HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Orient Overseas International / Equity Bottom-Up

<ul>
<li>While <a href="https://www.smartkarma.com/entities/orient-overseas-international" target="_blank" data-smartkarma-citation="entities:801:1" rel="noopener">Orient Overseas International (316 HK)</a> will welcome its inclusion in Hang Seng Index, there is risk that it will follow the pattern that new inclusions performed badly post entry.</li>
<li>Globally, many container shipping stocks have retreated from their peaks in Mar this year, but OOIL is still hovering around its peak level, making is susceptible to a correction.</li>
<li>Challenging factors include softening sequential momentum, peaking out of spot rates, weaker demand picture, increase in supply pressure and declining earnings trend are weighing on the industry and the company.</li>
</ul>


While Orient Overseas International (316 HK) will welcome its inclusion in Hang Seng Index, there is risk that it will follow the pattern that new inclusions performed badly post entry.
Globally, many container shipping stocks have retreated from their peaks in Mar this year, but OOIL is still hovering around its peak level, making is susceptible to a correction.
Challenging factors include softening sequential momentum, peaking out of spot rates, weaker demand picture, increase in supply pressure and declining earnings trend are weighing on the industry and the company.


Orient Overseas Intl (316 HK): Cursed by Index Inclusion?

Thematic (Sector/Industry)

<ul>
<li>The trend of Rmb depreciation is generally negative to China companies, but we think the shipping companies present an interesting angle given their USD revenue stream and partial Rmb costs.</li>
<li>
<a href="https://www.smartkarma.com/entities/china-cosco-holdings-h" target="_blank" data-smartkarma-citation="entities:286:1" rel="noopener">COSCO Shipping Holdings (1919 HK)</a>, <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 (H) (1138 HK)</a>, <a href="https://www.smartkarma.com/entities/sitc-international-holdings" target="_blank" data-smartkarma-citation="entities:15301:1" rel="noopener">SITC International (1308 HK)</a> and <a href="https://www.smartkarma.com/entities/pacific-basin-shipping-ltd" target="_blank" data-smartkarma-citation="entities:929:1" rel="noopener">Pacific Basin Shipping (2343 HK)</a> are some names that can realise benefits.<a href="https://www.smartkarma.com/entities/cosco-capital-inc" target="_blank" data-smartkarma-citation="entities:10665:1" rel="noopener"></a>
</li>
<li>We think <a href="https://www.smartkarma.com/entities/china-cosco-holdings-h" target="_blank" data-smartkarma-citation="entities:286:1" rel="noopener">COSCO Shipping Holdings (1919 HK)</a> is the most attractive one, given its USD revenue, partial Rmb cost base, reporting in Rmb, low net debt and potentially better volume. <a href="https://www.smartkarma.com/entities/cosco-shipping-holdings-co-ltd-a" target="_blank" data-smartkarma-citation="entities:27590:1" rel="noopener"></a>
</li>
</ul>


The trend of Rmb depreciation is generally negative to China companies, but we think the shipping companies present an interesting angle given their USD revenue stream and partial Rmb costs.

COSCO Shipping Holdings (1919 HK), Cosco Shipping Energy Transportation (H) (1138 HK), SITC International (1308 HK) and Pacific Basin Shipping (2343 HK) are some names that can realise benefits.

We think COSCO Shipping Holdings (1919 HK) is the most attractive one, given its USD revenue, partial Rmb cost base, reporting in Rmb, low net debt and potentially better volume. 



Rmb Depreciation: An Angle for the Shipping Names?

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 analyze the weekly Shanghai/Shenzhen northbound Connect flows with our data engine.</li>
<li>Consumer discretionary, information technology and healthcare led the outflows of USD 969 million last week.</li>
<li>We highlight inflows into Sungrow Power and outflows from Jiangsu Hengrui, Ganfeng Lithium, and Cosco Shipping.</li>
</ul>


We analyze the weekly Shanghai/Shenzhen northbound Connect flows with our data engine.
Consumer discretionary, information technology and healthcare led the outflows of USD 969 million last week.
We highlight inflows into Sungrow Power and outflows from Jiangsu Hengrui, Ganfeng Lithium, and Cosco Shipping.


Northbound Flows: Sungrow Power, Hengrui, Ganfeng, Cosco Shipping

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<ul>
<li>Short notional in Hong Kong is HK$488bn and has been falling mainly as a result of a falling market. Short interest has increased substantially from end January.</li>
<li>From 31 January to 4 March, the largest shorts have been built on Tencent, China Merchants Bank, AIA Group Ltd, Alibaba, JD.com, Meituan, Xiaomi, JD Health and Xinyi Solar.</li>
<li>Over the same period, shorts have covered on COSCO Shipping Holdings, HKEX, Longfor Properties, China Construction Bank, Ping An Insurance, Yanzhou Coal Mining Company and HSBC Holdings.</li>
</ul>


Short notional in Hong Kong is HK$488bn and has been falling mainly as a result of a falling market. Short interest has increased substantially from end January.
From 31 January to 4 March, the largest shorts have been built on Tencent, China Merchants Bank, AIA Group Ltd, Alibaba, JD.com, Meituan, Xiaomi, JD Health and Xinyi Solar.
Over the same period, shorts have covered on COSCO Shipping Holdings, HKEX, Longfor Properties, China Construction Bank, Ping An Insurance, Yanzhou Coal Mining Company and HSBC Holdings.


Hong Kong: Where Have Shorts Increased & Decreased?

<ul>
<li>
<a href="https://www.smartkarma.com/entities/sitc-international-holdings" target="_blank" data-smartkarma-citation="entities:15301:1" rel="noopener">SITC International (1308 HK)</a> achieved a record net profit which surged 2.3x in FY21, but our concern is that much of news has been well in the share price.</li>
<li>While management is optimistic on its outlook, we think challenges are higher costs (port, bunker and charterhire) and little room for further significant freight rate increase. </li>
<li>Its 6.7x P/B for FY22F has well reflected its quality but with ROE likely to dip back in FY22 and FY23, we think upside does not look impressive.</li>
</ul>



SITC International (1308 HK) achieved a record net profit which surged 2.3x in FY21, but our concern is that much of news has been well in the share price.
While management is optimistic on its outlook, we think challenges are higher costs (port, bunker and charterhire) and little room for further significant freight rate increase. 
Its 6.7x P/B for FY22F has well reflected its quality but with ROE likely to dip back in FY22 and FY23, we think upside does not look impressive.


SITC International (1308 HK): All Priced In

China

COSCO SHIPPING Holdings Co., Ltd offers marine freight transportation services.  The Company offers container shipping, dry bulk shipping, logistics services, freight forwarding, and terminal and container leasing services internationally.  COSCO SHIPPING Holdings Co., Ltd operates container ships and terminals, and manufactures shipping containers.

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COSCO Shipping Holdings (1919 HK)

Orient Overseas Intl (316 HK): Cursed by Index Inclusion?

While news of HSI inclusion is positive, OOIL is now open to the pattern of post-entry weakness. It is facing more challenges and outperformance...

Osbert Tang, CFA

Rmb Depreciation: An Angle for the Shipping Names?

Shipping companies present an interesting angle to look at under the current trend of Rmb depreciation. USD revenue stream and partial Rmb costs...

Osbert Tang, CFA

Northbound Flows: Sungrow Power, Hengrui, Ganfeng, Cosco Shipping

We highlight HK Connect northbound inflows into Sungrow Power and outflows from Jiangsu Hengrui, Ganfeng Lithium, and Cosco Shipping this week.

Ke Yan, CFA, FRM

Hong Kong: Where Have Shorts Increased & Decreased?

From 31 Jan to 4 March, most shorted stocks are Tencent, China Merchants Bank, AIA Group, Alibaba, JD.com, Meituan, Xiaomi, JD Health and Xinyi...

Brian Freitas

SITC International (1308 HK): All Priced In

The concerns on SITC are higher costs and toppish freight rates which make its 6.7x P/B for FY22F rich. Any weakness in freight rate is likely to...

Osbert Tang, CFA

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