Daily Brief China: Meituan, Tencent, Health And Happiness (H&H), Shenzhen International, Asymchem Laboratories, Vedanta Resources and more

• The Hang Seng Tech Index (HSTECH INDEX) represents the 30 largest technology companies listed in Hong Kong which have high business exposure to certain technology themes.
• This index was launched in 2020 and has gained significant passive tracking over the last two years.
• In this insight, we take a brief look at the selection criteria and the historical price performance of past Rebalance Events.

• China’s gaming regulator granted publishing licenses to 88 video games including three licenses to Tencent (for Undawn, Alchemy Stars and Yuan Meng Zhi Xing) and one for NetEase (for Badlanders).
• In December, NPPA gave approvals to 84 new domestic games and 44 imported games suggesting the 18-month long crackdown on the sector is nearing an end.
• Tencent’s online games revenue declined YoY for three consecutive quarters with regulatory hurdles and drop in ranking of key titles but we expect an improvement going into 2023.

• Despite the steep stock rebound following a strong recovery in sales, stock attracts modest valuations in line with Infant milk players. Re-rating potential exists from valuing high-growth segments differently.
• Strong growth in Adult Nutrition and Pet products fueled overall sales. Baby Nutrition sales growth is muted and accounts for less than half of total sales (vs 2/3rd in 2020).
• Stock rebound triggered by a recovery in Sep. quarter sales thanks to its diverse product portfolio, and prospects of a revival in cross-border trade following China opening its borders.

• Share price of Shenzhen International (152 HK) started slow in this year, but it is on course for stronger earnings in FY23, following a dip in last year. 
• Upside from logistics business, benefits to Shenzhen Expressway (548 HK) on border re-opening, potential massive contribution from logistics parks transformation and upgrading and lack of Shenzhen Airlines’ drag are drivers. 
• ROE is expected to rebound to 11-12% in next two years, returning to FY20-21 level. Back then, its average P/B was 0.68x, suggesting at least 31% upside from 0.52x currently. 

• The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
• Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. Or pledging. However, such disclosures are by no means an absolute.
• Stocks mentioned include Asymchem Laboratories (6821 HK), Honbridge Holdings (8137 HK), Flat Glass (6865 HK), and Gushengtang (2273 HK).

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.

• Vedanta Resources
• O-Net Technologies (Group)