HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Business transformation has supported share price of many companies in 2021, and we expect transformation will stay as an important theme for 2022 with more companies making related announcements.</li>
<li>We highlighted some interesting names in this theme including <a href="https://www.smartkarma.com/entities/yanzhou-coal-mining-company-limited-h" target="_blank" data-smartkarma-citation="entities:384:1" rel="noopener">Yankuang Energy Group Co (1171 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-energy-engineering-group" target="_blank" data-smartkarma-citation="entities:21017:1" rel="noopener">China Energy Engineering (3996 HK)</a> and <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway Co (548 HK)</a>. </li>
<li>While some have already seen share price rallied, many are still lagging other transformation plays. They are also mostly trading on low multiples with transformation potential not yet fully reflected.</li>
</ul>


Business transformation has supported share price of many companies in 2021, and we expect transformation will stay as an important theme for 2022 with more companies making related announcements.
We highlighted some interesting names in this theme including Yankuang Energy Group Co (1171 HK), Anhui Conch Cement (914 HK), China Energy Engineering (3996 HK) and Shenzhen Expressway Co (548 HK). 
While some have already seen share price rallied, many are still lagging other transformation plays. They are also mostly trading on low multiples with transformation potential not yet fully reflected.


Business Transformation Is the Theme in 2022 and Some Interesting Companies to Watch

<p>China has stepped up its push for more utilisation of hydrogen energy in its efforts to achieve the target of carbon neutrality before 2060.  Various government policies have been put in place to encourage the research and use of hydrogen energy, and some sources have projected hydrogen will represent 10% of China's final energy consumed by 2050. In other words, there is huge room for the growth of China's hydrogen economy.</p><p>Share prices of many hydrogen-concept stocks have rallied sharply lately. Most of them have projects in the early-stage of development and still do not derive any meaningful contribution from such hydrogen ventures. However, we looked into some interesting names which potentially to be significant players over the long term. They 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/dongfang-electric-corporation-limited" target="_blank" data-smartkarma-citation="entities:1251:1" rel="noopener">Dongfang Electric Corporation (1072 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 Co Ltd H (2338 HK)</a> and <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>. Please follow below for details.  </p>

China has stepped up its push for more utilisation of hydrogen energy in its efforts to achieve the target of carbon neutrality before 2060.  Various government policies have been put in place to encourage the research and use of hydrogen energy, and some sources have projected hydrogen will represent 10% of China's final energy consumed by 2050. In other words, there is huge room for the growth of China's hydrogen economy.Share prices of many hydrogen-concept stocks have rallied sharply lately. Most of them have projects in the early-stage of development and still do not derive any meaningful contribution from such hydrogen ventures. However, we looked into some interesting names which potentially to be significant players over the long term. They are: Cimc Enric Holdings (3899 HK), Dongfang Electric Corporation (1072 HK), Weichai Power Co Ltd H (2338 HK) and Dongyue Group (189 HK). Please follow below for details.  

China's Hydrogen Economy: Some HK-Listed Names to Watch

Equity Bottom-Up

<ul>
<li>
<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> reached another record year with net profit surging 24.2% in FY23. Favourable product mix has benefited gross margin which expanded 0.8pp YoY.</li>
<li>Record new orders of Rmb86.5bn (+31.9% YoY) have been signed and there is a recovery in momentum in 4Q23. Its end-FY23 backlog should be enough to cover 3.1x FY24F revenue.</li>
<li>DEC is well-positioned to capture the demand for hydrogen energy and power storage. With 19.3% 3-year earnings CAGR, its 5.1x PER and 8.2% dividend yield are attractive.</li>
</ul>



Dongfang Electric (1072 HK) reached another record year with net profit surging 24.2% in FY23. Favourable product mix has benefited gross margin which expanded 0.8pp YoY.
Record new orders of Rmb86.5bn (+31.9% YoY) have been signed and there is a recovery in momentum in 4Q23. Its end-FY23 backlog should be enough to cover 3.1x FY24F revenue.
DEC is well-positioned to capture the demand for hydrogen energy and power storage. With 19.3% 3-year earnings CAGR, its 5.1x PER and 8.2% dividend yield are attractive.


Dongfang Electric (1072 HK): Good Profit, Record Orders

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

AP Moeller - Maersk A/S / Equity Bottom-Up

<ul>
<li>Maersk's Q1 earnings were solid, despite plummeting container rates and volumes. Annualizing Q1 Net Income would give RoE of about 17%, which is a healthy level, in our view. </li>
<li>Q1 EBITDA of US$4 bn is equivalent to 36% to 50% of full-year guidance, which remains unchanged. Maersk indicated Q1 will likely be its most profitable quarter in 2023.</li>
<li>Maersk's result reinforces our view that container rates are bottoming. A related takeaway is that a slowing goods inflation rate could lose a tailwind it's enjoyed since last October.</li>
</ul>


Maersk's Q1 earnings were solid, despite plummeting container rates and volumes. Annualizing Q1 Net Income would give RoE of about 17%, which is a healthy level, in our view. 
Q1 EBITDA of US$4 bn is equivalent to 36% to 50% of full-year guidance, which remains unchanged. Maersk indicated Q1 will likely be its most profitable quarter in 2023.
Maersk's result reinforces our view that container rates are bottoming. A related takeaway is that a slowing goods inflation rate could lose a tailwind it's enjoyed since last October.


Maersk Q1: Earnings Fine | Guidance Intact | Takeaways for Container Shipping (And Inflation)

<ul>
<li>Foreign exchange gains/losses are major swing factors in FY22 results of many companies and we think investors may have overlooked their importance in driving FY23 earnings. </li>
<li>With Rmb/USD exchange rate appreciated YTD, reversing the 8.5% depreciation in last year, the demons of many companies in last year will become positive earnings contributor. </li>
<li>
<a href="https://www.smartkarma.com/entities/shenzhen-international-holdings-limited" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen International (152 HK)</a>, <a href="https://www.smartkarma.com/entities/enn-energy-holdings-ltd" target="_blank" data-smartkarma-citation="entities:316:1" rel="noopener">ENN Energy (2688 HK)</a>, <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway (548 HK)</a> and <a href="https://www.smartkarma.com/entities/kunlun-energy-co-ltd" target="_blank" data-smartkarma-citation="entities:10054:1" rel="noopener">Kunlun Energy (135 HK)</a> are key beneficiaries, while <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> may turned into exchange losses.</li>
</ul>


Foreign exchange gains/losses are major swing factors in FY22 results of many companies and we think investors may have overlooked their importance in driving FY23 earnings. 
With Rmb/USD exchange rate appreciated YTD, reversing the 8.5% depreciation in last year, the demons of many companies in last year will become positive earnings contributor. 

Shenzhen International (152 HK), ENN Energy (2688 HK), Shenzhen Expressway (548 HK) and Kunlun Energy (135 HK) are key beneficiaries, while CIMC Enric (3899 HK) may turned into exchange losses.


China Strategy: It Is the Foreign Exchange Impact, Stupid!

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.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

CIMC Enric Holdings (3899 HK)

Business Transformation Is the Theme in 2022 and Some Interesting Companies to Watch

Business transformation will stay as an important theme for 2022 and we highlight Yankuang Energy, Anhui Conch Cement, China Energy Engineering and...

Osbert Tang, CFA

China's Hydrogen Economy: Some HK-Listed Names to Watch

We looked into how CIMC Enric, Dongfang Electric, Weichai Power and Dongyue Group position in China's rapidly developing hydrogen economy amid the...

Osbert Tang, CFA

Dongfang Electric (1072 HK): Good Profit, Record Orders

Dongfang Electric reports record profits and new orders in FY23, positioning well for growth in hydrogen energy and power storage. Order backlog...

Osbert Tang, CFA

Maersk Q1: Earnings Fine | Guidance Intact | Takeaways for Container Shipping (And Inflation)

Maersk's Q1 result showed a steep Y/Y decline in earnings due to lower rates. But RoE is fine, and the company maintained guidance, which supports...

Tracking Traffic

China Strategy: It Is the Foreign Exchange Impact, Stupid!

Shenzhen Intl, ENN Energy, Shenzhen Expressway and Kunlun Energy are the key beneficiaries of the reverse in Rmb/USD depreciation trend in FY23,...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Business Transformation Is the Theme in 2022 and Some Interesting Companies to Watch

Business transformation will stay as an important theme for 2022 and we highlight Yankuang Energy, Anhui Conch Cement, China Energy Engineering and...

Osbert Tang, CFA

China's Hydrogen Economy: Some HK-Listed Names to Watch

We looked into how CIMC Enric, Dongfang Electric, Weichai Power and Dongyue Group position in China's rapidly developing hydrogen economy amid the...

Osbert Tang, CFA

Dongfang Electric (1072 HK): Good Profit, Record Orders

​Dongfang Electric reports record profits and new orders in FY23, positioning well for growth in hydrogen energy and power storage. Order backlog...

Osbert Tang, CFA

Maersk Q1: Earnings Fine | Guidance Intact | Takeaways for Container Shipping (And Inflation)

Maersk's Q1 result showed a steep Y/Y decline in earnings due to lower rates. But RoE is fine, and the company maintained guidance, which supports...

Tracking Traffic

China Strategy: It Is the Foreign Exchange Impact, Stupid!

Shenzhen Intl, ENN Energy, Shenzhen Expressway and Kunlun Energy are the key beneficiaries of the reverse in Rmb/USD depreciation trend in FY23,...

Osbert Tang, CFA

Dongfang Electric reports record profits and new orders in FY23, positioning well for growth in hydrogen energy and power storage. Order backlog...