Equity Research in HK and Mainland China

Li Tang

Thematic (Sector/Industry)

<p>Ministry of Finance released the NEV subsidy program for 2021, cutting them by 20% compared to the 2020 level for private purchases Xinhua reported. The subsidy for NEVs designated for public sector use, including buses, taxi, logistics, postal vehicles and public fleets, will be cut by 10% in 2021 from the 2020 level, coming into effect on 1 January 2021. The subsidies are dependent on a range of indicators including driving range and battery density.</p>
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<p>China has bet big on NEVs as a strategically important industry, the government has five essential policy support tools for NEVs include reduced taxes, direct subsidies to manufacturers, consumer subsidies, mandated government procurements.</p>
<p>We are still positive on NEV makers (<a href="https://www.smartkarma.com/entities/li-auto-inc" target="_blank" rel="noopener">Li Auto Inc. (LI US)</a> , <a href="https://www.smartkarma.com/entities/nio-inc" target="_blank" data-smartkarma-citation="entities:27399:1" rel="noopener">NIO Inc (NIO US)</a> and <a href="https://www.smartkarma.com/entities/xpeng-motors" target="_blank" data-smartkarma-citation="entities:29217:1" rel="noopener">Xpeng Motors (XPEV US)</a>) and NEV charging infrastructure (<a href="https://www.smartkarma.com/entities/china-titans-energy-technology-group-co" target="_blank" data-smartkarma-citation="entities:3953:1" rel="noopener">China Titans Energy Technology Group Co (2188 HK)</a> ,  <a href="https://www.smartkarma.com/entities/ten-pao-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27241:1" rel="noopener">Ten Pao Group Holdings Ltd (1979 HK)</a> as both segments stand to gain from an improvement in NEV sales after NEV sales lagged the recovery in traditional auto sales, and with local governments providing various support measures.</p>
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Ministry of Finance released the NEV subsidy program for 2021, cutting them by 20% compared to the 2020 level for private purchases Xinhua reported. The subsidy for NEVs designated for public sector use, including buses, taxi, logistics, postal vehicles and public fleets, will be cut by 10% in 2021 from the 2020 level, coming into effect on 1 January 2021. The subsidies are dependent on a range of indicators including driving range and battery density.

China has bet big on NEVs as a strategically important industry, the government has five essential policy support tools for NEVs include reduced taxes, direct subsidies to manufacturers, consumer subsidies, mandated government procurements.
We are still positive on NEV makers (Li Auto Inc. (LI US) , NIO Inc (NIO US) and Xpeng Motors (XPEV US)) and NEV charging infrastructure (China Titans Energy Technology Group Co (2188 HK) ,  Ten Pao Group Holdings Ltd (1979 HK) as both segments stand to gain from an improvement in NEV sales after NEV sales lagged the recovery in traditional auto sales, and with local governments providing various support measures.


China Will Reduce Its Subsidies for Regular New Energy Vehicles by 20% in 2021

<p>China full-year NEVs sales will reach 1.25m units this year, according to China Association of Auto Manufacturers (CAAM) which would bring cumulative sales to 5.06mn units, surpassing the 2016 target of 5mn units by 2020.CAAM forecasts are usually close to the market. China's NEV sales was 1.206 million units last year, representing a year-on-year drop of 4%.</p>
<p>CAAM also pointed out as part of the country's rural revitalisation strategy that central government is studying a new policy to promote the use of new energy vehicles (NEVs) in rural areas in 2021.Overall, autos have been the beneficiary of much policy action including the upgrade of VI emissions standards, supportive NEV policies, and trucks sales due to construction activity picking up, with profits increasing 6.6% in January-October.</p>
<p>We are positive on NEV makers (<a href="https://www.smartkarma.com/entities/li-auto-inc" target="_blank" rel="noopener">Li Auto Inc. (LI US)</a>, <a href="https://www.smartkarma.com/entities/nio-inc" target="_blank" rel="noopener">NIO Inc (NIO US)</a> and <a href="https://www.smartkarma.com/entities/xpeng-motors" target="_blank" data-smartkarma-citation="entities:29217:1" rel="noopener">Xpeng Motors (XPEV US)</a> and NEV charging infrastructure <a href="https://www.smartkarma.com/entities/china-titans-energy-technology-group-co" target="_blank" rel="noopener">China Titans Energy Technology Group Co (2188 HK)</a>, <a href="https://www.smartkarma.com/entities/ten-pao-group-holdings-ltd" target="_blank" rel="noopener">Ten Pao Group Holdings Ltd (1979 HK)</a>.We believe both sectors stand to gain from an improvement in NEV sales after NEV sales lagged the recovery in traditional auto sales, and with local governments providing various support measures.</p>

China full-year NEVs sales will reach 1.25m units this year, according to China Association of Auto Manufacturers (CAAM) which would bring cumulative sales to 5.06mn units, surpassing the 2016 target of 5mn units by 2020.CAAM forecasts are usually close to the market. China's NEV sales was 1.206 million units last year, representing a year-on-year drop of 4%.
CAAM also pointed out as part of the country's rural revitalisation strategy that central government is studying a new policy to promote the use of new energy vehicles (NEVs) in rural areas in 2021.Overall, autos have been the beneficiary of much policy action including the upgrade of VI emissions standards, supportive NEV policies, and trucks sales due to construction activity picking up, with profits increasing 6.6% in January-October.
We are positive on NEV makers (Li Auto Inc. (LI US), NIO Inc (NIO US) and Xpeng Motors (XPEV US) and NEV charging infrastructure China Titans Energy Technology Group Co (2188 HK), Ten Pao Group Holdings Ltd (1979 HK).We believe both sectors stand to gain from an improvement in NEV sales after NEV sales lagged the recovery in traditional auto sales, and with local governments providing various support measures.

China Expects to Surpass 2020 NEV Sales Target

China Specialist, Auto and Industrial Specialist

Victoria Li

<p><strong>Impact of wafer shortage extended to auto chips recently, and forced several factories of VW JVs in China to suspend production for a few days early December 2020, according to local media' reports on 8th Dec. CAAM (China Association of Automobile Manufacturers) estimate, based on survey over more than 60 OEMs, is that MCU short supply - which mainly lead to production issue of ESP(（Electronic Stability Program) and ECU(Electronic Control Unit) and hence mid-high end cars - might cause short term interruption on some OEMs in 1Q2021 before getting released afterwards. </strong></p><p><strong>According to latest media reports, Honda JVs and VW JVs in JV brands are both impacted so far. Geely (175.HK) and Changan (000625.CH) are under pressure. However, as the short supply is led by short term reasons and actions have been taken in the whole supply chain, it would not change our positive view on China's auto sector 2021E. Instead, if any share performance weakness happens due to related components shortage, that would be buying opportunities for investors.  </strong></p>

Impact of wafer shortage extended to auto chips recently, and forced several factories of VW JVs in China to suspend production for a few days early December 2020, according to local media' reports on 8th Dec. CAAM (China Association of Automobile Manufacturers) estimate, based on survey over more than 60 OEMs, is that MCU short supply - which mainly lead to production issue of ESP(（Electronic Stability Program) and ECU(Electronic Control Unit) and hence mid-high end cars - might cause short term interruption on some OEMs in 1Q2021 before getting released afterwards. According to latest media reports, Honda JVs and VW JVs in JV brands are both impacted so far. Geely (175.HK) and Changan (000625.CH) are under pressure. However, as the short supply is led by short term reasons and actions have been taken in the whole supply chain, it would not change our positive view on China's auto sector 2021E. Instead, if any share performance weakness happens due to related components shortage, that would be buying opportunities for investors.  

China Auto: Short-Term Interruptions from Auto Chips Shortage

Cross Asset Strategy

<p>It’s been an excellent year for investors in the China electric vehicle stock, but some investors believe the speculation rather than underlying fundamentals, is sending China NEV(New Energy Vehicle) stock higher. We remain confident in the China-based electric vehicle (EV) maker’s prospects due to strong government policy and continued growing market.</p>
<p>We are positive on NEV makers (<a href="https://www.smartkarma.com/entities/li-auto-inc" target="_blank" rel="noopener">Li Auto Inc. (LI US)</a> , <a href="https://www.smartkarma.com/entities/nio-inc" target="_blank" data-smartkarma-citation="entities:27399:1" rel="noopener">NIO Inc (NIO US)</a> and <a href="https://www.smartkarma.com/entities/xpeng-motors" target="_blank" data-smartkarma-citation="entities:29217:1" rel="noopener">Xpeng Motors (XPEV US)</a>) and NEV charging infrastructure ( <a href="https://www.smartkarma.com/entities/china-titans-energy-technology-group-co" target="_blank" data-smartkarma-citation="entities:3953:1" rel="noopener">China Titans Energy Technology Group Co (2188 HK)</a> ,  <a href="https://www.smartkarma.com/entities/ten-pao-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27241:1" rel="noopener">Ten Pao Group Holdings Ltd (1979 HK)</a>  )as both segments stand to gain from an improvement in NEV sales after NEV sales lagged the recovery in traditional auto sales, and with local governments providing various support measures.</p>
<p>China has bet big on NEVs as a strategically important industry, the government has five essential policy support tools for NEVs include reduced taxes, direct subsidies to manufacturers, consumer subsidies, mandated government procurements, and the industrial policy Made in China 2025 (Even China keep this plan at low profile due to trade war with the U.S).In this insight, we have highlighted the China recent NEVs support policy to evaluate China NEV industry.</p>

It’s been an excellent year for investors in the China electric vehicle stock, but some investors believe the speculation rather than underlying fundamentals, is sending China NEV(New Energy Vehicle) stock higher. We remain confident in the China-based electric vehicle (EV) maker’s prospects due to strong government policy and continued growing market.
We are positive on NEV makers (Li Auto Inc. (LI US) , NIO Inc (NIO US) and Xpeng Motors (XPEV US)) and NEV charging infrastructure ( China Titans Energy Technology Group Co (2188 HK) ,  Ten Pao Group Holdings Ltd (1979 HK)  )as both segments stand to gain from an improvement in NEV sales after NEV sales lagged the recovery in traditional auto sales, and with local governments providing various support measures.
China has bet big on NEVs as a strategically important industry, the government has five essential policy support tools for NEVs include reduced taxes, direct subsidies to manufacturers, consumer subsidies, mandated government procurements, and the industrial policy Made in China 2025 (Even China keep this plan at low profile due to trade war with the U.S).In this insight, we have highlighted the China recent NEVs support policy to evaluate China NEV industry.

China Aims To Build Strong Domestic NEV Brands that Can Compete in Global Markets

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Quantitative Analysis

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<p>The H-Share/A-Share monitor is published every weekend for the data ending the last trading day of the previous week. It includes all H-Share/A-Share pairs where the H-Share has a 90-day average daily value-traded of US$1.0mm or more. It shows basic data per H/A spread stock by sector, with...</p>
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<ul style="list-style-type: disc;">
<li>H/A Discount,</li>
<li>movement in H/A Discount over 5 and 20 days,</li>
<li>a 52-week Z-score for the spread,</li>
<li>A chart showing evolution of the H/A spread over the last 20 days,</li>
<li>Southbound shares held (millions of shares), Net Change in Southbound (Shanghai and Shenzhen combined) shares held by millions of shares, and contribution of Net Southbound Volume to HK-traded volume over the past five days and 20 days, </li>
<li>There is also a chart showing the average sector spread and the individual spreads within each sector over the last three years. </li>
</ul>
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<p>A recent addition is the possible status of H/A-share companies in the monitor which are subject to the Trump Executive Order on Chinese Military Companies. They are separated into three types (Possible Direct Qualifying Entity, Possible Indirect Qualifying Entity, and 20+%-owned by Qualifying Entity). They are color-coded as below.</p>
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<p>For more on the list of names, please see <a href="https://www.smartkarma.com/insights/trump-s-executive-order-on-chinese-military-companies" target="_blank" data-smartkarma-citation="insights:45259" rel="noopener">Trump's Executive Order on Chinese Military Companies</a>. </p>
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<p>This past week saw mixed movement in H/A spreads but on average they were narrower.</p>
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/829/original/Screenshot%202020-11-28%20at%206.25.16%20PM.png?1606559131" class="editor-image img-responsive" data-smartkarma-image-id="174829"></figure>
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<p>Average performance of the 39 recommendations (long 27, short 12) from last week was for a profit of 0.67% per trade.</p>
<p>There are 43 recommendations for the upcoming week.</p>
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<p>The first sector discussed is <strong>Consumer</strong>, where liquid H/A spreads narrowed on average 0.6% this past week after narrowing 2.7% the week before. Spreads are now tighter by 2.1% on average over a four-week period. Four of six liquid Hs outperformed their As.</p>
<p>Southbound accounts were large-ish net buyers on the week. There were three net buys and three net sells but the net buying ended up being all <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a>, again. <a href="https://www.smartkarma.com/entities/guangzhou-automobile-group-co-ltd" target="_blank" data-smartkarma-citation="entities:11082:1" rel="noopener">Guangzhou Automobile Group (2238 HK)</a> saw significant net selling. </p>
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<p>Last week I recommended staying long the H vs A on <a href="https://www.smartkarma.com/entities/great-wall-motor-co-ltd-cb302af9-398c-4d2d-ba39-023e43287eef" target="_blank" data-smartkarma-citation="entities:128:1" rel="noopener">Great Wall Motor (2333 HK)</a> and that spread gained 1.6% for the week (after gaining 4.7% the week before when it was also recommended). This past week I put out the Weekly late on Monday (after 2pm), when BYD in Hong Kong had gained 3.7% vs the As on the day, and so recommended implementing a short BYD (1211 HK) H vs A share trade and from that point or even from the end of the day or the next, the Hs actually underperformed the As by 0.4%. </p>
<p>See below the fold for this week's recommendations.</p>
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/809/original/Screenshot%202020-11-28%20at%205.32.56%20PM.png?1606556000" class="editor-image img-responsive" data-smartkarma-image-id="174809"></figure>
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<section class="figure">For Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities, please read on.</section>
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The H-Share/A-Share monitor is published every weekend for the data ending the last trading day of the previous week. It includes all H-Share/A-Share pairs where the H-Share has a 90-day average daily value-traded of US$1.0mm or more. It shows basic data per H/A spread stock by sector, with...



H/A Discount,
movement in H/A Discount over 5 and 20 days,
a 52-week Z-score for the spread,
A chart showing evolution of the H/A spread over the last 20 days,
Southbound shares held (millions of shares), Net Change in Southbound (Shanghai and Shenzhen combined) shares held by millions of shares, and contribution of Net Southbound Volume to HK-traded volume over the past five days and 20 days, 
There is also a chart showing the average sector spread and the individual spreads within each sector over the last three years. 



A recent addition is the possible status of H/A-share companies in the monitor which are subject to the Trump Executive Order on Chinese Military Companies. They are separated into three types (Possible Direct Qualifying Entity, Possible Indirect Qualifying Entity, and 20+%-owned by Qualifying Entity). They are color-coded as below.





For more on the list of names, please see Trump's Executive Order on Chinese Military Companies. 



This past week saw mixed movement in H/A spreads but on average they were narrower.




Average performance of the 39 recommendations (long 27, short 12) from last week was for a profit of 0.67% per trade.
There are 43 recommendations for the upcoming week.



The first sector discussed is Consumer, where liquid H/A spreads narrowed on average 0.6% this past week after narrowing 2.7% the week before. Spreads are now tighter by 2.1% on average over a four-week period. Four of six liquid Hs outperformed their As.
Southbound accounts were large-ish net buyers on the week. There were three net buys and three net sells but the net buying ended up being all BYD (1211 HK), again. Guangzhou Automobile Group (2238 HK) saw significant net selling. 




Last week I recommended staying long the H vs A on Great Wall Motor (2333 HK) and that spread gained 1.6% for the week (after gaining 4.7% the week before when it was also recommended). This past week I put out the Weekly late on Monday (after 2pm), when BYD in Hong Kong had gained 3.7% vs the As on the day, and so recommended implementing a short BYD (1211 HK) H vs A share trade and from that point or even from the end of the day or the next, the Hs actually underperformed the As by 0.4%. 
See below the fold for this week's recommendations.











For Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities, please read on.


Quiddity Weekly H/​​A: Share Spread Monitor as of 27 Nov 2020

China

BYD Company Limited, through its subsidiaries, manufactures and sells automobiles. The Company also researches, develops, manufactures and sells batteries, which are applied on mobile phones, cordless phones, power tools and other kinds of portable electronic devices.

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52-week Range	0.00 - 0.00
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BYD (1211 HK)

China Will Reduce Its Subsidies for Regular New Energy Vehicles by 20% in 2021

China Cuts Nev Subsidy in 2021,looking ahead from a policy perspective, removing local subsidies after 2022 should lead to greater consolidation in...

Li Tang

China Expects to Surpass 2020 NEV Sales Target

China's NEV market is expected to grow fast in next year thanks to government policies and other factors.We continue to be positive on the...

Li Tang

China Auto: Short-Term Interruptions from Auto Chips Shortage

Impact of wafer shortage extended to auto chips recently, and forced several factories of VW JVs in China to suspend production early December...

Victoria Li

China Aims To Build Strong Domestic NEV Brands that Can Compete in Global Markets

We remain confident in the China-based electric vehicle (EV) maker’s prospects due to government strong policy support and continue growing market.

Li Tang

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China Will Reduce Its Subsidies for Regular New Energy Vehicles by 20% in 2021

China Cuts Nev Subsidy in 2021,looking ahead from a policy perspective, removing local subsidies after 2022 should lead to greater consolidation in...

Li Tang

China Expects to Surpass 2020 NEV Sales Target

China's NEV market is expected to grow fast in next year thanks to government policies and other factors.We continue to be positive on the...

Li Tang

China Auto: Short-Term Interruptions from Auto Chips Shortage

Impact of wafer shortage extended to auto chips recently, and forced several factories of VW JVs in China to suspend production early December...

Victoria Li

China Aims To Build Strong Domestic NEV Brands that Can Compete in Global Markets

We remain confident in the China-based electric vehicle (EV) maker’s prospects due to government strong policy support and continue growing market.

Li Tang

Quiddity Weekly H/​​A: Share Spread Monitor as of 27 Nov 2020

The weekly H/A Share Monitor and Trade Recommendations. Spreads narrower on the week. Last week's 39 trade recommendations gained 0.67% on average....

Travis Lundy

Quiddity Weekly H/A: Share Spread Monitor as of 27 Nov 2020