HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Conch Venture Holdings / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture Holdings (586 HK)</a> is now at negative stub value, the low-end since 2020. This is despite a 16.4% growth in 1H22 core earnings to Rmb542m.</li>
<li>The company's waste-to-energy (WTE) capacity will increase by 25% in FY23 and its internal target calls for an earnings CAGR of 33% between FY21 and FY25 for WTE segment.</li>
<li>We should not underestimate the potential from new business initiatives including cathode and anode materials and lithium battery recycling. They have good medium-to-long term exposure to China's new energy industry.</li>
</ul>



China Conch Venture Holdings (586 HK) is now at negative stub value, the low-end since 2020. This is despite a 16.4% growth in 1H22 core earnings to Rmb542m.
The company's waste-to-energy (WTE) capacity will increase by 25% in FY23 and its internal target calls for an earnings CAGR of 33% between FY21 and FY25 for WTE segment.
We should not underestimate the potential from new business initiatives including cathode and anode materials and lithium battery recycling. They have good medium-to-long term exposure to China's new energy industry.


Conch Venture (586 HK): An Overlooked Value Play

<ul>
<li>Following listing of <a href="https://www.smartkarma.com/entities/china-conch-environment-protection-holdings-ltd" target="_blank" data-smartkarma-citation="entities:4827:1" rel="noopener">China Conch Environment (587 HK)</a>, <a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture (586 HK)</a> is seeking a spin-off of CV Green Energy in A-share market and we view this move positively.</li>
<li>Limited details are currently available, but we think CV Green Energy, which operates WTE businesses, will trade at significantly higher multiples than its Hong Kong peers. </li>
<li>Assuming CV Green Energy to hold all Conch Venture's WTE businesses, we estimate the IPO will boost the latter's sum-of-the-parts value by 8% or HK$2.14 per share.</li>
</ul>


Following listing of China Conch Environment (587 HK), China Conch Venture (586 HK) is seeking a spin-off of CV Green Energy in A-share market and we view this move positively.
Limited details are currently available, but we think CV Green Energy, which operates WTE businesses, will trade at significantly higher multiples than its Hong Kong peers. 
Assuming CV Green Energy to hold all Conch Venture's WTE businesses, we estimate the IPO will boost the latter's sum-of-the-parts value by 8% or HK$2.14 per share.


Conch Venture (586 HK): Another Spin-Off in the Pipeline

Thematic (Sector/Industry)

<ul>
<li>China may bring ahead quota for special purpose bond issuance in 2023 to 2H22. This may potentially at Rmb1.5trn (US$220bn), which will provide big boost to the economy.</li>
<li>For 5M22, the three most important areas of spending of local government bond proceeds are urban construction and industrial park, social services and transport infrastructure.</li>
<li>
<a href="https://www.smartkarma.com/entities/china-state-construction-int-l-holdings" target="_blank" data-smartkarma-citation="entities:10038:1" rel="noopener">China State Construction Int'l (3311 HK)</a>, <a href="https://www.smartkarma.com/entities/anhui-conch-cement-co-ltd" target="_blank" data-smartkarma-citation="entities:159:1" rel="noopener">Anhui Conch Cement (914 HK)</a>, <a href="https://www.smartkarma.com/entities/china-railway-group-ltd-h" target="_blank" data-smartkarma-citation="entities:264:1" rel="noopener">China Railway Group (390 HK)</a>, <a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture (586 HK)</a> and <a href="https://www.smartkarma.com/entities/anta-sports-products-ltd" target="_blank" data-smartkarma-citation="entities:10261:1" rel="noopener">Anta Sports (2020 HK)</a> are the top picks.</li>
</ul>


China may bring ahead quota for special purpose bond issuance in 2023 to 2H22. This may potentially at Rmb1.5trn (US$220bn), which will provide big boost to the economy.
For 5M22, the three most important areas of spending of local government bond proceeds are urban construction and industrial park, social services and transport infrastructure.

China State Construction Int'l (3311 HK), Anhui Conch Cement (914 HK), China Railway Group (390 HK), China Conch Venture (586 HK) and Anta Sports (2020 HK) are the top picks.


China Stimulus: These Are the Key Beneficiaries

China Everbright Environment / Equity Bottom-Up

<ul>
<li>The FY21 result of <a href="https://www.smartkarma.com/entities/china-everbright-environment-group-limited" target="_blank" data-smartkarma-citation="entities:15946:1" rel="noopener">China Everbright Environment (257 HK)</a> (CEE) should look impressive and we see improvement in cash flow to relieve market concerns on leverage and financial position.  </li>
<li>New project addition is solid over the last three months, adding about 5% to operational project portfolio. Strong special purpose bonds issuance in 4Q21 and 2022 will fuel pipeline momentum.</li>
<li>Valuations look undemanding at 4.1x PER and 0.65x P/B for FY22F; and by maintaining payout ratio at c.30%, dividend yields are at attractive 6.4% and 7.4% for next 2 years.</li>
</ul>


The FY21 result of China Everbright Environment (257 HK) (CEE) should look impressive and we see improvement in cash flow to relieve market concerns on leverage and financial position.  
New project addition is solid over the last three months, adding about 5% to operational project portfolio. Strong special purpose bonds issuance in 4Q21 and 2022 will fuel pipeline momentum.
Valuations look undemanding at 4.1x PER and 0.65x P/B for FY22F; and by maintaining payout ratio at c.30%, dividend yields are at attractive 6.4% and 7.4% for next 2 years.


China Everbright Environment (257 HK): Roaring in the Year of Tiger!

Asian Hedge Fund Manager, Long Short Equity, Macro

David Mudd

AAC Technologies Holdings / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd-d7b798e2-202d-4e01-9a1e-799e2ae8f0c7" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group Holding (9988 HK)</a> upcoming inclusion in the Southbound Stock Connect  (SSC) platform could provide a tailwind to its share price and the Hong Kong market.
</li>
<li>
<a href="https://www.smartkarma.com/entities/tuhu-car-inc" target="_blank" data-smartkarma-citation="entities:36012:1" rel="noopener">Tuhu Car (9690 HK)</a> reported good 1H 2024 results with an increase of 23% in new store openings.  <a href="https://www.smartkarma.com/entities/aac-technologies-holdings-inc" target="_blank" data-smartkarma-citation="entities:6544:1" rel="noopener">AAC Technologies Holdings (2018 HK)</a> target price was increased after 1H2024 earnings.
</li>
<li>
<a href="https://www.smartkarma.com/entities/canvest-environmental-protection-group-co-ltd" target="_blank" data-smartkarma-citation="entities:100:1" rel="noopener">Canvest Environmental Protection Group (1381 HK)</a> ratings were cut after reporting lower 1H24 earnings.  The company omitted its interim dividend.
</li>
</ul>



Alibaba Group Holding (9988 HK) upcoming inclusion in the Southbound Stock Connect  (SSC) platform could provide a tailwind to its share price and the Hong Kong market.


Tuhu Car (9690 HK) reported good 1H 2024 results with an increase of 23% in new store openings.  AAC Technologies Holdings (2018 HK) target price was increased after 1H2024 earnings.


Canvest Environmental Protection Group (1381 HK) ratings were cut after reporting lower 1H24 earnings.  The company omitted its interim dividend.



BUY/SELL/HOLD: Hong Kong Stock Updates (August 28)

China

China Conch Venture Holdings Limited operates as an investment holding company. The Company, through its subsidiaries, provides energy preservation and environmental protection solutions and offers environment-friendly building materials.

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China Conch Venture Holdings (586 HK)

Conch Venture (586 HK): An Overlooked Value Play

The market has deeply undervalued Conch Venture's waste-to-energy business as reflected by the negative stub value. New business initiatives and...

Osbert Tang, CFA

Conch Venture (586 HK): Another Spin-Off in the Pipeline

The proposed spin-off of CV Green Energy in Shanghai should benefit Conch Venture's valuations given the higher multiples for waste-to-energy...

Osbert Tang, CFA

China Stimulus: These Are the Key Beneficiaries

Potential massive special purpose bond issuance by local governments in 2H22 (brought forward from 2023) will provide a much-needed boost to the...

Osbert Tang, CFA

China Everbright Environment (257 HK): Roaring in the Year of Tiger!

CEE's FY21 result should be impressive and will serve as share price catalyst. Solid recent new project pipeline and higher special purpose bond...

Osbert Tang, CFA

BUY/SELL/HOLD: Hong Kong Stock Updates (August 28)

Alibaba inclusion in the SB connect platform could be a positive market catalyst. Tuhu reported a large increase in new stores in 1H2024. AAC saw...

David Mudd

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