Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Equity Bottom-Up

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<p><em>Outbound</em> Chinese travel demand remained weak in September, despite Macau doubling Chinese inbound traffic (again). Activity from China into most regional destinations remained comatose.</p>
<p><em>Domestic</em> Chinese travel demand continued its recovery in September, and one metric even showed a modest YoY improvement. Other measures showed activity still far below year-ago levels. </p>
<p>However, data also show that average domestic air segment length remains depressed, and this suggests consumers remain cautious regarding leisure travel.</p>
<p>We continue to expect only a gradual recovery in tourism and travel demand over the next few months.</p>




Outbound Chinese travel demand remained weak in September, despite Macau doubling Chinese inbound traffic (again). Activity from China into most regional destinations remained comatose.
Domestic Chinese travel demand continued its recovery in September, and one metric even showed a modest YoY improvement. Other measures showed activity still far below year-ago levels. 
However, data also show that average domestic air segment length remains depressed, and this suggests consumers remain cautious regarding leisure travel.
We continue to expect only a gradual recovery in tourism and travel demand over the next few months.

TRACKING TRAFFIC/Chinese Tourism: Outbound: Comatose | Domestic: Fewer, Shorter Trips = New Normal?

HK/China Equity Long-Short

Osbert Tang, CFA

Shanghai International Airport / Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/shanghai-international-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:6511:1" rel="noopener">Shanghai International Airport (600009 CH)</a> logged a loss of Rmb352m in 3Q20, representing a 24.6% QoQ loss narrowing. In absolute terms, it is worse than <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> (loss of Rmb131m) and <a href="https://www.smartkarma.com/entities/beijing-capital-international-airport-bcia" target="_blank" data-smartkarma-citation="entities:10626:1" rel="noopener">Beijing Capital International Airport (BCIA) (694 HK)</a> (loss of Rmb347m). However, we still prefer SIAC given its exposure to the gradual recovery in international traffic, growth in freight volume, limited amount of capex and less risk of traffic competition/diversion.</p><p>For GBIA and BCIA, we think that the better 3Q20 results cannot cover the serious structural concerns they are facing. GBIA have worries including competition from other airports, the potential construction of a new airport at the Guangzhou vicinity and the likely rise in capex due to capacity expansion.  Meanwhile, traffic diversion to Beijing Daxing International Airport is still the medium term issue to cap BCIA's pace of recovery.</p>

Shanghai International Airport (600009 CH) logged a loss of Rmb352m in 3Q20, representing a 24.6% QoQ loss narrowing. In absolute terms, it is worse than Guangzhou Baiyun International Airport (600004 CH) (loss of Rmb131m) and Beijing Capital International Airport (BCIA) (694 HK) (loss of Rmb347m). However, we still prefer SIAC given its exposure to the gradual recovery in international traffic, growth in freight volume, limited amount of capex and less risk of traffic competition/diversion.For GBIA and BCIA, we think that the better 3Q20 results cannot cover the serious structural concerns they are facing. GBIA have worries including competition from other airports, the potential construction of a new airport at the Guangzhou vicinity and the likely rise in capex due to capacity expansion.  Meanwhile, traffic diversion to Beijing Daxing International Airport is still the medium term issue to cap BCIA's pace of recovery.

Shanghai International Airport (600009 CH): Narrowing Loss in 3Q20

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> is the only of the Big Three Chinese airlines to record a profit in 3Q20, thanks to its domestic exposure, good cost management and exchange gain from Rmb/USD appreciation. It logged a profit of Rmb711m in the quarter, significantly ahead of losses of Rmb671m for Air China and Rmb563m for CEA. We believe CSA's solid performance can extend into 4Q20, sustaining its outperformance against these two peers.</p><p>Both CEA and Air China will continue to be weighted down by their international routes, with Air China further suffers from the burden from <a href="https://www.smartkarma.com/entities/cathay-pacific-airways-ltd" target="_blank" data-smartkarma-citation="entities:243:1" rel="noopener">Cathay Pacific Airways (293 HK)</a>. At 0.75x P/B, CSA stays firmly as our top pick in the Chinese airlines sector.   </p>

China Southern Airlines (1055 HK) is the only of the Big Three Chinese airlines to record a profit in 3Q20, thanks to its domestic exposure, good cost management and exchange gain from Rmb/USD appreciation. It logged a profit of Rmb711m in the quarter, significantly ahead of losses of Rmb671m for Air China and Rmb563m for CEA. We believe CSA's solid performance can extend into 4Q20, sustaining its outperformance against these two peers.Both CEA and Air China will continue to be weighted down by their international routes, with Air China further suffers from the burden from Cathay Pacific Airways (293 HK). At 0.75x P/B, CSA stays firmly as our top pick in the Chinese airlines sector.   

China Southern Airlines (1055 HK): Profit, Profit, Profit in 3Q20

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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<p>A Double Dose of StubWorld this week...</p>
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<p>After fourteen consecutive months of total leased office space declining, major Hong Kong property-owners have scant alternatives but to negotiate leases. And like <a href="https://www.smartkarma.com/entities/swire-properties-ltd" target="_blank" data-smartkarma-citation="entities:5775:1" rel="noopener">Swire Properties (1972 HK)</a>, sell non-core assets.</p>
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<p>Preceding my comments on Swire are the weekly setup/unwind tables for Asia-Pacific Holdcos.</p>
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<p>These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.</p>
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A Double Dose of StubWorld this week...



After fourteen consecutive months of total leased office space declining, major Hong Kong property-owners have scant alternatives but to negotiate leases. And like Swire Properties (1972 HK), sell non-core assets.



Preceding my comments on Swire are the weekly setup/unwind tables for Asia-Pacific Holdcos.





These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.




StubWorld: Swire Shedding Property Amidst Leasing Funk

Shenzhen International / Equity Bottom-Up

<p>We find <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) an interesting, yet inexpensive, play on the encouraging outlook of both Shenzhen city and the Greater Bay Area. At the current depressed valuation of just 0.87x P/B, it is off significantly from the peak P/B of 1.2x in early this year. We see this penalty unjustifiable, as its two core assets - <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> (SZEX) and Shenzhen Airlines - will see good recovery in bottom line in 2H20. The announcement of their 3Q20 results are likely positive catalysts, as SZIH itself does not report quarterly result.</p><p>Longer term, SZIH is a beneficiary of infrastructure REIT program given its HK$15.8bn worth of logistics assets, and this business will also benefit from the e-commerce boom. Moreover, as the controlling shareholder of SZEX, SZIH will accrue the benefits from SZEX's potential securitisation of toll road and environmental treatment assets. In our view, SZIH is a rare species that currently overlooked by the market. </p>

We find Shenzhen Intl (152 HK) (SZIH) an interesting, yet inexpensive, play on the encouraging outlook of both Shenzhen city and the Greater Bay Area. At the current depressed valuation of just 0.87x P/B, it is off significantly from the peak P/B of 1.2x in early this year. We see this penalty unjustifiable, as its two core assets - Shenzhen Expressway Co H (548 HK) (SZEX) and Shenzhen Airlines - will see good recovery in bottom line in 2H20. The announcement of their 3Q20 results are likely positive catalysts, as SZIH itself does not report quarterly result.Longer term, SZIH is a beneficiary of infrastructure REIT program given its HK$15.8bn worth of logistics assets, and this business will also benefit from the e-commerce boom. Moreover, as the controlling shareholder of SZEX, SZIH will accrue the benefits from SZEX's potential securitisation of toll road and environmental treatment assets. In our view, SZIH is a rare species that currently overlooked by the market. 

Shenzhen Intl (152 HK): A Gem in the Greater Bay Area

China

Air China Limited provides passenger, cargo, and airline-related services in China.  The Company is primarily based in Beijing and a major hub for domestic and international air transportation.  Air China's airline-related services include aircraft maintenance, repair, overhaul service, ground services, and in-flight catering services.

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Air China Ltd (H) (753 HK)

TRACKING TRAFFIC/Chinese Tourism: Outbound: Comatose | Domestic: Fewer, Shorter Trips = New Normal?

September numbers show almost non-existent outbound travel but a continued gradual recovery in domestic travel demand. Shorter average domestic air...

Tracking Traffic

Shanghai International Airport (600009 CH): Narrowing Loss in 3Q20

Shanghai Intl Airport narrowed its loss by 24.6% QoQ to Rmb352m in 3Q20. We like its exposure to the growth in cargo and recovery international...

Osbert Tang, CFA

China Southern Airlines (1055 HK): Profit, Profit, Profit in 3Q20

CSA is the only of the Big Three to record a profit in 3Q20, thanks to its domestic exposure, good cost management and exchange gain from Rmb/USD...

Osbert Tang, CFA

StubWorld: Swire Shedding Property Amidst Leasing Funk

After fourteen consecutive months of total leased office space declining, major Hong Kong property-owners have scant alternatives but to negotiate...

David Blennerhassett

Shenzhen Intl (152 HK): A Gem in the Greater Bay Area

Shenzhen Intl is an interesting, yet inexpensive (0.87x P/B), play on the encouraging outlook of Shenzhen and the Greater Bay Area. 3Q20 results of...

Osbert Tang, CFA

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