HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Communications Construction / Equity Bottom-Up

<ul>
<li>Long <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>, short <a href="https://www.smartkarma.com/entities/china-railway-group-ltd-h" target="_blank" data-smartkarma-citation="entities:264:1" rel="noopener">China Railway Group Ltd H (390 HK)</a> is a good strategy to capitalise on the recent underperformance of CCCC.</li>
<li>CCCC has a stronger contract momentum than CRG - its FY24 new contracts were up 7.3%, but CRG was down 12.4%. CCCC is also better positioned for urban construction growth.</li>
<li>In terms of dividend yield, CCCC is higher at 6.8% for FY25, yet CRG is only 6.3%. CCCC's performance should pick up in the rest of 2025.</li>
</ul>


Long China Communications Construction (1800 HK), short China Railway Group Ltd H (390 HK) is a good strategy to capitalise on the recent underperformance of CCCC.
CCCC has a stronger contract momentum than CRG - its FY24 new contracts were up 7.3%, but CRG was down 12.4%. CCCC is also better positioned for urban construction growth.
In terms of dividend yield, CCCC is higher at 6.8% for FY25, yet CRG is only 6.3%. CCCC's performance should pick up in the rest of 2025.


China Pair Trade: Long China Comm Const (1800 HK), Short China Railway Group (390 HK)

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

China Communications Construction / Event-Driven

<ul>
<li>The China Securities Index (CSI) will launch the CSI REITs Index today. The index currently has 14 constituents, and the REITs will be capped at 15% of the index weight.</li>
<li>We expect another 6 REITs to be added to the index at the March rebalance. And then at least another 3 more in June.</li>
<li>The launch of the index should result in ETFs and other passive investment products being floated which should further enhance market liquidity and bring long-term benefits to the market.</li>
</ul>


The China Securities Index (CSI) will launch the CSI REITs Index today. The index currently has 14 constituents, and the REITs will be capped at 15% of the index weight.
We expect another 6 REITs to be added to the index at the March rebalance. And then at least another 3 more in June.
The launch of the index should result in ETFs and other passive investment products being floated which should further enhance market liquidity and bring long-term benefits to the market.


CSI REITs Index: An Investable Benchmark Launches Today

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>
<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> saw its 4Q23 new contracts increased 14%, faster than the 13.5% growth in 9M23. Full-year new contracts are 3.5% ahead of its target.</li>
<li>Our estimated backlog of Rmb4.26trn at end-FY23 is 25.6% higher than end-FY22. Such backlog covers 4.9x FY24F revenue, which is a 0.6pp improvement YoY.</li>
<li>The inclusion of market cap management as a KPI for senior SOE officials will drive return, while CSRC's encouragement to raise payout ratio may easily push yield to over 10%.</li>
</ul>



China Communications Construction (1800 HK) saw its 4Q23 new contracts increased 14%, faster than the 13.5% growth in 9M23. Full-year new contracts are 3.5% ahead of its target.
Our estimated backlog of Rmb4.26trn at end-FY23 is 25.6% higher than end-FY22. Such backlog covers 4.9x FY24F revenue, which is a 0.6pp improvement YoY.
The inclusion of market cap management as a KPI for senior SOE officials will drive return, while CSRC's encouragement to raise payout ratio may easily push yield to over 10%.


China Comm Const (1800 HK): New Contracts Gathering Steam

<ul>
<li>The fall in share price in the last five months have sent <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> back to very attractive level. The market has misread the strong 2Q23 result.</li>
<li>2Q23 recurring net profit surged 68.5% as 2Q22 has an inflated base. Gross margin has recorded meaningful YoY recovery while capex, particularly for BOT, has scaled back significantly. </li>
<li>There should not be concerns about CCCC's contract outlook. Its backlog is enough to cover 4.9x FY23F revenue and its PER of 2.7x has provided more than sufficient buffer.</li>
</ul>


The fall in share price in the last five months have sent China Communications Construction (1800 HK) back to very attractive level. The market has misread the strong 2Q23 result.
2Q23 recurring net profit surged 68.5% as 2Q22 has an inflated base. Gross margin has recorded meaningful YoY recovery while capex, particularly for BOT, has scaled back significantly. 
There should not be concerns about CCCC's contract outlook. Its backlog is enough to cover 4.9x FY23F revenue and its PER of 2.7x has provided more than sufficient buffer.


China Comm Const (1800 HK): Well Worth Revisiting

China

China Communications Construction Company Ltd. is a transportation infrastructure group.  The Company is involved in infrastructure construction, infrastructure design, dredging, and port machinery manufacturing.  China Communications has operations worldwide.

China Communications Construction (1800 HK)

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China Communications Construction (1800 HK)

China Pair Trade: Long China Comm Const (1800 HK), Short China Railway Group (390 HK)

Long CCCC, short CRG is a strategic move to capitalise on CCCC's stronger contract momentum, better urban construction exposure and higher...

Osbert Tang, CFA

CSI REITs Index: An Investable Benchmark Launches Today

CSI launches the CSI REITs Index today with 14 constituents. ETFs should be launched in the near future. Given the huge oversubscription on the...

Brian Freitas

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

China Comm Const (1800 HK): New Contracts Gathering Steam

CCCC's 4Q23 new contracts increased 14%, surpassing the 9M23 growth rate. Full-year new contracts are 3.5% above target. The estimated backlog for...

Osbert Tang, CFA

China Comm Const (1800 HK): Well Worth Revisiting

CCCC has become very attractive due to an unjustified fall in share price. Recurring net profit surged 68.5% in 2Q23 and its contract outlook is...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China Pair Trade: Long China Comm Const (1800 HK), Short China Railway Group (390 HK)

​Long CCCC, short CRG is a strategic move to capitalise on CCCC's stronger contract momentum, better urban construction exposure and higher...

Osbert Tang, CFA

CSI REITs Index: An Investable Benchmark Launches Today

CSI launches the CSI REITs Index today with 14 constituents. ETFs should be launched in the near future. Given the huge oversubscription on the...

Brian Freitas

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

China Comm Const (1800 HK): New Contracts Gathering Steam

CCCC's 4Q23 new contracts increased 14%, surpassing the 9M23 growth rate. Full-year new contracts are 3.5% above target. The estimated backlog for...

Osbert Tang, CFA

China Comm Const (1800 HK): Well Worth Revisiting

CCCC has become very attractive due to an unjustified fall in share price. Recurring net profit surged 68.5% in 2Q23 and its contract outlook is...

Osbert Tang, CFA

Long CCCC, short CRG is a strategic move to capitalise on CCCC's stronger contract momentum, better urban construction exposure and higher...