Internet – China: Revitalising Momentum Evident in Initial Phase of 11.11 Campaign

The initial phase of the 11.11 campaign shows promising signs of high single-digit GMV growth in 2024. Government trade-in subsidies and 11.11 discounts are expected to stimulate consumer demand, particularly for home appliances and 3C digital products. Competition between traditional and livestreaming e-commerce is stabilizing, with a strong emphasis on shelf-based e-commerce.

Singles’ Day Festival Sales

Sales during the Singles’ Day festival surpassed expectations. National daily parcel volumes surged 49% year-over-year during 21-27 October, reaching 600 million per day. E-commerce platforms’ total online sales hit RMB 845 billion by 30 October, with home appliances leading at RMB 132.4 billion. Consequently, the estimated e-commerce GMV growth is revised to 7% year-over-year, up from the previous 4% estimate.

Government Policies and Platform Profitability

Government trade-in subsidies combined with platform discounts significantly boosted consumer demand. The subsidies appear rational with a moderate increase expected, paving the way for a healthy 4Q24 margin for e-commerce players.

Market Share and Sales Insights

Traditional e-commerce accounted for 80.3% of sales, while livestreaming e-commerce represented 19.7%. JD delivered robust sales in 3C digital products and home appliances, with over 100% year-over-year growth in transactions for 3,000 home appliance brands.

Stock Picks

• Alibaba (9988 HK): Target Price: HK\$130.00
• JD.com (9618 HK): Target Price: HK\$197.00

Link REIT (823 HK): 1HFY25 DPU Up 3.7% Year-Over-Year, Meeting Expectations

Link REIT’s 1HFY25 DPU grew by 3.7% year-over-year, meeting expectations. The Hong Kong malls saw a rental reversion of 0.7%, and the China portfolio experienced organic revenue growth of 6.5%. Despite macro headwinds, Link REIT demonstrated resilience. The management anticipates a slowdown in rental reversion in Hong Kong for 2HFY25, with non-rental income serving as a buffer. The target price remains HK\$45.08.

1HFY25 Results

• Total Revenue: HK\$7,153 million (6.4% growth year-over-year)
• Net Property Income (NPI): HK\$5,359 million (5.8% growth year-over-year)
• DPU: HK\$1.349/share (3.7% growth year-over-year)

Occupancy and Rental Reversion

Despite a 4.3% decline in tenant sales, Hong Kong malls registered a 0.7% positive rental reversion in 1HFY25. The Mainland China portfolio saw organic revenue and NPI growth of 6.5% and 4.9% year-over-year, respectively. Singapore’s retail portfolio registered an impressive rental reversion of 18.9%, although office properties remain under pressure.

Valuation and Recommendation

Link REIT is trading at a 7.0% FY25 yield, slightly below the 4-year mean. The target price of HK\$45.08 is based on a dividend discount model with a cost of capital of 8.7%, corresponding to a FY25 DPU yield of 5.9%. It remains the top pick for Hong Kong landlords.

Prudential (2378 HK): Solid NBP Growth on Improved Sales and Margins Across Few Markets

Prudential reported an 11% year-over-year growth in NBP, driven by improved sales in China, Hong Kong, and Indonesia. The NBP margin also increased by 1.8 percentage points year-over-year due to a favorable product and channel mix. The company’s guidance for 9-13% NBP growth in 2024 suggests a positive outlook for 4Q24. The target price is HK\$126.00.

9M24 New Business Highlights

• APE: US\$4,639 million (7.1% growth year-over-year)
• NBP: US\$2,347 million (11.3% growth year-over-year)
• NBP Margin: 50.6% (1.8 percentage points increase year-over-year)

Performance in Key Markets

Hong Kong’s APE sales grew 12% year-over-year in 3Q24, while CITIC Prudential Life in China delivered a 12% NBP increase in 9M24. Singapore registered a 6% APE growth in 3Q24, and Indonesia saw a 29% recovery in insurance sales. Malaysia’s APE sales were sluggish with a 1% jump in 3Q24.

Capital Injection into CITIC Prudential Life

Prudential announced a US\$176 million cash injection into CITIC Prudential Life, which saw its solvency ratio improve significantly. Additionally, CITIC Prudential Life recorded a net profit of RMB 242 million in 3Q24, recovering from a loss in 1H24.

Valuation and Recommendation

The target price of HK\$126.00 is based on the sum of Prudential’s embedded value and the present value of future NBP. Prudential is currently trading at an undemanding 0.5x 2024F P/EV. The strong 9M24 results could help ease investor concerns about its underlying sales and new business growth.

Traders’ Corner

Link REIT (823 HK)

Trading buy range: HK\$37.75-38.05

Last price: HK\$38.05

Target price: HK\$39.15/HK\$41.50

Protective stop: Breaks below HK\$36.60

Link REIT rebounded after finding support near HK\$36.00 and rose above its 20- and 50-day moving averages. The 14-day RSI broke through the midline of 50, indicating strengthened momentum.

Sinopec Kantons Holdings Limited (934 HK)

Trading buy range: HK\$4.40-4.43

Last price: HK\$4.33

Target price: HK\$4.58/HK\$4.81

Protective stop: Breaks below HK\$4.25

Sinopec Kantons Holdings has formed an upward trend with higher lows since the start of the year. The share price stabilized near HK\$4.28, and a black candlestick with a hammer pattern indicated support, suggesting a potential new uptrend.