HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Shenzhen International / Equity Bottom-Up

<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 reached agreement with the government on the South China Logistics Park Phase I transformation and it will receive Rmb1.058bn compensation.</li>
<li>The sum equals a significant 9% of SZI's market capitalisation. The agreement also kick-started the project's long-term contribution, which may provide an income stream lasting 3-5 years.</li>
<li>The deal showcased SZI's ability to realise the underlying value of its assets. The stock should not be valued on its earnings, and its 0.3x P/B is deeply undervalued.</li>
</ul>



Shenzhen International (152 HK) has reached agreement with the government on the South China Logistics Park Phase I transformation and it will receive Rmb1.058bn compensation.
The sum equals a significant 9% of SZI's market capitalisation. The agreement also kick-started the project's long-term contribution, which may provide an income stream lasting 3-5 years.
The deal showcased SZI's ability to realise the underlying value of its assets. The stock should not be valued on its earnings, and its 0.3x P/B is deeply undervalued.


Shenzhen Intl (152 HK): A Big Step Forward

<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

Zhejiang Expressway Co H / Equity Bottom-Up

<ul>
<li>We believe there is room for <a href="https://www.smartkarma.com/entities/zhejiang-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2178:1" rel="noopener">Zhejiang Expressway Co H (576 HK)</a> to raise dividend payout ratio moderately, following that of <a href="https://www.smartkarma.com/entities/anhui-expressway-co-ltd-h" target="_blank" data-smartkarma-citation="entities:5236:1" rel="noopener">Anhui Expressway (995 HK)</a> and <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>. </li>
<li>It has a comparable gearing with SZEX, positive earnings outlook, improved operating cash flow and manageable capex which all are supportive to raise payout ratio.</li>
<li>If it increases to 55% payout, versus an average of 45.6% previously, we estimate the stock is trading on attractive dividend yield of 11.3% and 12.4%, respectively for FY21-22.</li>
</ul>


We believe there is room for Zhejiang Expressway Co H (576 HK) to raise dividend payout ratio moderately, following that of Anhui Expressway (995 HK) and Shenzhen Expressway (548 HK). 
It has a comparable gearing with SZEX, positive earnings outlook, improved operating cash flow and manageable capex which all are supportive to raise payout ratio.
If it increases to 55% payout, versus an average of 45.6% previously, we estimate the stock is trading on attractive dividend yield of 11.3% and 12.4%, respectively for FY21-22.


Zhejiang Expressway (576 HK): Is There Any Room for Higher Dividend Payout?

We consider the plan by <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 dispose of its 35.7% direct stake in the Meilin Checkpoint Project a strategic move to move forward its earnings and cash flow from the development. Under normal course, it will have to wait for another 2-3 years to realise such gains and cash. In our view, investors should welcome this decision as the move will also cover an earnings gap in FY21 originally left over from FY20 due to a lack of exceptional gain in this year.With a potential capital gain of Rmb2.9bn (HK$3.5bn), SZI is likely to record a historical high net profit for FY21. Moreover, its track record of sharing exceptional gain with investors through special dividends may mean a dividend yield of 12% for FY21 based on the current share price. The enriched financial position will also provide SZI more resources for pursuing logistics expansion, and it has just announced a logistics acquisition in Pingshan, Shenzhen.

We consider the plan by Shenzhen International (152 HK) to dispose of its 35.7% direct stake in the Meilin Checkpoint Project a strategic move to move forward its earnings and cash flow from the development. Under normal course, it will have to wait for another 2-3 years to realise such gains and cash. In our view, investors should welcome this decision as the move will also cover an earnings gap in FY21 originally left over from FY20 due to a lack of exceptional gain in this year.With a potential capital gain of Rmb2.9bn (HK$3.5bn), SZI is likely to record a historical high net profit for FY21. Moreover, its track record of sharing exceptional gain with investors through special dividends may mean a dividend yield of 12% for FY21 based on the current share price. The enriched financial position will also provide SZI more resources for pursuing logistics expansion, and it has just announced a logistics acquisition in Pingshan, Shenzhen.   

Shenzhen Intl (152 HK): Cashing in Future Earnings

We came back with a positive view on <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> after a brief catch-up discussion with the company. For 2H21, we see upside potential in earnings and our takeaways are also encouraging. We see possibility for higher earnings contribution from the Meilin Checkpoint project and logistics business on asset divestment. At just 6x PER, 0.6x P/B (-2 SD below average) and 8.6% dividend yield for FY21, SZI's valuations are attractive relative to the fundamentals.Strategically, the new CEO will foster closer working relations with its parent and affiliates, it is a beneficiary of the Qianhai expansion (as it still has 40% land yet to be developed) and it sees possibility of participation in the booming air cargo terminal business of Air China. We believe the recent share price weakness is a good opportunity for this interesting name in the Greater Bay Area.

We came back with a positive view on Shenzhen International (152 HK) after a brief catch-up discussion with the company. For 2H21, we see upside potential in earnings and our takeaways are also encouraging. We see possibility for higher earnings contribution from the Meilin Checkpoint project and logistics business on asset divestment. At just 6x PER, 0.6x P/B (-2 SD below average) and 8.6% dividend yield for FY21, SZI's valuations are attractive relative to the fundamentals.Strategically, the new CEO will foster closer working relations with its parent and affiliates, it is a beneficiary of the Qianhai expansion (as it still has 40% land yet to be developed) and it sees possibility of participation in the booming air cargo terminal business of Air China. We believe the recent share price weakness is a good opportunity for this interesting name in the Greater Bay Area. 

Shenzhen Intl (152 HK): Positive Highlights from Recent Catch-Up with Company

China

Shenzhen Investment Holdings Bay Area Development Company Limited provides infrastructure construction services. The Company provides highway construction, bridge construction, and other related services. Shenzhen Investment Holdings Bay Area Development offers services in China.

Shenzhen Investment Holdings B (737 HK)

Shenzhen Intl (152 HK): A Big Step Forward

Shenzhen International receives Rmb1.058bn compensation for South China Logistics Park Phase I transformation, highlighting its ability to realize...

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

Zhejiang Expressway (576 HK): Is There Any Room for Higher Dividend Payout?

Higher dividend payout is a possibility and its financial profile can support such increase. At 55% payout (historical average at 45.6%), FY21-22...

Osbert Tang, CFA

Shenzhen Intl (152 HK): Cashing in Future Earnings

The disposal of Meilin Checkpoint Project should be a welcomed move to shift earnings and cash flow ahead. SZI is likely to share with investors...

Osbert Tang, CFA

Shenzhen Intl (152 HK): Positive Highlights from Recent Catch-Up with Company

We believe the takeways from our catch-up with SZE are encouraging, and we see upside potential for earnings in 2H21 to come from both Meilin...

Osbert Tang, CFA

Shenzhen Intl (152 HK): A Big Step Forward

​Shenzhen International receives Rmb1.058bn compensation for South China Logistics Park Phase I transformation, highlighting its ability to realize...

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

Zhejiang Expressway (576 HK): Is There Any Room for Higher Dividend Payout?

Higher dividend payout is a possibility and its financial profile can support such increase. At 55% payout (historical average at 45.6%), FY21-22...

Osbert Tang, CFA

Shenzhen Intl (152 HK): Cashing in Future Earnings

The disposal of Meilin Checkpoint Project should be a welcomed move to shift earnings and cash flow ahead. SZI is likely to share with investors...

Osbert Tang, CFA

Shenzhen Intl (152 HK): Positive Highlights from Recent Catch-Up with Company

We believe the takeways from our catch-up with SZE are encouraging, and we see upside potential for earnings in 2H21 to come from both Meilin...

Osbert Tang, CFA

Shenzhen International receives Rmb1.058bn compensation for South China Logistics Park Phase I transformation, highlighting its ability to realize...