HK/China Equity Long-Short

Osbert Tang, CFA

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

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a> issued a positive profit alert on 7 Jul which indicates its 1H21 recurring net profit will reach Rmb1.744-1.961bn. In other words, recurring profit growth will be between 60% and 80% YoY in the period. More importantly, looking at just 2Q21, the growth will range at 7.1%-31.1%, or 19.1% based on the midpoint of the guidance. In our view, this is a decent set of result which will be reported by end-Aug.Share price of Sinotrans has retreated by 15% from its peak in early-Jun due to concerns on the slowdown in new export orders in China and high base for comparison going into 2H21. However, the retreat has returned valuations back to very undemanding levels of 6.2x PER, 0.61x P/B and 5.2% dividend yield for FY21. Even with a projected net cash of Rmb0.48/share (or HK$0.51, 16% of current share price), we still looking at a healthy ROE of 9.8% for the year.

Sinotrans (598 HK) issued a positive profit alert on 7 Jul which indicates its 1H21 recurring net profit will reach Rmb1.744-1.961bn. In other words, recurring profit growth will be between 60% and 80% YoY in the period. More importantly, looking at just 2Q21, the growth will range at 7.1%-31.1%, or 19.1% based on the midpoint of the guidance. In our view, this is a decent set of result which will be reported by end-Aug.Share price of Sinotrans has retreated by 15% from its peak in early-Jun due to concerns on the slowdown in new export orders in China and high base for comparison going into 2H21. However, the retreat has returned valuations back to very undemanding levels of 6.2x PER, 0.61x P/B and 5.2% dividend yield for FY21. Even with a projected net cash of Rmb0.48/share (or HK$0.51, 16% of current share price), we still looking at a healthy ROE of 9.8% for the year.

Sinotrans (598 HK): Positive Profit Alert for 1H21

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)

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<a href="https://www.smartkarma.com/entities/jd-logistics" target="_blank" data-smartkarma-citation="entities:31500:1" rel="noopener">JD Logistics (2618 HK)</a> is the largest player in China’s integrated supply chain logistics services market, with a 2.2% revenue market share in 2019, according to CIC. JD Logistics will commence trading on Friday, 28 May. JD Logistics priced its IPO at HK$40.36 and the shares <a href="https://inews.hket.com/article/2967663/%E3%80%90%E6%96%B0%E8%82%A1IPO%E3%80%91%E4%BA%AC%E6%9D%B1%E7%89%A9%E6%B5%812618%E6%9A%97%E7%9B%A4%E5%8D%87%E9%80%BE3%E6%88%90%E3%80%80%E4%B8%80%E6%89%8B%E5%B8%B3%E9%9D%A2%E8%B3%BA%E7%B4%841200%E5%85%83?mtc=40001&amp;srkw=IPO%E6%9C%80%E5%BF%AB%E6%9C%80%E9%BD%8A" target="_blank" rel="noopener">stood 31% higher</a> at HK$53.00 in the Futu securities' grey market.<div>
In <a href="https://www.smartkarma.com/insights/jd-logistics-ipo-prioritizing-market-share-gains-over-margins" target="_blank" data-smartkarma-citation="insights:50976" rel="noopener">JD Logistics IPO: Prioritizing Market Share Gains over Margins</a>, we noted that the PHIP which discloses the 2020 results and recent developments underscore the positives which are strong growth, rising margin and cash generation. However, the outlook is mixed as JD Logistics cautions that it will pursue market share gains at the cost of profitability over the medium term. We opined that JD Logistics has the right ingredients to ride out the industry’s current price-competitive dynamics and deliver good shareholder returns over the medium term. In <a href="https://www.smartkarma.com/insights/jd-logistics-ipo-valuation-insights" target="_blank" data-smartkarma-citation="insights:51524" rel="noopener">JD Logistics IPO: Valuation Insights</a>, we noted that the IPO price range is attractive, particularly in the context of JD Logistics' positioning and higher than peers forecasted growth.
<div class="content-highlight">Updating for the final IPO net raise, our base-case DCF derived price target is HK$48.91 per share. Our DCF sensitivity and relative valuation analysis shows that the IPO price is attractive and the grey market price is justifiable. </div>
</div>

JD Logistics (2618 HK) is the largest player in China’s integrated supply chain logistics services market, with a 2.2% revenue market share in 2019, according to CIC. JD Logistics will commence trading on Friday, 28 May. JD Logistics priced its IPO at HK$40.36 and the shares stood 31% higher at HK$53.00 in the Futu securities' grey market.
In JD Logistics IPO: Prioritizing Market Share Gains over Margins, we noted that the PHIP which discloses the 2020 results and recent developments underscore the positives which are strong growth, rising margin and cash generation. However, the outlook is mixed as JD Logistics cautions that it will pursue market share gains at the cost of profitability over the medium term. We opined that JD Logistics has the right ingredients to ride out the industry’s current price-competitive dynamics and deliver good shareholder returns over the medium term. In JD Logistics IPO: Valuation Insights, we noted that the IPO price range is attractive, particularly in the context of JD Logistics' positioning and higher than peers forecasted growth.
Updating for the final IPO net raise, our base-case DCF derived price target is HK$48.91 per share. Our DCF sensitivity and relative valuation analysis shows that the IPO price is attractive and the grey market price is justifiable. 


China

Sinotrans Limited provides integrated logistics services with core service of sea, air, rail and road freight forwarding, express services and shipping agency services.  The Company also provides support services of storage and terminal services, trucking and marine transportation services.

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Sinotrans (598 HK)

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

Sinotrans (598 HK): Positive Profit Alert for 1H21

Sinotrans' solid 2Q21 result should ease concern about slowdown in business momentum. We think the recent retreat in share price has returned the...

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

JD Logistics IPO: Trading Debut

JD Logistics priced its IPO at HK$40.36 and stood 31% higher at HK$53.00 in the grey market. Our DCF sensitivity and relative valuation analysis...

Arun George

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