HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>The turnaround of sports business at <a href="https://www.smartkarma.com/entities/china-dongxiang-group-co" target="_blank" data-smartkarma-citation="entities:1068:1" rel="noopener">China Dongxiang (3818 HK)</a> is very welcoming. We are glad that sales trend in Oct-Nov is sustained and Phenix brand is well-received.</li>
<li>Reported losses widened as poor market environment enlarged investment losses. However, net cash and investment portfolio are still valued at Rmb8.5bn, or 5.9x its market capitalisation. </li>
<li>CNDX looks comfortably at over 6% full-year dividend yield. Together with just 0.15x P/B, there are enough protections for the downside of the stock.  </li>
</ul>


The turnaround of sports business at China Dongxiang (3818 HK) is very welcoming. We are glad that sales trend in Oct-Nov is sustained and Phenix brand is well-received.
Reported losses widened as poor market environment enlarged investment losses. However, net cash and investment portfolio are still valued at Rmb8.5bn, or 5.9x its market capitalisation. 
CNDX looks comfortably at over 6% full-year dividend yield. Together with just 0.15x P/B, there are enough protections for the downside of the stock.  


China Dongxiang (3818 HK): Turned Around on Sports Business

China Tourism Group Duty Free / Equity Bottom-Up

<ul>
<li>Our earnings projections for <a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free-corporation-limited" target="_blank" data-smartkarma-citation="entities:36229:1" rel="noopener">China Tourism Group Duty Free Corp Ltd (1880 HK)</a> are 14% and 18% below market consensus respectively. We think these are more realistic expectations.</li>
<li>At IPO price of HK$158, CDFC H-share sits on 23.9x FY23F PER. We think it is difficult to trade above 22x - the average for top consumer discretionary names.</li>
<li>Weakened visitor appetite to Sanya, potentially higher discounts, increase in border opening, higher fixed cost and uncertainties for duty free policies beyond 2025 are negative earnings factors.</li>
</ul>


Our earnings projections for China Tourism Group Duty Free Corp Ltd (1880 HK) are 14% and 18% below market consensus respectively. We think these are more realistic expectations.
At IPO price of HK$158, CDFC H-share sits on 23.9x FY23F PER. We think it is difficult to trade above 22x - the average for top consumer discretionary names.
Weakened visitor appetite to Sanya, potentially higher discounts, increase in border opening, higher fixed cost and uncertainties for duty free policies beyond 2025 are negative earnings factors.


CTG Duty Free (1880 HK): Our Earnings Forecasts and Views on H-Share Fair Value

Asian Hedge Fund Manager, Long Short Equity, Macro

David Mudd

Hua Hong Semiconductor / Equity Bottom-Up

<ul>
<li>After hitting a low point in Q4 2023, Research on Hong Kong companies has been slow to pick up reflecting the ongoing skepticism from investors. </li>
<li>Reports on the large China tech companies dominated the top ten companies covered over the last couple of years and in the first half of 2024.</li>
<li>As China continues to dominate and make news in the global EV market, research in that sector has picked up.</li>
</ul>


After hitting a low point in Q4 2023, Research on Hong Kong companies has been slow to pick up reflecting the ongoing skepticism from investors. 
Reports on the large China tech companies dominated the top ten companies covered over the last couple of years and in the first half of 2024.
As China continues to dominate and make news in the global EV market, research in that sector has picked up.


BUY/SELL/HOLD: China/Hong Kong Stock Updates (July 8th)

Analyst

Steve Zhou, CFA

<ul>
<li>
<a href="https://www.smartkarma.com/entities/xtep-international-holdings" target="_blank" data-smartkarma-citation="entities:18118:1" rel="noopener">Xtep International (1368 HK)</a> announced an operational update for 4Q23, with retail sales growing more than 30% for the Xtep brand (off of a low base in 4Q22).</li>
<li>The overall quality of the retail sales growth is low, as the growth was mainly driven by higher discount level (around 30% compared to 25-30% in the previous quarter). </li>
<li>I still prefer Anta over Xtep at this stage, as Xtep is more of a beta play if the consumer sentiment turns around in China. </li>
</ul>



Xtep International (1368 HK) announced an operational update for 4Q23, with retail sales growing more than 30% for the Xtep brand (off of a low base in 4Q22).
The overall quality of the retail sales growth is low, as the growth was mainly driven by higher discount level (around 30% compared to 25-30% in the previous quarter). 
I still prefer Anta over Xtep at this stage, as Xtep is more of a beta play if the consumer sentiment turns around in China. 


Xtep International (1368 HK):  Strong Headline Retail Sales Growth In 4Q23 But Quality Is Still Low

<ul>
<li>
<a href="https://www.smartkarma.com/entities/anta-sports-products-ltd" target="_blank" data-smartkarma-citation="entities:10261:1" rel="noopener">Anta Sports Products (2020 HK)</a>, <a href="https://www.smartkarma.com/entities/li-ning-co-ltd" target="_blank" data-smartkarma-citation="entities:6047:1" rel="noopener">Li Ning (2331 HK)</a>, and <a href="https://www.smartkarma.com/entities/xtep-international-holdings" target="_blank" data-smartkarma-citation="entities:18118:1" rel="noopener">Xtep International (1368 HK)</a> have announced 1Q24 operational updates, with additional color given in post conference calls.  </li>
<li>Anta: Retail sales started to accelerate in mid-March, and March were better than January and February. </li>
<li>Li Ning:  offline retail sales down low-single-digit in 1Q24, driven by wholesale down mid-single-digit, while retail grew mid-single-digit.  E-commerce grew 20-30% yoy.  </li>
</ul>



Anta Sports Products (2020 HK), Li Ning (2331 HK), and Xtep International (1368 HK) have announced 1Q24 operational updates, with additional color given in post conference calls.  
Anta: Retail sales started to accelerate in mid-March, and March were better than January and February. 
Li Ning:  offline retail sales down low-single-digit in 1Q24, driven by wholesale down mid-single-digit, while retail grew mid-single-digit.  E-commerce grew 20-30% yoy.  


Anta/Li Ning/Xtep:  China Sportswear 1Q24 Update

China

Zhejiang Weixing Industrial Development Co., Ltd. manufactures buttons, zips, and other apparel accessories. The Company also provides electroplating services.

Lao Feng Xiang Co., Ltd. processes and sells gold and jewelry products.  Through its subsidiaries, the Company manufactures and sells wooden, mechanical and cosmetic pencils, as well as manufactures and sells pencil making machinery and paints, and general trading.

Zhejiang Semir Garment Company Limited designs, develops, outsources production, markets and distributes apparels.  The Company's main operation is casual wear and children's apparels.

Sichuan Zhenjing Corporation Limited manufactures and distributes leather products. The Company produces and sells leather cases, leather car seats, decoration leather, and other products. Sichuan Zhenjing markets its products throughout China.

Biem.L.Fdlkk Garment Co., Ltd. is an apparel designer. The Company designs, markets, and distributes a variety of golf apparels. Biem.L.Fdlkk Garment serves customers throughout China.

Billion Industrial Holdings Ltd. manufactures polyester filament yarn.  The Company produces drawn textured yarn and fully drawn yarn, which are used in apparel, footwear and home furnishings.

Shenzhen Fuanna Bedding and Furnishing Co Ltd. manufactures bedding products. The Company's products mainly include printing, embroidery, and jacquard collections.

Luolai Lifestyle Technology Co Ltd manufactures a wide range of home textile products. The Company mainly produces bed linen textile products.

Hemp Industrial Investment Co Ltd is a fabric and clothing company.

Jiangsu Xinmin Textile Science & Technology Co., Ltd. products and markets silk products and textile raw material. The main products and business include rayon and synthetic fabrics, various types of silk products, textile and clothing sector, as well as textile trading.

Jiangsu Xinmin Textile Sci & Tech (002127 CH)

SEIKO HOLDINGS CORPORATION (Hattori Seiko) designs, manufactures, and sells electronic devices, watches and clocks in Japan and overseas. The Company also sells jewelry, ophthalmic lenses, golf clubs and computer peripherals.

Safari Industries India Ltd. manufactures and sells travel goods.

WACOAL HOLDINGS CORPORATION manufactures women's underwear.  The Company also manufactures outerwear, sports, and children's wear.  Wacoal has direct-sales network and overseas operations in Southeast Asia, the US, and Europe.

Raymond Ltd. manufactures fabrics, rugs, blankets, shawls, furnishing fabrics and garments.  The Company also manufactures files and rasps, file making machinery, H.S.S. twist drills, alloy steel forgings, bars and rods, steel strips and Portland cement.  The Company sells its woolen fabrics, woven materials and readymade garments through their retail outlets across India.

Stella International Holdings Limited develops and manufactures footwear products for casual and fashion footwear companies worldwide.

DESCENTE, LTD. manufactures athletic clothing including golf wear and ski wear. The Company also manufactures tennis shoes, skies, and sports bags.

Vardhman Textiles Limited manufactures textile products. The Company offers wide  range of greige and dyed yarns in cotton, polyester, acrylic, and a variety of blends. Vardhman Textiles serves customers worldwide.

Fila Holdings Corp. designs and markets sports goods. The Company distributes and wholesales sports apparel, footwear, and accessories products. Fila Holdings markets its products worldwide.

Hanesbrands, Inc. manufactures men's, women's, and children's clothing.  The Company produces underwear, T-shirts, socks, sweatshirts, sleepwear, and shoes.

Alok Industries Limited manufactures home textiles, apparel fabrics, garments, and polyester yarns. The Company sells its products in India and elsewhere around the world.

Xtep International Holdings Ltd. designs, manufactures, and markets sportwear. The Company produces footwear, apparel, and accessories.

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Xtep International (1368 HK)

China Dongxiang (3818 HK): Turned Around on Sports Business

Along with the encouraging 3Q FY24 (Oct-Dec 2023) sportswear sales - Kappa brand sales up mid 40%–50% YoY, China Dongxiang has benefited from the...

Osbert Tang, CFA

BUY/SELL/HOLD: China/Hong Kong Stock Updates (July 8th)

Tech NEV companies continue to dominate the research landscape for Hong Kong coverage. Bosideng, China Water Affairs, Topsports, BYD and Xiaomi...

David Mudd