HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

While sales for excavators and wheel loaders are still seeing YoY decline of 9.2% and 11.5% for Jul, there is no further significant deterioration when compared with the pace in Jun. We think that part of the reasons for the slowdown in the last few months are high base effect, and the extreme weather situation and outbreak of local COVID-19 cases have both exacerbated the headwinds. Nonetheless, we see outlook for 2H21 to be more promising.Similarly, a high base for 2H21 comparison should be well-anticipated. However, the recent positive tone from the government on infrastructure investment and the potential acceleration in special purpose bond issuance should bode well for the industry and we continue to see <a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a> as well-placed. The encouraging new contract signed in 1H21 at <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> also lent a helping hand to the demand, in our view.

While sales for excavators and wheel loaders are still seeing YoY decline of 9.2% and 11.5% for Jul, there is no further significant deterioration when compared with the pace in Jun. We think that part of the reasons for the slowdown in the last few months are high base effect, and the extreme weather situation and outbreak of local COVID-19 cases have both exacerbated the headwinds. Nonetheless, we see outlook for 2H21 to be more promising.Similarly, a high base for 2H21 comparison should be well-anticipated. However, the recent positive tone from the government on infrastructure investment and the potential acceleration in special purpose bond issuance should bode well for the industry and we continue to see Lonking Holdings (3339 HK) as well-placed. The encouraging new contract signed in 1H21 at China Communications Construction (1800 HK) also lent a helping hand to the demand, in our view.

China Construction Machinery: Better Trajectory for 2H21

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK/China, and the Korean stock markets. The top topics are below:1) POTUS Executive Order: Updated List of Chinese Stocks to Be Deleted by Major Indices2) Kanzhun IPO3) Angelalign IPO 4) China: Allows Families to Have Three Children5) HYBE Rights Offering6) China Infrastructure REITs7) Aihuishou IPO8) Full Truck Alliance IPO9) Enjin IPO10) Xpeng: Positive Momentum Back11) Tesla China Losing Market Share12) CStone Pharma (2616.HK) - Time for a Revaluation13) JD Health Lock-Up Expiration14) Passive Money Tracking KOSPI15) SK IE Tech KOSPI 200 Fast-Entry16) DL Holdings with Recent Tender’s Increased Shares: Index Treatment 17) WH Group (288 HK)

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK/China, and the Korean stock markets. The top topics are below:1) POTUS Executive Order: Updated List of Chinese Stocks to Be Deleted by Major Indices2) Kanzhun IPO3) Angelalign IPO 4) China: Allows Families to Have Three Children5) HYBE Rights Offering6) China Infrastructure REITs7) Aihuishou IPO8) Full Truck Alliance IPO9) Enjin IPO10) Xpeng: Positive Momentum Back11) Tesla China Losing Market Share12) CStone Pharma (2616.HK) - Time for a Revaluation13) JD Health Lock-Up Expiration14) Passive Money Tracking KOSPI15) SK IE Tech KOSPI 200 Fast-Entry16) DL Holdings with Recent Tender’s Increased Shares: Index Treatment 17) WH Group (288 HK)

Smartkarma North Asia Weekly: POTUS Order, Kanzhun, Angelalign, & 3 Children Policy in China

China kicked off its public infrastructure REIT issuance in Jun with an overwhelmingly positive subscription response from the market. For the 9 REITs in the first batch issuance, average placement allocation rate is 14.5% and public allocation rate is just 6.3%. The fund raised only represented a mere 3.3% average discount to the value of the underlying assets, with toll road dominated the overall mix to account for 40% of the overall amount raised.We think that the good demand is positive for <a href="https://www.smartkarma.com/entities/zhejiang-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2178:1" rel="noopener">Zhejiang Expressway Co H (576 HK)</a>, which is the only one under our coverage involved in the first batch, paving the way for more future issuance by the company. We continue to see the following names as the major beneficiaries of China's public infrastructure REIT program - <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/shenzhen-intl-holdings" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen Intl (152 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/china-everbright-environment-group-limited" target="_blank" data-smartkarma-citation="entities:15946:1" rel="noopener">China Everbright Environment (257 HK)</a>.

China kicked off its public infrastructure REIT issuance in Jun with an overwhelmingly positive subscription response from the market. For the 9 REITs in the first batch issuance, average placement allocation rate is 14.5% and public allocation rate is just 6.3%. The fund raised only represented a mere 3.3% average discount to the value of the underlying assets, with toll road dominated the overall mix to account for 40% of the overall amount raised.We think that the good demand is positive for Zhejiang Expressway Co H (576 HK), which is the only one under our coverage involved in the first batch, paving the way for more future issuance by the company. We continue to see the following names as the major beneficiaries of China's public infrastructure REIT program - China Communications Construction (1800 HK), Shenzhen Intl (152 HK), Sinotrans (598 HK) and China Everbright Environment (257 HK). 

China Infrastructure REITs: Excellent First Batch Result - Good for Zhejiang Expressway (576 HK)

Equity Bottom-Up

China Communications Construction / Equity Bottom-Up

The 1Q21 result of <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> (CCCC) should provide comfort to the market given it showed the sustained pace of earnings recovery. Recurring profit grew 87.5% YoY, or 13.3% versus 1Q19, driven by sharp surge in revenue and good YoY margin expansion on remarkable cost control performance.  We believe CCCC has kick-started an encouraging FY21 - its 1Q21 profit already almost equals to the 1H20 profit. Adding to that is the enchanting new contract addition momentum in the quarter - up 80.3% YoY and 24.5% QoQ, providing good security and visibility for its earnings outlook. All these evidences are supportive to our relentless call that its 12-month forward PER of 2.7x and P/B of 0.2x are just too depressed.

The 1Q21 result of China Communications Construction (1800 HK) (CCCC) should provide comfort to the market given it showed the sustained pace of earnings recovery. Recurring profit grew 87.5% YoY, or 13.3% versus 1Q19, driven by sharp surge in revenue and good YoY margin expansion on remarkable cost control performance.  We believe CCCC has kick-started an encouraging FY21 - its 1Q21 profit already almost equals to the 1H20 profit. Adding to that is the enchanting new contract addition momentum in the quarter - up 80.3% YoY and 24.5% QoQ, providing good security and visibility for its earnings outlook. All these evidences are supportive to our relentless call that its 12-month forward PER of 2.7x and P/B of 0.2x are just too depressed.

China Comm Const (1800 HK): Kick-Start a Rewarding Year

The appreciation of Rmb against the USD by 6.5% in 2020 has led to many companies recording exchange losses in their FY20 accounts. However, with the Rmb depreciating against USD so far by 0.2% YTD, we believe it is time to look at the victims in last year and see how they will be affected by a weaker Rmb in this year should the trend sustain.Within our coverage, <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/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/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/cosco-shipping-energy-tran-h" target="_blank" data-smartkarma-citation="entities:646:1" rel="noopener">Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK)</a> are the key victims in last year with their exchange losses amounting to 5-11% of FY20 profit. Except <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>, we believe the remaining three names will be the beneficiaries under a scenario of weaker Rmb/USD exchange rate.

The appreciation of Rmb against the USD by 6.5% in 2020 has led to many companies recording exchange losses in their FY20 accounts. However, with the Rmb depreciating against USD so far by 0.2% YTD, we believe it is time to look at the victims in last year and see how they will be affected by a weaker Rmb in this year should the trend sustain.Within our coverage, Sinotrans (598 HK), China Communications Construction (1800 HK), Shenzhen Intl (152 HK) and Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) are the key victims in last year with their exchange losses amounting to 5-11% of FY20 profit. Except Shenzhen Intl (152 HK), we believe the remaining three names will be the beneficiaries under a scenario of weaker Rmb/USD exchange rate. 

A Look on Some Victims of Rmb Appreciation in FY20: How Will They Fare in FY21 if Rmb Stays Weak?

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 Construction Machinery: Better Trajectory for 2H21

We are positive on the 2H21 outlook of construction machinery industry, driven by potential accelaration in China's infrastructure spending and...

Osbert Tang, CFA

Smartkarma North Asia Weekly: POTUS Order, Kanzhun, Angelalign, & 3 Children Policy in China

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK...

Douglas Kim

China Infrastructure REITs: Excellent First Batch Result - Good for Zhejiang Expressway (576 HK)

Good response to the first batch of China public infrastructure REIT issuance indicates investor demand, and this is positive to Zhejiang Exp,...

Osbert Tang, CFA

China Comm Const (1800 HK): Kick-Start a Rewarding Year

CCCC logged a sharp earnings revival in 1Q21 on the back of a surge in revenue and solid margin expanson; and new contracts added also surged. It...

Osbert Tang, CFA

A Look on Some Victims of Rmb Appreciation in FY20: How Will They Fare in FY21 if Rmb Stays Weak?

We expect Sinotrans, CCCC and CSET to be the beneficiaries of weaker Rmb against USD in this year. However, due to its ownership in Shenzhen...

Osbert Tang, CFA

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