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?

Asian Hedge Fund Manager, Long Short Equity, Macro

David Mudd

Equity Bottom-Up

Zoomlion Heavy Industry H / Equity Bottom-Up

<ul>
<li>Hong Kong continues its secular bull market and has now reached its first significant resistance in the 24k to 25k.  Growth factor investing is leading in long-only investing.</li>
<li>Mainland buyers continue buying Hong Kong stocks at a historic rate with buying focused in the tech sector and specifically in AI-related companies.</li>
<li>
<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> has broken its double-top formation and is at a new high.  <a href="https://www.smartkarma.com/entities/vtech-holdings-ltd" target="_blank" data-smartkarma-citation="entities:18812:1" rel="noopener">Vtech Holdings (303 HK)</a> broke out to a new high with improving momentum.
</li>
</ul>


Hong Kong continues its secular bull market and has now reached its first significant resistance in the 24k to 25k.  Growth factor investing is leading in long-only investing.
Mainland buyers continue buying Hong Kong stocks at a historic rate with buying focused in the tech sector and specifically in AI-related companies.

Zoomlion Heavy Industry H (1157 HK) has broken its double-top formation and is at a new high.  Vtech Holdings (303 HK) broke out to a new high with improving momentum.



Technically Speaking, Breakouts and Breakdowns: HONG KONG (March 6)

<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>While the 2H23 result of <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> may disappoint due to a plunge in sales volume, it is a yield play given the high historical payout ratio.</li>
<li>Assuming a DPS of HK$0.10 for FY23-25 as in FY22, yielding 8.3%, the total dividend will amount to Rmb1.2bn. This only equals 22% of its net cash (including short-term investments).</li>
<li>Its controlling shareholders bought 7.3m shares since 27 Dec, raising the stake by 0.13pp to 56.2%, demonstrating their positive view on the share's value and long-term outlook. </li>
</ul>


While the 2H23 result of Lonking Holdings (3339 HK) may disappoint due to a plunge in sales volume, it is a yield play given the high historical payout ratio.
Assuming a DPS of HK$0.10 for FY23-25 as in FY22, yielding 8.3%, the total dividend will amount to Rmb1.2bn. This only equals 22% of its net cash (including short-term investments).
Its controlling shareholders bought 7.3m shares since 27 Dec, raising the stake by 0.13pp to 56.2%, demonstrating their positive view on the share's value and long-term outlook. 


China

Lonking Holdings Ltd. designs, manufactures and sells wheel loaders and infrastructure machinery in the People's Republic of China.

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Lonking Holdings (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

Technically Speaking, Breakouts and Breakdowns: HONG KONG (March 6)

Hong Kong continues its secular bull market outperforming global markets over the last year. After advancing more than 20% this year, the market...

David Mudd

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

Lonking (3339 HK): A Yield Play?

Lonking will disappoint on weak 2H23 sales volume, but the high historical payout ratio makes it a yield play at 8.3%. Controlling shareholders...

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

Technically Speaking, Breakouts and Breakdowns: HONG KONG (March 6)

Hong Kong continues its secular bull market outperforming global markets over the last year. After advancing more than 20% this year, the market...

David Mudd

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

Lonking (3339 HK): A Yield Play?

​Lonking will disappoint on weak 2H23 sales volume, but the high historical payout ratio makes it a yield play at 8.3%. Controlling shareholders...

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...

Lonking will disappoint on weak 2H23 sales volume, but the high historical payout ratio makes it a yield play at 8.3%. Controlling shareholders...