HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

AviChina Industry & Technology / 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

<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

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

China CITIC Financial Asset Management / Event-Driven

China CITIC Financial Asset Management (2799 HK)

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-huarong-asset-management" target="_blank" data-smartkarma-citation="entities:968:1" rel="noopener">China Huarong Asset Management (2799 HK)</a>, which is expected to be in contravention of Hong Kong's public float, is contemplating the "full circulation" of some domestic shares. </li>
<li>If implemented, the conversion of these domestic shares would be largely ceremonial.</li>
<li>To date, 28 companies have sought approval to convert their domestic shares and/or unlisted foreign shares into H shares on the Hong Kong exchange. </li>
</ul>



China Huarong Asset Management (2799 HK), which is expected to be in contravention of Hong Kong's public float, is contemplating the "full circulation" of some domestic shares. 
If implemented, the conversion of these domestic shares would be largely ceremonial.
To date, 28 companies have sought approval to convert their domestic shares and/or unlisted foreign shares into H shares on the Hong Kong exchange. 


China Huarong (2799 HK)'s Full Circulation

<div>
<p data-v-da61000a="" data-v-294dc056="">This is the latest update in a series dating back to <em><a href="https://skr.ma/c7hcH" target="_blank" rel="noopener">Legend's Conversion of Domestic Shares</a></em> in June 2018.</p>
</div>
<div>
<p data-v-da61000a="" data-v-294dc056="">To date, 28 companies have sought approval to convert their domestic shares and/or unlisted foreign shares into H shares, which would then be eligible to be listed and traded on Hong Kong's stock exchange.</p>
</div>
<div>
<p data-v-da61000a="" data-v-294dc056="">16 companies have now been given CSRC and Hong Kong listing approval to convert such shares. Five of those have seen various degrees of movement in the converted shares.</p>
<p data-v-da61000a="" data-v-294dc056=""><a href="https://www.smartkarma.com/entities/sichuan-languang-justbon-service-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:28337:1" rel="noopener">Sichuan Languang Justbon Service Group (2606 HK)</a> received approval late last year but did not convert - and was subsequently subject to an Offer. </p>
</div>
<div>
<p data-v-da61000a="" data-v-294dc056="">To date, two companies have withdrawn their application to convert their domestic shares.  Both of these companies have now been subject to Offers.</p>
</div>
<div>
<p data-v-da61000a="" data-v-294dc056="">As always, more below the fold. </p>
</div>


This is the latest update in a series dating back to Legend's Conversion of Domestic Shares in June 2018.


To date, 28 companies have sought approval to convert their domestic shares and/or unlisted foreign shares into H shares, which would then be eligible to be listed and traded on Hong Kong's stock exchange.


16 companies have now been given CSRC and Hong Kong listing approval to convert such shares. Five of those have seen various degrees of movement in the converted shares.
Sichuan Languang Justbon Service Group (2606 HK) received approval late last year but did not convert - and was subsequently subject to an Offer. 


To date, two companies have withdrawn their application to convert their domestic shares.  Both of these companies have now been subject to Offers.


As always, more below the fold. 


Full Circulation Of H-Shares: July 2021 Update

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): 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

China Huarong (2799 HK)'s Full Circulation

China Huarong Asset Management, which is expected to be in breach of Hong Kong's public float, is contemplating "full circulation" of some domestic...

David Blennerhassett

Full Circulation Of H-Shares: July 2021 Update

CSRC circulation approval is an endorsement of the existing internal framework of the company. There also does appear to be some degree of...

David Blennerhassett

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