HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Various statistics suggested that China's tourism and hospitality industry has staged a significant recovery during the 2024 CNY holidays, with traffic surging high double-digit.</li>
<li>While consumers are more cautious about retail product spending, they are willing to spend more on traveling. Such a trend will continue to bode well for the sector.</li>
<li>We like OTAs including <a href="https://www.smartkarma.com/entities/tongcheng-travel-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27363:1" rel="noopener">Tongcheng Travel (780 HK)</a> and <a href="https://www.smartkarma.com/entities/trip-com-group-ltd-23a341d0-4f63-4175-a8c5-ee990906cacd" target="_blank" data-smartkarma-citation="entities:36424:1" rel="noopener">Trip.com (9961 HK)</a> despite their YTD surge in share prices. Meanwhile, <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> stays as the top pick.</li>
</ul>


Various statistics suggested that China's tourism and hospitality industry has staged a significant recovery during the 2024 CNY holidays, with traffic surging high double-digit.
While consumers are more cautious about retail product spending, they are willing to spend more on traveling. Such a trend will continue to bode well for the sector.
We like OTAs including Tongcheng Travel (780 HK) and Trip.com (9961 HK) despite their YTD surge in share prices. Meanwhile, Air China Ltd (H) (753 HK) stays as the top pick.


China Tourism and Hospitality Industry: Roundup of a Solid CNY

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>Cuscaden Peak, the sponsor of <strong><a href="https://www.smartkarma.com/entities/paragon-reit" target="_blank" data-smartkarma-citation="entities:5994:1" rel="noopener">Paragon REIT (PGNREIT SP)</a></strong> and 61.5% shareholder, has offered S$0.98/unit, in cash; or S$1.003/unit, a 7% premium to NAV, when including FY24's S$0.0233/unit cash distribution.</li>
<li>The Offer is by way of a Scheme. The Offer price has NOT been declared final. A switch option into a voluntary Offer is afforded should a competing Offer emerge.</li>
<li>Looks pretty clean. Assuming mid-late May payment, pay up to S$0.97/share for a 4%/15% gross/annualised spread. It <em>may</em> trade tighter given the early distribution payment.</li>
</ul>


Cuscaden Peak, the sponsor of Paragon REIT (PGNREIT SP) and 61.5% shareholder, has offered S$0.98/unit, in cash; or S$1.003/unit, a 7% premium to NAV, when including FY24's S$0.0233/unit cash distribution.
The Offer is by way of a Scheme. The Offer price has NOT been declared final. A switch option into a voluntary Offer is afforded should a competing Offer emerge.
Looks pretty clean. Assuming mid-late May payment, pay up to S$0.97/share for a 4%/15% gross/annualised spread. It may trade tighter given the early distribution payment.


Paragon REIT (PGNREIT SP)'s Privatisation Offer

Equity Bottom-Up

<ul>
<li>It is difficult for <a href="https://www.smartkarma.com/entities/fosun-tourism-group" target="_blank" data-smartkarma-citation="entities:27439:1" rel="noopener">Fosun Tourism (1992 HK)</a> to return to its peak and IPO share prices over the next two years. The buyback proposal represents a good exit opportunity.</li>
<li>Net profit is unlikely to go back to FY19 level even in FY26F. The derating of the Chinese equities and Fosun Group, as well as its high gearing, are barriers.</li>
<li>Its PER multiples have already aligned back to the sector average from the extremely depressed level previously. Relative to global names, it is now only at slight discounts.</li>
</ul>


It is difficult for Fosun Tourism (1992 HK) to return to its peak and IPO share prices over the next two years. The buyback proposal represents a good exit opportunity.
Net profit is unlikely to go back to FY19 level even in FY26F. The derating of the Chinese equities and Fosun Group, as well as its high gearing, are barriers.
Its PER multiples have already aligned back to the sector average from the extremely depressed level previously. Relative to global names, it is now only at slight discounts.


<ul>
<li>The cheap valuations of the Hong Kong market have driven an increase in privatisation activities. Stocks with profit, high net cash, and low P/B are likely candidates.</li>
<li>We discover 29 stocks with net cash more than their market capitalisation while having a P/B of below 0.5x. Many of them are small-cap stocks.</li>
<li>The cheapest five names are trading on P/B of no more than 0.2x. Also, six stocks have their major shareholders owning a significant 75% stake.</li>
</ul>


The cheap valuations of the Hong Kong market have driven an increase in privatisation activities. Stocks with profit, high net cash, and low P/B are likely candidates.
We discover 29 stocks with net cash more than their market capitalisation while having a P/B of below 0.5x. Many of them are small-cap stocks.
The cheapest five names are trading on P/B of no more than 0.2x. Also, six stocks have their major shareholders owning a significant 75% stake.


China & HK Strategy: Are These Stocks Potential Privatisation Targets?

<ul>
<li>The companies that suffered exchange losses in FY23 due to Rmb depreciation will now benefit from potential Rmb appreciation in 2H24 and FY25. Meanwhile, gainers will become losers. </li>
<li>The beneficiaries are <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (753 HK)</a>, <a href="https://www.smartkarma.com/entities/shenzhen-international-holdings-limited" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen International (152 HK)</a>, <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>, <a href="https://www.smartkarma.com/entities/xinjiang-goldwind-science-technology-h" target="_blank" data-smartkarma-citation="entities:10112:1" rel="noopener">Xinjiang Goldwind (2208 HK)</a>, and <a href="https://www.smartkarma.com/entities/china-eastern-airlines-co-h" target="_blank" data-smartkarma-citation="entities:1079:1" rel="noopener">China Eastern Airlines (670 HK)</a>. </li>
<li>
<a href="https://www.smartkarma.com/entities/fosun-tourism-group" target="_blank" data-smartkarma-citation="entities:27439:1" rel="noopener">Fosun Tourism (1992 HK)</a>, <a href="https://www.smartkarma.com/entities/china-east-education-holdings" target="_blank" data-smartkarma-citation="entities:27843:1" rel="noopener">China East Education (667 HK)</a>, and <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> may need to book exchange losses (vs. gains in FY23). </li>
</ul>


The companies that suffered exchange losses in FY23 due to Rmb depreciation will now benefit from potential Rmb appreciation in 2H24 and FY25. Meanwhile, gainers will become losers. 
The beneficiaries are Air China Ltd (753 HK), Shenzhen International (152 HK), China Southern Airlines (1055 HK), Xinjiang Goldwind (2208 HK), and China Eastern Airlines (670 HK). 

Fosun Tourism (1992 HK), China East Education (667 HK), and China Communications Construction (1800 HK) may need to book exchange losses (vs. gains in FY23). 


China Strategy: Re-Assessing the Rmb Exchange Impacts

China

Fosun Tourism Group is a world-leading family leisure and vacation group that provides tourism and leisure solutions across Europe, the Middle East, Africa, the Americas, and the Asia Pacific. The company operates resorts such as Club Med and Atlantis Sanya, and offers various tourism and leisure services. Fosun Tourism Group was founded in 2009 and is based in Central, Hong Kong.

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Fosun Tourism (6T8 GR)

China Tourism and Hospitality Industry: Roundup of a Solid CNY

China's tourism industry sees a strong recovery during the 2024 CNY holidays, with a high double-digit traffic surge. OTAs like Tongcheng and...

Osbert Tang, CFA

Paragon REIT (PGNREIT SP)'s Privatisation Offer

Looks pretty clean. A 7% premium to NAV and a roughly two-year high. If payment on or around late May, I'd pay up to S$0.97/share for a gross...

David Blennerhassett

Fosun Tourism (1992 HK): Giving In

Fosun Tourism faces challenges in returning to peak and IPO share prices, making the buyback proposal a good exit opportunity due to barriers like...

Osbert Tang, CFA

China & HK Strategy: Are These Stocks Potential Privatisation Targets?

Hong Kong market sees a rise in privatisation as cheap valuations attract investors. We developed a list of 29 stocks attractive for potential...

Osbert Tang, CFA

China Strategy: Re-Assessing the Rmb Exchange Impacts

With the US kick-starting the lower interest rate cycle with a 50bp cut overnight and indicated an expectation of an aggregate further 50bp cut in...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China Tourism and Hospitality Industry: Roundup of a Solid CNY

​China's tourism industry sees a strong recovery during the 2024 CNY holidays, with a high double-digit traffic surge. OTAs like Tongcheng and...

Osbert Tang, CFA

Paragon REIT (PGNREIT SP)'s Privatisation Offer

Looks pretty clean. A 7% premium to NAV and a roughly two-year high. If payment on or around late May, I'd pay up to S$0.97/share for a gross...

David Blennerhassett

Fosun Tourism (1992 HK): Giving In

​Fosun Tourism faces challenges in returning to peak and IPO share prices, making the buyback proposal a good exit opportunity due to barriers like...

Osbert Tang, CFA

China & HK Strategy: Are These Stocks Potential Privatisation Targets?

​Hong Kong market sees a rise in privatisation as cheap valuations attract investors. We developed a list of 29 stocks attractive for potential...

Osbert Tang, CFA

China Strategy: Re-Assessing the Rmb Exchange Impacts

With the US kick-starting the lower interest rate cycle with a 50bp cut overnight and indicated an expectation of an aggregate further 50bp cut in...

Osbert Tang, CFA

China's tourism industry sees a strong recovery during the 2024 CNY holidays, with a high double-digit traffic surge. OTAs like Tongcheng and...

Fosun Tourism faces challenges in returning to peak and IPO share prices, making the buyback proposal a good exit opportunity due to barriers like...

Hong Kong market sees a rise in privatisation as cheap valuations attract investors. We developed a list of 29 stocks attractive for potential...