Daily Brief China: Sihuan Pharmaceutical Hldgs, WuXi XDC Cayman , Yue Yuen Industrial Holdings, Guangdong Chj Industry Co A, Modern Dental Group, Beijing Enterprises Water Group, Muyuan Foods, JST Group, China Resources Power, Xuanzhu Biopharmaceutical and more

• On the 12th November 2024, Sihuan Pharmaceutical (460 HK) proposed spinning-off the shares of Xuanzhu Biopharm on the main board of Hong Kong.
• Xuanzhu Biopharmaceutical‘s prospectus is now out. Shares are priced at HK$11.60/share, backing out a market cap of ~HK$6bn vs. Sihuan Pharma’s HK$17.4bn market cap. Trading commences on the 15th October.
• Sihuan Pharma will hold 49.1% post IPO. Its share price is up 189% YTD. Looks frothy. Then again, so does Hong Kong’s IPO market.

• WuXi AppTec (2359 HK) is looking to raise US$308m via selling some of its stake in WuXi XDC Cayman (2268 HK).
• The deal is a small one, representing 4.5 days of the stock’s three month ADV, and 2.3% of total shares outstanding.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• World’s Largest Footwear Manufacturer: Yue Yuen is the global leader in athletic and casual footwear manufacturing, producing for top-tier brands like Nike, Adidas, and New Balance. Its immense scale provides significant competitive advantages.
• Dual Business Model with Integrated Retail: The company operates a core manufacturing (OEM/ODM) business and a significant sportswear retail and distribution arm in Greater China, Pou Sheng International (3813 HK). This provides diversification and end-to-end solutions for its brand partners.
• Challenging Near-Term Outlook but Attractive Valuation: While facing headwinds from rising labor costs, geopolitical uncertainties, and soft consumer demand in its retail segment, the company’s valuation appears compelling. Strong recent growth in net income and a high dividend yield present a potentially attractive risk/reward profile for long-term investors.

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• Guangdong Chj Industry Co A (002345 CH) (CHJ) submitted an application to list H-shares on the Main Board of the Hong Kong Stock Exchange.
• Despite higher valuation multiples, the company has been able to successfully generate higher sales and profits in the past several years. 
• The high and rising global gold prices have created a strong loyal customers and investor base that could positively impact this IPO on the HK Stock Exchange. 

Key points (machine generated)

• Modern Dental (3600) manufactures and distributes dental prosthetics with a potential for over 15% CAGR from a share price of HKD 4.35.
• The company generates approximately 75% of its revenue from developed markets despite its primary manufacturing facility being in Shenzhen, China.
• Modern Dental is well-positioned to benefit from the growing global reputation of Chinese manufacturers for quality and competitive pricing.

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• Leading Integrated Water Solutions Provider in China: Beijing Enterprises Water Group (BEWG) is a dominant player in China’s water treatment industry, boasting the largest water treatment capacity in the nation. The company operates an extensive network of over 1,400 water and sewage treatment plants across China and has expanded its presence internationally.
• Strong Government Backing and Strategic Focus: As a state-owned enterprise, BEWG benefits from significant government support, facilitating access to financing and project approvals. The company is strategically shifting towards an asset-light model, focusing on technology and operational services to enhance efficiency and reduce capital expenditure.
• Favorable Industry Tailwinds Driven by Regulation: China’s increasing focus on environmental protection, underscored by stringent government policies like the “Water Ten Plan”and the “Dual Carbon”goals, creates a robust demand for advanced water treatment solutions. This policy-driven market expansion provides a long-term growth runway for BEWG.

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• MUYUAN’s 25H1 performance growth was strong. The core driving force lies in the Company’s continued implementation of cost reduction and efficiency enhancement strategies, which have achieved satisfactory results.
• Inflation expectations would push up hog prices. If the price can fluctuate within the range of RMB14-18/kg in next three years, it will provide a favorable profit environment for MUYUAN.
• Valuation of MUYUAN should be higher than peers and the industry average. We raised our 2025 forecast. Based on 2025 net profit forecast, market value is about RMB240-300 billion.

• JST Group (1703609D CH) is China’s largest e-commerce SaaS ERP provider. It is seeking to raise US$250 million to US$300 million.     
• JST (Jushuitan) is China’s largest e-commerce SaaS ERP provider in terms of relevant revenue in 2024, with a market share of 24.4%, according to CIC.
• The investment case is bullish due to robust book-to-bill ratios, strong growth, high contract liabilities, underlying profitability and cash generation.  

• Strategic Pivot to Renewables: China Resources Power is aggressively expanding its renewable energy portfolio, particularly in wind and solar, aligning with China’s national decarbonization goals. This transition is set to be a primary driver of future growth and valuation re-rating, though it requires significant capital expenditure.
• Improving Profitability in Thermal Power: After a challenging period of high commodity prices, the company’s thermal power segment is experiencing a significant recovery in profitability. This is largely due to moderating coal prices and favorable government policies, which are enhancing earnings and cash flow in the near term.
• Attractive Valuation and Shareholder Returns: The company trades at a compelling valuation relative to its earnings and book value, complemented by a strong and growing dividend yield. This combination of value and income is attractive to institutional investors, supported by a robust financial performance recovery.

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• Xuanzhu Biopharmaceutical has filed for IPO to raise up to HK$781M. The company plans to sell 67.3M shares at HK$11.6 per share.
• Xuanzhu Biopharmaceutical is an innovation-driven biopharmaceutical company focused on developing treatment options in the fields of digestive diseases, oncology and non-alcoholic steatohepatitis (NASH).
• 2026 will be an inflection point for the company with all three core products fully commercialized, but will not be enough for the company to establish a sustainable market play.