|Market Overview||Yesterday, Hong Kong stocks tumbled for an eighth trading days as Hang Seng Tech Index crashed to the lowest level in nine months, with investors stunned by China’s regulatory curbs on the sector. Market believes tech companies may face re-evaluate on the backdrop of all these new regulations, which may lead to revise downward on their relative high valuation. The Hang Seng Index slumped 807pts to 27,153pts with an increase in daily turnover of HKD205.2b. Yesterday, the Hang Seng index dropped to reach its 250-day Moving Average (i.e. 27,100pts). Technically, the index may bottom out in the near term once it falls to its 250-day Moving Average. The first resistance level will be around 27,600pts.|
|China Oversea Listing|
On 6 July, the Chinese regulator announced rules to tighten oversight of foreign-listed companies, enhance cross-border audit supervision collaboration and to set up a supervisory system and framework to supervise overseas listings, as well as stepping up scrutiny on data security, confidential information and cross-border data flows. Investment sentiment is likely to be negative impacted on regulation. In the long run, the impact should be mixed, in market’s view. While the new supervisory system could lengthen the overseas IPO process and IPO candidates will likely have to go through additional vetting processes, the improved framework could address some concerns for foreign-listed Chinese companies on issues such as accounting, variable interest entity (VIE) structure, delisting risk, and so forth. Given there will be increasingly tightened oversight of Chinese companies listed in the U.S., market expects to see a stronger push for secondary listing in Hong Kong among ADRs, which should benefit HKEx (388 HK).
On 5 July, China’s Cyberspace Administration of China (CAC) announced data security reviews into Didi and several Internet companies to prevent national data security risks and safeguard national security. In addition, on 7 July, the State Administration for Market Regulation (SAMR) imposed a fine of RMB500,000 per case on companies that include Alibaba-SW (9988 HK) and Tencent (700 HK). In this announcement, the SAMR ruled that the 22 cases have violated Article 21 of the Antimonopoly Law of the PRC. Among the 22 cases, Alibaba involved in 6 cases while Tencent involved 5. In the near term, the deal flow along tech companies will likely slow down as companies will be more prudent before pursuing such deals. Market expects regulatory overhang for the sector to remain and the regulatory uncertainty may drag valuation multiple, and operational change and social responsibility may affect earnings.
On 7 July, in the weekly State Council meeting, Premier Li announced a few measures to “increase support to the real economy”, including “using RRR cuts to support the real economy” and a few other policy measures aiming at increasing income and improving social security support to vulnerable groups of the labor market. Market believes has a clear “pro-growth” tilt as it emphasized the need to increase financial support to the real economy and explicitly mentioned RRR cuts. The timing of the dovish shift surprises the market as YoY growth is still good from low base effect and the government appears to be in a financial de-risking mode after last year’s easing.
|MTR Co. (66 HK)|
Its management provides operational updates, showing improving trend: (1) a 19% increase in domestic transport service in 5M21; (2) a significant reduction of rental concessions offered to retail tenants; (3) an improvement in the advertising business starting from March 2021; (4) an outperformance of tenant sales in its shopping malls vs. the overall Hong Kong retail market; and (5) its mainland China transport business has largely recovered. Its local transport and other recurrent business should see a meaningful improvement. Also, the property development projects that MTR partnered with developers are on schedule, which should provide solid earnings for the upcoming 2-3 years. In the near term, the catalyst will be potential consensus earnings rerating.
Ming Yuan Cloud (909 HK)
Its management saw signs of a strong rebound in clients’ ERP procurement in 1H21, and market expects the sale momentum to continue in 2H21E given customers’ demand for efficiency improvement. In addition, it is believed that CRM Cloud is effective in enabling property developers to cultivate private domain traffic to reduce channel reliance. With its penetration into more lower-tier cities, Ming Yuan Cloud is able to increase cross-selling of SaaS modules, including AR-based digitalised tools and AI-driven face recognition tools.