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

Equity Bottom-Up

AviChina Industry & Technology H / Equity Bottom-Up

<ul>
<li>The slight dip in FY22 earnings for <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 due to product restructuring at <a href="https://www.smartkarma.com/entities/avic-helicopter-co-ltd-a" target="_blank" data-smartkarma-citation="entities:14380:1" rel="noopener">Avicopter (600038 CH)</a> and higher impairment/fair value losses.<a href="https://www.smartkarma.com/entities/china-aviation-optical-a" target="_blank" data-smartkarma-citation="entities:13827:1" rel="noopener"></a>
</li>
<li>It should return to growth track in the next two years, with rise in product demand, recovery in Avicopter, further restructuring and M&amp;As being major drivers. </li>
<li>Share price has increased 15.9% YTD but it is just on 9.2x FY23 PER. Its market cap is at 58.5% discount to holdings in its four listed A-share subsidiaries. </li>
</ul>


The slight dip in FY22 earnings for AviChina Industry &amp; Technology H (2357 HK) is due to product restructuring at Avicopter (600038 CH) and higher impairment/fair value losses.

It should return to growth track in the next two years, with rise in product demand, recovery in Avicopter, further restructuring and M&amp;As being major drivers. 
Share price has increased 15.9% YTD but it is just on 9.2x FY23 PER. Its market cap is at 58.5% discount to holdings in its four listed A-share subsidiaries. 


AviChina Industry (2357 HK): Still Well-Placed as Our High Conviction

<ul>
<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; Tech (2357 HK)</a> announced plan to consolidate helicopter business by disposing Changhe Aircraft and Harbin Aircraft to its subsidiary <a href="https://www.smartkarma.com/entities/avic-helicopter-co-ltd-a" target="_blank" data-smartkarma-citation="entities:14380:1" rel="noopener">Avic Helicopter (600038 CH)</a>. </li>
<li>AviChina can achieve synergy at its helicopter business, realise capital gains from disposal and enjoy higher valuations on these assets while maintaining its controlling ownership.</li>
<li>The resultant increase in stake in Avicopter will further widen AviChina's discount to its holdings in four listed A-share subsidiaries. Its current 66% discount is just too steep.</li>
</ul>



AviChina Industry &amp; Tech (2357 HK) announced plan to consolidate helicopter business by disposing Changhe Aircraft and Harbin Aircraft to its subsidiary Avic Helicopter (600038 CH). 
AviChina can achieve synergy at its helicopter business, realise capital gains from disposal and enjoy higher valuations on these assets while maintaining its controlling ownership.
The resultant increase in stake in Avicopter will further widen AviChina's discount to its holdings in four listed A-share subsidiaries. Its current 66% discount is just too steep.


AviChina Industry (2357 HK): Another Step in Restructuring

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

AviChina Industry & Technology H / Event-Driven

<ul>
<li>Down 18% in the past month, fundamentals for <strong><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></strong>, one of China's leading aviation/defense plays, still appear demanding.</li>
<li>Preceding my comments on AviChina 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>


Down 18% in the past month, fundamentals for AviChina Industry &amp; Technology H (2357 HK), one of China's leading aviation/defense plays, still appear demanding.
Preceding my comments on AviChina 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: AviChina (2357 HK) Coming Up "Cheap"

<ul>
<li>The share price of <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> has picked up in Mar, and it will continue to chase the HSI and HSCEI, in our view.</li>
<li>At 54.1%, AviChina's discount to its A-share holdings has narrowed 4.2pp YTD, but is still behind the 6.2pp contraction for overall H-A shares. There is more room to catch up.</li>
<li>The increase in defense spending, advancement in domestic commercial aviation and development of the low-altitude economy are major potential drivers.</li>
</ul>


The share price of AviChina Industry &amp; Technology H (2357 HK) has picked up in Mar, and it will continue to chase the HSI and HSCEI, in our view.
At 54.1%, AviChina's discount to its A-share holdings has narrowed 4.2pp YTD, but is still behind the 6.2pp contraction for overall H-A shares. There is more room to catch up.
The increase in defense spending, advancement in domestic commercial aviation and development of the low-altitude economy are major potential drivers.


AviChina Industry (2357 HK): The Discount to Narrow

China

AVIC Helicopter Co., Ltd. designs, develops, manufactures, and sells helicopters, airplane parts, and aviation-related products.  The Company also manufactures auto parts.

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52-week Range	0.00 - 0.00
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Avic Helicopter Co Ltd A (600038 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

AviChina Industry (2357 HK): Still Well-Placed as Our High Conviction

AviChina should return to growth track in the next two years, with rise in product demand, recovery in Avicopter, further restructuring and M&As...

Osbert Tang, CFA

AviChina Industry (2357 HK): Another Step in Restructuring

The proposed restructuring will allow AviChina achieve synergy at helicopter business, realise capital gains and enjoy higher valuations on these...

Osbert Tang, CFA

StubWorld: AviChina (2357 HK) Coming Up "Cheap"

Ongoing geopolitical tensions tend to lead to increased defense spending. All told, there should be trickle down benefits to AviChina. I like...

David Blennerhassett

AviChina Industry (2357 HK): The Discount to Narrow

AviChina's share price is on the rise and is expected to continue tracking the HSI and HSCEI, driven by narrower discounts to A-share holdings and...

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

AviChina Industry (2357 HK): Still Well-Placed as Our High Conviction

AviChina should return to growth track in the next two years, with rise in product demand, recovery in Avicopter, further restructuring and M&As...

Osbert Tang, CFA

AviChina Industry (2357 HK): Another Step in Restructuring

The proposed restructuring will allow AviChina achieve synergy at helicopter business, realise capital gains and enjoy higher valuations on these...

Osbert Tang, CFA

StubWorld: AviChina (2357 HK) Coming Up "Cheap"

Ongoing geopolitical tensions tend to lead to increased defense spending. All told, there should be trickle down benefits to AviChina. I like...

David Blennerhassett

AviChina Industry (2357 HK): The Discount to Narrow

​AviChina's share price is on the rise and is expected to continue tracking the HSI and HSCEI, driven by narrower discounts to A-share holdings and...

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...

AviChina's share price is on the rise and is expected to continue tracking the HSI and HSCEI, driven by narrower discounts to A-share holdings and...