HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Trump's "reciprocal tariffs" have led to over 10% fall in the Hong Kong market, but there are some names that only came down by 3.2% on average.</li>
<li>Their characteristics are: 1.) domestically focused, 2.) net cash position, 3.) secure demand, 4.) consumption downgrade beneficiary, and 5.) good dividends.</li>
<li>These stocks are <a href="https://www.smartkarma.com/entities/xinhua-winshare-publishing-media-co-ltd" target="_blank" data-smartkarma-citation="entities:15072:1" rel="noopener">Xinhua Winshare (811 HK)</a>, <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>, <a href="https://www.smartkarma.com/entities/kunlun-energy-co-ltd" target="_blank" data-smartkarma-citation="entities:10054:1" rel="noopener">Kunlun Energy (135 HK)</a>, <a href="https://www.smartkarma.com/entities/mixue-group" target="_blank" data-smartkarma-citation="entities:40623:1" rel="noopener">Mixue Group (2097 HK)</a>, and <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>. </li>
</ul>


Trump's "reciprocal tariffs" have led to over 10% fall in the Hong Kong market, but there are some names that only came down by 3.2% on average.
Their characteristics are: 1.) domestically focused, 2.) net cash position, 3.) secure demand, 4.) consumption downgrade beneficiary, and 5.) good dividends.
These stocks are Xinhua Winshare (811 HK), Lonking Holdings (3339 HK), Kunlun Energy (135 HK), Mixue Group (2097 HK), and China East Education (667 HK). 


China & HK Strategy: Which Stocks Will Thrive?

<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 2H24 earnings will benefit from accelerated special purpose bond issuance and a low base. Potentially higher dividend payout is another attraction.</li>
<li>
<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> may realise a partial gain from South China Logistics Park transformation and lower interest expenses in 2H24. Rmb appreciation will help, too.</li>
<li>
<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> should witness stronger order momentum in 2H24 as demand from transmission and generation upgrades surges. Order backlog now covers 3.5x revenue.</li>
</ul>



Lonking Holdings (3339 HK)'s 2H24 earnings will benefit from accelerated special purpose bond issuance and a low base. Potentially higher dividend payout is another attraction.

Shenzhen International (152 HK) may realise a partial gain from South China Logistics Park transformation and lower interest expenses in 2H24. Rmb appreciation will help, too.

Dongfang Electric (1072 HK) should witness stronger order momentum in 2H24 as demand from transmission and generation upgrades surges. Order backlog now covers 3.5x revenue.


China Strategy: Top 3 Ideas for the Rest of This Year

<ul>
<li>Although 5% GDP growth target for 2023 is at the low end of market speculation of 5.5-6%, we think this reflects the government's conservative stance amid post-COVID recovery. </li>
<li>A 0.2pp higher budget deficit and a special purpose bond quota of Rmb3.8trn suggested that government spending will stay as important economic driver.</li>
<li>Consumption is another major stimulus for economic growth, and more supportive measures will be rolled out - we have seen many cities planning to hand out consumption vouchers.</li>
</ul>


Although 5% GDP growth target for 2023 is at the low end of market speculation of 5.5-6%, we think this reflects the government's conservative stance amid post-COVID recovery. 
A 0.2pp higher budget deficit and a special purpose bond quota of Rmb3.8trn suggested that government spending will stay as important economic driver.
Consumption is another major stimulus for economic growth, and more supportive measures will be rolled out - we have seen many cities planning to hand out consumption vouchers.


China NPC: Implications of Government Working Report 2023

<ul>
<li>Industry excavator sales grew 5.5% in Sep and wheel loader edged up 0.7%. This marked the first month where both saw YoY growth since mid-2021, signaling a steady recovery.</li>
<li>The recovery is driven by overseas as domestic continued to decline. Usage of special purpose bond proceeds should boost demand from infrastructure but demand from property market will stay lacklustre. </li>
<li>We only find <a href="https://www.smartkarma.com/entities/sany-heavy-equipment-intl" target="_blank" data-smartkarma-citation="entities:11104:1" rel="noopener">Sany Heavy Equipment Intl (631 HK)</a> interesting. For <a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking (3339 HK)</a>, <a href="https://www.smartkarma.com/entities/zoomlion-heavy-industry-h" target="_blank" data-smartkarma-citation="entities:7817:1" rel="noopener">Zoomlion Heavy (1157 HK)</a> and <a href="https://www.smartkarma.com/entities/sany-heavy-industry-co-ltd" target="_blank" data-smartkarma-citation="entities:20183:1" rel="noopener">Sany Heavy (600031 CH)</a>, market expectations for 2H22 is too high. </li>
</ul>


Industry excavator sales grew 5.5% in Sep and wheel loader edged up 0.7%. This marked the first month where both saw YoY growth since mid-2021, signaling a steady recovery.
The recovery is driven by overseas as domestic continued to decline. Usage of special purpose bond proceeds should boost demand from infrastructure but demand from property market will stay lacklustre. 
We only find Sany Heavy Equipment Intl (631 HK) interesting. For Lonking (3339 HK), Zoomlion Heavy (1157 HK) and Sany Heavy (600031 CH), market expectations for 2H22 is too high. 


China Construction Machinery: Light at the End of the Tunnel, Finally

<ul>
<li>Construction machinery sales sustained sequential improvement in Jun. Excavator sales -10.1% (-24.2% in May and -47.3% in Apr) and wheel loader sales -5.8% (-27% in May and -40.2% in Apr).  </li>
<li>It is likely to return to positive YoY in the next two months. Aided by a low base for comparison and increase infrastructure spending in 2H22, industry prospects look brighter. </li>
<li>Both <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> and <a href="https://www.smartkarma.com/entities/zoomlion-heavy-industry-h" target="_blank" data-smartkarma-citation="entities:7817:1" rel="noopener">Zoomlion Heavy Industry (1157 HK)</a> are close to inflexion point, though risks remain high before the disappointing 1H22 result. Beyond that, value may emerge. </li>
</ul>


Construction machinery sales sustained sequential improvement in Jun. Excavator sales -10.1% (-24.2% in May and -47.3% in Apr) and wheel loader sales -5.8% (-27% in May and -40.2% in Apr).  
It is likely to return to positive YoY in the next two months. Aided by a low base for comparison and increase infrastructure spending in 2H22, industry prospects look brighter. 
Both Lonking Holdings (3339 HK) and Zoomlion Heavy Industry (1157 HK) are close to inflexion point, though risks remain high before the disappointing 1H22 result. Beyond that, value may emerge. 


China Construction Machinery: Turning to Positive Soon?

China

Lonking Holdings Limited is a major manufacturer and distributor of construction machinery, including wheel loaders, excavators, road rollers, forklifts, motor graders, and skid steer loaders. The company also develops and produces core components such as gearboxes, torque converters, axles, and hydraulic components. It was founded in 1993 and is headquartered in Shanghai, China.

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Lonking (3339 HK)

China & HK Strategy: Which Stocks Will Thrive?

The stocks with a domestic focus, cash position, secure demand, consumption benefits, and high dividends are more insulated: Xinhua Winshare,...

Osbert Tang, CFA

China Strategy: Top 3 Ideas for the Rest of This Year

Lonking, Shenzhen Intl, and Dongfang Electric are expected to see better earnings in 2H24, benefiting from low bases, strong demand, and one-off...

Osbert Tang, CFA

China NPC: Implications of Government Working Report 2023

A 0.2pp higher budget deficit and a Rmb3.8trn special purpose bond quota suggested government spending will remain important economic driver. More...

Osbert Tang, CFA

China Construction Machinery: Light at the End of the Tunnel, Finally

Industry sales of excavator and wheel loader have turned positve in Sep, after a lengthened depressed period since mid-2021. However, 2H22 earnings...

Osbert Tang, CFA

China Construction Machinery: Turning to Positive Soon?

The pace of decline in construction machinery sales continued to narrow in Jun, and prospects will further improve in 2H22. Opportunities may...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China & HK Strategy: Which Stocks Will Thrive?

The stocks with a domestic focus, cash position, secure demand, consumption benefits, and high dividends are more insulated: Xinhua Winshare,...

Osbert Tang, CFA

China Strategy: Top 3 Ideas for the Rest of This Year

​Lonking, Shenzhen Intl, and Dongfang Electric are expected to see better earnings in 2H24, benefiting from low bases, strong demand, and one-off...

Osbert Tang, CFA

China NPC: Implications of Government Working Report 2023

A 0.2pp higher budget deficit and a Rmb3.8trn special purpose bond quota suggested government spending will remain important economic driver. More...

Osbert Tang, CFA

China Construction Machinery: Light at the End of the Tunnel, Finally

Industry sales of excavator and wheel loader have turned positve in Sep, after a lengthened depressed period since mid-2021. However, 2H22 earnings...

Osbert Tang, CFA

China Construction Machinery: Turning to Positive Soon?

The pace of decline in construction machinery sales continued to narrow in Jun, and prospects will further improve in 2H22. Opportunities may...

Osbert Tang, CFA

Lonking, Shenzhen Intl, and Dongfang Electric are expected to see better earnings in 2H24, benefiting from low bases, strong demand, and one-off...