HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/dongfang-electric-corporation-limited" target="_blank" data-smartkarma-citation="entities:1251:1" rel="noopener">Dongfang Electric (1072 HK)</a>'s management update suggested that its outlook remains encouraging. Order backlog of Rmb87.8bn well covers the FY22 revenue at 1.57x.  </li>
<li>It is positive towards pumped storage, alternative power storage and hydrogen energy. Although they may not have significant near-term contribution, DEC is well-positioned in the long term.</li>
<li>While new A-shares issue will dilute EPS, this should lower gearing (including contract liabilities) to 32.1%, from 49.2%, and is positive to H-share holders as book value will be enhanced.</li>
</ul>



Dongfang Electric (1072 HK)'s management update suggested that its outlook remains encouraging. Order backlog of Rmb87.8bn well covers the FY22 revenue at 1.57x.  
It is positive towards pumped storage, alternative power storage and hydrogen energy. Although they may not have significant near-term contribution, DEC is well-positioned in the long term.
While new A-shares issue will dilute EPS, this should lower gearing (including contract liabilities) to 32.1%, from 49.2%, and is positive to H-share holders as book value will be enhanced.


Dongfang Electric (1072 HK): Positive Takeaways from Post-Result Presentation

<ul>
<li>
<a href="https://www.smartkarma.com/entities/dongfang-electric-corporation-limited" target="_blank" data-smartkarma-citation="entities:1251:1" rel="noopener">Dongfang Electric (1072 HK)</a>'s 35.1% increase in FY22 recurring earnings demonstrated its healthy operations. Slowdown in 4Q22 (+14.4% YoY) is more a result of pandemic disruption. </li>
<li>Record new orders of Rmb65.6bn were signed FY22 (+16.3% YoY), and 4Q22 even saw a 25% growth. End-FY22 backlog is estimated to be enough to cover 1.66x FY22 revenue.</li>
<li>DEC targets a 35% growth in power generation equipment production volume in FY23. Power storage, including pumped storage, and hydrogen energy are important engines going forward.</li>
</ul>



Dongfang Electric (1072 HK)'s 35.1% increase in FY22 recurring earnings demonstrated its healthy operations. Slowdown in 4Q22 (+14.4% YoY) is more a result of pandemic disruption. 
Record new orders of Rmb65.6bn were signed FY22 (+16.3% YoY), and 4Q22 even saw a 25% growth. End-FY22 backlog is estimated to be enough to cover 1.66x FY22 revenue.
DEC targets a 35% growth in power generation equipment production volume in FY23. Power storage, including pumped storage, and hydrogen energy are important engines going forward.


Dongfang Electric (1072 HK): Heading Towards Another Fruitful Year

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>After <strong><a href="https://www.smartkarma.com/entities/goldlion-holdings-ltd" target="_blank" data-smartkarma-citation="entities:12359:1" rel="noopener">Goldlion (533 HK)</a></strong>'s spectacular Scheme fail, <strong><a href="https://www.smartkarma.com/entities/soundwill-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19318:1" rel="noopener">Soundwill  (878 HK)</a></strong> appeared destined to be the next failure as shares dipped hard ahead of the Scheme vote. And fail it did.</li>
<li>Just like for Goldlion, Soundwill's Offer was clearly light. The counter-argument was that terms were, arguably, as good as it gets. And no competing Offer would emerge. Minorities voiced otherwise.</li>
<li>Hong Kong has been the proverbial graveyard for arb deals of late. However, in a positive sense, minorities in Goldlion and Soundwill simply rejected opportunistic Offers. </li>
</ul>


After Goldlion (533 HK)'s spectacular Scheme fail, Soundwill  (878 HK) appeared destined to be the next failure as shares dipped hard ahead of the Scheme vote. And fail it did.
Just like for Goldlion, Soundwill's Offer was clearly light. The counter-argument was that terms were, arguably, as good as it gets. And no competing Offer would emerge. Minorities voiced otherwise.
Hong Kong has been the proverbial graveyard for arb deals of late. However, in a positive sense, minorities in Goldlion and Soundwill simply rejected opportunistic Offers. 


Soundwill (878 HK): Thoughts On The Latest Scheme Fail

<ul>
<li>
<a href="https://www.smartkarma.com/entities/dongfang-electric-corporation-limited" target="_blank" data-smartkarma-citation="entities:1251:1" rel="noopener">Dongfang Electric (1072 HK)</a>'s 1Q25 express report suggested earnings may increase 15-25% YoY, reversing the YoY decline in 4Q24 and FY24. This is encouraging. </li>
<li>Its signs record new orders in FY24, fuelling its order backlog to Rmb152.6bn, which equals 2x the FY25F revenue. 2H24 new order momentum is better than 1H24.</li>
<li>The pending A-share placement, while diluting EPS, will enhance book value for the H-share holders. Its 6.4x PER and 7.3% dividend yield are inexpensive.</li>
</ul>



Dongfang Electric (1072 HK)'s 1Q25 express report suggested earnings may increase 15-25% YoY, reversing the YoY decline in 4Q24 and FY24. This is encouraging. 
Its signs record new orders in FY24, fuelling its order backlog to Rmb152.6bn, which equals 2x the FY25F revenue. 2H24 new order momentum is better than 1H24.
The pending A-share placement, while diluting EPS, will enhance book value for the H-share holders. Its 6.4x PER and 7.3% dividend yield are inexpensive.


Dongfang Electric (1072 HK): Returning to Growth in 1Q25 Despite Weak FY24

<ul>
<li>
<a href="https://www.smartkarma.com/entities/dongfang-electric-corporation-limited" target="_blank" data-smartkarma-citation="entities:1251:1" rel="noopener">Dongfang Electric (1072 HK)</a> showed encouraging QoQ improvements in profit trend, margins, new orders, and operating cash flow in 3Q24, though reported profit was still down in 9M24.</li>
<li>Cost control has contributed to 4.6pp QoQ gross margin expansion. Meanwhile, new order growth has accelerated to 63.8% YoY, from just a teens level in 1Q24 and 2Q24.</li>
<li>Our estimate suggests that backlog is enough to cover 1.9x its annual revenue, enhancing visibility. Its PER, dividend yield and P/B are all standing on attractive levels.</li>
</ul>



Dongfang Electric (1072 HK) showed encouraging QoQ improvements in profit trend, margins, new orders, and operating cash flow in 3Q24, though reported profit was still down in 9M24.
Cost control has contributed to 4.6pp QoQ gross margin expansion. Meanwhile, new order growth has accelerated to 63.8% YoY, from just a teens level in 1Q24 and 2Q24.
Our estimate suggests that backlog is enough to cover 1.9x its annual revenue, enhancing visibility. Its PER, dividend yield and P/B are all standing on attractive levels.


Dongfang Electric (1072 HK): Good Sequential Improvement Masked

China

Harbin Electric Company Limited manufactures a comprehensive range of electric power generation equipment including thermal power generator sets, boilers, steam and hydro turbine and turbine generator sets.  The Company also provides power station engineering services and manufactures ancillary equipment for power stations as well as AC/DC motor and other products.

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Harbin Electric Co Ltd H (1133 HK)

Dongfang Electric (1072 HK): Positive Takeaways from Post-Result Presentation

Order backlog of Rmb87.8bn well covers the FY22 revenue at 1.57x. New A-shares issue will dilute EPS but this should lower gearing and is positive...

Osbert Tang, CFA

Dongfang Electric (1072 HK): Heading Towards Another Fruitful Year

After a solid FY22, FY23 will still be impressive. Record new orders and healthy backlog will propel growth. We believe DEC has excellent exposure...

Osbert Tang, CFA

Soundwill (878 HK): Thoughts On The Latest Scheme Fail

The outcome for Soundwill was not a big surprise. However, expect current and future illiquid small-cap arbs to trade wide(r) if there is a whiff...

David Blennerhassett

Dongfang Electric (1072 HK): Returning to Growth in 1Q25 Despite Weak FY24

DEC guided for a 15-25% earnings growth in 1Q25, reversing the decline in 4Q24. Its order book reached a record high and is sufficient to cover...

Osbert Tang, CFA

Dongfang Electric (1072 HK): Good Sequential Improvement Masked

DEC shows positive QoQ improvements in profit trend, margins, new orders, and cash flow in 3Q24, despite a reported profit decline in 9M24. Order...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

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Dongfang Electric (1072 HK): Positive Takeaways from Post-Result Presentation

Order backlog of Rmb87.8bn well covers the FY22 revenue at 1.57x. New A-shares issue will dilute EPS but this should lower gearing and is positive...

Osbert Tang, CFA

Dongfang Electric (1072 HK): Heading Towards Another Fruitful Year

After a solid FY22, FY23 will still be impressive. Record new orders and healthy backlog will propel growth. We believe DEC has excellent exposure...

Osbert Tang, CFA

Soundwill (878 HK): Thoughts On The Latest Scheme Fail

The outcome for Soundwill was not a big surprise. However, expect current and future illiquid small-cap arbs to trade wide(r) if there is a whiff...

David Blennerhassett

Dongfang Electric (1072 HK): Returning to Growth in 1Q25 Despite Weak FY24

​DEC guided for a 15-25% earnings growth in 1Q25, reversing the decline in 4Q24. Its order book reached a record high and is sufficient to cover...

Osbert Tang, CFA

Dongfang Electric (1072 HK): Good Sequential Improvement Masked

​DEC shows positive QoQ improvements in profit trend, margins, new orders, and cash flow in 3Q24, despite a reported profit decline in 9M24. Order...

Osbert Tang, CFA

DEC guided for a 15-25% earnings growth in 1Q25, reversing the decline in 4Q24. Its order book reached a record high and is sufficient to cover...

DEC shows positive QoQ improvements in profit trend, margins, new orders, and cash flow in 3Q24, despite a reported profit decline in 9M24. Order...