HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a>'s demand should pick up in 2H24 supported by the government's "Action plan to promote large-scale equipment renewals and consumer goods trade-ins". </li>
<li>Industry volume sales have already witnessed a narrower YoY decline in Mar, with solid exports of wheel loaders and domestic sales of excavators.</li>
<li>After going ex- in late-May, its PER will drop to 7.0x and yield will rise to 6.6%. Net cash of HK$1.56/share is more than fully cover its share price.</li>
</ul>



Lonking Holdings (3339 HK)'s demand should pick up in 2H24 supported by the government's "Action plan to promote large-scale equipment renewals and consumer goods trade-ins". 
Industry volume sales have already witnessed a narrower YoY decline in Mar, with solid exports of wheel loaders and domestic sales of excavators.
After going ex- in late-May, its PER will drop to 7.0x and yield will rise to 6.6%. Net cash of HK$1.56/share is more than fully cover its share price.


<ul>
<li>After a poor FY22, 1H23 will stay challenging for <a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a>. However, we expect pick-up in business momentum going forward, and export is a major growth driver.</li>
<li>Gross margin rebounded HoH and YoY in 2H22, and Lonking maintained good operating cost control. Recovery of equity market suggests potential big positive swing in investment income. </li>
<li>Including investment portfolio, 92% of the current market capitalisation is net cash, providing solid downside buffer. Its 6.5x PER, 9.2% yield and 0.52x P/B are very attractive valuations.</li>
</ul>


After a poor FY22, 1H23 will stay challenging for Lonking Holdings (3339 HK). However, we expect pick-up in business momentum going forward, and export is a major growth driver.
Gross margin rebounded HoH and YoY in 2H22, and Lonking maintained good operating cost control. Recovery of equity market suggests potential big positive swing in investment income. 
Including investment portfolio, 92% of the current market capitalisation is net cash, providing solid downside buffer. Its 6.5x PER, 9.2% yield and 0.52x P/B are very attractive valuations.


Lonking (3339 HK): Back to Attractive Zone

<ul>
<li>Share price of <a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a> has seen muted reaction to weak industry figures recently but it is still unexciting in near-term, based on our catch-up with the company. </li>
<li>It has underperformed industry sales volume in 5M22 across all product categories, with that for wheel loader behind 4pp and excavator by 10pp. Forklift sales were down 18% YoY. </li>
<li>Both gross margin and investment income are set to contract in this year, making it highly likely to see significant earnings downgrade after 1H22 result announcement in Aug. </li>
</ul>


Share price of Lonking Holdings (3339 HK) has seen muted reaction to weak industry figures recently but it is still unexciting in near-term, based on our catch-up with the company. 
It has underperformed industry sales volume in 5M22 across all product categories, with that for wheel loader behind 4pp and excavator by 10pp. Forklift sales were down 18% YoY. 
Both gross margin and investment income are set to contract in this year, making it highly likely to see significant earnings downgrade after 1H22 result announcement in Aug. 


Lonking (3339 HK): Not Out of the Woods Yet

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

Mitsubishi Logisnext Co., Ltd. / Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/mitsubishi-logisnext-co-ltd" target="_blank" rel="noopener">Mitsubishi Logisnext Co., Ltd. (7105 JP)</a> shares rose 26% after the Nikkei reported that <a href="https://www.smartkarma.com/entities/mitsubishi-heavy-industries" target="_blank" data-smartkarma-citation="entities:13613:1" rel="noopener">Mitsubishi Heavy Industries (7011 JP)</a> is contemplating selling its 64.5% stake. </li>
<li>Logisnext confirmed the sale process. In a fair process, minorities should receive the tender offer price plus the proportionate share of Mitsubishi Heavy Industries’ TOB tax benefits. </li>
<li>Despite the rise in share price, Logisnext trades at a discount to peer multiples. At an offer of JPY2,000, Logisnext would trade in line with median peer multiples.</li>
</ul>



Mitsubishi Logisnext Co., Ltd. (7105 JP) shares rose 26% after the Nikkei reported that Mitsubishi Heavy Industries (7011 JP) is contemplating selling its 64.5% stake. 
Logisnext confirmed the sale process. In a fair process, minorities should receive the tender offer price plus the proportionate share of Mitsubishi Heavy Industries’ TOB tax benefits. 
Despite the rise in share price, Logisnext trades at a discount to peer multiples. At an offer of JPY2,000, Logisnext would trade in line with median peer multiples.


Mitsubishi Logisnext (7105 JP): Mitsubishi Heavy Industries (7011 JP) Seeks to Exit

<ul>
<li>While valuations for <a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a> do not appear expensive, there is a risk that the 2H23 earnings outlook is weaker than expected. This opens room for disappointment.</li>
<li>There is no sign that domestic sales have picked up and Jul-Aug was still down significantly. Meanwhile, the strong export in 1H23 has not sustained in the last two months. </li>
<li>The weaker A-share market so far in 2H23 also does not bode well for investment gains, which are important contributors to the impressive earnings rebound in 1H23.</li>
</ul>


While valuations for Lonking Holdings (3339 HK) do not appear expensive, there is a risk that the 2H23 earnings outlook is weaker than expected. This opens room for disappointment.
There is no sign that domestic sales have picked up and Jul-Aug was still down significantly. Meanwhile, the strong export in 1H23 has not sustained in the last two months. 
The weaker A-share market so far in 2H23 also does not bode well for investment gains, which are important contributors to the impressive earnings rebound in 1H23.


Lonking (3339 HK): Between a Rock and a Hard Place

China

Guangxi Liugong Machinery Co. Ltd. manufactures and markets construction machinery including loaders, excavators, road rollers, and related parts.

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Guangxi Liugong Machinery A (000528 CH)

Lonking (3339 HK): Policy Tailwind

Government policy support and improving industry demand should drive a potential uptick in sales for Lonking in 2H24. Attractive valuations and a...

Osbert Tang, CFA

Lonking (3339 HK): Back to Attractive Zone

We turned bullish on Lonking on 17 Apr, and since then, the stock has performed well. It has just issued a positive profit alert with 91-158% YoY...

Osbert Tang, CFA

Lonking (3339 HK): Not Out of the Woods Yet

Lonking may disappoint the market by wide margin when it reports 1H22 result in Aug. Sales of its key product categories have been behind the...

Osbert Tang, CFA

Mitsubishi Logisnext (7105 JP): Mitsubishi Heavy Industries (7011 JP) Seeks to Exit

Despite the rise in share price, Logisnext trades at a discount to peer multiples. At an offer of JPY2,000, Logisnext would trade in line with...

Arun George

Lonking (3339 HK): Between a Rock and a Hard Place

Lonking's valuations are not too expensive, but 2H23 earnings may disappoint. Domestic sales have not improved, strong export in 1H23 not...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Lonking (3339 HK): Policy Tailwind

Government policy support and improving industry demand should drive a potential uptick in sales for Lonking in 2H24. Attractive valuations and a...

Osbert Tang, CFA

Lonking (3339 HK): Back to Attractive Zone

We turned bullish on Lonking on 17 Apr, and since then, the stock has performed well. It has just issued a positive profit alert with 91-158% YoY...

Osbert Tang, CFA

Lonking (3339 HK): Not Out of the Woods Yet

Lonking may disappoint the market by wide margin when it reports 1H22 result in Aug. Sales of its key product categories have been behind the...

Osbert Tang, CFA

Mitsubishi Logisnext (7105 JP): Mitsubishi Heavy Industries (7011 JP) Seeks to Exit

Despite the rise in share price, Logisnext trades at a discount to peer multiples. At an offer of JPY2,000, Logisnext would trade in line with...

Arun George

Lonking (3339 HK): Between a Rock and a Hard Place

​Lonking's valuations are not too expensive, but 2H23 earnings may disappoint. Domestic sales have not improved, strong export in 1H23 not...

Osbert Tang, CFA

Lonking's valuations are not too expensive, but 2H23 earnings may disappoint. Domestic sales have not improved, strong export in 1H23 not...