HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>Despite <a href="https://www.smartkarma.com/entities/shangri-la-asia-ltd" target="_blank" data-smartkarma-citation="entities:19690:1" rel="noopener">Shangri-La Asia (69 HK)</a>'s good share price performance YTD, it has still not yet fully reflected the strengths of and benefits from China's re-opening. More upside to come.</li>
<li>Occupancy for Hong Kong and mainland China has surged 30-45pp YoY in Mar, and with China's RevPAR for FY22 is down 56.5% from peak, we see massive rebound in profitability.</li>
<li>Share of China's EBITDA was US$258m in FY22, from US$465m in FY16-19, suggests good room for recovery. It is cheap on ~70% discount to revalued NAV, vs. 37% in FY18.</li>
</ul>


Despite Shangri-La Asia (69 HK)'s good share price performance YTD, it has still not yet fully reflected the strengths of and benefits from China's re-opening. More upside to come.
Occupancy for Hong Kong and mainland China has surged 30-45pp YoY in Mar, and with China's RevPAR for FY22 is down 56.5% from peak, we see massive rebound in profitability.
Share of China's EBITDA was US$258m in FY22, from US$465m in FY16-19, suggests good room for recovery. It is cheap on ~70% discount to revalued NAV, vs. 37% in FY18.


Shangri-La Asia (69 HK): Not yet Fully Reflected China's Comeback

<ul>
<li>
<a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China (H) (753 HK)</a> underperformed <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern (1055 HK)</a> YTD as domestic traffic recovery is faster than international, but its momentum will accelerate in the rest of the year.</li>
<li>With Jan-Feb domestic traffic returned to 92.6% of 2019, CSA's upside is relative limited. Air China, instead, will benefit from more profound international rebound which only back by 10.3%. </li>
<li>Recent developments including resumption of visa issuance and outbound international group travels, removal of pre-flight negative PCR tests and recovery of visitors to HK all bode well for Air China.</li>
</ul>



Air China (H) (753 HK) underperformed China Southern (1055 HK) YTD as domestic traffic recovery is faster than international, but its momentum will accelerate in the rest of the year.
With Jan-Feb domestic traffic returned to 92.6% of 2019, CSA's upside is relative limited. Air China, instead, will benefit from more profound international rebound which only back by 10.3%. 
Recent developments including resumption of visa issuance and outbound international group travels, removal of pre-flight negative PCR tests and recovery of visitors to HK all bode well for Air China.


Thematic (Sector/Industry)

<ul>
<li>With re-opening of borders, China's tourism and hospitality industry should see encouraging earnings outlook over the next two years; and we are now only in the early stage of recovery.  </li>
<li>Online travel agencies and hotel and resorts operators including <a href="https://www.smartkarma.com/entities/tongcheng-elong-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27363:1" rel="noopener">Tongcheng Travel Holdings (780 HK)</a>, <a href="https://www.smartkarma.com/entities/huazhu-group-ltd-79e0c5b5-ad55-42ed-b8d2-a2173defd0ea" target="_blank" data-smartkarma-citation="entities:33487:1" rel="noopener">H World Group (1179 HK)</a>, <a href="https://www.smartkarma.com/entities/trip-com-group-ltd-23a341d0-4f63-4175-a8c5-ee990906cacd" target="_blank" data-smartkarma-citation="entities:36424:1" rel="noopener">Trip.com (9961 HK)</a> and <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> are well positioned.</li>
<li>These companies all have sound business model, industry leadership position, solid competitive strengths, comprehensive customer coverage and, for some, meaningful global presence in their respective sub-sectors. </li>
</ul>


With re-opening of borders, China's tourism and hospitality industry should see encouraging earnings outlook over the next two years; and we are now only in the early stage of recovery.  
Online travel agencies and hotel and resorts operators including Tongcheng Travel Holdings (780 HK), H World Group (1179 HK), Trip.com (9961 HK) and Fosun Tourism (1992 HK) are well positioned.
These companies all have sound business model, industry leadership position, solid competitive strengths, comprehensive customer coverage and, for some, meaningful global presence in their respective sub-sectors. 


China Tourism and Hospitality Industry: A Year of Revenge

Articles from Caixin Global, Caixin Global

Caixin Global

Articles from Caixin Global

Caixin is a media group dedicated to providing financial and business news through periodicals, online content, mobile apps, conferences, books and TV/video programs. Caixin aims to blaze a trail that helps traditional media prosper in the new media age through integrated multimedia platforms.

News from Caixin

<ul><li>China’s top state assets administration imposed minimum prices for tickets on seven state-owned airlines, slamming the door on ultra-low-cost promotions launched as travel plunged during the pandemic</li><li>The commission put a floor under prices to preserve and increase the value of state-owned assets and to pare operating losses, a senior industry insider said.</li><li>The move is a way for SASAC to exercise its rights as a majority shareholder of the state-owned airlines.</li></ul>

China’s top state assets administration imposed minimum prices for tickets on seven state-owned airlines, slamming the door on ultra-low-cost promotions launched as travel plunged during the pandemicThe commission put a floor under prices to preserve and increase the value of state-owned assets and to pare operating losses, a senior industry insider said.The move is a way for SASAC to exercise its rights as a majority shareholder of the state-owned airlines.

China Slams the Door on ‘1 Yuan Airfares’ Spawned by the Pandemic

<ul><li>China’s civil aviation industry plunged deeper into the red in 2022 as Covid restrictions effectively shut down international travel</li><li>However, there are hopes things may turn around quickly after the abandonment of the “zero-Covid” strategy last month</li><li>The country’s airline companies posted a combined loss of 216 billion yuan ($31.8 billion) last year, widening from 84.3 billion yuan in 2021 and 94.7 billion in 2020</li></ul>

China’s civil aviation industry plunged deeper into the red in 2022 as Covid restrictions effectively shut down international travelHowever, there are hopes things may turn around quickly after the abandonment of the “zero-Covid” strategy last monthThe country’s airline companies posted a combined loss of 216 billion yuan ($31.8 billion) last year, widening from 84.3 billion yuan in 2021 and 94.7 billion in 2020

Losses Blow Out at China’s Airlines as Passengers Dip to 12-Year Low

China

China Eastern Airlines Corporation Limited, together with its subsidiaries, operates in the civil aviation industry. It offers passenger, cargo, mail delivery, ground, cargo handling, and other extended transportation services.

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China Eastern Airlines (670 HK)

Shangri-La Asia (69 HK): Not yet Fully Reflected China's Comeback

Shangri-la Asia is an excellent play on recovery of China, where 55% of rooms are located. Its overseas assets will gain from surge in outbound...

Osbert Tang, CFA

Air China (753 HK): Set to Accelerate

Resumptions of visa issuance and outbound international group travels, removal of pre-flight negative PCR tests and recovery of visitors to HK all...

Osbert Tang, CFA

China Tourism and Hospitality Industry: A Year of Revenge

We are only in early stage of China's tourism and hospitality recovery, after its re-opening of borders in Jan. We identify Tongcheng, H World,...

Osbert Tang, CFA

China Slams the Door on ‘1 Yuan Airfares’ Spawned by the Pandemic

China’s top state assets administration imposed minimum prices for tickets on seven state-owned airlines, slamming the door on ultra-low-cost...

Caixin Global

Losses Blow Out at China’s Airlines as Passengers Dip to 12-Year Low

China’s civil aviation industry plunged deeper into the red in 2022 as Covid restrictions effectively shut down international travel

Caixin Global

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