Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

China Tourism Group Duty Free Corp Ltd / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free-corp-ltd" target="_blank" data-smartkarma-citation="entities:12278:1" rel="noopener">China Tourism Group Duty Free Corp Ltd (601888 CH)</a> (CDF) aims to raise around US$5-10bn in its H-share listing in Hong Kong. CDF is the largest travel retail operator in the world primarily focusing on sales of high-quality duty-free and duty-paid merchandise to domestic and international travelers. As per Frost &amp; Sullivan, it had 92.3% market share by retail revenue in China duty-free merchandise sales in 2020.As the A-shares are already listed and well covered, we will treat this listing more like a placement rather than an IPO. However, given the large potential size of the listing, we will go into more details than we would for a regular placement. Hence, in this note we will briefly cover the company’s background and recent performance before touching upon the deal dynamics.

China Tourism Group Duty Free Corp Ltd (601888 CH) (CDF) aims to raise around US$5-10bn in its H-share listing in Hong Kong. CDF is the largest travel retail operator in the world primarily focusing on sales of high-quality duty-free and duty-paid merchandise to domestic and international travelers. As per Frost &amp; Sullivan, it had 92.3% market share by retail revenue in China duty-free merchandise sales in 2020.As the A-shares are already listed and well covered, we will treat this listing more like a placement rather than an IPO. However, given the large potential size of the listing, we will go into more details than we would for a regular placement. Hence, in this note we will briefly cover the company’s background and recent performance before touching upon the deal dynamics.

China Tourism Group A/H Listing Early Look - Over US$5bn Raising for a Monopoly on Chinese Tourists

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Shenzhen International / Equity Bottom-Up

Share price of <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> (SZI) has been under pressure lately due to concerns on the proposed acquisition of <a href="https://www.smartkarma.com/entities/suning-com-co-ltd-a" target="_blank" data-smartkarma-citation="entities:9178:1" rel="noopener">Suning.com (002024 CH)</a> and weakened performance on its 49%-owned Shenzhen Airlines (SZA). However, now that it decided not to go ahead on Suning.com and there are signs of recovery at SZA, the still-depressed valuation (0.61x P/B, 5-year low) is unwarranted, in our opinion.Its core logistics segment performed well in 1H21, achieving higher occupancy which is supportive to rental income, and the expansion in project portfolio should be an added driver. The proposed acquisition of <a href="https://www.smartkarma.com/entities/shenzhen-investment-holdings-bay-area-development" target="_blank" data-smartkarma-citation="entities:12134:1" rel="noopener">Shenzhen Investment Holdings Bay Area Development (737 HK)</a> by its subsidiary <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway Co H (548 HK)</a> should also generate good cash flow with upside from its land assets. Long-term, the transformation of South China Logistics Park may potentially create another successful story similar to its Qianhai project. At FY21F dividend yield of 8%, we believe SZI is very attractive at the current level.

Share price of Shenzhen Intl (152 HK) (SZI) has been under pressure lately due to concerns on the proposed acquisition of Suning.com (002024 CH) and weakened performance on its 49%-owned Shenzhen Airlines (SZA). However, now that it decided not to go ahead on Suning.com and there are signs of recovery at SZA, the still-depressed valuation (0.61x P/B, 5-year low) is unwarranted, in our opinion.Its core logistics segment performed well in 1H21, achieving higher occupancy which is supportive to rental income, and the expansion in project portfolio should be an added driver. The proposed acquisition of Shenzhen Investment Holdings Bay Area Development (737 HK) by its subsidiary Shenzhen Expressway Co H (548 HK) should also generate good cash flow with upside from its land assets. Long-term, the transformation of South China Logistics Park may potentially create another successful story similar to its Qianhai project. At FY21F dividend yield of 8%, we believe SZI is very attractive at the current level.

Shenzhen Intl (152 HK): What's Wrong Recently?

<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> should see an YoY reduction in loss contribution from the 29.99%-owned associate <a href="https://www.smartkarma.com/entities/cathay-pacific-airways-ltd" target="_blank" data-smartkarma-citation="entities:243:1" rel="noopener">Cathay Pacific Airways (293 HK)</a>, based on CX's latest guidance that losses for 1H21 will be less than both 1H20 and 2H20. If we extrapolate the 1Q21 losses from Air China's associated companies to the full year, we should potentially see as least 30% YoY losses reduction. In our view, this will be of significant help to Air China's bottom-line recovery in FY21.CX's 24.5% MoM passenger traffic rebound in May echoed the sequential improvement of Air China's regional and international traffic. The increase in global vaccination rates and resumption of more long-haul flights suggested an improving outlook for CX's international passenger traffic. This should offer an added support to Air China which, we think as a recovery play, is trading on undemanding 12-month forward P/B multiple of 0.98x - the average level since 2016.

Air China Ltd (H) (753 HK) should see an YoY reduction in loss contribution from the 29.99%-owned associate Cathay Pacific Airways (293 HK), based on CX's latest guidance that losses for 1H21 will be less than both 1H20 and 2H20. If we extrapolate the 1Q21 losses from Air China's associated companies to the full year, we should potentially see as least 30% YoY losses reduction. In our view, this will be of significant help to Air China's bottom-line recovery in FY21.CX's 24.5% MoM passenger traffic rebound in May echoed the sequential improvement of Air China's regional and international traffic. The increase in global vaccination rates and resumption of more long-haul flights suggested an improving outlook for CX's international passenger traffic. This should offer an added support to Air China which, we think as a recovery play, is trading on undemanding 12-month forward P/B multiple of 0.98x - the average level since 2016.   

Air China (753 HK): Positive Implications from CX's May Traffic Announcement

Founder of Antler Capital

Stanley Tsai, CFA

Thematic (Sector/Industry)

In the spirit of the long-awaited UEFA Euro 2020, we present our inaugural "China Financials: Silver Linings Playbook", which summarizes our views on the names that are best positioned to navigate an environment of progressively slower credit growth, tighter liquidity and rising defaults. 
Our screen consists of 100+ stocks in the A/H share universe, as well as a select number of international / non-traditional names that have significant exposures to China's financial system. We have a preference for larger-cap and liquid names, which are then filtered by our opinions on their fundamentals, value, momentum and recent trading volumes. We also try to make our selections versatile and less vulnerable to single-factor movements.
Each player's position on the pitch and the team formation itself convey incremental information about our thoughts on the sector's performance over a three to six-month horizon. To the extent possible, we intend to update our ideas on a periodic basis. This provides a feedback loop with our other ongoing research on the industry.
However, our team selections are not investment recommendations. Instead, they are meant to give structure to our analysis. The playbook allows us to articulate our views on the sector in a timely, concise manner. Our objective is to ensure we don't throw the baby out with the bathwater as sentiments on the sector remain bleak.
With that out of the way, the following is our starting XI. We will dive deeper into our rationale for our selections in the remainder of this insight (Exhibit 1).
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 726.047px;">Exhibit 1: China Financials | Silver Linings Playbook</td>
</tr>
<tr>
<td style="width: 726.047px;">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/213/768/original/image_768460236451623962508577.png?1623962508" class="editor-image img-responsive" data-smartkarma-image-id="213768"></figure>

Source: Our analysis
</td>
</tr>
</tbody>
</table>
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In the spirit of the long-awaited UEFA Euro 2020, we present our inaugural "China Financials: Silver Linings Playbook", which summarizes our views on the names that are best positioned to navigate an environment of progressively slower credit growth, tighter liquidity and rising defaults. 
Our screen consists of 100+ stocks in the A/H share universe, as well as a select number of international / non-traditional names that have significant exposures to China's financial system. We have a preference for larger-cap and liquid names, which are then filtered by our opinions on their fundamentals, value, momentum and recent trading volumes. We also try to make our selections versatile and less vulnerable to single-factor movements.
Each player's position on the pitch and the team formation itself convey incremental information about our thoughts on the sector's performance over a three to six-month horizon. To the extent possible, we intend to update our ideas on a periodic basis. This provides a feedback loop with our other ongoing research on the industry.
However, our team selections are not investment recommendations. Instead, they are meant to give structure to our analysis. The playbook allows us to articulate our views on the sector in a timely, concise manner. Our objective is to ensure we don't throw the baby out with the bathwater as sentiments on the sector remain bleak.
With that out of the way, the following is our starting XI. We will dive deeper into our rationale for our selections in the remainder of this insight (Exhibit 1).



Exhibit 1: China Financials | Silver Linings Playbook





Source: Our analysis




Related Insights
China Macro: Consumers Remain on the Sidelines, as Their Home Equity Grows 
Glut and Famine: We Might See Snow in China This Summer 
China Macro: PPI Peaks, while CPI Eases Tightening Fears 
China Macro: Exports Disappoint, but It's Still Early in the Game 
Glut and Famine: China's Monetary Conditions a Notch Tighter in May 
ICBC: The Bond Identity | A Zero-Growth Dividend Discount Story 
BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter

China Financials: Silver Linings Playbook

A close look on the May traffic for the Chinese airlines will reveal that <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> continued to make positive progress to narrow down its gap against <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>. The former's overall passenger traffic YoY growth was 6.7pp better than the latter in the month; and its freight traffic was even at a 25.4% YoY growth, compared with just 5.9% for CSA. We saw that Air China has already stopped its underperformance against CSA starting Apr, with both stocks moving very much in tandem in the last three months. With the recent local COVID-19 case outbreak in Guangdong, particularly Guangzhou which negatively affect scheduled flights into CSA's headquarter hub, we see room for near-term outperformance at Air China. With better pick-up of international traffic going forward, we expect Air China to widen its outperformance into 2H21.

A close look on the May traffic for the Chinese airlines will reveal that Air China Ltd (H) (753 HK) continued to make positive progress to narrow down its gap against China Southern Airlines (1055 HK). The former's overall passenger traffic YoY growth was 6.7pp better than the latter in the month; and its freight traffic was even at a 25.4% YoY growth, compared with just 5.9% for CSA. We saw that Air China has already stopped its underperformance against CSA starting Apr, with both stocks moving very much in tandem in the last three months. With the recent local COVID-19 case outbreak in Guangdong, particularly Guangzhou which negatively affect scheduled flights into CSA's headquarter hub, we see room for near-term outperformance at Air China. With better pick-up of international traffic going forward, we expect Air China to widen its outperformance into 2H21. 

Chinese Airlines: China Southern (1055 HK) Seeing More Pressure than Air China (753 HK)

China

Air China Limited provides passenger, cargo, and airline-related services in China.  The Company is primarily based in Beijing and a major hub for domestic and international air transportation.  Air China's airline-related services include aircraft maintenance, repair, overhaul service, ground services, and in-flight catering services.

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Air China Ltd (H) (753 HK)

China Tourism Group A/H Listing Early Look - Over US$5bn Raising for a Monopoly on Chinese Tourists

China Tourism Group Duty Free Corp Ltd (601888 CH) aims to raise around US$5-10bn in its H-share listing in Hong Kong. It had 92.3% market share by...

Sumeet Singh

Shenzhen Intl (152 HK): What's Wrong Recently?

SZI's depressed share price has already reflected the concerns of the market, with upside coming from good logistics segment, asset transformation...

Osbert Tang, CFA

Air China (753 HK): Positive Implications from CX's May Traffic Announcement

CX's guidance of triming of losses in 1H21, vs. 1H20 and 2H20, is a positive note to Air China. The 24.5% MoM in passenger traffic echoed Air...

Osbert Tang, CFA

China Financials: Silver Linings Playbook

Our Silver Linings Playbook outlines our views on the China financials names that are most likely to remain resilient in the face of macro...

Stanley Tsai, CFA

Chinese Airlines: China Southern (1055 HK) Seeing More Pressure than Air China (753 HK)

May traffic revealed that Air China sustaining its trend of narrowing down operational gap against CSA. Local COVID-19 cases in Guangzhou means a...

Osbert Tang, CFA

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