HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Shenzhen International / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/shenzhen-intl-holdings" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen Intl (152 HK)</a> managed to engine a rebound in 2H20 after the serious negative impact of COVID-19 outbreak on its two key businesses - <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway Co H (548 HK)</a> and Shenzhen Airlines. Instead of the 20% YoY decline in headline FY20 profit, we think the market's focus should be on the sharp HoH turnaround in its bottomline (excluding one-off items).In the post-FY20 result call, management believes that SZ Int has significant potential to be released in the future. Besides the recovery of logistics, toll road and airlines operations, it will benefit from the expansion in logistics network, securitisation of logistics facilities, contribution from Qianhai project and in the longer term, the transformation and upgrade of South China Logistics Park. We remain positive on SZ Int and believe the stock's current multiples are far from being able to fully reflect its value.

Shenzhen Intl (152 HK) managed to engine a rebound in 2H20 after the serious negative impact of COVID-19 outbreak on its two key businesses - Shenzhen Expressway Co H (548 HK) and Shenzhen Airlines. Instead of the 20% YoY decline in headline FY20 profit, we think the market's focus should be on the sharp HoH turnaround in its bottomline (excluding one-off items).In the post-FY20 result call, management believes that SZ Int has significant potential to be released in the future. Besides the recovery of logistics, toll road and airlines operations, it will benefit from the expansion in logistics network, securitisation of logistics facilities, contribution from Qianhai project and in the longer term, the transformation and upgrade of South China Logistics Park. We remain positive on SZ Int and believe the stock's current multiples are far from being able to fully reflect its value.

Shenzhen Intl (152 HK): Remarkable 2H20; Promising Prospects Revealed in Post-Result Call

We believe the potential acquisition of a 71.83% stake in <a href="https://www.smartkarma.com/entities/shenzhen-investment-holdings-bay-area-development" target="_blank" data-smartkarma-citation="entities:12134:1" rel="noopener">Shenzhen Investment Holdings Bay Area Development (737 HK)</a> by <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway Co H (548 HK)</a> has positive strategic implications on <a href="https://www.smartkarma.com/entities/shenzhen-intl-holdings" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen Intl (152 HK)</a>. SZ Bay Area Dev's historical stable earnings stream and its net cash balance are other added strengths of the proposed deal. Since the deal is still on a MoU stage, it is too early to discuss on the funding arrangement. However, we prefer SZ Exp issuing new shares as acquisition consideration, as this will be more advantageous to SZ Int. Under this scenario, SZ Int's stake in SZ Exp will dilute to 38% from 52% but the earnings impact is relatively insignificant. The best thing is that without the need to consolidate the heavily leveraged SZ Exp, SZ Int's overall gearing will be lowered and possibly provide more financial muscle for it to focus on logistics expansion.

We believe the potential acquisition of a 71.83% stake in Shenzhen Investment Holdings Bay Area Development (737 HK) by Shenzhen Expressway Co H (548 HK) has positive strategic implications on Shenzhen Intl (152 HK). SZ Bay Area Dev's historical stable earnings stream and its net cash balance are other added strengths of the proposed deal. Since the deal is still on a MoU stage, it is too early to discuss on the funding arrangement. However, we prefer SZ Exp issuing new shares as acquisition consideration, as this will be more advantageous to SZ Int. Under this scenario, SZ Int's stake in SZ Exp will dilute to 38% from 52% but the earnings impact is relatively insignificant. The best thing is that without the need to consolidate the heavily leveraged SZ Exp, SZ Int's overall gearing will be lowered and possibly provide more financial muscle for it to focus on logistics expansion.  

Shenzhen Intl (152 HK): Implications of SZ Exp's Potential Acquisition of SZ Bay Area Dev

We took a deep look in the recent plan to acquire 8% stake in <a href="https://www.smartkarma.com/entities/suning-com-co-ltd-a" target="_blank" data-smartkarma-citation="entities:9178:1" rel="noopener">Suning Commerce Group Co., Ltd. A (002024 CH)</a> as announced by <a href="https://www.smartkarma.com/entities/shenzhen-intl-holdings" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen Intl (152 HK)</a> (SZIH). We believe the deal is not only good to SZIH, but is also a wise one. While the Rmb5.2bn consideration is sizable and will not generate much near-term financial impacts, the strategic benefits to SZIH are significantly more important.We estimate that the cost of acquisition only equals to 1.2-2.2% of SZIH's FY19 profit, but the strategic benefits will include fostering further collaboration, accelerating network expansion, potentially restructuring assets and gaining quasi-control in Suning.

We took a deep look in the recent plan to acquire 8% stake in Suning Commerce Group Co., Ltd. A (002024 CH) as announced by Shenzhen Intl (152 HK) (SZIH). We believe the deal is not only good to SZIH, but is also a wise one. While the Rmb5.2bn consideration is sizable and will not generate much near-term financial impacts, the strategic benefits to SZIH are significantly more important.We estimate that the cost of acquisition only equals to 1.2-2.2% of SZIH's FY19 profit, but the strategic benefits will include fostering further collaboration, accelerating network expansion, potentially restructuring assets and gaining quasi-control in Suning. 

Shenzhen Intl (152 HK): Is Investing in Suning a Good or Bad Deal?

Zhejiang Expressway Co H / Equity Bottom-Up

<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.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 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

Thematic (Sector/Industry)

We see the joint announcement by five ministries/departments on the development of postal and express industry in the Guangdong-Hong Kong-Macau Greater Bay Area has positive implications on many of the logistics operators in China in the medium to long term. The supporting initiatives range from the strengthening of the strategic hubs of Guangzhou and Shenzhen airports to encouraging more industry consolidations.While many companies are expected to benefit from these GBA postal and express policies, we highlight some of the most important ones in this Insight - <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a> (GBIA) and <a href="https://www.smartkarma.com/entities/shenzhen-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:15522:1" rel="noopener">Shenzhen Airport Co A (000089 CH)</a>, <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>, <a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a>, <a href="https://www.smartkarma.com/entities/kerry-logistics-network-ltd" target="_blank" data-smartkarma-citation="entities:367:1" rel="noopener">Kerry Logistics Network (636 HK)</a>, <a href="https://www.smartkarma.com/entities/shenzhen-intl-holdings" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen Intl (152 HK)</a> and <a href="https://www.smartkarma.com/entities/maanshan-dingtai-rare-a" target="_blank" data-smartkarma-citation="entities:4128:1" rel="noopener">S.F. Holding (002352 CH)</a>.

We see the joint announcement by five ministries/departments on the development of postal and express industry in the Guangdong-Hong Kong-Macau Greater Bay Area has positive implications on many of the logistics operators in China in the medium to long term. The supporting initiatives range from the strengthening of the strategic hubs of Guangzhou and Shenzhen airports to encouraging more industry consolidations.While many companies are expected to benefit from these GBA postal and express policies, we highlight some of the most important ones in this Insight - Guangzhou Baiyun International Airport (600004 CH) (GBIA) and Shenzhen Airport Co A (000089 CH), China Southern Airlines (1055 HK), Sinotrans (598 HK), Kerry Logistics Network (636 HK), Shenzhen Intl (152 HK) and S.F. Holding (002352 CH).

China Logistics: Key Beneficiaries of China's Greater Bay Area Postal and Express Development

China

Shenzhen Expressway Company Limited constructs, manages and operates toll highways and expressways in China.

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Shenzhen Expressway Co H (548 HK)

Shenzhen Intl (152 HK): Remarkable 2H20; Promising Prospects Revealed in Post-Result Call

After a good 2H20, we see good future potential at SZ Int and a step up in corporate activities. Its multiples are unable to reflect its recovery...

Osbert Tang, CFA

Shenzhen Intl (152 HK): Implications of SZ Exp's Potential Acquisition of SZ Bay Area Dev

A scenario that SZ Exp issuing new shares for the potential acquisition of SZ Bay Area Dev from its parent will be positive to SZ Int. We believe...

Osbert Tang, CFA

Shenzhen Intl (152 HK): Is Investing in Suning a Good or Bad Deal?

We see SZIH's acquisition of 8% stake in Suning a value-enhancing move in the strategic perspective, though the near-term financial impact and...

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

China Logistics: Key Beneficiaries of China's Greater Bay Area Postal and Express Development

China's support of postal and express industry development in the Greater Bay Area has positive implications on many logistics companies. We...

Osbert Tang, CFA

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