HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a>'s positive profit alert suggested that FY24 earnings will beat the market consensus by a significant 25.8-34.6%. </li>
<li>Better profitability indicates that it will further accumulate net cash. At an unchanged 50% payout ratio, it yields 7.8%, but at a higher payout of 70%, it will be 10.9%.</li>
<li>Trading on 0.59x P/B, it is at the historical average valuation. If 1SD above average, there will be a 20% upside. It will go to HK$2.20 if 2SD above.</li>
</ul>



Lonking Holdings (3339 HK)'s positive profit alert suggested that FY24 earnings will beat the market consensus by a significant 25.8-34.6%. 
Better profitability indicates that it will further accumulate net cash. At an unchanged 50% payout ratio, it yields 7.8%, but at a higher payout of 70%, it will be 10.9%.
Trading on 0.59x P/B, it is at the historical average valuation. If 1SD above average, there will be a 20% upside. It will go to HK$2.20 if 2SD above.


Lonking (3339 HK): A (Massive) Positive Profit Alert

<ul>
<li>Industry sales of wheel loaders and excavators surged 16.5% and 27.2% in 2M25. For Feb alone, the growth rates are even more impressive at 34.4% and 52.8%, respectively.</li>
<li>Post-CNY, the utilisation hours and rates of construction machinery rose 70.3% YoY and 12.3pp. Market share gain in developing countries will drive exports.</li>
<li>Government supportive policies announced in NPC will provide support to demand. Current consensus forecasts for profit decline in FY25 are disconnected from industry data.</li>
</ul>


Industry sales of wheel loaders and excavators surged 16.5% and 27.2% in 2M25. For Feb alone, the growth rates are even more impressive at 34.4% and 52.8%, respectively.
Post-CNY, the utilisation hours and rates of construction machinery rose 70.3% YoY and 12.3pp. Market share gain in developing countries will drive exports.
Government supportive policies announced in NPC will provide support to demand. Current consensus forecasts for profit decline in FY25 are disconnected from industry data.


<ul>
<li>
<a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a>'s demand should pick up in 2H24 supported by the government's "Action plan to promote large-scale equipment renewals and consumer goods trade-ins". </li>
<li>Industry volume sales have already witnessed a narrower YoY decline in Mar, with solid exports of wheel loaders and domestic sales of excavators.</li>
<li>After going ex- in late-May, its PER will drop to 7.0x and yield will rise to 6.6%. Net cash of HK$1.56/share is more than fully cover its share price.</li>
</ul>



Lonking Holdings (3339 HK)'s demand should pick up in 2H24 supported by the government's "Action plan to promote large-scale equipment renewals and consumer goods trade-ins". 
Industry volume sales have already witnessed a narrower YoY decline in Mar, with solid exports of wheel loaders and domestic sales of excavators.
After going ex- in late-May, its PER will drop to 7.0x and yield will rise to 6.6%. Net cash of HK$1.56/share is more than fully cover its share price.


<ul>
<li>After a poor FY22, 1H23 will stay challenging for <a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a>. However, we expect pick-up in business momentum going forward, and export is a major growth driver.</li>
<li>Gross margin rebounded HoH and YoY in 2H22, and Lonking maintained good operating cost control. Recovery of equity market suggests potential big positive swing in investment income. </li>
<li>Including investment portfolio, 92% of the current market capitalisation is net cash, providing solid downside buffer. Its 6.5x PER, 9.2% yield and 0.52x P/B are very attractive valuations.</li>
</ul>


After a poor FY22, 1H23 will stay challenging for Lonking Holdings (3339 HK). However, we expect pick-up in business momentum going forward, and export is a major growth driver.
Gross margin rebounded HoH and YoY in 2H22, and Lonking maintained good operating cost control. Recovery of equity market suggests potential big positive swing in investment income. 
Including investment portfolio, 92% of the current market capitalisation is net cash, providing solid downside buffer. Its 6.5x PER, 9.2% yield and 0.52x P/B are very attractive valuations.


Lonking (3339 HK): Back to Attractive Zone

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<ul>
<li>Elliott has filed a substantial shareholder notice reporting a <a href="https://www.smartkarma.com/entities/toyota-industries-corp" target="_blank" data-smartkarma-citation="entities:4500:1" rel="noopener">Toyota Industries (6201 JP)</a> ownership of 16.3 million or 5.01% of outstanding shares.</li>
<li>The disclosure is likely a tactic to pressure Toyota Fudosan (offeror) and also a useful signalling tactic to other minorities that Elliott is committed to securing a bump.</li>
<li>A potential bump could reach JPY19,000. While this would require an additional US$4 billion, financing should not be an issue as the book value (understated) is close to JPY18,000. </li>
</ul>


Elliott has filed a substantial shareholder notice reporting a Toyota Industries (6201 JP) ownership of 16.3 million or 5.01% of outstanding shares.
The disclosure is likely a tactic to pressure Toyota Fudosan (offeror) and also a useful signalling tactic to other minorities that Elliott is committed to securing a bump.
A potential bump could reach JPY19,000. While this would require an additional US$4 billion, financing should not be an issue as the book value (understated) is close to JPY18,000. 


Toyota Industries (6201 JP): Elliott Ramps up the Pressure

China

Guangxi Liugong Machinery Co. Ltd. manufactures and markets construction machinery including loaders, excavators, road rollers, and related parts.

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Guangxi Liugong Machinery A (000528 CH)

Lonking (3339 HK): A (Massive) Positive Profit Alert

Lonking's net profit reached Rmb1.02bn in FY24, a 57.8% growth. For 2H24, net profit surged 65.7%, with gross margin expanding 2pp. A final DPS of...

Osbert Tang, CFA

Lonking (3339 HK): Boom, Boom, Boom

Sany Intl's net profit grew 23.2% in 1Q25, suggesting good momentum for the construction and heavy machinery demand. CCMA data also indicated that...

Osbert Tang, CFA

Lonking (3339 HK): Policy Tailwind

Government policy support and improving industry demand should drive a potential uptick in sales for Lonking in 2H24. Attractive valuations and a...

Osbert Tang, CFA

Lonking (3339 HK): Back to Attractive Zone

We turned bullish on Lonking on 17 Apr, and since then, the stock has performed well. It has just issued a positive profit alert with 91-158% YoY...

Osbert Tang, CFA

Toyota Industries (6201 JP): Elliott Ramps up the Pressure

The disclosure is likely a tactic to pressure Toyota Fudosan (offeror) and also a useful signalling tactic to other minorities that Elliott has...

Arun George

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