HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

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<li>
<a href="https://www.smartkarma.com/entities/china-dongxiang-group-co" target="_blank" data-smartkarma-citation="entities:1068:1" rel="noopener">China Dongxiang (3818 HK)</a> stands on a discount of 82.1% to NAV after factoring in the recent market rally, not limiting to its <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> holdings.</li>
<li>Its listed equities may have gained Rmb314m, but the HK$41m market capitalisation growth has not reflected this. The gains on its unlisted investments have not been included yet.  </li>
<li>CNDX is now more likely to have a positive swing in the bottom line in FY25. Its tiny sportswear business has also witnessed a sequential moderation in sales decline. </li>
</ul>



China Dongxiang (3818 HK) stands on a discount of 82.1% to NAV after factoring in the recent market rally, not limiting to its Alibaba Group Holding (9988 HK) holdings.
Its listed equities may have gained Rmb314m, but the HK$41m market capitalisation growth has not reflected this. The gains on its unlisted investments have not been included yet.  
CNDX is now more likely to have a positive swing in the bottom line in FY25. Its tiny sportswear business has also witnessed a sequential moderation in sales decline. 


China Dongxiang (3818 HK): Another Play on the Market Rally

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

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<li>
<a href="https://www.smartkarma.com/entities/a8-new-media-group-ltd" target="_blank" data-smartkarma-citation="entities:3444:1" rel="noopener">A8 New Media (800 HK)</a> disclosed a Cayman scheme privatisation offer from Mr Liu Xiaosong (Founder, Chairman, CEO) at HK$0.36 per share, a 162.8% premium to the last close price. </li>
<li>The massive premium is unsurprising, as A8’s EV has been negative since April 2023 due to headwinds from the weak Chinese leasing sector and uncertainty about cash use.  </li>
<li>The high takeover premium, no shareholder holding a blocking stake, and low AGM minority participation rate point to a done deal. However, this is a small-cap illiquid stock.  </li>
</ul>



A8 New Media (800 HK) disclosed a Cayman scheme privatisation offer from Mr Liu Xiaosong (Founder, Chairman, CEO) at HK$0.36 per share, a 162.8% premium to the last close price. 
The massive premium is unsurprising, as A8’s EV has been negative since April 2023 due to headwinds from the weak Chinese leasing sector and uncertainty about cash use.  
The high takeover premium, no shareholder holding a blocking stake, and low AGM minority participation rate point to a done deal. However, this is a small-cap illiquid stock.  


A8 New Media (800 HK): A Scheme with a 162% Takeover Premium

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<li>The turnaround of sports business at <a href="https://www.smartkarma.com/entities/china-dongxiang-group-co" target="_blank" data-smartkarma-citation="entities:1068:1" rel="noopener">China Dongxiang (3818 HK)</a> is very welcoming. We are glad that sales trend in Oct-Nov is sustained and Phenix brand is well-received.</li>
<li>Reported losses widened as poor market environment enlarged investment losses. However, net cash and investment portfolio are still valued at Rmb8.5bn, or 5.9x its market capitalisation. </li>
<li>CNDX looks comfortably at over 6% full-year dividend yield. Together with just 0.15x P/B, there are enough protections for the downside of the stock.  </li>
</ul>


The turnaround of sports business at China Dongxiang (3818 HK) is very welcoming. We are glad that sales trend in Oct-Nov is sustained and Phenix brand is well-received.
Reported losses widened as poor market environment enlarged investment losses. However, net cash and investment portfolio are still valued at Rmb8.5bn, or 5.9x its market capitalisation. 
CNDX looks comfortably at over 6% full-year dividend yield. Together with just 0.15x P/B, there are enough protections for the downside of the stock.  


China Dongxiang (3818 HK): Turned Around on Sports Business

Thematic (Sector/Industry)

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<a href="https://www.smartkarma.com/entities/xinjiang-goldwind-science-technology-h" target="_blank" data-smartkarma-citation="entities:10112:1" rel="noopener">Xinjiang Goldwind Science &amp; Technology (2208 HK)</a> performed badly in 2022 and with sustained pressure on WTG price, earnings will stay under pressure. We will only pick up post-FY22 result.</li>
<li>Removal of "zero COVID" policy and consumption recovery should revive sportswear business of <a href="https://www.smartkarma.com/entities/china-dongxiang-group-co" target="_blank" data-smartkarma-citation="entities:1068:1" rel="noopener">China Dongxiang Group (3818 HK)</a>. Improvement in equity market will boost its investment portfolio value.   </li>
<li>Valuation retreat for <a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd" target="_blank" data-smartkarma-citation="entities:14215:1" rel="noopener">China Longyuan Power (916 HK)</a> has made it more attractive. Rebound in electricity demand, continued green energy push and potential asset injection are drivers. </li>
</ul>



Xinjiang Goldwind Science &amp; Technology (2208 HK) performed badly in 2022 and with sustained pressure on WTG price, earnings will stay under pressure. We will only pick up post-FY22 result.
Removal of "zero COVID" policy and consumption recovery should revive sportswear business of China Dongxiang Group (3818 HK). Improvement in equity market will boost its investment portfolio value.   
Valuation retreat for China Longyuan Power (916 HK) has made it more attractive. Rebound in electricity demand, continued green energy push and potential asset injection are drivers. 


Our Three Worst Calls in 2022: Signs of Reversal in 2023

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<li>More policy measures will be rolled out by the Chinese government to support domestic consumption in 2022; and the growing nationalistic trend will benefit leading domestic brands. </li>
<li>Within the consumer discretionary sector, we identify <a href="https://www.smartkarma.com/entities/anta-sports-products-ltd" target="_blank" data-smartkarma-citation="entities:10261:1" rel="noopener">Anta Sports Products (2020 HK)</a>, <a href="https://www.smartkarma.com/entities/bosideng-international-holdings-ltd" target="_blank" data-smartkarma-citation="entities:6537:1" rel="noopener">Bosideng International Holdings (3998 HK)</a> and <a href="https://www.smartkarma.com/entities/haier-smart-home-co-ltd-b3ef445f-0f54-4586-8c58-9073de98d60e" target="_blank" data-smartkarma-citation="entities:31105:1" rel="noopener">Haier Smart Home (6690 HK)</a> as the prime beneficiaries of this trend.</li>
<li>All of them are leaders in their respective sub-segment, have exemplary competitive edges against foreign players and are investing heavily in technology and distribution to solidify their moats. </li>
</ul>


More policy measures will be rolled out by the Chinese government to support domestic consumption in 2022; and the growing nationalistic trend will benefit leading domestic brands. 
Within the consumer discretionary sector, we identify Anta Sports Products (2020 HK), Bosideng International Holdings (3998 HK) and Haier Smart Home (6690 HK) as the prime beneficiaries of this trend.
All of them are leaders in their respective sub-segment, have exemplary competitive edges against foreign players and are investing heavily in technology and distribution to solidify their moats. 


China Consumer Discretionary: Beneficiaries of The Nationalistic Trend

China

China Dongxiang (Group) Co., Ltd. designs, develops, markets, and sells sport-related apparel, footwear, and accessories under brands such as Kappa and Phenix. The company also engages in retail sales of sportswear, investments in financial assets, and other ventures including children's clothing, hotel management, tourism, and real estate. It was founded in 2002 and is headquartered in Beijing, People's Republic of China.

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China Dongxiang (3818 HK)