In today’s briefing:
- HSI, HSCEI, HSTECH: Rebalance Flows Post Capping (Dec 2022)
- HSCEI Buy Entry Met
- Sunshine Insurance Group Pre-IPO – Peer Comparison – Fastest in One Segment, Slowest in the Other
- Pinduoduo: The Odd One Out
- Fangzhou Group Pre-IPO Tearsheet
- Sunshine Insurance Group IPO: The Bear Case
- China Education Group (839 HK): Shining Through
- Theme International Holdings (990 HK): Getting To Know You
- Sunshine Insurance (6963 HK) IPO – Index Inclusion Timeline
- Bilibili (9626 HK): 3Q22, Growth Accelerated, Loss Shrank, 38% Upside
HSI, HSCEI, HSTECH: Rebalance Flows Post Capping (Dec 2022)
- The December rebalance of the HSI, HSCEI and HSTECH indices will use today’s closing prices to cap the index constituents at 8%. This will lead to large flows.
- The largest inflows will be on Alibaba Group, Haier Smart Home, Kuaishou Technology, Li Auto, PetroChina, Tencent, JD.com, China Resources Mixc Lifestyle Services and Tingyi Holding.
- The largest outflows will be on SMIC, NetEase, AIA Group, HSBC Holdings, China Construction Bank, Alibaba Health Information Technology, Innovent Biologics, China Mobile, Ping An Insurance and ICBC.
HSCEI Buy Entry Met
- Our call has centered around buying a dip in HK at HSCEI 5,800 and HSI 17,000 for a final upside drive into December to form at top.
- H shares (our long vehicle) – Met 5,800 long entry. 6,030 is the level to clear and hold above. PT at 6,600 just under the 6,700 MT barrier.
- Macro trend remains down. HSI 19,400 represents an excellent short opportunity for Q1 weakness. December is touted to be a topping/ range ahead of a more bearish Q1.
Sunshine Insurance Group Pre-IPO – Peer Comparison – Fastest in One Segment, Slowest in the Other
- Sunshine Insurance Group (SIG), a life, health and P&C insurance company, aims to raise up to US$1bn in its HK IPO.
- SIG is an integrated insurance provider which offers both life and health (L&H) and property and casualty (P&C) insurance in China.
- We have looked at the company’s past performance in our previous notes. In this note, we will undertake a peer comparison.
Pinduoduo: The Odd One Out
- Pinduoduo (PDD US)’s 3Q22 mirrored its strong previous quarter with revenue of RMB 35.5bn (consensus: RMB 30.8bn) and OP of RMB 10.4bn (consensus: RMB 6.7bn).
- CCP’s anti-monopoly drive and common prosperity measures are helping Pinduoduo to outperform the competition.
- Nonetheless, we refrain from being outright positive on any of the Chinese e-commerce names with the economy heading into a slowdown and the lowest sector-multiple at above 12x FY+1 OP.
Fangzhou Group Pre-IPO Tearsheet
- Fangzhou Group (FANGZHOU HK) is looking to raise about US$300m in its upcoming HK IPO. The deal will be run by Citibank, UBS and ABC International.
- Fangzhou Group is an online chronic disease management platform in China, considered the largest in terms of average MAU in 2021, according to CIC.
- It focuses on common and chronic diseases such as hypertension, cardiovascular and respiratory chronic diseases, providing tailored medical care and precision medicine covering the full disease cycle for patients.
Sunshine Insurance Group IPO: The Bear Case
- Sunshine Insurance (SUN HK), a Chinese life and P&C insurance company, is pre-marketing a US$1.0 billion HKEx IPO, according to press reports.
- In Sunshine Insurance Group IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
- The key elements of the bear case rest on Sunshine Life’s VNB margin decline and agent channel pressure; Sunshine P&C’s regulatory pressure on premiums and the group’s declining investment yield.
China Education Group (839 HK): Shining Through
- China Education Group (839 HK)‘s 27.8% growth in net profit affirmed its solid fundamentals and minimal exposure to regulatory risks. We also welcome its resumption of dividends.
- Management expects profitability will be driven by the 48% new student enrollment growth, potential for tuition increase and global education segment recovery. Consensus forecasts are currently too conservative.
- Weaker 2H FY22 profit is due to higher depreciation and finance costs but will be absorbed with higher enrollment. Capex will be light and we also like its deleveraging move.
Theme International Holdings (990 HK): Getting To Know You
- Commodities trader Theme International Holdings (990 HK) is up 670% since the inset of Covid, and that is after declining 52% from the July 2021 peak.
- A sharp increase in iron ore prices since 2020 resulted in FY21 net income of HK$1bn against HK$146mn in FY19. Net cash is currently HK$4.2bn, 38% of Theme’s market cap.
- You Zhenhua is Theme’s largest shareholder. Theme recently acquired a 6.6% stake in You Zhenhua-controlled Esteel, which in turn holds a 61% stake in BRC Asia Ltd (BRC SP).
Sunshine Insurance (6963 HK) IPO – Index Inclusion Timeline
- Sunshine Insurance (SUN HK) is looking to raise between US$859m-US$950m by selling 1.15bn shares in its IPO. At the top end, the company will be valued at HK$74bn.
- All of the pre-IPO shares are Domestic Shares and there appear to be no immediate plans to convert them to H-shares. The only H-shares will be the IPO shares.
- MSCI China inclusion requires a higher stock price or conversion of Domestic Shares to H-shares; FTSE inclusion is likely in June; HSCI and Stock Connect inclusion is expected in March.
Bilibili (9626 HK): 3Q22, Growth Accelerated, Loss Shrank, 38% Upside
- The revenue growth rate rose for the first time in one year and a half.
- Also, operating loss shrank for the first time in one year and a half.
- We believe the stock has an upside of 38% for year end 2023.
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