HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

AviChina Industry & Technology / Equity Bottom-Up

<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

<ul>
<li>Given its holdings in four A-share subsidiaries, <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> will benefit from the surge in their share prices as mainland markets re-open.</li>
<li>These A-share all lagged benchmark Indices YTD. Avichina's holdings in them are already valued at 2.23x its own market capitalisation. </li>
<li>The historical discount range is 51-70% and currently stands at 55%, suggesting AviChina's share price has not yet excessively priced in the post-Golden Week rally.</li>
</ul>


Given its holdings in four A-share subsidiaries, AviChina Industry &amp; Technology H (2357 HK) will benefit from the surge in their share prices as mainland markets re-open.
These A-share all lagged benchmark Indices YTD. Avichina's holdings in them are already valued at 2.23x its own market capitalisation. 
The historical discount range is 51-70% and currently stands at 55%, suggesting AviChina's share price has not yet excessively priced in the post-Golden Week rally.


AviChina Industry (2357 HK): Excellent Exposure to A-Share Surge

<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>'s FY23 earnings growth of 5.5% is affected by dilution and restatement. Its A-share subsidiaries achieved a 24% aggregate earnings growth. </li>
<li>Gross margin expanded and outlook remains decent. Projected growth for these A-shares reached 36.6% in FY24F and 23.8% in FY25F. Net cash equals 40% of the share price.</li>
<li>The stock's 8.5x and 7.3x PERs for FY24F and FY25F are cheap relative to its peers. It also trades at 57% discount to its A-share holdings.</li>
</ul>



AviChina Industry &amp; Technology H (2357 HK)'s FY23 earnings growth of 5.5% is affected by dilution and restatement. Its A-share subsidiaries achieved a 24% aggregate earnings growth. 
Gross margin expanded and outlook remains decent. Projected growth for these A-shares reached 36.6% in FY24F and 23.8% in FY25F. Net cash equals 40% of the share price.
The stock's 8.5x and 7.3x PERs for FY24F and FY25F are cheap relative to its peers. It also trades at 57% discount to its A-share holdings.


AviChina Industry (2357 HK): Better Look Forward

<ul>
<li>The A-share subsidiaries 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 (2357 HK)</a> have mostly posted solid 3Q23 results - aggregate earnings growth has accelerated to 50.2%, from 26.8% in 1Q23.</li>
<li>Their 9M23 result reached 64% of FY23 consensus forecast earnings for AviChina, vs. just 61% a year ago. This indicates the market is too conservative and suggests room for upgrade.</li>
<li>Valuations are cheap at 8.7x and 7.0x PERs for FY23 and FY24. Its market capitalisation equals just 46% of the total attributable market capitalisation of these subsidiaries.</li>
</ul>


The A-share subsidiaries of AviChina Industry &amp; Technology (2357 HK) have mostly posted solid 3Q23 results - aggregate earnings growth has accelerated to 50.2%, from 26.8% in 1Q23.
Their 9M23 result reached 64% of FY23 consensus forecast earnings for AviChina, vs. just 61% a year ago. This indicates the market is too conservative and suggests room for upgrade.
Valuations are cheap at 8.7x and 7.0x PERs for FY23 and FY24. Its market capitalisation equals just 46% of the total attributable market capitalisation of these subsidiaries.


AviChina Industry (2357 HK): No Way Its Parts Are Greater than the Sum

<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

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)

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

AviChina Industry (2357 HK): Better Look Forward

AviChina's FY23 earnings growth is affected by dilution and restatement, while its A-share subsidiaries see strong growth. The stock trades at a...

Osbert Tang, CFA

AviChina Industry (2357 HK): No Way Its Parts Are Greater than the Sum

We continue to like AviChina as a cheap play to access its underlying A-share aerospace and defense holdings. The stock has fallen by 12% YTD, and...

Osbert Tang, CFA

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

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

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

AviChina Industry (2357 HK): Excellent Exposure to A-Share Surge

​AviChina is poised to benefit from a surge in A-share subsidiaries' share prices as mainland markets re-open, with the attributable value of its...

Osbert Tang, CFA

AviChina Industry (2357 HK): Better Look Forward

​AviChina's FY23 earnings growth is affected by dilution and restatement, while its A-share subsidiaries see strong growth. The stock trades at a...

Osbert Tang, CFA

AviChina Industry (2357 HK): No Way Its Parts Are Greater than the Sum

We continue to like AviChina as a cheap play to access its underlying A-share aerospace and defense holdings. The stock has fallen by 12% YTD, and...

Osbert Tang, CFA

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

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...

AviChina is poised to benefit from a surge in A-share subsidiaries' share prices as mainland markets re-open, with the attributable value of its...

AviChina's FY23 earnings growth is affected by dilution and restatement, while its A-share subsidiaries see strong growth. The stock trades at a...