HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Guangzhou Baiyun International Airport / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a> achieved the least YoY decline in aircraft movement and cargo throughput in Dec, ending a rough year on a sweet note. In particular, domestic aircraft movement soared 21.8% and international cargo traffic rose 4.8% in last month, which are both very encouraging paces. GBIA's heavy domestic exposure - 87.7% of total aircraft movement and 94.1% of total passenger throughput - should provide a favourable traffic comparison base for 1Q21 given the domestic market was the hardest hit in 1Q20. The relatively fewer scattered local cases in southern China, for example, only 1 in Guangdong since Jun 2020, will likely mean the region is a better travel option in the upcoming month-long Winter Break, and this should be positive to GBIA.

Guangzhou Baiyun International Airport (600004 CH) achieved the least YoY decline in aircraft movement and cargo throughput in Dec, ending a rough year on a sweet note. In particular, domestic aircraft movement soared 21.8% and international cargo traffic rose 4.8% in last month, which are both very encouraging paces. GBIA's heavy domestic exposure - 87.7% of total aircraft movement and 94.1% of total passenger throughput - should provide a favourable traffic comparison base for 1Q21 given the domestic market was the hardest hit in 1Q20. The relatively fewer scattered local cases in southern China, for example, only 1 in Guangdong since Jun 2020, will likely mean the region is a better travel option in the upcoming month-long Winter Break, and this should be positive to GBIA. 

Guangzhou Baiyun Intl Airport (600004 CH): Concluding 2020 with a Sweet Note

Thematic (Sector/Industry)

We see the joint announcement by five ministries/departments on the development of postal and express industry in the Guangdong-Hong Kong-Macau Greater Bay Area has positive implications on many of the logistics operators in China in the medium to long term. The supporting initiatives range from the strengthening of the strategic hubs of Guangzhou and Shenzhen airports to encouraging more industry consolidations.While many companies are expected to benefit from these GBA postal and express policies, we highlight some of the most important ones in this Insight - <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a> (GBIA) and <a href="https://www.smartkarma.com/entities/shenzhen-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:15522:1" rel="noopener">Shenzhen Airport Co A (000089 CH)</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/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a>, <a href="https://www.smartkarma.com/entities/kerry-logistics-network-ltd" target="_blank" data-smartkarma-citation="entities:367:1" rel="noopener">Kerry Logistics Network (636 HK)</a>, <a href="https://www.smartkarma.com/entities/shenzhen-intl-holdings" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen Intl (152 HK)</a> and <a href="https://www.smartkarma.com/entities/maanshan-dingtai-rare-a" target="_blank" data-smartkarma-citation="entities:4128:1" rel="noopener">S.F. Holding (002352 CH)</a>.

We see the joint announcement by five ministries/departments on the development of postal and express industry in the Guangdong-Hong Kong-Macau Greater Bay Area has positive implications on many of the logistics operators in China in the medium to long term. The supporting initiatives range from the strengthening of the strategic hubs of Guangzhou and Shenzhen airports to encouraging more industry consolidations.While many companies are expected to benefit from these GBA postal and express policies, we highlight some of the most important ones in this Insight - Guangzhou Baiyun International Airport (600004 CH) (GBIA) and Shenzhen Airport Co A (000089 CH), China Southern Airlines (1055 HK), Sinotrans (598 HK), Kerry Logistics Network (636 HK), Shenzhen Intl (152 HK) and S.F. Holding (002352 CH).

China Logistics: Key Beneficiaries of China's Greater Bay Area Postal and Express Development

Beijing Capital International Airport (BCIA) / Equity Bottom-Up

Beijing Capital International Airport (BCIA)

<a href="https://www.smartkarma.com/entities/beijing-capital-international-airport-bcia" target="_blank" data-smartkarma-citation="entities:10626:1" rel="noopener">Beijing Capital International Airport (BCIA) (694 HK)</a> staged a 45% relief rally since Nov on several piece of good news and more optimistic expectations, but we see such move as excessive. Its 12-month forward P/B multiple has hence moved back to 1.03x, about the level before the pandemic. This is clearly difficult to justify given the challenges it will face in the next two years.The traffic diversion to Beijing Daxing International Airport, slow recovery of international traffic and heavy reliance of duty free on international routes will make BCIA difficult to return to its FY19 profit level in FY22, but the share price is now reflecting this scenario. We find this unrealistic and believe there is significant downside risk. It is also interesting to note that average short volume in Dec has picked up to 23%, compared with just 10% in Nov.

Beijing Capital International Airport (BCIA) (694 HK) staged a 45% relief rally since Nov on several piece of good news and more optimistic expectations, but we see such move as excessive. Its 12-month forward P/B multiple has hence moved back to 1.03x, about the level before the pandemic. This is clearly difficult to justify given the challenges it will face in the next two years.The traffic diversion to Beijing Daxing International Airport, slow recovery of international traffic and heavy reliance of duty free on international routes will make BCIA difficult to return to its FY19 profit level in FY22, but the share price is now reflecting this scenario. We find this unrealistic and believe there is significant downside risk. It is also interesting to note that average short volume in Dec has picked up to 23%, compared with just 10% in Nov.

Beijing Cap Intl Airport (694 HK): Don't Get Too Excited, The Relief Rally Is Excessive

<a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a> (GBIA) has another solid month in Nov, continuing the promising trend in Oct and logging a massive 20.2% YoY surge in domestic aircraft movement and a 4.8% leap in domestic passenger traffic. Moreover, the decline in cargo and mail throughput has narrowed to 1.3% YoY only, the best in the last 5 months. We believe this set of traffic performance signals that there is no abatement in its growth paces.Despite the positive trend, GBIA has underperformed <a href="https://www.smartkarma.com/entities/shanghai-international-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:6511:1" rel="noopener">Shanghai International Airport (600009 CH)</a> (SIAC) by a significant 16.4pp YTD. It is true that the construction of a new Guangzhou airport and the closer co-operation between the Hong Kong airport and Zhuhai airport are challenges in the future. However, with a favourable base for YoY comparison in 1Q21 and the sustained strength in domestic traffic in the next few months, we believe there is room for GBIA to narrow its performance gap against SIAC in the near term.

Guangzhou Baiyun International Airport (600004 CH) (GBIA) has another solid month in Nov, continuing the promising trend in Oct and logging a massive 20.2% YoY surge in domestic aircraft movement and a 4.8% leap in domestic passenger traffic. Moreover, the decline in cargo and mail throughput has narrowed to 1.3% YoY only, the best in the last 5 months. We believe this set of traffic performance signals that there is no abatement in its growth paces.Despite the positive trend, GBIA has underperformed Shanghai International Airport (600009 CH) (SIAC) by a significant 16.4pp YTD. It is true that the construction of a new Guangzhou airport and the closer co-operation between the Hong Kong airport and Zhuhai airport are challenges in the future. However, with a favourable base for YoY comparison in 1Q21 and the sustained strength in domestic traffic in the next few months, we believe there is room for GBIA to narrow its performance gap against SIAC in the near term.

Guangzhou Baiyun Intl Airport (600004 CH): No Abatement in Growth Paces

China Southern Airlines / Equity Bottom-Up

<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> blew away its peers <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 Co (H) (670 HK)</a> and <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a> in Oct with its impressive traffic and load performance, thanks to the encouraging demand during the "Double Festivals" Golden Week. Meanwhile, its freight traffic is also the strongest among the Big 3s, logging just a 2.1% decline but both regional and international routes are back in the positive zone.CSA has given back 2-3pp of its outperformance against Air China in last week due to the expectation of international traffic recovery, but it has still outperformed the latter by 13.6pp. We believe such recovery will be very gradual, and CSA will stay benefiting from the resilient domestic traffic and the strength of Rmb against USD.

China Southern Airlines (1055 HK) blew away its peers China Eastern Airlines Co (H) (670 HK) and Air China Ltd (H) (753 HK) in Oct with its impressive traffic and load performance, thanks to the encouraging demand during the "Double Festivals" Golden Week. Meanwhile, its freight traffic is also the strongest among the Big 3s, logging just a 2.1% decline but both regional and international routes are back in the positive zone.CSA has given back 2-3pp of its outperformance against Air China in last week due to the expectation of international traffic recovery, but it has still outperformed the latter by 13.6pp. We believe such recovery will be very gradual, and CSA will stay benefiting from the resilient domestic traffic and the strength of Rmb against USD.

China Southern Airlines (1055 HK): Domestic Strength Stays on Course

China

Jiangsu Expressway Company Ltd. constructs, operates, manages and maintains expressways in China.  The Company also provides passenger transportation and other ancillary services along including fueling stations, restaurants, car maintenance and repair and advertising.

Ningbo Port Company Limited primarily provides container, iron ore, crude oil and other cargo handling and related services. The Company also provides integrated logistics and other businesses.

China Merchants Expressway Network & Technology Holdings Co., Ltd. offers transportation infrastructure construction services. The Company constructs roads, bridges, ports, waterway infrastructures, and other projects. China Merchants Expressway Network & Technology Holdings also operates investment management businesses.

China Merchants Expressway Net (001965 CH)

Shandong Hi-speed Co Ltd. operates and maintains toll roads, bridges, tunnels, and other infrastructure facilities.  The Company operates the Jiqing Highway, the Taiqu Road, the Jinan-Huanghe Bridge, the Pingyin Bridge, and the Binzhou Bridge. Shandong Hi-speed also retails petroleum products.

Shanghai International Port (Group) Co., Ltd is a holding company that owns interests in container and port service companies.

Shanghai International Port Group (600018 CH)

Qingdao Port International Co., Ltd. engages in providing a wide range of port related services, ranging from basic port services, such as stevedoring and  storage services, to ancillary and extended services such  as logistics service sand financing-related services.

Shenzhen Expressway Company Limited offers toll expressway and road construction and investment services. The Company provides expressway operation, maintenance, and service station leasing services. Shenzhen Expressway also conducts real estate development, advertising, and engineering consulting businesses.

Zhejiang Expressway Co., Ltd., through its subsidiaries, designs, constructs, operates, and manages high grade roads, as well as develops and operates certain ancillary services, such as technical consultation, advertising, automobile servicing, and fuel facilities.

Guangzhou Baiyun International Airport Co., Ltd. operates the Guangzhou Baiyun International Airport and provides related transportation services, including ground, passenger, storage, airplane maintenance and repair, and other services.  The Company also provides food, space rental, and advertising services.

Guangzhou Baiyun International Airport (600004 CH)

Tangshan Port Group Co., Ltd. provides bulk cargo handling, transport, warehousing and other logistics business.  The Company also offers utilities, port information and other professional port services.

International Container Terminal Services, Inc. provides containerized cargo handling services. The Company also manages and operates the Manila International Container Terminal and port.

Aeroports de Paris (ADP) manages all the civil airports in the Paris area.  The Company also develops and operates light aircraft aerodromes.  ADP offers air transport related services, and business services such as office rental.

Getlink S.E. provides transport support services. The Company operates mobility infrastructures such as cross-channel transport networks, rail freight, and tunnels. Getlink serves customers in France and the United Kingdom.

Grupo Aeroportuario del Sureste S.A.B. de C.V. operates airports in Mexico.  The Company holds 50 year concessions, beginning in 1998, to manage airports in Cancun, Cozumel, Merida, Oaxaca, Veracruz, Huatulco, Tapachula, Minatitlan, and Villahermosa.

Grupo Aeroportuario del Pacifico SAB de CV operates and maintains airports in the Pacific and central regions of Mexico.

Auckland International Airport Limited owns and operates the Auckland International Airport.  The Airport includes a single runway, an international terminal and two domestic terminals.  The Airport also has commercial facilities which includes airfreight operations, car rental services, commercial banking center and office buildings.

Qube Holdings Ltd. is a logistics company. The Group operates in divisions covering Automotive, Bulk and General Stevedoring, Landside Logistics and Strategic Development Assets.

Taiwan High Speed Rail Corporation operates the high speed railway system (HSR) in Taiwan, running 345 KM from Taipei to Kaohsiung.

Atlas Arteria Limted operates as an infrastructure developer and operator. The Company constructs highways, roads, bridges, and tunnels. Atlas Arteria also collects toll. Atlas Arteria serves clients worldwide.

Shanghai International Airport Co., Ltd. operates Pudong Airport and Hongquiao airport in Shanghai.   The Company provides a full range of services including air traffic control, terminal management, cargo handling, advertising, space rental, and other related services.

Shanghai International Airport (600009 CH)

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Shanghai International Airport (600009 CH)

Guangzhou Baiyun Intl Airport (600004 CH): Concluding 2020 with a Sweet Note

Ending 2020 with good traffic in Dec, we expect a favourable traffic comparison base in 1Q21 than its peers. Its location also means that it will...

Osbert Tang, CFA

China Logistics: Key Beneficiaries of China's Greater Bay Area Postal and Express Development

China's support of postal and express industry development in the Greater Bay Area has positive implications on many logistics companies. We...

Osbert Tang, CFA

Beijing Cap Intl Airport (694 HK): Don't Get Too Excited, The Relief Rally Is Excessive

BCIA's 45% relief rally in less than 2 months is excessive, as P/B already returned to pre-pandemic level. Share price is expecting profit to...

Osbert Tang, CFA

Guangzhou Baiyun Intl Airport (600004 CH): No Abatement in Growth Paces

No sign of slowing traffic growth and decline for cargo throughput have further moderated in Nov. Having underperformed SIAC significantly YTD,...

Osbert Tang, CFA

China Southern Airlines (1055 HK): Domestic Strength Stays on Course

CSA sustained its passenger traffic outperformance into Oct, and its freight volume is also the best among the Big 3s. 4Q20 will stay encouraging...

Osbert Tang, CFA

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