HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

After an underperforming 1H20, <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 rapidly caught up with the industry in its unit sales performance. Sales of wheel loaders and excavators for 10M20 now achieved a 5% and 14% growth, respectively, compared with -2.6% and -11.2% respectively in 1H20, suggesting powerful pick-up in the last several months. Growth in products including forklifts and road rollers has also boosted all product categories to positive growth in 10M20.We forecast 2H20 core earnings will grow 20.5% YoY (vs. -6.4% YoY in 1H20), but its share price now only trades on 0.8x P/B, exactly at historical average. Such multiple looks low relative to a projected ROE of 19%, the highest in the last five years. We also see its Rmb0.61/share of net cash (or 32% of share price) comfortably sustaining its 54% payout ratio, leading to an attractive 11.5% dividend yield.

After an underperforming 1H20, Lonking Holdings (3339 HK) has rapidly caught up with the industry in its unit sales performance. Sales of wheel loaders and excavators for 10M20 now achieved a 5% and 14% growth, respectively, compared with -2.6% and -11.2% respectively in 1H20, suggesting powerful pick-up in the last several months. Growth in products including forklifts and road rollers has also boosted all product categories to positive growth in 10M20.We forecast 2H20 core earnings will grow 20.5% YoY (vs. -6.4% YoY in 1H20), but its share price now only trades on 0.8x P/B, exactly at historical average. Such multiple looks low relative to a projected ROE of 19%, the highest in the last five years. We also see its Rmb0.61/share of net cash (or 32% of share price) comfortably sustaining its 54% payout ratio, leading to an attractive 11.5% dividend yield.  

Lonking (3339 HK): Rapid Catch-Up in Unit Sales, Further Backed by Attractive Yield

Senior Credit Analyst, Lucror Analytics

Leonard Law, CFA

Senior Credit Analyst

High Yield Experts

Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

Recognizing the importance and value-add of Factor Investing in fixed income, Lucror developed the Smart Quant Navigator (SQN), an intuitive platform that helps clients devise and implement factor-based strategies ranging from pure quant to active fundamental, with integrated ESG.

Our company has been at the forefront of developments in the fixed income markets, identifying opportunities and consistently delivering new products and value-adding solutions to clients. Lucror has close relationships with the largest and most reputable asset managers, family offices, hedge funds, investment and wealth managers globally.

Credit

In this month’s “In-Focus” section, we provide an update to our 2018 analysis of returns and volatility for unrated Chinese issuers. Since our first report, the number of such issuers has increased notably. At the same time, with the Lucror Chinese Industrial index having run since 1 January 2018, we can now better compare the unrated issuers' performance relative to peers. The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks, and discussing specific areas of interest in the “In-Focus” section. The Asia Monthly is intended to broaden investors' understanding of the Asian USD high-yield market.

  In this month’s “In-Focus” section, we provide an update to our 2018 analysis of returns and volatility for unrated Chinese issuers. Since our first report, the number of such issuers has increased notably. At the same time, with the Lucror Chinese Industrial index having run since 1 January 2018, we can now better compare the unrated issuers' performance relative to peers.   The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks, and discussing specific areas of interest in the “In-Focus” section. The Asia Monthly is intended to broaden investors' understanding of the Asian USD high-yield market.  

Asia HY Monthly - Returns And Volatility For Unrated Chinese Issuers (2020) - Lucror Analytics

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.<ul><li><a href='#lucror-entity-7613'>China Aoyuan Property</a></li><li><a href='#lucror-entity-713'>Evergrande Auto</a></li><li><a href='#lucror-entity-472'>MGM China Holdings</a></li><li><a href='#lucror-entity-7817'>Zoomlion Heavy Industry H</a></li></ul>

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.China Aoyuan PropertyEvergrande AutoMGM China HoldingsZoomlion Heavy Industry H

Morning Views Asia: China Aoyuan Property, Evergrande Auto, MGM China Holdings

The Asia HY Trade Book for the month of October includes a summary of our recommendations, as well as our high-conviction ideas. The report also features relative value charts and lists of the bonds in the Lucror Asia HY index.

  The Asia HY Trade Book for the month of October includes a summary of our recommendations, as well as our high-conviction ideas. The report also features relative value charts and lists of the bonds in the Lucror Asia HY index. 

Asia HY Trade Book - October 2020 - Lucror Analytics

China Specialist, Auto and Industrial Specialist

Victoria Li

Thematic (Sector/Industry)

The exceptional 2020 is about to end. We expect China's construction machinery sales to record a new high for FY2020. However, would China's construction machinery sector continue growing at the same fast pace in 2021E? Probably not!
<ol>
<li>We believe excavators replacement demand probably peak this year.</li>
<li>Infrastructure demand might decline yoy in 2021E.</li>
<li>Property construction demand would turn weak soon, with the new starts of property floor space trends down.</li>
</ol>
<a href="https://www.smartkarma.com/entities/sany-heavy-industry-co-ltd" target="_blank" data-smartkarma-citation="entities:20183" rel="noopener">Sany Heavy Industry (600031 CH)</a> would be affected first as its earnings mainly come from early stage machines. <a href="https://www.smartkarma.com/entities/zoomlion-heavy-industry-h" target="_blank" data-smartkarma-citation="entities:7817" rel="noopener">Zoomlion Heavy Industry H (1157 HK)</a> earnings growth is overtaking Sany's and might slow down in 2H2021. We suggest to switch from Sany Heavy to Zoomlion.

The exceptional 2020 is about to end. We expect China's construction machinery sales to record a new high for FY2020. However, would China's construction machinery sector continue growing at the same fast pace in 2021E? Probably not!

We believe excavators replacement demand probably peak this year.
Infrastructure demand might decline yoy in 2021E.
Property construction demand would turn weak soon, with the new starts of property floor space trends down.

Sany Heavy Industry (600031 CH) would be affected first as its earnings mainly come from early stage machines. Zoomlion Heavy Industry H (1157 HK) earnings growth is overtaking Sany's and might slow down in 2H2021. We suggest to switch from Sany Heavy to Zoomlion.

China Construction Machinery: Risks Rise in 2021E

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)

Lonking (3339 HK): Rapid Catch-Up in Unit Sales, Further Backed by Attractive Yield

Lonking has a rapid leap in unit sales in Sep and Oct, driving positive growth across all product categories in 10M20, vs. declines in 1H20. ROE of...

Osbert Tang, CFA

Asia HY Monthly - Returns And Volatility For Unrated Chinese Issuers (2020) - Lucror Analytics

In this month’s “In-Focus” section, we provide an update to our 2018 analysis of returns and volatility for unrated Chinese issuers. Since our...

Lucror Analytics

Morning Views Asia: China Aoyuan Property, Evergrande Auto, MGM China Holdings

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region,...

Lucror Analytics

Asia HY Trade Book - October 2020 - Lucror Analytics

The Asia HY Trade Book for the month of October includes a summary of our recommendations, as well as our high-conviction ideas. The report also...

Lucror Analytics

China Construction Machinery: Risks Rise in 2021E

We expect China's construction machinery sales to record a new high for FY2020. However, would China's construction machinery sector continue...

Victoria Li

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