HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Orient Overseas International / Equity Bottom-Up

<ul>
<li>While <a href="https://www.smartkarma.com/entities/orient-overseas-international" target="_blank" data-smartkarma-citation="entities:801:1" rel="noopener">Orient Overseas International (316 HK)</a> will welcome its inclusion in Hang Seng Index, there is risk that it will follow the pattern that new inclusions performed badly post entry.</li>
<li>Globally, many container shipping stocks have retreated from their peaks in Mar this year, but OOIL is still hovering around its peak level, making is susceptible to a correction.</li>
<li>Challenging factors include softening sequential momentum, peaking out of spot rates, weaker demand picture, increase in supply pressure and declining earnings trend are weighing on the industry and the company.</li>
</ul>


While Orient Overseas International (316 HK) will welcome its inclusion in Hang Seng Index, there is risk that it will follow the pattern that new inclusions performed badly post entry.
Globally, many container shipping stocks have retreated from their peaks in Mar this year, but OOIL is still hovering around its peak level, making is susceptible to a correction.
Challenging factors include softening sequential momentum, peaking out of spot rates, weaker demand picture, increase in supply pressure and declining earnings trend are weighing on the industry and the company.


Orient Overseas Intl (316 HK): Cursed by Index Inclusion?

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

Orient Overseas International / Event-Driven

<ul>
<li>The inclusion of <a href="https://www.smartkarma.com/entities/orient-overseas-international" target="_blank" data-smartkarma-citation="entities:801:1" rel="noopener">Orient Overseas International</a>, <a href="https://www.smartkarma.com/entities/zhongsheng-group-holdings" target="_blank" data-smartkarma-citation="entities:10573:1" rel="noopener">Zhongsheng Group</a>, <a href="https://www.smartkarma.com/entities/semiconductor-manufacturing-international-corp-smic" target="_blank" data-smartkarma-citation="entities:14231:1" rel="noopener">Semiconductor Manufacturing International Corp (SMIC)</a> and <a href="https://www.smartkarma.com/entities/china-hongqiao-group-ltd" target="_blank" data-smartkarma-citation="entities:1909:1" rel="noopener">China Hongqiao</a> plus the deletion of <a href="https://www.smartkarma.com/entities/aac-technologies-holdings-inc" target="_blank" data-smartkarma-citation="entities:6544:1" rel="noopener">AAC Technologies Holdings</a> takes us to 69 index stocks.</li>
<li>Changes to the stocks, number of shares, float and capping result in an estimated one-way turnover is 3.43% and will result in a one-way trade of HK$7,444m.</li>
<li>There is huge short interest on <a href="https://www.smartkarma.com/entities/zhongsheng-group-holdings" target="_blank" data-smartkarma-citation="entities:10573:1" rel="noopener">Zhongsheng Group (881 HK)</a> and <a href="https://www.smartkarma.com/entities/china-hongqiao-group-ltd" target="_blank" data-smartkarma-citation="entities:1909:1" rel="noopener">China Hongqiao (1378 HK)</a> and there could be some short covering from now to implementation.</li>
</ul>


The inclusion of Orient Overseas International, Zhongsheng Group, Semiconductor Manufacturing International Corp (SMIC) and China Hongqiao plus the deletion of AAC Technologies Holdings takes us to 69 index stocks.
Changes to the stocks, number of shares, float and capping result in an estimated one-way turnover is 3.43% and will result in a one-way trade of HK$7,444m.
There is huge short interest on Zhongsheng Group (881 HK) and China Hongqiao (1378 HK) and there could be some short covering from now to implementation.


HSI Index Rebalance: Four Weddings & A Funeral

Thematic (Sector/Industry)

<ul>
<li>The trend of Rmb depreciation is generally negative to China companies, but we think the shipping companies present an interesting angle given their USD revenue stream and partial Rmb costs.</li>
<li>
<a href="https://www.smartkarma.com/entities/china-cosco-holdings-h" target="_blank" data-smartkarma-citation="entities:286:1" rel="noopener">COSCO Shipping Holdings (1919 HK)</a>, <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 (H) (1138 HK)</a>, <a href="https://www.smartkarma.com/entities/sitc-international-holdings" target="_blank" data-smartkarma-citation="entities:15301:1" rel="noopener">SITC International (1308 HK)</a> and <a href="https://www.smartkarma.com/entities/pacific-basin-shipping-ltd" target="_blank" data-smartkarma-citation="entities:929:1" rel="noopener">Pacific Basin Shipping (2343 HK)</a> are some names that can realise benefits.<a href="https://www.smartkarma.com/entities/cosco-capital-inc" target="_blank" data-smartkarma-citation="entities:10665:1" rel="noopener"></a>
</li>
<li>We think <a href="https://www.smartkarma.com/entities/china-cosco-holdings-h" target="_blank" data-smartkarma-citation="entities:286:1" rel="noopener">COSCO Shipping Holdings (1919 HK)</a> is the most attractive one, given its USD revenue, partial Rmb cost base, reporting in Rmb, low net debt and potentially better volume. <a href="https://www.smartkarma.com/entities/cosco-shipping-holdings-co-ltd-a" target="_blank" data-smartkarma-citation="entities:27590:1" rel="noopener"></a>
</li>
</ul>


The trend of Rmb depreciation is generally negative to China companies, but we think the shipping companies present an interesting angle given their USD revenue stream and partial Rmb costs.

COSCO Shipping Holdings (1919 HK), Cosco Shipping Energy Transportation (H) (1138 HK), SITC International (1308 HK) and Pacific Basin Shipping (2343 HK) are some names that can realise benefits.

We think COSCO Shipping Holdings (1919 HK) is the most attractive one, given its USD revenue, partial Rmb cost base, reporting in Rmb, low net debt and potentially better volume. 



Rmb Depreciation: An Angle for the Shipping Names?

<ul>
<li>Current at 66 constituents, we expect to reach 80 <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">HSI INDEX</a> constituents by the end of the year before moving higher towards 100 index members in 2023.</li>
<li>We list 10 stocks that could be added to the index in June - with one-way turnover close to 6%, the actual number of inclusions will be lower.</li>
<li>We also list out another 8 stocks that could possibly be added in June, though the probability of a September/ December inclusion is higher.</li>
</ul>


Current at 66 constituents, we expect to reach 80 HSI INDEX constituents by the end of the year before moving higher towards 100 index members in 2023.
We list 10 stocks that could be added to the index in June - with one-way turnover close to 6%, the actual number of inclusions will be lower.
We also list out another 8 stocks that could possibly be added in June, though the probability of a September/ December inclusion is higher.


HSI Index Rebalance Preview: Will The Pace of Inclusions Pick Up?

<ul>
<li>
<a href="https://www.smartkarma.com/entities/sitc-international-holdings" target="_blank" data-smartkarma-citation="entities:15301:1" rel="noopener">SITC International (1308 HK)</a> achieved a record net profit which surged 2.3x in FY21, but our concern is that much of news has been well in the share price.</li>
<li>While management is optimistic on its outlook, we think challenges are higher costs (port, bunker and charterhire) and little room for further significant freight rate increase. </li>
<li>Its 6.7x P/B for FY22F has well reflected its quality but with ROE likely to dip back in FY22 and FY23, we think upside does not look impressive.</li>
</ul>



SITC International (1308 HK) achieved a record net profit which surged 2.3x in FY21, but our concern is that much of news has been well in the share price.
While management is optimistic on its outlook, we think challenges are higher costs (port, bunker and charterhire) and little room for further significant freight rate increase. 
Its 6.7x P/B for FY22F has well reflected its quality but with ROE likely to dip back in FY22 and FY23, we think upside does not look impressive.


SITC International (1308 HK): All Priced In

Hong Kong

SITC International Holdings Company Ltd. offers marine shipping services.  The Company offers container liner shipping, freight forwarding, customs clearance, shipping agency, and ship brokerage services.  SITC operates in Asia.

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SITC International (1308 HK)

Orient Overseas Intl (316 HK): Cursed by Index Inclusion?

While news of HSI inclusion is positive, OOIL is now open to the pattern of post-entry weakness. It is facing more challenges and outperformance...

Osbert Tang, CFA

HSI Index Rebalance: Four Weddings & A Funeral

There are 4 adds & 1 delete to take the number of HSI members to 69. There is reasonable impact on the stocks and huge short interest on some of...

Brian Freitas

Rmb Depreciation: An Angle for the Shipping Names?

Shipping companies present an interesting angle to look at under the current trend of Rmb depreciation. USD revenue stream and partial Rmb costs...

Osbert Tang, CFA

HSI Index Rebalance Preview: Will The Pace of Inclusions Pick Up?

There could be 5-6 inclusions to the HSI in June as part of the move to 80 members. We list 10 stocks that could be added to the index, and another...

Brian Freitas

SITC International (1308 HK): All Priced In

The concerns on SITC are higher costs and toppish freight rates which make its 6.7x P/B for FY22F rich. Any weakness in freight rate is likely to...

Osbert Tang, CFA

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