Daily Brief China: Langham Hospitality Inv Ss, Li Auto , Nongfu Spring , Country Garden Services, Oriental Watch, Hansoh Pharmaceutical Group , Anton Oilfield, Beijing Biostar Pharmaceuticals Co Ltd, Gajah Tunggal and more

• Langham Hospitality Inv Ss (1270 HK) received a notice from Great Eagle Holdings (41 HK), the largest unitholder, that it intends to present a detailed proposal for scheme privatisation.
• The privatisation interest is unsurprising, as the unit price has declined by 43% over the last twelve months. A tough 2023 did not help the declining sentiment.
• Our methodology for triangulating the potential offer price results in a range of HK$0.63-1.76. Our best guess is an offer of around HK$0.85, a 47% premium to the last close.

• With no stocks in outright inclusion or deletion zone, we do not expect any constituent changes for the Hang Seng TECH Index (HSTECH INDEX) in June.
• Capping changes will result in a one-way turnover of 5.3% leading to a round-trip trade of US$1.51bn.
• Li Auto (2015 HK) is expected to be the largest buy in June following the stock being the largest sell at the March rebalance (also due to capping).

• Nongfu Spring (9633 HK) announced a set of strong 2023 results last week, with 2H23 net profit up 62% yoy and sales up 33% yoy. 
• The best performing category in 2023 has been tea beverage products (30% of sales), which grew 83% yoy for the year and 105% yoy in 2H23, picking up speed.
• Nongfu Spring is trading at 33x 2024 earnings, which I believe is attractive. 

• In this insight, we take a look at a group of names with reasonably high likelihood of being involved in index changes for the Hang Seng Index in June 2024.
• The index changes for the June 2024 index rebal will be announced on 17th May 2024.
• The HSI selection process is highly subjective and does not follow clear-cut rules. This insight is simply an attempt to provide readers with an overall understanding of the possible scenarios.

• Oriental Watch (398 HK)  has begun Q4 2024 slowly, with its SSSG dropping by double-digit levels in all its major markets (HK/China and Macau).
• As the year almost draws to a close, we expect profits to drop 10-15% YoY for FY24 and the company to pay out 100%, resulting in a 14% dividend yield.
• The company also has 1.2 bn HKD of net cash, representing 70% of its market capitalization. Additionally, it has 700 mn HKD of investment property. 

• Hansoh Pharmaceutical Group (3692 HK) reported a whopping 55% YoY net profit growth to RMB3 billion on just 13% YoY revenue growth to RMB6 billion in 2H23.
• Revenue from innovative drugs zoomed 52% YoY to RMB4 billion and its proportion to total revenue increased to 73% in 2H23 from 54% in 2H22 and 62% in 1H23.
• Although Hansoh is not expected to receive marketing approval for any in-house innovative product in 2024, existing portfolio of innovative drugs will continue to drive the growth of the company.

Anton Oilfield’s FY 2023 results were strong, with revenue growth accelerating to levels not registered since H1/19. The strong FCF boosted the cash balance. The company’s financial risk profile improved significantly, with Net Debt/EBITDA below 1x and healthy interest coverage ratios. Liquidity is adequate.

We expect the business’ positive momentum to continue in FY 2024. H1 is projected to be significantly better y-o-y, while H2 is anticipated to improve only marginally due to the high base effect.

• Besides the core product Utidelone Injection, the rest pipelines are mostly related to the indications expansion/new formulations R&D for Utidelone Injection. Excessive dependence on single product is hard to improve. 
• We’re not optimistic about the future sales growth of Utidelone Injection due to fierce competition/inconvenient administration methods/expired patent protection. Biostar is facing survival risks if new financing cannot be obtained.
• Biostar’s post-investment valuation is already RMB4.49 billion. Given the gloomy sentiment and the concerns about the pipeline/prospects, we think it could fall below this valuation level after IPO in HKEX.

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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