HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

Chinese airlines are expected to face sustained turbulence given the adverse impact of scattered outbreak of local COVID-19 cases, with the most recent ones being Fujian. We see risks for this round of spread to negatively affect the cross-province travel appetite during the mid-Autumn mini-break and potentially the all-important National Day Golden Week in Oct. With poor Aug traffic figures out (over 50% YoY drop in domestic passenger traffic for both <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> and <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>), Sep is also unlikely to be an easy month.We expect 3Q21 results to be under pressure, and we maintain that a long <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>, short <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> trade can position well amid the current environment. We see too much positive expectations have been built in CSA; meanwhile, Air China will have an easier base for comparison in 4Q21 and the reduction in losses at <a href="https://www.smartkarma.com/entities/cathay-pacific-airways-ltd" target="_blank" data-smartkarma-citation="entities:243:1" rel="noopener">Cathay Pacific Airways (293 HK)</a> will continue to help its bottom line in 2H21.

Chinese airlines are expected to face sustained turbulence given the adverse impact of scattered outbreak of local COVID-19 cases, with the most recent ones being Fujian. We see risks for this round of spread to negatively affect the cross-province travel appetite during the mid-Autumn mini-break and potentially the all-important National Day Golden Week in Oct. With poor Aug traffic figures out (over 50% YoY drop in domestic passenger traffic for both China Southern Airlines (1055 HK) and Air China Ltd (H) (753 HK)), Sep is also unlikely to be an easy month.We expect 3Q21 results to be under pressure, and we maintain that a long Air China Ltd (H) (753 HK), short China Southern Airlines (1055 HK) trade can position well amid the current environment. We see too much positive expectations have been built in CSA; meanwhile, Air China will have an easier base for comparison in 4Q21 and the reduction in losses at Cathay Pacific Airways (293 HK) will continue to help its bottom line in 2H21.

Chinese Airlines: Cruising Within Sustained Turbulence

Equity Bottom-Up

Guangzhou Baiyun International Airport / Equity Bottom-Up

There is a good recovery at <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a> (GBIA) in Jul, with the rate of decline in overall aircraft movement and passenger traffic has moderated to -6.3% and -11.7% in Jul, versus -57.3% and -71% for Jun, respectively. Cargo momentum is also strong as overall throughput rose 7.3% in Jul and 21.8% in 7M21.Outlook for GBIA, however, still weighted on negatively by the resurgence of local COVID-19 cases in China due to the highly infectious Delta variant. With daily new local cases maintaining at over 60 in the last 5 days, many local governments have recommended no-cross-province travels for residents. We have also seen the daily Shanghai-Guangzhou flights being cut by 45.5% from the peak, and this will be negative to GBIA's Aug figures and pace of traffic recovery.

There is a good recovery at Guangzhou Baiyun International Airport (600004 CH) (GBIA) in Jul, with the rate of decline in overall aircraft movement and passenger traffic has moderated to -6.3% and -11.7% in Jul, versus -57.3% and -71% for Jun, respectively. Cargo momentum is also strong as overall throughput rose 7.3% in Jul and 21.8% in 7M21.Outlook for GBIA, however, still weighted on negatively by the resurgence of local COVID-19 cases in China due to the highly infectious Delta variant. With daily new local cases maintaining at over 60 in the last 5 days, many local governments have recommended no-cross-province travels for residents. We have also seen the daily Shanghai-Guangzhou flights being cut by 45.5% from the peak, and this will be negative to GBIA's Aug figures and pace of traffic recovery.

Guangzhou Baiyun Intl Airport (600004 CH): Still Uneasy Time

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Travelsky Technology Ltd H / Equity Bottom-Up

H1 2021 number of flights processed in China has shown signs of healthy recovery but due to the recent Delta Variant spread in China, <a href="https://www.smartkarma.com/entities/travelsky-technology-ltd-h" target="_blank" data-smartkarma-citation="entities:19829:1" rel="noopener">Travelsky Technology Ltd H (696 HK)</a> share price alongside the other travel-related names have been sold off. Furthermore, excerpts from an Instagram update provides some colour of the current state of air travel situation in the Chinese airport. 
The short-term recommendation is to stay away from <a href="https://www.smartkarma.com/entities/travelsky-technology-ltd-h" target="_blank" data-smartkarma-citation="entities:19829:1" rel="noopener">Travelsky Technology Ltd H (696 HK)</a> as the Delta variant has caused the negative sentiment on airline-related stocks to soar again as shown in the chart below.
Taking into account a more optimistic view that the higher vaccination rates in China and that it is working effectively against the current and future variant, therefore, air travel volume should recover, sooner rather than later, the company should benefit from the recovery thus for long-term investors, this is a stock that you can and should average down.
For investors who are to have exposure to <a href="https://www.smartkarma.com/entities/travelsky-technology-ltd-h" target="_blank" data-smartkarma-citation="entities:19829:1" rel="noopener">Travelsky Technology Ltd H (696 HK)</a> , this is probably the right time to start building exposure.

H1 2021 number of flights processed in China has shown signs of healthy recovery but due to the recent Delta Variant spread in China, Travelsky Technology Ltd H (696 HK) share price alongside the other travel-related names have been sold off. Furthermore, excerpts from an Instagram update provides some colour of the current state of air travel situation in the Chinese airport. 
The short-term recommendation is to stay away from Travelsky Technology Ltd H (696 HK) as the Delta variant has caused the negative sentiment on airline-related stocks to soar again as shown in the chart below.
Taking into account a more optimistic view that the higher vaccination rates in China and that it is working effectively against the current and future variant, therefore, air travel volume should recover, sooner rather than later, the company should benefit from the recovery thus for long-term investors, this is a stock that you can and should average down.
For investors who are to have exposure to Travelsky Technology Ltd H (696 HK) , this is probably the right time to start building exposure. 

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

<a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free-corp-ltd" target="_blank" data-smartkarma-citation="entities:12278:1" rel="noopener">China Tourism Group Duty Free Corp Ltd (601888 CH)</a> (CDF) aims to raise around US$5-10bn in its H-share listing in Hong Kong. CDF is the largest travel retail operator in the world primarily focusing on sales of high-quality duty-free and duty-paid merchandise to domestic and international travelers. As per Frost &amp; Sullivan, it had 92.3% market share by retail revenue in China duty-free merchandise sales in 2020.As the A-shares are already listed and well covered, we will treat this listing more like a placement rather than an IPO. However, given the large potential size of the listing, we will go into more details than we would for a regular placement. Hence, in this note we will briefly cover the company’s background and recent performance before touching upon the deal dynamics.

China Tourism Group Duty Free Corp Ltd (601888 CH) (CDF) aims to raise around US$5-10bn in its H-share listing in Hong Kong. CDF is the largest travel retail operator in the world primarily focusing on sales of high-quality duty-free and duty-paid merchandise to domestic and international travelers. As per Frost &amp; Sullivan, it had 92.3% market share by retail revenue in China duty-free merchandise sales in 2020.As the A-shares are already listed and well covered, we will treat this listing more like a placement rather than an IPO. However, given the large potential size of the listing, we will go into more details than we would for a regular placement. Hence, in this note we will briefly cover the company’s background and recent performance before touching upon the deal dynamics.

China Tourism Group A/H Listing Early Look - Over US$5bn Raising for a Monopoly on Chinese Tourists

Shenzhen International / Equity Bottom-Up

Share price of <a href="https://www.smartkarma.com/entities/shenzhen-intl-holdings" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen Intl (152 HK)</a> (SZI) has been under pressure lately due to concerns on the proposed acquisition of <a href="https://www.smartkarma.com/entities/suning-com-co-ltd-a" target="_blank" data-smartkarma-citation="entities:9178:1" rel="noopener">Suning.com (002024 CH)</a> and weakened performance on its 49%-owned Shenzhen Airlines (SZA). However, now that it decided not to go ahead on Suning.com and there are signs of recovery at SZA, the still-depressed valuation (0.61x P/B, 5-year low) is unwarranted, in our opinion.Its core logistics segment performed well in 1H21, achieving higher occupancy which is supportive to rental income, and the expansion in project portfolio should be an added driver. The proposed acquisition of <a href="https://www.smartkarma.com/entities/shenzhen-investment-holdings-bay-area-development" target="_blank" data-smartkarma-citation="entities:12134:1" rel="noopener">Shenzhen Investment Holdings Bay Area Development (737 HK)</a> by its subsidiary <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway Co H (548 HK)</a> should also generate good cash flow with upside from its land assets. Long-term, the transformation of South China Logistics Park may potentially create another successful story similar to its Qianhai project. At FY21F dividend yield of 8%, we believe SZI is very attractive at the current level.

Share price of Shenzhen Intl (152 HK) (SZI) has been under pressure lately due to concerns on the proposed acquisition of Suning.com (002024 CH) and weakened performance on its 49%-owned Shenzhen Airlines (SZA). However, now that it decided not to go ahead on Suning.com and there are signs of recovery at SZA, the still-depressed valuation (0.61x P/B, 5-year low) is unwarranted, in our opinion.Its core logistics segment performed well in 1H21, achieving higher occupancy which is supportive to rental income, and the expansion in project portfolio should be an added driver. The proposed acquisition of Shenzhen Investment Holdings Bay Area Development (737 HK) by its subsidiary Shenzhen Expressway Co H (548 HK) should also generate good cash flow with upside from its land assets. Long-term, the transformation of South China Logistics Park may potentially create another successful story similar to its Qianhai project. At FY21F dividend yield of 8%, we believe SZI is very attractive at the current level.

Shenzhen Intl (152 HK): What's Wrong Recently?

China

China Southern Airlines Company Limited provides air transportation services. The Company offers passenger and freight air transportation services, aviation equipment maintenance and aircraft leasing services. Shanghai Airlines also provides ticket and hotel booking and consulting services. China Southern Airlines provides services worldwide.

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China Southern Airlines (600029 CH)

Chinese Airlines: Cruising Within Sustained Turbulence

After a devastating Aug, Sep will still be clouded by recent cases in Fujian. We think Long Air China, short CSA strategy should capture CSA's...

Osbert Tang, CFA

Guangzhou Baiyun Intl Airport (600004 CH): Still Uneasy Time

GBIA's traffic recovery will stay uneasy given the high daily local new COVID-19 cases. We have seen scheduled Shanghai-Guangzhou flights being cut...

Osbert Tang, CFA

Travelsky (696): Maintain Positive Stand

An optimistic view that with the higher vaccination rates in China and is working effectively against the current and future variant, air travel...

Henry Soediarko

China Tourism Group A/H Listing Early Look - Over US$5bn Raising for a Monopoly on Chinese Tourists

China Tourism Group Duty Free Corp Ltd (601888 CH) aims to raise around US$5-10bn in its H-share listing in Hong Kong. It had 92.3% market share by...

Sumeet Singh

Shenzhen Intl (152 HK): What's Wrong Recently?

SZI's depressed share price has already reflected the concerns of the market, with upside coming from good logistics segment, asset transformation...

Osbert Tang, CFA

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