HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Zhejiang Expressway Co H / Equity Bottom-Up

<ul>
<li>By way of its 54.79% ownership in <a href="https://www.smartkarma.com/entities/zheshang-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:29981:1" rel="noopener">Zheshang Securities (601878 CH)</a>, <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> is an attractive indirect vehicle to access the mainland securities sector.  </li>
<li>The attributable market cap of Zheshang equals 90% of ZJE's market cap, implying that the toll road business is almost free. However, Zheshang only contributed 16% of ZJE's 1H24 profit.</li>
<li>ZJE trades on 6.7x FY24F PER, vs. 31.3x for Zheshang and 17.6x for H-share securities companies. A stable toll road business also minimises the risk for ZJE.</li>
</ul>


By way of its 54.79% ownership in Zheshang Securities (601878 CH), Zhejiang Expressway Co H (576 HK) is an attractive indirect vehicle to access the mainland securities sector.  
The attributable market cap of Zheshang equals 90% of ZJE's market cap, implying that the toll road business is almost free. However, Zheshang only contributed 16% of ZJE's 1H24 profit.
ZJE trades on 6.7x FY24F PER, vs. 31.3x for Zheshang and 17.6x for H-share securities companies. A stable toll road business also minimises the risk for ZJE.


Zhejiang Expressway (576 HK): Cheap Access to the Roaring Securities Sector

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>Since <a href="https://www.smartkarma.com/entities/guotai-junan-securities-co-ltd-5dfaf2c5-76d3-4f34-a77d-118787fd7091" target="_blank" data-smartkarma-citation="entities:23752:1" rel="noopener">Guotai Junan Securities (2611 HK)</a> and <a href="https://www.smartkarma.com/entities/haitong-securities-co-ltd-h" target="_blank" data-smartkarma-citation="entities:5665:1" rel="noopener">Haitong Securities Co Ltd (H) (6837 HK)</a> were suspended around a month ago, pending a merger, a basket of peers are up 37%. </li>
<li>The Shanghai Composite is up 21%. Volumes are up, commissions are up. <a href="https://www.smartkarma.com/entities/citic-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:164:1" rel="noopener">Citic Securities (600030 CH)</a>, the largest broker by market cap, is up 42% in the past month. </li>
<li>
<a href="https://www.smartkarma.com/entities/zhejiang-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2178:1" rel="noopener">Zhejiang Expressway (576 HK)</a> is also up ~45% in recent weeks due to its 40.3% look-through stake in <a href="https://www.smartkarma.com/entities/zheshang-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:29981:1" rel="noopener">Zheshang Securities (601878 CH)</a>.  The question: how much more in the tank?</li>
</ul>


Since Guotai Junan Securities (2611 HK) and Haitong Securities Co Ltd (H) (6837 HK) were suspended around a month ago, pending a merger, a basket of peers are up 37%. 
The Shanghai Composite is up 21%. Volumes are up, commissions are up. Citic Securities (600030 CH), the largest broker by market cap, is up 42% in the past month. 

Zhejiang Expressway (576 HK) is also up ~45% in recent weeks due to its 40.3% look-through stake in Zheshang Securities (601878 CH).  The question: how much more in the tank?


Zhejiang Expressway (576 HK): "Cheap" Access To Zheshang Securities

<ul>
<li>On the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2023/1106/2023110601778.pdf" target="_blank" rel="noopener">6 November 2023</a>, <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> announced its rights offering on both its H-Shares and its A-Shares, previously mooted on <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2023/0523/2023052301097.pdf" target="_blank" rel="noopener">23 May</a>.</li>
<li>The rights were discussed by <a href="https://www.smartkarma.com/profiles/travis-lundy" target="_blank" data-smartkarma-citation="accounts:25" rel="noopener">Travis Lundy</a> in <a href="https://skr.ma/gt9ra" target="_blank" rel="noopener">Zhejiang Expressway (576 HK) Rights Offering - The Dynamics May Be Interesting</a>. He liked the stock.  That was a good call. </li>
<li>The current implied stub - net of Expressway's 40.3% look-through stake in <a href="https://www.smartkarma.com/entities/zheshang-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:29981:1" rel="noopener">Zheshang Securities (601878 CH)</a> - is back to pre-Covid levels.  I'd be looking to unwind the stub here. </li>
</ul>


On the 6 November 2023, Zhejiang Expressway Co H (576 HK) announced its rights offering on both its H-Shares and its A-Shares, previously mooted on 23 May.
The rights were discussed by Travis Lundy in Zhejiang Expressway (576 HK) Rights Offering - The Dynamics May Be Interesting. He liked the stock.  That was a good call. 
The current implied stub - net of Expressway's 40.3% look-through stake in Zheshang Securities (601878 CH) - is back to pre-Covid levels.  I'd be looking to unwind the stub here. 


Zhejiang Expressway (576 HK): Life In The (Too) Fast Lane

Travis Lundy

<ul>
<li>Last week, <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> announced its rights offering on both its H-Shares and its A-Shares, previously mooted on 23 May, and the Circular on 26 June.</li>
<li>The company applied, got CSRC approval on 5 Nov, announced the issuance on 6 Nov, and shares went ex- on 10 November. It's probably unneeded, but it's there. </li>
<li>The stock is cheap. The company will boost its payout ratio. And it isn't that "heavy" a deal. The Rights Trading Dynamics may be interesting.</li>
</ul>


Last week, Zhejiang Expressway Co H (576 HK) announced its rights offering on both its H-Shares and its A-Shares, previously mooted on 23 May, and the Circular on 26 June.
The company applied, got CSRC approval on 5 Nov, announced the issuance on 6 Nov, and shares went ex- on 10 November. It's probably unneeded, but it's there. 
The stock is cheap. The company will boost its payout ratio. And it isn't that "heavy" a deal. The Rights Trading Dynamics may be interesting.


Zhejiang Expressway (576 HK) Rights Offering - The Dynamics May Be Interesting

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

China Communications Construction / Event-Driven

<ul>
<li>The China Securities Index (CSI) will launch the CSI REITs Index today. The index currently has 14 constituents, and the REITs will be capped at 15% of the index weight.</li>
<li>We expect another 6 REITs to be added to the index at the March rebalance. And then at least another 3 more in June.</li>
<li>The launch of the index should result in ETFs and other passive investment products being floated which should further enhance market liquidity and bring long-term benefits to the market.</li>
</ul>


The China Securities Index (CSI) will launch the CSI REITs Index today. The index currently has 14 constituents, and the REITs will be capped at 15% of the index weight.
We expect another 6 REITs to be added to the index at the March rebalance. And then at least another 3 more in June.
The launch of the index should result in ETFs and other passive investment products being floated which should further enhance market liquidity and bring long-term benefits to the market.


CSI REITs Index: An Investable Benchmark Launches Today

China

Zhejiang Expressway Co., Ltd., through its subsidiaries, designs, constructs, operates, and manages high grade roads, as well as develops and operates certain ancillary services, such as technical consultation, advertising, automobile servicing, and fuel facilities.

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Zhejiang Expressway Co H (576 HK)

Zhejiang Expressway (576 HK): Cheap Access to the Roaring Securities Sector

Zhejiang Expressway provides indirect cheap access to mainland securities through its ownership in Zheshang Securities, with a stable toll road...

Osbert Tang, CFA

Zhejiang Expressway (576 HK): "Cheap" Access To Zheshang Securities

I question the sustainabilty. Arguably, these brokerage stocks are not trading with any specific fundamental in mind; but one in which investors...

David Blennerhassett

Zhejiang Expressway (576 HK): Life In The (Too) Fast Lane

I'd be looking to unwind this set-up and take the other side - short Zhejiang Expressway (576 HK), long Zheshang Securities (601878 CH) here.

David Blennerhassett

Zhejiang Expressway (576 HK) Rights Offering - The Dynamics May Be Interesting

The rights traded down on the open as some long-holders sold, then traded up, helping the stock to trade up. Far more rights than shares traded....

Travis Lundy

CSI REITs Index: An Investable Benchmark Launches Today

CSI launches the CSI REITs Index today with 14 constituents. ETFs should be launched in the near future. Given the huge oversubscription on the...

Brian Freitas

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Market Cap (USDm)

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Zhejiang Expressway (576 HK): Cheap Access to the Roaring Securities Sector

​Zhejiang Expressway provides indirect cheap access to mainland securities through its ownership in Zheshang Securities, with a stable toll road...

Osbert Tang, CFA

Zhejiang Expressway (576 HK): "Cheap" Access To Zheshang Securities

I question the sustainabilty. Arguably, these brokerage stocks are not trading with any specific fundamental in mind; but one in which investors...

David Blennerhassett

Zhejiang Expressway (576 HK): Life In The (Too) Fast Lane

I'd be looking to unwind this set-up and take the other side - short Zhejiang Expressway (576 HK), long Zheshang Securities (601878 CH) here.

David Blennerhassett

Zhejiang Expressway (576 HK) Rights Offering - The Dynamics May Be Interesting

The rights traded down on the open as some long-holders sold, then traded up, helping the stock to trade up. Far more rights than shares traded....

Travis Lundy

CSI REITs Index: An Investable Benchmark Launches Today

CSI launches the CSI REITs Index today with 14 constituents. ETFs should be launched in the near future. Given the huge oversubscription on the...

Brian Freitas

Zhejiang Expressway provides indirect cheap access to mainland securities through its ownership in Zheshang Securities, with a stable toll road...