Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>After publishing my insight (<a href="https://skr.ma/y1QWE" target="_blank" rel="noopener">Jardine Matheson (JM SP): Trading "Cheap"</a>) last week, my NAV calcs were called into question by some readers, when compared to street estimates.</li>
<li>Which is cool. I'm big enough to admit mistakes, where needed. So I've done some digging, including a back and forth with <a href="https://www.smartkarma.com/entities/jardine-matheson-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19718:1" rel="noopener">Jardine Matheson Holdings (JM SP)</a>.</li>
<li>The upshot? I have not lead you astray. You've been coming to the right place.</li>
</ul>


After publishing my insight (Jardine Matheson (JM SP): Trading "Cheap") last week, my NAV calcs were called into question by some readers, when compared to street estimates.
Which is cool. I'm big enough to admit mistakes, where needed. So I've done some digging, including a back and forth with Jardine Matheson Holdings (JM SP).
The upshot? I have not lead you astray. You've been coming to the right place.


Jardine Matheson (JM SP): Squeezing More Life Out Of The NAV

Equity Long-Short

Mo Aziz

Equity Bottom-Up

<ul>
<li>Historical valuation affirms that Zhongzheng is the cheapest it has been in the past 10 years </li>
<li>Chart analysis is to compliment our recent report <a href="https://www.smartkarma.com/insights/zhongsheng-group-holdings-881-hk-buy-tp-hkd12-5-a-contrarian-play" target="_blank" data-smartkarma-citation="insights:157671" rel="noopener">Zhongsheng Group Holdings (881 HK, BUY, TP:HKD12.5): A Contrarian Play</a> published yesterday</li>
<li>Our TP of HKD12.5 is based on FY25 PE of 5x. This implies an UPSIDE POTENTIAL of 33%. It also delivers a dividend yield of ~9% at current prices. </li>
</ul>


Historical valuation affirms that Zhongzheng is the cheapest it has been in the past 10 years 
Chart analysis is to compliment our recent report Zhongsheng Group Holdings (881 HK, BUY, TP:HKD12.5): A Contrarian Play published yesterday
Our TP of HKD12.5 is based on FY25 PE of 5x. This implies an UPSIDE POTENTIAL of 33%. It also delivers a dividend yield of ~9% at current prices. 


Zhongsheng Group Holdings (881 HK, BUY, TP:HKD12.5): Chart Analysis Affirms Zhongsheng Is Too Cheap

<ul>
<li>1H24 results were below expectations, with profits halved YoY. Irrational competition with overzealous discounts, and general decline in preference of traditional luxury cars for NEVs is hurting Zhongzheng (ZS)</li>
<li>Signs of bottoming as industry are trying to stop the discounting madness and instill some level of rationality</li>
<li>ZS is trading at 0.47x book, its cash = MCAP, and FY25 PE of 3.7x. Ridiculously cheap for a profitable and positive FCF churning company.  </li>
</ul>


1H24 results were below expectations, with profits halved YoY. Irrational competition with overzealous discounts, and general decline in preference of traditional luxury cars for NEVs is hurting Zhongzheng (ZS)
Signs of bottoming as industry are trying to stop the discounting madness and instill some level of rationality
ZS is trading at 0.47x book, its cash = MCAP, and FY25 PE of 3.7x. Ridiculously cheap for a profitable and positive FCF churning company.  


Zhongsheng Group Holdings (881 HK, BUY, TP:HKD12.5): A Contrarian Play

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

<ul>
<li>Post market close on Friday, Hang Seng Indexes will announce the changes for the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hang Seng Index (HSI INDEX)</a> that will be implemented at the close on 6 September.</li>
<li>With no constituent changes in March and 1 add/1 delete in June, there could be more changes in September with Health Care stocks among the potential inclusions.</li>
<li>Changes to the Hang Seng Industry Classification System (HSICS) will be implemented from the September rebalance and that will alter industry coverage.</li>
</ul>


Post market close on Friday, Hang Seng Indexes will announce the changes for the Hang Seng Index (HSI INDEX) that will be implemented at the close on 6 September.
With no constituent changes in March and 1 add/1 delete in June, there could be more changes in September with Health Care stocks among the potential inclusions.
Changes to the Hang Seng Industry Classification System (HSICS) will be implemented from the September rebalance and that will alter industry coverage.


Hang Seng Index (HSI) Rebalance Preview: Inclusion Candidates for September

<ul>
<li>Most brands under control (Mercedes, Lexus, Toyota) are undergoing popularity downtrend by consumers in China.  </li>
<li>There will remain a loyal niche supporter base, every legacy auto does, but it also means Zhongsheng will be a smaller and niche distributor going forward. </li>
<li>Share price has plunged significantly YTD, trading at only ~5x, which we think is overdone. Yield hunters will like its ~8% DY. </li>
</ul>


Most brands under control (Mercedes, Lexus, Toyota) are undergoing popularity downtrend by consumers in China.  
There will remain a loyal niche supporter base, every legacy auto does, but it also means Zhongsheng will be a smaller and niche distributor going forward. 
Share price has plunged significantly YTD, trading at only ~5x, which we think is overdone. Yield hunters will like its ~8% DY. 


Zhongsheng Group Holdings (881 HK, BUY, TP:HKD15.0): Challenging Outlook and Reflected in Valuation

China

Zhongsheng Group is a leading national automobile dealership group in China, specializing in the sale of new and used luxury and mid-to-high-end automobiles, including brands like Mercedes-Benz, Lexus, and Audi. The company also provides comprehensive after-sales services, such as repair, maintenance, spare parts, accessories, and related auto finance and insurance services. It was founded in 1998 and is headquartered in Dalian, China.

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Zhongsheng (881 HK)

Jardine Matheson (JM SP): Squeezing More Life Out Of The NAV

I've bolted on US$0.5bn to NAV. That adjustment doesn't move the needle. Look to set up the stub: Long JMH, short DFI, HKL, MO & JC&C on a...

David Blennerhassett

Zhongsheng Group Holdings (881 HK, BUY, TP:HKD12.5): Chart Analysis Affirms Zhongsheng Is Too Cheap

Historical valuation shows Zhongzheng is the cheapest in 10 years for all the traditional valuation metrics. Stock is really cheap, our target...

Mo Aziz

Zhongsheng Group Holdings (881 HK, BUY, TP:HKD12.5): A Contrarian Play

Zhongzheng profits halved due to irrational competition and shift to NEVs, but signs of recovery as industry aims to curb discounts. ZS trading at...

Mo Aziz

Hang Seng Index (HSI) Rebalance Preview: Inclusion Candidates for September

Announcement on Friday post market close. Health Care industry still underweight. Index committee has a lot of discretion in stock selection. We...

Brian Freitas

Zhongsheng Group Holdings (881 HK, BUY, TP:HKD15.0): Challenging Outlook and Reflected in Valuation

Chinese consumers are turning away from popular car brands and impacting distributor Zhongsheng's market position. However, market has over...

Mo Aziz

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Jardine Matheson (JM SP): Squeezing More Life Out Of The NAV

I've bolted on US$0.5bn to NAV. That adjustment doesn't move the needle. Look to set up the stub: Long JMH, short DFI, HKL, MO & JC&C on a...

David Blennerhassett

Zhongsheng Group Holdings (881 HK, BUY, TP:HKD12.5): Chart Analysis Affirms Zhongsheng Is Too Cheap

​Historical valuation shows Zhongzheng is the cheapest in 10 years for all the traditional valuation metrics. Stock is really cheap, our target...

Mo Aziz

Zhongsheng Group Holdings (881 HK, BUY, TP:HKD12.5): A Contrarian Play

​Zhongzheng profits halved due to irrational competition and shift to NEVs, but signs of recovery as industry aims to curb discounts. ZS trading at...

Mo Aziz

Hang Seng Index (HSI) Rebalance Preview: Inclusion Candidates for September

Announcement on Friday post market close. Health Care industry still underweight. Index committee has a lot of discretion in stock selection. We...

Brian Freitas

Zhongsheng Group Holdings (881 HK, BUY, TP:HKD15.0): Challenging Outlook and Reflected in Valuation

​Chinese consumers are turning away from popular car brands and impacting distributor Zhongsheng's market position. However, market has over...

Mo Aziz

Historical valuation shows Zhongzheng is the cheapest in 10 years for all the traditional valuation metrics. Stock is really cheap, our target...

Zhongzheng profits halved due to irrational competition and shift to NEVs, but signs of recovery as industry aims to curb discounts. ZS trading at...

Chinese consumers are turning away from popular car brands and impacting distributor Zhongsheng's market position. However, market has over...