HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>The sharp surge in Omicron-driven local cases has driven more stringent measures by local governments. On ground in Shanghai, we see more tightened measures being implemented over the weekend. </li>
<li>The measures will reduce a lot of foot traffic and lower discretionary spending appetite in Mar, and this will negatively weigh on many 1Q22 results to be announced in late-Apr. </li>
<li>We advocate a long staples, short discretionary strategy in the near term. Also, travel sector will be hit, and on net-net basis, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> looks to be a loser.</li>
</ul>


The sharp surge in Omicron-driven local cases has driven more stringent measures by local governments. On ground in Shanghai, we see more tightened measures being implemented over the weekend. 
The measures will reduce a lot of foot traffic and lower discretionary spending appetite in Mar, and this will negatively weigh on many 1Q22 results to be announced in late-Apr. 
We advocate a long staples, short discretionary strategy in the near term. Also, travel sector will be hit, and on net-net basis, Meituan (3690 HK) looks to be a loser.


China on the Ground: Escalating Measures to Combat Omicron and What Stocks Are Impacted?

<ul>
<li>The companies that suffered exchange losses in FY23 due to Rmb depreciation will now benefit from potential Rmb appreciation in 2H24 and FY25. Meanwhile, gainers will become losers. </li>
<li>The beneficiaries are <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (753 HK)</a>, <a href="https://www.smartkarma.com/entities/shenzhen-international-holdings-limited" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen International (152 HK)</a>, <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a>, <a href="https://www.smartkarma.com/entities/xinjiang-goldwind-science-technology-h" target="_blank" data-smartkarma-citation="entities:10112:1" rel="noopener">Xinjiang Goldwind (2208 HK)</a>, and <a href="https://www.smartkarma.com/entities/china-eastern-airlines-co-h" target="_blank" data-smartkarma-citation="entities:1079:1" rel="noopener">China Eastern Airlines (670 HK)</a>. </li>
<li>
<a href="https://www.smartkarma.com/entities/fosun-tourism-group" target="_blank" data-smartkarma-citation="entities:27439:1" rel="noopener">Fosun Tourism (1992 HK)</a>, <a href="https://www.smartkarma.com/entities/china-east-education-holdings" target="_blank" data-smartkarma-citation="entities:27843:1" rel="noopener">China East Education (667 HK)</a>, and <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a> may need to book exchange losses (vs. gains in FY23). </li>
</ul>


The companies that suffered exchange losses in FY23 due to Rmb depreciation will now benefit from potential Rmb appreciation in 2H24 and FY25. Meanwhile, gainers will become losers. 
The beneficiaries are Air China Ltd (753 HK), Shenzhen International (152 HK), China Southern Airlines (1055 HK), Xinjiang Goldwind (2208 HK), and China Eastern Airlines (670 HK). 

Fosun Tourism (1992 HK), China East Education (667 HK), and China Communications Construction (1800 HK) may need to book exchange losses (vs. gains in FY23). 


China Strategy: Re-Assessing the Rmb Exchange Impacts

Equity Bottom-Up

Tongcheng Travel Holdings  / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/tongcheng-travel-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27363:1" rel="noopener">Tongcheng Travel Holdings (780 HK)</a> has a solid FY23 and 4Q23 with massive net profit recovery. Earnings momentum for FY24 and FY25 look to stay impressive.</li>
<li>FY23 is a record year of profit, demonstrating its ability to gain market share after COVID-19 disruption. Further volume growth will lead to better operating leverage.</li>
<li>Net cash reached Rmb2.3bn, up 90.4% YoY, showcasing its cash-generating ability. The first-time dividend payout also reflected management's confidence on the outlook.</li>
</ul>



Tongcheng Travel Holdings (780 HK) has a solid FY23 and 4Q23 with massive net profit recovery. Earnings momentum for FY24 and FY25 look to stay impressive.
FY23 is a record year of profit, demonstrating its ability to gain market share after COVID-19 disruption. Further volume growth will lead to better operating leverage.
Net cash reached Rmb2.3bn, up 90.4% YoY, showcasing its cash-generating ability. The first-time dividend payout also reflected management's confidence on the outlook.


Tongcheng Travel (780 HK): Riding the High Tide

China Travel International Investment Hong Kong / Equity Bottom-Up

China Travel International Investment Hong Kong

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-travel-international-investment-hong-kong" target="_blank" data-smartkarma-citation="entities:3879:1" rel="noopener">China Travel International Investment Hong Kong (308 HK)</a> has an impressive 2024 CNY with the volume and revenue of its tourist attractions increased by 46% to 123% YoY.</li>
<li>Relative to 2019 CNY, most businesses have fully recovered. 1H23 earnings is the highest since 1H20 and the market may have underestimated 2H23, providing upside surprise potential. </li>
<li>The share price is still some 30% below the peak in late-2021 when earnings have yet to recover. Also, its net cash now equals 19% of the share price. </li>
</ul>



China Travel International Investment Hong Kong (308 HK) has an impressive 2024 CNY with the volume and revenue of its tourist attractions increased by 46% to 123% YoY.
Relative to 2019 CNY, most businesses have fully recovered. 1H23 earnings is the highest since 1H20 and the market may have underestimated 2H23, providing upside surprise potential. 
The share price is still some 30% below the peak in late-2021 when earnings have yet to recover. Also, its net cash now equals 19% of the share price. 


China Travel Intl Inv (308 HK): A Laggard that Sets to Catch Up

<ul>
<li>Data from <a href="https://www.smartkarma.com/entities/trip-com-group-ltd-23a341d0-4f63-4175-a8c5-ee990906cacd" target="_blank" data-smartkarma-citation="entities:36424:1" rel="noopener">Trip.com Group (9961 HK)</a> showed good improvement in travel demand for the 2024 New Year holidays. The volume of various orders has surged between 2x and 5x YoY. </li>
<li>Aggregate net profit for the tourism and hospitality sector has turned around to Rmb20.4bn in 3Q23, from losses of Rmb24.7bn a year ago, demonstrating solid profitability recovery.</li>
<li>An average of 32% drop in the sector's share price YTD is unjustified. We like <a href="https://www.smartkarma.com/entities/tongcheng-travel-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27363:1" rel="noopener">Tongcheng Travel (780 HK)</a>, <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China (H) (753 HK)</a> and <a href="https://www.smartkarma.com/entities/fosun-tourism-group" target="_blank" data-smartkarma-citation="entities:27439:1" rel="noopener">Fosun Tourism (1992 HK)</a>.  </li>
</ul>


Data from Trip.com Group (9961 HK) showed good improvement in travel demand for the 2024 New Year holidays. The volume of various orders has surged between 2x and 5x YoY. 
Aggregate net profit for the tourism and hospitality sector has turned around to Rmb20.4bn in 3Q23, from losses of Rmb24.7bn a year ago, demonstrating solid profitability recovery.
An average of 32% drop in the sector's share price YTD is unjustified. We like Tongcheng Travel (780 HK), Air China (H) (753 HK) and Fosun Tourism (1992 HK).  


China Tourism and Hospitality Industry: Boom in 2024 New Year Travel Demand

Hong Kong

Fosun Tourism Group operates as a leisure focused integrated tourism group. The Company provides resorts management, tourism destinations development, and other related services. Fosun Tourism Group offers its services worldwide.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Fosun Tourism (1992 HK)

China on the Ground: Escalating Measures to Combat Omicron and What Stocks Are Impacted?

Omicron combating measures have been stepped up over the weekend and this will make a dent on the Mar operations of many companies. This will be...

Osbert Tang, CFA

China Strategy: Re-Assessing the Rmb Exchange Impacts

With the US kick-starting the lower interest rate cycle with a 50bp cut overnight and indicated an expectation of an aggregate further 50bp cut in...

Osbert Tang, CFA

Tongcheng Travel (780 HK): Riding the High Tide

According to www.fliggy.com, outbound travel bookings during the 5-day Labour Day holiday have doubled this year. This was achieved on a high base...

Osbert Tang, CFA

China Travel Intl Inv (308 HK): A Laggard that Sets to Catch Up

CTII shows tourist attractions volume and revenue growth in 2024 CNY, with the potential for upside surprise. We believe it is unjustified that...

Osbert Tang, CFA

China Tourism and Hospitality Industry: Boom in 2024 New Year Travel Demand

China's National Immigration Administration estimates there will be 1.56m travelers passing through immigration during the 2024 Chinese New Year...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China on the Ground: Escalating Measures to Combat Omicron and What Stocks Are Impacted?

Omicron combating measures have been stepped up over the weekend and this will make a dent on the Mar operations of many companies. This will be...

Osbert Tang, CFA

China Strategy: Re-Assessing the Rmb Exchange Impacts

With the US kick-starting the lower interest rate cycle with a 50bp cut overnight and indicated an expectation of an aggregate further 50bp cut in...

Osbert Tang, CFA

Tongcheng Travel (780 HK): Riding the High Tide

According to www.fliggy.com, outbound travel bookings during the 5-day Labour Day holiday have doubled this year. This was achieved on a high base...

Osbert Tang, CFA

China Travel Intl Inv (308 HK): A Laggard that Sets to Catch Up

​CTII shows tourist attractions volume and revenue growth in 2024 CNY, with the potential for upside surprise. We believe it is unjustified that...

Osbert Tang, CFA

China Tourism and Hospitality Industry: Boom in 2024 New Year Travel Demand

China's National Immigration Administration estimates there will be 1.56m travelers passing through immigration during the 2024 Chinese New Year...

Osbert Tang, CFA

CTII shows tourist attractions volume and revenue growth in 2024 CNY, with the potential for upside surprise. We believe it is unjustified that...