In today’s briefing:
- CSI Medical Service Index Rebalance: Adds Could Outperform Deletes in the Coming Week
- Quiddity CSI 300/500 Jun 24 Rebalance: 92% Hit Rate; US$3.7 One-Way Flows
- Merger Arb Mondays (03 Jun) – China TCM, Huafa, GA Pack, SciClone, CF Logistics, Great Eastern
- Fosun Pharma (2196 HK/600196.CH) To Privatize Henlius (2696.HK) – Things Are Not as Good as Expected
- China Healthcare Weekly (Jun.2) – Innovent’s Trouble, Hengrui’s “smart Deal”, Zai Lab’s Pain Point
- Divi’s Laboratories (DIVI IN): Custom Synthesis Business to Drive Future Growth
- [Akeso (9926 HK, BUY, TP HK$58) Company Update]: AK112’s Win Unleashes Change in PD-1/L1 Landscape
- Medtronic plc: Expansion Of Global Operations & Supply Chain Transformation! – Major Drivers
CSI Medical Service Index Rebalance: Adds Could Outperform Deletes in the Coming Week
- CSI announced the changes for the June rebalance after market close on 31 May and the changes will be effective after the close of trading on 14 June.
- There are 5 adds/deletes – we correctly forecasted 3 adds and all 5 deletes. Passives need to trade 0.5-3x ADV on the adds and 0.5-2.1x ADV on the deletes.
- With the index not very widely forecasted, the adds could outperform the deletes over the next week in a repeat of the performance at the December rebalance.
Quiddity CSI 300/500 Jun 24 Rebalance: 92% Hit Rate; US$3.7 One-Way Flows
- The June 2024 index review results for China’s CSI 300 and CSI 500 indices were announced after market close on Friday 31st May 2024.
- There will be 12 changes in CSI 300 and 50 changes in CSI 500 which could collectively cause one-way index flows of ~US$3.7bn during the June 2024 index rebal event.
- Compared to Quiddity’s final expectations, 114 out of the 124 index changes (both ways) were correct translating to a hit rate of 92%.
Merger Arb Mondays (03 Jun) – China TCM, Huafa, GA Pack, SciClone, CF Logistics, Great Eastern
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), Hollysys Automation Technologies (HOLI US), Chilled & Frozen Logistics Holdings (9099 JP), Ansarada Group Ltd (AND AU), Malaysia Airports Holdings (MAHB MK).
- Lowest spreads: Great Eastern Holdings (GE SP), Mma Offshore (MRM AU), Pact Group Holdings (PGH AU), Mimasu Semiconductor Industry (8155 JP), Kfc Holdings Japan (9873 JP), Alumina Ltd (AWC AU).
Fosun Pharma (2196 HK/600196.CH) To Privatize Henlius (2696.HK) – Things Are Not as Good as Expected
- It is said that Fosun Pharma plans to privatize Henlius. There’re doubts about how to solve the debt problem/cash flow pressure of Fosun Pharma. A third party could be involved.
- Shareholders may not be willing to accept an Offer Price that is significantly below IPO price. It’s also possible that shareholders vote against the privatization. So, there are many uncertainties.
- Deal talks are still ongoing. It’s difficult to see clearly what’s happening under the table. Valuation logic of Fosun Pharma should be more like PE/VC firms not traditional pharmaceutical company.
China Healthcare Weekly (Jun.2) – Innovent’s Trouble, Hengrui’s “smart Deal”, Zai Lab’s Pain Point
- Innovent’s 24Q1 product sales was up just 6% QoQ. The overall data shows that PD-1 growth has entered a bottleneck. This makes 24H2 YoY growth rate uncertain.
- The deal between Hengrui and Hercules is different from traditional license-out cooperation, but belong to asset spin-off in essence, which is a “smart deal” and also a meaningful attempt.
- There’re some positive signals in Zai Lab’s 24Q1 performance, but the pain points of business model severely limit its profitability/revenue scale. Zai Lab still has a long way to go.
Divi’s Laboratories (DIVI IN): Custom Synthesis Business to Drive Future Growth
- Divi’s Laboratories (DIVI IN) reported steady performance in Q4FY24, marked by YoY and sequential growth in revenue and improvement in profitability. Double-digit growth is expected to continue.
- Custom Synthesis business grew 47% YoY and 38% QoQ to INR12B in Q4FY24, driven by increasing value realization from existing commercial projects and addition of new projects to the portfolio.
- In Custom Synthesis, Divi’s Lab is in the process of entering into a long-term supply agreement with an MNC customer and is planning for capacity addition at its manufacturing facility.
[Akeso (9926 HK, BUY, TP HK$58) Company Update]: AK112’s Win Unleashes Change in PD-1/L1 Landscape
- Ivonescimab’s (AK112) head-to-head clinical win against Keytruda (Pembrolizumab) reaffirmed Akeso’s standing as the flag-bearer of Chinese innovative drugs. It also affirmed its business model of specialized R&D+flexible distribution.
- This success might be followed by a similar win globally in 2025-27,as well as AK112 and 104’s head-to-head win against Tislelizumab.
- We reiterate our BUY rating on Akeso and adjust TP to HK$58 to reflect revenue share from AK112 to come in from 2025 but in bulk after 2027
Medtronic plc: Expansion Of Global Operations & Supply Chain Transformation! – Major Drivers
- In its fiscal year 2024 Q4 earnings, Medtronic reported significant revenue growth and strong earnings, demonstrating the effectiveness of its strategies to drive growth and profitability.
- The company’s four segments delivered mid-single-digit or higher revenue growth, with total revenue growth exceeding 5% for the full fiscal year.
- This record growth was largely driven by new product innovations across Medtronic’s cardiovascular, robotics, diabetes care, and other therapeutic segments.
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