HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Communications Construction / Equity Bottom-Up

<ul>
<li>Apparently, <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> has an uninspiring 3Q22, but this is mainly due to losses at concession projects and heavy credit and asset impairments.</li>
<li>We estimate outstanding backlog at Rmb3.28trn, enough to cover 4.5x FY22F revenue. Expansion in 3Q22 gross margin, against declines in 1Q22 and 2Q22, is a positive development.</li>
<li>Despite outperformance against major indexes YTD, CCCC still trades on 2.3x and 2.1x PERs for FY22-23. Its 0.16x P/B has overly discounted the value of underlying assets.</li>
</ul>


Apparently, China Communications Construction (1800 HK) has an uninspiring 3Q22, but this is mainly due to losses at concession projects and heavy credit and asset impairments.
We estimate outstanding backlog at Rmb3.28trn, enough to cover 4.5x FY22F revenue. Expansion in 3Q22 gross margin, against declines in 1Q22 and 2Q22, is a positive development.
Despite outperformance against major indexes YTD, CCCC still trades on 2.3x and 2.1x PERs for FY22-23. Its 0.16x P/B has overly discounted the value of underlying assets.


China Comm Const (1800 HK): 4Q22 Looks to Be a Period of Acceleration

<ul>
<li>
<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> should see positive new contract momentum in 2H22. We also expect softening in cost pressure to bring about better margin. </li>
<li>It is actively looking to recycle and realise the value of its assets and good progress are expected in 2H22. Such moves will narrow the currently deeply discounted 0.18x P/B. </li>
<li>With order backlog amounting to 4.6x of annualised 1H22 revenue, earnings prospects are well secured, making its FY22F PER of 2.6x and FY23F of 2.3x very cheap.</li>
</ul>



China Communications Construction (1800 HK) should see positive new contract momentum in 2H22. We also expect softening in cost pressure to bring about better margin. 
It is actively looking to recycle and realise the value of its assets and good progress are expected in 2H22. Such moves will narrow the currently deeply discounted 0.18x P/B. 
With order backlog amounting to 4.6x of annualised 1H22 revenue, earnings prospects are well secured, making its FY22F PER of 2.6x and FY23F of 2.3x very cheap.


China Comm Const (1800 HK): Key Takeaways from Post-1H22 Call

<ul>
<li>
<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> sealed Rmb371bn of new contract in 2Q22, or a 35.2% YoY growth, representing a sharp acceleration from just 4.9% in 1Q22. </li>
<li>We estimate backlog is now around Rmb3.5trn and this equals to 5.2x FY21 revenue. This should have improved from 4.6x at end-FY21 and provides CCCC a secured pipeline.</li>
<li>CCCC is well positioned to gain more contracts in 2H22 as driven by the local government special purpose bonds issue. Such issue reached Rmb1.5trn, or a 166.1% growth, in Jun.</li>
</ul>



China Communications Construction (1800 HK) sealed Rmb371bn of new contract in 2Q22, or a 35.2% YoY growth, representing a sharp acceleration from just 4.9% in 1Q22. 
We estimate backlog is now around Rmb3.5trn and this equals to 5.2x FY21 revenue. This should have improved from 4.6x at end-FY21 and provides CCCC a secured pipeline.
CCCC is well positioned to gain more contracts in 2H22 as driven by the local government special purpose bonds issue. Such issue reached Rmb1.5trn, or a 166.1% growth, in Jun.


China Comm Const (1800 HK): Accelerating New Contract Wins

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>Inside is a recap of movements in the last week relating to the Shanghai and Shenzhen-Hong Kong Stock Connect facilities, broken down by company and industry.</li>
<li>Overall, the net inflow over the past week was ~US$0.46bn, split (+US$0.36bn) for Shanghai and (+US$0.1bn) for Shenzhen.</li>
<li>The largest inflows were into <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> and <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a>. The largest outflow was in <a href="https://www.smartkarma.com/entities/pop-mart-international-group-limited" target="_blank" data-smartkarma-citation="entities:29016:1" rel="noopener">Pop Mart International Group Limited (9992 HK)</a> and <a href="https://www.smartkarma.com/entities/great-wall-motor-co-ltd-cb302af9-398c-4d2d-ba39-023e43287eef" target="_blank" data-smartkarma-citation="entities:128:1" rel="noopener">Great Wall Motor (2333 HK)</a>.</li>
</ul>


Inside is a recap of movements in the last week relating to the Shanghai and Shenzhen-Hong Kong Stock Connect facilities, broken down by company and industry.
Overall, the net inflow over the past week was ~US$0.46bn, split (+US$0.36bn) for Shanghai and (+US$0.1bn) for Shenzhen.
The largest inflows were into Tencent (700 HK) and BYD (1211 HK). The largest outflow was in Pop Mart International Group Limited (9992 HK) and Great Wall Motor (2333 HK).


Shanghai/​​​​​​​​​Shenzhen Southbound Connect: Weekly Moves (22 July 2022)

Thematic (Sector/Industry)

<ul>
<li>China's 0.4% GDP growth for 2Q22 is disappointing and worse than market expectation. To revive the economic outlook in 2H22, more policy measures are expected to be put in place. </li>
<li>Over the last two weeks, policies on expansion of highway network, increase in urbanisation level, support on auto consumption and promotion of sports activities have already been announced.</li>
<li>We identify <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>, <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>, <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>, <a href="https://www.smartkarma.com/entities/zhongsheng-group-holdings" target="_blank" data-smartkarma-citation="entities:10573:1" rel="noopener">Zhongsheng Group (881 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 Products (2020 HK)</a> as beneficiaries.</li>
</ul>


China's 0.4% GDP growth for 2Q22 is disappointing and worse than market expectation. To revive the economic outlook in 2H22, more policy measures are expected to be put in place. 
Over the last two weeks, policies on expansion of highway network, increase in urbanisation level, support on auto consumption and promotion of sports activities have already been announced.
We identify China Communications Construction (1800 HK), Haier Smart Home (6690 HK), China East Education (667 HK), Zhongsheng Group (881 HK) and Anta Sports Products (2020 HK) as beneficiaries.


China Stimulus: Beneficiaries from a Policy Perspective

China

China Railway Group Ltd. offers transportation systems construction services. The Company builds railroads, roads, tunnels, and bridges.

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China Railway Group Ltd H (390 HK)

China Comm Const (1800 HK): 4Q22 Looks to Be a Period of Acceleration

While 3Q22 result is weaker than expected, outstanding backlog is already enough to cover FY22F by 4.5x, securing its earnings outlook. We are also...

Osbert Tang, CFA

China Comm Const (1800 HK): Key Takeaways from Post-1H22 Call

Healthy earnings growth is expected to sustain into 2H22 on the back of stronger revenue and cost control. New contract momentum will stay...

Osbert Tang, CFA

China Comm Const (1800 HK): Accelerating New Contract Wins

CCCC has a remarkable 2Q22 with new contracts of Rmb371bn (+35.2% YoY, against just 4.9% in 1Q22). More contracts should be gained in 2H22 with...

Osbert Tang, CFA

Shanghai/Shenzhen Southbound Connect: Weekly Moves (22 July 2022)

Inside is a recap of movements in the Shanghai/Shenzhen-HK Connect. Overall, the net inflow over the past week was ~US$0.46bn, split (+US$0.36bn)...

David Blennerhassett

China Stimulus: Beneficiaries from a Policy Perspective

Added to the beneficiaries from special purpose bonds issue, we identify more beneficiaries based on the latest government policies for stimulating...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

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China Comm Const (1800 HK): 4Q22 Looks to Be a Period of Acceleration

While 3Q22 result is weaker than expected, outstanding backlog is already enough to cover FY22F by 4.5x, securing its earnings outlook. We are also...

Osbert Tang, CFA

China Comm Const (1800 HK): Key Takeaways from Post-1H22 Call

Healthy earnings growth is expected to sustain into 2H22 on the back of stronger revenue and cost control. New contract momentum will stay...

Osbert Tang, CFA

China Comm Const (1800 HK): Accelerating New Contract Wins

CCCC has a remarkable 2Q22 with new contracts of Rmb371bn (+35.2% YoY, against just 4.9% in 1Q22). More contracts should be gained in 2H22 with...

Osbert Tang, CFA

Shanghai/​​​​​​​​​Shenzhen Southbound Connect: Weekly Moves (22 July 2022)

Inside is a recap of movements in the Shanghai/Shenzhen-HK Connect. Overall, the net inflow over the past week was ~US$0.46bn, split (+US$0.36bn)...

David Blennerhassett

China Stimulus: Beneficiaries from a Policy Perspective

Added to the beneficiaries from special purpose bonds issue, we identify more beneficiaries based on the latest government policies for stimulating...

Osbert Tang, CFA

Shanghai/Shenzhen Southbound Connect: Weekly Moves (22 July 2022)