HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<p>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.</p><p>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>.</p>

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

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Equity Capital Markets

Alibaba Group Holding  / Equity Capital Markets

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<p>In the first section of this note we review key themes of the last year within our regular coverage, which includes regional Logistics, Transportation, and Travel. We also measure year to date performance of some of the individual stocks we've closely tracked in 2020. </p>
<p>The second section of this note is a list of themes and ideas we expect to drive share price performance in Asian Logistics, Transportation, and Travel over the next 12 months. It concludes with some suggested 2021 Long / Short pair trade ideas in each of these three segments. </p>
<p>The third and final section of this note highlights several potential high-profile IPOs in the broader Asian Logistics space. Most of these potential deals are linked to large, well-known Chinese eCommerce fulfillment and "mobility" companies. </p>




In the first section of this note we review key themes of the last year within our regular coverage, which includes regional Logistics, Transportation, and Travel. We also measure year to date performance of some of the individual stocks we've closely tracked in 2020. 
The second section of this note is a list of themes and ideas we expect to drive share price performance in Asian Logistics, Transportation, and Travel over the next 12 months. It concludes with some suggested 2021 Long / Short pair trade ideas in each of these three segments. 
The third and final section of this note highlights several potential high-profile IPOs in the broader Asian Logistics space. Most of these potential deals are linked to large, well-known Chinese eCommerce fulfillment and "mobility" companies. 

TRACKING TRAFFIC/ 2020 Review | 2021 Preview | Potential IPOs in Logistics, Transportation & Travel

Equity Bottom-Up

<p>While <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> (CSA) is still showing the best traffic performance in absolute level, the Nov traffic showed 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> has started to pick up its momentum. We believe the three important things to note are: 1.) Air China recording the least retreat in passenger traffic momentum MoM, 2.) Air China has the least drop in passenger load factor MoM, and 3.) Air China gathering cargo momentum.</p><p>Since Nov, Air China has outperformed CSA by 10pp, and we see good possibility for this trend to continue into 2021, hence our <a href="https://www.smartkarma.com/insights/2021-high-conviction-pair-trade-long-air-china-753-hk-short-china-southern-1055-hk" target="_blank" data-smartkarma-citation="insights:45584" rel="noopener">2021 High Conviction: Pair Trade - Long Air China (753 HK), Short China Southern (1055 HK)</a>. Another positive note is that share price of <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> has surged by 63.6% from the rights issue price of HK$4.68, and this has added some HK$2.2bn to Air China's value on the additional holdings in CX from the rights.</p>

While China Southern Airlines (1055 HK) (CSA) is still showing the best traffic performance in absolute level, the Nov traffic showed that Air China Ltd (H) (753 HK) has started to pick up its momentum. We believe the three important things to note are: 1.) Air China recording the least retreat in passenger traffic momentum MoM, 2.) Air China has the least drop in passenger load factor MoM, and 3.) Air China gathering cargo momentum.Since Nov, Air China has outperformed CSA by 10pp, and we see good possibility for this trend to continue into 2021, hence our 2021 High Conviction: Pair Trade - Long Air China (753 HK), Short China Southern (1055 HK). Another positive note is that share price of Cathay Pacific Airways (293 HK) has surged by 63.6% from the rights issue price of HK$4.68, and this has added some HK$2.2bn to Air China's value on the additional holdings in CX from the rights.

Air China (753 HK): Quietly Catching up Against Peers, Well Set to Outperform in 2021

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

<p>The tech break up is not happening soon but the regulators have been more vocal and active in penalizing the Big Tech companies. In the US, <a href="https://www.smartkarma.com/entities/facebook-inc-a" target="_blank" data-smartkarma-citation="entities:665:1" rel="noopener">Facebook Inc A (FB US)</a> was sued over monopoly concern and the EU has issued Digital Services Act that aims to create better chances for smaller developers to compete in the Apple and Google ecosystem. In China, the regulator has also been more stringent on the Big Tech, starting with the cancelation of <a href="https://www.smartkarma.com/entities/ant-financial-services-group" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Group (6688 HK)</a> IPO and now potentially to ask <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> and <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> to divest some of their investments. </p>
<p>The smaller tech companies in China also have issues that their revenue growth rate has started to slow down considerably, therefore, reducing the potential to reach break-even unless they do a massive cost-cutting exercise. </p>
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<p>source: Capital IQ</p>
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<p>If the Big Tech backer such as Tencent and Alibaba are told to reduce their holdings in the above shares, while the investees also do not much cash lying around in the balance sheet and trading at expensive valuation, there are two outcome possible - <strong>either a further capital raising that will send the shares multiples down or investors to start rotating into other sectors that also will send share price down. </strong></p>
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The tech break up is not happening soon but the regulators have been more vocal and active in penalizing the Big Tech companies. In the US, Facebook Inc A (FB US) was sued over monopoly concern and the EU has issued Digital Services Act that aims to create better chances for smaller developers to compete in the Apple and Google ecosystem. In China, the regulator has also been more stringent on the Big Tech, starting with the cancelation of Ant Group (6688 HK) IPO and now potentially to ask Tencent Holdings (700 HK) and Alibaba Group (9988 HK) to divest some of their investments. 
The smaller tech companies in China also have issues that their revenue growth rate has started to slow down considerably, therefore, reducing the potential to reach break-even unless they do a massive cost-cutting exercise. 


source: Capital IQ


If the Big Tech backer such as Tencent and Alibaba are told to reduce their holdings in the above shares, while the investees also do not much cash lying around in the balance sheet and trading at expensive valuation, there are two outcome possible - either a further capital raising that will send the shares multiples down or investors to start rotating into other sectors that also will send share price down. 


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

Beijing Capital International Airport (BCIA)

<p><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.</p><p>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.</p>

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

China

China Southern Airlines Company Limited provides commercial airline services throughout China, Southeast Asia and other parts of the world.  The Company also provides other airline related services including aircraft maintenance and air catering.

China Eastern Airlines Corporation Limited, together with its subsidiaries, operates in the civil aviation industry. It offers passenger, cargo, mail delivery, ground, cargo handling, and other extended transportation services.

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.

Hainan Airlines Co., Ltd. provides passenger and freight air transportation. The Company also provides charter flight services. 

Spring Airlines Co., Ltd. offers air transportation services. The Company provides domestic air transportation, international air transportation, cargo transportation, and other services. Spring Airlines also offers ticket home delivery, insurance transaction, and other services.

Juneyao Airlines Co. Ltd. supplies air transportation services. The Company provides domestic and international routes for passengers and cargoes. Juneyao Airlines also offers ticket home delivery and electronic ticketing services.

China Express Airlines Co., Ltd. provides air transportation services. The Company offers passenger and freight air transportation, aviation equipment maintenance and aircraft leasing, ticket and hotel booking, consulting, and other services. China Express Airlines serves customers worldwide.

China Express Airlines Co Ltd (002928 CH)

COSCO SHIPPING Holdings Co., Ltd offers marine freight transportation services.  The Company offers container shipping, dry bulk shipping, logistics services, freight forwarding, and terminal and container leasing services internationally.  COSCO SHIPPING Holdings Co., Ltd operates container ships and terminals, and manufactures shipping containers.

S.F. Holding Co., Ltd operates as a holding company. The Company, through its subsidiaries, provides logistics, order tracking, supply chain management, and warehousing services. S.F. Holding operates worldwide.

Daqin Railway Co., Ltd. mainly provides coal transportation service in Northern China. It also operates passenger transportation business.

Singapore Airlines Limited provides air transportation, engineering, pilot training, air charter, and tour wholesaling services. The Company's airline operation covers Asia, Europe, the Americas, South West Pacific, and Africa.

ANA Holdings Inc provides a variety of air transportation-related services. The Company offers scheduled & unscheduled air passenger services and air courier services. ANA sells aircraft parts and provides travel arrangement & reservation services as well.

United Airlines Holdings Inc is an airline holding company.  The Company owns and operates airlines that transports persons, property and mail throughout the United States and abroad.

Southwest Airlines Co. is a domestic airline that provides primarily short-haul, high-frequency, point-to-point service.  The Company offers flights throughout the United States.

International Consolidated Airlines Group S.A. provides transportation services. The Company offers international and domestic air passenger and cargo transportation services. International Consolidated Airlines Group serves customers worldwide.

International Consolidated Airlines Group (IAG LN)

International Consolidated Airlines Group

LATAM Airlines Group S.A. is an airline that provides both domestic and international flight services.  The Company provides passenger and cargo services to destinations in Chile, South America, the Caribbean, Europe, North America, and the Pacific.  LATAM Airlines operates passenger aircraft and cargo freighters.

InterGlobe Aviation Limited provides passenger airlines services. The Company offers ground management, air transportation, terminal maintenance, and other services. InterGlobe Aviation conducts its business globally.

Turk Hava Yollari Anonim Ortakligi (THY), also known as Turkish Airlines, provides passenger and cargo air transportation services. The Company serves all domestic destinations as well as the Middle East, North America, Europe, Asia, North Africa and South Africa.

Cathay Pacific Airways Limited operates scheduled airline services. The Company also provides related services, including airline catering, aircraft handling, and engineering.

Qantas Airways Limited provides transportation of passengers through two airlines including Qantas (full service carrier) and Jetstar (low cost carrier), operating international, domestic and regional services. The Company also includes Qantas Frequent Flyer and Qantas Freight which generates diverse revenue streams and adds value for customers and investors.

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Air China Ltd (A) (601111 CH)

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

TRACKING TRAFFIC/ 2020 Review | 2021 Preview | Potential IPOs in Logistics, Transportation & Travel

In this year-end piece we review key themes of 2020, look forward to emerging trends of 2021, and highlight some exciting companies that could...

Tracking Traffic

Air China (753 HK): Quietly Catching up Against Peers, Well Set to Outperform in 2021

Air China narrowed its gap against CSA on traffic and load performance in Nov, and this sets the stage for its outperformance in 2021. The surge in...

Osbert Tang, CFA

Tech Sell-Off - Progress

Although the US and China are at so to say war, it is not too impossible that the Chinese and the US regulator will work together in order to curb...

Henry Soediarko

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

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