HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a>'s positive profit alert for 33-50% YoY increase in 1H24 earnings suggests that market consensus of just 10% full-year growth is way too conservative.  </li>
<li>Industry sales momentum for excavators and wheel loaders has accelerated in the last three months. A low base in 2H24 will mean an even stronger recovery.</li>
<li>Government supportive measures for equipment renewal and faster special purpose bond issuance will fuel demand too. We estimate net cash equals 90% of the share price. </li>
</ul>



Lonking Holdings (3339 HK)'s positive profit alert for 33-50% YoY increase in 1H24 earnings suggests that market consensus of just 10% full-year growth is way too conservative.  
Industry sales momentum for excavators and wheel loaders has accelerated in the last three months. A low base in 2H24 will mean an even stronger recovery.
Government supportive measures for equipment renewal and faster special purpose bond issuance will fuel demand too. We estimate net cash equals 90% of the share price. 


Lonking (3339 HK): Setting the Stage for Better Profitability

<ul>
<li>
<a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a>'s demand should pick up in 2H24 supported by the government's "Action plan to promote large-scale equipment renewals and consumer goods trade-ins". </li>
<li>Industry volume sales have already witnessed a narrower YoY decline in Mar, with solid exports of wheel loaders and domestic sales of excavators.</li>
<li>After going ex- in late-May, its PER will drop to 7.0x and yield will rise to 6.6%. Net cash of HK$1.56/share is more than fully cover its share price.</li>
</ul>



Lonking Holdings (3339 HK)'s demand should pick up in 2H24 supported by the government's "Action plan to promote large-scale equipment renewals and consumer goods trade-ins". 
Industry volume sales have already witnessed a narrower YoY decline in Mar, with solid exports of wheel loaders and domestic sales of excavators.
After going ex- in late-May, its PER will drop to 7.0x and yield will rise to 6.6%. Net cash of HK$1.56/share is more than fully cover its share price.


<ul>
<li>After a poor FY22, 1H23 will stay challenging for <a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a>. However, we expect pick-up in business momentum going forward, and export is a major growth driver.</li>
<li>Gross margin rebounded HoH and YoY in 2H22, and Lonking maintained good operating cost control. Recovery of equity market suggests potential big positive swing in investment income. </li>
<li>Including investment portfolio, 92% of the current market capitalisation is net cash, providing solid downside buffer. Its 6.5x PER, 9.2% yield and 0.52x P/B are very attractive valuations.</li>
</ul>


After a poor FY22, 1H23 will stay challenging for Lonking Holdings (3339 HK). However, we expect pick-up in business momentum going forward, and export is a major growth driver.
Gross margin rebounded HoH and YoY in 2H22, and Lonking maintained good operating cost control. Recovery of equity market suggests potential big positive swing in investment income. 
Including investment portfolio, 92% of the current market capitalisation is net cash, providing solid downside buffer. Its 6.5x PER, 9.2% yield and 0.52x P/B are very attractive valuations.


Lonking (3339 HK): Back to Attractive Zone

Thematic (Sector/Industry)

<ul>
<li>Industry excavator sales grew 5.5% in Sep and wheel loader edged up 0.7%. This marked the first month where both saw YoY growth since mid-2021, signaling a steady recovery.</li>
<li>The recovery is driven by overseas as domestic continued to decline. Usage of special purpose bond proceeds should boost demand from infrastructure but demand from property market will stay lacklustre. </li>
<li>We only find <a href="https://www.smartkarma.com/entities/sany-heavy-equipment-intl" target="_blank" data-smartkarma-citation="entities:11104:1" rel="noopener">Sany Heavy Equipment Intl (631 HK)</a> interesting. For <a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking (3339 HK)</a>, <a href="https://www.smartkarma.com/entities/zoomlion-heavy-industry-h" target="_blank" data-smartkarma-citation="entities:7817:1" rel="noopener">Zoomlion Heavy (1157 HK)</a> and <a href="https://www.smartkarma.com/entities/sany-heavy-industry-co-ltd" target="_blank" data-smartkarma-citation="entities:20183:1" rel="noopener">Sany Heavy (600031 CH)</a>, market expectations for 2H22 is too high. </li>
</ul>


Industry excavator sales grew 5.5% in Sep and wheel loader edged up 0.7%. This marked the first month where both saw YoY growth since mid-2021, signaling a steady recovery.
The recovery is driven by overseas as domestic continued to decline. Usage of special purpose bond proceeds should boost demand from infrastructure but demand from property market will stay lacklustre. 
We only find Sany Heavy Equipment Intl (631 HK) interesting. For Lonking (3339 HK), Zoomlion Heavy (1157 HK) and Sany Heavy (600031 CH), market expectations for 2H22 is too high. 


China Construction Machinery: Light at the End of the Tunnel, Finally

<ul>
<li>Share price of <a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a> has seen muted reaction to weak industry figures recently but it is still unexciting in near-term, based on our catch-up with the company. </li>
<li>It has underperformed industry sales volume in 5M22 across all product categories, with that for wheel loader behind 4pp and excavator by 10pp. Forklift sales were down 18% YoY. </li>
<li>Both gross margin and investment income are set to contract in this year, making it highly likely to see significant earnings downgrade after 1H22 result announcement in Aug. </li>
</ul>


Share price of Lonking Holdings (3339 HK) has seen muted reaction to weak industry figures recently but it is still unexciting in near-term, based on our catch-up with the company. 
It has underperformed industry sales volume in 5M22 across all product categories, with that for wheel loader behind 4pp and excavator by 10pp. Forklift sales were down 18% YoY. 
Both gross margin and investment income are set to contract in this year, making it highly likely to see significant earnings downgrade after 1H22 result announcement in Aug. 


Lonking (3339 HK): Not Out of the Woods Yet

China

Zoomlion Heavy Industry Science and Technology Co., Ltd.manufactures and markets construction machinery.  The Company's products include concrete machinery, cranes, road machinery, drilling equipment, and other heavy construction equipment.  Zoomlion also produces environmental machinery and satellite navigation products.

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Zoomlion Heavy Industry H (1157 HK)

Lonking (3339 HK): Setting the Stage for Better Profitability

Lonking expects 1H24 earnings to grow by 33-50% YoY, signaling a much stronger full-year performance than market consensus. Industry sales...

Osbert Tang, CFA

Lonking (3339 HK): Policy Tailwind

Government policy support and improving industry demand should drive a potential uptick in sales for Lonking in 2H24. Attractive valuations and a...

Osbert Tang, CFA

Lonking (3339 HK): Back to Attractive Zone

We turned bullish on Lonking on 17 Apr, and since then, the stock has performed well. It has just issued a positive profit alert with 91-158% YoY...

Osbert Tang, CFA

China Construction Machinery: Light at the End of the Tunnel, Finally

Industry sales of excavator and wheel loader have turned positve in Sep, after a lengthened depressed period since mid-2021. However, 2H22 earnings...

Osbert Tang, CFA

Lonking (3339 HK): Not Out of the Woods Yet

Lonking may disappoint the market by wide margin when it reports 1H22 result in Aug. Sales of its key product categories have been behind the...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Lonking (3339 HK): Setting the Stage for Better Profitability

​Lonking expects 1H24 earnings to grow by 33-50% YoY, signaling a much stronger full-year performance than market consensus. Industry sales...

Osbert Tang, CFA

Lonking (3339 HK): Policy Tailwind

Government policy support and improving industry demand should drive a potential uptick in sales for Lonking in 2H24. Attractive valuations and a...

Osbert Tang, CFA

Lonking (3339 HK): Back to Attractive Zone

We turned bullish on Lonking on 17 Apr, and since then, the stock has performed well. It has just issued a positive profit alert with 91-158% YoY...

Osbert Tang, CFA

China Construction Machinery: Light at the End of the Tunnel, Finally

Industry sales of excavator and wheel loader have turned positve in Sep, after a lengthened depressed period since mid-2021. However, 2H22 earnings...

Osbert Tang, CFA

Lonking (3339 HK): Not Out of the Woods Yet

Lonking may disappoint the market by wide margin when it reports 1H22 result in Aug. Sales of its key product categories have been behind the...

Osbert Tang, CFA

Lonking expects 1H24 earnings to grow by 33-50% YoY, signaling a much stronger full-year performance than market consensus. Industry sales...