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Yujing Liu

Deb Price

Good day, traders.
Catch up on the day's action in China and Hong Kong markets. Please send any feedback or questions to deb.price@scmp.com
— Yujing Liu and Deb Price in Hong Kong 
 
 

 


Stocks Blog: High-flying STAR stocks in China fall as traders grab profits and run 

A pedestrian walks past the Bund Bull statue in Shanghai on October 24, 2018. Photo: Bloomberg 


Business

Markets

Wuling Motors expects big net profit decrease, while Anta expects profit increase 
China Railway announces US$4.13 billion in new projects


Shanghai, Hang Seng inch up; state-owned carmaker BAIC jumps on Daimler stake acquisition


Stocks

China markets

Hong Kong Stock Exchange

Live

Wuling Motors Holdings (305 HK) says it expects net profits for the six months through June 30 to decrease by 80 per cent compared to 72.6 million yuan for the same period last year. 
The Chinese maker of vehicle engines and parts also expects to record a loss attributable to the owners of the company, compared to a profit of 46.3 billion yuan in the first half of 2018, it wrote in a statement to the stock exchange late on Monday.
Wuling blamed an “unfavourable market environment of the automotive industry in China since the second half of 2018” for the drops, and said its revenue of its automotive components and industrial services division had dropped as a result.
Results are expected to be published by the end of August, it said.
— Louise Moon 
 


Wuling Motors expects big net profit decrease 

Chinese sportwear giant Anta Sports (2020 HK) expects to report an increase in profit from operations of no less than 50 per cent for the first half of the year through June 30, compared to the same period last year, which saw profts of 2.69 billion yuan (US$390 million), it said in a Hong Kong stock exchange filing after trading hours on Monday evening.
The company said it also expects a gain of no less than 25 per cent in its net profit for the same period, from 1.95 billion yuan (US$283 million) last year.
The company attributed the gains to a growth in recorded sales, which has led to a more than 35 per cent increase in revenue for the first six months when compared to last year, as well as an increase in operating profit margin.
The results will be published on August 26.
Earlier on Monday, the company issued a note to deny allegations by short-seller Muddy Waters Capital, which claims Anta secretly controls its distributors, and shifts costs to third party suppliers to keep these entities outside of its integrated audit.
— Louise Moon 
 


Anta expects profit increase 

China Railway Group (0390 HK) (601390 CH) announced it won contracts for 21 domestic projects and one overseas project, totaling 28.4 billion yuan (US$4.13 billion).
Domestic projects include railway station construction, highway building among others, while the overseas project was the laying of a new railway track in Laos, according to an exchange filing Monday night.
The group said it signed 388.1 billion yuan worth of new contracts in the second quarter of the year. In the first six months, it signed a total 701.3 billion yuan, marking a 10.5 per cent year-on-year increase.
— Louise Moon 
 


China Railway announces US$4.13 billion in new projects

All but three of the 25 stocks traded on Shanghai’s new technology board, known as the STAR board, weakened in early trading today after recording jaw-dropping gains in their debut Monday.
Western Chaodao Material Technology (688122 SH), a titanium material manufacturer, led the decline with a 18 per cent drop to 45.12 yuan. The stock surged 267 per cent to close at 54.99 yuan from its offering price of 15 yuan yesterday.
— Yujing Liu 


Star board debutantes plunge in market open

All but three of the 25 stocks traded on Shanghai’s new technology board, known as the STAR board, weakened in early trading today after recording jaw-dropping gains in their debut yesterday.
Western Chaodao Material Technology (688122 SH), a titanium material manufacturer, led the decline with an 18 per cent drop to 45.12 yuan. The stock surged 267 per cent to close at 54.99 yuan from its offering price of 15 yuan yesterday.
— Yujing Liu 


Here's what we are watching this morning:
Overnight markets
-- The US market advanced broadly on Monday as investors anticipated positive quarterly earnings from technology giants including Facebook, Alphabet and Amazon later this week. The S&P 500 added 0.3 per cent, the Nasdaq Composite rose 0.7 per cent, and the Dow Jones Industrial Average was 0.1 per cent higher.
 
IPO debuts:
-- Trading of ozone equipment maker Qingdao Guolin Environmental Technology (300786 SZ) will start in the ChiNext board of start-ups in Shenzhen.
Economic statistics/Central Bank action:
None to note.
Corporate events:
-- Semiconductor assembly and packaging firm ASM Pacific Technology (522 HK) will announce first-half results today.
Good reads: The US-China trade war and ongoing social unrest in Hong Kong have dimmed the outlook of retailers in the city, Martin Choi reports. Hong Kong’s anti-corruption agency has charged five more people as part of the city's largest financial investigation in decades, reports Enoch Yiu. 
 


Morning guidance 

China’s eighth-largest property developer Seazen Holdings (601155 SH) is still reeling from the shock wave of the arrest of its founder and controlling shareholder Wang Zhenhua for allegedly molesting a nine-year-old girl.
The company is exploring selling its stakes in about 40 development projects “to actively respond to market changes,” it said in a Shanghai stock exchange filing last night.
Seazen has signed agreements to transfer stakes in five projects to other companies, amounting to 2.4 billion yuan (US$349 million) in transaction value, or 8 per cent of its net assets in 2018, the company said.
The projects have not started selling, and transferring the stakes will not create a major impact on Seazen’s 2019 earnings, it said.
“The company’s 2019 contracted sales target is still 270 billion yuan. The management and operations remain normal,” the company said.
Since Wang’s arrest on July 1, shares of the company have plunged by 28 per cent to close at 29.7 yuan yesterday. It is trading down 9.6 per cent today.
Its sibling, Future Land Development Holdings (1030 HK), is trading down 9.3 per cent at HK$6.90.
— Yujing Liu 


Developer Seazen sells projects as impact of founder's arrest continues

Wind power equipment maker Shanghai Huitong Energy (600605 SH) surged by the maximum 10 per cent of daily limit to 11.94 yuan, after announcing its controlling shareholder will increase its stake to 51 per cent from the current 30 per cent.
The shareholder, Dejin Enterprise Management, will buy 21 per cent of shares of the company at a price of 12.5 yuan apiece from the rest of the shareholders, according to a stock exchange filing Monday night.
— Yujing Liu


Shanghai Huitong Energy jumps as big shareholder to increase stake

Stocks on the STAR board are likely to experience volatile swings over the next few days but “will probably fall back to a reasonable valuation level” in the long term, according to Stanley Chan, research director at Emperor Securities.
“After all, the supply of listings is still limited now while investors’ enthusiasm is high, so valuation is unlikely to crash all of a sudden,” Chan said.
“The market needs time to get used to the fresh trading rules and the valuation levels of the stocks, so there’s likely to be volatility at the beginning.”
— Yujing Liu


Crystal Ball: STAR stocks will be volatile but calm down eventually, says analyst Stanley Chan

Smartphone and home appliance maker Xiaomi Corp added 1.5 per cent to HK$9.08, after the company awarded each of its more than 20,538 employees and core contractors 1,000 shares.
While the decision was announced in a stock exchange filing on Friday evening, Xiaomi's founder and chief executive Lei Jun said in an internal letter on Monday that the shares were a gift to the employees as the company made it onto the latest Fortune Global 500 list.
The awarded shares represent about 0.1 per cent of the company's total shares, according to the filing.
— Yujing Liu 


Xiaomi shares rise after it awards employees shares 

BAIC Motor (1958 HK), the Hong Kong-listed unit of Chinese state-owned carmaker BAIC Group, surged by as much as 8.5 per cent after the parent announced it has bought a 5 per cent stake in German auto giant Daimler AG.

The transaction involves direct shareholding of a 2.48 per cent stake in Daimler and acquisition of an additional voting right that equals what a 2.52 per cent stake would represent, according to a statement by BAIC Group published on its official website.

BAIC is a long-time partner with Daimler, having established a joint venture Beijing Benz Automotive in 2005.
“Investing in Daimler will strengthen the cooperation and support between us and Daimler in management and company strategies,” said BAIC Group chairman Xu Heyi, in a statement.
-- Yujing Liu 


State-owned carmaker BAIC jumps on Daimler stake acquisition

The Hang Seng is getting a boost from information technology, up 3.4 per cent, health care, up 2.9 per cent, and consumer staples, 1.9 per cent. All sectors but real estate are showing gains in afternoon trading.
Hengan International (1044 HK) jumped 5 percent to HK$59.15 to be the top gainer by percentage on the benchmark, after Macquarie lifted its price target by 45 per cent and rated it an outperform from underperform.
Other gainers were Sino Biopharmaceuticals (1177 HK), which shot up 4.8 per cent to HK$9.33, and AAC Technology, (2018 HK), which rose 3.8 per cent to HK$44.75.
Developers are among top losers in afternoon trading, led by Country Garden Holdings (2007 HK), which dropped 2.5 per cent to HK$10.84.
The Hang Seng Index was last trading up 0.32 per cent to 28,459.91.
— Deb Price 
 


Information tech shares give Hang Seng a lift

Shares of Qingdao Guolin Environmental Technology (300786 CH),  which sells ozone generators and pressure vessels, had their transactions halted after they jumped by their 44 per cent daily limit to 37.47 yuan, from an initial public offering price of 26.02 yuan. Only 1,300 shares managed to change hands before trading was suspended.
— Eugene Tang


 Qingdao Guolin jumps to 44 per cent limit in debut in China

The trading frenzy in Shanghai’s new STAR board, which pushed one stock up 521 per cent at one point Monday, appears to be short-lived after all.
By today’s close, all but four of the 25 stocks went public on the Nasdaq-style board yesterday declined. As many as 14 of them plunged by over 10 per cent. Signal system developer China Railway Signal & Communication (688009 SH) was the top loser with a 18.4 per cent fall to 10.01 yuan.
Total transaction volume in the stocks also weakened to 20 billion yuan (US$2.9 billion) from more than 70 billion yuan recorded Monday.
Investors have taken profits to charge back into the main boards, pushing up the benchmark indices.
The Shanghai Composite Index rose 0.5 per cent to 2,899.94, while the Shenzhen Component Index added 0.6 per cent to 9,175.83. The ChiNext Index of Shenzhen-listed start-ups jumped 1.3 per cent to 1,534.93.
— Yujing Liu


Most STAR board shares in China get a buzz cut

It isn't looking good for listed Hong Kong retailers, between the US-China trade war and unrest in the city.
“We are pretty cautious about the outlook for the retail sector for July and August, given what has been happening these couple of weeks,” said Mariana Kou Chung-yin, head of China education and Hong Kong consumer research at CLSA.
Citing “demonstrations and social unrest in Hong Kong", beauty retailer Bonjour (0653 HK) expects to report a net profit loss for the first half of 2019.
Other retailers that have posted profit warnings include Aeon Stores (Hong Kong) (0984 HK) and Giordano International (0709 HK).
They attributed a drop in sales performance to a weaker retail environment and poor market sentiment in the economies of Hong Kong and China as a result of the trade war and the depreciation of the yuan, according to their filings with the exchange.
Share prices of Bonjour and Giodarno have both fallen about 20 per cent year to date, while Aeon Stores declined 9.3 per cent.
Prices continued to tumble today despite the Hang Seng trading up 0.3 per cent. Giodarno was down by 3.4 per cent and Aeon Stores slipped 0.5 per cent. Bonjour's price was unchanged.
“Hong Kong’s consumer and investor sentiment has only really started to show signs of uncertainty this month ... These factors were not reflected in the results of the second quarter, so I think there will be greater uncertainty in the second half of 2019,” said Kenny Wen, wealth management strategist at Everbright Sun Hung Kai.
Read full story here by Martin Choi. Additional reporting for blog by Daryl Choo. 


Hong Kong retailers face 'greater uncertainty' ahead, analysts warn

A decision not to have cornerstone investors didn't help Budweiser Brewing Company APAC, which scuttled its planned IPO earlier this month. It would have been one of only a few mega-deals in Hong Kong history without any cornerstone investors. 
Mike Suen, partner at international law firm Withers, said cornerstone investors are important for big IPOs. Suen has 17 year of experience in corporate finance and specialises in IPOs in Hong Kong.
“Looking back at past mega-size deals, IPOs with cornerstone investors are generally more well received by public investors than those without cornerstone investors,” Suen said.
“Cornerstone investors are generally perceived as an indication of their confidence in and good prospects of the listing applicants.  Public investors may take this as one of their major considerations for investment decision,” Suen said.
Suen doesn't think Budweiser's cancellation of its flotation will affect other companies deciding whether to listing in Hong Kong. 
“I don't think withdrawal of this specific IPO will have any significant impact on the IPO deal flows in the second half of the year," he said. "Each company has its own plans, which would be different from that of any other IPOs.  I am still optimistic about the potential mega-size IPO deals in the second half of the year,” Suen said.

— Enoch Yiu
 


Budweiser IPO not helped by lack of cornerstone investors, experts say

Mainland Chinese property developers listed in Hong Kong fell broadly against the upward market, after media reported the government is cracking down on violations in their financing activities.
The Chinese banking regulator will launch special inspections of 75 banks in 30 cities later year, as it intensifies the scrutiny on lending to property developers to contain market speculation, Chinese financial media Caixin reported today.
Sunac China Holdings (1918 HK), the fourth-largest developer in China, lost 2.5 per cent to HK$37.2. China Evergrande Group (3333 HK) declined 2.3 per cent to HK$21.3, and Country Garden Holdings (2007 HK) fell 2.2 per cent to HK$10.9.
— Yujing Liu


Chinese developers fall on media report of loan inspections

Ben Powell, the BlackRock Investment Institute’s chief investment strategist for Asia-Pacific, said that trade tensions raging between the US and China and slowing economic growth globally have caused investors to favour developed market equities over listings in Hong Kong and other parts of Asia. 
“Appetite for emerging market equities and APAC equities is somewhat constrained at the moment. It is somewhat conservative,” Powell said. “The uncertainty that trade tensions and strategic competition have caused has, if anything, even amplified that bias for safety of the developed markets, most likely the US." 
— Chad Bray 
 


Trade tensions prompt investors to favour developed market equities, says BlackRock strategist 

The introduction of Shanghai's new STAR board has caused some worries that it would draw liquidity from China's main boards, but head researcher Castor Pang Wai-sun at Core Pacific-Yamaichi doesn't see it that way.
"They are really separate markets. They are not the same in nature and the investments [do not have the] same characteristics" he said.
"[The STAR board] is just like a gambling casino, because the share prices stretch up a lot. Everyone is trying to make short-term profits."
Trading euphoria on the new Nasdaq-style board, which pushed one stock up 521 per cent at one point on its debut on Monday, has mostly died down, with as many as 14 stocks plunging by more than 10 per cent today.
For the main boards, the Hang Seng and Shanghai Composite will likely remain in range-bound trading, with prices see-sawing like it has in the past two days, Pang said.
"Today was only a technical rebound," he said. "Even if there are rumours of trade representatives visiting China next week, it seems that they're still far from reaching an agreement [on trade]."
"Hopefully if that is the case, an announcement will help the Hong Kong market move up a bit, but it will still not be able to break 29,000 in the near term. Particularly as the turnover is very slim."
The Hang Seng closed at 28,466.48 today, inching up 0.34 per cent.
While unprecedented violence over a proposed extradition bill crisis at a railway station in Hong Kong from armed attackers shook the city, the impact on the stocks market has so far stayed muted, said Pang.
But, he noted, "[If it continues, the violence] will affect the confidence of the investors of the Hong Kong stock market, and the near-term economic situation. And right now, the confidence on consumption seems to be weakening."
— Daryl Choo


STAR 'casino' board unlikely to affect main board prices, says Castor Pang

China’s corporate borrowers, especially non-state companies, are missing a record number of bond repayments, as business conditions worsen amid the slowest economic growth pace in three decades, while a year-long trade war with the US has crimped the biggest market for many exporters.
Thirty private businesses missed their repayment obligations on 89 issues valued at a combined 60 billion yuan (US$8.7 billion) so far this year, an increase of 150 per cent from the same period in 2018, according to data by Shanghai Wind Information. That’s more than the state-owned enterprises that missed eight bonds valued at 10 billion yuan, and topping last year’s 126 defaults worth 11.4 billion yuan.
“The reality on the ground is that thousands of private companies are facing difficulties in sustaining their business growth this year, because of declining sales and narrower profit margins,” said Eric Han, a senior manager with business advisory firm Shanghai Suolei. “Business morale appears to be low among entrepreneurs who are reluctant to invest in business expansion.”
Defaults are likely to rise further, after China’s economy expanded 6.2 per cent in the three months ended June, the slowest quarterly pace since record-keeping began in 1992, analysts said.
Read full story by Daniel Ren here. 
 


China's corporate borrowers missing repayment obligations

Investors are less willing to budge on the valuation of initial public offerings than they have been in the past, not just in Hong Kong and mainland China but in other parts of the world as well.
The decision by Anheuser-Busch InBev to pull the listing of its Asian business earlier this month does not indicate there is less appetite for Hong Kong listings, said a Hong Kong banker, who spoke on condition of anonymity.
The market has instead been holding more firmly on pricing, rather than showing a willingness to bridge the gap on valuation, the banker said.That trend has not just been limited to Hong Kong or mainland China offerings, the banker said.
Swiss Re, for example, suspended the £3 billion (US$3.7 billion) IPO of its United Kingdom life insurance business in London days before the scuttling of Budweiser Brewing Company APAC.Uber priced its US$8.1 billion IPO at the low end of its expected range in New York in May.
— Chad Bray
