HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Travel International Investment Hong Kong / Equity Bottom-Up

China Travel International Investment Hong Kong

<ul>
<li>Share price of <a href="https://www.smartkarma.com/entities/china-travel-international-investment-hong-kong" target="_blank" data-smartkarma-citation="entities:3879:1" rel="noopener">China Travel International Investment Hong Kong (308 HK)</a> (CTII) rallied by 20% over the last 10 trading days but we see good room for more to come.</li>
<li>Our view is that HK-China border opening, revival in domestic tourism, supportive measures and upgrade in attractions are some key drivers for an increasing positive outlook.</li>
<li>At 0.45x 12-month forward P/B (1.5SD below average), there is significant potential for re-rating. Its net cash of HK$0.40/share, or 30% of share price, adds further comfort to us.</li>
</ul>


Share price of China Travel International Investment Hong Kong (308 HK) (CTII) rallied by 20% over the last 10 trading days but we see good room for more to come.
Our view is that HK-China border opening, revival in domestic tourism, supportive measures and upgrade in attractions are some key drivers for an increasing positive outlook.
At 0.45x 12-month forward P/B (1.5SD below average), there is significant potential for re-rating. Its net cash of HK$0.40/share, or 30% of share price, adds further comfort to us.


China Travel Intl Inv (308 HK): Here Comes My Turn!

We think that share price of <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a> has yet to reflect the prospects of recovering international passenger traffic in FY22, despite its 15pp outperformance against the HSCEI YTD. There are news lately on plans to reopen borders by many overseas countries including the US and Australia. It is also speculated that China will do so as well in early 2022 after its vaccination rate hit 85%, vs. 78% currently.Its passenger traffic in Sep has recovered MoM when compared with the local case impacted Aug. Meanwhile, cargo stayed resilient and it will also benefit from the strength in airfreight rate. We think Air China should be appreciated for its capacity management as it has not aggressively expanded capacity despite YoY traffic rebound. This is evidenced by a flat passenger load factor and a 2.7pp expansion in cargo load factor for 9M21.

We think that share price of Air China Ltd (H) (753 HK) has yet to reflect the prospects of recovering international passenger traffic in FY22, despite its 15pp outperformance against the HSCEI YTD. There are news lately on plans to reopen borders by many overseas countries including the US and Australia. It is also speculated that China will do so as well in early 2022 after its vaccination rate hit 85%, vs. 78% currently.Its passenger traffic in Sep has recovered MoM when compared with the local case impacted Aug. Meanwhile, cargo stayed resilient and it will also benefit from the strength in airfreight rate. We think Air China should be appreciated for its capacity management as it has not aggressively expanded capacity despite YoY traffic rebound. This is evidenced by a flat passenger load factor and a 2.7pp expansion in cargo load factor for 9M21.  

Founder of Antler Capital

Stanley Tsai, CFA

BOC Aviation | BOCAVI <a href="https://www.smartkarma.com/entities/boc-aviation" target="_blank" data-smartkarma-citation="entities:22689:1" rel="noopener">(2588 HK)</a> 
As a follow-up on <a href="https://www.smartkarma.com/profiles/david-blennerhassett" target="_blank" data-smartkarma-citation="accounts:840" rel="noopener">David Blennerhassett</a>'s Smartkarma Original <a href="https://www.smartkarma.com/insights/asia-pac-airports-ups-but-mostly-downs" target="_blank" data-smartkarma-citation="insights:51855" rel="noopener">Asia-Pac Airports: Ups, But Mostly Downs</a>, we take a look at BOCAVI, which, in our view, is a compelling alternative to APAC airport operators and airlines as a post-Covid trade.
BOCAVI is a highly geared play on the resumption of air travel. The stock has gone through periods of significant out/underperformance against the APAC airports and airlines and may continue to give investors high beta in either direction. The geographical exposure is broad, but there is a heavy skew towards short-haul flights, which will see the earliest acceleration in passenger traffic.
Management's countercyclical capex expansion increasingly looks like a shrewd bet. At its core, BOCAVI is in the capital management business. Strong liquidity and BOC's explicit backing have allowed the lessor to grow its purchase-and-leaseback portfolio through the depths of the pandemic. While airlines are still hemorrhaging cash, over 99% of BOCAVI's aircraft remain cash-generating.  
We expect the firm's undiscounted committed revenues to top USD20bn in 2021. By year-end, the value of the portfolio will have doubled since 2014. We estimate the present value of this cashflow stream to be HKD72.80/share. We are essentially getting free growth optionality. 
We are buyers at book value. The stock is trading at 8x P/E and 1.1x P/B on a 12M forward basis. BOCAVI is reasonably liquid, with a market cap of USD6bn and average daily turnover of USD3.5mn. Besides the obvious risk of protracted lockdowns globally, a well-functioning USD bond market and BOC's funding support are critical to our investment case.
Attachment: BOCAVI Financial Summary

BOC Aviation | BOCAVI (2588 HK) 
As a follow-up on David Blennerhassett's Smartkarma Original Asia-Pac Airports: Ups, But Mostly Downs, we take a look at BOCAVI, which, in our view, is a compelling alternative to APAC airport operators and airlines as a post-Covid trade.
BOCAVI is a highly geared play on the resumption of air travel. The stock has gone through periods of significant out/underperformance against the APAC airports and airlines and may continue to give investors high beta in either direction. The geographical exposure is broad, but there is a heavy skew towards short-haul flights, which will see the earliest acceleration in passenger traffic.
Management's countercyclical capex expansion increasingly looks like a shrewd bet. At its core, BOCAVI is in the capital management business. Strong liquidity and BOC's explicit backing have allowed the lessor to grow its purchase-and-leaseback portfolio through the depths of the pandemic. While airlines are still hemorrhaging cash, over 99% of BOCAVI's aircraft remain cash-generating.  
We expect the firm's undiscounted committed revenues to top USD20bn in 2021. By year-end, the value of the portfolio will have doubled since 2014. We estimate the present value of this cashflow stream to be HKD72.80/share. We are essentially getting free growth optionality. 
We are buyers at book value. The stock is trading at 8x P/E and 1.1x P/B on a 12M forward basis. BOCAVI is reasonably liquid, with a market cap of USD6bn and average daily turnover of USD3.5mn. Besides the obvious risk of protracted lockdowns globally, a well-functioning USD bond market and BOC's funding support are critical to our investment case.
Attachment: BOCAVI Financial Summary

BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

<ul>
<li>Outbound continues to improve, March load factor matched pre-Covid level</li>
<li>Appears Chinese tourists are "spreading their wings", travelling farther afield</li>
<li>Trip.com has been best YTD performer in the space; can airlines catch up?</li>
</ul>


Outbound continues to improve, March load factor matched pre-Covid level
Appears Chinese tourists are "spreading their wings", travelling farther afield
Trip.com has been best YTD performer in the space; can airlines catch up?


Monthly Chinese Tourism Tracker | Outbound Recovery Continues, but Some Regional Destinations Lag

<ul>
<li>Chinese outbound travel demand continued to recover nicely in February</li>
<li>Major airlines' decision to slow capacity rebuild now looks very prudent</li>
<li>But the airlines have underperformed, surprisingly; Buy Trip.com below US$43</li>
</ul>


Chinese outbound travel demand continued to recover nicely in February
Major airlines' decision to slow capacity rebuild now looks very prudent
But the airlines have underperformed, surprisingly; Buy Trip.com below US$43


Monthly Chinese Tourism Tracker | Decision to Slow Capacity Rebuild in Mid-2023 Now Looks Prudent

China

Beijing Capital International Airport Company Limited operates both aeronautical and non-aeronautical business in the Beijing airport.  The Company provides aircraft movement and passenger service facilities, safety and security services, fire-fighting services, and ground handling services.  In addition, Beijing Capital operates duty free and other retail shops and leases properties.

Beijing Capital International Airport (BCIA) (694 HK)

Beijing Capital International Airport (BCIA)

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Beijing Capital International Airport (BCIA) (694 HK)

China Travel Intl Inv (308 HK): Here Comes My Turn!

HK-China border opening, revival in domestic tourism, supportive measures and upgrade in attractions are some key drivers for an increasing...

Osbert Tang, CFA

Air China (753 HK): Come Fly with Me

Air China is well positioned to gain from increase in overseas border openings. Also, China's possible removal of quarantine requirements for...

Osbert Tang, CFA

BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter

As downstream players continue to hemorrhage cash, over 99% of BOCAVI’s aircraft are still cash-generating. Valuation is undemanding for a high...

Stanley Tsai, CFA

Monthly Chinese Tourism Tracker | Outbound Recovery Continues, but Some Regional Destinations Lag

The recovery in Chinese outbound tourism demand continued in March, but certain data suggest the pace of growth for some regional destinations is...

Tracking Traffic

Monthly Chinese Tourism Tracker | Decision to Slow Capacity Rebuild in Mid-2023 Now Looks Prudent

February outbound travel demand continued to recovery nicely, and the major airlines' decision to slow their capacity rebuild in H223 now appears...

Tracking Traffic

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