HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Cosco Shipping Energy Transportation Co. Ltd. (H) / Equity Bottom-Up

Cosco Shipping Energy Transportation Co. Ltd. (H)

<p>We think it is time to revisit <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 Co. Ltd. (H) (1138 HK)</a> (CSET), with its share price off sharply since we published the Insight <a href="https://www.smartkarma.com/insights/cosco-shipping-energy-1138-hk-time-to-take-some-money-off-the-table" target="_blank" data-smartkarma-citation="insights:38179" rel="noopener">COSCO Shipping Energy (1138 HK): Time to Take Some Money off the Table</a> in Apr. The stock is now back to 0.37x 12-month forward P/B, against a 10-year low of 0.36x. While the market has been focusing on the weak oil demand due to COVID-19, we see value. </p><p>We believe there are at least four positive factors for the VLCC market that we should not overlook: 1. release of pent-up travel demand; 2. rates are now at very low levels; 3. scrapping may pick up to reduce supply; and 4. small outstanding order book limits supply. In our view, picking up the stock at close to HK$3.00 level (currently HK$3.13) should position well for a potential 20-30% upside over the next 6 months. </p>

We think it is time to revisit Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) (CSET), with its share price off sharply since we published the Insight COSCO Shipping Energy (1138 HK): Time to Take Some Money off the Table in Apr. The stock is now back to 0.37x 12-month forward P/B, against a 10-year low of 0.36x. While the market has been focusing on the weak oil demand due to COVID-19, we see value. We believe there are at least four positive factors for the VLCC market that we should not overlook: 1. release of pent-up travel demand; 2. rates are now at very low levels; 3. scrapping may pick up to reduce supply; and 4. small outstanding order book limits supply. In our view, picking up the stock at close to HK$3.00 level (currently HK$3.13) should position well for a potential 20-30% upside over the next 6 months. 

COSCO Shipping Energy (1138 HK): It Looks Interesting Again Now!

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Quantitative Analysis

<div>
<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>
</div>
<div>
<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>
</div>
<div>
<p>A recent addition is the possible status of H/A-share companies in the monitor which are subject to the Trump Executive Order on Chinese Military Companies. They are separated into three types (Possible Direct Qualifying Entity, Possible Indirect Qualifying Entity, and 20+%-owned by Qualifying Entity). They are color-coded as below.</p>
</div>
<section>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/784/original/image?1606541170" class="editor-image img-responsive" data-smartkarma-image-id="174784"></figure>
</section>
<div>
<p>For more on the list of names, please see <a href="https://www.smartkarma.com/insights/trump-s-executive-order-on-chinese-military-companies" target="_blank" data-smartkarma-citation="insights:45259" rel="noopener">Trump's Executive Order on Chinese Military Companies</a>. </p>
</div>
<hr>
<div class="content-highlight">
<p>This past week saw mixed movement in H/A spreads but on average they were narrower.</p>
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/829/original/Screenshot%202020-11-28%20at%206.25.16%20PM.png?1606559131" class="editor-image img-responsive" data-smartkarma-image-id="174829"></figure>
<p></p>
</section>
<p>Average performance of the 39 recommendations (long 27, short 12) from last week was for a profit of 0.67% per trade.</p>
<p>There are 43 recommendations for the upcoming week.</p>
</div>
<hr>
<div>
<p>The first sector discussed is <strong>Consumer</strong>, where liquid H/A spreads narrowed on average 0.6% this past week after narrowing 2.7% the week before. Spreads are now tighter by 2.1% on average over a four-week period. Four of six liquid Hs outperformed their As.</p>
<p>Southbound accounts were large-ish net buyers on the week. There were three net buys and three net sells but the net buying ended up being all <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>, again. <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> saw significant net selling. </p>
</div>
<div>
<div>
<div class="content-highlight">
<p>Last week I recommended staying long the H vs A on <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 that spread gained 1.6% for the week (after gaining 4.7% the week before when it was also recommended). This past week I put out the Weekly late on Monday (after 2pm), when BYD in Hong Kong had gained 3.7% vs the As on the day, and so recommended implementing a short BYD (1211 HK) H vs A share trade and from that point or even from the end of the day or the next, the Hs actually underperformed the As by 0.4%. </p>
<p>See below the fold for this week's recommendations.</p>
</div>
</div>
</div>
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/809/original/Screenshot%202020-11-28%20at%205.32.56%20PM.png?1606556000" class="editor-image img-responsive" data-smartkarma-image-id="174809"></figure>
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<p></p>
</section>
<section class="figure"></section>
<section>
<section class="figure">For Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities, please read on.</section>
</section>


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. 



A recent addition is the possible status of H/A-share companies in the monitor which are subject to the Trump Executive Order on Chinese Military Companies. They are separated into three types (Possible Direct Qualifying Entity, Possible Indirect Qualifying Entity, and 20+%-owned by Qualifying Entity). They are color-coded as below.





For more on the list of names, please see Trump's Executive Order on Chinese Military Companies. 



This past week saw mixed movement in H/A spreads but on average they were narrower.




Average performance of the 39 recommendations (long 27, short 12) from last week was for a profit of 0.67% per trade.
There are 43 recommendations for the upcoming week.



The first sector discussed is Consumer, where liquid H/A spreads narrowed on average 0.6% this past week after narrowing 2.7% the week before. Spreads are now tighter by 2.1% on average over a four-week period. Four of six liquid Hs outperformed their As.
Southbound accounts were large-ish net buyers on the week. There were three net buys and three net sells but the net buying ended up being all BYD (1211 HK), again. Guangzhou Automobile Group (2238 HK) saw significant net selling. 




Last week I recommended staying long the H vs A on Great Wall Motor (2333 HK) and that spread gained 1.6% for the week (after gaining 4.7% the week before when it was also recommended). This past week I put out the Weekly late on Monday (after 2pm), when BYD in Hong Kong had gained 3.7% vs the As on the day, and so recommended implementing a short BYD (1211 HK) H vs A share trade and from that point or even from the end of the day or the next, the Hs actually underperformed the As by 0.4%. 
See below the fold for this week's recommendations.











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


Quiddity Weekly H/​​A: Share Spread Monitor as of 27 Nov 2020

David Blennerhassett

Event-Driven

<p>Since August 2012, reportable net short positions in Hong Kong at the end of each week are filed with the SFC confidentially and are <a href="https://www.sfc.hk/web/EN/regulatory-functions/market-infrastructure-and-trading/short-position-reporting/aggregated-short-positions-of-specified-shares.html" target="_blank" rel="noopener">published one week</a> after the submission - typically Friday afternoon.</p>
<p>Under the <a href="https://www.hklii.hk/eng/hk/legis/reg/571AJ/" target="_blank" rel="noopener">Securities and Futures (Short Position Reporting) Rules</a>, an investor who, on the last business day of each week, holds a net short position of 0.02% of the "specified shares", or HK$30mn (whichever is lower), is required to report his net short position to the SFC within 2 business days.</p>
<p>The HKEx provides a <a href="https://www.hkex.com.hk/Services/Trading/Securities/Securities-Lists/Designated-Securities-Eligible-for-Short-Selling?sc_lang=en" target="_blank" rel="noopener">list</a> of designated securities eligible for short selling. Since Mar 2017, all stocks are covered, not just stocks in the Hang Seng Index or the Hang Seng China Enterprises Index, as it was previously.</p>
<p>There is a lot of unnecessary noise in these weekly reports on account of the low threshold - just how meaningful is the HK$60mn short in China Mobile with a market cap of HK$1.15tn? Not much.</p>
<p>But I thought it would be useful exercise to see how shorts behaved in 2020, using specific notable points in time as reference points (at the time of the lockdown in Wuhan (23 Jan), the low of stock markets in late March) against where we are now.</p>
<p>As always, more below the fold.</p>

Since August 2012, reportable net short positions in Hong Kong at the end of each week are filed with the SFC confidentially and are published one week after the submission - typically Friday afternoon.
Under the Securities and Futures (Short Position Reporting) Rules, an investor who, on the last business day of each week, holds a net short position of 0.02% of the "specified shares", or HK$30mn (whichever is lower), is required to report his net short position to the SFC within 2 business days.
The HKEx provides a list of designated securities eligible for short selling. Since Mar 2017, all stocks are covered, not just stocks in the Hang Seng Index or the Hang Seng China Enterprises Index, as it was previously.
There is a lot of unnecessary noise in these weekly reports on account of the low threshold - just how meaningful is the HK$60mn short in China Mobile with a market cap of HK$1.15tn? Not much.
But I thought it would be useful exercise to see how shorts behaved in 2020, using specific notable points in time as reference points (at the time of the lockdown in Wuhan (23 Jan), the low of stock markets in late March) against where we are now.
As always, more below the fold.

Hong Kong' Short Interest: From the Wuhan Lockdown, The Market Low, Until Now

<p>Riding on the sharp rally in VLCC rates, <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 Co. Ltd. (H) (1138 HK)</a> (CSET) posted an impressive 46.9% YoY growth in profit in 1Q20. We expect 2Q20 will be even stronger for this name due to sustained high rates on floating crude oil storage demand. </p><p>However, we are cautious that: 1.) astronomical VLCC rates may not sustain for long; 2.) it may not be able to fully capture all upside; 3.) VLCC supply will emerge once dust are settled; 4.) lackluster oil demand will mean significant rate retreat in the next two years; and 5.) EPS and ROE dilution from non-public A-share issuance.  In a month's time, CSET rallied 82% from super-undervalued to now 1SD above historical average P/B, we think taking profit is now a prudent move.</p>

Riding on the sharp rally in VLCC rates, Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) (CSET) posted an impressive 46.9% YoY growth in profit in 1Q20. We expect 2Q20 will be even stronger for this name due to sustained high rates on floating crude oil storage demand. However, we are cautious that: 1.) astronomical VLCC rates may not sustain for long; 2.) it may not be able to fully capture all upside; 3.) VLCC supply will emerge once dust are settled; 4.) lackluster oil demand will mean significant rate retreat in the next two years; and 5.) EPS and ROE dilution from non-public A-share issuance.  In a month's time, CSET rallied 82% from super-undervalued to now 1SD above historical average P/B, we think taking profit is now a prudent move.

COSCO Shipping Energy (1138 HK): Solid 1Q20, Stronger 2Q20; but Much Has Been Priced In

<p><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 Co. Ltd. (H) (1138 HK)</a> recorded a 62% rally over the last 12 trading days on the back of the spike in VLCC rate. We believe that as the stock now moves closer to P/B multiple of +1SD above historical average, its valuation has already reflected a lot of good news, and it is time to take some money off the table.</p><p>We believe the pop in VLCC rate cannot sustain for long and CSET may not be able to fully realize the rally in rates. Additionally, the unwind of excess vessel supply holding up as storage and the weaker oil demand outlook over the next 12-18 months are likely to return rate back to more normalised levels. While the long-term prospects of CSET remains intact, the Covid-19 outbreak has somewhat delayed the timing for the structurally positive story. </p>

Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) recorded a 62% rally over the last 12 trading days on the back of the spike in VLCC rate. We believe that as the stock now moves closer to P/B multiple of +1SD above historical average, its valuation has already reflected a lot of good news, and it is time to take some money off the table.We believe the pop in VLCC rate cannot sustain for long and CSET may not be able to fully realize the rally in rates. Additionally, the unwind of excess vessel supply holding up as storage and the weaker oil demand outlook over the next 12-18 months are likely to return rate back to more normalised levels. While the long-term prospects of CSET remains intact, the Covid-19 outbreak has somewhat delayed the timing for the structurally positive story. 

COSCO Shipping Energy (1138 HK): Time to Take Some Money off the Table

China

COSCO SHIPPING Energy Transportation Co., Ltd. offers marine shipping services. The Company provides refined oil transportation, crude oil transportation, and other services. COSCO SHIPPING Energy Transportation also ships iron ores, dry bulks, coal, and other products.

Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK)

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

Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK)

COSCO Shipping Energy (1138 HK): It Looks Interesting Again Now!

It is time to revisit CSET as its 0.37x P/B has factored most concerns of the market but upside potential is ignored. Four positive factors made...

Osbert Tang, CFA

Hong Kong' Short Interest: From the Wuhan Lockdown, The Market Low, Until Now

Since August 2012, reportable net short positions in Hong Kong at the end of each week are filed with the SFC confidentially and are published one...

David Blennerhassett

COSCO Shipping Energy (1138 HK): Solid 1Q20, Stronger 2Q20; but Much Has Been Priced In

Riding on the sharp rally in VLCC rates, Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) (CSET) posted an impressive 46.9% YoY growth...

Osbert Tang, CFA

COSCO Shipping Energy (1138 HK): Time to Take Some Money off the Table

Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) recorded a 62% rally over the last 12 trading days on the back of the spike in VLCC...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

COSCO Shipping Energy (1138 HK): It Looks Interesting Again Now!

It is time to revisit CSET as its 0.37x P/B has factored most concerns of the market but upside potential is ignored. Four positive factors made...

Osbert Tang, CFA

Quiddity Weekly H/​​A: Share Spread Monitor as of 27 Nov 2020

The weekly H/A Share Monitor and Trade Recommendations. Spreads narrower on the week. Last week's 39 trade recommendations gained 0.67% on average....

Travis Lundy

Hong Kong' Short Interest: From the Wuhan Lockdown, The Market Low, Until Now

Since August 2012, reportable net short positions in Hong Kong at the end of each week are filed with the SFC confidentially and are published one...

David Blennerhassett

COSCO Shipping Energy (1138 HK): Solid 1Q20, Stronger 2Q20; but Much Has Been Priced In

Riding on the sharp rally in VLCC rates, Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) (CSET) posted an impressive 46.9% YoY growth...

Osbert Tang, CFA

COSCO Shipping Energy (1138 HK): Time to Take Some Money off the Table

Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) recorded a 62% rally over the last 12 trading days on the back of the spike in VLCC...

Osbert Tang, CFA

Quiddity Weekly H/A: Share Spread Monitor as of 27 Nov 2020