Daily Brief China: Evergrande, Xinjiang Goldwind Science & Technology, China Huarong Asset Management, XPeng, CSPC Pharmaceutical Group, Tencent, WuXi AppTec Co. Ltd., Wharf Holdings, China Life Insurance, Road King Infrastructure and more

• Having first introduced the three red line guidance in late 2020, the government has begun shifting its stance, and relaxing some of its regulatory oversight.
• In this note, we looked at recent news developments and how some larger developers fared against the three red lines criterion.
• Of the large developers we looked at, there are a few names which stand out which could potentially do a capital raising given their financial standing. 

• 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.
• On 14 February 2023 we published a bearish recommendation in  Xinjiang Goldwind Science & Technology (2208 HK), targeting a 9.1% multi-week decline in Q1 2023.
• 2208 HK declined from 7.62 on 14 February to 6.94 on 10 March (19 trading days), a decline of 9.1%. 

• China Huarong Asset Management Co. Ltd. expects to post a net loss of 27.6 billion yuan ($4 billion) for 2022.
• Citing factors including volatility in the capital markets leading to declines in the value of some assets, business transition and the real estate industry slump.
• The bad-debt manager said it adjusted its business structure last year, resulting in less nonperforming asset acquisition and restructuring and less revenue.

• XPeng Inc. has predicted that revenue and vehicle deliveries will nosedive in the current quarter after the Chinese electric-vehicle (EV) upstart reported slowing sales growth and a loss that nearly doubled in 2022.
• The company’s revenue will likely plunge 43.7% to 46.3% year-on-year to between 4 billion yuan ($581 million) and 4.2 billion yuan in the first quarter of 2023.
• The outlook is based on an estimate that its deliveries will plummet 45% to 47.9% year-on-year in the same quarter to around 18,000 to 19,000 vehicles.

• China approved its first homegrown Covid-19 vaccine using the advanced mRNA technology, months after the country pivoted from its “zero-Covid” strategy toward living with the virus.
• The vaccine, developed by CSPC Pharmaceutical Group Ltd., was approved for emergency use by the National Medical Products Administration.
• The shot, known as SYS6006, primarily targets the omicron variant BA.5 and can be stored at 2 to 8 degrees Celsius (36 to 46 degrees Fahrenheit) “for a long time,”.

• Tencent reported 4Q22 top line/ bottom line of 0.3%/(3.7%) vs cons. Online ads is stronger, while gaming and G&A slightly missed our est. 
• We expect that ads will be the main driver, thanks to video accounts. Gaming will have better performance after more approved game codes.
• We raise 2023 ads growth from 12% YoY to 15% YoY. Raise TP to HK$ 433. Maintain Tencent as one of the top picks in China Internet

• If WuXi Chemistry’s performance shows downward trend, the overall performance growth won’t be satisfactory. The negative growth of WuXi DDSU means that ineffective competition for domestic innovative drugs is decreasing.
• The asset structure is shifting from light asset to heavy asset.It’s particularly crucial whether business model of “one-stop end-to-end service+royalty income” can enable WuXi AppTec to explore new growth points. 
• The current sentiment on CXO is “fragile” because CXO doesn’t have performance sustainability and stability, with “risk discount” problem. Its valuation haven’t reached inflection point. Without industry beta,alpha is useless.

• Payout ratio rise, but expected dividend yield just around 1%
• Mainland DP booked HK$2bn Impairment provision
• Considering uncertainties in Mainland DP market and the construction process slowing down, we cut FY22-23 revenue booking in DP, thus cut revenue forecasts for 3-13% and net profit for 14-20%

• More constructive outlook this year, despite near term impact on activities from current surge in Covid-19 infections as China re-opens.
• Prefer H shares listing (2628 HK) where valuations remain more attractive despite recent rebound.
• Fair value is lifted to CNY26.60.

Road King’s FY 2022 earnings were weaker than expected. The company posted a significant EBITDA decline, owing to a reduction in property deliveries amid the COVID-19 pandemic as well as a gross margin contraction. Looking ahead, we expect Road King’s FY 2023 contracted sales to remain weak, given the absence of land acquisitions in FY 2022 and the uncertain sales pipeline. This could pressure the company’s cash collections and internal cash generation. Positively, we expect Road King’s access to financing to remain sound, supported by its good quality asset base.

Overall, the company’s credit profile remains supported by its toll-road business, with cash dividends from the toll-road JVs covering 28% of FY 2022 interest expense. We expect recurring income from toll roads to increase in FY 2023, supported by the resumption of socio-economic activities in Mainland China and contribution from Road King’s newly acquired expressway in Indonesia. We believe the toll-road assets could be monetised in the event of tight liquidity, though bondholders are unlikely to have recourse to these assets in the event of debt restructuring (given the highly regulated nature of infrastructure assets).