Daily Brief China: Zhejiang Longsheng Group Co.,, Beijing-Shanghai High Speed Railway-A, CGN New Energy Holdings, Meituan, Yashili International Holdings, Growatt Technology, BeiGene Ltd, China Gas Holdings, Indika Energy, Bosideng International Holdings and more

• There are 50 changes a side for the CSI 500 Index at the upcoming rebalance that will be implemented at the close of trading on 9 December.
• One-Way turnover at the rebalance is estimated at 12.64% leading to a one-way trade of CNY 9.3bn. The Materials, Information Technology and Consumer Discretionary sectors are net gainers.
• 9 adds to the CSI 500 Index are deletes from the CSI 300 Index while 7 deletes from the CSI 500 Index are adds to the CSI 300 Index.

• There are 18 changes to the SSE180 Index and 38 changes to the SSE380 Index that will be implemented at the close of trading on 9 December.
• There will be 10 deletions from the MSCI Standard Index and 26 deletions from the FTSE All-World/All-Cap indices at the close on 9 December.
• Currently, 8 stocks meet the threshold/are close for inclusion in the MSCI China Index while there are 21 stocks that meet the threshold for inclusion in the FTSE All-World/All-Cap indices.

• A “valuation system with Chinese characteristics” has the media, ostensibly, discussing whether this implies a premium for SOEs and companies aligned with national goals.
• In early 2020, SOE-backed clean energy play CGN New Energy Holdings (1811 HK) was subject to a potential privatisation from its parent; but it failed to materialise. 
• During the 14th and 15th Five-Year Plans (2021-30) period, China’s installed capacity for wind and solar power is expected double.

• Meituan reported 3Q2022 results. Revenue increased 28.2% YoY to RMB62.6bn (vs consensus RMB62.3bn) while reported an OP of RMB988m (consensus OP loss of RMB935m) for the first time since 3Q2019.
• However, on adjusted basis, Meituan made an adjusted operating loss of RMB1.1bn (1.7% of revenue) of revenues compared to an adjusted operating loss of RMB7.7bn (15.1% of revenue) in 3Q2022.
• Tencent announced that it will distribute majority of its shareholding on Meituan (3690 HK) to its shareholders in dividends and Naspers is expected to sell the Meituan Shares it receives from Tencent.

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads  21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Genex Power Ltd (GNX AU), Golden Energy & Resources (GER SP), Perpetual Ltd (PPT AU), 111 Inc (YI US).
• Lowest spreads  Tyro Payments (TYR AU), Warrego Energy (WGO AU), Nitro Software Ltd (NTO AU), Chip Eng Seng Corp (CHIP SP), Uzabase Inc (3966 JP), PTB Group Ltd (PTB AU). 

• Growatt Technology (1833969D CH), a leading PV inverters manufacturer, is pre-marketing a US$1.0 billion HKEx IPO, according to press reports.  
• We previously discussed the IPO in Growatt Technology IPO: The Bull Case, Growatt Technology IPO: The Bear Case and Growatt Technology IPO: Growing Watts. 
• In this note, we present our forecasts and take the first look at Giant Biogene’s potential valuation range. 

• Our forecast of the total peak sales of BRUKINSA, tislelizumab and the rest commercialized products is about RMB10 billion, which is not enough for BeiGene to turn losses into profits. 
• BeiGene has the highest R&D/academic ability among domestic pharmaceutical enterprises,but BeiGene cannot be assessed according to the standards of Chinese pharmaceutical enterprises due to its fundamentally different cost structure/breakeven point.
• The current market value has already priced in the success of TIGIT project to some extent. In other words, the upward elasticity may be limited. But BeiGene deserves long-term follow.

• While China Gas Holdings (384 HK) expects better gas dollar margin HoH, there are still high profit uncertainties and its full-year operational guidance does not look exciting.
• The expectation of flat to 10% YoY decline in new residential household connections is not encouraging. With 1H FY23 profit only amounted to 42% of consensus, we see downgrade risks.
• Despite achieving positive free cash flow, its high gearing of 69.9% (+4pp HoH) is still very stretched relative to peers. We prefer Kunlun Energy (135 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.

• Indika Energy
• Meituan

• Amid the challenging market, Bosideng International Holdings (3998 HK)‘s 15% growth in 1H FY23 profit is decent. Excluding impairments, operating profit would have grown by 31.3%.
• It expects FY23 gross margin to expand and further store optimisation to enhance operating margin. The introduction of highly successful ultralight down jackets is an added driver.
• With 32% increase in online branded apparel sales, the channel will be Bosideng’s key growth impetus. For “double-11”, sales have outperformed peers significantly, showcasing its product strengths.