HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Communications Construction / Equity Bottom-Up

<p>We had a call with <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> with positive takeaways. We see management taking action to address the issues of high gearing and slow cash payback, good progress in infrastructure REIT issuance, potential improvement in profitability and limited impact of the Sino-US tension. The company is also exploring various options to support its share prices.</p><p>After a 13% rebound since the exclusion from MSCI global indexes, there still exists significant upside potential for CCCC, in our view. Its 12-month forward P/B multiple of 0.21x remains cheap. With improvement in profitability and a narrowing in the H-A discount, we expect re-rating to continue - a return to 1SD below historical average P/B will imply 66% upside.  </p>

We had a call with China Communications Construction (1800 HK) with positive takeaways. We see management taking action to address the issues of high gearing and slow cash payback, good progress in infrastructure REIT issuance, potential improvement in profitability and limited impact of the Sino-US tension. The company is also exploring various options to support its share prices.After a 13% rebound since the exclusion from MSCI global indexes, there still exists significant upside potential for CCCC, in our view. Its 12-month forward P/B multiple of 0.21x remains cheap. With improvement in profitability and a narrowing in the H-A discount, we expect re-rating to continue - a return to 1SD below historical average P/B will imply 66% upside.  

China Comm Const (1800 HK): Positive Takeaways from Call with Company

<p>With the conclusion of the deletion from MSCI global indices on 5 Jan, we believe focus for <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 shift back to its fundamentals. In our view, strong recovery in toll road concession businesses, solid new contract momentum and conclusion of its first public infrastructure REIT issuance are the positive drivers and catalysts in this year. </p><p>CCCC's H-share has underperformed A-share sharply since mid-Nov, with its discount widened to 51% from 43%, and it is now the time to stage a reversal. Despite its rebound in last two days, CCCC still trades on just 0.2x 12-month forward P/B multiple. This implies that the market considers as much as Rmb216bn, or 17%, of its total assets are worthless, and we think this is not justified. Its current P/B is also ridiculously low at 2 SD below historical average. </p>

With the conclusion of the deletion from MSCI global indices on 5 Jan, we believe focus for China Communications Construction (1800 HK) should shift back to its fundamentals. In our view, strong recovery in toll road concession businesses, solid new contract momentum and conclusion of its first public infrastructure REIT issuance are the positive drivers and catalysts in this year. CCCC's H-share has underperformed A-share sharply since mid-Nov, with its discount widened to 51% from 43%, and it is now the time to stage a reversal. Despite its rebound in last two days, CCCC still trades on just 0.2x 12-month forward P/B multiple. This implies that the market considers as much as Rmb216bn, or 17%, of its total assets are worthless, and we think this is not justified. Its current P/B is also ridiculously low at 2 SD below historical average. 

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: Tokyo Dome, LG Corp, Kerry Express, Sogou, Adways

Last Week in Event SPACE: Tokyo Dome, ESR/Sabana, NTT Docomo, Evergrande, LG Corp, China Resources

Travis Lundy

Quantitative Analysis

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<p>The H-Share/A-Share monitor is published every weekend for the data ending the last trading day of the previous week. It includes all H-Share/A-Share pairs where the H-Share has a 90-day average daily value-traded of US$1.0mm or more. It shows basic data per H/A spread stock by sector, with...</p>
</div>
<div>
<ul style="list-style-type: disc;">
<li>H/A Discount,</li>
<li>movement in H/A Discount over 5 and 20 days,</li>
<li>a 52-week Z-score for the spread,</li>
<li>A chart showing evolution of the H/A spread over the last 20 days,</li>
<li>Southbound shares held (millions of shares), Net Change in Southbound (Shanghai and Shenzhen combined) shares held by millions of shares, and contribution of Net Southbound Volume to HK-traded volume over the past five days and 20 days, </li>
<li>There is also a chart showing the average sector spread and the individual spreads within each sector over the last three years. </li>
</ul>
</div>
<div>
<p>A recent addition is the possible status of H/A-share companies in the monitor which are subject to the Trump Executive Order on Chinese Military Companies. They are separated into three types (Possible Direct Qualifying Entity, Possible Indirect Qualifying Entity, and 20+%-owned by Qualifying Entity). They are color-coded as below.</p>
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<p>For more on the list of names, please see <a href="https://www.smartkarma.com/insights/trump-s-executive-order-on-chinese-military-companies" target="_blank" data-smartkarma-citation="insights:45259" rel="noopener">Trump's Executive Order on Chinese Military Companies</a>. </p>
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<p>This past week saw mixed movement in H/A spreads but on average they were narrower.</p>
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/829/original/Screenshot%202020-11-28%20at%206.25.16%20PM.png?1606559131" class="editor-image img-responsive" data-smartkarma-image-id="174829"></figure>
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<p>Average performance of the 39 recommendations (long 27, short 12) from last week was for a profit of 0.67% per trade.</p>
<p>There are 43 recommendations for the upcoming week.</p>
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<p>The first sector discussed is <strong>Consumer</strong>, where liquid H/A spreads narrowed on average 0.6% this past week after narrowing 2.7% the week before. Spreads are now tighter by 2.1% on average over a four-week period. Four of six liquid Hs outperformed their As.</p>
<p>Southbound accounts were large-ish net buyers on the week. There were three net buys and three net sells but the net buying ended up being all <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>, again. <a href="https://www.smartkarma.com/entities/guangzhou-automobile-group-co-ltd" target="_blank" data-smartkarma-citation="entities:11082:1" rel="noopener">Guangzhou Automobile Group (2238 HK)</a> saw significant net selling. </p>
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<p>Last week I recommended staying long the H vs A on <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> and that spread gained 1.6% for the week (after gaining 4.7% the week before when it was also recommended). This past week I put out the Weekly late on Monday (after 2pm), when BYD in Hong Kong had gained 3.7% vs the As on the day, and so recommended implementing a short BYD (1211 HK) H vs A share trade and from that point or even from the end of the day or the next, the Hs actually underperformed the As by 0.4%. </p>
<p>See below the fold for this week's recommendations.</p>
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/809/original/Screenshot%202020-11-28%20at%205.32.56%20PM.png?1606556000" class="editor-image img-responsive" data-smartkarma-image-id="174809"></figure>
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<section class="figure"></section>
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<section class="figure">For Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities, please read on.</section>
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The H-Share/A-Share monitor is published every weekend for the data ending the last trading day of the previous week. It includes all H-Share/A-Share pairs where the H-Share has a 90-day average daily value-traded of US$1.0mm or more. It shows basic data per H/A spread stock by sector, with...



H/A Discount,
movement in H/A Discount over 5 and 20 days,
a 52-week Z-score for the spread,
A chart showing evolution of the H/A spread over the last 20 days,
Southbound shares held (millions of shares), Net Change in Southbound (Shanghai and Shenzhen combined) shares held by millions of shares, and contribution of Net Southbound Volume to HK-traded volume over the past five days and 20 days, 
There is also a chart showing the average sector spread and the individual spreads within each sector over the last three years. 



A recent addition is the possible status of H/A-share companies in the monitor which are subject to the Trump Executive Order on Chinese Military Companies. They are separated into three types (Possible Direct Qualifying Entity, Possible Indirect Qualifying Entity, and 20+%-owned by Qualifying Entity). They are color-coded as below.





For more on the list of names, please see Trump's Executive Order on Chinese Military Companies. 



This past week saw mixed movement in H/A spreads but on average they were narrower.




Average performance of the 39 recommendations (long 27, short 12) from last week was for a profit of 0.67% per trade.
There are 43 recommendations for the upcoming week.



The first sector discussed is Consumer, where liquid H/A spreads narrowed on average 0.6% this past week after narrowing 2.7% the week before. Spreads are now tighter by 2.1% on average over a four-week period. Four of six liquid Hs outperformed their As.
Southbound accounts were large-ish net buyers on the week. There were three net buys and three net sells but the net buying ended up being all BYD (1211 HK), again. Guangzhou Automobile Group (2238 HK) saw significant net selling. 




Last week I recommended staying long the H vs A on Great Wall Motor (2333 HK) and that spread gained 1.6% for the week (after gaining 4.7% the week before when it was also recommended). This past week I put out the Weekly late on Monday (after 2pm), when BYD in Hong Kong had gained 3.7% vs the As on the day, and so recommended implementing a short BYD (1211 HK) H vs A share trade and from that point or even from the end of the day or the next, the Hs actually underperformed the As by 0.4%. 
See below the fold for this week's recommendations.











For Energy, Financials &amp; Real Estate, Health Care, Tech, Industrials, Materials, and Utilities, please read on.


Quiddity Weekly H/​​A: Share Spread Monitor as of 27 Nov 2020

China

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

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

China Railway Group Ltd H (390 HK)

China Comm Const (1800 HK): Positive Takeaways from Call with Company

Positive messages from a call with CCCC and we expect re-rating to continue after the recent 13% rebound in share price. At 0.21x P/B, the stock is...

Osbert Tang, CFA

China Comm Const (1800 HK): Brewing Bull

CCCC has been a massive underperformer, partly driven by the MSCI deletion. With the issue now behind us, foucs should return to the fundamentals...

Osbert Tang, CFA

Last Week in Event SPACE: Tokyo Dome, LG Corp, Kerry Express, Sogou, Adways

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Last Week in Event SPACE: Tokyo Dome, ESR/Sabana, NTT Docomo, Evergrande, LG Corp, China Resources

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China Comm Const (1800 HK): Positive Takeaways from Call with Company

Positive messages from a call with CCCC and we expect re-rating to continue after the recent 13% rebound in share price. At 0.21x P/B, the stock is...

Osbert Tang, CFA

China Comm Const (1800 HK): Brewing Bull

CCCC has been a massive underperformer, partly driven by the MSCI deletion. With the issue now behind us, foucs should return to the fundamentals...

Osbert Tang, CFA

Last Week in Event SPACE: Tokyo Dome, LG Corp, Kerry Express, Sogou, Adways

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Last Week in Event SPACE: Tokyo Dome, ESR/Sabana, NTT Docomo, Evergrande, LG Corp, China Resources

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Quiddity Weekly H/​​A: Share Spread Monitor as of 27 Nov 2020

The weekly H/A Share Monitor and Trade Recommendations. Spreads narrower on the week. Last week's 39 trade recommendations gained 0.67% on average....

Travis Lundy

Quiddity Weekly H/A: Share Spread Monitor as of 27 Nov 2020