP of RMB 11.7bn.
ZKH Group Pre-IPO – If Only Its Growth Was Sustainable
- ZKH Group (ZKH US) is looking to raise about US$300m in its upcoming US IPO.
- ZKH Group is a leading maintenance repair and operations (MRO) procurement service platform in China, according to CIC, providing one-stop MRO procurement and management services and digital and fulfillment solutions.
- ZKH Group’s revenue has been primarily driven by its product sales segment during the track record period. However, its GMV growth slowed dramatically and its sales growth doesn’t appear sustainable.
New World Development(17 HK):High Leverage in HKRE but Likely the First to Rebound if Rate Peaks Out
- NWD has the highest gearing among all HK real estate names. It has significantly underperformed since the rate hike cycle begun. Now it has the biggest potential to rebound
- The stock is trading at attractive valuation, 0.27x P/B, like a distressed Chinese developer. The major market concerns are potential earnings downgrade and dividend cut
- I am quite convicted on the stock for rebound given 1) company has clear de-leveraging plan 2) no plans for equity-raise 3) lots of corporate actions ahead to unlock value
Ping An Healthcare and Technology Company Limited (1833.HK)- To Turn Things Around or to Fail Again?
- PAGD intends to switch from 2C model to 2B model and to reduce losses ASAP at the expense of revenue scale, so as to prove its profitability to the market.
- B-End corporate customers with high quality and sufficient budget are limited. Once the growth of B-end corporate customers meets a bottleneck, its performance may face another decline.
- Despite the improving financial performance in 2022, we still think that we need to further observe the effect of strategic transformation and future performance of PAGD before making judgments.
Trip.com (9961 HK): The Best Is yet to Come
- Recent pullback of Trip.com (9961 HK) has made this China’s tourism recovery play even more attractive. Since end-Feb, consensus earnings forecasts have been upgraded by 19-20%.
- It is best positioned to capture the revival in China’s domestic and outbound travels. Forward booking data has pointed to very solid momentum over the next few months.
- We anticipate good margin expansion going forward, and its resilient financial position provides opportunities for value-enhancing M&As. These all justify a premium valuation over peers.
Adicon Holdings Pre-IPO Tearsheet
- ADICON Holdings Limited (ADI HK) is looking to raise about US$400m in its upcoming HK IPO. The deal will be run by Morgan Stanley and CICC.
- Adicon Holdings is one of the top three independent clinical laboratory (ICL) service providers in China in terms of total revenue during the Track Record Period, according to F&S.
- It offers comprehensive testing services primarily to hospitals and health check centers through an integrated network of self-operated laboratories across China.
Morning Views Asia: Fosun International
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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