China Archives | Page 117 of 198 | Smartkarma

• On 26th Aug 2022, PCAOB and CSRC announced that they had entered into an agreement granting US authorities access to investigate public accounting firms headquartered in China and HK.
• On 2nd Apr 2022, CSRC put out a draft for public comments on the revision of certain provisions which would allow easier access by overseas regulators to China ADRs audits.
• In this note, we’ll talk about the latest developments and its implications.

• State-Owned-Entities (SOEs) in Tianjin are set to complete the migration of their data from private sector operators like Alibaba Group (9988 HK) to a state-backed cloud by 30th Sept 2022.
• This has already started to tip the balance of power in Chinese cloud computing in favour of politically favoured cloud operators like China Telecom.
• We think the impact of nationalising the cloud could escalate to Alibaba Cloud’s overseas markets as most of its customers overseas are Chinese companies with a global presence.

• The revenue growth rate decelerated, but operating loss shrank in 2Q22.
• We believe the the revenue reclassification is unnecessary and suspicious.
• We set a downside of 19% and a price target of HK$148.

• Tencent invested in Samsung Insurance China Co. Ltd. and is the second largest shareholder.
• JD Health’s revenue increased by 48% YoY, but the stock plunged.
• KE revenue shrank by 45% YoY due to the weak property market.

• Meituan (3690 HK) reported 2Q2022 results on Friday. Revenue grew 16.4% YoY to RMB50.9bn (vs consensus RMB49.2bn) while operating losses dropped to 1.0% of revenue to RMB493m (vs consensus RMB3.3bn).
• The company has changed its segmental reporting to a new reporting structure; Core Local Commerce, New Initiatives and Unallocated items.
• Disclosures on key operating matrices such as GTV and no. of hotel room nights have not been provided and difficult to assess the performance of core businesses.

• In 2Q22, revenue growth rate accelerated and the operating profit achieved record high.
• However, we believe PDD does not fully explain its exclusive advantages over competitors.
• We set a downside of 19% and a price target of US$47 for year end 2023.

• Leapmotor is getting ready to complete its IPO in Hong Kong in the next few weeks, aiming to raise US$1 billion to US$1.5 billion.
• Leapmotor is one of the fastest growing pure play EV companies in China in terms of delivery volume. Leapmotor shipped more than 43,000 EVs in 2021, up 443.5% YoY.
• Leapmotor’s revenue surged from 117 million RMB in 2019 to 3,132 million RMB in 2021. Operating margin improved from -625% in 2019 to -137.7% in 2020, and -91.6% in 2021.

• YH Entertainment Group (2306 HK) is looking to raise up to US$144m in its Hong Kong IPO.
• YH Entertainment (YHE) is an artist management company in China. Its business covers the entire artist management industry value chain, from auditioning, training, artist operation to artist promotion.
• As per Frost & Sullivan (F&S), YHE was ranked first amongst artist management companies in China with a market share of 1.9%, based on artist management revenue generated in 2021. 

• Leapmotor (LM) aims to raise around US$1.5bn in its Hong Kong IPO. LM is a smart EV company based in China, founded in 2015.
• As of end Jun 22, it had delivered a total of 104,829 cars with most of its sales coming from its mini units, T03.
• In our previous notes, we spoke about the company’s past performance. In this note, we will have a look at its PHIP updates.

Shui On’s H1/22 results were mixed in our view. The company’s revenue recognition was heavily impacted by pandemic-related lockdowns in Shanghai during Q2/22, though we expect an improvement from Q3/22. Positively, Shui On’s investment properties performed well despite the lockdowns. This was evidenced by the properties’ high occupancy rates, steady valuations and stable rental income. Negatively, the company’s financial profile weakened slightly, with net debt rising more than expected. This may be due to lower cash collections. Still, we deem Shui On’s near-term refinancing pressure as low.

• Friday in US time, the China Securities Regulatory Commission (CSRC), China’s MOF, and the US Public Company Accounting Oversight Board (PCAOB) “agreed” on a Statement of Protocol.
• This SoP sets the outlines for PCAOB access to inspect/investigate audit papers and accounting firms in China and HK for companies listed in the US.
• The releases’ difference in language is to be expected – different constituencies – but as PCAOB Chair Williams said, “Now we will find out whether those promises hold up.”

• New title approvals halved during 2021, yet overall industry games revenue grew by 3.4%y/y. 1H22 new games approvals are down a further 82%y/y, yet games revenue is down 1.8%.
• Tencent has lost revenue market share to the overall Chinese online game software market, most notably to NetEase, this year.
• Tencent’s paying gamer participation rate has dropped to levels last seen during 2018.

• We see the positive share price reaction of CIMC Enric Holdings (3899 HK) after posting a 34.5% 1H22 core profit growth not yet enough to reflect its encouraging earnings outlook.
• Good order backlog, recovery at clean energy and increase in liquid food demand will add to the strength at chemical and environment segment as CIMC Enric’s drivers.
• Hydrogen energy business made impressive contribution growth and it should benefit from local governments’ hydrogen initiatives. The stock’s high PERs are just reflection of huge long-term potential. 

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.

• Greentown China
• Meituan

• The centralized procurement of hemoperfusion cartridge is the major risk. This is why capital market is divided over the logic of long-term growth when performance continued to grow in 2022H1. 
• Jafron is not without chances to get out of a passive situation. Either business diversification or internationalization would help re-establish the investment logic and improve the outlook.
• The valuation of Jafron Biomedical Co Ltd (300529 CH)has entered the “hitting zone”. After continuous correction, there could be some rebound, like 10%-20% upside potential. Short term trade is recommended.

• Based on an admittedly somewhat finger-in-the-air estimate of probability of privatisation,  shorting Toshiba Corp (6502 JP) here against its Peer Basket is probably not a good outcome.
• Swire Pacific (19 HK) has started buying back with 3.5x the average ADV impact on Bs vs As. That is likely to continue. 
• KKR’s all cash A$88/share Offer for Ramsay Health (RHC AU) is off. The alternative Offer has a lower implied value, and has been unceremoniously rejected, despite Ramsay’s horrible FY22 numbers.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• On the IPO front, China Tourism’s listing appears to have set the ball rolling for others to follow.
• After a flurry of activity in the prior week, there weren’t any major placements this week.

• As China’s property market melts down, shares of property management companies are following suit.
• And there are increasing governance issues attached to these management units as a slew of questionable parent/subsidiary transactions unfold. 
• Valuations for property management companies are trading at multi-year lows. That trend is likely to continue.

• It was a busy week with a lot of review cutoffs for the FTSE country indices and the announcement of the STAR50 INDEX changes for September.
• The coming week has the implementation of the JPXNK400, MSCI, HSI, HSCEI and HSTECH rebalances. Plus announcements of the changes to the FTSE, NIFTY and S&P/ASX indices.
• There were outflows from iShares MSCI All Country Asia ex-Japan ETF (AAXJ US), IShares Core MSCI Asia Ex Japan ETF (3010 HK) and KraneShares CSI China Internet ETF (KWEB US). 

• Chongqing Hongjiu Fruit (6689 HK) is looking to raise up to US$93m in its HK IPO.
• Chongqing Hongjiu Fruit (CHJF) is a multi-brand fresh fruit distributor in China with an end-to-end supply chain. They have 1.0% market share as China’s second largest fruit distributor
• CHJF had grown at an impressive rate even in the face of COVID-19. In this note, we will take a look at its valuations vs that of listed peers.

• The index committee has continued to use a 6 month minimum listing history leading to five changes to the SSE STAR50 (STAR50 INDEX) in September.
• One-Way turnover is estimated at 4.07% and will result in a one-way trade of CNY 2,265m. Passive trackers will need to trade between 1-5 days ADV on the adds/deletes.
• The adds have outperformed the deletes and the CSI500 Index since the end of the review period. We’d look to buy the adds and hedge with CSI500 Index futures.

The Chinese Property Weekly focuses on providing updates in the Chinese real-estate sector, including recent regulatory and company developments, top and bottom performers, rating actions, as well as a list of bond maturities in the next 30 days.

• Gome Retail Holdings Ltd, one of China’s largest bricks-and-mortar electronics retailers, plans to acquire real estate to develop into shopping malls and a customer experience center.
• The company will modify an eight-story shopping mall in Gome Commercial Capital into an arena capable of accommodating roughly 300 manufacturers of home appliances and consumer electronics to display and sell their products.
• The Beijing property covers an area of 524,638 square meters and also includes catering and entertainment facilities, a hotel, a warehouse and an underground parking lot.

The Chinese Property Weekly focuses on providing updates in the Chinese real-estate sector, including recent regulatory and company developments, top and bottom performers, rating actions, as well as a list of bond maturities in the next 30 days.

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. China Oil And Gas
2. Geely Auto
3. Shimao Property Holdings
4. Kwg Property Holding
5. Seazen (Formerly Future Land)

and more…

• Chevron continued its restructuring efforts which included $200 million in asset sale gains and a $600 million charge to cancel an extended LNG regas contract at Sabine Pass.
• Chevron’s results were encouraging as it managed to deliver an all-around beat with superior yields and reduced carbon in the Permian.
• With the remaining project operations mostly concentrated on systems completion, commissioning, and start-up, Chevron anticipates finishing construction by year’s end.

• Advanced Micro Devices continued its strong execution across the board and delivered an all-around beat in the recent result driven by its premier product line, and diverse business strategy.
• The management also observed a significant year-over-year rise for their networking and FPGA solutions, which are the best in the business, with cloud and financial customers.
• During the quarter, they also launched Ryzen Embedded R-Series system-on-chips processors in order to broaden their product line and target emerging markets.

• For the first time since the Covid-19 pandemic, Booking Holdings managed to exceed the levels for room nights in the last quarter which is a significant milestone in its recovery.
• Nearly 0.25 billion room nights were reserved by the company’s clients in Q2, a slight increase from the first quarter’s 9% fall and a rise of 16% compared to Q2 2019.
• The near-term macroeconomic climate is unpredictable which is why we maintain our ‘Hold’ rating on Booking Holdings with a revised target price.

• YH Entertainment Group (2306 HK) is looking to raise up to US$144m in its Hong Kong IPO.
• YH Entertainment (YHE) is an artist management company in China. Its business covers the entire artist management industry value chain, from auditioning, training, artist operation to artist promotion.
• As per Frost & Sullivan (F&S), YHE was ranked first amongst artist management companies in China with a market share of 1.9%, based on artist management revenue generated in 2021. 

• WM Motor Technology Co Ltd (WMT CH) (WMM) is looking to raise about US$1bn in its upcoming Hong Kong IPO.
• WM Motor is a smart EV player in China. As of the latest practicable date, it had a total of four main EV models. 
• In this note, we talk about the not-so-positive aspects of the deal.

• At the beginning of the week, I was determined to have this post with a more bullish tone. Maybe it is a contrarian indicator.
• But as of yesterday’s market, I see that my efforts were rather over-optimistic.
• The note is what is in front of me rather than speculating we are at the change in trend.

• Recurring profit for Sinotrans (598 HK) increased 16.4% in 1H22 and improved to 16.6% in 2Q22. The declaration of an interim dividend also highlights management’s confidence.
• We expect a pick-up in 2H22 as negative impact of the lockdowns faded. Also, contribution from DHL-Sinotrans should return to growth as international express regain momentum.
• Strong financial position should allow for higher dividend payout, and currently it is already yielding 10.4%. Its 3.6x PER and 0.4x P/B are cheap, especially relative to ROE of 11.3%.

Road King’s H1/22 results were acceptable in our view. The company reported robust EBITDA growth and strong margin expansion, likely supported by deliveries of the higher-margin Hong Kong projects sold in FY 2021. Net debt improved marginally, in line with the stronger earnings.

That said, Cash/ST Debt was inadequate at 0.8x. Road King may face a funding gap for repayment of its USD 358 mn bonds in February 2023, though it should be able to bridge the gap through better cash collections in H2/22 or potential external financing (asset sales or equity issuances). Positively, the company has a well-spread debt maturity profile, with only one offshore bond coming due in 2023 and the next (USD 480 mn) due in September 2024.

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.

• Guangzhou R&F Properties

• Swire Pacific (19 HK) has bought back B/A shares in ratios of 63/37 and 72/28 over two days.  Listing Rules suggest the ratio has to be higher than 76.71/23.29. 
• Preceding my comments on Swire are the current setup/unwind tables for Asia-Pacific Holdcos. 
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• CTG Duty-Free Group has priced its IPO at HK$158 per share, at a slight premium to the midpoint of the indicative IPO price range of HK$143.5-165.5 per share.
• At HK$158 per share, the company raised net proceeds of HK$15,892.3 (approx. US$2.0bn) and the IPO is priced at an almost 30% discount to CTG’s A-share last close price.
• Cornerstone investors subscribed for approx. 38.4% of the H-share offering (or 1.9% of the total issued share capital of the company post-offering) with some existing shareholders subscribing under placing guidelines.

• The revenue growth rate fell to 5% in 2Q22 due to the lockdown in Shanghai and Yangtze delta.
• However, freezers became popular in June and July because of the experience during the lockdown.
• We believe the stock has an upside of 21% based on EBITDA, but the upside can be significant if based on sales-related ratios.

• China Tourism Group Duty Free Corp Ltd (1880 HK)/CTGDF priced its H Share at HK$158.00 per share to raise net proceeds of US$2.0 billion. The H Share starts trading tomorrow.
• The H Share listing price implies an AH discount of 27.2% at A Share price of RMB189.80. This compares to an average AH discount of 46.6% of listed AH shares.
• The China Tourism Group Duty Free Corp Ltd (601888 CH) A Shares are trading close to fair value. The H Shares valuation is unattractive compared to peers. 

• Revenue grew by 20% YoY in 2Q22 with supply chain revenue up by 11% YoY and other revenue up by 42% YoY.
• The company was not impacted by lockdown, because the main business is to provide solution to delivery companies.
• We still believe the stock will has an upside of 39% after the surge on the day next to the result day.

• JD Health reported 1H2022 results. Revenue increased 48.3% YoY to RMB20.2bn (vs consensus RMB19.4bn) while managed to report a small OP of RMB60m (0.3% of revenue) for the period.
• Excluding share-based payment expenses, JD Health reported an OP of RMB1.0bn vs RMB564m in the same period a year ago, resulting in an OPM of 5.1% vs 4.1% in 1H2021.
• The growth in annual active user account growth has declined during 1H2022, however, it was mainly due to decrease in marketing spend.

• The data in this insight is collated from the “shareholding disclosure” link on the HKEx website. 
• Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. However, such disclosures are by no means an absolute. 
• These insights also flag those companies where shares have been pledged, both recently and ongoing.

• Leapmotor (2007699D HK), a Chinese EV manufacturer, will start its listing hearing for a US$1.5 billion HKEx IPO this week, according to press reports.
• In Leapmotor IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case. 
• The key elements of the bear case rest on a slow ramp-up, lower revenue, high EBIT and FCF loss margin compared to peers at a similar stage of development.

• Our earnings projections for China Tourism Group Duty Free Corp Ltd (1880 HK) are 14% and 18% below market consensus respectively. We think these are more realistic expectations.
• At IPO price of HK$158, CDFC H-share sits on 23.9x FY23F PER. We think it is difficult to trade above 22x – the average for top consumer discretionary names.
• Weakened visitor appetite to Sanya, potentially higher discounts, increase in border opening, higher fixed cost and uncertainties for duty free policies beyond 2025 are negative earnings factors.

• Based on the correlation between revenue and China’s online retail sales, we estimate Pinduoduo (PDD US)’s Q2 revenue to beat consensus by around RMB 2.4bn.
• Our cost estimates translate the above revenue to an OP of RMB 4.0bn in 2Q22 compared to RMB 3.6bn for consensus.
• Even though consensus seems to have over-corrected its 2Q22 assumptions, it is still hung up on old assumptions for the medium term.

• Last week Yum China Holdings Inc (9987 HK)  announced it has applied for voluntary conversion to a primary listing on the Hong Kong Stock Exchange.
• Should all necessary approvals from the HKEx be satisfied, Yum will become dual primary listed on the New York Stock Exchange and the HKEx.
• This regulatory process, facilitated by rules introduced by the HKEx over the past year, enables the de-listing of the ADRs and the smooth transition to a sole HK listing.

• Bright Scholar Education (BEDU US) (BSE), an operator of schools across China, the UK, and the US, received an Offer earlier this year from Huiyan Yang, the chairperson.
• Yang is offering US$3.32/ADS – adjusted for the recent reverse split – a 44% premium to the undisturbed price. 
• Yang controls 92.5% of the votes. There is no shareholder vote on this transaction should a firm Offer unfold.

• Back on 2 June, SOE terminal operator Xiamen International Port (3378 HK) announced a pre-conditional Offer of $2.25/share from Xiamen Port Holding, a Fujian SASAC-controlled entity.
• The pre-conditions  – NDRC, MoC, SAFE, and CSRC – were fulfilled on the 16 August.
• The Composite Doc is now out. The H-class meeting will be held on the 16 September. There is no tendering condition. Payment should be the 6 October.

• With an 18.6% growth in 1H22 profit from continuing operations, Kunlun Energy (135 HK) has not disappointed us. Natural gas sales segment is a bright spot with solid growth.
• Net cash swelled to Rmb10.2bn at end-Jun, about 2x more than the level at end-FY21. We estimate this roughly equals to 19% of the current share price. 
• New project momentum looks healthy and the market seems to have underestimated FY22 earnings. Its 8x and 7.5x PERs for FY22 and FY23 are clearly attractive. 

• In 2Q22, the company’s adverting revenue increased by 11% YoY, while the market size shrank by 8% YoY.
• The company raised both of its user base and Time Spent per Daily Active User.
• The company’s operating margin continued to shrink due to the layoff at the beginning of this year.

• Leapmotor (2007699D HK), a Chinese EV manufacturer, will start its listing hearing for a US$1.5 billion HKEx IPO this week, according to press reports.
• Leapmotor ranked fifth among the global pure-play EV companies and fourth among the pure-play EV companies based in China as measured by sales volume in 2021. 
• The key elements of the bull case rest on a solid roadmap, executive capabilities, explosive growth, declining loss margin and declining FCF burn.

• Xiamen International Port H (3378 HK)‘s composite document is out with the H Shareholders’ class meeting scheduled for 16 September. The IFA considers the offer to be fair and reasonable. 
• The key conditions are approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders’ rejection). There is no minimum acceptance condition.
• This is a done deal. At last close and for a 6 October payment, the gross and annualised spread to the offer is 0.9% and 7.6%, respectively. 

• Kuaishou Technology (1024 HK) reported 2Q2022 results today. Revenue grew 13.4% YoY to RMB21.7bn (vs consensus RMB20.7bn) while reported operating losses dropped to RMB3.1bn (vs consensus RMB4.6bn).
• Though top line growth of online marketing services has been declining, the company managed to report growth while peers have been facing decrease in revenues.
• Kuaishou’s domestic biz has turned profitable at the OPM line while there has been significant decrease in Op. losses from the overseas segment.

• China Tourism Group Duty Free Corporation Limited (CDF) raised around US$2.4bn in its H-share listing in Hong Kong, after pricing its IPO at HKD158/share.
• As per Frost & Sullivan, CDF had 92.3% market share by retail revenue in China duty-free merchandise sales in 2020.
• In this note, we talk about the deal pricing and the trading dynamics.

• The 25.6% increase in net profit for Canvest Environmental Protection Group (1381 HK) in 1H22 is a resilient show given cost inflation and pandemic/lockdowns in the period.
• Good pipeline should support growth for the next two years as projects under construction/planning accounted for 54% of the existing capacity in Aug.
• Canvest’s expectation that gearing has peaked suggests that it will start deleverage in next year. This is a positive message in an industry traditionally with weak cashflow.

• PetroChina (601857 CH) and EVE Energy (300014 CH) could replace China Pacific Insurance (Group) (601601 CH) and Zhangzhou Pientzehuang Pharmaceutical Co. (600436 CH) in the index at the September rebalance.
• Assuming both changes are implemented, estimated one-way turnover is 2.24% and will result in a one-way trade of CNY 1,180m.
• There has been no announcement from FTSE yet on the potential increase in the number of index constituents from 50 to 100.

• Yankuang Energy Group (1171 HK) is the highest ranked eligible non-constituent and could replace Shenzhou Intl Group Holdings (2313 HK) in the index at the September rebalance.
• Passive trackers will need to buy over 1 day of ADV on Yankuang Energy Group (1171 HK) while selling over 1 days ADV on Shenzhou Intl Group Holdings (2313 HK). 
• Short interest is over 10% of float on Yankuang Energy Group (1171 HK) and there could be short covering as the stock breaks out.

• Biocytogen is a leading animal model player in China expanding into biotech. The company launched a downsized deal to  raise up to USD 70m via a Hong Kong listing.
• In our previous note, we looked at the company business lines and compared the company’s operation with leading animal model players.
• In this note, we provide an update for the book building. We provide our quick thoughts on the valuation and deal dynamics.

• And on the 6th Day, Swire Pacific (A) (19 HK) commenced its buyback. 
• It took until the 6th day for Swire to start its buyback, and now that it has started, we may have a little better idea of the parameters. And impact. 
• So far, they appear to be bending the rules a little, but it is still the way it should be. So there is still a trade here to do.

• Inside is a recap of movements in the last week relating to the Shanghai and Shenzhen-Hong Kong Stock Connect facilities, broken down by company and industry.
• Overall, the net outflow over the past week was ~US$0.21bn, split (-US$0.24bn) for Shanghai and (+US$0.3bn) for Shenzhen.
• The largest inflows were into China International Marine (2039 HK) and Li Ning (2331 HK). The largest outflows were in Meituan (3690 HK)and Kuaishou Technology (1024 HK).

• Inside is a recap of movements in the last week relating to the Hong Kong Stock Exchange -Shanghai and Shenzhen Northbound Connect facilities, broken down by company and industry.
• Overall, net inflow over the past week was ~US$1.2bn, split between Shanghai (US$0.9bn) and Shenzhen (US$0.3bn).
• The largest inflows were into CATL (300750 CH) and Hundsun Technologies (600570 CH). The largest outflows were in TBEA Co Ltd A (600089 CH) and Tongwei Co Ltd (600438 CH).

• 1H22 is a fantastic period for Orient Overseas International (316 HK) with record earnings. However, with retreat in freight rates YTD, it is likely to mark the cycle peak.
• OOIL has not seen the usual peak season for transpacific market yet.  Also, supply pressure is mounting as record vessel delivery is scheduled for the next two years.
• The elevated share price has not reflected that profitability will decline in FY23 and FY24. We see significant downside risk as the market becomes more realistic on earnings.

• BeiGene’s product sales in 2022H1 more than doubled YoY, which was a positive sign for commercialization. However, net loss further widened, mainly due to significantly high R&D and SG&A expenses.
• Tislelizumab and zanubrutinib are not enough to support BeiGene’s high valuation. The success or failure of TIGIT project will be the key to determine how far BeiGene will go.
• So far, it is still an indisputable fact that BeiGene has profitability issues. That’s why it’s hard for us to be optimistic about this company. 

• WM Motor Technology Co Ltd (WMT CH) (WMM) is looking to raise about US$1bn in its upcoming Hong Kong IPO.
• WM Motor is a smart EV player in China. As of the latest practicable date, it had a total of four main EV models. 
• In this note, we talk about the positive aspects of the deal.

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.

• Golden Eagle Retail
• KWG Living Group

• The Hang Seng Index Team announced four changes to the Hang Seng Index, bringing membership to 73 from 69, on its way to 80, but later than originally targeter mid-2022. 
• Additions are China Shenhua Energy Co H (1088 HK), Chow Tai Fook Jewellery (1929 HK), Hansoh Pharmaceutical (3692 HK), and Baidu (9888 HK). 
• Official placeholder turnover is about 3.8%. Small changes due to capping updates still to come. China Shenhua and possibly Chow Tai Fook look interesting as trades.

• The Hang Seng Index Team announced the index review for the Hang Seng Tech Index Friday after the close. There were no additions or deletions.
• However, there is a 4.9% one-way turnover on reasonably heavy FAF and capping changes. Sensetime sees a huge FAF increase. Tencent, Meituan, and Kuaishou get re-capped higher. Xiaomi lower.
• There is a fair bit of flow, but the obvious big name – SenseTime Group (20 HK) – has potential overhang. Watch Haier Smart Home Co Ltd (6690 HK). 

• On Friday the Hang Seng announced the changes to the HSCEI for the September rebalance. SenseTime Group (20 HK) is an ADD. China Pacific Insurance (2601 HK) a DELETE.
• Meituan (3690 HK) and Tencent (700 HK) see their weights re-capped upwards. Alibaba Group (9988 HK) capped slightly lower. There are a number of FAF changes.
• Little stands out other than the China Pacific Insurance (2601 HK) deletion. It runs low volatility vs Peers so could be a good buy on dip.

• Hansoh Pharmaceutical (3692 HK) is strengthening its innovative drug pipeline. In August the company in-licensed one clinical stage drug candidate for women health, having large addressable market opportunity in China.
• Earlier in May, entered into an exclusive license agreement with NiKang Therapeutics and obtained an exclusive license to develop and commercialize NKT2152 for the treatment of cancer within China.
• Hansoh’s self-developed oncology drug is getting closer to the UK approval through its partner EQRx. The company received approval for one generic oncology drug in China.

• WuXi Biologics released 2022H1 results. The Company maintained its growth momentum. We highlight some positive sides. However, gross profit margin decreased. Considering the future trend, margin performance is not optimistic.
• A drop in demand has already occurred. Meanwhile, after the biologic drug boom has passed, the “low-hanging fruit” is gone, there could be more magnified cyclical problems for WuXi Biologics.
• As an old generation CXO, it’s difficult for WuXi Biologics to achieve V-shaped rebound or hit new highs.2022 is a good time to offload. Investors can take advantage of it.

• Core net profit rose a healthy 10.9% at ENN Energy (2688 HK) in 1H22 despite challenges from pandemic lockdowns and surge in input costs.
• We expect to see sequential improvement in both dollar margin for gas sales and overall gross margin in 2H22. Excellent integrated energy pipeline should add to earnings momentum.
• Gearing improved 2.2pp in 1H22 and there is more room to deleverage in 2H22. While the stock’s valuation is not particularly cheap, it has probably already hit the trough. 

• Logistics companies’ revenue grew by over 10%, which reflects the recovery of e-commerce.
• The market size of Chinese online game continued to shrink in July.
• Alibaba’s Ele.me sets up a mini-program on TikTok to fight Meituan.

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
• Kawasan Industri Jababeka
• Sino-Ocean Service
• Times China
• Xiaomi Corp

• There are 24 adds and 14 deletes for the Hang Seng Composite Index (HSCI) at the September rebalance to take the number of index constituents up to 518.
• 19 of the 24 HSCI inclusions will be added to Southbound Stock Connect, while 12 of the 14 HSCI deletions will be removed from Southbound Stock Connect.
• Five of the HSCI constituents could be removed from Southbound Stock Connect only since the average market cap over the last year is less than HK$5bn.

• There are no changes to the index names, but FAF and capping changes will lead to a one-way turnover of 4.5% and one-way flow of HK$3,287m.
• An increase in the FAF from 3% to 40% will result in passive inflows of HK$1.18bn for SenseTime Group (20 HK) – that is over 5 days of ADV.
• There are large shorts on some of the stocks that will have passive outflows and some of these positions could be covered on implementation day.

• Chinese food delivery giant Meituan (3690 HK) shed 9% after Tencent (700 HK) reportedly planned to divest its $24bn stake. But it may just be a misunderstanding. Maybe.
• Given Jardine Matheson Holdings (JM SP)‘s strong underlying operating performance, the 40% discount to NAV – one in which there are discounts of discounts – JMH appears attractive here. 
• Expect a firm Offer for Nearmap Ltd (NEA AU) shortly. Thoma Bravo’s due diligence is already at an advanced stage. And why Nearmap entered into the break fee. 

• A busy Friday with the end of the S&P/ASX review period and announcement of changes to the Hang Seng family of indices and FTSE AW/AC at the September rebalance.
• Monday is the review cutoff for the FTSE TWSE Taiwan 50, STI, FTSE China 50 and A50 indices, among others. STAR50 Sep changes announcement expected post market close on Friday.
• There were some big inflows into Asia focused ETFs during the week, while the outflows from KraneShares CSI China Internet ETF (KWEB US) continued for yet another week.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• On the IPO front, China Tourism managed to price its IPO above the mid-point.
• There were a host of placements and blocks this week across the region.