Global Special Situations & Strategy, SR Services Ltd

David Lepper

Global Special Situations & Strategy

SR Services Ltd

SR Services provides Strategic Knowledge and Solutions services for Family Offices and Corporate Business. 

We deliver this via advisory services, strategic planning, opportunity analysis/sourcing, as well as solution implementation. 

Whilst, we create intellectual discipline and operational leverage for your projects or daily activities, our ultimate objective is to empower whilst enhancing your decision making. 

Strategic Knowledge and Solutions

Cross Asset Strategy

<ul>
<li>
Our Q3-2021 All Cap High-Risk screen of stocks produced a market-cap-weighted average price return of 2% and a simple average decline of 0.2%.</li>
<li>
Out of the 34 stocks that appeared in our Q3-2021 screen, 15 stocks saw an average share price decline of 11.5%, whilst 19 stocks appreciated on average by 14%. The two biggest declining stock  were down 25% and 19% respectively.</li>
<li>Our Q4 2021 screen, with 38 names (up from 34 seen in Q3 and Q2 2021) delivers an interesting composition this quarter, </li>
<li>
As in the previous few quarters, we anticipate the possibility of a risk of deteriorating credit metrics during the next few quarters: Q4 2021’s Altman Z score rests at 1.23, which is just up on Q3 2021’s level of 1.19.</li>
</ul>



Our Q3-2021 All Cap High-Risk screen of stocks produced a market-cap-weighted average price return of 2% and a simple average decline of 0.2%.

Out of the 34 stocks that appeared in our Q3-2021 screen, 15 stocks saw an average share price decline of 11.5%, whilst 19 stocks appreciated on average by 14%. The two biggest declining stock  were down 25% and 19% respectively.
Our Q4 2021 screen, with 38 names (up from 34 seen in Q3 and Q2 2021) delivers an interesting composition this quarter, 

As in the previous few quarters, we anticipate the possibility of a risk of deteriorating credit metrics during the next few quarters: Q4 2021’s Altman Z score rests at 1.23, which is just up on Q3 2021’s level of 1.19.


Screening the Silk Road: Q4 2021 High-Risk Names to Avoid

HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

While sales for excavators and wheel loaders are still seeing YoY decline of 9.2% and 11.5% for Jul, there is no further significant deterioration when compared with the pace in Jun. We think that part of the reasons for the slowdown in the last few months are high base effect, and the extreme weather situation and outbreak of local COVID-19 cases have both exacerbated the headwinds. Nonetheless, we see outlook for 2H21 to be more promising.Similarly, a high base for 2H21 comparison should be well-anticipated. However, the recent positive tone from the government on infrastructure investment and the potential acceleration in special purpose bond issuance should bode well for the industry and we continue to see <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> as well-placed. The encouraging new contract signed in 1H21 at <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a> also lent a helping hand to the demand, in our view.

While sales for excavators and wheel loaders are still seeing YoY decline of 9.2% and 11.5% for Jul, there is no further significant deterioration when compared with the pace in Jun. We think that part of the reasons for the slowdown in the last few months are high base effect, and the extreme weather situation and outbreak of local COVID-19 cases have both exacerbated the headwinds. Nonetheless, we see outlook for 2H21 to be more promising.Similarly, a high base for 2H21 comparison should be well-anticipated. However, the recent positive tone from the government on infrastructure investment and the potential acceleration in special purpose bond issuance should bode well for the industry and we continue to see Lonking Holdings (3339 HK) as well-placed. The encouraging new contract signed in 1H21 at China Communications Construction (1800 HK) also lent a helping hand to the demand, in our view.

China Construction Machinery: Better Trajectory for 2H21

Jan excavator and wheel loader sales surged 97.2% YoY and 52.4% YoY, respectively, kicking off the year with a solid momentum. While a low base has partly contributed to the surge, this is not the entire reason as we found underlying demand very encouraging. Domestic market maintained its strength, and export sales growth rate has also improved against Dec 2020. All in all, the initial figures point to a robust year in 2021.Commencement of massive infrastructure projects and good order book of engine and equipment suppliers suggest continuation of the impressive growth pace in 1H21. Despite an 18.8% rise in share price YTD, <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> is still trading on just 5.2x PER and an attractive 10.4% dividend yield for FY21F, and we see the stock stay appealing.

Jan excavator and wheel loader sales surged 97.2% YoY and 52.4% YoY, respectively, kicking off the year with a solid momentum. While a low base has partly contributed to the surge, this is not the entire reason as we found underlying demand very encouraging. Domestic market maintained its strength, and export sales growth rate has also improved against Dec 2020. All in all, the initial figures point to a robust year in 2021.Commencement of massive infrastructure projects and good order book of engine and equipment suppliers suggest continuation of the impressive growth pace in 1H21. Despite an 18.8% rise in share price YTD, Lonking Holdings (3339 HK) is still trading on just 5.2x PER and an attractive 10.4% dividend yield for FY21F, and we see the stock stay appealing. 

China Construction Machinery: An Excellent Start for a Sustained Uptrend in This Year

<div>
China's construction machinery industry concluded 2020 with very solid sales growth of 56.4% for excavators and 10.2% for wheel loaders in Dec. Even on the back of the COVID-19 disruption early in the year, full-year growth still reached 39% and 6%, respectively. While domestic sales continued to hover at high levels in the month, we witnessed a pick up in the export momentum in Dec versus Nov.
In our view, the solid demand growth will extend well into FY21 as overseas demand strengthens and domestic demand sustains their boost by infrastructure investments. We believe outlook for <a href="https://www.smartkarma.com/entities/sany-heavy-industry-co-ltd" target="_blank" data-smartkarma-citation="entities:20183:1" rel="noopener">Sany Heavy Industry (600031 CH)</a>, <a href="https://www.smartkarma.com/entities/xcmg-construction-machin-a" target="_blank" data-smartkarma-citation="entities:426:1" rel="noopener">Xcmg Construction Machin A (000425 CH)</a>, <a href="https://www.smartkarma.com/entities/zoomlion-heavy-industry-h" target="_blank" data-smartkarma-citation="entities:7817:1" rel="noopener">Zoomlion Heavy Industry H (1157 HK)</a> and <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> continue to be encouraging in 2021 after a marvelous 2020.
</div>


China's construction machinery industry concluded 2020 with very solid sales growth of 56.4% for excavators and 10.2% for wheel loaders in Dec. Even on the back of the COVID-19 disruption early in the year, full-year growth still reached 39% and 6%, respectively. While domestic sales continued to hover at high levels in the month, we witnessed a pick up in the export momentum in Dec versus Nov.
In our view, the solid demand growth will extend well into FY21 as overseas demand strengthens and domestic demand sustains their boost by infrastructure investments. We believe outlook for Sany Heavy Industry (600031 CH), Xcmg Construction Machin A (000425 CH), Zoomlion Heavy Industry H (1157 HK) and Lonking Holdings (3339 HK) continue to be encouraging in 2021 after a marvelous 2020.


China Construction Machinery: Good to the Last Drop

Managing Director

Elan Gore

TMI Data Science

TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade & traditional media.  Our proprietary software, TMI Machine, is a text-mining platform designed with the buy-side & capital markets professional in mind, text-mining the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income & individual equities.  TMI provides custom leading indicators and systematic trading strategies, operating at the nexus of linguistics & statistics drawing on vast experience in investment banking and hedge fund settings in senior quantitative and fundamental roles.  

TMI Data Science was founded by Elan Gore, an award-winning Senior Global Basic Materials Equity Analyst & China Economist with 15 years of experience in North American hedge funds & institutional managers; and Alessandro Porrino, Ph.D., an Algorithmic Trading Analyst and Programmer with 10 years of front-office experience ranging from complex FX option pricing to auto-hedging strategies at Bank of America Merrill Lynch and Standard Chartered.  Mr. Gore holds an MBA in Finance from New York University Stern School of Business, and Mr. Porrino holds a Ph.D. in Systems Engineering from Brunel University London.

<ul>
<li>In the first week of 2021, TMI's machinery sentiment indicators hit their highest levels since pre-pandemic readings, attributed to recent bullish commentary from the likes of Sany Heavy, Hengli Hydraulic, Zoomlion and the CCMA (China Construction Machinery Association); the indicators have been strongly correlated with <a href="https://www.smartkarma.com/entities/caterpillar-inc" target="_blank" data-smartkarma-citation="entities:697:1" rel="noopener">Caterpillar Inc (CAT US)</a> , <a href="https://www.smartkarma.com/entities/komatsu-ltd" target="_blank" data-smartkarma-citation="entities:8416:1" rel="noopener">Komatsu Ltd (6301 JP)</a> &amp; <a href="https://www.smartkarma.com/entities/zoomlion-heavy-industry-h" target="_blank" data-smartkarma-citation="entities:7817:1" rel="noopener">Zoomlion Heavy Industry H (1157 HK) </a> with a slight lead</li>
<li>On Friday, Komatsu reported Komtrax equipment utilization data for December, highlighting sharply stronger average hours of machinery use Y/Y comps in key jurisdictions</li>
<li>The CCMA recently pointed out that Chinese OEMs expect 2021 demand to range from high single-digits to 15% Y/Y while the association expects a range of 8-10% supported by continued robust infrastructure FAI</li>
<li>Komatsu's European data indicates potential positive surprise with a second month of +4% Y/Y growth, despite weaker EU Construction PMI readings throughout Q4</li>
<li>US data also highlights a first positive utilization comp in over a year, despite still-tentative construction spending data and slippage in the ABI index</li>
<li>Japanese machinery utilization also bounced back in December to its best Y/Y comp in more than a year, with elevated public sector construction in progress and a potential inflection in housing starts</li>
<li>Given such a robust starting point for 2021, markets are more likely to look through seasonal air pockets going into Spring</li>
</ul>


In the first week of 2021, TMI's machinery sentiment indicators hit their highest levels since pre-pandemic readings, attributed to recent bullish commentary from the likes of Sany Heavy, Hengli Hydraulic, Zoomlion and the CCMA (China Construction Machinery Association); the indicators have been strongly correlated with Caterpillar Inc (CAT US) , Komatsu Ltd (6301 JP) &amp; Zoomlion Heavy Industry H (1157 HK)  with a slight lead
On Friday, Komatsu reported Komtrax equipment utilization data for December, highlighting sharply stronger average hours of machinery use Y/Y comps in key jurisdictions
The CCMA recently pointed out that Chinese OEMs expect 2021 demand to range from high single-digits to 15% Y/Y while the association expects a range of 8-10% supported by continued robust infrastructure FAI
Komatsu's European data indicates potential positive surprise with a second month of +4% Y/Y growth, despite weaker EU Construction PMI readings throughout Q4
US data also highlights a first positive utilization comp in over a year, despite still-tentative construction spending data and slippage in the ABI index
Japanese machinery utilization also bounced back in December to its best Y/Y comp in more than a year, with elevated public sector construction in progress and a potential inflection in housing starts
Given such a robust starting point for 2021, markets are more likely to look through seasonal air pockets going into Spring


TMI Snapshot: Machinery Sentiment at Pre-COVID High as Komtrax Data Shows Synchronized Global Surge

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 S A (000157 CH)

Screening the Silk Road: Q4 2021 High-Risk Names to Avoid

As we move through into Q1 2022, we expect to see volatility around highly priced & leveraged names. This screen is a key starting point towards...

David Lepper

China Construction Machinery: Better Trajectory for 2H21

We are positive on the 2H21 outlook of construction machinery industry, driven by potential accelaration in China's infrastructure spending and...

Osbert Tang, CFA

China Construction Machinery: An Excellent Start for a Sustained Uptrend in This Year

Excavator and wheel loader sales growth rates reached a monthly high in Jan since Jan-2018, suggesting excellent demand momentum. Lonking is an...

Osbert Tang, CFA

China Construction Machinery: Good to the Last Drop

Strong unit sales of excavators (+56.4%) and wheel loaders (+10.2%) in Dec and recovery in export momentum suggested a positive trend for the start...

Osbert Tang, CFA

TMI Snapshot: Machinery Sentiment at Pre-COVID High as Komtrax Data Shows Synchronized Global Surge

TMI's Machinery Sentiment Indicators are now back to pre-pandemic levels, while Komatsu's Friday release of Komtrax machinery utilization hours...

Elan Gore

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