HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

AviChina Industry & Technology H / Equity Bottom-Up

<ul>
<li>The slight dip in FY22 earnings for <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> is due to product restructuring at <a href="https://www.smartkarma.com/entities/avic-helicopter-co-ltd-a" target="_blank" data-smartkarma-citation="entities:14380:1" rel="noopener">Avicopter (600038 CH)</a> and higher impairment/fair value losses.<a href="https://www.smartkarma.com/entities/china-aviation-optical-a" target="_blank" data-smartkarma-citation="entities:13827:1" rel="noopener"></a>
</li>
<li>It should return to growth track in the next two years, with rise in product demand, recovery in Avicopter, further restructuring and M&amp;As being major drivers. </li>
<li>Share price has increased 15.9% YTD but it is just on 9.2x FY23 PER. Its market cap is at 58.5% discount to holdings in its four listed A-share subsidiaries. </li>
</ul>


The slight dip in FY22 earnings for AviChina Industry &amp; Technology H (2357 HK) is due to product restructuring at Avicopter (600038 CH) and higher impairment/fair value losses.

It should return to growth track in the next two years, with rise in product demand, recovery in Avicopter, further restructuring and M&amp;As being major drivers. 
Share price has increased 15.9% YTD but it is just on 9.2x FY23 PER. Its market cap is at 58.5% discount to holdings in its four listed A-share subsidiaries. 


AviChina Industry (2357 HK): Still Well-Placed as Our High Conviction

<ul>
<li>
<a href="https://www.smartkarma.com/entities/avichina-industry-technology-h" target="_blank" data-smartkarma-citation="entities:16315:1" rel="noopener">AviChina Industry &amp; Tech (2357 HK)</a> announced plan to consolidate helicopter business by disposing Changhe Aircraft and Harbin Aircraft to its subsidiary <a href="https://www.smartkarma.com/entities/avic-helicopter-co-ltd-a" target="_blank" data-smartkarma-citation="entities:14380:1" rel="noopener">Avic Helicopter (600038 CH)</a>. </li>
<li>AviChina can achieve synergy at its helicopter business, realise capital gains from disposal and enjoy higher valuations on these assets while maintaining its controlling ownership.</li>
<li>The resultant increase in stake in Avicopter will further widen AviChina's discount to its holdings in four listed A-share subsidiaries. Its current 66% discount is just too steep.</li>
</ul>



AviChina Industry &amp; Tech (2357 HK) announced plan to consolidate helicopter business by disposing Changhe Aircraft and Harbin Aircraft to its subsidiary Avic Helicopter (600038 CH). 
AviChina can achieve synergy at its helicopter business, realise capital gains from disposal and enjoy higher valuations on these assets while maintaining its controlling ownership.
The resultant increase in stake in Avicopter will further widen AviChina's discount to its holdings in four listed A-share subsidiaries. Its current 66% discount is just too steep.


AviChina Industry (2357 HK): Another Step in Restructuring

<ul>
<li>Given its holdings in four A-share subsidiaries, <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> will benefit from the surge in their share prices as mainland markets re-open.</li>
<li>These A-share all lagged benchmark Indices YTD. Avichina's holdings in them are already valued at 2.23x its own market capitalisation. </li>
<li>The historical discount range is 51-70% and currently stands at 55%, suggesting AviChina's share price has not yet excessively priced in the post-Golden Week rally.</li>
</ul>


Given its holdings in four A-share subsidiaries, AviChina Industry &amp; Technology H (2357 HK) will benefit from the surge in their share prices as mainland markets re-open.
These A-share all lagged benchmark Indices YTD. Avichina's holdings in them are already valued at 2.23x its own market capitalisation. 
The historical discount range is 51-70% and currently stands at 55%, suggesting AviChina's share price has not yet excessively priced in the post-Golden Week rally.


AviChina Industry (2357 HK): Excellent Exposure to A-Share Surge

<ul>
<li>
<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>'s FY23 earnings growth of 5.5% is affected by dilution and restatement. Its A-share subsidiaries achieved a 24% aggregate earnings growth. </li>
<li>Gross margin expanded and outlook remains decent. Projected growth for these A-shares reached 36.6% in FY24F and 23.8% in FY25F. Net cash equals 40% of the share price.</li>
<li>The stock's 8.5x and 7.3x PERs for FY24F and FY25F are cheap relative to its peers. It also trades at 57% discount to its A-share holdings.</li>
</ul>



AviChina Industry &amp; Technology H (2357 HK)'s FY23 earnings growth of 5.5% is affected by dilution and restatement. Its A-share subsidiaries achieved a 24% aggregate earnings growth. 
Gross margin expanded and outlook remains decent. Projected growth for these A-shares reached 36.6% in FY24F and 23.8% in FY25F. Net cash equals 40% of the share price.
The stock's 8.5x and 7.3x PERs for FY24F and FY25F are cheap relative to its peers. It also trades at 57% discount to its A-share holdings.


AviChina Industry (2357 HK): Better Look Forward

<ul>
<li>The A-share subsidiaries of <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 (2357 HK)</a> have mostly posted solid 3Q23 results - aggregate earnings growth has accelerated to 50.2%, from 26.8% in 1Q23.</li>
<li>Their 9M23 result reached 64% of FY23 consensus forecast earnings for AviChina, vs. just 61% a year ago. This indicates the market is too conservative and suggests room for upgrade.</li>
<li>Valuations are cheap at 8.7x and 7.0x PERs for FY23 and FY24. Its market capitalisation equals just 46% of the total attributable market capitalisation of these subsidiaries.</li>
</ul>


The A-share subsidiaries of AviChina Industry &amp; Technology (2357 HK) have mostly posted solid 3Q23 results - aggregate earnings growth has accelerated to 50.2%, from 26.8% in 1Q23.
Their 9M23 result reached 64% of FY23 consensus forecast earnings for AviChina, vs. just 61% a year ago. This indicates the market is too conservative and suggests room for upgrade.
Valuations are cheap at 8.7x and 7.0x PERs for FY23 and FY24. Its market capitalisation equals just 46% of the total attributable market capitalisation of these subsidiaries.


AviChina Industry (2357 HK): No Way Its Parts Are Greater than the Sum

China

Jiangxi Hongdu Aviation Industry Co Ltd designs, manufactures, and markets training planes, planes for agricultural and forestry uses, and other aviation products and spare parts.  The Company also processes consumer products and provides aviation services.

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Jiangxi Hongdu Aviation A (600316 CH)

AviChina Industry (2357 HK): Still Well-Placed as Our High Conviction

AviChina should return to growth track in the next two years, with rise in product demand, recovery in Avicopter, further restructuring and M&As...

Osbert Tang, CFA

AviChina Industry (2357 HK): Another Step in Restructuring

The proposed restructuring will allow AviChina achieve synergy at helicopter business, realise capital gains and enjoy higher valuations on these...

Osbert Tang, CFA

AviChina Industry (2357 HK): Better Look Forward

AviChina's FY23 earnings growth is affected by dilution and restatement, while its A-share subsidiaries see strong growth. The stock trades at a...

Osbert Tang, CFA

AviChina Industry (2357 HK): No Way Its Parts Are Greater than the Sum

We continue to like AviChina as a cheap play to access its underlying A-share aerospace and defense holdings. The stock has fallen by 12% YTD, and...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

AviChina Industry (2357 HK): Still Well-Placed as Our High Conviction

AviChina should return to growth track in the next two years, with rise in product demand, recovery in Avicopter, further restructuring and M&As...

Osbert Tang, CFA

AviChina Industry (2357 HK): Another Step in Restructuring

The proposed restructuring will allow AviChina achieve synergy at helicopter business, realise capital gains and enjoy higher valuations on these...

Osbert Tang, CFA

AviChina Industry (2357 HK): Excellent Exposure to A-Share Surge

​AviChina is poised to benefit from a surge in A-share subsidiaries' share prices as mainland markets re-open, with the attributable value of its...

Osbert Tang, CFA

AviChina Industry (2357 HK): Better Look Forward

​AviChina's FY23 earnings growth is affected by dilution and restatement, while its A-share subsidiaries see strong growth. The stock trades at a...

Osbert Tang, CFA

AviChina Industry (2357 HK): No Way Its Parts Are Greater than the Sum

We continue to like AviChina as a cheap play to access its underlying A-share aerospace and defense holdings. The stock has fallen by 12% YTD, and...

Osbert Tang, CFA

AviChina is poised to benefit from a surge in A-share subsidiaries' share prices as mainland markets re-open, with the attributable value of its...

AviChina's FY23 earnings growth is affected by dilution and restatement, while its A-share subsidiaries see strong growth. The stock trades at a...