Intelligent Hong Kong Stock Analysis | Delayed retirement brings new changes, M&A restructuring policies intensively catalyze

[Market Analysis]

Hong Kong stocks continue to diverge from A-shares, with the Hang Seng Index once again opening higher today, but softened slightly towards the end of the day, closing up by 0.75%. Trading volume shrank to 88.88 billion.

Due to the lack of incremental foreign capital, A-shares are finding it difficult to sustain momentum relying solely on internal forces. Guizhou Maotai (600519.SH) has directly fallen below a key support level in the past few days, weakening the anchor of consumer stocks and severely denting market confidence. With the Mid-Autumn Festival approaching, risk-averse funds have once again chosen to stay on the sidelines.

On the other hand, Hong Kong stocks are more influenced by the performance of US stocks, as foreign capital enters the market in anticipation of the upcoming rate cut by the Federal Reserve. The inevitable result of a rate cut is a weakening US dollar, leading to a strengthening of the Renminbi exchange rate. Offshore Renminbi against the US dollar showed strong performance throughout the day, reaching a high of 7.0910, surging over 200 points. With the Renminbi assets gaining strength, capital inflows into Hong Kong stocks are inevitable, with the recent focus on banking stocks that have experienced significant declines, such as China Merchants Bank (03968) and Postal Savings Bank of China (01658), both seeing gains of over 2%.

Positive rumors have also emerged: it is rumored that China will cut interest rates on existing housing loans by over $5 trillion this month, aiming to stimulate consumption by reducing borrowing costs for millions of households. This news may act as a catalyst for a collective rise in real estate stocks. However, since it is just a rumor and similar claims have been made before, the overall response in the real estate sector today was not very strong, with companies like Longfor Properties (00960) rising by less than 3%, while China Resources (01109) and Vanke (02202) only rose by around 1 point.

Gold, which is more sensitive to the Federal Reserve's rate cuts, saw a surge today. One reason for this is that the European Central Bank announced a rate cut last night. The spot gold price broke through the previous peak of $2560 per ounce on Thursday night, with both spot gold and COMEX gold hitting new closing highs by the end of the day. Spot gold closed up by 1.84% at $2558.07 per ounce; COMEX gold futures rose by 1.78% to $2587.6 per ounce. Futures trading higher than spot prices indicates further room for growth.

The leading stock in the gold sector is the newcomer Lao Pu Gold (06181), which has nearly doubled in value since its listing on June 28, from a low of 60.95 yuan to a high of 115 yuan. There are several reasons why this stock stands out in the gold sector: 1. Core product categories, such as 23-year-old gold inlaid jewelry accounting for 56% of revenue, with products mainly handmade, making it difficult for competitors to scale up quickly. 2. The company focuses on the high-end market for traditional gold, benefiting directly from the rise in gold prices, with significant product and channel differentiation, facing relatively low competitive pressure. 3. Strong growth potential, benchmarking high-end brands, with huge room for expansion of store outlets. As of August 4, 2024, Lao Pu Gold has only entered 24 shopping malls in mainland China, covering 13 cities, with potential for expansion in mainland China and overseas. The stock saw a rapid increase after being included in the Hong Kong Stock Connect list, and it is recommended to pay attention to it again after a possible adjustment. Of course, stocks like Shandong Gold (01787) and Zijin Mining (02899) also have opportunities.

According to Xinhua News Agency, the 14th National People's Congress Standing Committee's 11th meeting decided to implement the "Decision on Gradually Delaying the Statutory Retirement Age," which will take effect from January 1, 2025 Male workers and female workers with the original statutory retirement age of 55 years old, the statutory retirement age is delayed by one month every four months, gradually extended to 63 years old and 58 years old respectively; female workers with the original statutory retirement age of 50 years old, the statutory retirement age is delayed by one month every two months, gradually extended to 55 years old. Reason: According to the analysis of the OECD database, the retirement age for Chinese men is 60 years old, with an expected lifespan of 75.3 years, resulting in a retirement life expectancy of 15.3 years, higher than 70% of countries worldwide. Compared to American men retiring at 66 years old with an expected lifespan of 74.2 years and a retirement life expectancy of only 8 years, China's retirement age is relatively low and retirement life expectancy is long, indicating the necessity for adjustment. In addition, a report from the Chinese Academy of Social Sciences predicted that the urban employee basic pension fund may be depleted by 2035, and delaying retirement can help alleviate pension pressure and supplement labor supply.

Delaying retirement can unleash potential, increase productivity, create new wealth, and also boost demand for medical, pharmaceutical, elderly care, insurance, etc. Today, medical-related stocks are relatively prominent, with companies like MicroPort Medical (00853) and iKang Healthcare Group (01789) both seeing a 10% increase. In the insurance sector, China Life Insurance Company (02628) is worth paying attention to.

Innovative drugs continue to catalyze, with Li Li, Director of the National Medical Products Administration, stating at a press conference today the need to improve the efficiency of drug evaluation and approval. Pilot programs have been launched in Beijing, Shanghai, and other places to shorten the review and approval time for innovative drug clinical trials from 60 working days to 30 working days. Innovent Biologics (01541) announced that, under the authorization and cooperation agreement with Instil Bio's wholly-owned subsidiary SYNBIOTX, the company has received a recent payment of $5 million from SynBioTx. Currently, under the authorization and cooperation agreement, the company has received a total of $15 million in upfront and recent payments, and expects to receive up to an additional $35 million in potential future payments. Developing blockbuster innovative drugs and waiting for companies to pay a hefty price for acquisition is the future direction. Companies like Kangfang (09926), Kanglong Chemical (03759), and Kangzhe Pharmaceutical (00867) have all seen a 5% increase.

The Yunqi Conference will be held starting next Thursday, with rumors that Alibaba Cloud's Tongyi Big Model will undergo a "full-size, full-mode, multi-scenario" upgrade. According to public information from Alibaba Cloud at the end of July, Tongyi Big Model has been used by over 200,000 enterprises through Alibaba Cloud services, and the open-source Tongyi Qianwen model has been downloaded over 20 million times. Taobao has launched an AI English version in Singapore, ranking first on the App Store. Alibaba Group (09988) surged during trading today, although there was a pullback, the overall trend remains positive.

According to e-Company of Securities Times, on September 10th, Jiyue Auto, jointly created by Baidu and Geely Holding Group, officially launched its second product, the 07. The new car is priced at 199,900 to 289,900 yuan with purchase discounts, making it the industry's first AI car positioned as an intelligent driving sedan. Within 48 hours of its launch, the orders reached 5,000 units, utilizing Baidu's Apollo L4 level autonomous driving and the same-source technology of RoboRun, equipped with the fully autonomous driving large model - ADFM large model, with a standard CLTC range of 660km and the ability to charge for 10 minutes to replenish 600km of energy Under the trend of car internal competition, the cost-effectiveness is getting higher and higher, with Geely Auto (00175) and Xiaomi (01810) maintaining a stable trend.

According to sources, Chinese logistics giant SF Holding Co., Ltd. (002352.SZ) was reported to have conducted a listing hearing on the Hong Kong Stock Exchange yesterday (September 12). It is expected to raise USD 1 billion to USD 2 billion (approximately HKD 7.8 billion to HKD 15.6 billion) and may become the second largest IPO of the year. Recently, logistics stocks have also performed well overall, such as ZTO Express (02057), Kerry Logistics Network (00636), and SF Express Co., Ltd. (09699).

Recently, large-cap companies have chosen to list in Hong Kong, reflecting capital's relatively positive outlook on the market. However, there is also significant differentiation, with stocks breaking through still carrying risks.

[Sector Focus]

Currently, the heat of mergers and acquisitions is high, with various news being released intensively: On September 10, the Director of the Shanghai State-owned Assets Supervision and Administration Commission published an article in the Liberation Daily titled "Focusing on Core Competitiveness to Deepen the Reform of State-owned Assets and State-owned Enterprises," mentioning the more extensive, deeper, and broader overall allocation of state-owned capital to promote strategic restructuring across groups and levels. On September 11, Tan Zuojun, Deputy Director of the State-owned Assets Supervision and Administration Commission of the State Council, stated that central enterprises are encouraged to strengthen cooperation with various types of ownership enterprises and actively engage in equity cooperation with private enterprises and other social capital.

Data shows that since May 2024, A-share listed companies have disclosed a total of 46 major asset restructuring projects, with 7 equity restructuring projects submitted to the China Securities Regulatory Commission for registration. Relevant officials of the CSRC stated that overall, the market-oriented reform of mergers and acquisitions has achieved positive results, with landmark mergers and acquisitions cases emerging successively, showing that "hard technology" companies are more active in mergers and acquisitions, facilitating technological innovation and resource integration.

The Hong Kong stock market continues to focus on securities-related mergers and acquisitions, such as Zhongjin Company of China Merchants Group (03908) and China Galaxy Securities Co., Ltd. (06881); CITIC Securities Co., Ltd. of CITIC Group (06030) and CITIC Securities Co., Ltd. (06066); in the A-share market, there are Hubei-based TF Securities Co., Ltd. (601162.SH) and Changjiang Securities Co., Ltd. (000783.SZ).

[Stock Analysis]

CStone Pharmaceuticals -B(06990): Announces research results of anti-TROP2ADC Lencotuzumab Vedotin, enriching the innovative drug pipeline with commercialization prospects

The company announced that it will present the research results of its anti-TROP2ADC Lencotuzumab Vedotin at the 2024 European Society for Medical Oncology (ESMO) Congress in Barcelona, Spain from September 13 to 17. It is reported that the NDA application for Trop2ADC has been accepted, and the NDA application for HER2ADC has been submitted to the CDE. As of June 2024, Merck has conducted 10 global multicenter Phase III clinical trials of SKB264 (MK-2870)-trop2 ADC.

Analysis: The first NDA application for SKB264 was accepted by the CDE in December 2023 and included in the priority review and approval process. SKB264 is expected to become the first domestically produced innovative TROP2ADC drug approved for marketing in China. The company achieved total revenue of RMB 1.382 billion in the first half of the year, a year-on-year increase of 32.2%; Net profit was RMB 310 million, turning losses into gains; adjusted net profit was RMB 386 million, a year-on-year increase of 1068%. The main reason for the turnaround was the milestone payment of RMB 640 million received from multiple collaboration pipelines by Merck, with additional revenue coming from upfront payments and R&D collaboration service fees from previous authorized collaborations. The pipeline of innovations is rich: 1) SKB315 (MK-1200, CLDN18.2ADC): MSD has returned global rights, and the company does not need to return the upfront and milestone payments already received, with the China Phase 1a ongoing; 2) SKB410 (MK-3120) Nectin-4ADC: China Phase 1a clinical trial is in progress. 3) A167 (PD-L1 monoclonal antibody): In May 2024, the NDA for first-line nasopharyngeal carcinoma (RM-NPC) has been accepted. A140 (EGFR monoclonal antibody): The NDA for treating RAS wild-type mCRC and HNSCC was accepted by the National Medical Products Administration in September 2023. Multiple products are expected to be approved, with commercialization preparations in place. The company expects to launch core products sac-TMT (Jiatailai®), A166 (Shutailai®), and key products A167 (Ketailai®), A140 (Datailai®) in the Chinese market in the second half of 2024 or the first half of 2025. The company has established a mature commercialization team dedicated to preparing and implementing the marketing and commercialization of strategic products.

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