HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a>'s demand should pick up in 2H24 supported by the government's "Action plan to promote large-scale equipment renewals and consumer goods trade-ins". </li>
<li>Industry volume sales have already witnessed a narrower YoY decline in Mar, with solid exports of wheel loaders and domestic sales of excavators.</li>
<li>After going ex- in late-May, its PER will drop to 7.0x and yield will rise to 6.6%. Net cash of HK$1.56/share is more than fully cover its share price.</li>
</ul>



Lonking Holdings (3339 HK)'s demand should pick up in 2H24 supported by the government's "Action plan to promote large-scale equipment renewals and consumer goods trade-ins". 
Industry volume sales have already witnessed a narrower YoY decline in Mar, with solid exports of wheel loaders and domestic sales of excavators.
After going ex- in late-May, its PER will drop to 7.0x and yield will rise to 6.6%. Net cash of HK$1.56/share is more than fully cover its share price.


<ul>
<li>After a poor FY22, 1H23 will stay challenging for <a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a>. However, we expect pick-up in business momentum going forward, and export is a major growth driver.</li>
<li>Gross margin rebounded HoH and YoY in 2H22, and Lonking maintained good operating cost control. Recovery of equity market suggests potential big positive swing in investment income. </li>
<li>Including investment portfolio, 92% of the current market capitalisation is net cash, providing solid downside buffer. Its 6.5x PER, 9.2% yield and 0.52x P/B are very attractive valuations.</li>
</ul>


After a poor FY22, 1H23 will stay challenging for Lonking Holdings (3339 HK). However, we expect pick-up in business momentum going forward, and export is a major growth driver.
Gross margin rebounded HoH and YoY in 2H22, and Lonking maintained good operating cost control. Recovery of equity market suggests potential big positive swing in investment income. 
Including investment portfolio, 92% of the current market capitalisation is net cash, providing solid downside buffer. Its 6.5x PER, 9.2% yield and 0.52x P/B are very attractive valuations.


Lonking (3339 HK): Back to Attractive Zone

<ul>
<li>Share price of <a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a> has seen muted reaction to weak industry figures recently but it is still unexciting in near-term, based on our catch-up with the company. </li>
<li>It has underperformed industry sales volume in 5M22 across all product categories, with that for wheel loader behind 4pp and excavator by 10pp. Forklift sales were down 18% YoY. </li>
<li>Both gross margin and investment income are set to contract in this year, making it highly likely to see significant earnings downgrade after 1H22 result announcement in Aug. </li>
</ul>


Share price of Lonking Holdings (3339 HK) has seen muted reaction to weak industry figures recently but it is still unexciting in near-term, based on our catch-up with the company. 
It has underperformed industry sales volume in 5M22 across all product categories, with that for wheel loader behind 4pp and excavator by 10pp. Forklift sales were down 18% YoY. 
Both gross margin and investment income are set to contract in this year, making it highly likely to see significant earnings downgrade after 1H22 result announcement in Aug. 


Lonking (3339 HK): Not Out of the Woods Yet

External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

Thematic (Sector/Industry)

<ul><li>The European Union (EU) announced this week the proposed anti-dumping (AD) duties on aerial work platforms (AWP) made in China.</li><li>Sinoboom (not listed), Dingli (603338 CH, BUY), Genie (brand owned by Terex [TEX US, NR]) and JLG (brand owned by Oshkosh [OSK US, NR]) are subject to 56.1%, 31.3%, 25.6% and 23.6% AD duties, respectively.</li><li>Besides, other major AWP manufacturers that cooperated with the investigation are subject to 32% of AD duties, including Zoomlion (1157 HK / 000157 CH, BUY), XCMG (000425 CH, NR), Liugong (000528 CH, NR), Hangcha (603298 CH, NR), Lingong (not listed), Haulotte (PIG FP) etc. </li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

The European Union (EU) announced this week the proposed anti-dumping (AD) duties on aerial work platforms (AWP) made in China.Sinoboom (not listed), Dingli (603338 CH, BUY), Genie (brand owned by Terex [TEX US, NR]) and JLG (brand owned by Oshkosh [OSK US, NR]) are subject to 56.1%, 31.3%, 25.6% and 23.6% AD duties, respectively.Besides, other major AWP manufacturers that cooperated with the investigation are subject to 32% of AD duties, including Zoomlion (1157 HK / 000157 CH, BUY), XCMG (000425 CH, NR), Liugong (000528 CH, NR), Hangcha (603298 CH, NR), Lingong (not listed), Haulotte (PIG FP) etc. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Capital Goods - Overhang largely removed following EU’s preliminary results of AD duties on AWP

<ul><li>For Chinese machinery manufacturers, penetration overseas remains a longterm driver.</li><li>That said, with growth trend reversing since mid-2023 after 2-3 years of extraordinary growth, the way to overseas expansion will likely be bumpy in 2024E, especially when the overseas competitors are recovering from the supply chain bottleneck.</li><li>Geographically, we expect strong demand to continue in the US and the Middle East, but weakness in Europe and China. </li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

For Chinese machinery manufacturers, penetration overseas remains a longterm driver.That said, with growth trend reversing since mid-2023 after 2-3 years of extraordinary growth, the way to overseas expansion will likely be bumpy in 2024E, especially when the overseas competitors are recovering from the supply chain bottleneck.Geographically, we expect strong demand to continue in the US and the Middle East, but weakness in Europe and China. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

China Construction Machinery / HDT – 2024 Outlook

China

XCMG Construction Machinery Co., Ltd. manufactures and markets a variety of construction machinery including road construction machinery, scrapers, concrete mixers and other related products.

XCMG Construction Machinery A (000425 CH)

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XCMG Construction Machinery A (000425 CH)

Lonking (3339 HK): Policy Tailwind

Government policy support and improving industry demand should drive a potential uptick in sales for Lonking in 2H24. Attractive valuations and a...

Osbert Tang, CFA

Lonking (3339 HK): Back to Attractive Zone

We turned bullish on Lonking on 17 Apr, and since then, the stock has performed well. It has just issued a positive profit alert with 91-158% YoY...

Osbert Tang, CFA

Lonking (3339 HK): Not Out of the Woods Yet

Lonking may disappoint the market by wide margin when it reports 1H22 result in Aug. Sales of its key product categories have been behind the...

Osbert Tang, CFA

Capital Goods - Overhang largely removed following EU’s preliminary results of AD duties on AWP

The European Union (EU) announced this week the proposed anti-dumping (AD) duties on aerial work platforms (AWP) made in China.

CMB International

China Construction Machinery / HDT – 2024 Outlook

That said, with growth trend reversing since mid-2023 after 2-3 years of extraordinary growth, the way to overseas expansion will likely be bumpy...

CMB International

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