HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>China's defence industry is poised to be another major focus going forward. Many stocks have corrected by 3-20% from their recent peaks, presenting interesting opportunities. </li>
<li>Most of them are A-share stocks, with business ranging from fighter manufacturing to optical system development to aircraft engine research and production.</li>
<li>
<a href="https://www.smartkarma.com/entities/avichina-industry-technology-h" target="_blank" data-smartkarma-citation="entities:16315:1" rel="noopener">AviChina Industry &amp; Technology H (2357 HK)</a> is the best play, given its Hong Kong listing, undemanding FY25 PER of 13.5x and 56% discount to holdings in A-share subsidiaries.</li>
</ul>


China's defence industry is poised to be another major focus going forward. Many stocks have corrected by 3-20% from their recent peaks, presenting interesting opportunities. 
Most of them are A-share stocks, with business ranging from fighter manufacturing to optical system development to aircraft engine research and production.

AviChina Industry &amp; Technology H (2357 HK) is the best play, given its Hong Kong listing, undemanding FY25 PER of 13.5x and 56% discount to holdings in A-share subsidiaries.


China Strategy: The Rise of China's Defence Industry

APAC IPOs & Placements, Aequitas Research

Ethan Aw

APAC IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/cirrus-aircraft" target="_blank" data-smartkarma-citation="entities:39858:1" rel="noopener">Cirrus Aircraft (0153126D US)</a> is looking to raise up to US$200m in its upcoming HK IPO.</li>
<li>Cirrus Aircraft designs, develops, manufactures, and sells premium aircrafts. Its two aircraft product lines, the SR2X Series and the Vision Jet, are currently certified and validated in over 60 countries.</li>
<li>We had covered the company’s performance in our earlier notes. In this note, we talk about its PHIP updates.</li>
</ul>



Cirrus Aircraft (0153126D US) is looking to raise up to US$200m in its upcoming HK IPO.
Cirrus Aircraft designs, develops, manufactures, and sells premium aircrafts. Its two aircraft product lines, the SR2X Series and the Vision Jet, are currently certified and validated in over 60 countries.
We had covered the company’s performance in our earlier notes. In this note, we talk about its PHIP updates.


Cirrus Aircraft Pre-IPO - PHIP Updates - Increased Customer Demand Continues to Drive Growth

<ul>
<li>
<a href="https://www.smartkarma.com/entities/cirrus-aircraft" target="_blank" data-smartkarma-citation="entities:39858:1" rel="noopener">Cirrus Aircraft (0153126D US)</a> is looking to raise up to US$300m in its upcoming HK IPO. </li>
<li>Cirrus Aircraft designs, develops, manufactures, and sells premium aircrafts. Its two aircraft product lines, the SR2X Series and the Vision Jet, are currently certified and validated in over 60 countries.</li>
<li>CA has managed to grow its profitability steadily over the track record period. However, the firm is subjected to heightened regulatory risks as US and China tensions rise.</li>
</ul>



Cirrus Aircraft (0153126D US) is looking to raise up to US$300m in its upcoming HK IPO. 
Cirrus Aircraft designs, develops, manufactures, and sells premium aircrafts. Its two aircraft product lines, the SR2X Series and the Vision Jet, are currently certified and validated in over 60 countries.
CA has managed to grow its profitability steadily over the track record period. However, the firm is subjected to heightened regulatory risks as US and China tensions rise.


Cirrus Aircraft Pre-IPO - Has Grown Steadily but Faces Prominent Regulatory Risks

Equity Bottom-Up

Avic Shenyang Aircraft / Equity Bottom-Up

<ul>
<li>As a major player in China's defense sector with established franchise in combat aircraft, <a href="https://www.smartkarma.com/entities/avic-shenyang-aircraft-co-ltd" target="_blank" data-smartkarma-citation="entities:12150:1" rel="noopener">Avic Shenyang Aircraft (600760 CH)</a> will enjoy earnings stability, reflecting positively on its defensiveness.</li>
<li>We believe it will benefit from China's efforts to narrow military gap against the US and the increase in military spending due to rising geopolitical tension globally. </li>
<li>AVIC Shenyang is less affected by pandemic lockdowns and has showed good capability to improve profitability, which are reflected in the solid 61% growth in 1Q22 recurring profit.</li>
</ul>


As a major player in China's defense sector with established franchise in combat aircraft, Avic Shenyang Aircraft (600760 CH) will enjoy earnings stability, reflecting positively on its defensiveness.
We believe it will benefit from China's efforts to narrow military gap against the US and the increase in military spending due to rising geopolitical tension globally. 
AVIC Shenyang is less affected by pandemic lockdowns and has showed good capability to improve profitability, which are reflected in the solid 61% growth in 1Q22 recurring profit.


AVIC Shenyang (600760 CH): Defense Is Defensive

<p><a href="https://www.smartkarma.com/entities/avic-shenyang-aircraft-co-ltd" target="_blank" data-smartkarma-citation="entities:12150:1" rel="noopener">Avic Shenyang Aircraft (600760 CH)</a> has a very solid 3Q21 with recurring profit up by 61.5% YoY and grew 81.8% for 9M21. The result was underpinned by encouraging revenue growth, steady margin performance, higher interest income and turnaround in investment income. The surge in contract liabilities and prepayment at end-9M21 also suggested good order momentum and production pace in this year.</p><p>We believe AVIC Shenyang will benefit from China's demand for combat aircraft, driven by both upgrade demand and the need to equip the country's increase in aircraft carrier fleet. The sustained tension across the Taiwan Strait and President Xi's recent signing of <a href="https://baijiahao.baidu.com/s?id=1715262162429714903&amp;wfr=spider&amp;for=pc" target="_blank" rel="noopener">"Military equipment ordering regulations"</a> should be positive to sentiment on the stock. Despite a 40.3% rally YTD, its valuation remains not too stretched when compared with a basket of A-share aerospace and defense stocks.</p>

Avic Shenyang Aircraft (600760 CH) has a very solid 3Q21 with recurring profit up by 61.5% YoY and grew 81.8% for 9M21. The result was underpinned by encouraging revenue growth, steady margin performance, higher interest income and turnaround in investment income. The surge in contract liabilities and prepayment at end-9M21 also suggested good order momentum and production pace in this year.We believe AVIC Shenyang will benefit from China's demand for combat aircraft, driven by both upgrade demand and the need to equip the country's increase in aircraft carrier fleet. The sustained tension across the Taiwan Strait and President Xi's recent signing of "Military equipment ordering regulations" should be positive to sentiment on the stock. Despite a 40.3% rally YTD, its valuation remains not too stretched when compared with a basket of A-share aerospace and defense stocks.

AVIC Shenyang (600760 CH): Heating Up on China's Combat Aircraft Demand

China

AVIC Aircraft Co., Ltd. manufactures large and mid size aircraft components and aluminum materials. The Company primarily contracts and produces vertical stable board, horizontal stable board, front inspection door for Boeing 737, and components for Boeing 747 and ATR-42. AVIC Aircraft also produces decorating materials and automobile parts.

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Avic Aircraft Co Ltd A (000768 CH)

China Strategy: The Rise of China's Defence Industry

China's defence industry stocks offer interesting opportunities with corrections of 3-20%, AviChina is a top pick with attractive valuation and a...

Osbert Tang, CFA

Cirrus Aircraft Pre-IPO - PHIP Updates - Increased Customer Demand Continues to Drive Growth

Cirrus Aircraft (0153126D US) is looking to raise up to US$200m in its upcoming HK IPO. We had covered the company’s performance in our earlier...

Ethan Aw

Cirrus Aircraft Pre-IPO - Has Grown Steadily but Faces Prominent Regulatory Risks

Cirrus Aircraft (0153126D US) is looking to raise up to US$300m in its upcoming HK IPO. CA has grown its profitability steadily over the track...

Ethan Aw

AVIC Shenyang (600760 CH): Defense Is Defensive

AVIC Shenyang is a unique defense play in China with quality earnings outlook. We think it will benefit from the recent geopolitical tension and...

Osbert Tang, CFA

AVIC Shenyang (600760 CH): Heating Up on China's Combat Aircraft Demand

AVIC Shenyang's solid 3Q21 suggests encouraging underlying demand momentum and positive cost management. The company will stay as a prime...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China Strategy: The Rise of China's Defence Industry

​China's defence industry stocks offer interesting opportunities with corrections of 3-20%, AviChina is a top pick with attractive valuation and a...

Osbert Tang, CFA

Cirrus Aircraft Pre-IPO - PHIP Updates - Increased Customer Demand Continues to Drive Growth

Cirrus Aircraft (0153126D US) is looking to raise up to US$200m in its upcoming HK IPO. We had covered the company’s performance in our earlier...

Ethan Aw

Cirrus Aircraft Pre-IPO - Has Grown Steadily but Faces Prominent Regulatory Risks

Cirrus Aircraft (0153126D US) is looking to raise up to US$300m in its upcoming HK IPO. CA has grown its profitability steadily over the track...

Ethan Aw

AVIC Shenyang (600760 CH): Defense Is Defensive

AVIC Shenyang is a unique defense play in China with quality earnings outlook. We think it will benefit from the recent geopolitical tension and...

Osbert Tang, CFA

AVIC Shenyang (600760 CH): Heating Up on China's Combat Aircraft Demand

AVIC Shenyang's solid 3Q21 suggests encouraging underlying demand momentum and positive cost management. The company will stay as a prime...

Osbert Tang, CFA

China's defence industry stocks offer interesting opportunities with corrections of 3-20%, AviChina is a top pick with attractive valuation and a...