HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>Stable cement price, good cost control, and a better base for comparison will lift <a href="https://www.smartkarma.com/entities/anhui-conch-cement-co-ltd" target="_blank" data-smartkarma-citation="entities:159:1" rel="noopener">Anhui Conch Cement (914 HK)</a>'s profitability recovery in 2-4Q24.  <a href="https://www.smartkarma.com/entities/anhui-gourgen-traffic-cons-a" target="_blank" data-smartkarma-citation="entities:30237:1" rel="noopener"></a>
</li>
<li>Anhui Conch's earnings outperformed in 1Q24. Its peers are making losses and hence will reduce excess supply. Stabilisation of the real estate market will lower the pressure on demand.</li>
<li>Net cash equals 46% of the current share price, and its valuations (both PER and P/B) are inexpensive relative to peers and ROE.  </li>
</ul>


Stable cement price, good cost control, and a better base for comparison will lift Anhui Conch Cement (914 HK)'s profitability recovery in 2-4Q24.  

Anhui Conch's earnings outperformed in 1Q24. Its peers are making losses and hence will reduce excess supply. Stabilisation of the real estate market will lower the pressure on demand.
Net cash equals 46% of the current share price, and its valuations (both PER and P/B) are inexpensive relative to peers and ROE.  


Anhui Conch Cement (914 HK): Increasingly Favourable Odds

Equity Analyst

Steve Zhou, CFA

<ul>
<li>
<a href="https://www.smartkarma.com/entities/anhui-conch-cement-co-ltd" target="_blank" data-smartkarma-citation="entities:159:1" rel="noopener">Anhui Conch Cement (914 HK)</a> is trading at a historical low forward P/B of 0.5x, compared to an average of 1.2x for the last decade. </li>
<li>In the long term, China cement will likely see much lower volume and lower cement prices in the short term, but eventually rising cement prices due to better supply picture. </li>
<li>As the lowest cost producer, Anhui Conch stands a very good chance to win out in the long term and potentially more than double its current market share. </li>
</ul>



Anhui Conch Cement (914 HK) is trading at a historical low forward P/B of 0.5x, compared to an average of 1.2x for the last decade. 
In the long term, China cement will likely see much lower volume and lower cement prices in the short term, but eventually rising cement prices due to better supply picture. 
As the lowest cost producer, Anhui Conch stands a very good chance to win out in the long term and potentially more than double its current market share. 


Anhui Conch Cement (914 HK):  Where Are We In The Cycle?

<ul>
<li>
<a href="https://www.smartkarma.com/entities/anhui-conch-cement-co-ltd" target="_blank" data-smartkarma-citation="entities:159:1" rel="noopener">Anhui Conch Cement (914 HK)</a> has been facing numerous challenges, but at 0.5x P/B (2SD below average) and 36.4% of share price is net cash, it pays not overly bearish. </li>
<li>Government stimulus measures may not be effective immediately, but should pave the way for better cement demand. A 16.5% increase in special purpose bond issuance in 4M23 is positive.  </li>
<li>Depressed cement price is bad, but this will drive small and inefficient players out of the market. This will bring more orderly competition and allow Conch Cement gain market share. </li>
</ul>



Anhui Conch Cement (914 HK) has been facing numerous challenges, but at 0.5x P/B (2SD below average) and 36.4% of share price is net cash, it pays not overly bearish. 
Government stimulus measures may not be effective immediately, but should pave the way for better cement demand. A 16.5% increase in special purpose bond issuance in 4M23 is positive.  
Depressed cement price is bad, but this will drive small and inefficient players out of the market. This will bring more orderly competition and allow Conch Cement gain market share. 


Anhui Conch Cement (914 HK): Time for More Aggressive Thoughts?

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>The <strong><a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture Holdings (586 HK)</a></strong> / <strong><a href="https://www.smartkarma.com/entities/anhui-conch-cement-co-ltd-094855ab-abec-4b71-956b-5bfc85e22fdd" target="_blank" data-smartkarma-citation="entities:389:1" rel="noopener">Anhui Conch Cement (600585 CH)</a></strong> ratio is at an all-time low. The implied stub is re-testing its all-time low.</li>
<li>Preceding my comments on China Conch/Anhui are the current setup/unwind tables for Asia-Pacific Holdcos. </li>
<li>These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation &gt;20%.</li>
</ul>


The China Conch Venture Holdings (586 HK) / Anhui Conch Cement (600585 CH) ratio is at an all-time low. The implied stub is re-testing its all-time low.
Preceding my comments on China Conch/Anhui are the current setup/unwind tables for Asia-Pacific Holdcos. 
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation &gt;20%.


StubWorld: China Conch Trades Cheap. As Does Anhui

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

<ul>
<li>There are 5 changes for the <a href="https://www.smartkarma.com/entities/shanghai-stock-exchange-sse-50-a-share-index" target="_blank" data-smartkarma-citation="entities:31073:1" rel="noopener">SSE50 Index</a> that will be implemented at the close on 9 June. There is over 1x ADV to sell on a few deletions.</li>
<li>We estimate a one-way turnover of 5.3% at the June rebalance leading to a one-way trade of CNY 3.84bn. Index arb activity could add to the impact on the stocks.</li>
<li>The adds outperformed the deletes from February to April but have given up a lot of the outperformance over the last month.</li>
</ul>


There are 5 changes for the SSE50 Index that will be implemented at the close on 9 June. There is over 1x ADV to sell on a few deletions.
We estimate a one-way turnover of 5.3% at the June rebalance leading to a one-way trade of CNY 3.84bn. Index arb activity could add to the impact on the stocks.
The adds outperformed the deletes from February to April but have given up a lot of the outperformance over the last month.


SSE50 Index Rebalance: 5 Changes as Adds Give Up Recent Gains

China

Anhui Conch Cement Company Limited manufactures cement products. The Company produces silicate cements, slag silicate cements, composite silicate cements, cement clinkers, and other products. Anhui Conch Cement Cement markets its products throughout China and worldwide.

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Anhui Conch Cement (600585 CH)

Anhui Conch Cement (914 HK): Increasingly Favourable Odds

Anhui Conch's profitability is set to improve in 2-4Q24 due to stable prices, cost control, and a favourable comparison base. Net cash equals 46%...

Osbert Tang, CFA

Anhui Conch Cement (914 HK): Where Are We In The Cycle?

Anhui Conch Cement is trading at a historical low P/B ratio. As the lowest cost producer, Anhui Conch stands a very good chance to win out in the...

Steve Zhou, CFA

Anhui Conch Cement (914 HK): Time for More Aggressive Thoughts?

While Conch Cement's operating environment is challenging, its 0.5x P/B and 36.4% of share price in net cash provide good buffers. There are also...

Osbert Tang, CFA

StubWorld: China Conch Trades Cheap. As Does Anhui

Anhui appears inexpensive to peers. And with the As trading slightly "richer" to the Hs here - plus the Hs carry a 7.5% yield, I'd be inclined to...

David Blennerhassett

SSE50 Index Rebalance: 5 Changes as Adds Give Up Recent Gains

There are 5 changes for the SSE50 Index in June. The adds outperformed from Feb-April but have underperformed since then. The Anhui Conch Cement...

Brian Freitas

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52-week Range

Market Cap (USDm)

P/E

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Anhui Conch Cement (914 HK): Increasingly Favourable Odds

​Anhui Conch's profitability is set to improve in 2-4Q24 due to stable prices, cost control, and a favourable comparison base. Net cash equals 46%...

Osbert Tang, CFA

Anhui Conch Cement (914 HK): Where Are We In The Cycle?

​Anhui Conch Cement is trading at a historical low P/B ratio. As the lowest cost producer, Anhui Conch stands a very good chance to win out in the...

Steve Zhou, CFA

Anhui Conch Cement (914 HK): Time for More Aggressive Thoughts?

While Conch Cement's operating environment is challenging, its 0.5x P/B and 36.4% of share price in net cash provide good buffers. There are also...

Osbert Tang, CFA

StubWorld: China Conch Trades Cheap. As Does Anhui

Anhui appears inexpensive to peers. And with the As trading slightly "richer" to the Hs here - plus the Hs carry a 7.5% yield, I'd be inclined to...

David Blennerhassett

SSE50 Index Rebalance: 5 Changes as Adds Give Up Recent Gains

There are 5 changes for the SSE50 Index in June. The adds outperformed from Feb-April but have underperformed since then. The Anhui Conch Cement...

Brian Freitas

Anhui Conch's profitability is set to improve in 2-4Q24 due to stable prices, cost control, and a favourable comparison base. Net cash equals 46%...

Anhui Conch Cement is trading at a historical low P/B ratio. As the lowest cost producer, Anhui Conch stands a very good chance to win out in the...