Daily Brief China: Shandong Fengxiang, Angelalign Technology, Leapmotor, SKYX Platforms, Central China Real Estate, Jupiter Wellness, CIFI Holdings, Air China Ltd (H), Bruush Oral Care and more

• The controlling shareholders of Shandong Fengxiang Co Ltd-H (9977 HK),  a company engaged in chicken breeding, slaughtering, and processing, are unable to meet their debts.
• As such, these shareholders who hold 70.92% of shares out in Fengxiang, via domestic shares, have been forced into a judicial auction, the completion of which may trigger an MGO. 
• Taking pointers from Dongzheng Automotive Finance (2718 HK)‘s recent auction means we back out a possible payment around late December – on the assumption an unconditional MGO is triggered.

• Angelalign Technology (6699 HK) has reported muted H1 2022 results, which were negatively impacted by the resurgence of the COVID-19 pandemic in China and the corresponding restrictions.
• Revenue from core business of clear aligner treatment grew just 3% y/y. However, lower ASP and higher cost of sales, pulled down the gross profit margin by 930bps to 60.2%.
• Thus far in H2 2022, China has imposed lockdowns in multiple major cities. With the uncertainty over the duration of COVID, no immediate respite is seen in Angelalign’s business.

• Our base valuation of Leapmotor HKD 34.9 per share, which is 27% lower than the low end of the IPO price range of HKD 48 per share. 
• Given the steep downside of our target price (6-12 month period) relative to the IPO price range, we are Negative on  the Leapmotor IPO.
• Leapmotor is selling 130.82 million shares in the IPO at a price range of HKD 48 to HKD 62 per share, scaling back the size of the IPO considerably. 

• This is our first report on SKYX Platforms and we look to provide a detailed account of the various drivers that will be responsible for the company’s growth in the coming years.
• Another important fact about SKYX Platforms is that the company’s management comprises several former GE and NEC employees which is a big positive.
• We believe that there is a good chance the company’s offerings may become universally accepted in the years to come.

We view Central China Real Estate (CCRE) as “High Risk” on the LARA scale. The company’s operations are geographically concentrated in Henan, China’s third-most populous province. While this exposes CCRE to policy and political changes within the province, we believe the risks are partly mitigated by the company’s deep market knowledge, brand recognition, as well as longstanding relationships with the local government and construction companies. Our view also considers the deteriorated operating and financing environment across the Chinese property industry, which has adversely impacted CCRE and other private developers.

Our fundamental Credit Bias on CCRE is “Negative”, given the company’s weak sales, very low margins, poor liquidity and lack of access to capital market financing amid the industry turmoil. Moreover, CCRE has material non-debt liabilities. Going forward, the company’s debt repayment prospects may hinge on the development of synergies with its SOE minority investor (Henan Railway) to achieve new business and financing opportunities.

Controversies for CCRE are “Immaterial”, despite reputational risk on account of worker fatalities. This was mainly reported in the media in 2019 and 2020, with such statistics not provided in the company’s ESG reports. The ESG Impact on Credit is “Neutral”. We note positively that CCRE’s corporate governance has improved, supported by increased transparency and its willingness to honour debt obligations.

• This is our first report on Jupiter Wellness and we look to provide a detailed account of the various drivers that will be responsible for the company’s growth in the coming years.
• With all of these developments, a stock priced at 63 cents appears to be highly affordable and supports our positive outlook.
• Overall, we believe that Jupiter has phenomenal growth prospects and is an excellent investment prospect.

• Due to declining performance, lack of core competitiveness and increasing competition, the market has to re-examine the growth potential and outlook of Angelalign.The era of high margin is fading away.
• Angelalign’s low-price strategy is easily hit by similar products with lower prices. Once its price loses advantage, it will directly lead to a rapid and substantial decline in overall performance.
• Due to its worse-than-expected 2022H1 performance and economic downturn, we lowered our 2022 forecast of Angelalign. Angelalign shouldn’t be valued that much higher than Align Technology, expecting more downside ahead. 

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.

• CIFI Holdings

• Despite record losses in 2Q22, share price of Air China Ltd (H) (753 HK) has rallied 14% YTD, outperformed the 23.9% decline in HSCEI and its Chinese peers. 
• Air China’s stub value has returned to pre-pandemic level, but is primarily driven by the A-share. Cathay Pacific (293 HK) recovery is an important catalyst for narrowing H-A share discount.
• News flow over the next 12 months, mostly related to further relaxation of quarantine requirements, will be positive. The surge in demand should support elevated passenger yield.  

• This is our first report on Bruush Oral Care and we look to provide a detailed account of the drivers that will propel the stock in the near future.
• Bruush got listed recently and its stock price has been volatile but has maintained a more or less sideways trajectory in this short period of time.
• Overall, we believe that Bruush Oral Care has phenomenal growth prospects and is an excellent investment prospect.