HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Communications Construction / Equity Bottom-Up

<p><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) finally returned to profit growth in 3Q20, with a YoY growth of 3.5%, much stronger than the 40.4% decline in 1H20. Stripping out non-recurring items and impairments, the underlying strength reached 19.6% in 3Q20, versus -20.4% in 1H20.  Both gross margin and EBIT margin have achieved expansion in the quarter as well.</p><p>More importantly, new contracts signed amounted to Rmb204bn in 3Q20, a tremendous 30% YoY growth, and accelerated from 11.9% in 1Q20 and 4.4% in 2Q20. CCCC will continue to benefit from the government's infrastructure spending spree and we expect its new contract momentum to stay resilient. At just 0.25x P/B (almost 2SD below historical average), this is an undervalued and overlooked turnaround play. It is also a key beneficiary of the government's infrastructure REIT program, in our view.</p>

China Communications Construction (1800 HK) (CCCC) finally returned to profit growth in 3Q20, with a YoY growth of 3.5%, much stronger than the 40.4% decline in 1H20. Stripping out non-recurring items and impairments, the underlying strength reached 19.6% in 3Q20, versus -20.4% in 1H20.  Both gross margin and EBIT margin have achieved expansion in the quarter as well.More importantly, new contracts signed amounted to Rmb204bn in 3Q20, a tremendous 30% YoY growth, and accelerated from 11.9% in 1Q20 and 4.4% in 2Q20. CCCC will continue to benefit from the government's infrastructure spending spree and we expect its new contract momentum to stay resilient. At just 0.25x P/B (almost 2SD below historical average), this is an undervalued and overlooked turnaround play. It is also a key beneficiary of the government's infrastructure REIT program, in our view.

China Comm Const (1800 HK): 3Q20 - A Return to YoY Growth

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Quantitative Analysis

<div>
<p>The H-Share/A-Share monitor is published every weekend for the data ending the last trading day of the previous week. It includes all H-Share/A-Share pairs where the H-Share has a 90-day average daily value-traded of US$1.0mm or more. It shows basic data per H/A spread stock by sector, with...</p>
</div>
<div>
<ul style="list-style-type: disc;">
<li>H/A Discount,</li>
<li>movement in H/A Discount over 5 and 20 days,</li>
<li>a 52-week Z-score for the spread,</li>
<li>A chart showing evolution of the H/A spread over the last 20 days,</li>
<li>Southbound shares held (millions of shares), Net Change in Southbound (Shanghai and Shenzhen combined) shares held by millions of shares, and contribution of Net Southbound Volume to HK-traded volume over the past five days and 20 days, </li>
<li>There is also a chart showing the average sector spread and the individual spreads within each sector over the last three years. </li>
</ul>
<p>On average, </p>
<p>The first sector is <strong>Consumer</strong>, where H/A spreads widened on average 2.7% for the week, more than cancelling out the average 1.7% spread narrowing last week. With the exception of <a href="https://www.smartkarma.com/entities/hisense-home-appliances-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20107:1" rel="noopener">Hisense Home Appliances Group Co., Ltd. H (921 HK)</a>, this happened as the H-shares rose strongly and the A-Shares rose even more strongly.  </p>
<p>Southbound investors through the Shenzhen-HK and Shanghai-HK Connect were significant net sellers during the week in both <a href="https://www.smartkarma.com/entities/tsingtao-brewery-co-ltd-h" target="_blank" data-smartkarma-citation="entities:1296:1" rel="noopener">Tsingtao Brewery Co Ltd H (168 HK)</a> and <a href="https://www.smartkarma.com/entities/hisense-home-appliances-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20107:1" rel="noopener">Hisense Home Appliances Group Co., Ltd. H (921 HK)</a> where the net selling activity amounted to 15.5% and 22% of volume respectively. </p>
<p>Hisense remains at the overbought end of the 52-week range. <a href="https://www.smartkarma.com/entities/great-wall-motor-co-ltd-cb302af9-398c-4d2d-ba39-023e43287eef" target="_blank" data-smartkarma-citation="entities:128:1" rel="noopener">Great Wall Motor (2333 HK)</a> and <a href="https://www.smartkarma.com/entities/guangzhou-automobile-group-co-ltd" target="_blank" data-smartkarma-citation="entities:11082:1" rel="noopener">Guangzhou Automobile Group (2238 HK)</a> are now at 52-week wides. </p>
<div class="content-highlight">
<p>Last week's recommendation was to take off Hisense and the H-share fell 7.3% while the spread widened 0.7%. It is still probably worth unwinding. At this point, Great Wall and Guangzhou are worth a buy on a spread basis.</p>
</div>
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<p>For Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities, please read on.</p>
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The H-Share/A-Share monitor is published every weekend for the data ending the last trading day of the previous week. It includes all H-Share/A-Share pairs where the H-Share has a 90-day average daily value-traded of US$1.0mm or more. It shows basic data per H/A spread stock by sector, with...



H/A Discount,
movement in H/A Discount over 5 and 20 days,
a 52-week Z-score for the spread,
A chart showing evolution of the H/A spread over the last 20 days,
Southbound shares held (millions of shares), Net Change in Southbound (Shanghai and Shenzhen combined) shares held by millions of shares, and contribution of Net Southbound Volume to HK-traded volume over the past five days and 20 days, 
There is also a chart showing the average sector spread and the individual spreads within each sector over the last three years. 

On average, 
The first sector is Consumer, where H/A spreads widened on average 2.7% for the week, more than cancelling out the average 1.7% spread narrowing last week. With the exception of Hisense Home Appliances Group Co., Ltd. H (921 HK), this happened as the H-shares rose strongly and the A-Shares rose even more strongly.  
Southbound investors through the Shenzhen-HK and Shanghai-HK Connect were significant net sellers during the week in both Tsingtao Brewery Co Ltd H (168 HK) and Hisense Home Appliances Group Co., Ltd. H (921 HK) where the net selling activity amounted to 15.5% and 22% of volume respectively. 
Hisense remains at the overbought end of the 52-week range. Great Wall Motor (2333 HK) and Guangzhou Automobile Group (2238 HK) are now at 52-week wides. 

Last week's recommendation was to take off Hisense and the H-share fell 7.3% while the spread widened 0.7%. It is still probably worth unwinding. At this point, Great Wall and Guangzhou are worth a buy on a spread basis.





For Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities, please read on.


Quiddity Weekly H/​A: Share Spread Monitor 23 Oct 2020

<p>This insight re-introduces a weekly monitor for H-Share/A-Share spreads.</p>
<p>The monitor will be published every weekend for the data ending the previous week. It includes all stocks where the H-Share has a 90-day average daily value-traded of US$1.0mm or more. It shows basic data per H/A spread stock by sector, with...</p>
<ul>
<li>H/A Discount,</li>
<li>movement in H/A Discount over 5 and 20 days,</li>
<li>a 52-week Z-score for the spread,</li>
<li>A chart showing evolution of the H/A spread over the last 20 days,</li>
<li>Southbound shares held (millions of shares), Net Change in Southbound (Shanghai and Shenzhen combined) shares held by millions of shares, and contribution of Net Southbound Volume to HK-traded volume over the past five days and 20 days, </li>
<li>There is also a chart showing the narrowest and widest spread and the average spread over the last three years. </li>
</ul>
<p>In the example for the H/A spreads in the <strong>Materials</strong> sector below, spreads were generally flat over the past five days and were wider by 1.5% over the past 20 days. Southbound were net buyers on average on the H side of each pair over both 5 days and 20 days. <a href="https://www.smartkarma.com/entities/shandong-gold-mining-co-ltd-61153493-5437-47ee-a8d3-aec41fb7f1da" target="_blank" data-smartkarma-citation="entities:27455:1" rel="noopener">Shandong Gold Mining Co., Ltd. (1787 HK)</a> and <a href="https://www.smartkarma.com/entities/ganfeng-lithium-co-ltd" target="_blank" data-smartkarma-citation="entities:26795:1" rel="noopener">Ganfeng Lithium (1772 HK)</a> are spreads at the relatively narrow end of their 52-week ranges, while <a href="https://www.smartkarma.com/entities/maanshan-iron-steel-h" target="_blank" data-smartkarma-citation="entities:204:1" rel="noopener">Maanshan Iron &amp; Steel H (323 HK)</a>, <a href="https://www.smartkarma.com/entities/bbmg-corp-h" target="_blank" data-smartkarma-citation="entities:2821:1" rel="noopener">BBMG Corp H (2009 HK)</a>, <a href="https://www.smartkarma.com/entities/sinopec-shanghai-petrochemical-co-ltd" target="_blank" data-smartkarma-citation="entities:17576:1" rel="noopener">Sinopec Shanghai Petrochemical (338 HK)</a>, and <a href="https://www.smartkarma.com/entities/anhui-conch-cement-co-ltd" target="_blank" data-smartkarma-citation="entities:159:1" rel="noopener">Anhui Conch Cement Co Ltd H (914 HK)</a> are at the wider end of their 52-week ranges. The average spread in the sector widened somewhat dramatically in the month of August as seen on the chart, but stabilized at the beginning of September.</p>
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/165/714/original/Screenshot%202020-10-18%20at%202.00.22%20AM.png?1602957633" class="editor-image img-responsive" data-smartkarma-image-id="165714"></figure>
<p></p>
</section>
</section>
<p>Commentary is offered for the major movers and influences along with market observations on the sector rotation movement and particularly significant changes.</p>
<div class="content-highlight">
<p>Recommendations are in highlights like this.</p>
</div>
<section class="figure">
<p>More below the fold.  </p>
<hr>
<p><em>By the way, there are two versions of the Spread Evolution mini charts. Input is welcomed in the Discussion section as to which one is preferred (bars or lines).</em></p>
</section>

This insight re-introduces a weekly monitor for H-Share/A-Share spreads.
The monitor will be published every weekend for the data ending the previous week. It includes all stocks where the H-Share has a 90-day average daily value-traded of US$1.0mm or more. It shows basic data per H/A spread stock by sector, with...

H/A Discount,
movement in H/A Discount over 5 and 20 days,
a 52-week Z-score for the spread,
A chart showing evolution of the H/A spread over the last 20 days,
Southbound shares held (millions of shares), Net Change in Southbound (Shanghai and Shenzhen combined) shares held by millions of shares, and contribution of Net Southbound Volume to HK-traded volume over the past five days and 20 days, 
There is also a chart showing the narrowest and widest spread and the average spread over the last three years. 

In the example for the H/A spreads in the Materials sector below, spreads were generally flat over the past five days and were wider by 1.5% over the past 20 days. Southbound were net buyers on average on the H side of each pair over both 5 days and 20 days. Shandong Gold Mining Co., Ltd. (1787 HK) and Ganfeng Lithium (1772 HK) are spreads at the relatively narrow end of their 52-week ranges, while Maanshan Iron &amp; Steel H (323 HK), BBMG Corp H (2009 HK), Sinopec Shanghai Petrochemical (338 HK), and Anhui Conch Cement Co Ltd H (914 HK) are at the wider end of their 52-week ranges. The average spread in the sector widened somewhat dramatically in the month of August as seen on the chart, but stabilized at the beginning of September.






Commentary is offered for the major movers and influences along with market observations on the sector rotation movement and particularly significant changes.

Recommendations are in highlights like this.


More below the fold.  

By the way, there are two versions of the Spread Evolution mini charts. Input is welcomed in the Discussion section as to which one is preferred (bars or lines).


Quiddity Weekly H/A: Share Spread Monitor 16 Oct 2020

<p><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) is definitely one of the worst performing infrastructure-related stocks this year, with 30.2% collapse in its share price YTD. In our view, this should have significantly reflected the concerns on the weak 1H20 result (-37.2% YoY), surge in credit impairment, tight financial position and potential US sanctions. In the post-1H20 result investor call, however, management has already suggested that its profitability should see sequential improvement in 2H20. </p><p>At 4.2x PER and 0.26x P/B on 12-month forward basis, valuations are clearly inexpensive, but there is likely continue pressure on share price in the near term as the market digests negative news. However, we are positive on its prospects with the resumption of toll collection, acceleration of project construction and lower credit impairment. A successful issuance of REIT on its underlying toll road assets will kick-start a re-rating with a narrower discount to book value, in our view.</p>

China Communications Construction (1800 HK) (CCCC) is definitely one of the worst performing infrastructure-related stocks this year, with 30.2% collapse in its share price YTD. In our view, this should have significantly reflected the concerns on the weak 1H20 result (-37.2% YoY), surge in credit impairment, tight financial position and potential US sanctions. In the post-1H20 result investor call, however, management has already suggested that its profitability should see sequential improvement in 2H20. At 4.2x PER and 0.26x P/B on 12-month forward basis, valuations are clearly inexpensive, but there is likely continue pressure on share price in the near term as the market digests negative news. However, we are positive on its prospects with the resumption of toll collection, acceleration of project construction and lower credit impairment. A successful issuance of REIT on its underlying toll road assets will kick-start a re-rating with a narrower discount to book value, in our view.

China Comm Const (1800 HK): Key Takeaways from Post-1H20 Result Investor Call

<p>We believe the valuations 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> - 0.27x P/B and 3.9x PE (on a 12-month forward basis) - have well factored in concerns including tight cash flow, high gearing, heavy investments and risk of overseas projects. In fact, such valuation multiples are almost at 2 SD below the average in the last five years, and we see further downside limited.</p><p>In our view, there are a number of drivers that can support a re-rating of the stock over the next 12 months: 1.) infrastructure spending and new project momentum, 2.) beneficiary of government's infrastructure REIT program, 3.) resumption of toll road collection and profit recovery in 2H20, and 4.) share buyback.</p>

We believe the valuations of China Communications Construction (1800 HK) - 0.27x P/B and 3.9x PE (on a 12-month forward basis) - have well factored in concerns including tight cash flow, high gearing, heavy investments and risk of overseas projects. In fact, such valuation multiples are almost at 2 SD below the average in the last five years, and we see further downside limited.In our view, there are a number of drivers that can support a re-rating of the stock over the next 12 months: 1.) infrastructure spending and new project momentum, 2.) beneficiary of government's infrastructure REIT program, 3.) resumption of toll road collection and profit recovery in 2H20, and 4.) share buyback.

China Comm Const (1800 HK): Every Dog Has Its Day

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)

Price Gauge
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China Communications Construction (1800 HK)

China Comm Const (1800 HK): 3Q20 - A Return to YoY Growth

CCCC logged a 3.5% profit growth in 3Q20, a substantial recovery from -40.4% in 1H20. New contracts grew 30%, much better than 11.9% in 1Q20 and...

Osbert Tang, CFA

China Comm Const (1800 HK): Key Takeaways from Post-1H20 Result Investor Call

China Communications Construction (1800 HK) is definitely one of the worst pe

Osbert Tang, CFA

China Comm Const (1800 HK): Every Dog Has Its Day

We believe the valuations of China Communications Construction (1800 HK) - 0.27x P/B and 3.9x PE (on a 12-month forward basis) - have well factored...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China Comm Const (1800 HK): 3Q20 - A Return to YoY Growth

CCCC logged a 3.5% profit growth in 3Q20, a substantial recovery from -40.4% in 1H20. New contracts grew 30%, much better than 11.9% in 1Q20 and...

Osbert Tang, CFA

Quiddity Weekly H/​A: Share Spread Monitor 23 Oct 2020

Quiddity H/A Spread Monitor for the week ending 23 October 2020. Spreads widened in Consumer, narrowed in every other sector. Southbound were...

Travis Lundy

Quiddity Weekly H/A: Share Spread Monitor 16 Oct 2020

Weekly Monitor for H-Share/A-Share spreads showing spread/discount performance, spread Z-scores, southbound buying and selling and net activity...

Travis Lundy

China Comm Const (1800 HK): Key Takeaways from Post-1H20 Result Investor Call

China Communications Construction (1800 HK) is definitely one of the worst pe

Osbert Tang, CFA

China Comm Const (1800 HK): Every Dog Has Its Day

We believe the valuations of China Communications Construction (1800 HK) - 0.27x P/B and 3.9x PE (on a 12-month forward basis) - have well factored...

Osbert Tang, CFA

Quiddity Weekly H/A: Share Spread Monitor 23 Oct 2020