Daily Brief China: Zijin Gold, Pacific Textiles, Zijin Mining Group Co Ltd H, Hang Seng Index and more

• Zijin Gold IPO will start trading on 30 September. Zijin Gold is aiming to raise US$3.2 billion (HK$24.98 billion) from its IPO, offering 349 million shares at HK$71.59 each.
• Our base case valuation of Zijin Gold is HK$124.7 per share (74.2% higher than the IPO price). We expect a sharply higher pop on the first day of trading.
• If its share price appreciates more than 30-50% or more, we think it is prudent to take some profits off the table (at least 25%-30% of total investment). 

• Pacific Textiles is a major knitted fabric manufacturer facing significant headwinds, evidenced by a multi-year decline in revenue and profitability. The company’s performance is closely tied to the cyclical nature of the global apparel market and the inventory management of its key customers.
• The company maintains a high dividend yield, which may appeal to income-focused investors. However, the sustainability of this payout is questionable given the sharp decline in net income and free cash flow, and the dividend per share has already been reduced.
• Strategically, the company is shifting production capacity to its Vietnam facilities to capitalize on lower costs and changing trade dynamics. This move is crucial for future competitiveness but also entails execution risk and underutilization of its China-based assets.

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• Zijin Mining is a rapidly growing global mining powerhouse, having recently become the world’s third-largest mining company by market capitalization, driven by surging gold and copper prices.
• The company exhibits a strong growth trajectory, underpinned by a successful strategy of aggressive international acquisitions and superior operational capabilities that enable faster mine development.
• Despite robust financial performance and a positive commodity outlook, the company’s valuation appears stretched, with high short interest suggesting significant market skepticism.

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• As suggested in our previous insight, the Hang Seng Index (HSI INDEX) rally was at risk of pulling back: a small correction began last week.
• The big question now: is this just a minor 1-week pullback (a buy-the-dip opportunity)? or a larger pullback, possibly directed towards 23k?
• This insight discusses the various tactical scenarios, including profit targets for a continuation of the rally from here.