Daily Brief China: SenseTime Group, Yashili International Holdings, Meituan, China Vast Industrial Urban Development, Tencent, China Three Gorges Renewables, Evergrande, Lepu Medical Technology A and more

• SenseTime Group (20 HK) stock has been crushed following the lock-up expiry at the end of June with the stock now trading 40% below the IPO price.
• The company has recently bought back stock providing some support. More importantly, SenseTime Group (20 HK) was included in Southbound Stock Connect on 29 July.
• We expect a big increase in the free float adjustment factor (FAF) in the Hang Seng Indexes at the September rebalance that will provide some much needed passive inflows.

• The approval by Yashili International Holdings (1230 HK) independent shareholders of the proposed transactions at the 16 August EGM is a pre-condition to the HK$1.20 per share privatisation proposal.
• Shareholders will pass the ordinary resolutions at the EGM so that they can vote on the attractive privatisation proposal. The key risk is timing around the satisfaction of the pre-conditions.
• China Mengniu Dairy Co (2319 HK)’s offer remains attractive in the context of multiples and historical share prices. At the last close, the gross spread to the offer is 10.1%.

• Several news media outlets reported that Meituan (3690 HK)  Ele.me and other food delivery platforms were summoned over food safety problems as well as price war among them.
• Food delivery platforms are ordered to strictly follow food safety management responsibilities and also prevent price wars that disrupt the market order.
• Though the anti-trust fine of RMB3.44bn was thought to be the end of an almost year long regulatory crackdown on Meituan, it seems that this is far from over.

• After a prolonged delay, the Cayman Islands legislative gazette was published on 29 July, which stated that the amended Cayman Islands Act would come into force on 31 August. 
• The Act will remove the headcount test for schemes, eliminating a layer of uncertainty for controlling shareholders wishing to privatise listed Cayman-incorporated companies.
• In light of this development, we look at current active privatisations, past failed privatisations and rumoured transactions which stand to gain a new lease of life from this Act.

• Tencent and Huawei launched beta tests for car-hailing platform almost simultaneously.
• Alibaba begins to disconnect Ant Group to avoid implicating each other.
• Missfresh dismissed almost all employees in its headquarters in Beijing.

• A “Long China Three Gorges Renewables (600905 CH), short Huaneng Power Intl Inc-A (600011 CH)” pair trade should generate good return in China’s utilities sector given the current industry dynamics.
• The key supporting factors are: CTGR has pure exposure to renewable, faster capacity growth and a stronger balance sheet. They should underpin better earnings quality and outlook relative to HPI.
• CTGR trades on higher PER and P/B multiples, but these should not be hurdles as they are just reflection of more promising prospects. We expect CTGR’s YTD outperformance to continue.

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.

• Evergrande
• China Vanke
• Indika Energy
• Japfa Comfeed Indonesia
• China Datang Corp Renewable Power

• Lepu suffered from the negative impact of VBP on drug/medical consumables, and its share price has yet to recover. We are not optimistic about the outlook of the traditional businesses.
• Lepu’s expansion mainly relies on continuous M&A. Whether these diversified businesses will produce synergies and how much performance they will contribute need to be tested by time and the market.
• Excessive epitaxial expansion may not be a long-term solution. Lepu needs to focus more on endogenous growth and R&D,which is good for sustainable long-term growth. Such business transformation takes time.