Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Desperado: The bulk of the Link REIT (823.HK) [Link] franchise continues to contract: negative rental reversion rates persist in Hong Kong; declining tenant sales; and another round of negative property revaluation due to lower rents and/or higher cap rates. That being said, Link management also appears hellbent on destroying shareholder value with  deals that make little financial sense; and *Throwing Good Money After Bad Again: Link recently announced the acquisition of Happy Valley Shopping Mall in Guangzhou for CNY 3.2 bn. According to management, current annualized NPI yield of 3.3% - barely covering the project’s cost of funding. Management would have investors believe that the opportunity for Link is the shopping mall’s 70% occupancy and that 68% of leases are expiring between now and 2023. In order to improve occupancy, it would appear that Link would likely need to offering significant tenant enticements, and investment massively in asset enhancement.

*Desperado: The bulk of the Link REIT (823.HK) [Link] franchise continues to contract: negative rental reversion rates persist in Hong Kong; declining tenant sales; and another round of negative property revaluation due to lower rents and/or higher cap rates. That being said, Link management also appears hellbent on destroying shareholder value with  deals that make little financial sense; and *Throwing Good Money After Bad Again: Link recently announced the acquisition of Happy Valley Shopping Mall in Guangzhou for CNY 3.2 bn. According to management, current annualized NPI yield of 3.3% - barely covering the project’s cost of funding. Management would have investors believe that the opportunity for Link is the shopping mall’s 70% occupancy and that 68% of leases are expiring between now and 2023. In order to improve occupancy, it would appear that Link would likely need to offering significant tenant enticements, and investment massively in asset enhancement.

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 21 May. The constituent changes will be effective after the close of trading on 4 June.For the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> there are 3 inclusions - <a href="https://www.smartkarma.com/entities/xinyi-solar-holdings-ltd" target="_blank" data-smartkarma-citation="entities:318:1" rel="noopener">Xinyi Solar Holdings (968 HK)</a>, <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> and <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a>.The 3 inclusions will increase the number of index constituents to 58. With the target of getting to 80 stocks by mid-2022, the expectation was for more stocks to be included at this review. What likely resulted in fewer stocks being added was the large turnover due to the capping changes.While we had expected the inclusion of <a href="https://www.smartkarma.com/entities/xinyi-solar-holdings-ltd" target="_blank" data-smartkarma-citation="entities:318:1" rel="noopener">Xinyi Solar Holdings (968 HK)</a> and <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a>, the inclusion of <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> will have a big impact since the stock has also been included in the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a>. One-way turnover is estimated at 7.77% and will result in a one-way trade of HK$16.82bn.  The largest passive inflows will be on <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> and <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> as a result of the capping change from 5% to 8%, while the largest outflows will be from <a href="https://www.smartkarma.com/entities/aia-group-ltd" target="_blank" data-smartkarma-citation="entities:14895:1" rel="noopener">AIA Group Ltd (1299 HK)</a>, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> and <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc" target="_blank" data-smartkarma-citation="entities:516:1" rel="noopener">HSBC Holdings (5 HK)</a> due to the capping change from 10% to 8%.There are only 10 trading days to implementation of the changes and we expect all 3 inclusions to open higher on Monday and continue to outperform the market over the period.

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 21 May. The constituent changes will be effective after the close of trading on 4 June.For the Hong Kong Hang Seng Index (HSI INDEX) there are 3 inclusions - Xinyi Solar Holdings (968 HK), BYD (1211 HK) and Country Garden Services Holdings (6098 HK).The 3 inclusions will increase the number of index constituents to 58. With the target of getting to 80 stocks by mid-2022, the expectation was for more stocks to be included at this review. What likely resulted in fewer stocks being added was the large turnover due to the capping changes.While we had expected the inclusion of Xinyi Solar Holdings (968 HK) and Country Garden Services Holdings (6098 HK), the inclusion of BYD (1211 HK) will have a big impact since the stock has also been included in the Hang Seng China Enterprises Index (HSCEI INDEX). One-way turnover is estimated at 7.77% and will result in a one-way trade of HK$16.82bn.  The largest passive inflows will be on Meituan (3690 HK) and Alibaba Group (9988 HK) as a result of the capping change from 5% to 8%, while the largest outflows will be from AIA Group Ltd (1299 HK), Tencent (700 HK) and HSBC Holdings (5 HK) due to the capping change from 10% to 8%.There are only 10 trading days to implementation of the changes and we expect all 3 inclusions to open higher on Monday and continue to outperform the market over the period.

HSI Index Rebalance: Only 3 Additions but BIG Turnover

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Henderson Land Development / Equity Bottom-Up

Expropriation.
Not the word Hong Kong property developers, sitting on millions of square feet of farmland, wish to hear. And the newish Bauhinia Party (just) stops short of suggesting such an approach.
But a recent <a href="https://www.thestandnews.com/politics/%E7%B4%AB%E8%8D%8A%E9%BB%A8%E5%85%A7%E9%83%A8%E5%88%8A%E7%89%A9-%E9%A6%99%E6%B8%AF%E6%88%BF%E5%B1%8B%E5%95%8F%E9%A1%8C%E5%A8%81%E8%84%85-%E4%B8%80%E5%9C%8B-%E5%AE%89%E5%85%A8-%E5%80%A1%E4%B8%AD%E5%A4%AE%E5%87%BA%E9%9D%A2%E5%8D%94%E8%AA%BF-%E8%88%89%E4%BE%8B%E5%8F%AF%E5%BC%B7%E5%BE%B5%E5%9C%9F%E5%9C%B0/" target="_blank" rel="noopener">internal discussion paper</a>, authored by an executive committee member of the Bauhinia Party, refers to the housing issue in Hong Kong, wherein the gap between the rich and poor is widening, causing social unrest to the point of "threatening the security of one country". The paper indicates the Central government has the right to coordinate the supply of land in Hong Kong.
The Bauhinia party, established by mainland Chinese executives, is a pro-Beijing political party with close links to Beijing's authorities. I would not be so quick to dismiss such commentary and the potential knock-on effect to local property developers.
More below the fold.
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/200/251/original/image_16007097821618301158871.png?1618301161" class="editor-image img-responsive" data-smartkarma-image-id="200251"></figure>

Expropriation.
Not the word Hong Kong property developers, sitting on millions of square feet of farmland, wish to hear. And the newish Bauhinia Party (just) stops short of suggesting such an approach.
But a recent internal discussion paper, authored by an executive committee member of the Bauhinia Party, refers to the housing issue in Hong Kong, wherein the gap between the rich and poor is widening, causing social unrest to the point of "threatening the security of one country". The paper indicates the Central government has the right to coordinate the supply of land in Hong Kong.
The Bauhinia party, established by mainland Chinese executives, is a pro-Beijing political party with close links to Beijing's authorities. I would not be so quick to dismiss such commentary and the potential knock-on effect to local property developers.
More below the fold.



Hong Kong Property Developers: Eminent Domain

*No Results Surprise Post-Profit Warning: In January 2021, MTR Corp (66.HK) [MTR] issued a profit warning for FY 2020, suggesting that the company faced significant operational and valuation challenges, which led to its first loss since listing two decades ago. As warned, MTR announced losses of HKD 4.8 bn both related to the impact of the COVID-19 pandemic and a troubled mega project;*2021 Not Looking Much Better: The decision by the Hong Kong government to close all but three border checkpoints since the beginning of 2020 is likely to remain through most of 2021 as business conditions continue to worsen; and* New Projects Remain In Progress: The construction of Shatin-Central Link is in progress, Tuen Ma Line Phase 1 (Tai Wai to Kai Tak) has already opened, and the full Tuen Ma Line is scheduled to be completed in 3Q21. The 1Q22 opening of the Hung Hom to Admiralty section is likely to be delayed.

*No Results Surprise Post-Profit Warning: In January 2021, MTR Corp (66.HK) [MTR] issued a profit warning for FY 2020, suggesting that the company faced significant operational and valuation challenges, which led to its first loss since listing two decades ago. As warned, MTR announced losses of HKD 4.8 bn both related to the impact of the COVID-19 pandemic and a troubled mega project;*2021 Not Looking Much Better: The decision by the Hong Kong government to close all but three border checkpoints since the beginning of 2020 is likely to remain through most of 2021 as business conditions continue to worsen; and* New Projects Remain In Progress: The construction of Shatin-Central Link is in progress, Tuen Ma Line Phase 1 (Tai Wai to Kai Tak) has already opened, and the full Tuen Ma Line is scheduled to be completed in 3Q21. The 1Q22 opening of the Hung Hom to Admiralty section is likely to be delayed.  

Quantitative Analysis

<div>The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.</div><div>Hong Kong saw shorts rise on <a href="https://www.smartkarma.com/entities/beijing-kuaishou-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:29725:1" rel="noopener">Kuaishou Technology (1024 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a>, <a href="https://www.smartkarma.com/entities/jd-health-international-inc" target="_blank" data-smartkarma-citation="entities:29677:1" rel="noopener">JD Health (6618 HK)</a> and <a href="https://www.smartkarma.com/entities/sun-hung-kai-properties-ltd" target="_blank" data-smartkarma-citation="entities:111:1" rel="noopener">Sun Hung Kai Properties (16 HK)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, <a href="https://www.smartkarma.com/entities/ping-an-healthcare-and-technology-company-limited" target="_blank" data-smartkarma-citation="entities:27008:1" rel="noopener">Ping An Healthcare and Technology Company Limited (1833 HK)</a>, <a href="https://www.smartkarma.com/entities/sunny-optical-tech" target="_blank" data-smartkarma-citation="entities:13363:1" rel="noopener">Sunny Optical (2382 HK)</a> and <a href="https://www.smartkarma.com/entities/anta-sports-products-ltd" target="_blank" data-smartkarma-citation="entities:10261:1" rel="noopener">Anta Sports Products (2020 HK)</a>. Shorts increased on Energy, while decreasing on Utilities, Health Care, Materials and Communication Services.</div><div>In Japan, stocks that saw the most shorts were <a href="https://www.smartkarma.com/entities/nexon-co-ltd" target="_blank" data-smartkarma-citation="entities:16032:1" rel="noopener">Nexon (3659 JP)</a>, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a>, <a href="https://www.smartkarma.com/entities/brother-industries-ltd" target="_blank" data-smartkarma-citation="entities:6114:1" rel="noopener">Brother Industries (6448 JP)</a> and <a href="https://www.smartkarma.com/entities/shiseido-company-limited" target="_blank" data-smartkarma-citation="entities:5718:1" rel="noopener">Shiseido Company (4911 JP)</a> while shorts decreased on <a href="https://www.smartkarma.com/entities/toyo-tire-corporation" target="_blank" data-smartkarma-citation="entities:15064:1" rel="noopener">Toyo Tire Corporation (5105 JP)</a>, <a href="https://www.smartkarma.com/entities/h-i-s-co-ltd" target="_blank" data-smartkarma-citation="entities:19311:1" rel="noopener">H I S Co Ltd (9603 JP)</a>, <a href="https://www.smartkarma.com/entities/east-japan-railway-co" target="_blank" data-smartkarma-citation="entities:14271:1" rel="noopener">East Japan Railway Co (9020 JP)</a> and <a href="https://www.smartkarma.com/entities/gs-yuasa-corp" target="_blank" data-smartkarma-citation="entities:8298:1" rel="noopener">Gs Yuasa Corp (6674 JP)</a>. Shorts increased in all sectors led by Industrials, Information Technology, Communication Services, Consumer Discretionary and Consumer Staples.</div><div>In Korea, short increased on <a href="https://www.smartkarma.com/entities/sk-hynix-inc" target="_blank" data-smartkarma-citation="entities:16955:1" rel="noopener">SK Hynix (000660 KS)</a> and <a href="https://www.smartkarma.com/entities/lg-uplus-corp" target="_blank" data-smartkarma-citation="entities:1113:1" rel="noopener">LG Uplus Corp (032640 KS)</a> while shorts decreased on <a href="https://www.smartkarma.com/entities/celltrion-inc" target="_blank" data-smartkarma-citation="entities:991:1" rel="noopener">Celltrion Inc (068270 KS)</a>, <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a>, <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a> and <a href="https://www.smartkarma.com/entities/lg-display-co-ltd" target="_blank" data-smartkarma-citation="entities:7145:1" rel="noopener">LG Display (034220 KS)</a>. </div><div>Stocks in Taiwan that saw the highest increase in shorts were <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>, <a href="https://www.smartkarma.com/entities/united-microelectronics-corp" target="_blank" data-smartkarma-citation="entities:6450:1" rel="noopener">United Microelectronics Corp (2303 TT)</a>, <a href="https://www.smartkarma.com/entities/pegatron-corp" target="_blank" data-smartkarma-citation="entities:12852:1" rel="noopener">Pegatron Corp (4938 TT)</a> and <a href="https://www.smartkarma.com/entities/au-optronics-corp" target="_blank" data-smartkarma-citation="entities:6704:1" rel="noopener">Au Optronics (2409 TT)</a> while shorts were covered on <a href="https://www.smartkarma.com/entities/fitipower-integrated-tech" target="_blank" data-smartkarma-citation="entities:8712:1" rel="noopener">Fitipower Integrated Tech (4961 TT)</a>, <a href="https://www.smartkarma.com/entities/standard-foods-corp" target="_blank" data-smartkarma-citation="entities:19848:1" rel="noopener">Standard Foods (1227 TT)</a>, <a href="https://www.smartkarma.com/entities/nan-ya-printed-circuit-board-corporation" target="_blank" data-smartkarma-citation="entities:2699:1" rel="noopener">Nan Ya Printed Circuit Board (8046 TT)</a> and <a href="https://www.smartkarma.com/entities/largan-precision-co-ltd" target="_blank" data-smartkarma-citation="entities:9126:1" rel="noopener">Largan Precision (3008 TT)</a>. </div>

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.Hong Kong saw shorts rise on Kuaishou Technology (1024 HK), Alibaba Group (9988 HK), HKEX (388 HK), JD Health (6618 HK) and Sun Hung Kai Properties (16 HK) while there was short covering on Tencent Holdings (700 HK), Meituan (3690 HK), Ping An Healthcare and Technology Company Limited (1833 HK), Sunny Optical (2382 HK) and Anta Sports Products (2020 HK). Shorts increased on Energy, while decreasing on Utilities, Health Care, Materials and Communication Services.In Japan, stocks that saw the most shorts were Nexon (3659 JP), Toshiba Corp (6502 JP), Brother Industries (6448 JP) and Shiseido Company (4911 JP) while shorts decreased on Toyo Tire Corporation (5105 JP), H I S Co Ltd (9603 JP), East Japan Railway Co (9020 JP) and Gs Yuasa Corp (6674 JP). Shorts increased in all sectors led by Industrials, Information Technology, Communication Services, Consumer Discretionary and Consumer Staples.In Korea, short increased on SK Hynix (000660 KS) and LG Uplus Corp (032640 KS) while shorts decreased on Celltrion Inc (068270 KS), Samsung Electronics (005930 KS), Naver Corp (035420 KS) and LG Display (034220 KS). Stocks in Taiwan that saw the highest increase in shorts were TSMC (2330 TT), United Microelectronics Corp (2303 TT), Pegatron Corp (4938 TT) and Au Optronics (2409 TT) while shorts were covered on Fitipower Integrated Tech (4961 TT), Standard Foods (1227 TT), Nan Ya Printed Circuit Board (8046 TT) and Largan Precision (3008 TT). 

Asia Short Interest: Kuaishou, HKEX, SHK, Anta, Nexon, Toshiba, Toyo Tire, HIS, Hynix, TSMC, UMC

Hong Kong

Sun Hung Kai Properties is a leading diversified real estate developer in Hong Kong, specializing in the development of residential, office, and retail properties for sale and investment. The company also operates in property management, hotels, telecommunications, transport, and infrastructure. Headquartered in Wan Chai, Hong Kong, the group was founded in 1963.

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Sun Hung Kai Properties (16 HK)

Link REIT – Purchase or Perish

LINK REIT: The Link franchise continues to contract, and management appears hellbent on destroying shareholder value by chasing bad deals - the...

Thomas J. Monaco

HSI Index Rebalance: Only 3 Additions but BIG Turnover

There are 3 inclusions (BYD, Xinyi Solar, CG Services) to the HSI taking the number of constituents up to 58. Turnover is high at 7.77% and will...

Brian Freitas

Hong Kong Property Developers: Eminent Domain

Henderson has the most to lose from any authoritative land resumption, followed by NWD. Perhaps more land donations are forthcoming, and fiduciary...

David Blennerhassett

MTR Corp – Struggles Set To Continue

MTR CORP: As warned, MTR announced losses of HKD 4.8 bn both due to the impact of COVID-19 and a troubled mega project. With border closures to...

Thomas J. Monaco

Asia Short Interest: Kuaishou, HKEX, SHK, Anta, Nexon, Toshiba, Toyo Tire, HIS, Hynix, TSMC, UMC

The Insight looks at large short interest movements across HK, Japan, Korea and Taiwan stocks and highlights large increases/decreases in shorts to...

Brian Freitas

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