Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

AviChina Industry & Technology / 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%.


HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

AviChina Industry & Technology / 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 (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

<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

<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> offers unique exposure to China's aerospace and defense sector and it will ride on China's ambition to solidify its military strengths. </li>
<li>We think the key drivers are increase in civil and defense demand, commercialisation of C919 aircraft, localisation of helicopters and potential for corporate restructuring.</li>
<li>The stock is undervalued with its holdings in four listed A-shares amounted to Rmb70.6bn, against its own market cap of HK$25bn. Also, earnings multiples are cheap relative to global peers.</li>
</ul>



AviChina Industry &amp; Technology H (2357 HK) offers unique exposure to China's aerospace and defense sector and it will ride on China's ambition to solidify its military strengths. 
We think the key drivers are increase in civil and defense demand, commercialisation of C919 aircraft, localisation of helicopters and potential for corporate restructuring.
The stock is undervalued with its holdings in four listed A-shares amounted to Rmb70.6bn, against its own market cap of HK$25bn. Also, earnings multiples are cheap relative to global peers.


2023 High Conviction: AviChina Industry (2357 HK) - The Sky Is the Limit

China

AviChina Industry & Technology Co., Ltd. engages in the research, development, manufacture, and sale of civil aviation products. The company operates through segments including Aviation Entire Aircraft, Aviation Ancillary System and Related Business, and Aviation Engineering Services, offering products such as helicopters, trainer aircraft, regional jets, and aero-parts. It was founded on April 30, 2003, and is headquartered in Beijing, China.

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AviChina Industry & Technology (2357 HK)

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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

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

2023 High Conviction: AviChina Industry (2357 HK) - The Sky Is the Limit

AviChina is cheap against global peers and key drivers are increase in civil and defense demand, commercialisation of C919 aircraft, localisation...

Osbert Tang, CFA

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