HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>China's toll road sector has gone up by 47.4% since 2022, but it remains an excellent yield play with an average yield of 7.2% and 7.8% in FY24 and FY25.</li>
<li>1Q24 profit is solid, with 3-year forecast earnings CAGR at a healthy 6.5%. <a href="https://www.smartkarma.com/entities/anhui-expressway-co-ltd-h" target="_blank" data-smartkarma-citation="entities:5236:1" rel="noopener">Anhui Expressway H (995 HK)</a> and <a href="https://www.smartkarma.com/entities/jiangsu-express-co-ltd-h" target="_blank" data-smartkarma-citation="entities:9956:1" rel="noopener">Jiangsu Expressway (H) (177 HK)</a> have the most consistent DPS trend.</li>
<li>We like <a href="https://www.smartkarma.com/entities/jiangsu-express-co-ltd-h" target="_blank" data-smartkarma-citation="entities:9956:1" rel="noopener">Jiangsu Expressway (H) (177 HK)</a> for its track record and growth prospects. As a relative underperformer in the sector, it is poised to catch up.</li>
</ul>


China's toll road sector has gone up by 47.4% since 2022, but it remains an excellent yield play with an average yield of 7.2% and 7.8% in FY24 and FY25.
1Q24 profit is solid, with 3-year forecast earnings CAGR at a healthy 6.5%. Anhui Expressway H (995 HK) and Jiangsu Expressway (H) (177 HK) have the most consistent DPS trend.
We like Jiangsu Expressway (H) (177 HK) for its track record and growth prospects. As a relative underperformer in the sector, it is poised to catch up.


China Toll Road Sector: Higher for Longer......Yields

Equity Bottom-Up

Shenzhen International / Equity Bottom-Up

<ul>
<li>
<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> saw its FY23 earnings reaccelerated, supported by gains from the logistics park transformation business. Earnings even surged 169.1% YoY in 2H23. </li>
<li>REIT issuance on two logistics assets, increase in areas of logistics projects, gains from South China Logistics Park transformation, and better <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway (548 HK)</a> will fuel FY24.</li>
<li>A better debt structure will save finance costs. Its 0.45x P/B, or 1.5SD below the 5-year average, is cheap given its proven ability to realise underlying asset value.</li>
</ul>



Shenzhen International (152 HK) saw its FY23 earnings reaccelerated, supported by gains from the logistics park transformation business. Earnings even surged 169.1% YoY in 2H23. 
REIT issuance on two logistics assets, increase in areas of logistics projects, gains from South China Logistics Park transformation, and better Shenzhen Expressway (548 HK) will fuel FY24.
A better debt structure will save finance costs. Its 0.45x P/B, or 1.5SD below the 5-year average, is cheap given its proven ability to realise underlying asset value.


<ul>
<li>
<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> has reached agreement with the government on the South China Logistics Park Phase I transformation and it will receive Rmb1.058bn compensation.</li>
<li>The sum equals a significant 9% of SZI's market capitalisation. The agreement also kick-started the project's long-term contribution, which may provide an income stream lasting 3-5 years.</li>
<li>The deal showcased SZI's ability to realise the underlying value of its assets. The stock should not be valued on its earnings, and its 0.3x P/B is deeply undervalued.</li>
</ul>



Shenzhen International (152 HK) has reached agreement with the government on the South China Logistics Park Phase I transformation and it will receive Rmb1.058bn compensation.
The sum equals a significant 9% of SZI's market capitalisation. The agreement also kick-started the project's long-term contribution, which may provide an income stream lasting 3-5 years.
The deal showcased SZI's ability to realise the underlying value of its assets. The stock should not be valued on its earnings, and its 0.3x P/B is deeply undervalued.


Shenzhen Intl (152 HK): A Big Step Forward

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>
<strong><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></strong> seeks to spin off logistic assets on a PRC exchange; and  51.56%-held <strong><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></strong> intends to place out A shares.</li>
<li>Preceding my comments on SZ Int'l/SZ E'Way are the current setup/unwind tables for Asia-Pacific Holdcos.</li>
<li>These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation &gt;20%.</li>
</ul>



Shenzhen International (152 HK) seeks to spin off logistic assets on a PRC exchange; and  51.56%-held Shenzhen Expressway Co H (548 HK) intends to place out A shares.
Preceding my comments on SZ Int'l/SZ E'Way are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation &gt;20%.


StubWorld: SZ International's Logistics Spin-Offs

<ul>
<li>We expect <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 sustain efforts in realising and releasing the value of its assets, and this will be positive in narrowing its discount to book.</li>
<li>The plan to issue REIT by using Hangzhou and Guizhou logistics projects as underlying assets will add to earnings. We estimate they account for 14% of SZI's total project area.</li>
<li>Subscription to A-share issuance of <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway Co (548 HK)</a> will increase its book value by Rmb5bn. This will lower its P/B multiple to 0.46x, from 0.54x.</li>
</ul>


We expect Shenzhen International (152 HK) to sustain efforts in realising and releasing the value of its assets, and this will be positive in narrowing its discount to book.
The plan to issue REIT by using Hangzhou and Guizhou logistics projects as underlying assets will add to earnings. We estimate they account for 14% of SZI's total project area.
Subscription to A-share issuance of Shenzhen Expressway Co (548 HK) will increase its book value by Rmb5bn. This will lower its P/B multiple to 0.46x, from 0.54x.


Shenzhen Intl (152 HK): Enhancing Its Values

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)

China Toll Road Sector: Higher for Longer......Yields

China's toll road sector has performed solidly since 2022, but is still offering attractive yields and healthy profit. Jiangsu Expressway stands...

Osbert Tang, CFA

Shenzhen Intl (152 HK): A Decent Rebound

SZI's FY23 earnings surged and FY24 profit will be fuelled by REIT issuance, increased logistics projects, and better Shenzhen Expressway...

Osbert Tang, CFA

Shenzhen Intl (152 HK): A Big Step Forward

Shenzhen International receives Rmb1.058bn compensation for South China Logistics Park Phase I transformation, highlighting its ability to realize...

Osbert Tang, CFA

StubWorld: SZ International's Logistics Spin-Offs

The parent is seeking to extract value via this NDRC/CSRC pilot program. That is positive. And SZ Int'l is at a deep discount to NAV. I'd tilt to...

David Blennerhassett

Shenzhen Intl (152 HK): Enhancing Its Values

SZI's planned REIT issuance on Hangzhou and Guizhou projects is just an example of its efforts in releasing asset value. The deemed disposal of SZE...

Osbert Tang, CFA

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52-week Range

Market Cap (USDm)

P/E

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China Toll Road Sector: Higher for Longer......Yields

​China's toll road sector has performed solidly since 2022, but is still offering attractive yields and healthy profit. Jiangsu Expressway stands...

Osbert Tang, CFA

Shenzhen Intl (152 HK): A Decent Rebound

​SZI's FY23 earnings surged and FY24 profit will be fuelled by REIT issuance, increased logistics projects, and better Shenzhen Expressway...

Osbert Tang, CFA

Shenzhen Intl (152 HK): A Big Step Forward

​Shenzhen International receives Rmb1.058bn compensation for South China Logistics Park Phase I transformation, highlighting its ability to realize...

Osbert Tang, CFA

StubWorld: SZ International's Logistics Spin-Offs

The parent is seeking to extract value via this NDRC/CSRC pilot program. That is positive. And SZ Int'l is at a deep discount to NAV. I'd tilt to...

David Blennerhassett

Shenzhen Intl (152 HK): Enhancing Its Values

SZI's planned REIT issuance on Hangzhou and Guizhou projects is just an example of its efforts in releasing asset value. The deemed disposal of SZE...

Osbert Tang, CFA

China's toll road sector has performed solidly since 2022, but is still offering attractive yields and healthy profit. Jiangsu Expressway stands...

SZI's FY23 earnings surged and FY24 profit will be fuelled by REIT issuance, increased logistics projects, and better Shenzhen Expressway...

Shenzhen International receives Rmb1.058bn compensation for South China Logistics Park Phase I transformation, highlighting its ability to realize...