Are Chinese stocks stable? From entering the "scheduled delisting list" to "consultation is smoother"

Financial Associated Press (Shenzhen reporter, Cheng Mengqi) news, for the Chinese stock companies that entered the "scheduled delisting list", as well as the relevant US and Hong Kong listed companies that have an impact on expectations, last night's US stock trading, to today's Hong Kong stock trading, from being placed in a crisis and falling, to being rescued by the rapid rescue to save the decline, the plot has ups and downs.

First, the U.S. Securities and Exchange Commission (SEC) finalized the "scheduled delisting list" including BeiGene, Yum China, Zaiding Pharmaceutical, Shengmei Semiconductor, and Huang Pharmaceutical on March 8, which led to a sharp drop in Chinese stocks after the opening of the market last night.

Subsequently, the China Securities Regulatory Commission made rapid feedback and issued an announcement overnight, expressing its resolute opposition to the erroneous practice of some forces to politicize securities supervision, and was willing to solve the problem of inspection and investigation of relevant firms by US regulatory departments through regulatory cooperation. That night undoubtedly gave a reassuring pill to the Chinese stock company with similar problems.

However, affected by the night before, the Hang Seng Index fell sharply at the opening of today' market, and Chinese stock companies and a number of technology companies were in mourning. A message in the intraday became timely rain. The Financial Associated Press has learned that the regulators of China and the United States have held smooth consultations on audit supervision cooperation and are expected to reach a consensus as soon as possible. Affected by this news, Hong Kong stocks rose rapidly.

In the end, the Hang Seng Index narrowed its decline from 3% to 1.6% to close at 20,553 points; the National Index fell 2.7% to close at 7,060 points; and the Hang Seng Technology Index fell 4.3% to close at 4246 points, after a sharp decline of 8%. The total daily turnover of Hong Kong stocks was HK$190.692 billion, and the net inflow of Shanghai and Shenzhen-Hong Kong Stock Connect to the south was RMB3.139 billion and RMB2.098 billion respectively.

At the close of the week, under the multiple factors of the War between Russia and Ukraine, the repeated rise in international oil prices, the increase in global inflation concerns, and the audit and regulatory risks faced by U.S.-listed Chinese stocks, the Hang Seng Index fell by 6.2% in the week, the national index fell by 8.1%, and the Hang Seng Composite Index fell by 10.4%.

There are no science and technology network stocks in the predetermined list, and the Internet leader is still falling

Citifa Research Pointed out that none of the five new companies included in the pre-removal list are Chinese Internet companies, but the Chinese stock ADR fell by an average of 8% to 20% yesterday because the market is worried that more companies will be added to the list in the coming months.

It is true that the decline in Hong Kong stocks narrowed, but many leading Internet technology companies still maintained a certain decline, and after Jingdong announced its results yesterday, it fell 11% today to close at 211.2 yuan. Alibaba fell 5.5 percent to close at $90.8. The Hong Kong Stock Exchange and AIA rose about 3% against the market, leading the blue chip; Xiaomi and SenseTime turned red, up 0.6% and 1% respectively. Hong Kong stocks BeiGene and Zaiding Pharmaceutical, which were on the "scheduled delisting list", fell 4.9% and 6.3% respectively, Yum China fell 6%, and Huang Pharmaceutical fell 9.5%.

The U.S. Securities and Exchange Commission (SEC) announced that five listed companies in the United States have been identified as relevant issuers with delisting risks under the Foreign Company Accountability Act (HFCAA), and the head of the relevant department of the China Securities Regulatory Commission responded to this last night, saying that he had repeatedly expressed his attitude on the implementation of the Foreign Company Accountability Law, pointing out that the mainland respected foreign regulators to strengthen the supervision of relevant accounting firms in order to improve the quality of financial information of listed companies, but resolutely opposed the erroneous practices of some forces to politicize securities supervision.

In the intraday on the 11th, according to the exclusive news of the Financial Associated Press, close to the mainland regulators revealed that the dialogue and consultation between the regulators of China and the United States on audit regulatory cooperation progressed relatively smoothly, and both sides showed their willingness to solve the problem and are expected to reach a consensus as soon as possible.

Hehuang Medicine: 273 registrants may be on the "scheduled delist"

Hehuang Pharmaceutical Hong Kong stocks fell more than 15% intraday, the stock price hit a record low, pulled up at the end of the session, and finally closed down 9.47%, down 25.07% this week.

According to the annual results previously released by Hehuang Pharmaceutical, its total revenue in 2021 increased by 56.18% year-on-year to US$356.1 million; The company's net loss attributable to the company was US$195 million, an increase of 54.81% year-on-year. R&D expenses for the Period were US$299.1 million. In addition, Hehuang Pharma said it had paid it a down payment totaling $140 million under the licensing and cooperation agreement between the two parties, and $85 million of the milestone payments for development and first commercial sales.

According to Futu data, in the past five trading days as of March 10, Hehuang Pharmaceutical's Hong Kong stocks were net sold by HSBC with 2.8 million shares, eight times the net sales of the second to tenth brokers combined.

The SEC estimates that 273 registrants under the Foreign Companies Accountability Act may be considered issuers identified by the Commission in the 2020 review. It is expected that other similar U.S.-listed companies with operations in Hong Kong and other parts of China will be included in the list when they submit their annual reports to the SEC.

Pursuant to the requirements of the Act, if the auditor of the issuer's financial statements fails to be verified by the U.S. Public Corporation Accounting Oversight Board for three consecutive years beginning in 2021, the SEC will prohibit any such securities of the covered issuer from trading on any U.S. stock exchange, including the NASDAQ securities market. The Company will continue to monitor market developments and evaluate all strategic options.

Following Hehuang's annual report on Form 20-F with the SEC on March 3, 2022, the SEC provisionally designated the Company as a Board-certified issuer on March 8, 2022, as expected by the SEC in implementing the Act.

Listing in multiple places provides a buffer for enterprises

Although there is news that the dialogue and consultation between the regulators of China and the United States on audit regulatory cooperation are expected to reach a consensus as soon as possible, the institution still gives different research angles on the risk of delisting that may occur in 2024-25.

Citi Research reported that the US regulator implemented the revised rules on December 2 last year to implement disclosure requirements in the overseas company accountability law, and Chinese stocks must make additional disclosures for the fiscal year ending at the end of this year, meaning that additional disclosures must be made in their annual reports by the end of April next year, with a grace period of 3 years. However, legislation promoted by the US Congress may reduce the grace period from 3 years to 2 years. The bank said it maintained its view that the SEC update is not new news, and any real risk of ADR delisting could become a reality in 2024-2025 when the company fails to disclose the requirements set by the SEC for three consecutive years, and recommends buying large-cap ADRs that are already dual-listed in Hong Kong, such as Hehuang Pharmaceutical and Yum China.

Lyon published a research report pointing out that the SEC added three Chinese biological companies, BeiGene, Hehuang Pharma and Zaiding Pharmaceutical, to a tentative list of recognitions based on the Foreign Companies Accountability Act on March 8, with the earliest implementation date being 2024. The bank also pointed out that the China Securities Regulatory Commission issued a response to the above list, indicating its willingness to cooperate with US regulators on relevant audit supervision. The bank expects short-term market sentiment to remain low for BeiGene and Huang Pharmaceutical, but the two companies are listed in different places to provide a buffer in terms of financing channels, and even if delisted from the United States, the shares can be transferred to other exchanges. In addition, the strong R&D capabilities of both companies support their overall financing capabilities.

BeiGene, a listed company in the three places on the list, increased its product revenue by 105% year-on-year in 2021. ACCORDING TO THE CITIC Securities Research Report, BeiGene's product zebutinib showed the best potential of its kind, with annual revenue growth of more than 4 times and acceleration of volume. The indications of terelizumab have been released one after another, and the US listing declaration is expected to be successfully approved. Commercial cooperation draws on the strengths of all and strongly supports the product pipeline. R&D expenses tend to be stable, and cash reserves are abundant. A number of milestone events are poised to take place, and 2022 is expected to usher in a number of stock price catalysts.

CITIC believes that the fair equity valuation of BeiGene is about US$31.629 billion, maintaining the target price of Hong Kong stocks of HK$183 and the "buy" rating, and maintaining the target price of A shares of 168 yuan and the "buy" rating.