In today’s briefing:
- COSCO Shipping (517 HK) Is Still Cheap
- CIMC (1839 HK): Justification For Unjust Offer Price?
- HSCEI Dividend Futures: Shrinking OI; Fair Value Estimates Show Upside
- Cathay Pacific (293 HK): Taking off with Momentum
- [Blue Lotus Technology Sector Update]: LLM Advances Give China and US Both Opportunities
- China Traditional Chinese Medicine (570.HK) – New Information on Privatization
- Pinduoduo, Inc: Rotation Continues
COSCO Shipping (517 HK) Is Still Cheap
- In More Hong Kong Stocks Priced For Liquidation, I flagged thirteen stocks the market is all-but implying are priced for liquidation.
- One of the cut-off points in that analysis was a requirement for stocks to trade at least US$1mn/day. Removing that constraint uncovers shipping services play COSCO International Holdings (517 HK) (CSI).
- CSI’s market cap accounts for ~86% of its 1H23 net cash position. Earlier this month, CSI announced another positive profit warning. Those numbers should be out late-March.
CIMC (1839 HK): Justification For Unjust Offer Price?
- On the 28 November 2023, SOE-backed CIMC Vehicle Group Co Ltd (1839 HK) announced a conditional H-share buyback at a $7.00/H-share, a forgettable 8.6% premium to last close.
- This Voluntary Offer followed by a Merger by Absorption requires shareholder approval and SAFE signing off. The SAFE condition was satisfied on the 26th Jan.
- Last night, CIMC announced the CBP investigation into the evasion of U.S. anti-dumping and countervailing duties was extended. There is no mentioned in interim accounts or HKEx of this investigation.
HSCEI Dividend Futures: Shrinking OI; Fair Value Estimates Show Upside
- The open interest of the HSCEI 2024 dividend futures is less than half that of the HSCEI 2023 and HSCEI 2022 open interest at the same time of the year.
- Market volatility and the fallout of the losses faced by Korean investors (and the scrutiny of Korean ELS-issuing banks) are among the primary reasons for the low open interest.
- Our fair value for the HSCEI 2024 dividend futures is higher than the current market but there is a lot of sensitivity to bank dividends and special dividends.
Cathay Pacific (293 HK): Taking off with Momentum
- There is room for FY23 result of Cathay Pacific Airways (293 HK) to beat market expectations on stronger traffic volume and better yield performance.
- Resumption of more capacity, from 70% of the pre-pandemic level at end-FY23, will drive FY24 earnings with ROE at 12-13%, putting it on an inexpensive 0.65x P/B.
- Its associate Air China Ltd (H) (753 HK) will also benefit from the release of pent-up demand in the domestic market and the recovery in international travel.
[Blue Lotus Technology Sector Update]: LLM Advances Give China and US Both Opportunities
- On February 15, OpenAI, Google and Amazon launched respective AI advances in video LLM (SORA), long text (Gemini 1.5), and text-to-speech (BASE) abilities. The evolution speed of AI inspired awe;
- We estimate rival equivalent of SORA, delivered over cloud, will appear in 4-6 months of time but on-device version will take years.
- We suggest 2C AI applications, especially video, will be the prime beneficiary
China Traditional Chinese Medicine (570.HK) – New Information on Privatization
- Since China TCM doesn’t deny the rumors so far after the trading halt, privatization is becoming likely this time.Rumor said formal negotiations may not begin until after the Lantern Festival.
- CNPGC may not want to pay high prices on privatization.Weak sentiment/share price may help with the negotiations.But the key is to obtain the consent of other shareholders, especially Ping An.
- There’s underlying logic for Taiji Group to drive this privatization. A price of higher than HKD5.1 is possible. If the price could reach HKD6 (or higher), it has exceeded expectations.
Pinduoduo, Inc: Rotation Continues
- Ownership levels among Asia Ex-Japan funds hit record highs as funds continue to add exposure.
- 13% of the funds in our analysis opened new positions over the last 6-months, with average weights increasing by 0.57%
- New positions added by Invesco Asia Opportunities (4.3%), LO Funds High Conviction (3.6%) and Allianz Asian Equity (2.9%) over the period.
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