HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Railway Signal & Communication / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-railway-signal-communication-co-ltd" target="_blank" data-smartkarma-citation="entities:613:1" rel="noopener">China Railway Signal &amp; Communication (3969 HK)</a> (CRSC) has achieved good share price performance YTD, but we think there is more room to go for the rest of the year.</li>
<li>We like its steady domestic growth, exposure to overseas recovery, strong order backlog, and net cash position. 1Q23 new contracts reached Rmb13.7bn, an impressive 35.8% YoY growth.</li>
<li>Unlike the highly-geared infrastructure construction peers, CRSC's net cash equals 52% of the share price. On such basis, its P/B of 0.7x relative to ROE of 9-10% is inexpensive.</li>
</ul>



China Railway Signal &amp; Communication (3969 HK) (CRSC) has achieved good share price performance YTD, but we think there is more room to go for the rest of the year.
We like its steady domestic growth, exposure to overseas recovery, strong order backlog, and net cash position. 1Q23 new contracts reached Rmb13.7bn, an impressive 35.8% YoY growth.
Unlike the highly-geared infrastructure construction peers, CRSC's net cash equals 52% of the share price. On such basis, its P/B of 0.7x relative to ROE of 9-10% is inexpensive.


China CRSC (3969 HK): Uniquely Positioned with Strong Financials

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Quantitative Analysis

<ul>
<li>We analyse the changes of A-H premium on 143 stocks over the last week. The average A-H premium was 113.9% as of Jun 9th.</li>
<li>The average A-H premium changed by -1.9ppt week on week, led by consumer discretionary, materials, industrials and offset by consumer staples, information technology, communication services.</li>
<li>We highlight weekly changes in A-H premium for CCB, China Longyuan and BYD.</li>
</ul>


We analyse the changes of A-H premium on 143 stocks over the last week. The average A-H premium was 113.9% as of Jun 9th.
The average A-H premium changed by -1.9ppt week on week, led by consumer discretionary, materials, industrials and offset by consumer staples, information technology, communication services.
We highlight weekly changes in A-H premium for CCB, China Longyuan and BYD.


A-H Premium Weekly (Jun 9th): CCB, China Longyuan, BYD

External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

Thematic (Sector/Industry)

<ul><li>China SOE construction names have outperformed the index YTD on the back of the “Valuation system with China characteristics” (中特估).</li><li>While the sector retreated in May due to weak market, we think the story has yet to come to an end as the sector (H-share) is trading at only 4.5x 2023E P/E (Bloomberg consensus).</li><li>We see multiple drivers ahead: (1) Continuous market share gain of the state-owned construction companies; (2) Belt-and-Road opportunities following the enhanced China-Middle East relations; (3) Better incentives to achieve higher profitability following the revised KPI matrix for SOEs.</li></ul><p><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></p>

China SOE construction names have outperformed the index YTD on the back of the “Valuation system with China characteristics” (中特估).While the sector retreated in May due to weak market, we think the story has yet to come to an end as the sector (H-share) is trading at only 4.5x 2023E P/E (Bloomberg consensus).We see multiple drivers ahead: (1) Continuous market share gain of the state-owned construction companies; (2) Belt-and-Road opportunities following the enhanced China-Middle East relations; (3) Better incentives to achieve higher profitability following the revised KPI matrix for SOEs.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

China Construction Sector – Multiple drivers to achieve Valuation with China characteristics

China Energy Engineering / Equity Bottom-Up

<ul>
<li>
<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> is a laggard in this round of "China style valuation" rally. With strong earnings and project backlog, there is good room to catch up.</li>
<li>Its 1Q23 earnings growth is ahead of the infrastructure trio, and so as the new contracts signed. Moreover, it has a faster growth in overseas market. </li>
<li>The 3-year EPS CAGR is projected at 16.3%, yet it just trades on 5x PER. Its ROE of 9.4% makes it attractively priced at only 0.4x P/B for FY23.</li>
</ul>



China Energy Engineering (3996 HK) is a laggard in this round of "China style valuation" rally. With strong earnings and project backlog, there is good room to catch up.
Its 1Q23 earnings growth is ahead of the infrastructure trio, and so as the new contracts signed. Moreover, it has a faster growth in overseas market. 
The 3-year EPS CAGR is projected at 16.3%, yet it just trades on 5x PER. Its ROE of 9.4% makes it attractively priced at only 0.4x P/B for FY23.


Energy China (3996 HK): Tempting Risk-Return Payoff

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> should see more valuation upside as it narrows the discount to book through more asset disposal, spin-off, restructuring and securitisation.</li>
<li>Healthy 1Q23 earnings demonstrated underlying business strength. We expect new contract growth to accelerate in the rest of this year. Backlog estimated to cover 4.7x FY23F revenue.</li>
<li>Gross margin has stabilised in 1Q23 when compared with 1Q in previous years. Contribution from concessions will improve as traffic recovers and projects get mature. </li>
</ul>



China Communications Construction (1800 HK) should see more valuation upside as it narrows the discount to book through more asset disposal, spin-off, restructuring and securitisation.
Healthy 1Q23 earnings demonstrated underlying business strength. We expect new contract growth to accelerate in the rest of this year. Backlog estimated to cover 4.7x FY23F revenue.
Gross margin has stabilised in 1Q23 when compared with 1Q in previous years. Contribution from concessions will improve as traffic recovers and projects get mature. 


China Comm Const (1800 HK): Bullish Outlook Reaffirmed

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 CRSC (3969 HK): Uniquely Positioned with Strong Financials

CRSC's strengths lie in its steady domestic growth, overseas recovery exposure, strong order backlog, and net cash position. It is undemanding at...

Osbert Tang, CFA

A-H Premium Weekly (Jun 9th): CCB, China Longyuan, BYD

We analyzed A-H premium changes in the past week and highlight A-H premium changes for CCB, China Longyuan, BYD Co Ltd.

Ke Yan, CFA, FRM

China Construction Sector – Multiple drivers to achieve Valuation with China characteristics

China SOE construction names have outperformed the index YTD on the back of the “Valuation system with China characteristics” (中特估).

CMB International

Energy China (3996 HK): Tempting Risk-Return Payoff

With stronger earnings growth, better new contract momentum, higher overseas potential and undemanding valuations, Energy China has potential to...

Osbert Tang, CFA

China Comm Const (1800 HK): Bullish Outlook Reaffirmed

Despite a 43.2% YTD surge in share price, there are still significant upside for CCCC. It will escalate value-releasing strategies while secured...

Osbert Tang, CFA

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