Daily Brief China: Meituan, Aag Energy Holdings, Sunpower Group, Kunlun Energy, Leoch International Technology, Shenzhen International, West China Cement, Guangzhou Automobile Group, Growatt Technology, CK Asset Holdings and more

• Meituan (3690 HK) shares hit accounts on Friday, they showed up in the CCASS data. All but about 2.3mm shares worth. Another 248.8mm shares showed up on Monday. 
• That was the Prosus stake, which was expected as of November 2022 (evidently, they did not convert more Tencent shares in the interim. 
• The data tells us some things. It does not tell us much else. Be careful of the details. 

• Back on the 17 February, AAG Energy Holdings (2686 HK) announced an underwhelming Offer of HK$1.85/share (declared final) by way of a Scheme from major shareholder Xinjiang Xintai (603393 CH).
• Yesterday, Xinjiang Xintai shareholders approved the proposal. This was expected – it’s a total bargain. 
• AAG shareholders will likely get to vote on the Scheme in early May. They should vote it down.

• Sunpower Group (SPWG SP) announced it agreed to a 2-year extension of its CBs with two Chinese P/E funds that have been supporting it since 2017
• The extension is unexpectedly favorable to Sunpower equity holders and removes a major overhang
• After two difficult years with spiking coal prices and rolling lockdowns in China, the company can finally be valued on the merits of its GI business once again

• Core earnings of Kunlun Energy (135 HK) rose 25.2% in FY22, providing solid evidence for its strength against peers. We are delighted to see dollar margin even expanded 4.1%.
• Pace of new project addition has not weakened as it secured 25 new projects in FY22. Collectively, they will increase sales volume by 3.2bn cu.m., 7% of FY22 volume.
• Net cash of Rmb13.6bn equals 28% of share price, making 8.9% ROE look decent. Market earnings forecast is too low; and even so, it trades on just 7.2x FY23 PER.

• Capital Expenditure – New Investment in Mexico Plant in 2023
• The company achieved a solid performance in its Recycled Lead business and Power Solutions business with a revenue growth of 18% and 13%, respectively, as compared to 2021.
• The revenue for Recycled Lead business and Power Solutions business was RMB2,413 million and RMB10,433 million respectively. 

• FY22 is definitely bad for Shenzhen International (152 HK) given the 64.9% profit plunge. However, negative contributors like Shenzhen Airlines and exchange losses will be removed in this year.
• Earnings for Shenzhen Expressway (548 HK) will improve and 1Q23 has witnessed good traffic recovery. Logistics profit will benefit from higher occupancy, REIT issuance and new projects.
• Upside will come from logistics park transformation with profit from Yicheng Qiwanli pre-sale potentially to be booked. Consensus earnings forecast of HK$4.1bn is at low-end of our estimate. 

West China Cement’s (WCC) FY 2022 results were overall acceptable. The company reported slightly weaker earnings for its core business in Mainland China, as lower sales volumes (amid COVID-19-related disruptions and the subdued real estate sector) and increased raw material costs more than offset surprisingly positive ASP growth.

Importantly, WCC’s expansion in Africa is taking shape, as its plant in Mozambique has ramped up quickly and achieved high capacity utilisation in the first two years of operations. The company’s plants in Africa enjoy substantially higher ASP than those in China, which should support the overall gross margin.

We expect WCC’s FCF to remain deeply negative in FY 2023, which will lead to a further weakening of its net leverage (2.6x at FYE 2022). We believe FCF may turn positive in FY 2024, when the bulk of the company’s new projects in Africa are due to complete and commence operations.

• The company declared bonus shares of 40% during the annual results announcement in Mar, with shareholders issued 4 shares for every 10 shares by way of conversion of capital reserve.
• The stock went ex-dividend on 1 June 2018.
• Primarily as a result, we have adjusted our target price for the stock to HKD11.3 (from HKD16.3).

• Growatt Technology (1833969D CH) , one of the largest providers of PV and storage inverters globally, plans to go public and may seek $500M+ through Hong Kong IPO.
• I view Growatt Technology (1833969D CH) as a high-quality growth company with best-in-class products and solutions, and see significant opportunity in international markets.
• The company is well-positioned to benefit from fast-growing PV inverter and energy storage markets. I am bullish on Growatt Technology IPO and like long-term energy storage story.

• Core profits +13% y/y due to contribution from newly acquired infrastructure & utility business
• Recurring income +38%, growing ahead of management target and supporting dividend growth
• Strong balance sheet support further share buyback and acquisition.