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 (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

<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

Avic Shenyang Aircraft / Equity Bottom-Up

<ul>
<li>As a major player in China's defense sector with established franchise in combat aircraft, <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 enjoy earnings stability, reflecting positively on its defensiveness.</li>
<li>We believe it will benefit from China's efforts to narrow military gap against the US and the increase in military spending due to rising geopolitical tension globally. </li>
<li>AVIC Shenyang is less affected by pandemic lockdowns and has showed good capability to improve profitability, which are reflected in the solid 61% growth in 1Q22 recurring profit.</li>
</ul>


As a major player in China's defense sector with established franchise in combat aircraft, Avic Shenyang Aircraft (600760 CH) will enjoy earnings stability, reflecting positively on its defensiveness.
We believe it will benefit from China's efforts to narrow military gap against the US and the increase in military spending due to rising geopolitical tension globally. 
AVIC Shenyang is less affected by pandemic lockdowns and has showed good capability to improve profitability, which are reflected in the solid 61% growth in 1Q22 recurring profit.


AVIC Shenyang (600760 CH): Defense Is Defensive

<p><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> has a very solid 3Q21 with recurring profit up by 61.5% YoY and grew 81.8% for 9M21. The result was underpinned by encouraging revenue growth, steady margin performance, higher interest income and turnaround in investment income. The surge in contract liabilities and prepayment at end-9M21 also suggested good order momentum and production pace in this year.</p><p>We believe AVIC Shenyang will benefit from China's demand for combat aircraft, driven by both upgrade demand and the need to equip the country's increase in aircraft carrier fleet. The sustained tension across the Taiwan Strait and President Xi's recent signing of <a href="https://baijiahao.baidu.com/s?id=1715262162429714903&amp;wfr=spider&amp;for=pc" target="_blank" rel="noopener">"Military equipment ordering regulations"</a> should be positive to sentiment on the stock. Despite a 40.3% rally YTD, its valuation remains not too stretched when compared with a basket of A-share aerospace and defense stocks.</p>

Avic Shenyang Aircraft (600760 CH) has a very solid 3Q21 with recurring profit up by 61.5% YoY and grew 81.8% for 9M21. The result was underpinned by encouraging revenue growth, steady margin performance, higher interest income and turnaround in investment income. The surge in contract liabilities and prepayment at end-9M21 also suggested good order momentum and production pace in this year.We believe AVIC Shenyang will benefit from China's demand for combat aircraft, driven by both upgrade demand and the need to equip the country's increase in aircraft carrier fleet. The sustained tension across the Taiwan Strait and President Xi's recent signing of "Military equipment ordering regulations" should be positive to sentiment on the stock. Despite a 40.3% rally YTD, its valuation remains not too stretched when compared with a basket of A-share aerospace and defense stocks.

AVIC Shenyang (600760 CH): Heating Up on China's Combat Aircraft Demand

China

China Avionics Systems Co Limited manufactures and distributes aero-mechanical a nd electrical products.

China Avionics Systems Co., Ltd. (600372 CH)

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China Avionics Systems Co., Ltd. (600372 CH)

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

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

AVIC Shenyang (600760 CH): Defense Is Defensive

AVIC Shenyang is a unique defense play in China with quality earnings outlook. We think it will benefit from the recent geopolitical tension and...

Osbert Tang, CFA

AVIC Shenyang (600760 CH): Heating Up on China's Combat Aircraft Demand

AVIC Shenyang's solid 3Q21 suggests encouraging underlying demand momentum and positive cost management. The company will stay as a prime...

Osbert Tang, CFA

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