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09-11-2020(Mon) 06-11-2020(Fri) 05-11-2020(Thu) 04-11-2020(Wed) 03-11-2020(Tue)
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Investor Notes - Phillip Securities (HK) Ltd
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5 Oct, 2020 (Monday)

Kingdee International Software Group (268) is striving to build a win-win enterprise ecosystem for common growth. The Group is committed to develop the Kingdee Cloud ecosystem, based on the insights into Chinese enterprise management as well as new trend of digital transformation. In the first half of 2020, the Group accelerated the cloud transformation strategy, mainly through promotion of subscription-based cloud products as well as termination of partial ERP software license products. Revenue from the cloud business grew by approximately 45.1% yoy from RMB550,243,000 in the same period last year to RMB798,376,000, accounting for 57.5% of the total revenue. The Group recently completed the placement of new shares and raised about HK$2,353 million which will be applied towards research and development funding, future potential investments (including to support the Company's cloud transformation) and general working capital of the Group. (I do not hold the above stock)
Buy-in Price: $19.00, Target Price: $21.00, Cut Loss Price: $18.00

HOPE EDU(1765)
Hope Education (1765.HK) is principally engaged in the provision of higher education services in China. On the 29th of Sept, the company has announced that the acquisition of Malaysia Inti (one of the largest private higher education service providers in Malaysia) has been completed. The acquisition can allow the company to provide a multi-layered degree progression path to students and fully realizing the synergy between the domestic and foreign schools of the Company. In addition, the acquisition can also boost the external growth of the company. Further, the company has also announced that it is currently in discussions with an independent third party, regarding the potential acquisition of shares of a corporation. If the deal is completed, the company will further expand its school network. In addition to the huge external growth the acquisitions generate, the company is also expecting a significant organic growth driven by the increase in the enrollment scale of `junior college to undergraduate` and junior college education.
Buy-in Price: $2.30, Target Price: $2.55, Cut Loss Price: $2.20

Report Review of September. 2020


Air & Automobiles (Zhang Jing),

TMT & Education (Kevin Chiu)

Consumer & Property Management (Timothy Chong)

Automobile & Air (ZhangJing)

This month I released 4 updated reports ofFuyao (3606.HK), JOYSON (600699.CH), Great Wall Motor (2333.HK) and Sanhua (002050.CH), which got success by their unique Competitive edge. Among them, we highly recommend JOYSON (600699.CH).In H1 of 2020, Joyson recorded revenue of RMB20.53 billion, down by 33.4% yoy. Profit attributable to shareholders changed from a profit of RMB514 million in the same period last year to a loss of RMB539 million. Net loss attributable to the parent company excluding non-recurring items was RMB55 million, compared with a profit of RMB572 million in the same period last year.

Joyson has operations all over the world. Since the end of January, factories in Asia, Europe and North America have ceased production. At the same time, fixed expenses such as labour, depreciation and amortization are inevitable. The Company recognized the fixed expenses of labour, depreciation and amortization during the shutdown period as non-recurring losses of RMB668 million. In addition, the low operating rate also dragged down the Company's gross margin in H1, down by 3.1 ppts to 14.2% yoy.We expect that as the COVID-19 pandemic in various regions is gradually controlled and downstream customers resume work and production in an orderly manner, the Company's result will be significantly improved from Q3 of 2020. As the number of customer models continues to increase in the next few years, the Company's business related to new energy vehicle will benefit significantly, and the business scale and profitability will show a significant increase..

In H1 of 2020, the Company's new orders were RMB25.3 billion, of which Joyson Safety's global new vehicle customer orders were in good condition, including but not limited to Tesla, Honda, Volvo, Volkswagen and Toyota. Up to now, new orders were RMB16.4 billion, and the amount of orders in hand (the full life cycle of orders that have been received but not produced) reached RMB210.7 billion, and the business development trend is good. There were new orders of RMB4.7 billion for automotive electronics business, RMB3.5 billion for functional parts business, and RMB700 million for intelligent vehicle linkage business. Although the domestic car market will be affected by the epidemic, we are optimistic about the firm leading position of the Company and the broad development space for new businesses. By the way, the Company expressed its intention to list the above-mentioned automotive electronics businesses to support further development of new businesses.

TMT & Education (Kevin Chiu)

This month, I have released 4 update reports, Maoyan Entertainment (1896.HK), CMGE (302.HK), China Kepei (1890.HK) and XD Inc. (2400.HK). Among them, we highly recommend XD Inc. (2400.HK).

The 1H20 Revenue of XD Inc. was RMB 1.44 billion (+10.0% yoy). The revenue contributed by game operating business was RMB 1.19 billion (+8.1% yoy). Within the game operating business, the revenue of online game operating business was RMB 1.11 billion (+3.8% yoy). The rise was mainly attributed to the solid performance of Sausage Man (­»¸z¬£¹ï) in 1H20. But the solid performance of Sausage Man (­»¸z¬£¹ï) was partly offset by decreases of revenue from games under maturity stage, such as Ragnarok M (¥P¹Ò¶Ç»¡). In addition, the revenue contributed by premium game operation was RMB 50.5 million (+98.4% yoy), mainly attributed by the solid performance of new game Juicy Realm (´cªG¤§¦a) and old game Muse Dash (Øp´µ§Ö¶]).

On the other hand, the company's revenue from information services in 1H20 was RMB 252 million (+19.9% yoy), and contributed 17.6% of the company's total revenue. The yoy increase was mainly attributed by the huge increase in MAUs of TapTap platform in 1H20. As affected by the quarantine, the MAUs of TapTap platform in 1H20 was 24.8 million (+51.9% yoy).

The MAUs of TapTap platform in 1H20 was 24.8 million (+51.9% yoy). The huge increase was mainly attributed by 1) the improving exclusive content on TapTap platform 2) the increasing time spent online by netizens during the quarantine 1H20. The company has launched many exclusive contents on TapTap in 1H20, including ¡§Pasical's Wager¡¨ (©¬´µ¥d«´¬ù), which is a Chinese game appeared at the Apple Conference. In July 2020, TapTap also exclusively released a free-to-play game ¡§Canal Towns¡¨ (¦¿«n¦Ê´º¹Ï) on PRC Android platform. The game has more than 5 million downloads on the platform in the first month since launched. We believe ¡§Canal Towns¡¨ (¦¿«n¦Ê´º¹Ï) will be served as a great Case study for TapTap platform and help attract more exclusive distribution rights of third party quality games for TapTap platform. With the increase of more high quality content on the platform, the MAUs and advertisement revenue of TapTap will also likely to rise. The number of downloads and TapTap posts in 1H20 also increased by 26.4%/143.0% yoy. The number of TapTap posts grew faster than the MAUs` growth, which indicates that the degree of user participation of users from TapTap has also increased in 1H20. In 2H20, it is expected that the user accounts of Sausage Man (­»¸z¬£¹ï) will be connected with the TapTap accounts. The user accounts of Human Fall Flat (¤HÃþ¶^¸¨¹Ú¹Ò), a highly anticipated game planned to be issued in 2H20, will also be connected with the TapTap accounts. We strongly believe this will further increase the degree of user participations of TapTap Platform.

Consumer & Property Management (Timothy Chong)

I have released two initiation reports covering Anta Sports (2020.HK) and Xtep INTL(1368.HK) this month. Between them, we highly recommend Anta Sports (2020.HK).

In the past 20 years, Anta's main brand business has been developed in the Chinese market under a wholesale distribution model. Under this model, distributors with a strong regional network and local resources can meet different local business cultures and consumer preferences in various regions, so that the Anta brand can achieve national coverage, thereby effectively promoting the Anta brand business. In recent years, market consumption habits have changed rapidly, and companies need to take a more proactive transformation and change to cope with the uncertainty of the external environment so as to achieve sustainable high-quality growth. In mid-2020, the company proposed to transform the business model of the Anta brand from a wholesale distribution model to a direct-to-consumer model (DTC), enabling the company to mobilize resources more flexibly in retail, channel, merchandise, finance, and human resources, and improve operational efficiency.

A consortium led by Anta Sports (2020) acquired Finnish sports brand Amer Sports at the end of 2018. The purchase price is 40 euros per share, which is a 39% premium to the closing price of Amer Sports shares on the Nasdaq Helsinki Stock Exchange, involving approximately 4.6 billion euros (about 40.86 billion Hong Kong dollars). The consortium's acquisition of all shares in Amer Group is the largest merger and acquisition in the history of China's apparel industry. At the end of 2017, Anta became the official sports product partner of the 2022 Beijing Winter Olympics. This means that the company needs to provide snow sports/ice sports equipment support to the national team for many years. It is expected that in 2022, Anta will receive large orders for outdoor sports products. In the field of outdoor sports, on the one hand, industry leaders such as Nike and adidas pay less attention. On the other hand, Anta has acquired Amer Sports by acquiring the opportunity of cooperation with the Winter Olympics to win an entire top brand management group, which can improve its own Product quality will help the company develop the outdoor sports market in the next few years in China.

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