Daily Brief China: Link REIT, Aag Energy Holdings, Futu Holdings Ltd, China Merchants Energy A, Comba Telecom, Shanghai Duoning Biotechnology, Atour Lifestyle Holdings, China Resources Beer Holdings and more

• The Link REIT (823 HK) rights offering caused some upset amongst investors. They got dilution where they did not need it, and de-leveraging from a REIT wanting to invest.
• The units fell in price, then fell some more. Then the rights started trading.
• Last week in Link REIT (823) – Nil Paid Rights Start Trading Tomorrow – The Trades I said strategy was to be long by Tuesday or Wednesday. It’s Wednesday.

• On the 17 February, AAG Energy Holdings (2686 HK) announced an Offer of HK$1.85/share (declared final) by way of a Scheme from major shareholder Xinjiang Xintai Natural Gas (603393 CH).
• At a 10.1% premium to undisturbed and just a 2.2% premium over the highest closing price of HK$1.81/share in the past year, the Consideration price was unreasonable. 
• FY22 numbers are now out, which further illustrates the Offer price’s inadequacy. AAG’s trailing PER and EV/EBITDA are  3.6x and 1.4x. Net cash accounts for 41% of AAG’s market cap.

• Aag Energy Holdings (2686 HK) released solid FY22 results which magnify the scheme risk of Xinjiang Xintai Natural Gas (603393 CH)‘s pre-conditional privatisation offer of HK$1.85 per share.
• The FY22 metrics show that the offer values AAG at a lower EV/1P Reserve and EV/Production vs the 2018 offer. It is unattractive in comparison to historical and peer multiples.
• The solid FY22 results and lack of dividends amplify the risk that minorities vote NO. The downside is capped as the shares are trading below the undisturbed price.

• SVB Financial’s (SVBF) liquidity risk sparked by high interest rate is unlikely to happen on Futu, as the two have different asset structures and business models. 
• Futu is benefits under the rising interest rate environment, as its interest income generated from clients’ idle cash goes up, 
• With also help from the floating rate of margin financing and mortgage lending business. We maintain BUY rating and the TP at US$51.

• Over 85% of the way through the review period, we see 14 potential index changes at the June rebalance that will be implemented at the close on 9 June.
• We estimate a one-way turnover of 2.28% at the June rebalance leading to a one-way trade of CNY 5.95bn.
• The potential adds have outperformed the CSI 300 Index over the last two months but have underperformed the potential deletes. The gap has been narrowing recently.

For our next Corporate Webinar we are glad to welcome Comba Telecom’s Executive Director and Group CFO, Ken Chang Fei Fu.

In the upcoming webinar, Mr Chang will share a short company presentation after which, he will engage in a fireside chat with Smartkarma Insight Provider, Osbert Tang. The Corporate Webinar will include a live Q&A session.

About Comba Telecom

Established in 1997 and listed on the Main Board of the Hong Kong Stock Exchange in 2003 and the Main Board of the Singapore Stock Exchange in 2013, Comba Telecom is a global leading wireless solutions provider with its own R&D facilities, manufacturing base, and sales and service teams. The Company offers a comprehensive suite of products and services including base station antennas and subsystems, wireless access, wireless enhancement, and wireless transmission to its global customers. Headquartered in Hong Kong, with manufacturing bases and R&D centres in China, Comba Telecom provides wireless communication solutions and information application services to customers in more than 100 countries and regions around the world.

• The logic of Duoning’s business layout is that self-produced upstream products reduce the cost and increase customer stickiness, then lock in the purchase of future customers from the source.
• Although lagging behind imported enterprises in product performance, the upstream production cost control is one of the driving forces for the localization of pharmaceutical supply chain. Duoning has growth potential.
• A slow-down or reversal of trend related to life sciences industry growth could have an adverse effect on Duoning’s business. Overseas sanctions and policy risks are also the concerns. 

• The strong travel demand in Jan. and Feb. had pushed up the industry-wide ADR nearing the 2019 level due the temporary hotel shortage, Atour especially benefited from the trend . 
• Except the positive industry trend, we think the releasing of requisitioned hotels and the expansion of Atour Light are the near-term catalyst for Atour. 
• We maintain the BUY rating and raise TP by US$1.5 to US$36.5

• 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 9 February 2023 we published a bullish recommendation in China Resources Beer Holdings (291 HK), targeting an 8.75% multi-week rally in Q1 2023.
• 291 HK rallied from 58.75 on 9 February to 63.90 on 7 March (15 trading days), a rise of  8.75%. Target achieved on 7 March 2023.