Daily Brief China: Meituan, New World Development, Alibaba (ADR), China Telecom, Empyrean Technology, Air China Ltd (H), KE Holdings Inc, Times China, Akeso Biopharma Inc, ZTO Express and more

• In early 2022, Tencent (700 HK) made clear it was on a divestment path – disposing of investments able to support themselves – possibly “obliged” after 2021’s China internet mess.
• In August, Reuters suggested Meituan (3690 HK) was next. Tencent denied it, but in November with Q3 earnings, announced a January 2023 distribution with March 2023 settlement. 
• US$16bn of Meituan shares get delivered on 24 March 2023 – this Friday. That’s a lot. But this time is different than last time.

• Upcoming banking crisis will accelerate in the coming few weeks, it is very likely Fed will slow down rate hike or re-start a rate cut cycle
• To position for this:  BUY Hong Kong property developers New World Development 17 HK, Henderson 12 HK, Sun Hung Kai Properties 16 HK
• Apart from HK RE developers, buy China’s name Hang Lung (101 HK) and crypto-currency (BTC and ETH)

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• IPO activity continues to pick up momentum, although the recent market volatility will likely make a few companies reconsider their near term plans.
• On the placements front, Japan Post Bank (7182 JP) hasn’t been playing ball, as has been the case with most of the other past deals which offered a trivial discount.

• Nearly 90% through the review period, we see 6 potential adds and 5 potential deletes in June. However, there can be a maximum of 5 changes at a rebalance.
• We estimate a one-way turnover of 5.07% at the June rebalance leading to a one-way trade of CNY 3.97bn. Index arb activity could add to the impact on the stocks.
• The potential adds have outperformed the potential deletes by 17% over the last month and by 21% over the last two months.

• Three quarters of the way through the review period, we forecast 10 changes for the Chinext Price Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in June.
• Passive trackers will need to buy +/-0.5 days of ADV for most inclusions and exclusions from the indices. On average, the impact on the potential deletions is higher.
• The potential adds have outperformed the potential deletes over the last six months, and there has been a sharp widening of the gap over the last few weeks.

• Air China (H) (753 HK) underperformed China Southern (1055 HK) YTD as domestic traffic recovery is faster than international, but its momentum will accelerate in the rest of the year.
• With Jan-Feb domestic traffic returned to 92.6% of 2019, CSA’s upside is relative limited. Air China, instead, will benefit from more profound international rebound which only back by 10.3%. 
• Recent developments including resumption of visa issuance and outbound international group travels, removal of pre-flight negative PCR tests and recovery of visitors to HK all bode well for Air China.

• BEKE (Beike) reported 4Q22 revenue in-line/4.9% vs our est./cons. Non-GAAP operating income 65% higher than our estimate and non-GAAP net income 59%/122% higher than our est./cons. 
• We estimate 1Q23/2023 revenue to rise 46%/24% YoY. We think Beike’s strategy on focusing quality above scale is suitable under current real estate market trend, bode well for profitability.
• We maintain BUY rating and raise the TP by US$2 to US$23 to reflect 1) the gross margin improvement, 2)narrower loss-making in new initiatives.

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.

• Japfa Comfeed Indonesia
• Lippo Karawaci
• Times China

• Akeso achieved outstanding product sales last year, mainly due to off-label prescriptions.It means Akeso has “overdrawn” AK104’s performance on other indications in advance. Sales could significantly slow down over time.
• It is difficult to turn loss into profit by selling drugs alone. As the profits from selling drugs are far lower than R&D expenditures, losses are the norm.
• Akeso is overvalued, but if AK112 is successful in head-to-head trial with Keytruda, Akeso would be a player to compete on international stage. Its valuation would reach a new level.

• ZTO guided at least 1.5ppt market share gain in 2023, which exceeds our previous expectation. 
• ZTO, leveraging its highest market share, is the most likely to expand its own end-to-end ecosystem, which leads to improvement in operating efficiency, increase of doorstep delivery, and pricing power.
• Maintain BUY and TP due to share gain, efficiency improvement, and early-mover advantage in expanding ecosystem. Our TP implies 23x P/2023E.