HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

AviChina Industry & Technology H / Equity Bottom-Up

<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; Technology H (2357 HK)</a> is expected to see sustained profit upturn in 2H23 following a 26.8% growth in 1H23. Continued geopolitical turmoil will still benefit it.  </li>
<li>All its listed A-share subsidiaries recorded a pick-up in earnings momentum in 2Q23, and this indicates solid underlying demand as well as the impact of product developments.</li>
<li>
<a href="https://www.smartkarma.com/entities/avic-helicopter-co-ltd-a" target="_blank" data-smartkarma-citation="entities:14380:1" rel="noopener">Avicopter PLC (600038 CH)</a> has seen volume and price recovery after product portfolio refinement while new products have stimulated the ancillary system and related business.</li>
</ul>



AviChina Industry &amp; Technology H (2357 HK) is expected to see sustained profit upturn in 2H23 following a 26.8% growth in 1H23. Continued geopolitical turmoil will still benefit it.  
All its listed A-share subsidiaries recorded a pick-up in earnings momentum in 2Q23, and this indicates solid underlying demand as well as the impact of product developments.

Avicopter PLC (600038 CH) has seen volume and price recovery after product portfolio refinement while new products have stimulated the ancillary system and related business.


AviChina Industry (2357 HK): This Is Just the Beginning

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

AviChina Industry & Technology H / Event-Driven

<ul>
<li>As a PRC aviation/defense play, <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>'s fundamentals are undemanding. </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>


As a PRC aviation/defense play, AviChina Industry &amp; Technology H (2357 HK)'s fundamentals are undemanding. 
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%.


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

Index Rebalance

<ul>
<li>There are 18 changes for the SSE180 Index that will be implemented at the close of trading on 9 June.</li>
<li>The impact on the stocks is small but this is not a widely tracked index, so there could still be opportunities for some high risk/reward basket trades.</li>
<li>With Northbound Stock Connect eligibility no longer drawing on the SSE180 Index constituents, the index could lose relevance over time.</li>
</ul>


There are 18 changes for the SSE180 Index that will be implemented at the close of trading on 9 June.
The impact on the stocks is small but this is not a widely tracked index, so there could still be opportunities for some high risk/reward basket trades.
With Northbound Stock Connect eligibility no longer drawing on the SSE180 Index constituents, the index could lose relevance over time.


SSE180 Index Rebalance: Small Impact but Not Widely Tracked

<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; Technology (2357 HK)</a> remains cheap with 3-year earnings CAGR of 17.4% but only 11x PER. It also trades on 55% discount to value of its A-share subsidiaries.</li>
<li>Aggregate earnings for its four A-share listed subsidiaries grew a solid 26.8% in 1Q23, even faster than AviChina Industry's FY23F earnings growth of 21.5%. </li>
<li>China is expected to increase military spending to narrow the gap against the US going forward. AviChina stays best exposed to such growth in defense demand.</li>
</ul>



AviChina Industry &amp; Technology (2357 HK) remains cheap with 3-year earnings CAGR of 17.4% but only 11x PER. It also trades on 55% discount to value of its A-share subsidiaries.
Aggregate earnings for its four A-share listed subsidiaries grew a solid 26.8% in 1Q23, even faster than AviChina Industry's FY23F earnings growth of 21.5%. 
China is expected to increase military spending to narrow the gap against the US going forward. AviChina stays best exposed to such growth in defense demand.


AviChina Industry (2357 HK): Benefiting from the Geopolitical Turmoil

Thematic (Sector/Industry)

<ul>
<li>China's defense budget will reach Rmb1.55trn in 2023, a 7.2% YoY increase and up from 7.1% in 2022. This also equals to 1.22% of GDP, vs. 1.2% in 2022. </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> has the most direct exposure to China's aerospace and defense developments given its holdings in A-share defense stocks.</li>
<li>
<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 benefit from its unique position as the key manufacturer of aircraft, parts and components for China's combat fighter fleet.</li>
</ul>


China's defense budget will reach Rmb1.55trn in 2023, a 7.2% YoY increase and up from 7.1% in 2022. This also equals to 1.22% of GDP, vs. 1.2% in 2022. 

AviChina Industry &amp; Technology H (2357 HK) has the most direct exposure to China's aerospace and defense developments given its holdings in A-share defense stocks.

Avic Shenyang Aircraft (600760 CH) will benefit from its unique position as the key manufacturer of aircraft, parts and components for China's combat fighter fleet.


China Aerospace & Defense Industry: Ways to Play the Rise in Defense Spending

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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Avic Helicopter Co Ltd A (600038 CH)

AviChina Industry (2357 HK): This Is Just the Beginning

With the heightened conflicts in the Middle East, defense companies like AviChina are expected to benefit from the rise in geopolitical risks....

Osbert Tang, CFA

StubWorld: AviChina Is Coming Up "Cheap"

A key tenet for China is the importance of ensuring the security of the economy and society. This should catalyse companies such as AviChina. And...

David Blennerhassett

SSE180 Index Rebalance: Small Impact but Not Widely Tracked

There are 18 changes for the SSE180 Index in June. The index is not widely tracked and there could be opportunities for long/short basket trades...

Brian Freitas

AviChina Industry (2357 HK): Benefiting from the Geopolitical Turmoil

AviChina Industry trades on 55% discount to its A-share subsidiaries' value and overall 1Q23 earnings of these subsidiaries are solid at 26.8%. It...

Osbert Tang, CFA

China Aerospace & Defense Industry: Ways to Play the Rise in Defense Spending

China's 7.2% YoY increase in defense spending budget will filter through to the business prospects of AviChina and AVIC Shenyang, given the rise in...

Osbert Tang, CFA

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