HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Shenzhen International / Equity Bottom-Up

<ul>
<li>We expect <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> to sustain efforts in realising and releasing the value of its assets, and this will be positive in narrowing its discount to book.</li>
<li>The plan to issue REIT by using Hangzhou and Guizhou logistics projects as underlying assets will add to earnings. We estimate they account for 14% of SZI's total project area.</li>
<li>Subscription to A-share issuance of <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway Co (548 HK)</a> will increase its book value by Rmb5bn. This will lower its P/B multiple to 0.46x, from 0.54x.</li>
</ul>


We expect Shenzhen International (152 HK) to sustain efforts in realising and releasing the value of its assets, and this will be positive in narrowing its discount to book.
The plan to issue REIT by using Hangzhou and Guizhou logistics projects as underlying assets will add to earnings. We estimate they account for 14% of SZI's total project area.
Subscription to A-share issuance of Shenzhen Expressway Co (548 HK) will increase its book value by Rmb5bn. This will lower its P/B multiple to 0.46x, from 0.54x.


Shenzhen Intl (152 HK): Enhancing Its Values

<ul>
<li>FY22 is definitely bad for <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> given the 64.9% profit plunge. However, negative contributors like Shenzhen Airlines and exchange losses will be removed in this year.</li>
<li>Earnings for <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway (548 HK)</a> will improve and 1Q23 has witnessed good traffic recovery. Logistics profit will benefit from higher occupancy, REIT issuance and new projects.</li>
<li>Upside will come from logistics park transformation with profit from Yicheng Qiwanli pre-sale potentially to be booked. Consensus earnings forecast of HK$4.1bn is at low-end of our estimate. </li>
</ul>


FY22 is definitely bad for Shenzhen International (152 HK) given the 64.9% profit plunge. However, negative contributors like Shenzhen Airlines and exchange losses will be removed in this year.
Earnings for Shenzhen Expressway (548 HK) will improve and 1Q23 has witnessed good traffic recovery. Logistics profit will benefit from higher occupancy, REIT issuance and new projects.
Upside will come from logistics park transformation with profit from Yicheng Qiwanli pre-sale potentially to be booked. Consensus earnings forecast of HK$4.1bn is at low-end of our estimate. 


Shenzhen Intl (152 HK): Don't Look Back, Look Forward

<ul>
<li>Share price of <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> started slow in this year, but it is on course for stronger earnings in FY23, following a dip in last year. </li>
<li>Upside from logistics business, benefits to <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway (548 HK)</a> on border re-opening, potential massive contribution from logistics parks transformation and upgrading and lack of Shenzhen Airlines' drag are drivers. </li>
<li>ROE is expected to rebound to 11-12% in next two years, returning to FY20-21 level. Back then, its average P/B was 0.68x, suggesting at least 31% upside from 0.52x currently. </li>
</ul>


Share price of Shenzhen International (152 HK) started slow in this year, but it is on course for stronger earnings in FY23, following a dip in last year. 
Upside from logistics business, benefits to Shenzhen Expressway (548 HK) on border re-opening, potential massive contribution from logistics parks transformation and upgrading and lack of Shenzhen Airlines' drag are drivers. 
ROE is expected to rebound to 11-12% in next two years, returning to FY20-21 level. Back then, its average P/B was 0.68x, suggesting at least 31% upside from 0.52x currently. 


Shenzhen Intl (152 HK): Numerous Drivers in Place to Boost FY23

<ul>
<li>The 1H22 result of <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> is 4% ahead of indicated in profit warning. Key drags are toll roads and Shenzhen Airlines, but their 2H22 outlook is better.</li>
<li>It will see many new logistics projects to commence operations in the next 12-18 months. Also, SZI guided that it will continue to realise underlying asset value through strategic disposals.</li>
<li>We think the toughest time should be behind and expect more positive news on asset gains. The stock is very cheap at 0.41x P/B and 58% discount to appraised NAV. </li>
</ul>


The 1H22 result of Shenzhen International (152 HK) is 4% ahead of indicated in profit warning. Key drags are toll roads and Shenzhen Airlines, but their 2H22 outlook is better.
It will see many new logistics projects to commence operations in the next 12-18 months. Also, SZI guided that it will continue to realise underlying asset value through strategic disposals.
We think the toughest time should be behind and expect more positive news on asset gains. The stock is very cheap at 0.41x P/B and 58% discount to appraised NAV. 


Shenzhen Intl (152 HK): The Toughest Time Should Be over Now

<ul>
<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> has secured pre-tax gain of HK$2.8bn from deemed disposal of Qianhai Business and this is another example for its ability to realise underlying asset value.  </li>
<li>SZI still holds a 50% stake in Qianhai Business, allowing it to capture further upside from this project. The transaction should also improve cash flow as land fees are repaid.</li>
<li>Other logistics transformation projects like the South China Logistics Park, which has an area even larger than Qianhai Business, will provide upside for the longer term. </li>
</ul>



Shenzhen International (152 HK) has secured pre-tax gain of HK$2.8bn from deemed disposal of Qianhai Business and this is another example for its ability to realise underlying asset value.  
SZI still holds a 50% stake in Qianhai Business, allowing it to capture further upside from this project. The transaction should also improve cash flow as land fees are repaid.
Other logistics transformation projects like the South China Logistics Park, which has an area even larger than Qianhai Business, will provide upside for the longer term. 


Shenzhen Intl (152 HK): It's the Ability to Realise Underlying Value that Matters

Hong Kong

Shenzhen International Holdings Limited operates as a holding company. The Company, through its subsidiaries, provides investment, construction, and operation of logistic infrastructure facilities, as well as offers value-added logistic services. Shenzhen International serves customers worldwide.

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Shenzhen International (152 HK)

Shenzhen Intl (152 HK): Enhancing Its Values

SZI's planned REIT issuance on Hangzhou and Guizhou projects is just an example of its efforts in releasing asset value. The deemed disposal of SZE...

Osbert Tang, CFA

Shenzhen Intl (152 HK): Don't Look Back, Look Forward

We anticipate an encouraging FY23 profit picture at SZl as losses from Shenzhen Airlines and foreign exchange should be removed. Potential upside...

Osbert Tang, CFA

Shenzhen Intl (152 HK): Numerous Drivers in Place to Boost FY23

Upside from logistics business, benefits to Shenzhen Expressway on border re-opening, potential massive contribution from logistics park...

Osbert Tang, CFA

Shenzhen Intl (152 HK): The Toughest Time Should Be over Now

1H22 is bad but behind us now. We anticipate sequential earnings improvement in 2H22 as the impact of pandemic fades. SZI will continue to realise...

Osbert Tang, CFA

Shenzhen Intl (152 HK): It's the Ability to Realise Underlying Value that Matters

We think the market has overlooked Shenzhen Intl's potential and capability to translate its assets into profit and cash flow. The latest Qianhai...

Osbert Tang, CFA

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