HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<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 logged a revival in earnings performance in 2H20 with a 34.6% YoY growth, accelerating from just 6.2% in 1H20. This is backed by the resurgence in sales growth for all its major products, with excavator and forklift being the best ones. It declared a final DPS of HK$0.33, translating into an attractive dividend yield of 12.2%.We saw Lonking stepping into FY21 positively - government's infrastructure spending will continue to support construction machinery demand, and industry sales already pointed to excellent demand in 2M21. We expect net cash will reach HK$0.90/share by end-FY21, 33% of the share price, and its 4.4x PER and 0.89x P/B are just too cheap for a quality company that expects to earn ROE of 21.4% in this year.

Lonking Holdings (3339 HK) has logged a revival in earnings performance in 2H20 with a 34.6% YoY growth, accelerating from just 6.2% in 1H20. This is backed by the resurgence in sales growth for all its major products, with excavator and forklift being the best ones. It declared a final DPS of HK$0.33, translating into an attractive dividend yield of 12.2%.We saw Lonking stepping into FY21 positively - government's infrastructure spending will continue to support construction machinery demand, and industry sales already pointed to excellent demand in 2M21. We expect net cash will reach HK$0.90/share by end-FY21, 33% of the share price, and its 4.4x PER and 0.89x P/B are just too cheap for a quality company that expects to earn ROE of 21.4% in this year.

Lonking (3339 HK): Rock Solid at 12.2% FY20 Dividend Yield, Still with Lots of Net Cash

Thematic (Sector/Industry)

Jan excavator and wheel loader sales surged 97.2% YoY and 52.4% YoY, respectively, kicking off the year with a solid momentum. While a low base has partly contributed to the surge, this is not the entire reason as we found underlying demand very encouraging. Domestic market maintained its strength, and export sales growth rate has also improved against Dec 2020. All in all, the initial figures point to a robust year in 2021.Commencement of massive infrastructure projects and good order book of engine and equipment suppliers suggest continuation of the impressive growth pace in 1H21. Despite an 18.8% rise in share price YTD, <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> is still trading on just 5.2x PER and an attractive 10.4% dividend yield for FY21F, and we see the stock stay appealing.

Jan excavator and wheel loader sales surged 97.2% YoY and 52.4% YoY, respectively, kicking off the year with a solid momentum. While a low base has partly contributed to the surge, this is not the entire reason as we found underlying demand very encouraging. Domestic market maintained its strength, and export sales growth rate has also improved against Dec 2020. All in all, the initial figures point to a robust year in 2021.Commencement of massive infrastructure projects and good order book of engine and equipment suppliers suggest continuation of the impressive growth pace in 1H21. Despite an 18.8% rise in share price YTD, Lonking Holdings (3339 HK) is still trading on just 5.2x PER and an attractive 10.4% dividend yield for FY21F, and we see the stock stay appealing. 

China Construction Machinery: An Excellent Start for a Sustained Uptrend in This Year

For FY20, <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 managed to reduce its sales growth gap against industry in its key product categories when compared with 1H20. This will support the company to deliver a growth in core profit for the full-year as guided after the interim result, reversing the trend of a declining core profit in 1H20. Assuming it to maintain its payout ratio, the stock now sits on 9.9% dividend yield with a high ROE of 19.1%.As for FY21, Lonking's outlook is robust as it expects a strong leap in excavator sales and good recovery in export momentum, driven primarily by better fixed asset investment for infrastructure and resurgence in overseas economies. With minimal capex for next 2 years, it will continue to accumulate cash on the back of sound profitability - we see sound FCF yield of 19% for current year.

For FY20, Lonking Holdings (3339 HK) has managed to reduce its sales growth gap against industry in its key product categories when compared with 1H20. This will support the company to deliver a growth in core profit for the full-year as guided after the interim result, reversing the trend of a declining core profit in 1H20. Assuming it to maintain its payout ratio, the stock now sits on 9.9% dividend yield with a high ROE of 19.1%.As for FY21, Lonking's outlook is robust as it expects a strong leap in excavator sales and good recovery in export momentum, driven primarily by better fixed asset investment for infrastructure and resurgence in overseas economies. With minimal capex for next 2 years, it will continue to accumulate cash on the back of sound profitability - we see sound FCF yield of 19% for current year. 

Lonking (3339 HK): Company Suggests Robust Outlook for 2021

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China's construction machinery industry concluded 2020 with very solid sales growth of 56.4% for excavators and 10.2% for wheel loaders in Dec. Even on the back of the COVID-19 disruption early in the year, full-year growth still reached 39% and 6%, respectively. While domestic sales continued to hover at high levels in the month, we witnessed a pick up in the export momentum in Dec versus Nov.
In our view, the solid demand growth will extend well into FY21 as overseas demand strengthens and domestic demand sustains their boost by infrastructure investments. We believe outlook for <a href="https://www.smartkarma.com/entities/sany-heavy-industry-co-ltd" target="_blank" data-smartkarma-citation="entities:20183:1" rel="noopener">Sany Heavy Industry (600031 CH)</a>, <a href="https://www.smartkarma.com/entities/xcmg-construction-machin-a" target="_blank" data-smartkarma-citation="entities:426:1" rel="noopener">Xcmg Construction Machin A (000425 CH)</a>, <a href="https://www.smartkarma.com/entities/zoomlion-heavy-industry-h" target="_blank" data-smartkarma-citation="entities:7817:1" rel="noopener">Zoomlion Heavy Industry H (1157 HK)</a> and <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> continue to be encouraging in 2021 after a marvelous 2020.
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China's construction machinery industry concluded 2020 with very solid sales growth of 56.4% for excavators and 10.2% for wheel loaders in Dec. Even on the back of the COVID-19 disruption early in the year, full-year growth still reached 39% and 6%, respectively. While domestic sales continued to hover at high levels in the month, we witnessed a pick up in the export momentum in Dec versus Nov.
In our view, the solid demand growth will extend well into FY21 as overseas demand strengthens and domestic demand sustains their boost by infrastructure investments. We believe outlook for Sany Heavy Industry (600031 CH), Xcmg Construction Machin A (000425 CH), Zoomlion Heavy Industry H (1157 HK) and Lonking Holdings (3339 HK) continue to be encouraging in 2021 after a marvelous 2020.


China Construction Machinery: Good to the Last Drop

Even with an extremely strong sales performance in this year, the excavator industry is still expecting promising outlook for 2021, with the projected sales growth ranging between 5% and 20%.  The positive tone of the industry should bode well for China's construction machinery sector in next year - <a href="https://www.smartkarma.com/entities/sany-heavy-industry-co-ltd" target="_blank" data-smartkarma-citation="entities:20183:1" rel="noopener">Sany Heavy Industry (600031 CH)</a>, <a href="https://www.smartkarma.com/entities/xcmg-construction-machin-a" target="_blank" data-smartkarma-citation="entities:426:1" rel="noopener">Xcmg Construction Machin A (000425 CH)</a>, <a href="https://www.smartkarma.com/entities/zoomlion-heavy-industry-h" target="_blank" data-smartkarma-citation="entities:7817:1" rel="noopener">Zoomlion Heavy Industry H (1157 HK)</a> and <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>.As for Nov, excavator sales growth sustained the powerful trend with a 68% YoY increase, driven partly by a recovery in export momentum. Wheel loader sales have moderated lightly to 7.4% in the month, but remained ahead of the 11M20 growth rate of 5.8%. We like Lonking's quality management and sound financial position. The stock now trades on attractive 4.8x PER, 0.81x P/B and 11.3% yield for FY20, with net cash amounting to 31% of its market cap.

Even with an extremely strong sales performance in this year, the excavator industry is still expecting promising outlook for 2021, with the projected sales growth ranging between 5% and 20%.  The positive tone of the industry should bode well for China's construction machinery sector in next year - Sany Heavy Industry (600031 CH), Xcmg Construction Machin A (000425 CH), Zoomlion Heavy Industry H (1157 HK) and Lonking Holdings (3339 HK).As for Nov, excavator sales growth sustained the powerful trend with a 68% YoY increase, driven partly by a recovery in export momentum. Wheel loader sales have moderated lightly to 7.4% in the month, but remained ahead of the 11M20 growth rate of 5.8%. We like Lonking's quality management and sound financial position. The stock now trades on attractive 4.8x PER, 0.81x P/B and 11.3% yield for FY20, with net cash amounting to 31% of its market cap.

China Construction Machinery: Industry Players Expressed Bullish Outlook for 2021

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): Rock Solid at 12.2% FY20 Dividend Yield, Still with Lots of Net Cash

Lonking's good performance in 2H20 should extend into this year, and its net cash will accumulate to 33% of share price by end-FY21. Assuming the...

Osbert Tang, CFA

China Construction Machinery: An Excellent Start for a Sustained Uptrend in This Year

Excavator and wheel loader sales growth rates reached a monthly high in Jan since Jan-2018, suggesting excellent demand momentum. Lonking is an...

Osbert Tang, CFA

Lonking (3339 HK): Company Suggests Robust Outlook for 2021

Lonking successfully narrowed sales growth gap against industry in FY20 and painted a robust picture for product demand in FY21. Strong net cash is...

Osbert Tang, CFA

China Construction Machinery: Good to the Last Drop

Strong unit sales of excavators (+56.4%) and wheel loaders (+10.2%) in Dec and recovery in export momentum suggested a positive trend for the start...

Osbert Tang, CFA

China Construction Machinery: Industry Players Expressed Bullish Outlook for 2021

Industry expectation of 5-20% growth in excavator sales in 2021 is bullish to China's construction machinery sector; and while not the largest...

Osbert Tang, CFA

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