HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Industry excavator sales grew 5.5% in Sep and wheel loader edged up 0.7%. This marked the first month where both saw YoY growth since mid-2021, signaling a steady recovery.</li>
<li>The recovery is driven by overseas as domestic continued to decline. Usage of special purpose bond proceeds should boost demand from infrastructure but demand from property market will stay lacklustre. </li>
<li>We only find <a href="https://www.smartkarma.com/entities/sany-heavy-equipment-intl" target="_blank" data-smartkarma-citation="entities:11104:1" rel="noopener">Sany Heavy Equipment Intl (631 HK)</a> interesting. For <a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking (3339 HK)</a>, <a href="https://www.smartkarma.com/entities/zoomlion-heavy-industry-h" target="_blank" data-smartkarma-citation="entities:7817:1" rel="noopener">Zoomlion Heavy (1157 HK)</a> and <a href="https://www.smartkarma.com/entities/sany-heavy-industry-co-ltd" target="_blank" data-smartkarma-citation="entities:20183:1" rel="noopener">Sany Heavy (600031 CH)</a>, market expectations for 2H22 is too high. </li>
</ul>


Industry excavator sales grew 5.5% in Sep and wheel loader edged up 0.7%. This marked the first month where both saw YoY growth since mid-2021, signaling a steady recovery.
The recovery is driven by overseas as domestic continued to decline. Usage of special purpose bond proceeds should boost demand from infrastructure but demand from property market will stay lacklustre. 
We only find Sany Heavy Equipment Intl (631 HK) interesting. For Lonking (3339 HK), Zoomlion Heavy (1157 HK) and Sany Heavy (600031 CH), market expectations for 2H22 is too high. 


China Construction Machinery: Light at the End of the Tunnel, Finally

Equity Bottom-Up

<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.

<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>Both excavators and wheel loaders, the two major earthmoving machinery, saw double-digit growth in China market in May.</li><li>According to China Construction Machinery Association (CCMA), domestic sales of excavators grew 29% YoY to 8.5k units in May, with growth rate accelerating from 9%/13% in Mar/Apr.</li><li>We believe the growth in May was driven by small-size excavators as a result of utilities and municipal projects. </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.

Both excavators and wheel loaders, the two major earthmoving machinery, saw double-digit growth in China market in May.According to China Construction Machinery Association (CCMA), domestic sales of excavators grew 29% YoY to 8.5k units in May, with growth rate accelerating from 9%/13% in Mar/Apr.We believe the growth in May was driven by small-size excavators as a result of utilities and municipal projects. 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 - Domestic excavator sales +29% YoY in May

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Quantitative Analysis

<ul>
<li>We analyse the changes of A-H premium on 147 stocks over the last week. The average A-H premium was 107.4% as of May 31st.</li>
<li>The average A-H premium changed by 1.3ppt week-on-week, led by financials, consumer discretionary, health care and offset by information technology.</li>
<li>We highlight weekly changes in A-H premium for PetroChina, Chinalco, Tsingtao Brewery, Huanneg Power, Huahong Semi, CICC, Ganfeng Lithium.</li>
</ul>


We analyse the changes of A-H premium on 147 stocks over the last week. The average A-H premium was 107.4% as of May 31st.
The average A-H premium changed by 1.3ppt week-on-week, led by financials, consumer discretionary, health care and offset by information technology.
We highlight weekly changes in A-H premium for PetroChina, Chinalco, Tsingtao Brewery, Huanneg Power, Huahong Semi, CICC, Ganfeng Lithium.


A-H Premium Weekly (May 31st): PetroChina, Chinalco, Tsingtao Brewery, Huanneg Power, Huahong Semi

China

Zoomlion Heavy Industry Science and Technology Co., Ltd.manufactures and markets construction machinery.  The Company's products include concrete machinery, cranes, road machinery, drilling equipment, and other heavy construction equipment.  Zoomlion also produces environmental machinery and satellite navigation products.

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Zoomlion Heavy Industry S A (000157 CH)

China Construction Machinery: Light at the End of the Tunnel, Finally

Industry sales of excavator and wheel loader have turned positve in Sep, after a lengthened depressed period since mid-2021. However, 2H22 earnings...

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

Capital Goods - Domestic excavator sales +29% YoY in May

According to China Construction Machinery Association (CCMA), domestic sales of excavators grew 29% YoY to 8.5k units in May, with growth rate...

CMB International

A-H Premium Weekly (May 31st): PetroChina, Chinalco, Tsingtao Brewery, Huanneg Power, Huahong Semi

We analyzed A-H premium changes in the past week and highlight A-H premium changes for PetroChina, Chinalco, Tsingtao Brewery, Huanneg Power, Hua...

Ke Yan, CFA, FRM

Price Gauge

52-week Range

Market Cap (USDm)

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