HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<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

Thematic (Sector/Industry)

<ul>
<li>Although 5% GDP growth target for 2023 is at the low end of market speculation of 5.5-6%, we think this reflects the government's conservative stance amid post-COVID recovery. </li>
<li>A 0.2pp higher budget deficit and a special purpose bond quota of Rmb3.8trn suggested that government spending will stay as important economic driver.</li>
<li>Consumption is another major stimulus for economic growth, and more supportive measures will be rolled out - we have seen many cities planning to hand out consumption vouchers.</li>
</ul>


Although 5% GDP growth target for 2023 is at the low end of market speculation of 5.5-6%, we think this reflects the government's conservative stance amid post-COVID recovery. 
A 0.2pp higher budget deficit and a special purpose bond quota of Rmb3.8trn suggested that government spending will stay as important economic driver.
Consumption is another major stimulus for economic growth, and more supportive measures will be rolled out - we have seen many cities planning to hand out consumption vouchers.


China NPC: Implications of Government Working Report 2023

<ul>
<li>Industry excavator sales grew 5.5% in Sep and wheel loader edged up 0.7%. This marked the first month where both saw YoY growth since mid-2021, signaling a steady recovery.</li>
<li>The recovery is driven by overseas as domestic continued to decline. Usage of special purpose bond proceeds should boost demand from infrastructure but demand from property market will stay lacklustre. </li>
<li>We only find <a href="https://www.smartkarma.com/entities/sany-heavy-equipment-intl" target="_blank" data-smartkarma-citation="entities:11104:1" rel="noopener">Sany Heavy Equipment Intl (631 HK)</a> interesting. For <a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking (3339 HK)</a>, <a href="https://www.smartkarma.com/entities/zoomlion-heavy-industry-h" target="_blank" data-smartkarma-citation="entities:7817:1" rel="noopener">Zoomlion Heavy (1157 HK)</a> and <a href="https://www.smartkarma.com/entities/sany-heavy-industry-co-ltd" target="_blank" data-smartkarma-citation="entities:20183:1" rel="noopener">Sany Heavy (600031 CH)</a>, market expectations for 2H22 is too high. </li>
</ul>


Industry excavator sales grew 5.5% in Sep and wheel loader edged up 0.7%. This marked the first month where both saw YoY growth since mid-2021, signaling a steady recovery.
The recovery is driven by overseas as domestic continued to decline. Usage of special purpose bond proceeds should boost demand from infrastructure but demand from property market will stay lacklustre. 
We only find Sany Heavy Equipment Intl (631 HK) interesting. For Lonking (3339 HK), Zoomlion Heavy (1157 HK) and Sany Heavy (600031 CH), market expectations for 2H22 is too high. 


China Construction Machinery: Light at the End of the Tunnel, Finally

<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

<ul>
<li>Industry wheel loader sales rose 15.2% in Aug, continuing the healthy momentum. A low base in 2H24 will be another favourable factor, and <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> is well placed.   </li>
<li>Forklift outlook will stay strong and serve as a growth engine. There is also a significant pick-up in demand for industry excavator sales in Jul and Aug.</li>
<li>Net cash amounted to 81% of the share price. Including investments, it will increase to 118%. Conservative FY24 consensus earnings forecast means potential upside surprise.</li>
</ul>


Industry wheel loader sales rose 15.2% in Aug, continuing the healthy momentum. A low base in 2H24 will be another favourable factor, and Lonking Holdings (3339 HK) is well placed.   
Forklift outlook will stay strong and serve as a growth engine. There is also a significant pick-up in demand for industry excavator sales in Jul and Aug.
Net cash amounted to 81% of the share price. Including investments, it will increase to 118%. Conservative FY24 consensus earnings forecast means potential upside surprise.


Lonking (3339 HK): Small and Beautiful, Net Cash Equal 81% of Share Price

China

SANY Heavy Industry Co., Ltd manufactures and markets construction and engineering machinery and related parts. The Company produces and sells concrete pumps, concrete pump vehicles, road rollers, pavers, and other related products. Sany Heavy Industry markets its products worldwide.

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Sany Heavy Industry (600031 CH)

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

China NPC: Implications of Government Working Report 2023

A 0.2pp higher budget deficit and a Rmb3.8trn special purpose bond quota suggested government spending will remain important economic driver. More...

Osbert Tang, CFA

China Construction Machinery: Light at the End of the Tunnel, Finally

Industry sales of excavator and wheel loader have turned positve in Sep, after a lengthened depressed period since mid-2021. However, 2H22 earnings...

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

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

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

China NPC: Implications of Government Working Report 2023

A 0.2pp higher budget deficit and a Rmb3.8trn special purpose bond quota suggested government spending will remain important economic driver. More...

Osbert Tang, CFA

China Construction Machinery: Light at the End of the Tunnel, Finally

Industry sales of excavator and wheel loader have turned positve in Sep, after a lengthened depressed period since mid-2021. However, 2H22 earnings...

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

Lonking (3339 HK): Small and Beautiful, Net Cash Equal 81% of Share Price

​Industry wheel loader sales surged in Jul-Aug and the forklift outlook is strong. Current forecasts for Lonking are conservative with an upside...

Osbert Tang, CFA

Industry wheel loader sales surged in Jul-Aug and the forklift outlook is strong. Current forecasts for Lonking are conservative with an upside...