Smartkarma Research Team, Smartkarma

Smartkarma Research

Smartkarma Research Team

Smartkarma

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Research Reinvented

Equity Bottom-Up

<p>For our next Webinar, we welcome back Insight Provider <a href="https://www.smartkarma.com/profiles/osbert-tang-cfa" target="_blank" data-smartkarma-citation="accounts:3879" rel="noopener">Osbert Tang, CFA</a> who will discuss his 2021 high-conviction idea as outlined in his Insight, <a href="https://www.smartkarma.com/insights/2021-high-conviction-pair-trade-long-air-china-753-hk-short-china-southern-1055-hk" target="_blank" data-smartkarma-citation="insights:45584" rel="noopener">2021 High Conviction: Pair Trade - Long Air China (753 HK), Short China Southern (1055 HK)</a>. Is it still a viable trade? Tune in as we explore the opportunity and the rationale behind it.</p>
<h3>The webinar was hosted on Wednesday, 10 February 2021, 17:00 SGT/HKT.<a href="https://share.hsforms.com/1H9pFZOB-RF2J00kbvMmxcw2c5gj?zoom_webinar_id=89740086798" target="_blank" rel="noopener"></a>
</h3>
<p>Watch the session here:</p>
<p><iframe src="https://www.youtube.com/embed/xGlmHC0P6TA" width="560" height="315" title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="allowfullscreen"></iframe></p>
<p>Or subscribe to our podcast and listen on the go:</p>
<p><iframe src="https://open.spotify.com/embed/episode/70oTesSipKcj3xDWbIwQFK" width="100%" height="232" frameborder="0" allowtransparency="true" allow="encrypted-media"></iframe></p>
<p>Osbert Tang is an equity analyst with over 20 years of experience, focusing on China transport, infrastructure, industrials, and utilities. He has been based in Shanghai since 2003, accumulated more than 15 years of on-ground knowledge on the Chinese economy and financial markets, and has a wealth of contacts with China corporates and government entities.</p>

For our next Webinar, we welcome back Insight Provider Osbert Tang, CFA who will discuss his 2021 high-conviction idea as outlined in his Insight, 2021 High Conviction: Pair Trade - Long Air China (753 HK), Short China Southern (1055 HK). Is it still a viable trade? Tune in as we explore the opportunity and the rationale behind it.
The webinar was hosted on Wednesday, 10 February 2021, 17:00 SGT/HKT.

Watch the session here:

Or subscribe to our podcast and listen on the go:

Osbert Tang is an equity analyst with over 20 years of experience, focusing on China transport, infrastructure, industrials, and utilities. He has been based in Shanghai since 2003, accumulated more than 15 years of on-ground knowledge on the Chinese economy and financial markets, and has a wealth of contacts with China corporates and government entities.

Smartkarma Webinar | Pair Trade - Long Air China, Short China Southern: Still an Opportunity?

HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<p>The big three Chinese airlines have announced the range of their expected FY20 losses over the weekend, and the general indication is that the 4Q20 results have returned to wider losses after an improvement in 3Q20. We rank their 4Q20 performance in the following descending order: <a href="https://www.smartkarma.com/entities/china-eastern-airlines-co-h" target="_blank" data-smartkarma-citation="entities:1079:1" rel="noopener">China Eastern Airlines Co (H) (670 HK)</a> &gt; <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a> &gt; <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a>. Although we think the market should have anticipated the deterioration, the trend is not promising and we believe there will be near-term pressure on the sector's performance.</p><p>In our view, weaker domestic passenger traffic, resurgence in cost pressure and fading positive impact of Rmb appreciation are some of the headwinds faced by the sector in 1Q21. However, we think this is a good opportunity to set up our high conviction trade - <a href="https://www.smartkarma.com/insights/2021-high-conviction-pair-trade-long-air-china-753-hk-short-china-southern-1055-hk" target="_blank" data-smartkarma-citation="insights:45584" rel="noopener">2021 High Conviction: Pair Trade - Long Air China (753 HK), Short China Southern (1055 HK)</a>. </p>

The big three Chinese airlines have announced the range of their expected FY20 losses over the weekend, and the general indication is that the 4Q20 results have returned to wider losses after an improvement in 3Q20. We rank their 4Q20 performance in the following descending order: China Eastern Airlines Co (H) (670 HK) &gt; China Southern Airlines (1055 HK) &gt; Air China Ltd (H) (753 HK). Although we think the market should have anticipated the deterioration, the trend is not promising and we believe there will be near-term pressure on the sector's performance.In our view, weaker domestic passenger traffic, resurgence in cost pressure and fading positive impact of Rmb appreciation are some of the headwinds faced by the sector in 1Q21. However, we think this is a good opportunity to set up our high conviction trade - 2021 High Conviction: Pair Trade - Long Air China (753 HK), Short China Southern (1055 HK). 

Chinese Airlines: Initial FY20 Results Suggest Tough Market Has Already Begun

Zhejiang Expressway Co H / Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/zhejiang-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2178:1" rel="noopener">Zhejiang Expressway Co H (576 HK)</a>'s (ZJEC) subsidiary <a href="https://www.smartkarma.com/entities/zheshang-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:29981:1" rel="noopener">Zheshang Securities Co Ltd (601878 CH)</a> pre-announced a set of solid FY20 result on 26 Jan. With the current strength of the A-share market, we believe this business will add to the recovery of toll road business in FY21, driving encouraging momentum for ZJEC.</p><p>Focusing back to the core toll road business, both traffic and toll revenue are showing positive YoY growth in Dec 2020, suggesting good recovery pace. ZJEC is also progressing ahead with the plan to list the toll collection rights of Hanghui Expressway as a public infrastructure REIT. We think these factors are important catalysts for ZJEC in this year. Its 5.9x PER and 0.86x P/B for 12-month forward are undemanding and its ROE vs. P/B is also inexpensive in the sector.  </p>

Zhejiang Expressway Co H (576 HK)'s (ZJEC) subsidiary Zheshang Securities Co Ltd (601878 CH) pre-announced a set of solid FY20 result on 26 Jan. With the current strength of the A-share market, we believe this business will add to the recovery of toll road business in FY21, driving encouraging momentum for ZJEC.Focusing back to the core toll road business, both traffic and toll revenue are showing positive YoY growth in Dec 2020, suggesting good recovery pace. ZJEC is also progressing ahead with the plan to list the toll collection rights of Hanghui Expressway as a public infrastructure REIT. We think these factors are important catalysts for ZJEC in this year. Its 5.9x PER and 0.86x P/B for 12-month forward are undemanding and its ROE vs. P/B is also inexpensive in the sector.  

Zhejiang Expressway (576 HK): Gaining from Both Growth and Stable Business Exposures

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

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<p>Data and anecdotes from a range of sources in December and January show the recovery in Chinese domestic travel demand has stalled. Looking forward, government estimates suggest travel activity over the Lunar New Year holiday in February will also remain muted. </p>
<p>In the run up to the long holiday period, Chinese officials have responded aggressively to Covid19 outbreaks in several Chinese cities, most of them in Northern China. Until vaccines reach most of the population and prove effective against new variants of the virus, travel demand -- outbound <em>and</em> domestic -- will likely remain depressed. Even a Summer rebound now appears optimistic. </p>
<p>A combination of hesitant consumers and necessarily aggressive government responses to new outbreaks leaves current travel demand <em>far</em> below normal (2019) levels. The stalled recovery in Chinese travel activity thus lags substantially the return of the Chinese consumer. With few signs of "pent-up" travel demand, it appears Chinese tourists may have altered spending priorities. </p>
<p>The Chinese travel sector will enjoy easy YoY "comps" in early 2021 as we lap the worst of the Covid19 crisis in H120. However, in the medium-term, we see a "new normal" developing: non-essential travel has become riskier and less attractive, and thus a lower priority for consumers, and this will likely remain the case until Covid19 is put decisively in the rear-view mirror.  </p>




Data and anecdotes from a range of sources in December and January show the recovery in Chinese domestic travel demand has stalled. Looking forward, government estimates suggest travel activity over the Lunar New Year holiday in February will also remain muted. 
In the run up to the long holiday period, Chinese officials have responded aggressively to Covid19 outbreaks in several Chinese cities, most of them in Northern China. Until vaccines reach most of the population and prove effective against new variants of the virus, travel demand -- outbound and domestic -- will likely remain depressed. Even a Summer rebound now appears optimistic. 
A combination of hesitant consumers and necessarily aggressive government responses to new outbreaks leaves current travel demand far below normal (2019) levels. The stalled recovery in Chinese travel activity thus lags substantially the return of the Chinese consumer. With few signs of "pent-up" travel demand, it appears Chinese tourists may have altered spending priorities. 
The Chinese travel sector will enjoy easy YoY "comps" in early 2021 as we lap the worst of the Covid19 crisis in H120. However, in the medium-term, we see a "new normal" developing: non-essential travel has become riskier and less attractive, and thus a lower priority for consumers, and this will likely remain the case until Covid19 is put decisively in the rear-view mirror.  

December-January Travel Data Confirm Stalled Domestic Recovery; Weak LNY Unlikely to Help

China Southern Airlines / Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a> looks to be facing stronger pressure from weaker domestic traffic posed by the precautionary measures amid the local COVID-19 cases in China. We see the average fare and frequency on its flights on China's top 5 domestic routes have almost returned to the depressed levels back in Mar 2020, and this is not an encouraging sign, in our view. The vast availability of flights and the reasonable prices during CNY also suggested mediocre demand in the traditional peak air travel season.</p><p>Also working against the company are the rise in domestic jet fuel price and the slowdown in Rmb appreciation against USD. Although the share price has retreated 21% from the intra-day high of HK$5.23, we still see downside risk given that data points on traffic released over the next two months are unlikely to be encouraging. That said, there is room for the 1Q21 result to disappoint the market, and we see any rebound in share price opportunities to trim ahead of the result announcement in Apr.</p>

China Southern Airlines (1055 HK) looks to be facing stronger pressure from weaker domestic traffic posed by the precautionary measures amid the local COVID-19 cases in China. We see the average fare and frequency on its flights on China's top 5 domestic routes have almost returned to the depressed levels back in Mar 2020, and this is not an encouraging sign, in our view. The vast availability of flights and the reasonable prices during CNY also suggested mediocre demand in the traditional peak air travel season.Also working against the company are the rise in domestic jet fuel price and the slowdown in Rmb appreciation against USD. Although the share price has retreated 21% from the intra-day high of HK$5.23, we still see downside risk given that data points on traffic released over the next two months are unlikely to be encouraging. That said, there is room for the 1Q21 result to disappoint the market, and we see any rebound in share price opportunities to trim ahead of the result announcement in Apr.

China Southern Airlines (1055 HK): Facing Stronger Headwinds

China

China Southern Airlines Company Limited provides commercial airline services throughout China, Southeast Asia and other parts of the world.  The Company also provides other airline related services including aircraft maintenance and air catering.

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China Southern Airlines (1055 HK)

Smartkarma Webinar | Pair Trade - Long Air China, Short China Southern: Still an Opportunity?

Join us on 10 Feb, 5PM SGT as we welcome back Insight Provider Osbert Tang, who will discuss his 2021 high-conviction idea, as outlined in his...

Smartkarma Research

Chinese Airlines: Initial FY20 Results Suggest Tough Market Has Already Begun

Chinese airlines posted weak 4Q20 result ranges and this is expected to put near-term pressure on share prices. However, we believe Air China is in...

Osbert Tang, CFA

Zhejiang Expressway (576 HK): Gaining from Both Growth and Stable Business Exposures

Sustained toll revenue recovery, further strength at Zheshang Securities and possible REIT issuance of Hanghui Expressway are potential drivers in...

Osbert Tang, CFA

December-January Travel Data Confirm Stalled Domestic Recovery; Weak LNY Unlikely to Help

The recovery in domestic travel demand stalled again in December, and we believe improvement will be muted in the near-term as officials battle...

Tracking Traffic

China Southern Airlines (1055 HK): Facing Stronger Headwinds

We see weaker-than-expected passenger traffic and fare concerns for CSA, with higher jet fuel price and slower Rmb/USD appreciation added to its...

Osbert Tang, CFA

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