China Specialist, Auto and Industrial Specialist

Victoria Li

Equity Bottom-Up

Although better than expected 1H2021 results has delighted investors recently, Haitian’s share performance may experience short term weakness due to market concerns on recent COVID-19 spread in East China, and government regulation risks on various sectors.We believe fundamentals of the company’s future remain strong. In the next few years, overseas markets would recover with increasing vaccination rates; fully launched third generation PIMMs would continue benefit the company on product mix upgrade, sales increase and margin improvement; central government's strategy switching towards social fairness would benefit sectors related to living quality improvement, such as NEV, home appliance, IT, medicine, etc, and then benefit Haitian in the long term.Buy on weakness if any.

Although better than expected 1H2021 results has delighted investors recently, Haitian’s share performance may experience short term weakness due to market concerns on recent COVID-19 spread in East China, and government regulation risks on various sectors.We believe fundamentals of the company’s future remain strong. In the next few years, overseas markets would recover with increasing vaccination rates; fully launched third generation PIMMs would continue benefit the company on product mix upgrade, sales increase and margin improvement; central government's strategy switching towards social fairness would benefit sectors related to living quality improvement, such as NEV, home appliance, IT, medicine, etc, and then benefit Haitian in the long term.Buy on weakness if any.

Haitian (1882.HK): Well Aligned to Long-Term Themes, Buy

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

<a href="https://www.smartkarma.com/entities/bestway-global-holding-inc" target="_blank" data-smartkarma-citation="entities:26012:1" rel="noopener">Bestway Global Holding (3358 HK)</a> is one of the leading and one of the most well-established branded companies in the global water leisure products market. Bestway listed on the HKEx on 16 November 2017 at HK$4.38 per share to raise net proceeds of HK$1,094.1 million ($141 million).After market close on Friday, Bestway announced a privatisation offer by way of a scheme of arrangement from Mr Zhu Qiang, who is the Founder, Chairman &amp; CEO. The offeror will offer HK$4.38 per scheme share. The bid represents a premium of 27.0% over the closing price of HK$3.45 per share on the last trading day (22 June 2021 prior to the trading halt). The privatisation price of HK$4.38 is in line with the IPO price.<div class="content-highlight">The key condition precedents are the headcount test along with the scheme approved by at least 75% disinterested shareholders and &lt;10% rejection by all disinterested shareholders. As disinterested scheme shareholders represent 234.9 million shares or 22.19% of shares outstanding, the 10% blocking stake is 23.5 million shares or 2.22% of shares outstanding. Fidelity holds a blocking stake of 2.46% of shares outstanding (source: CapitalIQ) but will likely support the privatisation offer, in our view. While not a knockout offer, we believe that the privatisation bid will be successful. </div>

Bestway Global Holding (3358 HK) is one of the leading and one of the most well-established branded companies in the global water leisure products market. Bestway listed on the HKEx on 16 November 2017 at HK$4.38 per share to raise net proceeds of HK$1,094.1 million ($141 million).After market close on Friday, Bestway announced a privatisation offer by way of a scheme of arrangement from Mr Zhu Qiang, who is the Founder, Chairman &amp; CEO. The offeror will offer HK$4.38 per scheme share. The bid represents a premium of 27.0% over the closing price of HK$3.45 per share on the last trading day (22 June 2021 prior to the trading halt). The privatisation price of HK$4.38 is in line with the IPO price.The key condition precedents are the headcount test along with the scheme approved by at least 75% disinterested shareholders and &lt;10% rejection by all disinterested shareholders. As disinterested scheme shareholders represent 234.9 million shares or 22.19% of shares outstanding, the 10% blocking stake is 23.5 million shares or 2.22% of shares outstanding. Fidelity holds a blocking stake of 2.46% of shares outstanding (source: CapitalIQ) but will likely support the privatisation offer, in our view. While not a knockout offer, we believe that the privatisation bid will be successful. 

Haitian's new orders from major customers are increasing in our view. Short-term interrupt from Coronavirus is fading. China's PMI stood above 50% for the third month in May, within which, new order index improved steadily. Haitian's two major downsteam sectors, auto sector and home appliance sector are recovering.We estimate Haitian's financial performance in 2H2020 to grow steadily yoy, due to market share gains with its recent launched 3rd generation PIMMs, demand upcycle of auto sector, homeappliance sector and smartphone sector. Worsening relationship between US and China might add temporary pressure on share performance from time to time, but its real impact on Haitian's business is tiny. Haitian's financial results would provide the best momentum to drive its share price in the next two years.

Haitian's new orders from major customers are increasing in our view. Short-term interrupt from Coronavirus is fading. China's PMI stood above 50% for the third month in May, within which, new order index improved steadily. Haitian's two major downsteam sectors, auto sector and home appliance sector are recovering.We estimate Haitian's financial performance in 2H2020 to grow steadily yoy, due to market share gains with its recent launched 3rd generation PIMMs, demand upcycle of auto sector, homeappliance sector and smartphone sector. Worsening relationship between US and China might add temporary pressure on share performance from time to time, but its real impact on Haitian's business is tiny. Haitian's financial results would provide the best momentum to drive its share price in the next two years.

Haitian International: Look Through the Trade War Noise, Earnings Momentum Will Pick Up

We noticed positive trends in most of Haitian International's downstream sectors - except the  logistic sector which contributes only 9% of Haitian's revenue in a year.With domestic downstream demand is getting better in 2020E, we estimate that Haitian International's revenues will have low single digit growth in 2020E, with margin upside potential due to continuous product mix upgrading. Stock valuation re-rating has been triggered recently and would continue with more positive data from its downstream sectors - especially auto and home appliances; PPI; and Haitian's orderflows.

We noticed positive trends in most of Haitian International's downstream sectors - except the  logistic sector which contributes only 9% of Haitian's revenue in a year.With domestic downstream demand is getting better in 2020E, we estimate that Haitian International's revenues will have low single digit growth in 2020E, with margin upside potential due to continuous product mix upgrading. Stock valuation re-rating has been triggered recently and would continue with more positive data from its downstream sectors - especially auto and home appliances; PPI; and Haitian's orderflows.

Haitian International (1882.HK): Signs of Improving Domestic Demand

We expect Haitian's margins go up in 2019, because 1) steel price in China is expected to decrease by 10% yoy with the re-balance of sector demand-supply, 2) Haitian's newly launched third generation PIMM, and increasing sales propotion of high margin products, would improve the company's overall margin. Market demand is warming up in March, according to the management. The third generation PIMM is expected to trigger clients' demand on upgrading their existing machines. High margin products, all-electric PIMM and large two-plate PIMM, would further increasing their sales and profit contribution. Overseas revenue growth would continue going faster than domestic revenue growth, with its new plants in Germany and Turkey coming on stream. We estimate Haitian's net profit growth to reach 15% yoy in 2019E, vs. a 4% yoy decline in 2018.Market concern on potential risk from Trade War, which had triggered Haitian's valuation de-rating, should fade. As we expected, Haitian's business wasn't hurt by the Trade War in 2018, as the company has only 3% of overall revenue from US market. And the negotiations between US and China are on the right way to terminate the Trade War. Valuation re-rating might come with earnings improvement.

We expect Haitian's margins go up in 2019, because 1) steel price in China is expected to decrease by 10% yoy with the re-balance of sector demand-supply, 2) Haitian's newly launched third generation PIMM, and increasing sales propotion of high margin products, would improve the company's overall margin. Market demand is warming up in March, according to the management. The third generation PIMM is expected to trigger clients' demand on upgrading their existing machines. High margin products, all-electric PIMM and large two-plate PIMM, would further increasing their sales and profit contribution. Overseas revenue growth would continue going faster than domestic revenue growth, with its new plants in Germany and Turkey coming on stream. We estimate Haitian's net profit growth to reach 15% yoy in 2019E, vs. a 4% yoy decline in 2018.Market concern on potential risk from Trade War, which had triggered Haitian's valuation de-rating, should fade. As we expected, Haitian's business wasn't hurt by the Trade War in 2018, as the company has only 3% of overall revenue from US market. And the negotiations between US and China are on the right way to terminate the Trade War. Valuation re-rating might come with earnings improvement.

Haitian: Trade War Fears Fade, Full Stream Ahead

China

Haitian International Holdings Limited is an investment holding company primarily engaged in the manufacturing and distribution of plastic injection molding machines and related products. It offers plastic machinery under the Haitian and Zhafir brands, serving industries such as automotive, packaging, medical, and electronics. The company was founded in 1966 and is headquartered in Kwai Fong, Hong Kong.

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Haitian International (1882 HK)

Haitian (1882.HK): Well Aligned to Long-Term Themes, Buy

Although better than expected 1H2021 results has delighted investors recently, Haitian’s share performance may experience short term weakness

Victoria Li

Bestway Global’s Privatisation Bid

Bestway announced a privatisation offer from Mr Zhu Qiang (the Founder, Chairman & CEO) at HK$4.38 per scheme share. While not a knockout offer, we...

Arun George

Haitian International: Look Through the Trade War Noise, Earnings Momentum Will Pick Up

Haitian's new orders from major customers are increasing in our view. Short-term interrupt from Coronavirus is fading. China's PMI stood above 50%...

Victoria Li