HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Southern Airlines / Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a> is the only of the Big Three Chinese airlines to record a profit in 3Q20, thanks to its domestic exposure, good cost management and exchange gain from Rmb/USD appreciation. It logged a profit of Rmb711m in the quarter, significantly ahead of losses of Rmb671m for Air China and Rmb563m for CEA. We believe CSA's solid performance can extend into 4Q20, sustaining its outperformance against these two peers.</p><p>Both CEA and Air China will continue to be weighted down by their international routes, with Air China further suffers from the burden from <a href="https://www.smartkarma.com/entities/cathay-pacific-airways-ltd" target="_blank" data-smartkarma-citation="entities:243:1" rel="noopener">Cathay Pacific Airways (293 HK)</a>. At 0.75x P/B, CSA stays firmly as our top pick in the Chinese airlines sector.   </p>

China Southern Airlines (1055 HK) is the only of the Big Three Chinese airlines to record a profit in 3Q20, thanks to its domestic exposure, good cost management and exchange gain from Rmb/USD appreciation. It logged a profit of Rmb711m in the quarter, significantly ahead of losses of Rmb671m for Air China and Rmb563m for CEA. We believe CSA's solid performance can extend into 4Q20, sustaining its outperformance against these two peers.Both CEA and Air China will continue to be weighted down by their international routes, with Air China further suffers from the burden from Cathay Pacific Airways (293 HK). At 0.75x P/B, CSA stays firmly as our top pick in the Chinese airlines sector.   

China Southern Airlines (1055 HK): Profit, Profit, Profit in 3Q20

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Quantitative Analysis

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<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>
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<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>
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<p>The first sector is <strong>Consumer</strong>, where H/A spreads widened on average 3.5% for the week. Individual stock movement in the sector was striking. All five liquid spreads widened, but <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/tsingtao-brewery-co-ltd-h" target="_blank" data-smartkarma-citation="entities:1296:1" rel="noopener">Tsingtao Brewery Co Ltd H (168 HK)</a> widened because the H-shares were down, and the other four widened because of extraordinary gains in the A-Shares. </p>
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<p>Southbound investors through the Shenzhen-HK and Shanghai-HK Connect were net purchasers on the week, especially in the auto-related H-shares. </p>
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<p><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> and <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> remain 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>, <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 at or near 52-week wides, and Tsingtao is pretty close. </p>
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<p>Last week's recommendation was to continue to unwind the Hisense H/A spread, which widened 6% on the week. I also noted Great Wall and Guangzhou were worth a buy on a spread basis and they widened 2.9% on average. They were worth holding onto as spreads.</p>
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<p>For Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities, please read on.</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...



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. 



The first sector is Consumer, where H/A spreads widened on average 3.5% for the week. Individual stock movement in the sector was striking. All five liquid spreads widened, but Great Wall Motor (2333 HK) and Tsingtao Brewery Co Ltd H (168 HK) widened because the H-shares were down, and the other four widened because of extraordinary gains in the A-Shares. 


Southbound investors through the Shenzhen-HK and Shanghai-HK Connect were net purchasers on the week, especially in the auto-related H-shares. 


Hisense Home Appliances Group Co., Ltd. H (921 HK) and BYD (1211 HK) remain at the overbought end of the 52-week range. Great Wall Motor (2333 HK), Guangzhou Automobile Group (2238 HK) are at or near 52-week wides, and Tsingtao is pretty close. 




Last week's recommendation was to continue to unwind the Hisense H/A spread, which widened 6% on the week. I also noted Great Wall and Guangzhou were worth a buy on a spread basis and they widened 2.9% on average. They were worth holding onto as spreads.









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

Quiddity Weekly H/​​A: Share Spread Monitor 30 Oct 2020

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Thematic (Sector/Industry)

<p>Before Covid19 shut down outbound Chinese tourism in 2020, there were the mass protests in Hong Kong, which sharply reduced Mainland visits to its largest outbound destination in 2019.</p><p>Before the Hong Kong protests, there was a drowning incident in Thailand in 2018 that killed dozens of Chinese visitors and sharply reduced travel to another top outbound destination. </p><p>And before the Phuket accident came political disputes with Taiwan, Korea, and Japan, all of which temporarily reduced Chinese tourist visits to these important regional destinations. </p><p>Taken together, these disruptions have undermined <em>outbound</em> Chinese travel demand and added to volatility.</p><p>And what about Chinese <em>domestic</em> travel demand?</p><p>Pre-Covid19, domestic tourism growth was flagging, and though it's been less volatile than outbound demand, Chinese domestic travel certainly has not been immune to demand shocks either (viruses, the partial displacement of air travel by high speed rail, etc.).</p><p>We simply don't think investing in the growth of Chinese tourism is the "no-brainer" that many market participants seem to think it is. Between moderating growth rates and a series of external demand shocks, there have been few periods of sustained strong (10%+) demand growth in recent years. In our view, Chinese tourism can no longer be viewed as a growth industry.  </p>

Before Covid19 shut down outbound Chinese tourism in 2020, there were the mass protests in Hong Kong, which sharply reduced Mainland visits to its largest outbound destination in 2019.Before the Hong Kong protests, there was a drowning incident in Thailand in 2018 that killed dozens of Chinese visitors and sharply reduced travel to another top outbound destination. And before the Phuket accident came political disputes with Taiwan, Korea, and Japan, all of which temporarily reduced Chinese tourist visits to these important regional destinations. Taken together, these disruptions have undermined outbound Chinese travel demand and added to volatility.And what about Chinese domestic travel demand?Pre-Covid19, domestic tourism growth was flagging, and though it's been less volatile than outbound demand, Chinese domestic travel certainly has not been immune to demand shocks either (viruses, the partial displacement of air travel by high speed rail, etc.).We simply don't think investing in the growth of Chinese tourism is the "no-brainer" that many market participants seem to think it is. Between moderating growth rates and a series of external demand shocks, there have been few periods of sustained strong (10%+) demand growth in recent years. In our view, Chinese tourism can no longer be viewed as a growth industry.  

Is Chinese Tourism Really a 'Growth' Industry?

<p><a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a> has caught up in its passenger traffic in Sep with a 27.5% YoY decline, compared with -32.2% for <a href="https://www.smartkarma.com/entities/china-eastern-airlines-co-h" target="_blank" data-smartkarma-citation="entities:1079:1" rel="noopener">China Eastern Airlines Co (H) (670 HK)</a> and -38.6% for <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a>. More importantly, domestic passenger traffic reached a growth of 1.6% YoY, suggesting a full recovery in last month. CSA also performed well on capacity management - achieving the best passenger, cargo and overall load factors for Sep and 9M20 among the big three. </p><p>We expect the good traffic recovery, solid load factors, QoQ increase in average fare and sharp appreciation in Rmb will support encouraging bottom line rebound in 3Q20, with a slight potential of reporting a profit in the quarter. In our view, CSA remains inexpensive at 0.8x 12-month forward P/B given its underlying recovery momentum and below-average valuation. </p>

China Southern Airlines (1055 HK) has caught up in its passenger traffic in Sep with a 27.5% YoY decline, compared with -32.2% for China Eastern Airlines Co (H) (670 HK) and -38.6% for Air China Ltd (H) (753 HK). More importantly, domestic passenger traffic reached a growth of 1.6% YoY, suggesting a full recovery in last month. CSA also performed well on capacity management - achieving the best passenger, cargo and overall load factors for Sep and 9M20 among the big three. We expect the good traffic recovery, solid load factors, QoQ increase in average fare and sharp appreciation in Rmb will support encouraging bottom line rebound in 3Q20, with a slight potential of reporting a profit in the quarter. In our view, CSA remains inexpensive at 0.8x 12-month forward P/B given its underlying recovery momentum and below-average valuation. 

China Southern Airlines (1055 HK): Impressive Sep Sets Strong Tone for 4Q20

Shanghai International Airport / Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/shanghai-international-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:6511:1" rel="noopener">Shanghai International Airport (600009 CH)</a> witnessed sustained strength on its domestic and cargo throughput in Sep, outperforming both <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a> and <a href="https://www.smartkarma.com/entities/beijing-capital-international-airport-bcia" target="_blank" data-smartkarma-citation="entities:10626:1" rel="noopener">Beijing Capital International Airport (BCIA) (694 HK)</a> by very significant margins. In fact, SIAC is the only airport among the big three to consecutive YoY growth in domestic passenger traffic in the last two months. </p><p>In Sep, domestic aircraft movement surged 18.9% YoY and domestic passenger throughput grew 13.5% YoY, and both are impressive turnouts. In our view, the strong domestic performance, good demand during the "double festival" Golden Week and China International Import Expo to be held in Shanghai during 5-10 Nov should ensure continued strength in SIAC's traffic in 4Q20.</p>

Shanghai International Airport (600009 CH) witnessed sustained strength on its domestic and cargo throughput in Sep, outperforming both Guangzhou Baiyun International Airport (600004 CH) and Beijing Capital International Airport (BCIA) (694 HK) by very significant margins. In fact, SIAC is the only airport among the big three to consecutive YoY growth in domestic passenger traffic in the last two months. In Sep, domestic aircraft movement surged 18.9% YoY and domestic passenger throughput grew 13.5% YoY, and both are impressive turnouts. In our view, the strong domestic performance, good demand during the "double festival" Golden Week and China International Import Expo to be held in Shanghai during 5-10 Nov should ensure continued strength in SIAC's traffic in 4Q20.

Shanghai International Airport (600009 CH): Best Momentum Against Peers in Sep

China

China Eastern Airlines Corporation Limited, together with its subsidiaries, operates in the civil aviation industry. It offers passenger, cargo, mail delivery, ground, cargo handling, and other extended transportation services.

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China Eastern Airlines (670 HK)

China Southern Airlines (1055 HK): Profit, Profit, Profit in 3Q20

CSA is the only of the Big Three to record a profit in 3Q20, thanks to its domestic exposure, good cost management and exchange gain from Rmb/USD...

Osbert Tang, CFA

Is Chinese Tourism Really a 'Growth' Industry?

The effects of the Covid19 pandemic aside, we believe strong (10%+) growth in underlying Chinese tourism demand is becoming more elusive.

Tracking Traffic

China Southern Airlines (1055 HK): Impressive Sep Sets Strong Tone for 4Q20

China Southern has the best traffic and load factor among the big three airlines in Sep. Good traffic, load expansion, fare improvement and Rmb...

Osbert Tang, CFA

Shanghai International Airport (600009 CH): Best Momentum Against Peers in Sep

Shanghai Intl Airport recorded encouraging growth of 18.9% in domestic aircraft movement and 13.5% in domestic passenger traffic in Sep. They are...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

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China Southern Airlines (1055 HK): Profit, Profit, Profit in 3Q20

CSA is the only of the Big Three to record a profit in 3Q20, thanks to its domestic exposure, good cost management and exchange gain from Rmb/USD...

Osbert Tang, CFA

Quiddity Weekly H/​​A: Share Spread Monitor 30 Oct 2020

The H-Share/​A-Share monitor is published every weekend for the previous week showing the 1wk and 4wk moves in H/A spreads and southbound activity....

Travis Lundy

Is Chinese Tourism Really a 'Growth' Industry?

The effects of the Covid19 pandemic aside, we believe strong (10%+) growth in underlying Chinese tourism demand is becoming more elusive.

Tracking Traffic

China Southern Airlines (1055 HK): Impressive Sep Sets Strong Tone for 4Q20

China Southern has the best traffic and load factor among the big three airlines in Sep. Good traffic, load expansion, fare improvement and Rmb...

Osbert Tang, CFA

Shanghai International Airport (600009 CH): Best Momentum Against Peers in Sep

Shanghai Intl Airport recorded encouraging growth of 18.9% in domestic aircraft movement and 13.5% in domestic passenger traffic in Sep. They are...

Osbert Tang, CFA

Quiddity Weekly H/A: Share Spread Monitor 30 Oct 2020

The H-Share/A-Share monitor is published every weekend for the previous week showing the 1wk and 4wk moves in H/A spreads and southbound activity....