HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>After posting a decent FY22 result, earnings momentum for <a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">CIMC Enric Holdings (3899 HK)</a> should sustain, underpinned by clean energy recovery and chemical and environmental equipment demand.  </li>
<li>2M23 new orders growth stayed healthy at 10.7%, evidencing positive demand outlook. Hydrogen Energy is a growing driver as revenue will reach Rmb700m in FY23 and Rmb3bn in FY25.</li>
<li>The stock's PERs of 11.7x and 9.5x for FY23 and FY24, respectively, appear inexpensive in view of 19% earnings CAGR. Net cash position also adds an appeal to us.</li>
</ul>


After posting a decent FY22 result, earnings momentum for CIMC Enric Holdings (3899 HK) should sustain, underpinned by clean energy recovery and chemical and environmental equipment demand.  
2M23 new orders growth stayed healthy at 10.7%, evidencing positive demand outlook. Hydrogen Energy is a growing driver as revenue will reach Rmb700m in FY23 and Rmb3bn in FY25.
The stock's PERs of 11.7x and 9.5x for FY23 and FY24, respectively, appear inexpensive in view of 19% earnings CAGR. Net cash position also adds an appeal to us.


CIMC Enric (3899 HK): Growth Outlook Secured by Encouraging Orderbook

<ul>
<li>We see the positive share price reaction of <a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">CIMC Enric Holdings (3899 HK)</a> after posting a 34.5% 1H22 core profit growth not yet enough to reflect its encouraging earnings outlook.</li>
<li>Good order backlog, recovery at clean energy and increase in liquid food demand will add to the strength at chemical and environment segment as CIMC Enric's drivers.</li>
<li>Hydrogen energy business made impressive contribution growth and it should benefit from local governments' hydrogen initiatives. The stock's high PERs are just reflection of huge long-term potential. </li>
</ul>


We see the positive share price reaction of CIMC Enric Holdings (3899 HK) after posting a 34.5% 1H22 core profit growth not yet enough to reflect its encouraging earnings outlook.
Good order backlog, recovery at clean energy and increase in liquid food demand will add to the strength at chemical and environment segment as CIMC Enric's drivers.
Hydrogen energy business made impressive contribution growth and it should benefit from local governments' hydrogen initiatives. The stock's high PERs are just reflection of huge long-term potential. 


CIMC Enric (3899 HK): Growth Outlook Supported by Multiple Engines

<ul>
<li>
<a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">CIMC Enric Holdings (3899 HK)</a> has a solid 3Q23 with excellent new order pick-up, surging by 52.8% YoY on the back of strengths in clean energy and liquid food segments.</li>
<li>Hydrogen energy revenue is on target to reach Rmb700m in FY23. Meanwhile, management revealed that there is a slight gross margin expansion so far this year.</li>
<li>With order backlog rising 27.6% YoY to Rmb22.2bn at end-9M23, earnings outlook is well protected. Its net cash position is another credit, making its premium multiples justified.</li>
</ul>



CIMC Enric Holdings (3899 HK) has a solid 3Q23 with excellent new order pick-up, surging by 52.8% YoY on the back of strengths in clean energy and liquid food segments.
Hydrogen energy revenue is on target to reach Rmb700m in FY23. Meanwhile, management revealed that there is a slight gross margin expansion so far this year.
With order backlog rising 27.6% YoY to Rmb22.2bn at end-9M23, earnings outlook is well protected. Its net cash position is another credit, making its premium multiples justified.


CIMC Enric (3899 HK): Surge in Overall New Order Momentum

Thematic (Sector/Industry)

<ul>
<li>Supportive policies from central and local governments on the development of the hydrogen energy industry have boosted the share prices of the sector (up 12.3% YTD).</li>
<li>Inner Mongolia has eased regulations on electrolysis water hydrogen production projects while Shandong has waived hydrogen-powered vehicle tolls on highways. </li>
<li>
<a href="https://www.smartkarma.com/entities/beijing-sinohytec-co-ltd-57df3cd9-bd23-4f74-899b-d589f67fa85f" target="_blank" data-smartkarma-citation="entities:36866:1" rel="noopener">Beijing SinoHytec (2402 HK)</a>, <a href="https://www.smartkarma.com/entities/weichai-power-co-ltd-h" target="_blank" data-smartkarma-citation="entities:12508:1" rel="noopener">Weichai Power (2338 HK)</a>, <a href="https://www.smartkarma.com/entities/dongyue-group-ltd" target="_blank" data-smartkarma-citation="entities:20429:1" rel="noopener">Dongyue Group (189 HK)</a>, <a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">CIMC Enric (3899 HK)</a>, and <a href="https://www.smartkarma.com/entities/dongfang-electric-corporation-limited" target="_blank" data-smartkarma-citation="entities:1251:1" rel="noopener">Dongfang Electric (1072 HK)</a> have recorded good progress in hydrogen business.</li>
</ul>


Supportive policies from central and local governments on the development of the hydrogen energy industry have boosted the share prices of the sector (up 12.3% YTD).
Inner Mongolia has eased regulations on electrolysis water hydrogen production projects while Shandong has waived hydrogen-powered vehicle tolls on highways. 

Beijing SinoHytec (2402 HK), Weichai Power (2338 HK), Dongyue Group (189 HK), CIMC Enric (3899 HK), and Dongfang Electric (1072 HK) have recorded good progress in hydrogen business.


China's Hydrogen Economy: Re-Igniting Interests

<ul>
<li>As Rmb moved from appreciation in 1Q23 to depreciation in 2Q23, there is a total change in the beneficiaries discussed in <a href="https://www.smartkarma.com/insights/china-strategy-it-is-the-foreign-exchange-impact-stupid" target="_blank" data-smartkarma-citation="insights:99729" rel="noopener">China Strategy: It Is the Foreign Exchange Impact, Stupid!</a> </li>
<li>The new beneficiaries are <a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">CIMC Enric Holdings (3899 HK)</a>, <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>, <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>, <a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a> and <a href="https://www.smartkarma.com/entities/avichina-industry-technology-h" target="_blank" data-smartkarma-citation="entities:16315:1" rel="noopener">AviChina Industry &amp; Technology H (2357 HK)</a>. </li>
<li>
<a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">CIMC Enric Holdings (3899 HK)</a> generated 20.2% of FY22 earnings from exchange gain as Rmb depreciated. Revenue from outside China rose 10% in 1H23 and accounted for 54.4% of total.  </li>
</ul>


As Rmb moved from appreciation in 1Q23 to depreciation in 2Q23, there is a total change in the beneficiaries discussed in China Strategy: It Is the Foreign Exchange Impact, Stupid! 
The new beneficiaries are CIMC Enric Holdings (3899 HK), China Energy Engineering (3996 HK), China Communications Construction (1800 HK), Sinotrans (598 HK) and AviChina Industry &amp; Technology H (2357 HK). 

CIMC Enric Holdings (3899 HK) generated 20.2% of FY22 earnings from exchange gain as Rmb depreciated. Revenue from outside China rose 10% in 1H23 and accounted for 54.4% of total.  


China Strategy: The RMB Reversal Is Just Too Fast!

Hong Kong

CIMC Enric Holdings Ltd. designs, manufactures, and markets gas equipment.  The Company produces compressors, pressure vessels, gas refueling station trailers, and other gas equipment, as well as transportation equipment such as containers, trailers, tank equipments and airport equipments.

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CIMC Enric Holdings (3899 HK)

CIMC Enric (3899 HK): Growth Outlook Secured by Encouraging Orderbook

CIMC Enric's earnings growth will stay encouraging and this is supported by healthy orders on hand and good new orders momentum. Hydrogen revenue...

Osbert Tang, CFA

CIMC Enric (3899 HK): Growth Outlook Supported by Multiple Engines

Recovery in clean energy and liquid food segments in 2H22 will bring encouraging earnings outlook. Its 41.7% increase in order backlog showed...

Osbert Tang, CFA

CIMC Enric (3899 HK): Surge in Overall New Order Momentum

CIMC Enric had a strong 3Q23 with a significant increase in new orders. The company's order backlog provides a positive earnings outlook. Net cash...

Osbert Tang, CFA

China's Hydrogen Economy: Re-Igniting Interests

Sichuan province held "the conference on further promoting the development and promotion of the entire green hydrogen industry chain" in the last...

Osbert Tang, CFA

China Strategy: The RMB Reversal Is Just Too Fast!

The Rmb continued to depreciate in last month, by another 2.2% so far into Jul. With interim results to be reported in Aug, it is important to...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

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Dividend (Yield)

CIMC Enric (3899 HK): Growth Outlook Secured by Encouraging Orderbook

CIMC Enric's earnings growth will stay encouraging and this is supported by healthy orders on hand and good new orders momentum. Hydrogen revenue...

Osbert Tang, CFA

CIMC Enric (3899 HK): Growth Outlook Supported by Multiple Engines

Recovery in clean energy and liquid food segments in 2H22 will bring encouraging earnings outlook. Its 41.7% increase in order backlog showed...

Osbert Tang, CFA

CIMC Enric (3899 HK): Surge in Overall New Order Momentum

​CIMC Enric had a strong 3Q23 with a significant increase in new orders. The company's order backlog provides a positive earnings outlook. Net cash...

Osbert Tang, CFA

China's Hydrogen Economy: Re-Igniting Interests

Sichuan province held "the conference on further promoting the development and promotion of the entire green hydrogen industry chain" in the last...

Osbert Tang, CFA

China Strategy: The RMB Reversal Is Just Too Fast!

The Rmb continued to depreciate in last month, by another 2.2% so far into Jul. With interim results to be reported in Aug, it is important to...

Osbert Tang, CFA

CIMC Enric had a strong 3Q23 with a significant increase in new orders. The company's order backlog provides a positive earnings outlook. Net cash...