HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>
<a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (753 HK)</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> and <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 (670 HK) </a>issued profit warnings for FY21, guiding for Rmb36.8-43.3bn aggregate losses, worse than FY20. </li>
<li>On QoQ basis, CSA's bottom line is significantly weaker as losses enlarged 3.1x in 4Q21, versus 38.4% for CEA and 54% for Air China, based on the mid-point of guidances.</li>
<li>We expect Air China to outperform CSA (YTD: 1.6pp), backed by more international traffic, border opening of China, favourable cargo demand and pricing, and improvement at <a href="https://www.smartkarma.com/entities/cathay-pacific-airways-ltd" target="_blank" data-smartkarma-citation="entities:243:1" rel="noopener">Cathay Pacific (293 HK)</a>. </li>
</ul>



Air China Ltd (753 HK), China Southern Airlines (1055 HK) and China Eastern Airlines (670 HK) issued profit warnings for FY21, guiding for Rmb36.8-43.3bn aggregate losses, worse than FY20. 
On QoQ basis, CSA's bottom line is significantly weaker as losses enlarged 3.1x in 4Q21, versus 38.4% for CEA and 54% for Air China, based on the mid-point of guidances.
We expect Air China to outperform CSA (YTD: 1.6pp), backed by more international traffic, border opening of China, favourable cargo demand and pricing, and improvement at Cathay Pacific (293 HK). 


Chinese Airlines: A Tale of Three Loss-Making, but Outperforming, Companies

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>An analysis of the shareholder register of<a href="https://www.smartkarma.com/entities/bhp-group-plc" target="_blank" data-smartkarma-citation="entities:28086:1" rel="noopener">BHP Group PLC (BHPBF US)</a> suggests that BHP has misunderestimated the passive ownership of PLC by a lot.</li>
<li>
<a href="https://www.smartkarma.com/entities/jardine-matheson-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19718:1" rel="noopener">Jardine Matheson Holdings (JM SP)</a> looks set to add to its coffers on talk it is negotiating the sale of KFC and Pizza Hut franchises. </li>
<li>How the mighty have fallen. <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 gone from the de-facto flag carrier to the obligatory kicking bag.</li>
</ul>


An analysis of the shareholder register ofBHP Group PLC (BHPBF US) suggests that BHP has misunderestimated the passive ownership of PLC by a lot.

Jardine Matheson Holdings (JM SP) looks set to add to its coffers on talk it is negotiating the sale of KFC and Pizza Hut franchises. 
How the mighty have fallen. Cathay Pacific Airways (293 HK) has gone from the de-facto flag carrier to the obligatory kicking bag.


Last Week in Event SPACE: BHP, Jardine Matheson, Cathay Pacific, HK&S Hotels, Large CCASS Moves

<ul>
<li>
<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> dangles bonuses for pilots and first officers amid Hong Kong's stringent crew quarantine requirements. </li>
<li>Preceding my comments on Cathay - and <a href="https://www.smartkarma.com/entities/swire-pacific-ltd-cl-a" target="_blank" data-smartkarma-citation="entities:10433:1" rel="noopener">Swire Pacific (A) (19 HK)</a>- are the current setup/unwind tables for Asia-Pacific Holdcos. </li>
<li>These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation &gt;20%.</li>
</ul>



Cathay Pacific Airways (293 HK) dangles bonuses for pilots and first officers amid Hong Kong's stringent crew quarantine requirements. 
Preceding my comments on Cathay - and Swire Pacific (A) (19 HK)- are the current setup/unwind tables for Asia-Pacific Holdcos. 
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation &gt;20%.


StubWorld: Cathay Pacific - Still Grounded

<ul>
<li>Shortly after <a href="https://www.smartkarma.com/entities/keppel-corp-ltd" target="_blank" data-smartkarma-citation="entities:12:1" rel="noopener">Keppel (KEP SP)</a> revised their Offer to ~S$2.35 and FINAL, Cuscaden has come over the top. This complicates things because of the <a href="https://www.smartkarma.com/entities/singapore-press-holdings-limited" target="_blank" data-smartkarma-citation="entities:9952:1" rel="noopener">Singapore Press (SPH SP)</a>/Keppel Agreement timing.</li>
<li>
<a href="https://www.smartkarma.com/entities/swire-pacific-ltd-cl-a" target="_blank" data-smartkarma-citation="entities:10433:1" rel="noopener">Swire Pacific (19 HK)</a>'s discount to NAV of ~50% is bang in line with its 12-month average, as <a href="https://www.smartkarma.com/entities/cathay-pacific-airways-ltd" target="_blank" data-smartkarma-citation="entities:243:1" rel="noopener">Cathay Pacific (293 HK)</a> is close to operating cash breakeven.</li>
<li>Blackstone and affiliates are offering shareholders of <a href="https://www.smartkarma.com/entities/crown-resorts-ltd" target="_blank" data-smartkarma-citation="entities:808:1" rel="noopener">Crown Resorts (CWN AU)</a> A$12.50/share in cash, a 26.2% premium to last close.</li>
</ul>


Shortly after Keppel (KEP SP) revised their Offer to ~S$2.35 and FINAL, Cuscaden has come over the top. This complicates things because of the Singapore Press (SPH SP)/Keppel Agreement timing.

Swire Pacific (19 HK)'s discount to NAV of ~50% is bang in line with its 12-month average, as Cathay Pacific (293 HK) is close to operating cash breakeven.
Blackstone and affiliates are offering shareholders of Crown Resorts (CWN AU) A$12.50/share in cash, a 26.2% premium to last close.


Last Week in Event SPACE: Singapore Press, Swire, Crown Resorts, Royal Dutch, Toshiba, Hollysys

<ul>
<li>In its latest traffic figure <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/1117/2021111700289.pdf" target="_blank" rel="noopener">release</a>, <a href="https://www.smartkarma.com/entities/cathay-pacific-airways-ltd" target="_blank" data-smartkarma-citation="entities:243:1" rel="noopener">Cathay Pacific (293 HK)</a> said it's been able to achieve close to operating cash breakeven for the four-month period from July to October 2021.</li>
<li>Cathay carried a total of 76,430 passengers in October, an increase of 98.3% compared to October 2020, but a 97.2% decrease compared to the pre-pandemic level in October 2019.</li>
<li>Separately, <a href="https://www.smartkarma.com/entities/swire-pacific-ltd-cl-a" target="_blank" data-smartkarma-citation="entities:10433:1" rel="noopener">Swire Pacific (A) (19 HK)</a>'s discount to NAV of ~50% is bang in line with its 12-month average.</li>
</ul>


In its latest traffic figure release, Cathay Pacific (293 HK) said it's been able to achieve close to operating cash breakeven for the four-month period from July to October 2021.
Cathay carried a total of 76,430 passengers in October, an increase of 98.3% compared to October 2020, but a 97.2% decrease compared to the pre-pandemic level in October 2019.
Separately, Swire Pacific (A) (19 HK)'s discount to NAV of ~50% is bang in line with its 12-month average.


Swire Pac (19 HK): Cathay's Operating Cash (Almost) Breaking Even

Hong Kong

China Merchants Holdings International Company Limited, through its subsidiaries and associated companies, operates container and cargo terminals, port transportation, and airport cargo handling.  The Company also manufactures containers, paint, and trailers as well as operates toll road, shipping, property, and dealing securities businesses.

SITC International Holdings Company Ltd. offers marine shipping services.  The Company offers container liner shipping, freight forwarding, customs clearance, shipping agency, and ship brokerage services.  SITC operates in Asia.

Orient Overseas International Ltd, through its subsidiaries, owns and leases ships, operates terminals, and provides freight forwarding and container transportation services.  The Company also develops and invests in properties, leases equipment, and invests in securities.

Shenzhen International Holdings Limited operates as a holding company. The Company, through its subsidiaries, provides investment, construction, and operation of logistic infrastructure facilities, as well as offers value-added logistic services. Shenzhen International serves customers worldwide.

COSCO Shipping Ports Limited, through its subsidiaries, provides shipping container leasing services worldwide.  The Company also operates container terminals and provides container handling, storage, transportation and management services, as well as depot handling and stevedoring services.

Kerry Logistics Network Limited provides logistics services in Asia and internationally. The Company offers integrated logistics services, as well as leases warehousing space in Hong Kong and provides international freight forwarding services.

Pacific Basin Shipping Limited, through its subsidiaries, provides marine transportation services and logistical support to its customers through the commercial operation of a large, modern, and uniformly-sized fleet of shallow-draft Handysize dry bulk carriers.

COSCO SHIPPING International (Hong Kong) Co., Ltd. provides shipping related services. The Company offers shipping, logistics, shipbuilding and ship repair services, ship trading agency services, marine insurance brokerage services, marine equipment and spare parts, coating products, and marine fuel and other related shipping products. COSCO International serves clients around the world.

Yuexiu Transport Infrastructure Ltd., through its subsidiaries, invests in, develops, operates, and manages toll highways, expressways, and bridges in China.

Yuexiu Transport Infrastructure (1052 HK)

Tianjin Port Development Holdings Limited operates container terminals in China.  The company provides container handling operations, stacking and warehousing services and non-containerized cargo services.

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.

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.

Japan Airlines Co. Ltd. provides air transportation services. The Company offers a variety of scheduled  flights and unscheduled flights throughout the world as well as offers air courier services. Japan Airlines also provides tickets, resort hotels, and travel agencies services.

American Airlines Group Inc. operates an airline that provides scheduled passenger, freight, and mail service throughout North America, the Caribbean, Latin America, Europe, and the Pacific.  The Company also provides connecting service throughout the United States, Canada, and the Caribbean.

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.

Korean Air Lines Co., Ltd. operates air transportation services.  The Company's services include passenger and cargo transportation, aircraft maintenance, and air catering.  Korean Air Lines provides domestic and international airline services.

Alaska Air Group, Inc. is an airline holding company. The Company, through its subsidiaries, provides air service to passengers in multiple destinations. Alaska Air also provide freight and mail services, primarily to and within the state of Alaska and on the West Coast.

EVA Airways Corp. is an air carrier that transports passengers and cargos. The Company operates primarily in Taiwan and serves international route networks in North America, Asia, Europe, and Australasia.

Deutsche Lufthansa Aktiengesellschaft provides passenger and cargo air transportation services worldwide. The Company offers flight and connection programs in North America, Scandinavia, and Asia. Deutsche Lufthansa also provides travel agency, catering, and aircraft maintenance services.

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

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Cathay Pacific Airways (293 HK)

Chinese Airlines: A Tale of Three Loss-Making, but Outperforming, Companies

Chinese airlines have issued profit warnings for FY21 with record losses in the year, and CSA looks to have the weakest QoQ performance in 4Q21. We...

Osbert Tang, CFA

Last Week in Event SPACE: BHP, Jardine Matheson, Cathay Pacific, HK&S Hotels, Large CCASS Moves

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

StubWorld: Cathay Pacific - Still Grounded

I can't get excited with Cathay. I tilt bullish on Swire Pac. Around a 50% discount is wide given its tendency to historically trade in the low-to...

David Blennerhassett

Last Week in Event SPACE: Singapore Press, Swire, Crown Resorts, Royal Dutch, Toshiba, Hollysys

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Swire Pac (19 HK): Cathay's Operating Cash (Almost) Breaking Even

I tilt bullish on Swire Pac. Around a 50% discount is wide given its tendency to historically trade in the low-to-mid twenties. I'm still not...

David Blennerhassett

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