HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Shanghai International Airport / Equity Bottom-Up

<ul>
<li>We consider the acquisitions of Hongqiao and related assets at a price tag of Rmb19.1bn as both financially fair for and strategically beneficial to <a href="https://www.smartkarma.com/entities/shanghai-international-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:6511:1" rel="noopener">Shanghai International Airport (600009 CH)</a>.</li>
<li>The 12.13pp increase in stake by the parent company is a vote of support and confidence, and the acquisitions trimmed its 1H21 loss by 29.8% and lowered LPS by 42.1%.</li>
<li>Profit guarantee for Logistics Company and Advertising Segment by the parent for FY22-24 is very welcomed and translated into undemanding acquisition PERs of 12.8x and 10.2x for FY24F.</li>
</ul>


We consider the acquisitions of Hongqiao and related assets at a price tag of Rmb19.1bn as both financially fair for and strategically beneficial to Shanghai International Airport (600009 CH).
The 12.13pp increase in stake by the parent company is a vote of support and confidence, and the acquisitions trimmed its 1H21 loss by 29.8% and lowered LPS by 42.1%.
Profit guarantee for Logistics Company and Advertising Segment by the parent for FY22-24 is very welcomed and translated into undemanding acquisition PERs of 12.8x and 10.2x for FY24F.


Shanghai International Airport (600009 CH): Hongqiao Acquisitions Are Fair Deals

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

China Tourism Group Duty Free Corp Ltd / Equity Capital Markets

<ul>
<li>China Tourism Group Duty Free Corporation Limited (CDF) aims to raise around US$5bn in its H-share listing in Hong Kong.</li>
<li>As per Frost &amp; Sullivan, CDF had 92.3% market share by retail revenue in China duty-free merchandise sales in 2020.</li>
<li>In this note, we will talk about the recent updates and look at the likely valuations.</li>
</ul>


China Tourism Group Duty Free Corporation Limited (CDF) aims to raise around US$5bn in its H-share listing in Hong Kong.
As per Frost &amp; Sullivan, CDF had 92.3% market share by retail revenue in China duty-free merchandise sales in 2020.
In this note, we will talk about the recent updates and look at the likely valuations.


China Tourism Group A/​H Listing - Recent Updates and a Quick Look at Valuations

China Travel International Investment Hong Kong / Equity Bottom-Up

China Travel International Investment Hong Kong

<ul>
<li>Share price of <a href="https://www.smartkarma.com/entities/china-travel-international-investment-hong-kong" target="_blank" data-smartkarma-citation="entities:3879:1" rel="noopener">China Travel International Investment Hong Kong (308 HK)</a> (CTII) rallied by 20% over the last 10 trading days but we see good room for more to come.</li>
<li>Our view is that HK-China border opening, revival in domestic tourism, supportive measures and upgrade in attractions are some key drivers for an increasing positive outlook.</li>
<li>At 0.45x 12-month forward P/B (1.5SD below average), there is significant potential for re-rating. Its net cash of HK$0.40/share, or 30% of share price, adds further comfort to us.</li>
</ul>


Share price of China Travel International Investment Hong Kong (308 HK) (CTII) rallied by 20% over the last 10 trading days but we see good room for more to come.
Our view is that HK-China border opening, revival in domestic tourism, supportive measures and upgrade in attractions are some key drivers for an increasing positive outlook.
At 0.45x 12-month forward P/B (1.5SD below average), there is significant potential for re-rating. Its net cash of HK$0.40/share, or 30% of share price, adds further comfort to us.


China Travel Intl Inv (308 HK): Here Comes My Turn!

China Southern Airlines / Equity Bottom-Up

The sharp rally in share price of <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> seems to be too excessive as fundamentals are still weak and traffic is facing headwind. While outlook for border opening has improved and collection of fuel surcharges has restarted, we see 4Q21 and early-FY22 stay challenging for China's biggest domestic airline. Its return to loss of Rmb1.4bn in 3Q21, vs. profit of Rmb377m a year ago, is a clear demonstration of the tough operating situation in the near term.CSA's number of scheduled flights on China's top five routes has so far averaged at 61 per day for 4Q, down significantly by 34% YoY, and we think this will reflect unfavourably on the 4Q21 result. Market consensus expectation of a profitable 4Q21 looks clearly aggressive given that its loss was Rmb3.3bn in 4Q20. While the latest developments are positive, they are not enough to change the big picture, in our view. Also, <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a> is a better play than CSA on China's potential border opening some time in FY22.

The sharp rally in share price of China Southern Airlines (1055 HK) seems to be too excessive as fundamentals are still weak and traffic is facing headwind. While outlook for border opening has improved and collection of fuel surcharges has restarted, we see 4Q21 and early-FY22 stay challenging for China's biggest domestic airline. Its return to loss of Rmb1.4bn in 3Q21, vs. profit of Rmb377m a year ago, is a clear demonstration of the tough operating situation in the near term.CSA's number of scheduled flights on China's top five routes has so far averaged at 61 per day for 4Q, down significantly by 34% YoY, and we think this will reflect unfavourably on the 4Q21 result. Market consensus expectation of a profitable 4Q21 looks clearly aggressive given that its loss was Rmb3.3bn in 4Q20. While the latest developments are positive, they are not enough to change the big picture, in our view. Also, Air China Ltd (H) (753 HK) is a better play than CSA on China's potential border opening some time in FY22. 

China Southern Airlines (1055 HK): Is There More Room to Go?

The 3Q21 result with widened losses at <a href="https://www.smartkarma.com/entities/shanghai-international-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:6511:1" rel="noopener">Shanghai International Airport (600009 CH)</a> clearly looks unexciting, but there are several factors that distorted both the YoY and QoQ comparison. These include a change in lease accounting, first-time interest expenses from super short-term bills issued, higher costs on pandemic control and a low base in jet fuel sales in last year. Excluding these factors, we consider SIAC's result is reasonable, and we believe it will turn better.The potential opening of China's borders, improvement in operating cash flow, removal of distorted bases for comparison and completion of asset acquisitions are just some of the favourable developments over the next 12 months, in our view. Well-controlled costs amid the tough operating environment are also setting a stage for SIAC to benefit from its high operating leverage when traffic returns in FY22. That said, we should not be too bearish on the name, especially as the share price has already gone off by 34% YTD.

The 3Q21 result with widened losses at Shanghai International Airport (600009 CH) clearly looks unexciting, but there are several factors that distorted both the YoY and QoQ comparison. These include a change in lease accounting, first-time interest expenses from super short-term bills issued, higher costs on pandemic control and a low base in jet fuel sales in last year. Excluding these factors, we consider SIAC's result is reasonable, and we believe it will turn better.The potential opening of China's borders, improvement in operating cash flow, removal of distorted bases for comparison and completion of asset acquisitions are just some of the favourable developments over the next 12 months, in our view. Well-controlled costs amid the tough operating environment are also setting a stage for SIAC to benefit from its high operating leverage when traffic returns in FY22. That said, we should not be too bearish on the name, especially as the share price has already gone off by 34% YTD.

Shanghai International Airport (600009 CH): We Shouldn't Be Too Bearish

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)

Shanghai International Airport (600009 CH): Hongqiao Acquisitions Are Fair Deals

The acquisitions of Hongqiao and related assets will enhance bottom line in next two years. The parent's profit guarantees and increase in stake...

Osbert Tang, CFA

China Tourism Group A/H Listing - Recent Updates and a Quick Look at Valuations

China Tourism Group Duty Free Corporation Limited (CDF) aims to raise around US$5bn in its H-share listing in Hong Kong. In this note we talk about...

Sumeet Singh

China Travel Intl Inv (308 HK): Here Comes My Turn!

HK-China border opening, revival in domestic tourism, supportive measures and upgrade in attractions are some key drivers for an increasing...

Osbert Tang, CFA

China Southern Airlines (1055 HK): Is There More Room to Go?

Recent rally seems to be more than enough to reflect on the latest news of COVID-19 drug development, collection of fuel surcharges and potential...

Osbert Tang, CFA

Shanghai International Airport (600009 CH): We Shouldn't Be Too Bearish

Distorting factors have made Shanghai International Airport's 3Q21 result weak on YoY and QoQ. However, a deep look showed that it is performing...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Shanghai International Airport (600009 CH): Hongqiao Acquisitions Are Fair Deals

The acquisitions of Hongqiao and related assets will enhance bottom line in next two years. The parent's profit guarantees and increase in stake...

Osbert Tang, CFA

China Tourism Group A/​H Listing - Recent Updates and a Quick Look at Valuations

China Tourism Group Duty Free Corporation Limited (CDF) aims to raise around US$5bn in its H-share listing in Hong Kong. In this note we talk about...

Sumeet Singh

China Travel Intl Inv (308 HK): Here Comes My Turn!

HK-China border opening, revival in domestic tourism, supportive measures and upgrade in attractions are some key drivers for an increasing...

Osbert Tang, CFA

China Southern Airlines (1055 HK): Is There More Room to Go?

Recent rally seems to be more than enough to reflect on the latest news of COVID-19 drug development, collection of fuel surcharges and potential...

Osbert Tang, CFA

Shanghai International Airport (600009 CH): We Shouldn't Be Too Bearish

Distorting factors have made Shanghai International Airport's 3Q21 result weak on YoY and QoQ. However, a deep look showed that it is performing...

Osbert Tang, CFA

China Tourism Group A/H Listing - Recent Updates and a Quick Look at Valuations