HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Our list of HK-listed industrial companies indicated that the US generated an average of 22.9% of sales. With diversified production bases, higher tariffs may only affect ~10% of revenue.</li>
<li>
<a href="https://www.smartkarma.com/entities/vesync" target="_blank" data-smartkarma-citation="entities:31067:1" rel="noopener">Vesync (2148 HK)</a>, <a href="https://www.smartkarma.com/entities/chervon-holdings-limited" target="_blank" data-smartkarma-citation="entities:35309:1" rel="noopener">Chervon Holdings (2285 HK)</a>, and <a href="https://www.smartkarma.com/entities/aac-technologies-holdings-inc" target="_blank" data-smartkarma-citation="entities:6544:1" rel="noopener">AAC Technologies Holdings (2018 HK)</a> are more exposed given their significant US sales yet most production is still in China. </li>
<li>While the US generated over 50% of the revenue of <a href="https://www.smartkarma.com/entities/techtronic-industries-co-ltd" target="_blank" data-smartkarma-citation="entities:4561:1" rel="noopener">Techtronic Industries (669 HK)</a> and <a href="https://www.smartkarma.com/entities/nexteer-automotive-group-ltd" target="_blank" data-smartkarma-citation="entities:15483:1" rel="noopener">Nexteer Automotive (1316 HK)</a>, they are less exposed given their worldwide manufacturing presence. </li>
</ul>


Our list of HK-listed industrial companies indicated that the US generated an average of 22.9% of sales. With diversified production bases, higher tariffs may only affect ~10% of revenue.

Vesync (2148 HK), Chervon Holdings (2285 HK), and AAC Technologies Holdings (2018 HK) are more exposed given their significant US sales yet most production is still in China. 
While the US generated over 50% of the revenue of Techtronic Industries (669 HK) and Nexteer Automotive (1316 HK), they are less exposed given their worldwide manufacturing presence. 


China & HK Strategy: Stocks Exposed to the US and Higher Tariffs

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<ul>
<li>Broad global MSCI equity indexes (ACWI,ACWI ex-U.S.,EAFE, and EM) remain bearish with YTD downtrends intact. Until these indexes reverse downtrends, we are bearish and view bounces as bear market rallies.</li>
<li>Major non-U.S. countries appear to be much further along in the bottoming process, a potential sign that U.S. indexes could take a back seat once global equities finally bottom.</li>
<li>Indexes that have not made a new low since March: Nikkei 225, TOPIX, TOPIX Small, Hang Seng, Europe’s EURO STOXX 50, and China's MSCI China (MCHI-US) and China Internet (KWEB-US).</li>
</ul>


Broad global MSCI equity indexes (ACWI,ACWI ex-U.S.,EAFE, and EM) remain bearish with YTD downtrends intact. Until these indexes reverse downtrends, we are bearish and view bounces as bear market rallies.
Major non-U.S. countries appear to be much further along in the bottoming process, a potential sign that U.S. indexes could take a back seat once global equities finally bottom.
Indexes that have not made a new low since March: Nikkei 225, TOPIX, TOPIX Small, Hang Seng, Europe’s EURO STOXX 50, and China's MSCI China (MCHI-US) and China Internet (KWEB-US).


Hang Seng, MSCI China Near Major Base Breakouts; Bottoms-Up Stock Rec's in Hong Kong, China, & Japan

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.

Event-Driven

<p><a href="https://www.smartkarma.com/entities/bestway-global-holding-inc" target="_blank" data-smartkarma-citation="entities:26012:1" rel="noopener">Bestway Global Holding (3358 HK)</a> has despatched the scheme document in relation to a privatisation offer from Great Success Enterprises Holdings. The offeror is owned 92.0% by Mr Zhu (Founder, Chairman &amp; CEO) and 8.0% by Mr Zhu Jiachen, the son of Mr Zhu. The offeror will offer HK$4.38 per scheme share. </p><p>Unsurprisingly, the IFA considers the offer to be fair and reasonable. We broadly agree with the IFA analysis with the exception that the peer multiple comparisons could be improved. </p><div class="content-highlight">
<p>The key condition precedents are the headcount test along with the scheme approved by at least 75% disinterested shareholders and &lt;10% rejection by all disinterested shareholders. Fidelity holds a blocking stake of 2.45% of shares outstanding (source: CapitalIQ) but will likely support the privatisation offer due to the substantial premium of the offer price to long-term average share prices and P/E multiples.  </p>
<p>The court meeting is scheduled for 10 am on 15 September. At the last close price of HK$4.18 per share, the gross spread to the offer price is 4.8%. </p>
</div>

Bestway Global Holding (3358 HK) has despatched the scheme document in relation to a privatisation offer from Great Success Enterprises Holdings. The offeror is owned 92.0% by Mr Zhu (Founder, Chairman &amp; CEO) and 8.0% by Mr Zhu Jiachen, the son of Mr Zhu. The offeror will offer HK$4.38 per scheme share. Unsurprisingly, the IFA considers the offer to be fair and reasonable. We broadly agree with the IFA analysis with the exception that the peer multiple comparisons could be improved. 
The key condition precedents are the headcount test along with the scheme approved by at least 75% disinterested shareholders and &lt;10% rejection by all disinterested shareholders. Fidelity holds a blocking stake of 2.45% of shares outstanding (source: CapitalIQ) but will likely support the privatisation offer due to the substantial premium of the offer price to long-term average share prices and P/E multiples.  
The court meeting is scheduled for 10 am on 15 September. At the last close price of HK$4.18 per share, the gross spread to the offer price is 4.8%. 


Bestway Global’s Scheme Document, IFA Opinion

<p><a href="https://www.smartkarma.com/entities/bestway-global-holding-inc" target="_blank" data-smartkarma-citation="entities:26012:1" rel="noopener">Bestway Global Holding (3358 HK)</a> is one of the leading and one of the most well-established branded companies in the global water leisure products market. Bestway listed on the HKEx on 16 November 2017 at HK$4.38 per share to raise net proceeds of HK$1,094.1 million ($141 million).</p><p>After market close on Friday, Bestway announced a privatisation offer by way of a scheme of arrangement from Mr Zhu Qiang, who is the Founder, Chairman &amp; CEO. The offeror will offer HK$4.38 per scheme share. The bid represents a premium of 27.0% over the closing price of HK$3.45 per share on the last trading day (22 June 2021 prior to the trading halt). The privatisation price of HK$4.38 is in line with the IPO price.</p><div class="content-highlight"><p>The key condition precedents are the headcount test along with the scheme approved by at least 75% disinterested shareholders and &lt;10% rejection by all disinterested shareholders. As disinterested scheme shareholders represent 234.9 million shares or 22.19% of shares outstanding, the 10% blocking stake is 23.5 million shares or 2.22% of shares outstanding. Fidelity holds a blocking stake of 2.46% of shares outstanding (source: CapitalIQ) but will likely support the privatisation offer, in our view. While not a knockout offer, we believe that the privatisation bid will be successful. </p></div>

Bestway Global Holding (3358 HK) is one of the leading and one of the most well-established branded companies in the global water leisure products market. Bestway listed on the HKEx on 16 November 2017 at HK$4.38 per share to raise net proceeds of HK$1,094.1 million ($141 million).After market close on Friday, Bestway announced a privatisation offer by way of a scheme of arrangement from Mr Zhu Qiang, who is the Founder, Chairman &amp; CEO. The offeror will offer HK$4.38 per scheme share. The bid represents a premium of 27.0% over the closing price of HK$3.45 per share on the last trading day (22 June 2021 prior to the trading halt). The privatisation price of HK$4.38 is in line with the IPO price.The key condition precedents are the headcount test along with the scheme approved by at least 75% disinterested shareholders and &lt;10% rejection by all disinterested shareholders. As disinterested scheme shareholders represent 234.9 million shares or 22.19% of shares outstanding, the 10% blocking stake is 23.5 million shares or 2.22% of shares outstanding. Fidelity holds a blocking stake of 2.46% of shares outstanding (source: CapitalIQ) but will likely support the privatisation offer, in our view. While not a knockout offer, we believe that the privatisation bid will be successful. 

Quality-first, Business-perspective Strategy, Urbem (HK) Limited

Steven Chen

Quality-first, Business-perspective Strategy

Equity Bottom-Up

<ul>
<li>VTech reported its half-year results earlier this month;</li>
<li>Although beating expectation, sales and margin mostly benefited from the unsustainable pandemic tailwind;</li>
<li>While the company's established market leadership looks intact, our concern remains in terms of the low predictability of the business;</li>
<li>We would stay on the sideline and look for other bets with a more favorable risk-reward tradeoff.</li>
</ul>


VTech reported its half-year results earlier this month;
Although beating expectation, sales and margin mostly benefited from the unsustainable pandemic tailwind;
While the company's established market leadership looks intact, our concern remains in terms of the low predictability of the business;
We would stay on the sideline and look for other bets with a more favorable risk-reward tradeoff.


Hong Kong

VTech Holdings Limited designs and manufactures consumer electronic products. The Company's products include corded and cordless telephones and electronic learning solutions. VTech also provides contract manufacturing services.

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Vtech Holdings (303 HK)

China & HK Strategy: Stocks Exposed to the US and Higher Tariffs

US tariffs may only affect an average of ~10% revenue of HK-listed industrials on a net basis. Vesync, Chervon, and AAC Technologies look exposed...

Osbert Tang, CFA

Hang Seng, MSCI China Near Major Base Breakouts; Bottoms-Up Stock Rec's in Hong Kong, China, & Japan

Hong Kong's Hang Seng and China's $MCHI and $KWEB are near major base breakouts. We are watching is 22,700 on Hang Seng and $56.60 on MCHI; we are...

Vermilion Research

Bestway Global’s Scheme Document, IFA Opinion

Bestway has despatched the scheme document. The court meeting is scheduled for 10 am on 15 September. At the last close price of HK$4.18 per share,...

Arun George

Bestway Global’s Privatisation Bid

Bestway announced a privatisation offer from Mr Zhu Qiang (the Founder, Chairman & CEO) at HK$4.38 per scheme share. While not a knockout offer, we...

Arun George

VTech: Our Takeaways From The H1 Results

Better-than-expected sales and margin mostly benefited from the unsustainable pandemic tailwind; Despited the unshakable market leadership, our...

Steven Chen

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China & HK Strategy: Stocks Exposed to the US and Higher Tariffs

​US tariffs may only affect an average of ~10% revenue of HK-listed industrials on a net basis. Vesync, Chervon, and AAC Technologies look exposed...

Osbert Tang, CFA

Hang Seng, MSCI China Near Major Base Breakouts; Bottoms-Up Stock Rec's in Hong Kong, China, & Japan

Hong Kong's Hang Seng and China's $MCHI and $KWEB are near major base breakouts. We are watching is 22,700 on Hang Seng and $56.60 on MCHI; we are...

Vermilion Research

Bestway Global’s Scheme Document, IFA Opinion

Bestway has despatched the scheme document. The court meeting is scheduled for 10 am on 15 September. At the last close price of HK$4.18 per share,...

Arun George

Bestway Global’s Privatisation Bid

Bestway announced a privatisation offer from Mr Zhu Qiang (the Founder, Chairman & CEO) at HK$4.38 per scheme share. While not a knockout offer, we...

Arun George

VTech: Our Takeaways From The H1 Results

Better-than-expected sales and margin mostly benefited from the unsustainable pandemic tailwind; Despited the unshakable market leadership, our...

Steven Chen

US tariffs may only affect an average of ~10% revenue of HK-listed industrials on a net basis. Vesync, Chervon, and AAC Technologies look exposed...