HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Cathay Pacific Airways / Equity Bottom-Up

<ul>
<li>The recent discrimination incident will likely affect traffic recovery pace of <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> negatively if it turns into a full-scale boycott by mainland passengers.</li>
<li>The scenario of CX becoming majority-owned by <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 getting increasingly possible. This may not be totally positive to CX given CA's weaker service ranking.</li>
<li>Consensus forecasts now look somewhat bullish following the incident, and the stock's 0.7x P/B does not stand out as attractive relative to history or ROE (7% in FY25F).</li>
</ul>


The recent discrimination incident will likely affect traffic recovery pace of Cathay Pacific Airways (293 HK) negatively if it turns into a full-scale boycott by mainland passengers.
The scenario of CX becoming majority-owned by Air China Ltd (H) (753 HK) is getting increasingly possible. This may not be totally positive to CX given CA's weaker service ranking.
Consensus forecasts now look somewhat bullish following the incident, and the stock's 0.7x P/B does not stand out as attractive relative to history or ROE (7% in FY25F).


Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

<ul>
<li>Chinese outbound and domestic air traffic activity improved sharply Y/Y in the January-February LNY travel period, but activity remains far below pre-Covid levels</li>
<li>Given constrained outbound air capacity, we're surprised to see relatively low (65-66%) passenger load factors reported by the leading Chinese airlines during LNY</li>
<li>If planes don't begin to fill up with Chinese tourists soon, we believe some investors may become disappointed in the pace of China's travel recovery </li>
</ul>


Chinese outbound and domestic air traffic activity improved sharply Y/Y in the January-February LNY travel period, but activity remains far below pre-Covid levels
Given constrained outbound air capacity, we're surprised to see relatively low (65-66%) passenger load factors reported by the leading Chinese airlines during LNY
If planes don't begin to fill up with Chinese tourists soon, we believe some investors may become disappointed in the pace of China's travel recovery 


TRACKING TRAFFIC/Chinese Tourism: LNY Traffic Points to Slow Recovery in 2023

Thematic (Sector/Industry)

<ul>
<li>On Monday evening in the US, <a href="https://www.smartkarma.com/entities/trip-com-group-ltd" target="_blank" data-smartkarma-citation="entities:180:1" rel="noopener">Trip.com (TCOM US)</a> reported Q422 results that beat low expectations, but shares in the US traded down about 3% in Tuesday's session</li>
<li>As for guidance, management offered few specifics but noted a sharp improvement in booking activity early in 2023, but also highlighted an outbound capacity bottleneck at the airlines</li>
<li>Just as Covid's negative impacts papered over the secular challenges facing Trip.com, the dramatic near-term recovery in travel activity also obscures longstanding threats</li>
</ul>


On Monday evening in the US, Trip.com (TCOM US) reported Q422 results that beat low expectations, but shares in the US traded down about 3% in Tuesday's session
As for guidance, management offered few specifics but noted a sharp improvement in booking activity early in 2023, but also highlighted an outbound capacity bottleneck at the airlines
Just as Covid's negative impacts papered over the secular challenges facing Trip.com, the dramatic near-term recovery in travel activity also obscures longstanding threats


Trip.com Q4/2022 Results: Back to Reality?

<ul>
<li>The sharp surge in Omicron-driven local cases has driven more stringent measures by local governments. On ground in Shanghai, we see more tightened measures being implemented over the weekend. </li>
<li>The measures will reduce a lot of foot traffic and lower discretionary spending appetite in Mar, and this will negatively weigh on many 1Q22 results to be announced in late-Apr. </li>
<li>We advocate a long staples, short discretionary strategy in the near term. Also, travel sector will be hit, and on net-net basis, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> looks to be a loser.</li>
</ul>


The sharp surge in Omicron-driven local cases has driven more stringent measures by local governments. On ground in Shanghai, we see more tightened measures being implemented over the weekend. 
The measures will reduce a lot of foot traffic and lower discretionary spending appetite in Mar, and this will negatively weigh on many 1Q22 results to be announced in late-Apr. 
We advocate a long staples, short discretionary strategy in the near term. Also, travel sector will be hit, and on net-net basis, Meituan (3690 HK) looks to be a loser.


China on the Ground: Escalating Measures to Combat Omicron and What Stocks Are Impacted?

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

China Southern Airlines Company Limited provides commercial airline services throughout China, Southeast Asia and other parts of the world.  The Company also provides other airline related services including aircraft maintenance and air catering.

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China Southern Airlines (1055 HK)

Cathay Pacific (293 HK): Hard Landing

The recent iscrimination incident is likely to weigh on near-term traffic recovery while the increasingly possible scenario of CX becoming majority...

Osbert Tang, CFA

TRACKING TRAFFIC/Chinese Tourism: LNY Traffic Points to Slow Recovery in 2023

Jan-Feb air traffic shows the beginnings of a recovery in Chinese travel activity, but we're surprised to see outbound flights with load factors of...

Tracking Traffic

Trip.com Q4/2022 Results: Back to Reality?

As China emerges from Covid, old challenges remain for Trip.com. After posting solid Q422 results and pointing to signs of a strong recovery, these...

Daniel Hellberg

China on the Ground: Escalating Measures to Combat Omicron and What Stocks Are Impacted?

Omicron combating measures have been stepped up over the weekend and this will make a dent on the Mar operations of many companies. This will be...

Osbert Tang, CFA

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

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