HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Shenzhen International / Equity Bottom-Up

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

Thematic (Sector/Industry)

With the Hang Seng Index pulled back by 8.6% from its recent high in late-Jun, we take a look on our universe to identify the key opportunities and risks in our coverage.  In our view, the three stocks that look attractive after the recent market retreat are: 1.) <a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a>, 2.) <a href="https://www.smartkarma.com/entities/kunlun-energy-co-ltd" target="_blank" data-smartkarma-citation="entities:10054:1" rel="noopener">Kunlun Energy (135 HK)</a> and <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>. On average, they are off 9.8% from the recent peak.The three stocks to avoid are: 1.) <a href="https://www.smartkarma.com/entities/cosco-shipping-energy-tran-h" target="_blank" data-smartkarma-citation="entities:646:1" rel="noopener">Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK)</a>, 2.) <a href="https://www.smartkarma.com/entities/beijing-capital-international-airport-bcia" target="_blank" data-smartkarma-citation="entities:10626:1" rel="noopener">Beijing Capital International Airport (BCIA) (694 HK)</a> and 3.) <a href="https://www.smartkarma.com/entities/china-maple-leaf-educational" target="_blank" data-smartkarma-citation="entities:78:1" rel="noopener">China Maple Leaf Educational Systems (1317 HK)</a>. They have declined an average of 20.2% from their peak, and despite the low valuations, fundamentals remain unappealing.

With the Hang Seng Index pulled back by 8.6% from its recent high in late-Jun, we take a look on our universe to identify the key opportunities and risks in our coverage.  In our view, the three stocks that look attractive after the recent market retreat are: 1.) Sinotrans (598 HK), 2.) Kunlun Energy (135 HK) and Shenzhen International (152 HK). On average, they are off 9.8% from the recent peak.The three stocks to avoid are: 1.) Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK), 2.) Beijing Capital International Airport (BCIA) (694 HK) and 3.) China Maple Leaf Educational Systems (1317 HK). They have declined an average of 20.2% from their peak, and despite the low valuations, fundamentals remain unappealing.  

Three Stocks Look Attractive and Three to Avoid Amid the Sell-Off

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?

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK/China, and the Korean stock markets. The top topics are below:1) POTUS Executive Order: Updated List of Chinese Stocks to Be Deleted by Major Indices2) Kanzhun IPO3) Angelalign IPO 4) China: Allows Families to Have Three Children5) HYBE Rights Offering6) China Infrastructure REITs7) Aihuishou IPO8) Full Truck Alliance IPO9) Enjin IPO10) Xpeng: Positive Momentum Back11) Tesla China Losing Market Share12) CStone Pharma (2616.HK) - Time for a Revaluation13) JD Health Lock-Up Expiration14) Passive Money Tracking KOSPI15) SK IE Tech KOSPI 200 Fast-Entry16) DL Holdings with Recent Tender’s Increased Shares: Index Treatment 17) WH Group (288 HK)

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK/China, and the Korean stock markets. The top topics are below:1) POTUS Executive Order: Updated List of Chinese Stocks to Be Deleted by Major Indices2) Kanzhun IPO3) Angelalign IPO 4) China: Allows Families to Have Three Children5) HYBE Rights Offering6) China Infrastructure REITs7) Aihuishou IPO8) Full Truck Alliance IPO9) Enjin IPO10) Xpeng: Positive Momentum Back11) Tesla China Losing Market Share12) CStone Pharma (2616.HK) - Time for a Revaluation13) JD Health Lock-Up Expiration14) Passive Money Tracking KOSPI15) SK IE Tech KOSPI 200 Fast-Entry16) DL Holdings with Recent Tender’s Increased Shares: Index Treatment 17) WH Group (288 HK)

Smartkarma North Asia Weekly: POTUS Order, Kanzhun, Angelalign, & 3 Children Policy in China

China kicked off its public infrastructure REIT issuance in Jun with an overwhelmingly positive subscription response from the market. For the 9 REITs in the first batch issuance, average placement allocation rate is 14.5% and public allocation rate is just 6.3%. The fund raised only represented a mere 3.3% average discount to the value of the underlying assets, with toll road dominated the overall mix to account for 40% of the overall amount raised.We think that the good demand is positive 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>, which is the only one under our coverage involved in the first batch, paving the way for more future issuance by the company. We continue to see the following names as the major beneficiaries of China's public infrastructure REIT program - <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a>, <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>, <a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a> and <a href="https://www.smartkarma.com/entities/china-everbright-environment-group-limited" target="_blank" data-smartkarma-citation="entities:15946:1" rel="noopener">China Everbright Environment (257 HK)</a>.

China kicked off its public infrastructure REIT issuance in Jun with an overwhelmingly positive subscription response from the market. For the 9 REITs in the first batch issuance, average placement allocation rate is 14.5% and public allocation rate is just 6.3%. The fund raised only represented a mere 3.3% average discount to the value of the underlying assets, with toll road dominated the overall mix to account for 40% of the overall amount raised.We think that the good demand is positive for Zhejiang Expressway Co H (576 HK), which is the only one under our coverage involved in the first batch, paving the way for more future issuance by the company. We continue to see the following names as the major beneficiaries of China's public infrastructure REIT program - China Communications Construction (1800 HK), Shenzhen Intl (152 HK), Sinotrans (598 HK) and China Everbright Environment (257 HK). 

China Infrastructure REITs: Excellent First Batch Result - Good for Zhejiang Expressway (576 HK)

Hong Kong

Shenzhen International Holdings Limited operates as a holding company. The Company, through its subsidiaries, provides investment, construction, and operation of logistic infrastructure facilities, as well as offers value-added logistic services. Shenzhen International serves customers worldwide.

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Shenzhen International (152 HK)

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

Three Stocks Look Attractive and Three to Avoid Amid the Sell-Off

We think the three stocks that look attractive after the recent market retreat are: 1.) Sinotrans (598 HK), 2.) Kunlun Energy (135 HK) and Shenzhen...

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

Smartkarma North Asia Weekly: POTUS Order, Kanzhun, Angelalign, & 3 Children Policy in China

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK...

Douglas Kim

China Infrastructure REITs: Excellent First Batch Result - Good for Zhejiang Expressway (576 HK)

Good response to the first batch of China public infrastructure REIT issuance indicates investor demand, and this is positive to Zhejiang Exp,...

Osbert Tang, CFA

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