China Specialist, Auto and Industrial Specialist

Victoria Li

Thematic (Sector/Industry)

Unfortunately, supply chain of auto chips turned tight again in August, which might have led to weak retail sales. Although the last week data of August is not available yet, CPCA believed it would decline.Looking forward, the uncertainty of auto chips supply would remain a main interruption in auto sector in 2021-2022. Because underinvestment in auto chip capacity, rising risk of new vaccine-resistant Covid variants would take time to be released.We expect share performance of  auto stocks remain under pressure until availability of chips getting improved. Focus on long-term winner candidates, such as Xpeng. We also believe Geely and Xpeng would gain positive momentums when their new models (Zeekr 001, Xpeng P5) start delivery in 4Q, for which the companies have ordered plenty components in advance.

Unfortunately, supply chain of auto chips turned tight again in August, which might have led to weak retail sales. Although the last week data of August is not available yet, CPCA believed it would decline.Looking forward, the uncertainty of auto chips supply would remain a main interruption in auto sector in 2021-2022. Because underinvestment in auto chip capacity, rising risk of new vaccine-resistant Covid variants would take time to be released.We expect share performance of  auto stocks remain under pressure until availability of chips getting improved. Focus on long-term winner candidates, such as Xpeng. We also believe Geely and Xpeng would gain positive momentums when their new models (Zeekr 001, Xpeng P5) start delivery in 4Q, for which the companies have ordered plenty components in advance. 

China Auto: Chip Shortage Getting Worse and Might Last Longer than Expected

Equity Bottom-Up

Although Xpeng's 2Q2021 net loss was higher than that of 1Q2021, we don't view this as a concern. Because it was led by increased R&amp;D cost and SG&amp;A expenses for coming P5 and lately launched new models. Meanwhile, total revenue and gross margin increased healthily with increasing vehicle delivery and higher sales contribution from software.Looking forward, the management conservatively guided its 3Q vehicle delivery at 21,500-22,500 vehicles, which might have factored in the worsening chip shortage issue. P5 would be launched at mid-Sep and start delivery in October.Mr. He mentioned with Zhaoqing factory's capacity utilisation stabilized, the company's monthly delivery could reach 15,000 per month.From 2023 onwards, Xpeng plans to launch 2-3 new models per year and expand its product price range to Rmb150-400k or higher.Reiterate BUY

Although Xpeng's 2Q2021 net loss was higher than that of 1Q2021, we don't view this as a concern. Because it was led by increased R&amp;D cost and SG&amp;A expenses for coming P5 and lately launched new models. Meanwhile, total revenue and gross margin increased healthily with increasing vehicle delivery and higher sales contribution from software.Looking forward, the management conservatively guided its 3Q vehicle delivery at 21,500-22,500 vehicles, which might have factored in the worsening chip shortage issue. P5 would be launched at mid-Sep and start delivery in October.Mr. He mentioned with Zhaoqing factory's capacity utilisation stabilized, the company's monthly delivery could reach 15,000 per month.From 2023 onwards, Xpeng plans to launch 2-3 new models per year and expand its product price range to Rmb150-400k or higher.Reiterate BUY

Xpeng: 2Q2021Results Solid, Bright Outlook Guided

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 20 August. The constituent changes will be effective after the close of trading on 3 September.For the <a href="https://www.smartkarma.com/entities/hang-seng-tech-index" target="_blank" data-smartkarma-citation="entities:31367:1" rel="noopener">Hang Seng Tech Index (HSTECH INDEX)</a> there is one set of changes with Trip.com (9961 HK) / <a href="https://www.smartkarma.com/entities/trip-com-group-ltd" target="_blank" data-smartkarma-citation="entities:180:1" rel="noopener">Trip.com (TCOM US)</a> replacing <a href="https://www.smartkarma.com/entities/koolearn-technology-holding" target="_blank" data-smartkarma-citation="entities:27796:1" rel="noopener">Koolearn (1797 HK)</a>.One-way turnover is estimated at 6.29% and will result in a one-way trade of HK$2.12bn.There will be over 2 days of ADV to trade on Trip.com while the impact of passive fund selling on <a href="https://www.smartkarma.com/entities/koolearn-technology-holding" target="_blank" data-smartkarma-citation="entities:27796:1" rel="noopener">Koolearn (1797 HK)</a> will be a lot smaller.Hang Seng has also announced that a market review and feedback will result in 'Autonomous' being added to the list of eligible technology themes for index inclusion. This means that <a href="https://www.smartkarma.com/entities/xpeng-inc-4cc65854-d10c-4d20-bf7e-ca0e016715ff" target="_blank" data-smartkarma-citation="entities:33772:1" rel="noopener">XPeng (9868 HK)</a> and <a href="https://www.smartkarma.com/entities/li-auto-inc-3dbe6187-544f-40dd-b9f9-72fba9c0110e" target="_blank" data-smartkarma-citation="entities:33811:1" rel="noopener">Li Auto (2015 HK)</a> will be eligible for inclusion in the index at the December 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 20 August. The constituent changes will be effective after the close of trading on 3 September.For the Hang Seng Tech Index (HSTECH INDEX) there is one set of changes with Trip.com (9961 HK) / Trip.com (TCOM US) replacing Koolearn (1797 HK).One-way turnover is estimated at 6.29% and will result in a one-way trade of HK$2.12bn.There will be over 2 days of ADV to trade on Trip.com while the impact of passive fund selling on Koolearn (1797 HK) will be a lot smaller.Hang Seng has also announced that a market review and feedback will result in 'Autonomous' being added to the list of eligible technology themes for index inclusion. This means that XPeng (9868 HK) and Li Auto (2015 HK) will be eligible for inclusion in the index at the December rebalance.

HSTECH Index Rebalance: One Change; More at the Next Review

Event-Driven

Hang Seng China Enterprises Index / Event-Driven

Most Chinese companies will announce their half yearly results in the next couple of weeks. Some will announce their interim dividends as well.With most of the dividends for 2021 having already gone ex, we see little upside/downside in the HSCEI 2021 dividend futures contract.The HSCEI 2022 dividend futures are another story though. There are a lot of potential events that could change the fair value of the futures. Taking into account all the changes expected to take place by the December rebalance, we see the current dividend futures market trading around 6 index points higher than our fair value. In terms of future events, we find a lot more potential negative catalysts as compared to positive catalysts.We recommend selling the HSCEI 2022 dividend futures at 245 or higher (equivalent to around -25 on the HSCEI 2021/22 dividend steepener) and buying the dividend futures at 230 or lower. These estimates will change as the CNYHKD fx rates move around and some of the catalysts come to pass.

Most Chinese companies will announce their half yearly results in the next couple of weeks. Some will announce their interim dividends as well.With most of the dividends for 2021 having already gone ex, we see little upside/downside in the HSCEI 2021 dividend futures contract.The HSCEI 2022 dividend futures are another story though. There are a lot of potential events that could change the fair value of the futures. Taking into account all the changes expected to take place by the December rebalance, we see the current dividend futures market trading around 6 index points higher than our fair value. In terms of future events, we find a lot more potential negative catalysts as compared to positive catalysts.We recommend selling the HSCEI 2022 dividend futures at 245 or higher (equivalent to around -25 on the HSCEI 2021/22 dividend steepener) and buying the dividend futures at 230 or lower. These estimates will change as the CNYHKD fx rates move around and some of the catalysts come to pass.

HSCEI Dividend Futures: Fair Value & Catalysts Point to Downside for 2022

Founder & CEO Bond Angle, LLC, Bond Angle, LLC

Vicki Bryan

Founder & CEO Bond Angle, LLC

Bond Angle, LLC

Insightful commentary and analysis on bond markets and market movers, including financial, economic, and industry catalysts and management shenanigans. 

High yield market investment research

Credit

<a href="https://www.smartkarma.com/entities/tesla-motors-inc" target="_blank" data-smartkarma-citation="entities:20279:1" rel="noopener">Tesla Motors (TSLA US)</a> local deliveries in China plunged to lowest since April 2020. So Tesla punted record exports to Europe and elsewhere where they also didn't sell.Such disappointing China sales are a troubling signal that July started off what could be a softer than expected third quarter.

Tesla Motors (TSLA US) local deliveries in China plunged to lowest since April 2020. So Tesla punted record exports to Europe and elsewhere where they also didn't sell.Such disappointing China sales are a troubling signal that July started off what could be a softer than expected third quarter.

China

XPeng Inc. designs, produces, and distributes electric vehicles. The Company designs, develops, manufactures and markets smart smart electric vehicles, as well as finance, parts, and maintenance services. XPeng serves customers in China.

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XPeng (9868 HK)

China Auto: Chip Shortage Getting Worse and Might Last Longer than Expected

Unfortunately, supply chain of auto chips turned tight again in August, which might have led to weak retail sales. Although the last week data of...

Victoria Li

Xpeng: 2Q2021Results Solid, Bright Outlook Guided

Although Xpeng's 2Q2021 net loss was higher than that of 1Q2021, we don't view this as a concern. Because it was led by increased R&D cost and SG&A...

Victoria Li

HSTECH Index Rebalance: One Change; More at the Next Review

Trip.com replaces Koolearn in the HSTECH Index. Alibaba's weight will drop by over 3%. Benchmarked assets have risen a lot. One-way turnover is...

Brian Freitas

HSCEI Dividend Futures: Fair Value & Catalysts Point to Downside for 2022

We see around 6 points of downside on the HSCEI 2022 dividend futures from the last traded price. There are more negative catalysts for the 2022...

Brian Freitas

Tesla China Sales Deflated in July

Local deliveries in China plunged to the lowest since April 2020. Europe looks little better, as I expected. This may be the start of what turns...

Vicki Bryan

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