HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Shenzhen International / Equity Bottom-Up

We consider the plan by <a href="https://www.smartkarma.com/entities/shenzhen-international-holdings-limited" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen International (152 HK)</a> to dispose of its 35.7% direct stake in the Meilin Checkpoint Project a strategic move to move forward its earnings and cash flow from the development. Under normal course, it will have to wait for another 2-3 years to realise such gains and cash. In our view, investors should welcome this decision as the move will also cover an earnings gap in FY21 originally left over from FY20 due to a lack of exceptional gain in this year.With a potential capital gain of Rmb2.9bn (HK$3.5bn), SZI is likely to record a historical high net profit for FY21. Moreover, its track record of sharing exceptional gain with investors through special dividends may mean a dividend yield of 12% for FY21 based on the current share price. The enriched financial position will also provide SZI more resources for pursuing logistics expansion, and it has just announced a logistics acquisition in Pingshan, Shenzhen.

We consider the plan by Shenzhen International (152 HK) to dispose of its 35.7% direct stake in the Meilin Checkpoint Project a strategic move to move forward its earnings and cash flow from the development. Under normal course, it will have to wait for another 2-3 years to realise such gains and cash. In our view, investors should welcome this decision as the move will also cover an earnings gap in FY21 originally left over from FY20 due to a lack of exceptional gain in this year.With a potential capital gain of Rmb2.9bn (HK$3.5bn), SZI is likely to record a historical high net profit for FY21. Moreover, its track record of sharing exceptional gain with investors through special dividends may mean a dividend yield of 12% for FY21 based on the current share price. The enriched financial position will also provide SZI more resources for pursuing logistics expansion, and it has just announced a logistics acquisition in Pingshan, Shenzhen.   

Shenzhen Intl (152 HK): Cashing in Future Earnings

We came back with a positive view on <a href="https://www.smartkarma.com/entities/shenzhen-international-holdings-limited" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen International (152 HK)</a> after a brief catch-up discussion with the company. For 2H21, we see upside potential in earnings and our takeaways are also encouraging. We see possibility for higher earnings contribution from the Meilin Checkpoint project and logistics business on asset divestment. At just 6x PER, 0.6x P/B (-2 SD below average) and 8.6% dividend yield for FY21, SZI's valuations are attractive relative to the fundamentals.Strategically, the new CEO will foster closer working relations with its parent and affiliates, it is a beneficiary of the Qianhai expansion (as it still has 40% land yet to be developed) and it sees possibility of participation in the booming air cargo terminal business of Air China. We believe the recent share price weakness is a good opportunity for this interesting name in the Greater Bay Area.

We came back with a positive view on Shenzhen International (152 HK) after a brief catch-up discussion with the company. For 2H21, we see upside potential in earnings and our takeaways are also encouraging. We see possibility for higher earnings contribution from the Meilin Checkpoint project and logistics business on asset divestment. At just 6x PER, 0.6x P/B (-2 SD below average) and 8.6% dividend yield for FY21, SZI's valuations are attractive relative to the fundamentals.Strategically, the new CEO will foster closer working relations with its parent and affiliates, it is a beneficiary of the Qianhai expansion (as it still has 40% land yet to be developed) and it sees possibility of participation in the booming air cargo terminal business of Air China. We believe the recent share price weakness is a good opportunity for this interesting name in the Greater Bay Area. 

Shenzhen Intl (152 HK): Positive Highlights from Recent Catch-Up with Company

Zhejiang Expressway Co H / Equity Bottom-Up

After reporting an 8.65x surge in profit in 1H21, we think there are three drivers that should bring better outlook for <a href="https://www.smartkarma.com/entities/zhejiang-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2178:1" rel="noopener">Zhejiang Expressway Co H (576 HK)</a> (ZJEC) over the next twelve months. These positive factors include further rebound in traffic and toll revenue, additional contribution from new projects and good upside from profit of <a href="https://www.smartkarma.com/entities/zheshang-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:29981:1" rel="noopener">Zheshang Securities Co Ltd (601878 CH)</a>. YTD, share price of ZJEC increased by 10%, but we still see good upside potential given that it trades on only 0.9x P/B for FY21 and its ROE for 1H21 already reached 10.1% (before annualised). On earnings valuation, its 5.7x and 5.0x PER for FY21 and FY22, respectively, also appeared very attractive, in our view.

After reporting an 8.65x surge in profit in 1H21, we think there are three drivers that should bring better outlook for Zhejiang Expressway Co H (576 HK) (ZJEC) over the next twelve months. These positive factors include further rebound in traffic and toll revenue, additional contribution from new projects and good upside from profit of Zheshang Securities Co Ltd (601878 CH). YTD, share price of ZJEC increased by 10%, but we still see good upside potential given that it trades on only 0.9x P/B for FY21 and its ROE for 1H21 already reached 10.1% (before annualised). On earnings valuation, its 5.7x and 5.0x PER for FY21 and FY22, respectively, also appeared very attractive, in our view. 

Zhejiang Expressway (576 HK): Drivers in Place for Robust Outlook

The 44% YoY decline of reported profit in 1H21 at <a href="https://www.smartkarma.com/entities/shenzhen-international-holdings-limited" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen International (152 HK)</a> (SZI) due to one-off gain in last year has masked its good recurring operations recovery. In fact, all business segments posted encouraging rebound in net profit contribution YoY; and even the 49%-owned Shenzhen Airlines (SZA) witnessed a 39% YoY narrowing in losses attributable to SZI. Net of one-off items, 1H21 profit is HK$961m, against losses of HK$1.2bn in 1H20, indicating a sharply positive YoY swing.Management is cautiously optimistic towards 2H21. New projects, healthy recurring growth and asset recycle will drive logistics segment profit, though SZA's profitability will still hinge on the local COVID-19 situation. The acquisition of <a href="https://www.smartkarma.com/entities/shenzhen-investment-holdings-bay-area-development" target="_blank" data-smartkarma-citation="entities:12134:1" rel="noopener">Shenzhen Investment Holdings Bay Area Development (737 HK)</a> by its subsidiary <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway Co H (548 HK)</a> will solidify SZI's market share in Shenzhen, and provide upside from the realisation of its land plot values. Currently at 2SD below the historical average P/B, SZI is deeply undervalued, in our view.

The 44% YoY decline of reported profit in 1H21 at Shenzhen International (152 HK) (SZI) due to one-off gain in last year has masked its good recurring operations recovery. In fact, all business segments posted encouraging rebound in net profit contribution YoY; and even the 49%-owned Shenzhen Airlines (SZA) witnessed a 39% YoY narrowing in losses attributable to SZI. Net of one-off items, 1H21 profit is HK$961m, against losses of HK$1.2bn in 1H20, indicating a sharply positive YoY swing.Management is cautiously optimistic towards 2H21. New projects, healthy recurring growth and asset recycle will drive logistics segment profit, though SZA's profitability will still hinge on the local COVID-19 situation. The acquisition of Shenzhen Investment Holdings Bay Area Development (737 HK) by its subsidiary Shenzhen Expressway Co H (548 HK) will solidify SZI's market share in Shenzhen, and provide upside from the realisation of its land plot values. Currently at 2SD below the historical average P/B, SZI is deeply undervalued, in our view.

Shenzhen Intl (152 HK): Encouraging Recovery of Recurring Profit in 1H21

Share price of <a href="https://www.smartkarma.com/entities/shenzhen-intl-holdings" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen Intl (152 HK)</a> (SZI) has been under pressure lately due to concerns on the proposed acquisition of <a href="https://www.smartkarma.com/entities/suning-com-co-ltd-a" target="_blank" data-smartkarma-citation="entities:9178:1" rel="noopener">Suning.com (002024 CH)</a> and weakened performance on its 49%-owned Shenzhen Airlines (SZA). However, now that it decided not to go ahead on Suning.com and there are signs of recovery at SZA, the still-depressed valuation (0.61x P/B, 5-year low) is unwarranted, in our opinion.Its core logistics segment performed well in 1H21, achieving higher occupancy which is supportive to rental income, and the expansion in project portfolio should be an added driver. The proposed acquisition of <a href="https://www.smartkarma.com/entities/shenzhen-investment-holdings-bay-area-development" target="_blank" data-smartkarma-citation="entities:12134:1" rel="noopener">Shenzhen Investment Holdings Bay Area Development (737 HK)</a> by its subsidiary <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway Co H (548 HK)</a> should also generate good cash flow with upside from its land assets. Long-term, the transformation of South China Logistics Park may potentially create another successful story similar to its Qianhai project. At FY21F dividend yield of 8%, we believe SZI is very attractive at the current level.

Share price of Shenzhen Intl (152 HK) (SZI) has been under pressure lately due to concerns on the proposed acquisition of Suning.com (002024 CH) and weakened performance on its 49%-owned Shenzhen Airlines (SZA). However, now that it decided not to go ahead on Suning.com and there are signs of recovery at SZA, the still-depressed valuation (0.61x P/B, 5-year low) is unwarranted, in our opinion.Its core logistics segment performed well in 1H21, achieving higher occupancy which is supportive to rental income, and the expansion in project portfolio should be an added driver. The proposed acquisition of Shenzhen Investment Holdings Bay Area Development (737 HK) by its subsidiary Shenzhen Expressway Co H (548 HK) should also generate good cash flow with upside from its land assets. Long-term, the transformation of South China Logistics Park may potentially create another successful story similar to its Qianhai project. At FY21F dividend yield of 8%, we believe SZI is very attractive at the current level.

Shenzhen Intl (152 HK): What's Wrong Recently?

China

Shenzhen Expressway Company Limited offers toll expressway and road construction and investment services. The Company provides expressway operation, maintenance, and service station leasing services. Shenzhen Expressway also conducts real estate development, advertising, and engineering consulting businesses.

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Shenzhen Expressway Company (600548 CH)

Shenzhen Intl (152 HK): Cashing in Future Earnings

The disposal of Meilin Checkpoint Project should be a welcomed move to shift earnings and cash flow ahead. SZI is likely to share with investors...

Osbert Tang, CFA

Shenzhen Intl (152 HK): Positive Highlights from Recent Catch-Up with Company

We believe the takeways from our catch-up with SZE are encouraging, and we see upside potential for earnings in 2H21 to come from both Meilin...

Osbert Tang, CFA

Zhejiang Expressway (576 HK): Drivers in Place for Robust Outlook

We believe sustained traffic and toll recovery, contribution from new project addition and positive outlook for Zheshang Securities will drive...

Osbert Tang, CFA

Shenzhen Intl (152 HK): Encouraging Recovery of Recurring Profit in 1H21

SZI's recovery in recurring earnings in 1H21 is encouraging, and its logistics business should see good momentum in 2H21 and FY22. At 2SD below...

Osbert Tang, CFA

Shenzhen Intl (152 HK): What's Wrong Recently?

SZI's depressed share price has already reflected the concerns of the market, with upside coming from good logistics segment, asset transformation...

Osbert Tang, CFA

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