HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>As Rmb moved from appreciation in 1Q23 to depreciation in 2Q23, there is a total change in the beneficiaries discussed in <a href="https://www.smartkarma.com/insights/china-strategy-it-is-the-foreign-exchange-impact-stupid" target="_blank" data-smartkarma-citation="insights:99729" rel="noopener">China Strategy: It Is the Foreign Exchange Impact, Stupid!</a> </li>
<li>The new beneficiaries are <a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">CIMC Enric Holdings (3899 HK)</a>, <a href="https://www.smartkarma.com/entities/china-energy-engineering-group" target="_blank" data-smartkarma-citation="entities:21017:1" rel="noopener">China Energy Engineering (3996 HK)</a>, <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a>, <a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a> and <a href="https://www.smartkarma.com/entities/avichina-industry-technology-h" target="_blank" data-smartkarma-citation="entities:16315:1" rel="noopener">AviChina Industry &amp; Technology H (2357 HK)</a>. </li>
<li>
<a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">CIMC Enric Holdings (3899 HK)</a> generated 20.2% of FY22 earnings from exchange gain as Rmb depreciated. Revenue from outside China rose 10% in 1H23 and accounted for 54.4% of total.  </li>
</ul>


As Rmb moved from appreciation in 1Q23 to depreciation in 2Q23, there is a total change in the beneficiaries discussed in China Strategy: It Is the Foreign Exchange Impact, Stupid! 
The new beneficiaries are CIMC Enric Holdings (3899 HK), China Energy Engineering (3996 HK), China Communications Construction (1800 HK), Sinotrans (598 HK) and AviChina Industry &amp; Technology H (2357 HK). 

CIMC Enric Holdings (3899 HK) generated 20.2% of FY22 earnings from exchange gain as Rmb depreciated. Revenue from outside China rose 10% in 1H23 and accounted for 54.4% of total.  


China Strategy: The RMB Reversal Is Just Too Fast!

Asia L/S Equity PM/Macro/Thematic Idea Generation

Rikki Malik

<ul>
<li>Continued tailwinds for oil tanker stocks with tight markets keeping rates high</li>
<li>The copper supply and demand story is becoming more widely known and speculative interest is rising</li>
<li>Oil corrects  as the geopolitical premium subsides,but the longer-term story remains intact</li>
</ul>


Continued tailwinds for oil tanker stocks with tight markets keeping rates high
The copper supply and demand story is becoming more widely known and speculative interest is rising
Oil corrects  as the geopolitical premium subsides,but the longer-term story remains intact


Update on Some of the HK Commodity Stocks We Follow

Equity Bottom-Up

<ul>
<li>Together with the just-announced HK$0.40 special DPS, <a href="https://www.smartkarma.com/entities/sitc-international-holdings" target="_blank" data-smartkarma-citation="entities:15301:1" rel="noopener">SITC International (1308 HK)</a> has already handed back HK$1.12/share to shareholders YTD, realising a dividend yield of 6.5%.</li>
<li>Its 3Q24 performance is impressive, with revenue surging 56.6% YoY. Both volume (+13.4%) and average freight rates (+44.1%) have exhibited solid momentum. </li>
<li>While the consensus forecasts have been upgraded by 7-11% since the 1H24 result, there appears more room to go. FY24 ROE is now expected to be 32.2%.</li>
</ul>


Together with the just-announced HK$0.40 special DPS, SITC International (1308 HK) has already handed back HK$1.12/share to shareholders YTD, realising a dividend yield of 6.5%.
Its 3Q24 performance is impressive, with revenue surging 56.6% YoY. Both volume (+13.4%) and average freight rates (+44.1%) have exhibited solid momentum. 
While the consensus forecasts have been upgraded by 7-11% since the 1H24 result, there appears more room to go. FY24 ROE is now expected to be 32.2%.


<ul>
<li>Despite an 11% drop in profit in 1H24, <a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a> has maintained interim DPS at Rmb0.145. This is a sign that the full-year dividend will stay intact, yielding 8.9%. </li>
<li>The logistics segment has experienced pressure, but strategies are in place to boost revenue and reduce costs. Forwarding and e-commerce segments, meanwhile, are resilient. </li>
<li>We were too early in turning bearish in 2023. With US rate heads lower, the near-term market focus is that it is a solid yield play.</li>
</ul>


Despite an 11% drop in profit in 1H24, Sinotrans (598 HK) has maintained interim DPS at Rmb0.145. This is a sign that the full-year dividend will stay intact, yielding 8.9%. 
The logistics segment has experienced pressure, but strategies are in place to boost revenue and reduce costs. Forwarding and e-commerce segments, meanwhile, are resilient. 
We were too early in turning bearish in 2023. With US rate heads lower, the near-term market focus is that it is a solid yield play.


Sinotrans (598 HK): Attracted by the Yield

<ul>
<li>Cost and business optimisations lead to increased profits as revenues drop due to freight rate declines</li>
<li>Successfully pivoting by geography as the global trading environment changes</li>
<li>The company increases its dividend payout in a sign of confidence for the future</li>
</ul>


Cost and business optimisations lead to increased profits as revenues drop due to freight rate declines
Successfully pivoting by geography as the global trading environment changes
The company increases its dividend payout in a sign of confidence for the future


China

Sinotrans is a leading Chinese integrated logistics services provider specializing in freight forwarding (sea, air, and rail), warehousing, transportation, and supply chain management. The company also offers e-commerce logistics solutions. It is headquartered in Beijing, People's Republic of China, and was incorporated in 2002.

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Sinotrans (598 HK)

China Strategy: The RMB Reversal Is Just Too Fast!

Trump's presidency is expected to escalate the trade war and increase the possibility of a higher USD rate. That said, the Rmb will be under...

Osbert Tang, CFA

Update on Some of the HK Commodity Stocks We Follow

Revisiting some of the Hong Kong commodity stocks we have highlighted previously. Tanker rates remain high, copper demand grows amid speculation,...

Rikki Malik

SITC International (1308 HK): Unbeatable

SITC's 3Q24 is impressive with surging revenue, solid volume, and good freight rates. Consensus forecasts upgraded, and more room to grow. The DPS...

Osbert Tang, CFA

Sinotrans (598 HK): Attracted by the Yield

After its parent announced a plan to increase shareholding by Rmb250-500m in the next 6 months on 13-Oct, Sinotrans announced today that it will...

Osbert Tang, CFA

Sinotrans (598. HK) Continues to Deliver

Cost and business optimizations increase profits as freight rates drop; Sinotrans adjusts operations geographically in response to changing trade...

Rikki Malik

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China Strategy: The RMB Reversal Is Just Too Fast!

Trump's presidency is expected to escalate the trade war and increase the possibility of a higher USD rate. That said, the Rmb will be under...

Osbert Tang, CFA

Update on Some of the HK Commodity Stocks We Follow

Revisiting some of the Hong Kong commodity stocks we have highlighted previously. ​Tanker rates remain high, copper demand grows amid speculation,...

Rikki Malik

SITC International (1308 HK): Unbeatable

​SITC's 3Q24 is impressive with surging revenue, solid volume, and good freight rates. Consensus forecasts upgraded, and more room to grow. The DPS...

Osbert Tang, CFA

Sinotrans (598 HK): Attracted by the Yield

After its parent announced a plan to increase shareholding by Rmb250-500m in the next 6 months on 13-Oct, Sinotrans announced today that it will...

Osbert Tang, CFA

Sinotrans (598. HK) Continues to Deliver

​Cost and business optimizations increase profits as freight rates drop; Sinotrans adjusts operations geographically in response to changing trade...

Rikki Malik

Revisiting some of the Hong Kong commodity stocks we have highlighted previously. Tanker rates remain high, copper demand grows amid speculation,...

SITC's 3Q24 is impressive with surging revenue, solid volume, and good freight rates. Consensus forecasts upgraded, and more room to grow. The DPS...

Cost and business optimizations increase profits as freight rates drop; Sinotrans adjusts operations geographically in response to changing trade...