HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>The companies that suffered exchange losses in FY23 due to Rmb depreciation will now benefit from potential Rmb appreciation in 2H24 and FY25. Meanwhile, gainers will become losers. </li>
<li>The beneficiaries are <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (753 HK)</a>, <a href="https://www.smartkarma.com/entities/shenzhen-international-holdings-limited" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen International (152 HK)</a>, <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a>, <a href="https://www.smartkarma.com/entities/xinjiang-goldwind-science-technology-h" target="_blank" data-smartkarma-citation="entities:10112:1" rel="noopener">Xinjiang Goldwind (2208 HK)</a>, and <a href="https://www.smartkarma.com/entities/china-eastern-airlines-co-h" target="_blank" data-smartkarma-citation="entities:1079:1" rel="noopener">China Eastern Airlines (670 HK)</a>. </li>
<li>
<a href="https://www.smartkarma.com/entities/fosun-tourism-group" target="_blank" data-smartkarma-citation="entities:27439:1" rel="noopener">Fosun Tourism (1992 HK)</a>, <a href="https://www.smartkarma.com/entities/china-east-education-holdings" target="_blank" data-smartkarma-citation="entities:27843:1" rel="noopener">China East Education (667 HK)</a>, and <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a> may need to book exchange losses (vs. gains in FY23). </li>
</ul>


The companies that suffered exchange losses in FY23 due to Rmb depreciation will now benefit from potential Rmb appreciation in 2H24 and FY25. Meanwhile, gainers will become losers. 
The beneficiaries are Air China Ltd (753 HK), Shenzhen International (152 HK), China Southern Airlines (1055 HK), Xinjiang Goldwind (2208 HK), and China Eastern Airlines (670 HK). 

Fosun Tourism (1992 HK), China East Education (667 HK), and China Communications Construction (1800 HK) may need to book exchange losses (vs. gains in FY23). 


China Strategy: Re-Assessing the Rmb Exchange Impacts

Asia Pac ECM and Index Rebal, Shenton Research

Ke Yan, CFA, FRM

Asia Pac ECM and Index Rebal

Asia Pac IPO & Placement Research, China Biotech

Shenton Research

Shenton Research is an independent Asia Pacific equity specialist. Our quantitative research covers index rebalancing flows, alongside exchange data analytics accross Asia Pacific. On the equity capital markets side, we focus on Asia Pacific ECM, especially biotech and TMT. Our lead analyst is frequently cited by international media.

Quantitative Analysis

<ul>
<li>We analyse the changes of A-H premium on 196 stocks over the last week. The average A-H premium was 81.8% as of Sep 4th.</li>
<li>The average A-H premium changed by 0.4ppt week-on-week, led by communication services, consumer staples, consumer discretionary and offset by energy, financials, utilities.</li>
<li>We highlight weekly changes in A-H premium for China South Air, Remegen, China Telecom, Muyuan Foods, Conch Cement, Minsheng Bank.</li>
</ul>


We analyse the changes of A-H premium on 196 stocks over the last week. The average A-H premium was 81.8% as of Sep 4th.
The average A-H premium changed by 0.4ppt week-on-week, led by communication services, consumer staples, consumer discretionary and offset by energy, financials, utilities.
We highlight weekly changes in A-H premium for China South Air, Remegen, China Telecom, Muyuan Foods, Conch Cement, Minsheng Bank.


A-H Premium Weekly (Sep 4th): China South Air, Remegen, China Telecom, Muyuan Foods, Conch Cement

Asian Hedge Fund Manager, Long Short Equity, Macro

David Mudd

Cross Asset Strategy

<ul>
<li>China State Construction International and Sinopec Engineering have short term reversal patterns indicating profit taking from recent advances.</li>
<li>China Resources Cement reverses downtrend with volume indicating some near term gains after reporting that 1st half profit was under pressure.</li>
<li>Yum China continues to show downward pressure given the increasing competition in the retail food segment, while Nongfu Spring collapses on news about the safety of its products.</li>
</ul>


China State Construction International and Sinopec Engineering have short term reversal patterns indicating profit taking from recent advances.
China Resources Cement reverses downtrend with volume indicating some near term gains after reporting that 1st half profit was under pressure.
Yum China continues to show downward pressure given the increasing competition in the retail food segment, while Nongfu Spring collapses on news about the safety of its products.


Technically Speaking: Breakouts & Breakdowns: HONG KONG (July 17)

<ul>
<li>Both the State Council and NDRC reiterated last week the importance of introducing economic stimulus measures. These measures should benefit the infrastructure construction companies.</li>
<li>1Q23 new contract growth, ranging between 6.3% and 15.8%, is healthy. With issuance of special purpose bonds up 16.5% in 4M23, new contract momentum looks to accelerate.</li>
<li>We view <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a> most positively, given its diversified sub-segment coverage, highest overseas exposure, and best forward pipeline.</li>
</ul>


Both the State Council and NDRC reiterated last week the importance of introducing economic stimulus measures. These measures should benefit the infrastructure construction companies.
1Q23 new contract growth, ranging between 6.3% and 15.8%, is healthy. With issuance of special purpose bonds up 16.5% in 4M23, new contract momentum looks to accelerate.
We view China Communications Construction (1800 HK) most positively, given its diversified sub-segment coverage, highest overseas exposure, and best forward pipeline.


China Stimulus: Benefiting China Infrastructure Construction Sector

External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

<ul><li>China SOE construction names have outperformed the index YTD on the back of the “Valuation system with China characteristics” (中特估).</li><li>While the sector retreated in May due to weak market, we think the story has yet to come to an end as the sector (H-share) is trading at only 4.5x 2023E P/E (Bloomberg consensus).</li><li>We see multiple drivers ahead: (1) Continuous market share gain of the state-owned construction companies; (2) Belt-and-Road opportunities following the enhanced China-Middle East relations; (3) Better incentives to achieve higher profitability following the revised KPI matrix for SOEs.</li></ul><p><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></p>

China SOE construction names have outperformed the index YTD on the back of the “Valuation system with China characteristics” (中特估).While the sector retreated in May due to weak market, we think the story has yet to come to an end as the sector (H-share) is trading at only 4.5x 2023E P/E (Bloomberg consensus).We see multiple drivers ahead: (1) Continuous market share gain of the state-owned construction companies; (2) Belt-and-Road opportunities following the enhanced China-Middle East relations; (3) Better incentives to achieve higher profitability following the revised KPI matrix for SOEs.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

China Construction Sector – Multiple drivers to achieve Valuation with China characteristics

China

China Communications Construction is a multinational engineering and construction company primarily engaged in the investment, design, construction, and operation of large-scale infrastructure assets, including ports, roads, bridges, railways, and airports. It also provides dredging services and equipment manufacturing. The company is headquartered in Beijing, China, and was established in 2005.

China Communications Construction (1800 HK)

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China Communications Construction (1800 HK)

China Strategy: Re-Assessing the Rmb Exchange Impacts

With the US kick-starting the lower interest rate cycle with a 50bp cut overnight and indicated an expectation of an aggregate further 50bp cut in...

Osbert Tang, CFA

A-H Premium Weekly (Sep 4th): China South Air, Remegen, China Telecom, Muyuan Foods, Conch Cement

We analyzed A-H premium changes in the past week and highlight A-H premium changes for China South Air, Remegen, China Telecom, Muyuan Foods, Conch...

Ke Yan, CFA, FRM

Technically Speaking: Breakouts & Breakdowns: HONG KONG (July 17)

Sinopec Engineering and China State Construction have entered short term corrections while CRC has broken its downtrend in the near term. Yum...

David Mudd

China Stimulus: Benefiting China Infrastructure Construction Sector

We anticipate a new round of government stimulus measures and believe CCCC is the most benefited given its diversified segment coverage, highest...

Osbert Tang, CFA

China Construction Sector – Multiple drivers to achieve Valuation with China characteristics

China SOE construction names have outperformed the index YTD on the back of the “Valuation system with China characteristics” (中特估).

CMB International

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)