HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

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<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 1H24 result is below expectations, but the growth outlook is promising. Management also guided for a solid recovery in 2H24.</li>
<li>Backlog and new orders rose 42.5% and 29.4%, respectively, with chemical and environmental orders rebounded sharply QoQ. The overall margin will be better in 2H24.</li>
<li>Hydrogen revenue should reach Rmb1bn in FY24 (1H24: Rmb450m). New coke oven gas (COG) to hydrogen projects may generate Rmb10bn revenue by FY27, or 43% of FY23 revenue.</li>
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CIMC Enric Holdings (3899 HK)'s 1H24 result is below expectations, but the growth outlook is promising. Management also guided for a solid recovery in 2H24.
Backlog and new orders rose 42.5% and 29.4%, respectively, with chemical and environmental orders rebounded sharply QoQ. The overall margin will be better in 2H24.
Hydrogen revenue should reach Rmb1bn in FY24 (1H24: Rmb450m). New coke oven gas (COG) to hydrogen projects may generate Rmb10bn revenue by FY27, or 43% of FY23 revenue.


CIMC Enric (3899 HK): Things Are Getting Better

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<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> reached another record year with net profit surging 24.2% in FY23. Favourable product mix has benefited gross margin which expanded 0.8pp YoY.</li>
<li>Record new orders of Rmb86.5bn (+31.9% YoY) have been signed and there is a recovery in momentum in 4Q23. Its end-FY23 backlog should be enough to cover 3.1x FY24F revenue.</li>
<li>DEC is well-positioned to capture the demand for hydrogen energy and power storage. With 19.3% 3-year earnings CAGR, its 5.1x PER and 8.2% dividend yield are attractive.</li>
</ul>



Dongfang Electric (1072 HK) reached another record year with net profit surging 24.2% in FY23. Favourable product mix has benefited gross margin which expanded 0.8pp YoY.
Record new orders of Rmb86.5bn (+31.9% YoY) have been signed and there is a recovery in momentum in 4Q23. Its end-FY23 backlog should be enough to cover 3.1x FY24F revenue.
DEC is well-positioned to capture the demand for hydrogen energy and power storage. With 19.3% 3-year earnings CAGR, its 5.1x PER and 8.2% dividend yield are attractive.


Dongfang Electric (1072 HK): Good Profit, Record Orders

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<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 solid 3Q23 with excellent new order pick-up, surging by 52.8% YoY on the back of strengths in clean energy and liquid food segments.</li>
<li>Hydrogen energy revenue is on target to reach Rmb700m in FY23. Meanwhile, management revealed that there is a slight gross margin expansion so far this year.</li>
<li>With order backlog rising 27.6% YoY to Rmb22.2bn at end-9M23, earnings outlook is well protected. Its net cash position is another credit, making its premium multiples justified.</li>
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CIMC Enric Holdings (3899 HK) has a solid 3Q23 with excellent new order pick-up, surging by 52.8% YoY on the back of strengths in clean energy and liquid food segments.
Hydrogen energy revenue is on target to reach Rmb700m in FY23. Meanwhile, management revealed that there is a slight gross margin expansion so far this year.
With order backlog rising 27.6% YoY to Rmb22.2bn at end-9M23, earnings outlook is well protected. Its net cash position is another credit, making its premium multiples justified.


CIMC Enric (3899 HK): Surge in Overall New Order Momentum

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<li>We like the 17.7% core earnings growth for <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> as this has demonstrated its operating strengths under a challenging environment in 1H23. </li>
<li>With orders on hand of Rmb20.6bn (+18.8% YoY), we see forward earnings well-covered. Also, management has turned even more positive on earnings and margin outlook in 2H23. </li>
<li>The hydrogen energy business maintains solid momentum with order backlog surging 116.9%. The spin-off of CIMC Safeway Technologies on the ChiNext Board is a near-term catalyst.</li>
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We like the 17.7% core earnings growth for CIMC Enric Holdings (3899 HK) as this has demonstrated its operating strengths under a challenging environment in 1H23. 
With orders on hand of Rmb20.6bn (+18.8% YoY), we see forward earnings well-covered. Also, management has turned even more positive on earnings and margin outlook in 2H23. 
The hydrogen energy business maintains solid momentum with order backlog surging 116.9%. The spin-off of CIMC Safeway Technologies on the ChiNext Board is a near-term catalyst.


CIMC Enric (3899 HK): Demonstrating Sustained Resilience

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

AP Moeller - Maersk A/S / Equity Bottom-Up

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<li>Maersk's Q1 earnings were solid, despite plummeting container rates and volumes. Annualizing Q1 Net Income would give RoE of about 17%, which is a healthy level, in our view. </li>
<li>Q1 EBITDA of US$4 bn is equivalent to 36% to 50% of full-year guidance, which remains unchanged. Maersk indicated Q1 will likely be its most profitable quarter in 2023.</li>
<li>Maersk's result reinforces our view that container rates are bottoming. A related takeaway is that a slowing goods inflation rate could lose a tailwind it's enjoyed since last October.</li>
</ul>


Maersk's Q1 earnings were solid, despite plummeting container rates and volumes. Annualizing Q1 Net Income would give RoE of about 17%, which is a healthy level, in our view. 
Q1 EBITDA of US$4 bn is equivalent to 36% to 50% of full-year guidance, which remains unchanged. Maersk indicated Q1 will likely be its most profitable quarter in 2023.
Maersk's result reinforces our view that container rates are bottoming. A related takeaway is that a slowing goods inflation rate could lose a tailwind it's enjoyed since last October.


Maersk Q1: Earnings Fine | Guidance Intact | Takeaways for Container Shipping (And Inflation)

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)