HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Infrastructure, new energy, consumer discretionary and, to a lesser extent, transportation and logistics are sectors that will benefit from extensive government economic supportive policies over the last few days. </li>
<li>Acceleration of special purpose bonds will drive <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>. We see <a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd" target="_blank" data-smartkarma-citation="entities:14215:1" rel="noopener">China Longyuan Power (916 HK)</a> and <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> benefit from new energy initiatives.</li>
<li>
<a href="https://www.smartkarma.com/entities/li-ning-co-ltd" target="_blank" data-smartkarma-citation="entities:6047:1" rel="noopener">Li Ning (2331 HK)</a> will be the near-term winner in the consumer discretionary space and so as <a href="https://www.smartkarma.com/entities/haier-smart-home-co-ltd-b3ef445f-0f54-4586-8c58-9073de98d60e" target="_blank" data-smartkarma-citation="entities:31105:1" rel="noopener">Haier Smart Home Co Ltd (6690 HK)</a>.</li>
</ul>


Infrastructure, new energy, consumer discretionary and, to a lesser extent, transportation and logistics are sectors that will benefit from extensive government economic supportive policies over the last few days. 
Acceleration of special purpose bonds will drive China Communications Construction (1800 HK). We see China Longyuan Power (916 HK) and Dongfang Electric (1072 HK) benefit from new energy initiatives.

Li Ning (2331 HK) will be the near-term winner in the consumer discretionary space and so as Haier Smart Home Co Ltd (6690 HK).


Roundup of Government Economic Supportive Policies: Key Winners

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

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.

Quantitative Analysis

<ul>
<li>We analyze the monthly Hong Kong Connect flows with our data engine.</li>
<li>We tabulate the top stocks by inflows, outlfows, and holding by mainland investors.</li>
<li>Inflows last month amounted to USD 5.7bn which marks sixth months of inflows. Top three stocks southbound investors bought were Meituan, CNOOC, and Tencent.</li>
</ul>


We analyze the monthly Hong Kong Connect flows with our data engine.
We tabulate the top stocks by inflows, outlfows, and holding by mainland investors.
Inflows last month amounted to USD 5.7bn which marks sixth months of inflows. Top three stocks southbound investors bought were Meituan, CNOOC, and Tencent.


Hong Kong Connect Flows Monthly (May): Meituan, CNOOC, Tencent

Equity Bottom-Up

<ul>
<li>The 1Q22 result 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> kick-started FY22 with an encouraging new record high quarterly profit and a good recovery in YoY new order momentum.</li>
<li>We are excited to see DEC managed to control its selling, administrative and R&amp;D costs with a slight 2.7% YoY growth, compared with a solid 29.8% revenue increase.</li>
<li>Recurring pre-tax profit growth is estimated to be over 30% YoY, and its order backlog at around Rmb85.4bn, 1.8x its FY21 revenue. We consider its 7.7x FY22F PER very undemanding. </li>
</ul>


The 1Q22 result of Dongfang Electric (1072 HK) kick-started FY22 with an encouraging new record high quarterly profit and a good recovery in YoY new order momentum.
We are excited to see DEC managed to control its selling, administrative and R&amp;D costs with a slight 2.7% YoY growth, compared with a solid 29.8% revenue increase.
Recurring pre-tax profit growth is estimated to be over 30% YoY, and its order backlog at around Rmb85.4bn, 1.8x its FY21 revenue. We consider its 7.7x FY22F PER very undemanding. 


Dongfang Electric (1072 HK): From Strength to Strength

Xinjiang Goldwind Science & Technology / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/xinjiang-goldwind-science-technology-h" target="_blank" data-smartkarma-citation="entities:10112:1" rel="noopener">Xinjiang Goldwind Science &amp; Technology (2208 HK)</a> sees recent recovery in WTG price to be positive; and the increase in average unit size should be good to unit costs.</li>
<li>Gross margin contracted 3.1pp YoY in 1Q22 and it has put in place many cost reduction initiatives to contain cost inflation. It expects more impacts can be realised in 2H22.</li>
<li>External order backlog up 6.3% YoY to 16.97GW, with an encouraging 37.7% growth for overseas contracts. We think its 9.9x FY22F PER is inexpensive relative to the clean energy plays.</li>
</ul>



Xinjiang Goldwind Science &amp; Technology (2208 HK) sees recent recovery in WTG price to be positive; and the increase in average unit size should be good to unit costs.
Gross margin contracted 3.1pp YoY in 1Q22 and it has put in place many cost reduction initiatives to contain cost inflation. It expects more impacts can be realised in 2H22.
External order backlog up 6.3% YoY to 16.97GW, with an encouraging 37.7% growth for overseas contracts. We think its 9.9x FY22F PER is inexpensive relative to the clean energy plays.


Xinjiang Goldwind (2208 HK): Key Takeaways from 1Q22 Call

<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. 


China

Dongfang Electric Corporation Limited manufactures and sells hydro and steam power generators and AC/DC electric motors. The Company also provides repair, upgrade, maintenance, and other services for the products.

Dongfang Electric Corporation (600875 CH)

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Dongfang Electric Corporation (600875 CH)

Roundup of Government Economic Supportive Policies: Key Winners

We expect the government economic supportive policies released in the last few days to drive the infrastructure, new energy, consumer discretionary...

Osbert Tang, CFA

Hong Kong Connect Flows Monthly (May): Meituan, CNOOC, Tencent

Inflows last month amounted to USD 5.7bn which marks sixth months of inflows. Top three stocks southbound investors bought were Meituan, CNOOC, and...

Ke Yan, CFA, FRM

Dongfang Electric (1072 HK): From Strength to Strength

There are evidences that DEC has managed to control its operating cost growth to offset the impact of gross margin pressure. The return to YoY...

Osbert Tang, CFA

Xinjiang Goldwind (2208 HK): Key Takeaways from 1Q22 Call

Goldwind has cost management initiatives to counter margin contraction and its overseas backlog has witnessed good growth. Strategic disposal of...

Osbert Tang, CFA

CIMC Enric (3899 HK): A Favourable Start

CIMC Enric has a good 1Q22 revenue and new order growth; and should there be no disruption from the pandemic, they will even be higher. Hydrogen...

Osbert Tang, CFA

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