HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Communications Construction / Equity Bottom-Up

<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> believes its FY24 new contracts and revenue growth can be faster than FY23, particularly fuelled by strategic new industries and overseas. </li>
<li>Its end-FY23 contract backlog of Rmb3.45trn (+1.8% YoY) translates into coverage of 4.1x of FY24F revenue, providing a secured stream of revenue over the next few years.</li>
<li>Its improving cash flow allows for a 1pp increase in the payout ratio. Efforts in realising underlying asset value should narrow its 82% discount to book value.</li>
</ul>



China Communications Construction (1800 HK) believes its FY24 new contracts and revenue growth can be faster than FY23, particularly fuelled by strategic new industries and overseas. 
Its end-FY23 contract backlog of Rmb3.45trn (+1.8% YoY) translates into coverage of 4.1x of FY24F revenue, providing a secured stream of revenue over the next few years.
Its improving cash flow allows for a 1pp increase in the payout ratio. Efforts in realising underlying asset value should narrow its 82% discount to book value.


China Comm Const (1800 HK): A Nice Surprise

Thematic (Sector/Industry)

<ul>
<li>Although 5% GDP growth target for 2023 is at the low end of market speculation of 5.5-6%, we think this reflects the government's conservative stance amid post-COVID recovery. </li>
<li>A 0.2pp higher budget deficit and a special purpose bond quota of Rmb3.8trn suggested that government spending will stay as important economic driver.</li>
<li>Consumption is another major stimulus for economic growth, and more supportive measures will be rolled out - we have seen many cities planning to hand out consumption vouchers.</li>
</ul>


Although 5% GDP growth target for 2023 is at the low end of market speculation of 5.5-6%, we think this reflects the government's conservative stance amid post-COVID recovery. 
A 0.2pp higher budget deficit and a special purpose bond quota of Rmb3.8trn suggested that government spending will stay as important economic driver.
Consumption is another major stimulus for economic growth, and more supportive measures will be rolled out - we have seen many cities planning to hand out consumption vouchers.


China NPC: Implications of Government Working Report 2023

<ul>
<li>China may bring ahead quota for special purpose bond issuance in 2023 to 2H22. This may potentially at Rmb1.5trn (US$220bn), which will provide big boost to the economy.</li>
<li>For 5M22, the three most important areas of spending of local government bond proceeds are urban construction and industrial park, social services and transport infrastructure.</li>
<li>
<a href="https://www.smartkarma.com/entities/china-state-construction-int-l-holdings" target="_blank" data-smartkarma-citation="entities:10038:1" rel="noopener">China State Construction Int'l (3311 HK)</a>, <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 (914 HK)</a>, <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 (390 HK)</a>, <a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture (586 HK)</a> and <a href="https://www.smartkarma.com/entities/anta-sports-products-ltd" target="_blank" data-smartkarma-citation="entities:10261:1" rel="noopener">Anta Sports (2020 HK)</a> are the top picks.</li>
</ul>


China may bring ahead quota for special purpose bond issuance in 2023 to 2H22. This may potentially at Rmb1.5trn (US$220bn), which will provide big boost to the economy.
For 5M22, the three most important areas of spending of local government bond proceeds are urban construction and industrial park, social services and transport infrastructure.

China State Construction Int'l (3311 HK), Anhui Conch Cement (914 HK), China Railway Group (390 HK), China Conch Venture (586 HK) and Anta Sports (2020 HK) are the top picks.


China Stimulus: These Are the Key Beneficiaries

China National Building Material / Equity Bottom-Up

<ul>
<li>We view <a href="https://www.smartkarma.com/entities/china-national-building-ma-h" target="_blank" data-smartkarma-citation="entities:184:1" rel="noopener">China National Building Material (3323 HK)</a>'s proposal to buy back 9.98% of H-shares as a good opportunity for the shareholders to cash out in their position.</li>
<li>Without further significant government stimulus, CNBM will find it difficult to return to the HK$4.03 offer price. Potential weak FY24 results also mean downside risks.</li>
<li>Other companies with high gearing and low P/B may follow CNBM's move. We single out the infrastructure construction companies as the likely candidates.</li>
</ul>


We view China National Building Material (3323 HK)'s proposal to buy back 9.98% of H-shares as a good opportunity for the shareholders to cash out in their position.
Without further significant government stimulus, CNBM will find it difficult to return to the HK$4.03 offer price. Potential weak FY24 results also mean downside risks.
Other companies with high gearing and low P/B may follow CNBM's move. We single out the infrastructure construction companies as the likely candidates.


China National Building Materials (3323 HK): Buying Back 9.98% of H-Shares

China State Construction Int'L / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-state-construction-int-l-holdings" target="_blank" data-smartkarma-citation="entities:10038:1" rel="noopener">China State Construction Int'l (3311 HK)</a>'s backlog of HK$418.26bn is enough to cover 3x consensus forecast revenue of FY25, providing comfort for secured earnings outlook. </li>
<li>The focus on public housing and municipal projects limits its exposure to the real estate market. Its consecutive earnings growth in last five years demonstrated its resilience.</li>
<li>With ROE of 15-16%, its P/B of 0.8x is cheap. The reduction in operating cash outflow supports higher payout ratio, and its dividend yield of 5.6-6.3% is healthy. </li>
</ul>



China State Construction Int'l (3311 HK)'s backlog of HK$418.26bn is enough to cover 3x consensus forecast revenue of FY25, providing comfort for secured earnings outlook. 
The focus on public housing and municipal projects limits its exposure to the real estate market. Its consecutive earnings growth in last five years demonstrated its resilience.
With ROE of 15-16%, its P/B of 0.8x is cheap. The reduction in operating cash outflow supports higher payout ratio, and its dividend yield of 5.6-6.3% is healthy. 


China State Construction Intl (3311 HK): Steady as It Goes

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 Comm Const (1800 HK): A Nice Surprise

CCCC expects faster new contract and revenue growth for FY24, driven by strategic industries and overseas markets. With a strong contract backlog...

Osbert Tang, CFA

China NPC: Implications of Government Working Report 2023

A 0.2pp higher budget deficit and a Rmb3.8trn special purpose bond quota suggested government spending will remain important economic driver. More...

Osbert Tang, CFA

China Stimulus: These Are the Key Beneficiaries

Potential massive special purpose bond issuance by local governments in 2H22 (brought forward from 2023) will provide a much-needed boost to the...

Osbert Tang, CFA

China National Building Materials (3323 HK): Buying Back 9.98% of H-Shares

CNBM's buyback proposal offers shareholders a chance to cash out, but without government stimulus, returning to the offer price is not easy. Other...

Osbert Tang, CFA

China State Construction Intl (3311 HK): Steady as It Goes

CSCI has a strong backlog covering 3x forecast revenue. Its focus on public housing and municipal projects limits risk exposure to property...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China Comm Const (1800 HK): A Nice Surprise

CCCC expects faster new contract and revenue growth for FY24, driven by strategic industries and overseas markets. With a strong contract backlog...

Osbert Tang, CFA

China NPC: Implications of Government Working Report 2023

A 0.2pp higher budget deficit and a Rmb3.8trn special purpose bond quota suggested government spending will remain important economic driver. More...

Osbert Tang, CFA

China Stimulus: These Are the Key Beneficiaries

Potential massive special purpose bond issuance by local governments in 2H22 (brought forward from 2023) will provide a much-needed boost to the...

Osbert Tang, CFA

China National Building Materials (3323 HK): Buying Back 9.98% of H-Shares

​CNBM's buyback proposal offers shareholders a chance to cash out, but without government stimulus, returning to the offer price is not easy. Other...

Osbert Tang, CFA

China State Construction Intl (3311 HK): Steady as It Goes

​CSCI has a strong backlog covering 3x forecast revenue. Its focus on public housing and municipal projects limits risk exposure to property...

Osbert Tang, CFA

CNBM's buyback proposal offers shareholders a chance to cash out, but without government stimulus, returning to the offer price is not easy. Other...

CSCI has a strong backlog covering 3x forecast revenue. Its focus on public housing and municipal projects limits risk exposure to property...