Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Quantitative Analysis

This insight re-introduces a weekly monitor for H-Share/A-Share spreads.
The monitor will be published every weekend for the data ending the previous week. It includes all stocks 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...
<ul>
<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 narrowest and widest spread and the average spread over the last three years. </li>
</ul>
In the example for the H/A spreads in the Materials sector below, spreads were generally flat over the past five days and were wider by 1.5% over the past 20 days. Southbound were net buyers on average on the H side of each pair over both 5 days and 20 days. <a href="https://www.smartkarma.com/entities/shandong-gold-mining-co-ltd-61153493-5437-47ee-a8d3-aec41fb7f1da" target="_blank" data-smartkarma-citation="entities:27455:1" rel="noopener">Shandong Gold Mining Co., Ltd. (1787 HK)</a> and <a href="https://www.smartkarma.com/entities/ganfeng-lithium-co-ltd" target="_blank" data-smartkarma-citation="entities:26795:1" rel="noopener">Ganfeng Lithium (1772 HK)</a> are spreads at the relatively narrow end of their 52-week ranges, while <a href="https://www.smartkarma.com/entities/maanshan-iron-steel-h" target="_blank" data-smartkarma-citation="entities:204:1" rel="noopener">Maanshan Iron &amp; Steel H (323 HK)</a>, <a href="https://www.smartkarma.com/entities/bbmg-corp-h" target="_blank" data-smartkarma-citation="entities:2821:1" rel="noopener">BBMG Corp H (2009 HK)</a>, <a href="https://www.smartkarma.com/entities/sinopec-shanghai-petrochemical-co-ltd" target="_blank" data-smartkarma-citation="entities:17576:1" rel="noopener">Sinopec Shanghai Petrochemical (338 HK)</a>, and <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 Co Ltd H (914 HK)</a> are at the wider end of their 52-week ranges. The average spread in the sector widened somewhat dramatically in the month of August as seen on the chart, but stabilized at the beginning of September.
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Commentary is offered for the major movers and influences along with market observations on the sector rotation movement and particularly significant changes.
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Recommendations are in highlights like this.
</div>
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More below the fold.  
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By the way, there are two versions of the Spread Evolution mini charts. Input is welcomed in the Discussion section as to which one is preferred (bars or lines).
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This insight re-introduces a weekly monitor for H-Share/A-Share spreads.
The monitor will be published every weekend for the data ending the previous week. It includes all stocks 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 narrowest and widest spread and the average spread over the last three years. 

In the example for the H/A spreads in the Materials sector below, spreads were generally flat over the past five days and were wider by 1.5% over the past 20 days. Southbound were net buyers on average on the H side of each pair over both 5 days and 20 days. Shandong Gold Mining Co., Ltd. (1787 HK) and Ganfeng Lithium (1772 HK) are spreads at the relatively narrow end of their 52-week ranges, while Maanshan Iron &amp; Steel H (323 HK), BBMG Corp H (2009 HK), Sinopec Shanghai Petrochemical (338 HK), and Anhui Conch Cement Co Ltd H (914 HK) are at the wider end of their 52-week ranges. The average spread in the sector widened somewhat dramatically in the month of August as seen on the chart, but stabilized at the beginning of September.






Commentary is offered for the major movers and influences along with market observations on the sector rotation movement and particularly significant changes.

Recommendations are in highlights like this.


More below the fold.  

By the way, there are two versions of the Spread Evolution mini charts. Input is welcomed in the Discussion section as to which one is preferred (bars or lines).


Quiddity Weekly H/A: Share Spread Monitor 16 Oct 2020

HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

With an 11.6% YoY growth (in Rmb terms), China's export trade continued its recovery momentum in Aug. This represents a further acceleration from 10.5% growth in Jul and is the fifth consecutive monthly YoY growth since Apr. Export to US has picked up in the last two months while the growth to ASEAN maintained at over 15%. ASEAN sustained its position as China's largest trading partner, accounting for 15% of China's total trade value in 8M20.We believe China' strong export and trade figures for Aug bode well for both <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/sitc-international-holdings" target="_blank" data-smartkarma-citation="entities:15301:1" rel="noopener">SITC International (1308 HK)</a>. Both companies are heavily geared towards China's trade activities and are with particular exposure to the intra-Asia market. Sinotrans has 50% of its freight forwarding volume in 1H20 from this geographical market while SITC has sole presence in intra-Asia trade. In our view, both companies will report solid 3Q20 figures by end-Oct.

With an 11.6% YoY growth (in Rmb terms), China's export trade continued its recovery momentum in Aug. This represents a further acceleration from 10.5% growth in Jul and is the fifth consecutive monthly YoY growth since Apr. Export to US has picked up in the last two months while the growth to ASEAN maintained at over 15%. ASEAN sustained its position as China's largest trading partner, accounting for 15% of China's total trade value in 8M20.We believe China' strong export and trade figures for Aug bode well for both Sinotrans (598 HK) and SITC International (1308 HK). Both companies are heavily geared towards China's trade activities and are with particular exposure to the intra-Asia market. Sinotrans has 50% of its freight forwarding volume in 1H20 from this geographical market while SITC has sole presence in intra-Asia trade. In our view, both companies will report solid 3Q20 figures by end-Oct.

China Transportation: Strong Aug Export to Benefit Sinotrans (598 HK) And SITC Intl (1308 HK)

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Equity Bottom-Up

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

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July container volumes in key markets showed a strong improvement compared to momentum in the first half of the year. Rates appeared to firm, but only compared to weak May-June numbers.
Q2 earnings results from <a href="https://www.smartkarma.com/entities/ap-moeller-maersk-a-s" target="_blank" data-smartkarma-citation="entities:22428:1" rel="noopener">AP Moeller - Maersk A/S (MAERSKB DC)</a> and <a href="https://www.smartkarma.com/entities/evergreen-marine-corp-ltd" target="_blank" data-smartkarma-citation="entities:15428:1" rel="noopener">Evergreen Marine Corp (2603 TT)</a> showed a dramatic YoY improvement in core shipping profitability, driven almost wholly by a reduction in fuel costs. These gains are likely to moderate in H2.
Container names Maersk and Evergreen are representative of the industry and their shares have recovered 75% and 67% since the trough in March this year. Both shares have surpassed 100% of stated book value, and we now believe further significant gains will be harder to come by.


July container volumes in key markets showed a strong improvement compared to momentum in the first half of the year. Rates appeared to firm, but only compared to weak May-June numbers.
Q2 earnings results from AP Moeller - Maersk A/S (MAERSKB DC) and Evergreen Marine Corp (2603 TT) showed a dramatic YoY improvement in core shipping profitability, driven almost wholly by a reduction in fuel costs. These gains are likely to moderate in H2.
Container names Maersk and Evergreen are representative of the industry and their shares have recovered 75% and 67% since the trough in March this year. Both shares have surpassed 100% of stated book value, and we now believe further significant gains will be harder to come by. 

TRACKING TRAFFIC/Containers & Air Cargo: July Volume & Rates Better | Q2 Profits Soar on Costs

We see room for <a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans Limited H (598 HK)</a> to have a substantial catch up in share price upon its release of the 1H20 result set for the end of Aug. All major macro and industry indicators suggest a good recovery in its businesses in 2Q20, and this should lead to a recovery in its profit in the quarter; but the share price is yet to reflect this. It has performed in tandem with one of its major suppliers - <a href="https://www.smartkarma.com/entities/china-cosco-holdings-h" target="_blank" data-smartkarma-citation="entities:286:1" rel="noopener">Cosco Shipping Holdings Co., Ltd (H) (1919 HK)</a> - in 1H20; and since end-Jun, COSCO has rallied 65%.Although FY20 is a tough year, we forecast it will still generate an ROE of 6% and maintain a very healthy balance sheet with a marginal net debt position. As such, the stock's 0.36x 12-month forward P/B, or 1.5 SD below average, is undemanding. We believe the 1H20 result may potentially trigger a reversion to mean.  Even if the stock's valuation just returns to 1 SD below historical average (ie 0.48x P/B), this will still generate an impressive upside of 33%.

We see room for Sinotrans Limited H (598 HK) to have a substantial catch up in share price upon its release of the 1H20 result set for the end of Aug. All major macro and industry indicators suggest a good recovery in its businesses in 2Q20, and this should lead to a recovery in its profit in the quarter; but the share price is yet to reflect this. It has performed in tandem with one of its major suppliers - Cosco Shipping Holdings Co., Ltd (H) (1919 HK) - in 1H20; and since end-Jun, COSCO has rallied 65%.Although FY20 is a tough year, we forecast it will still generate an ROE of 6% and maintain a very healthy balance sheet with a marginal net debt position. As such, the stock's 0.36x 12-month forward P/B, or 1.5 SD below average, is undemanding. We believe the 1H20 result may potentially trigger a reversion to mean.  Even if the stock's valuation just returns to 1 SD below historical average (ie 0.48x P/B), this will still generate an impressive upside of 33%.

Earlier this week <a href="https://www.smartkarma.com/entities/evergreen-marine-corp-ltd" target="_blank" data-smartkarma-citation="entities:15428:1" rel="noopener">Evergreen Marine Corp (2603 TT)</a> posted the company's best quarterly results in years, with Operating Profit improving over 300% YoY and Net Profit turning from a small loss in 2019 to a tidy profit this year. We believe lower fuel prices accounted for around 3/4 of the YoY improvement in Evergreen's gross profit in Q2. The company also likely benefited from slightly higher average freight rates. Revenue in the period actually declined by 7% YoY due to lower freight volume. Improved capacity discipline by many carriers combined with a modest improvement in demand since Q1 should allow Evergreen to remain profitable in the latter half of 2020. However, the most dramatic YoY gains related to lower fuel costs are likely behind us already. Evergreen's shares are up ~45% from the trough in Q1 during the peak of the pandemic, but they still trade at only about 0.80x stated book value. We believe there is a good chance Evergreen issues a cash dividend paid from 2020 earnings, likely in the NT$0.20-0.30 per share range.

Earlier this week Evergreen Marine Corp (2603 TT) posted the company's best quarterly results in years, with Operating Profit improving over 300% YoY and Net Profit turning from a small loss in 2019 to a tidy profit this year. We believe lower fuel prices accounted for around 3/4 of the YoY improvement in Evergreen's gross profit in Q2. The company also likely benefited from slightly higher average freight rates. Revenue in the period actually declined by 7% YoY due to lower freight volume. Improved capacity discipline by many carriers combined with a modest improvement in demand since Q1 should allow Evergreen to remain profitable in the latter half of 2020. However, the most dramatic YoY gains related to lower fuel costs are likely behind us already. Evergreen's shares are up ~45% from the trough in Q1 during the peak of the pandemic, but they still trade at only about 0.80x stated book value. We believe there is a good chance Evergreen issues a cash dividend paid from 2020 earnings, likely in the NT$0.20-0.30 per share range.

Evergreen Marine (2603:TT) Posts Best Quarterly Earnings in Years, Mainly on Lower Fuel Costs

China

COSCO SHIPPING Holdings Co., Ltd. offers shipping services. The Company provides container shipping, terminal operation, bulk shipping, and container leasing services. COSCO SHIPPING Holdings conducts businesses worldwide.

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COSCO SHIPPING Holdings (601919 CH)

China Transportation: Strong Aug Export to Benefit Sinotrans (598 HK) And SITC Intl (1308 HK)

We believe China' strong export and trade figures for Aug bode well for both Sinotrans (598 HK)

Osbert Tang, CFA

TRACKING TRAFFIC/Containers & Air Cargo: July Volume & Rates Better | Q2 Profits Soar on Costs

July container volumes in key markets showed a strong improvement compared to momentum in the first half of the year. Rates appeared to firm, but...

Tracking Traffic

Sinotrans (598 HK): Ready for a Blowout?

We see room for Sinotrans Limited H (598 HK) to have a substantial catch up in share price upon its release of the 1H20 result set for the end of...

Osbert Tang, CFA

Evergreen Marine (2603:TT) Posts Best Quarterly Earnings in Years, Mainly on Lower Fuel Costs

Earlier this week Evergreen Marine Corp (2603 TT) posted the company's best quarterly results in years, with Operating Profit improving over 300%...

Tracking Traffic

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Quiddity Weekly H/A: Share Spread Monitor 16 Oct 2020

Weekly Monitor for H-Share/A-Share spreads showing spread/discount performance, spread Z-scores, southbound buying and selling and net activity...

Travis Lundy

China Transportation: Strong Aug Export to Benefit Sinotrans (598 HK) And SITC Intl (1308 HK)

We believe China' strong export and trade figures for Aug bode well for both Sinotrans (598 HK)

Osbert Tang, CFA

TRACKING TRAFFIC/Containers & Air Cargo: July Volume & Rates Better | Q2 Profits Soar on Costs

July container volumes in key markets showed a strong improvement compared to momentum in the first half of the year. Rates appeared to firm, but...

Tracking Traffic

Sinotrans (598 HK): Ready for a Blowout?

We see room for Sinotrans Limited H (598 HK) to have a substantial catch up in share price upon its release of the 1H20 result set for the end of...

Osbert Tang, CFA

Evergreen Marine (2603:TT) Posts Best Quarterly Earnings in Years, Mainly on Lower Fuel Costs

Earlier this week Evergreen Marine Corp (2603 TT) posted the company's best quarterly results in years, with Operating Profit improving over 300%...

Tracking Traffic