HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Shenzhen International / Equity Bottom-Up

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

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

The property sector in China has been in the spotlight over the last few years. Regulators have made various attempts to temper price growth but the silver bullet has been elusive so far.The powers that be realise that the lack of affordable housing is one of the reasons for China's birth rate dropping and there is now a renewed effort to ensure that property prices do not continue to run up. As part of the measures that started with the 'Three Red Lines' almost a year ago, Bloomberg reports that China has halted PE funds from raising money to invest in residential property developments.We take a look at some of the regulatory changes that have been implemented over the last year and see how the companies in the sector are faring. We then look for stocks with similar characteristics but different stock returns over the last year to find trade opportunities.

The property sector in China has been in the spotlight over the last few years. Regulators have made various attempts to temper price growth but the silver bullet has been elusive so far.The powers that be realise that the lack of affordable housing is one of the reasons for China's birth rate dropping and there is now a renewed effort to ensure that property prices do not continue to run up. As part of the measures that started with the 'Three Red Lines' almost a year ago, Bloomberg reports that China has halted PE funds from raising money to invest in residential property developments.We take a look at some of the regulatory changes that have been implemented over the last year and see how the companies in the sector are faring. We then look for stocks with similar characteristics but different stock returns over the last year to find trade opportunities.

<a href="https://www.smartkarma.com/entities/shenzhen-intl-holdings" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen Intl (152 HK)</a> managed to engine a rebound in 2H20 after the serious negative impact of COVID-19 outbreak on its two key businesses - <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway Co H (548 HK)</a> and Shenzhen Airlines. Instead of the 20% YoY decline in headline FY20 profit, we think the market's focus should be on the sharp HoH turnaround in its bottomline (excluding one-off items).In the post-FY20 result call, management believes that SZ Int has significant potential to be released in the future. Besides the recovery of logistics, toll road and airlines operations, it will benefit from the expansion in logistics network, securitisation of logistics facilities, contribution from Qianhai project and in the longer term, the transformation and upgrade of South China Logistics Park. We remain positive on SZ Int and believe the stock's current multiples are far from being able to fully reflect its value.

Shenzhen Intl (152 HK) managed to engine a rebound in 2H20 after the serious negative impact of COVID-19 outbreak on its two key businesses - Shenzhen Expressway Co H (548 HK) and Shenzhen Airlines. Instead of the 20% YoY decline in headline FY20 profit, we think the market's focus should be on the sharp HoH turnaround in its bottomline (excluding one-off items).In the post-FY20 result call, management believes that SZ Int has significant potential to be released in the future. Besides the recovery of logistics, toll road and airlines operations, it will benefit from the expansion in logistics network, securitisation of logistics facilities, contribution from Qianhai project and in the longer term, the transformation and upgrade of South China Logistics Park. We remain positive on SZ Int and believe the stock's current multiples are far from being able to fully reflect its value.

Shenzhen Intl (152 HK): Remarkable 2H20; Promising Prospects Revealed in Post-Result Call

While <a href="https://www.smartkarma.com/entities/shenzhen-investment-ltd" target="_blank" data-smartkarma-citation="entities:17281:1" rel="noopener">Shenzhen Investment (604 HK)</a> has a positive outlook based on its good margin, low leverage, asset injection and good pre-sale performance, as revealed in its online investor meeting last Friday. Its Sep and Oct contracted sales momentum has gathered strength with over 50% YoY growth. Despite so, we see it less attractive than <a href="https://www.smartkarma.com/entities/shenzhen-intl-holdings" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen Intl (152 HK)</a> in terms of investment merits. In our view, the key concerns on SZ Inv are its diversification out of Greater Bay Area, shrinking land bank, risk of investment in Hengda Real Estate and the limited upside on Shenzhen property price. Share price of SZ Inv has underperformed that for SZ Int by 3.1pp and we continue to advocate a <a href="https://www.smartkarma.com/insights/the-shenzhen-story-a-look-at-the-pair-trades-on-sz-int-sz-exp-and-sz-inv" target="_blank" data-smartkarma-citation="insights:44508" rel="noopener">"long SZ Int, short SZ Inv"</a> pair trade strategy.

While Shenzhen Investment (604 HK) has a positive outlook based on its good margin, low leverage, asset injection and good pre-sale performance, as revealed in its online investor meeting last Friday. Its Sep and Oct contracted sales momentum has gathered strength with over 50% YoY growth. Despite so, we see it less attractive than Shenzhen Intl (152 HK) in terms of investment merits. In our view, the key concerns on SZ Inv are its diversification out of Greater Bay Area, shrinking land bank, risk of investment in Hengda Real Estate and the limited upside on Shenzhen property price. Share price of SZ Inv has underperformed that for SZ Int by 3.1pp and we continue to advocate a "long SZ Int, short SZ Inv" pair trade strategy. 

Shenzhen Investment (604 HK): Good Story yet Less Attractive than Shenzhen International (152.HK)

In this Insight, we look at the pair trades involving the three key Shenzhen state-owned enterprises - <a href="https://www.smartkarma.com/entities/shenzhen-intl-holdings" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen Intl (152 HK)</a>, <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway Co H (548 HK)</a> and <a href="https://www.smartkarma.com/entities/shenzhen-investment-ltd" target="_blank" data-smartkarma-citation="entities:17281:1" rel="noopener">Shenzhen Investment (604 HK)</a>.  We believe the best trade will be a "Long Shenzhen Int, short Shenzhen Inv" strategy as we believe the catalysts include growth in logistics business, recovery of air and toll road traffic and REIT issuance of toll roads will drive outperform of SZ Int against SZ Inv (which is primarily a property company).We also think that SZ Int is best place to benefit from the supportive policies introduced by the government, given its business mix and its size. Our overall ranking of these three stocks are: 1.) SZ Int, 2.) SZ Exp, and 3.) SZ Inv. <a href="https://www.smartkarma.com/entities/shenzhen-investment-holdings-bay-area-development" target="_blank" data-smartkarma-citation="entities:12134:1" rel="noopener"></a>

In this Insight, we look at the pair trades involving the three key Shenzhen state-owned enterprises - Shenzhen Intl (152 HK), Shenzhen Expressway Co H (548 HK) and Shenzhen Investment (604 HK).  We believe the best trade will be a "Long Shenzhen Int, short Shenzhen Inv" strategy as we believe the catalysts include growth in logistics business, recovery of air and toll road traffic and REIT issuance of toll roads will drive outperform of SZ Int against SZ Inv (which is primarily a property company).We also think that SZ Int is best place to benefit from the supportive policies introduced by the government, given its business mix and its size. Our overall ranking of these three stocks are: 1.) SZ Int, 2.) SZ Exp, and 3.) SZ Inv. 

The Shenzhen Story: A Look at the Pair Trades on SZ Int, SZ Exp and SZ Inv

Hong Kong

Shenzhen Investment Limited, through its subsidiaries, develops and invests in properties, sells commercial and industrial goods, and provides transportation services.

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Shenzhen Investment (604 HK)

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

China Property Sector: Trading Ideas

The China property sector has been in the regulatory crosshairs and new rules continue to be rolled out. We look for trading opportunities in the...

Brian Freitas

Shenzhen Intl (152 HK): Remarkable 2H20; Promising Prospects Revealed in Post-Result Call

After a good 2H20, we see good future potential at SZ Int and a step up in corporate activities. Its multiples are unable to reflect its recovery...

Osbert Tang, CFA