Global Special Situations & Strategy, SR Services Ltd

David Lepper

Global Special Situations & Strategy

SR Services Ltd

SR Services provides Strategic Knowledge and Solutions services for Family Offices and Corporate Business. 

We deliver this via advisory services, strategic planning, opportunity analysis/sourcing, as well as solution implementation. 

Whilst, we create intellectual discipline and operational leverage for your projects or daily activities, our ultimate objective is to empower whilst enhancing your decision making. 

Strategic Knowledge and Solutions

Cross Asset Strategy

Q3 delivered marked underperformanceOur Q3-2020 Small-Mid Cap High-Risk list of stocks produced an average price increase of 0.3%. In comparison, the MSCI Asia Pacific Index posted an increase of 6.3% over the same period. 15 stocks appear in our Q4 2020 screen, versus 21 in Q3 2020. As we highlighted in the previous three quarters, we are specifically on the watch for the risk of deteriorating credit metrics during 2020. This screen presents names which are worthy of investigation as they present with fundamentals which are at risk.

Q3 delivered marked underperformanceOur Q3-2020 Small-Mid Cap High-Risk list of stocks produced an average price increase of 0.3%. In comparison, the MSCI Asia Pacific Index posted an increase of 6.3% over the same period. 15 stocks appear in our Q4 2020 screen, versus 21 in Q3 2020. As we highlighted in the previous three quarters, we are specifically on the watch for the risk of deteriorating credit metrics during 2020. This screen presents names which are worthy of investigation as they present with fundamentals which are at risk.

Screening the Silk Road: Q4 2020 High Risk Names to Avoid

HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

China's construction and infrastructure machinery sector maintained an encouraging momentum in Sep and close out 3Q20 with strengths. We see no signs of slowing down despite the rapid recovery in 2Q20. Sales of excavators and wheel loaders rose 64.8% YoY and 16.3% YoY in Sep, respectively; which is the strongest growth in the last two months. This is a reflection of the increase in infrastructure investments after the massive special purpose bonds issued by the local governments in the last four months.We expect the rise in infrastructure spending and recovery in export demand to drive the industry's positive outlook in the next 12 months, benefiting names including <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>, <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> and <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>.  Backed by an undemanding 0.82x P/B, catch up in unit sales and attractive dividend yield of 10.7%, Lonking <a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener"></a>stands out with particular favourable risk-return payoff, in our view.

China's construction and infrastructure machinery sector maintained an encouraging momentum in Sep and close out 3Q20 with strengths. We see no signs of slowing down despite the rapid recovery in 2Q20. Sales of excavators and wheel loaders rose 64.8% YoY and 16.3% YoY in Sep, respectively; which is the strongest growth in the last two months. This is a reflection of the increase in infrastructure investments after the massive special purpose bonds issued by the local governments in the last four months.We expect the rise in infrastructure spending and recovery in export demand to drive the industry's positive outlook in the next 12 months, benefiting names including Lonking Holdings (3339 HK), Sany Heavy Industry (600031 CH), Xcmg Construction Machin A (000425 CH) and Zoomlion Heavy Industry H (1157 HK).  Backed by an undemanding 0.82x P/B, catch up in unit sales and attractive dividend yield of 10.7%, Lonking stands out with particular favourable risk-return payoff, in our view.

China Construction Machinery: No Sign of Slowing Down

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 consider China’s new Three Red Lines leverage guidelines for developers, which have been rolled out on a limited basis. We also look at the context for the policy’s introduction and its implications on credit access for industry players at large.  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 consider China’s new Three Red Lines leverage guidelines for developers, which have been rolled out on a limited basis. We also look at the context for the policy’s introduction and its implications on credit access for industry players at large.    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 - China's Three Red Lines - Lucror Analytics

The Asia HY Trade Book for the month of September 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 September 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 - September 2020 - Lucror Analytics

China Specialist, Auto and Industrial Specialist

Victoria Li

Equity Bottom-Up

Zoomlion Heavy Industry H / Equity Bottom-Up

YTD, Zoomlion's share price is up 18%, but has lagged  Sany Heavy's (600031.CH) 35% and its own A-share's 19.8%.  We believe this has happened mainly due to Zoomlion's relatively lagging earrings recovery since 2018. However, as we expected, Zoomlion's earnings recovery accelerated in 2Q2020 with market demand moving onwards to late cycle products. In 2Q2020, Zoomlion reported a 90% yoy growth of net profit, vs. 78% yoy growth of Sany's.Moreover, Zoomlion plans to use most of the proceeds from A-share private placement on excavator and related components. It plans to gain market share in excavators and targets to be one of Top 5 suppliers in 5 years. As we've seen, local excavator brands successfully gained market shares from global leaders in the past few years and improved sector concentration. This strengthens our conviction that Zoomlion's excavators would take some market share from smaller players and this will be an earnings driver in the next few years.We believe Zoomlion would outperform Sany Heavy in 2H2020, especially after A-share placement adjustment.

YTD, Zoomlion's share price is up 18%, but has lagged  Sany Heavy's (600031.CH) 35% and its own A-share's 19.8%.  We believe this has happened mainly due to Zoomlion's relatively lagging earrings recovery since 2018. However, as we expected, Zoomlion's earnings recovery accelerated in 2Q2020 with market demand moving onwards to late cycle products. In 2Q2020, Zoomlion reported a 90% yoy growth of net profit, vs. 78% yoy growth of Sany's.Moreover, Zoomlion plans to use most of the proceeds from A-share private placement on excavator and related components. It plans to gain market share in excavators and targets to be one of Top 5 suppliers in 5 years. As we've seen, local excavator brands successfully gained market shares from global leaders in the past few years and improved sector concentration. This strengthens our conviction that Zoomlion's excavators would take some market share from smaller players and this will be an earnings driver in the next few years.We believe Zoomlion would outperform Sany Heavy in 2H2020, especially after A-share placement adjustment.

Zoomlion (1157.HK): Time to Switch from Sany into Zoomlion

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)

Screening the Silk Road: Q4 2020 High Risk Names to Avoid

Our Q3 screen delivered 600bps of under performance. With volatility is set to increase as we head into H1 2020, which stocks are most at risk in...

David Lepper

China Construction Machinery: No Sign of Slowing Down

Both excavator and wheel loader sales are good in Sep and show no sign of slowing down. We believe China construction machinery industry will stay...

Osbert Tang, CFA

Asia HY Monthly - China's Three Red Lines - Lucror Analytics

In this month’s “In-Focus” section, we consider China’s new Three Red Lines leverage guidelines for developers, which have been rolled out on a...

Lucror Analytics

Asia HY Trade Book - September 2020 - Lucror Analytics

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

Lucror Analytics

Zoomlion (1157.HK): Time to Switch from Sany into Zoomlion

Since January, Zoomlion's share price rose by

Victoria Li

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