HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>The recent pullback in the share price of <a href="https://www.smartkarma.com/entities/xinhua-winshare-publishing-media-co-ltd" target="_blank" data-smartkarma-citation="entities:15072:1" rel="noopener">Xinhua Winshare (811 HK)</a> is overdone, and it is now on attractive 4.5x PER, 6.7% yield, and 0.46x P/B. </li>
<li>It has minimal exposure to economic slowdown and global geopolitical tension. There is solid revenue growth and margin expansion in 1H23, and demand is totally domestic and resilient.</li>
<li>Net cash amounted to 109% of its share price and this has not yet included Rmb2.2bn of equity investment on hand. Still, it is expected to generate ROE of 12%.</li>
</ul>


The recent pullback in the share price of Xinhua Winshare (811 HK) is overdone, and it is now on attractive 4.5x PER, 6.7% yield, and 0.46x P/B. 
It has minimal exposure to economic slowdown and global geopolitical tension. There is solid revenue growth and margin expansion in 1H23, and demand is totally domestic and resilient.
Net cash amounted to 109% of its share price and this has not yet included Rmb2.2bn of equity investment on hand. Still, it is expected to generate ROE of 12%.


Xinhua Winshare (811 HK): Still the Place to Be

<ul>
<li>
<a href="https://www.smartkarma.com/entities/xinhua-winshare-publishing-media-co-ltd" target="_blank" data-smartkarma-citation="entities:15072:1" rel="noopener">Xinhua Winshare (811 HK)</a>'s 4.4% YoY decline in recurring profit in 1H24 is due to a 6.6x increase in taxation. Its pre-tax profit has still increased 5.8%.  </li>
<li>We expect XW to maintain its textbook franchise and overall gross margin to stay stable. Growth in general book publication and distribution will supplement the textbook business.</li>
<li>Net cash equals 70% of the share price, while its listed equity investments had appreciated 3.6x. It stands on a 5% dividend yield but this is a potential upside.</li>
</ul>



Xinhua Winshare (811 HK)'s 4.4% YoY decline in recurring profit in 1H24 is due to a 6.6x increase in taxation. Its pre-tax profit has still increased 5.8%.  
We expect XW to maintain its textbook franchise and overall gross margin to stay stable. Growth in general book publication and distribution will supplement the textbook business.
Net cash equals 70% of the share price, while its listed equity investments had appreciated 3.6x. It stands on a 5% dividend yield but this is a potential upside.


Xinhua Winshare (811 HK): Unmatched Strengths

<ul>
<li>Despite solid outperformance, share price of <a href="https://www.smartkarma.com/entities/xinhua-winshare-publishing-media-co-ltd" target="_blank" data-smartkarma-citation="entities:15072:1" rel="noopener">Xinhua Winshare (811 HK)</a> is more than 100% covered by net cash of Rmb7.6bn. DPS has also risen uninterruptedly in the last 3 years. </li>
<li>1Q23 result demonstrated operating resilience as recurring profit soared 48.5%. Its franchise in textbook publication and distribution stayed well protected, securing profitability outlook.</li>
<li>We like XW's boring businesses in the current depressed market. It trades on 4.5x PER with secured 6.6% dividend yield. The HA discount has widened to 10pp deeper than average. </li>
</ul>


Despite solid outperformance, share price of Xinhua Winshare (811 HK) is more than 100% covered by net cash of Rmb7.6bn. DPS has also risen uninterruptedly in the last 3 years. 
1Q23 result demonstrated operating resilience as recurring profit soared 48.5%. Its franchise in textbook publication and distribution stayed well protected, securing profitability outlook.
We like XW's boring businesses in the current depressed market. It trades on 4.5x PER with secured 6.6% dividend yield. The HA discount has widened to 10pp deeper than average. 


Xinhua Winshare (811 HK): We Love the Boredom

Asian Hedge Fund Manager, Long Short Equity, Macro

David Mudd

Pop Mart International Group L / Equity Bottom-Up

<ul>
<li>HSCI index has seen an outperformance of the consumer discretionary sector since the stimulus announcement while materials and energy sectors have lagged.</li>
<li>
<a href="https://www.smartkarma.com/entities/pop-mart-international-group-l" target="_blank" data-smartkarma-citation="entities:29016:1" rel="noopener">Pop Mart International Group L (9992 HK)</a> announced a blow out 3Q24 revenue number with international revenue up by over 400%. DB raised the its target price to $88.
</li>
<li>
<a href="https://www.smartkarma.com/entities/citic-securities-h" target="_blank" data-smartkarma-citation="entities:463:1" rel="noopener">Citic Securities (H) (6030 HK)</a> was maintained a BUY by Huatai, raising its target price to $28.81.   JP Morgan maintained  OVERWEIGHT on <a href="https://www.smartkarma.com/entities/new-oriental-education-techn" target="_blank" data-smartkarma-citation="entities:32210:1" rel="noopener">New Oriental Education &amp; Technology (9901 HK).</a>
</li>
</ul>


HSCI index has seen an outperformance of the consumer discretionary sector since the stimulus announcement while materials and energy sectors have lagged.

Pop Mart International Group L (9992 HK) announced a blow out 3Q24 revenue number with international revenue up by over 400%. DB raised the its target price to $88.


Citic Securities (H) (6030 HK) was maintained a BUY by Huatai, raising its target price to $28.81.   JP Morgan maintained  OVERWEIGHT on New Oriental Education &amp; Technology (9901 HK).



BUY/SELL/HOLD: Hong Kong Stock Updates (October 30)

<ul>
<li>Bearish sentiment in Hong Kong declined during the carry trade sell off.</li>
<li>Low Volatility, High Dividend and Value factors have continue to be profitable strategies in Hong Kong.</li>
<li>
<a href="https://www.smartkarma.com/entities/pop-mart-international-group-l" target="_blank" data-smartkarma-citation="entities:29016:1" rel="noopener">Pop Mart International Group L (9992 HK)</a> , <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/giant-biogene-holding-co-ltd" target="_blank" data-smartkarma-citation="entities:35950:1" rel="noopener">Giant Biogene (2367 HK)</a> all reported solid operating and financial news leading to BUY recommendations.
</li>
</ul>


Bearish sentiment in Hong Kong declined during the carry trade sell off.
Low Volatility, High Dividend and Value factors have continue to be profitable strategies in Hong Kong.

Pop Mart International Group L (9992 HK) , Techtronic Industries (669 HK) and Giant Biogene (2367 HK) all reported solid operating and financial news leading to BUY recommendations.



BUY/SELL/HOLD: Hong Kong Stock Updates (August 12)

China

Xinhua Winshare Publishing and Media Company Ltd. retails and distributes books and offers services.  The Company operates a chain of retail bookstores, distributes textbooks and supplementary materials, and provides ancillary support and services to book publishers.

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Xinhua Winshare (811 HK)