HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

AviChina Industry & Technology H / Equity Bottom-Up

<ul>
<li>The share price of <a href="https://www.smartkarma.com/entities/avichina-industry-technology-h" target="_blank" data-smartkarma-citation="entities:16315:1" rel="noopener">AviChina Industry &amp; Technology H (2357 HK)</a> has picked up in Mar, and it will continue to chase the HSI and HSCEI, in our view.</li>
<li>At 54.1%, AviChina's discount to its A-share holdings has narrowed 4.2pp YTD, but is still behind the 6.2pp contraction for overall H-A shares. There is more room to catch up.</li>
<li>The increase in defense spending, advancement in domestic commercial aviation and development of the low-altitude economy are major potential drivers.</li>
</ul>


The share price of AviChina Industry &amp; Technology H (2357 HK) has picked up in Mar, and it will continue to chase the HSI and HSCEI, in our view.
At 54.1%, AviChina's discount to its A-share holdings has narrowed 4.2pp YTD, but is still behind the 6.2pp contraction for overall H-A shares. There is more room to catch up.
The increase in defense spending, advancement in domestic commercial aviation and development of the low-altitude economy are major potential drivers.


AviChina Industry (2357 HK): The Discount to Narrow

Thematic (Sector/Industry)

<ul>
<li>As Rmb moved from appreciation in 1Q23 to depreciation in 2Q23, there is a total change in the beneficiaries discussed in <a href="https://www.smartkarma.com/insights/china-strategy-it-is-the-foreign-exchange-impact-stupid" target="_blank" data-smartkarma-citation="insights:99729" rel="noopener">China Strategy: It Is the Foreign Exchange Impact, Stupid!</a> </li>
<li>The new beneficiaries are <a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">CIMC Enric Holdings (3899 HK)</a>, <a href="https://www.smartkarma.com/entities/china-energy-engineering-group" target="_blank" data-smartkarma-citation="entities:21017:1" rel="noopener">China Energy Engineering (3996 HK)</a>, <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>, <a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a> and <a href="https://www.smartkarma.com/entities/avichina-industry-technology-h" target="_blank" data-smartkarma-citation="entities:16315:1" rel="noopener">AviChina Industry &amp; Technology H (2357 HK)</a>. </li>
<li>
<a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">CIMC Enric Holdings (3899 HK)</a> generated 20.2% of FY22 earnings from exchange gain as Rmb depreciated. Revenue from outside China rose 10% in 1H23 and accounted for 54.4% of total.  </li>
</ul>


As Rmb moved from appreciation in 1Q23 to depreciation in 2Q23, there is a total change in the beneficiaries discussed in China Strategy: It Is the Foreign Exchange Impact, Stupid! 
The new beneficiaries are CIMC Enric Holdings (3899 HK), China Energy Engineering (3996 HK), China Communications Construction (1800 HK), Sinotrans (598 HK) and AviChina Industry &amp; Technology H (2357 HK). 

CIMC Enric Holdings (3899 HK) generated 20.2% of FY22 earnings from exchange gain as Rmb depreciated. Revenue from outside China rose 10% in 1H23 and accounted for 54.4% of total.  


China Strategy: The RMB Reversal Is Just Too Fast!

<ul>
<li>The slight dip in FY22 earnings for <a href="https://www.smartkarma.com/entities/avichina-industry-technology-h" target="_blank" data-smartkarma-citation="entities:16315:1" rel="noopener">AviChina Industry &amp; Technology H (2357 HK)</a> is due to product restructuring at <a href="https://www.smartkarma.com/entities/avic-helicopter-co-ltd-a" target="_blank" data-smartkarma-citation="entities:14380:1" rel="noopener">Avicopter (600038 CH)</a> and higher impairment/fair value losses.<a href="https://www.smartkarma.com/entities/china-aviation-optical-a" target="_blank" data-smartkarma-citation="entities:13827:1" rel="noopener"></a>
</li>
<li>It should return to growth track in the next two years, with rise in product demand, recovery in Avicopter, further restructuring and M&amp;As being major drivers. </li>
<li>Share price has increased 15.9% YTD but it is just on 9.2x FY23 PER. Its market cap is at 58.5% discount to holdings in its four listed A-share subsidiaries. </li>
</ul>


The slight dip in FY22 earnings for AviChina Industry &amp; Technology H (2357 HK) is due to product restructuring at Avicopter (600038 CH) and higher impairment/fair value losses.

It should return to growth track in the next two years, with rise in product demand, recovery in Avicopter, further restructuring and M&amp;As being major drivers. 
Share price has increased 15.9% YTD but it is just on 9.2x FY23 PER. Its market cap is at 58.5% discount to holdings in its four listed A-share subsidiaries. 


AviChina Industry (2357 HK): Still Well-Placed as Our High Conviction

<ul>
<li>
<a href="https://www.smartkarma.com/entities/avichina-industry-technology-h" target="_blank" data-smartkarma-citation="entities:16315:1" rel="noopener">AviChina Industry &amp; Tech (2357 HK)</a> announced plan to consolidate helicopter business by disposing Changhe Aircraft and Harbin Aircraft to its subsidiary <a href="https://www.smartkarma.com/entities/avic-helicopter-co-ltd-a" target="_blank" data-smartkarma-citation="entities:14380:1" rel="noopener">Avic Helicopter (600038 CH)</a>. </li>
<li>AviChina can achieve synergy at its helicopter business, realise capital gains from disposal and enjoy higher valuations on these assets while maintaining its controlling ownership.</li>
<li>The resultant increase in stake in Avicopter will further widen AviChina's discount to its holdings in four listed A-share subsidiaries. Its current 66% discount is just too steep.</li>
</ul>



AviChina Industry &amp; Tech (2357 HK) announced plan to consolidate helicopter business by disposing Changhe Aircraft and Harbin Aircraft to its subsidiary Avic Helicopter (600038 CH). 
AviChina can achieve synergy at its helicopter business, realise capital gains from disposal and enjoy higher valuations on these assets while maintaining its controlling ownership.
The resultant increase in stake in Avicopter will further widen AviChina's discount to its holdings in four listed A-share subsidiaries. Its current 66% discount is just too steep.


AviChina Industry (2357 HK): Another Step in Restructuring

<ul>
<li>Given its holdings in four A-share subsidiaries, <a href="https://www.smartkarma.com/entities/avichina-industry-technology-h" target="_blank" data-smartkarma-citation="entities:16315:1" rel="noopener">AviChina Industry &amp; Technology H (2357 HK)</a> will benefit from the surge in their share prices as mainland markets re-open.</li>
<li>These A-share all lagged benchmark Indices YTD. Avichina's holdings in them are already valued at 2.23x its own market capitalisation. </li>
<li>The historical discount range is 51-70% and currently stands at 55%, suggesting AviChina's share price has not yet excessively priced in the post-Golden Week rally.</li>
</ul>


Given its holdings in four A-share subsidiaries, AviChina Industry &amp; Technology H (2357 HK) will benefit from the surge in their share prices as mainland markets re-open.
These A-share all lagged benchmark Indices YTD. Avichina's holdings in them are already valued at 2.23x its own market capitalisation. 
The historical discount range is 51-70% and currently stands at 55%, suggesting AviChina's share price has not yet excessively priced in the post-Golden Week rally.


AviChina Industry (2357 HK): Excellent Exposure to A-Share Surge

China

AviChina Industry & Technology Co Ltd manufactures and sells aviation tools and aero-parts. The Company's main products include helicopters, regional aircrafts, trainers, general aircrafts, aero-parts and components and aero-electrical products.

AviChina Industry & Technology H (2357 HK)

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
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AviChina Industry & Technology H (2357 HK)

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AviChina should return to growth track in the next two years, with rise in product demand, recovery in Avicopter, further restructuring and M&As...

Osbert Tang, CFA

AviChina Industry (2357 HK): Another Step in Restructuring

The proposed restructuring will allow AviChina achieve synergy at helicopter business, realise capital gains and enjoy higher valuations on these...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

AviChina Industry (2357 HK): The Discount to Narrow

​AviChina's share price is on the rise and is expected to continue tracking the HSI and HSCEI, driven by narrower discounts to A-share holdings and...

Osbert Tang, CFA

China Strategy: The RMB Reversal Is Just Too Fast!

Trump's presidency is expected to escalate the trade war and increase the possibility of a higher USD rate. That said, the Rmb will be under...

Osbert Tang, CFA

AviChina Industry (2357 HK): Still Well-Placed as Our High Conviction

AviChina should return to growth track in the next two years, with rise in product demand, recovery in Avicopter, further restructuring and M&As...

Osbert Tang, CFA

AviChina Industry (2357 HK): Another Step in Restructuring

The proposed restructuring will allow AviChina achieve synergy at helicopter business, realise capital gains and enjoy higher valuations on these...

Osbert Tang, CFA

AviChina Industry (2357 HK): Excellent Exposure to A-Share Surge

​AviChina is poised to benefit from a surge in A-share subsidiaries' share prices as mainland markets re-open, with the attributable value of its...

Osbert Tang, CFA

AviChina's share price is on the rise and is expected to continue tracking the HSI and HSCEI, driven by narrower discounts to A-share holdings and...

AviChina is poised to benefit from a surge in A-share subsidiaries' share prices as mainland markets re-open, with the attributable value of its...