HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>China's ambition to build into a strong manufacturing country as revealed in 20th Party Congress should place <a href="https://www.smartkarma.com/entities/dongfang-electric-corporation-limited" target="_blank" data-smartkarma-citation="entities:1251:1" rel="noopener">Dongfang Electric (1072 HK)</a> and <a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">CIMC Enric Holdings (3899 HK)</a> in excellent positions.</li>
<li>The leadership in power and new energy equipment industry, improving gross margin outlook, well-covered order book and undemanding multiples are the key merits of <a href="https://www.smartkarma.com/entities/dongfang-electric-corporation-limited" target="_blank" data-smartkarma-citation="entities:1251:1" rel="noopener">Dongfang Electric (1072 HK)</a>. </li>
<li>
<a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">CIMC Enric Holdings (3899 HK)</a>'s good presence in clean energy, chemical/environmental and liquid food segments, global product competitiveness, secured order backlog and net cash position are its major edges. </li>
</ul>


China's ambition to build into a strong manufacturing country as revealed in 20th Party Congress should place Dongfang Electric (1072 HK) and CIMC Enric Holdings (3899 HK) in excellent positions.
The leadership in power and new energy equipment industry, improving gross margin outlook, well-covered order book and undemanding multiples are the key merits of Dongfang Electric (1072 HK). 

CIMC Enric Holdings (3899 HK)'s good presence in clean energy, chemical/environmental and liquid food segments, global product competitiveness, secured order backlog and net cash position are its major edges. 


Dongfang Electric (1072 HK) And CIMC Enric (3899 HK): Two Stocks for the Next Five Years

<ul>
<li>
<a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">CIMC Enric Holdings (3899 HK)</a> has a steady 3Q22 with good revenue growth for the chemical &amp; environmental and liquid food segments. Management also said margin has expanded YoY.</li>
<li>Overall order backlog of Rmb13.7bn is generally sufficient to cover individual segment's revenue over the next 6-15 months, comfortably securing the growth prospects. </li>
<li>With significant overseas revenue, it is benefiting from depreciation of Rmb against the USD. It also anticipates a pick-up in domestic clean energy segment growth in FY23.</li>
</ul>



CIMC Enric Holdings (3899 HK) has a steady 3Q22 with good revenue growth for the chemical &amp; environmental and liquid food segments. Management also said margin has expanded YoY.
Overall order backlog of Rmb13.7bn is generally sufficient to cover individual segment's revenue over the next 6-15 months, comfortably securing the growth prospects. 
With significant overseas revenue, it is benefiting from depreciation of Rmb against the USD. It also anticipates a pick-up in domestic clean energy segment growth in FY23.


CIMC Enric (3899 HK): Maintaining a Solid Trend

<ul>
<li>We see the positive share price reaction of <a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">CIMC Enric Holdings (3899 HK)</a> after posting a 34.5% 1H22 core profit growth not yet enough to reflect its encouraging earnings outlook.</li>
<li>Good order backlog, recovery at clean energy and increase in liquid food demand will add to the strength at chemical and environment segment as CIMC Enric's drivers.</li>
<li>Hydrogen energy business made impressive contribution growth and it should benefit from local governments' hydrogen initiatives. The stock's high PERs are just reflection of huge long-term potential. </li>
</ul>


We see the positive share price reaction of CIMC Enric Holdings (3899 HK) after posting a 34.5% 1H22 core profit growth not yet enough to reflect its encouraging earnings outlook.
Good order backlog, recovery at clean energy and increase in liquid food demand will add to the strength at chemical and environment segment as CIMC Enric's drivers.
Hydrogen energy business made impressive contribution growth and it should benefit from local governments' hydrogen initiatives. The stock's high PERs are just reflection of huge long-term potential. 


CIMC Enric (3899 HK): Growth Outlook Supported by Multiple Engines

<ul>
<li>
<a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">Cimc Enric Holdings (3899 HK)</a> has an encouraging 1Q22 with 24.9% revenue growth. If not the impact of the pandemic and lockdowns in Mar, growth would even reach 35.2%.</li>
<li>Total new orders increased 23.2% in the quarter even in a period disrupted by lockdowns. Backlog stands at Rmb15.5bn, enough to fully cover FY22 revenue with 7% growth.</li>
<li>Hydrogen energy business, though still small, witnessed 80.5% revenue growth. Good demand drives new orders to Rmb105.4m; and its backlog of Rmb180m equals to 5x of 1Q22 revenue. </li>
</ul>



Cimc Enric Holdings (3899 HK) has an encouraging 1Q22 with 24.9% revenue growth. If not the impact of the pandemic and lockdowns in Mar, growth would even reach 35.2%.
Total new orders increased 23.2% in the quarter even in a period disrupted by lockdowns. Backlog stands at Rmb15.5bn, enough to fully cover FY22 revenue with 7% growth.
Hydrogen energy business, though still small, witnessed 80.5% revenue growth. Good demand drives new orders to Rmb105.4m; and its backlog of Rmb180m equals to 5x of 1Q22 revenue. 


<ul>
<li>
<a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">Cimc Enric Holdings (3899 HK)</a> posted a set of encouraging result for FY21. It achieved a 37.4% YoY growth in 2H21 even after a 77.5% growth in 1H21. </li>
<li>Management suggests that gross margin will improve in this year as measures have been taken to cope with the factors that lead to the 2.3pp contraction in FY21.</li>
<li>Hydrogen energy is a bright spot - though contribution is still small, it expects to at least double its revenue in FY22, and remains bullish on the long term prospects.</li>
</ul>



Cimc Enric Holdings (3899 HK) posted a set of encouraging result for FY21. It achieved a 37.4% YoY growth in 2H21 even after a 77.5% growth in 1H21. 
Management suggests that gross margin will improve in this year as measures have been taken to cope with the factors that lead to the 2.3pp contraction in FY21.
Hydrogen energy is a bright spot - though contribution is still small, it expects to at least double its revenue in FY22, and remains bullish on the long term prospects.


CIMC Enric (3899 HK): Still Running on the Fast Lane

China

CIMC Enric provides key equipment, engineering services, and system solutions for the transport, storage, and processing of clean energy, chemicals, and liquid food. The company manufactures equipment for natural gas, LPG, and hydrogen, including storage tanks, transportation vehicles, and refueling station systems, alongside stainless steel tanks for liquid food and tank containers for chemicals. Headquartered in Shenzhen, China, the company was founded in 2004.

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CIMC Enric (3899 HK)

Dongfang Electric (1072 HK) And CIMC Enric (3899 HK): Two Stocks for the Next Five Years

Dongfang Electric and CIMC Enric are well-placed to benefit from China's plan to build into a strong manufacturing country. Their leadership...

Osbert Tang, CFA