HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>There is a pick-up in heavy machinery sales in Jun, benefiting <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/sany-heavy-equipment-intl" target="_blank" data-smartkarma-citation="entities:11104:1" rel="noopener">Sany Heavy Equipment (631 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 H (1157 HK)</a>. </li>
<li>Indications are for strong 1H25 earnings, with <a href="https://www.smartkarma.com/entities/guangxi-liugong-machinery-a" target="_blank" data-smartkarma-citation="entities:16809:1" rel="noopener">Guangxi Liugong A (000528 CH)</a> seeing 20-30% growth. 1Q25 results of the peers also pointed to solid interim profit.<a href="https://www.smartkarma.com/entities/sany-heavy-equipment-intl" target="_blank" data-smartkarma-citation="entities:11104:1" rel="noopener"></a>
</li>
<li>Despite an average of a 44.6% rally for the HK-listed companies in the sector, their FY25F PER of 10.4x is undemanding. The current consensus forecasts are too conservative. </li>
</ul>


There is a pick-up in heavy machinery sales in Jun, benefiting Lonking Holdings (3339 HK), Sany Heavy Equipment (631 HK), and Zoomlion Heavy Industry H (1157 HK). 
Indications are for strong 1H25 earnings, with Guangxi Liugong A (000528 CH) seeing 20-30% growth. 1Q25 results of the peers also pointed to solid interim profit.

Despite an average of a 44.6% rally for the HK-listed companies in the sector, their FY25F PER of 10.4x is undemanding. The current consensus forecasts are too conservative. 


China Heavy Machinery Sector: Anticipating More Upside

<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

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 Heavy Machinery Sector: Anticipating More Upside

Lonking issued a positive profit alert, suggesting that its 1H25 net profit will reach between Rmb590m and Rmb665m, equaling a 29-45% YoY increase....

Osbert Tang, CFA

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

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China Heavy Machinery Sector: Anticipating More Upside

Lonking issued a positive profit alert, suggesting that its 1H25 net profit will reach between Rmb590m and Rmb665m, equaling a 29-45% YoY increase....

Osbert Tang, CFA

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

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