HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Various figures for the Chinese New Year holidays suggested that the domestic tourism market is lukewarm in 2022. However, there are evidences that high-end consumption is better than low-end.</li>
<li>Weak cross-province tourism and low-end spending are likely negative to <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/maoyan-entertainment" target="_blank" data-smartkarma-citation="entities:27451:1" rel="noopener">Maoyan Entertainment (1896 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-pictures-group-ltd" target="_blank" data-smartkarma-citation="entities:20724:1" rel="noopener">Alibaba Pictures (1060 HK)</a> and <a href="https://www.smartkarma.com/entities/imax-china-holding-inc" target="_blank" data-smartkarma-citation="entities:888:1" rel="noopener">IMAX China Holding (1970 HK)</a>.  </li>
<li>Good duty-free sales and high-end spending are beneficial to <a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free-corp-ltd" target="_blank" data-smartkarma-citation="entities:12278:1" rel="noopener">CTG Duty Free Corp (601888 CH)</a>, <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/fosun-international-ltd" target="_blank" data-smartkarma-citation="entities:433:1" rel="noopener">Fosun International (656 HK)</a> and <a href="https://www.smartkarma.com/entities/chow-tai-fook-jewellery-group" target="_blank" data-smartkarma-citation="entities:549:1" rel="noopener">Chow Tai Fook Jewellery (1929 HK)</a>. </li>
</ul>


Various figures for the Chinese New Year holidays suggested that the domestic tourism market is lukewarm in 2022. However, there are evidences that high-end consumption is better than low-end.
Weak cross-province tourism and low-end spending are likely negative to China Southern Airlines (1055 HK), Maoyan Entertainment (1896 HK), Alibaba Pictures (1060 HK) and IMAX China Holding (1970 HK).  
Good duty-free sales and high-end spending are beneficial to CTG Duty Free Corp (601888 CH), Fosun Tourism (1992 HK), Fosun International (656 HK) and Chow Tai Fook Jewellery (1929 HK). 


2022 Chinese New Year Holidays - Some Winners and Losers

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 26 February. The constituent changes will be effective after the close of trading on 12 March.For the Hang Seng Composite Index (HSCI) there are 36 inclusions and 29 deletions, taking the number of index constituents up to 500.Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors. Secondary Listings are not eligible for inclusion in the Stock Connect program.Of the 36 inclusions, 4 are already a part of Stock Connect by virtue of having listed A-shares, 2 are Secondary listings and will not be included in Stock Connect, 9 will be added to Shanghai and Shenzhen Stock Connect, while 21 stocks will only be added to Shenzhen Stock Connect.Of the 29 index deletions, 13 are not a part of Stock Connect, 7 will continue to remain a part of Stock Connect by virtue of having listed A-shares, while 9 will be deleted from the Stock Connect program.We identify 4 stocks that could sell off ahead of their removal from the Stock Connect Buy list, while Biotech stocks could be in focus ahead of their inclusion in the Stock Connect Buy and Sell list.

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 26 February. The constituent changes will be effective after the close of trading on 12 March.For the Hang Seng Composite Index (HSCI) there are 36 inclusions and 29 deletions, taking the number of index constituents up to 500.Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors. Secondary Listings are not eligible for inclusion in the Stock Connect program.Of the 36 inclusions, 4 are already a part of Stock Connect by virtue of having listed A-shares, 2 are Secondary listings and will not be included in Stock Connect, 9 will be added to Shanghai and Shenzhen Stock Connect, while 21 stocks will only be added to Shenzhen Stock Connect.Of the 29 index deletions, 13 are not a part of Stock Connect, 7 will continue to remain a part of Stock Connect by virtue of having listed A-shares, while 9 will be deleted from the Stock Connect program.We identify 4 stocks that could sell off ahead of their removal from the Stock Connect Buy list, while Biotech stocks could be in focus ahead of their inclusion in the Stock Connect Buy and Sell list.

HSCI Index Rebalance & Stock Connect: Inclusions & Exclusions

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

Although the Golden Week has historically created many record-breaking box offices such as Jiang Ziya: Legend of Deification, the holiday season is only one week thus there are only so many movies that can be released and cinema-goers can only watch so many movies, thus the impact is typically short-lived. 
In light of the delay of the big title releases such as James Bond's No Time To Die, Marvel's Black Widow, and DC's Wonder Woman 1984, Cineworld has decided to shut its business down temporarily. Although <a href="https://www.smartkarma.com/entities/imax-china-holding-inc" target="_blank" data-smartkarma-citation="entities:888:1" rel="noopener">Imax China Holding (1970 HK)</a> will most likely stay afloat and keep operating despite the difficult period, its Hollywood movies supply may be limited thus the revenue recovery story will be capped as well. Stay out of IMAX China.

Although the Golden Week has historically created many record-breaking box offices such as Jiang Ziya: Legend of Deification, the holiday season is only one week thus there are only so many movies that can be released and cinema-goers can only watch so many movies, thus the impact is typically short-lived. 
In light of the delay of the big title releases such as James Bond's No Time To Die, Marvel's Black Widow, and DC's Wonder Woman 1984, Cineworld has decided to shut its business down temporarily. Although Imax China Holding (1970 HK) will most likely stay afloat and keep operating despite the difficult period, its Hollywood movies supply may be limited thus the revenue recovery story will be capped as well. Stay out of IMAX China. 

IMAX China (1970): Golden Week and Cineworld

<a href="https://www.smartkarma.com/entities/imax-china-holding-inc" target="_blank" data-smartkarma-citation="entities:888:1" rel="noopener">Imax China Holding (1970 HK)</a> is having difficulty due to the capacity constraint in the cinema despite a reopening relief that saw its ticket sales jumped multiple folds during the release of the nationalistic-themed The Eight Hundred. With the upcoming Golden Week, the company will benefit from a higher box office thus the share price will see some positive sentiment in the short term. 
The issue remains until a vaccine is found; limited capacity and high fixed cost are the main issues that will be the deterrent for the stock price to go up. 
For long-only investors - the limited capacity coupled with the uncertain timing on the vaccine development may prolong the weak earnings, creating a weak long term story for the company. However, the upcoming Golden Week will provide a short term rally.
For long-short investors - IMAX China's share price may not decrease by much but it will be an excellent relative value/pair against a long of <a href="https://www.smartkarma.com/entities/alibaba-pictures-group-ltd" target="_blank" data-smartkarma-citation="entities:20724:1" rel="noopener">Alibaba Pictures (1060 HK)</a> that is in the middle of transformation to produce reality shows in China. The ratio of long Alibaba Pictures and short iMax China has increased to 0.096 as of 16th September from 0.082 in mid of June 2020.

Imax China Holding (1970 HK) is having difficulty due to the capacity constraint in the cinema despite a reopening relief that saw its ticket sales jumped multiple folds during the release of the nationalistic-themed The Eight Hundred. With the upcoming Golden Week, the company will benefit from a higher box office thus the share price will see some positive sentiment in the short term. 
The issue remains until a vaccine is found; limited capacity and high fixed cost are the main issues that will be the deterrent for the stock price to go up. 
For long-only investors - the limited capacity coupled with the uncertain timing on the vaccine development may prolong the weak earnings, creating a weak long term story for the company. However, the upcoming Golden Week will provide a short term rally.
For long-short investors - IMAX China's share price may not decrease by much but it will be an excellent relative value/pair against a long of Alibaba Pictures (1060 HK) that is in the middle of transformation to produce reality shows in China. The ratio of long Alibaba Pictures and short iMax China has increased to 0.096 as of 16th September from 0.082 in mid of June 2020. 

IMAX China (1970): Short Term Rally but Capped Upside, Vs Ali Picture

<a href="https://www.smartkarma.com/entities/alibaba-pictures-group-ltd" target="_blank" data-smartkarma-citation="entities:20724:1" rel="noopener">Alibaba Pictures (1060 HK)</a> ticketing service revenues' growth will be capped due to the COVID-19 safety precaution for longer than this year given there is not yet a vaccine let alone curing the world out of COVID-19.
Thanks to its standing as part of the <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> , the management has decided to co-invest in Reality Shows productions alongside Youku that will shift its distribution channel from cinemas to home (Television) and personal (smartphone and tablet) entertainment. 
Alibaba Pictures is trading at 1.27x PBR, a 90% discount to <a href="https://www.smartkarma.com/entities/iqiyi-inc" target="_blank" data-smartkarma-citation="entities:26755:1" rel="noopener">iQIYI Inc (IQ US)</a> , even before it books future revenues from the Reality Shows. Buy.

Alibaba Pictures (1060 HK) ticketing service revenues' growth will be capped due to the COVID-19 safety precaution for longer than this year given there is not yet a vaccine let alone curing the world out of COVID-19.
Thanks to its standing as part of the Alibaba Group (9988 HK) , the management has decided to co-invest in Reality Shows productions alongside Youku that will shift its distribution channel from cinemas to home (Television) and personal (smartphone and tablet) entertainment. 
Alibaba Pictures is trading at 1.27x PBR, a 90% discount to iQIYI Inc (IQ US) , even before it books future revenues from the Reality Shows. Buy. 

Alibaba Pictures (1060): Big Screen to Small Screen

Hong Kong

IMAX China Holding, Inc. operates as a holding company. The Company, through its subsidiaries, broadcasts movies in theaters. IMAX China Holding serves customers in China.

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IMAX China Holding (1970 HK)

2022 Chinese New Year Holidays - Some Winners and Losers

2022 Chinese New Year figures showed marginal decline domestic tourists, and pointed to better high-end consumption performance than low-end. We...

Osbert Tang, CFA

HSCI Index Rebalance & Stock Connect: Inclusions & Exclusions

There are 36 inclusions/ 29 exclusions for the Hang Seng Composite Index. 9 stocks will be deleted from the Stock Connect Buy list & there are a...

Brian Freitas

IMAX China (1970): Golden Week and Cineworld

Although th

Henry Soediarko

IMAX China (1970): Short Term Rally but Capped Upside, Vs Ali Picture

Imax China Holding (1970 HK) is having difficulty due to the capacity constraint in the cinema despite a reopening relief that s

Henry Soediarko

Alibaba Pictures (1060): Big Screen to Small Screen

Alibaba Pictures (1060 HK) ticketing

Henry Soediarko

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