Daily Brief China: AviChina Industry & Technology H, Hang Lung, Yankuang Energy Group and more

• As a PRC aviation/defense play, AviChina Industry & Technology H (2357 HK)‘s fundamentals are undemanding. 
• Preceding my comments on AviChina are the current setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
• Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. Or pledging. However, such disclosures are by no means an absolute.
• The key stocks mentioned in this regular insight are Hang Lung (10 HK) and Hang Lung Properties (101 HK).

We view Yankuang as “Low Risk” on the LARA scale. This reflects: [1] the company’s huge scale (producing over 100 mn tons a year) and status as the second-largest producer in the Chinese coal sector; and [2] that it is majority owned by, and has strategic importance to, the Shandong government. These translate to strong access to onshore capital. Our assessment also takes into account Yankuang’s: [1] earnings being dependent on coal price fluctuations; [2] improving financial profile; [3] exposure to adverse movements of the USD against the CNY; and [4] track record of operation.

Our fundamental Credit Bias on Yankuang is “Positive”, due to: [1] the company’s enhanced SOE status following the completion of the Yanzhou Coal/Shandong Energy merger; and [2] supportive coal prices.

Controversies are “Immaterial”, but the ESG Impact on Credit is “Moderately Negative”. The coal mining industry in China is exposed to regulatory and geopolitical risks, such as forced closures of inefficient mines. The industry also faces extreme scrutiny from environmental agencies, given its negative impact on the environment.