ChinaDaily Briefs

China: Haier Electronics Group Co, Chindata, Sinotrans, Zoomlion Heavy Industry H and more

By September 14, 2020 No Comments

In today’s briefing:

  • Haier (1169 HK): Back To Entry Levels
  • Chindata Group IPO Initiation: Where the Cloud Meets the Ground
  • Sinotrans (598 HK): A REIT Perspective
  • Zoomlion (1157.HK): Time to Switch from Sany into Zoomlion

Haier (1169 HK): Back To Entry Levels

By David Blennerhassett

On the 31 July, Haier Electronics Group Co (1169 HK) (HEG) announced a pre-conditional Scheme such that HEG shareholder will receive 1.6 new Haier Smart Home (600690 CH) (HSH) H shares plus HK$1.95 in cash. 

The pre-condition concerned approval from HSH’s shareholders and CSRC approval. The pre-conditions were fulfilled on the 1 September. The next step in this process is for HEG shareholders to vote on the Scheme. The despatch of the Scheme Doc has now been extended to the 30 November, from 4 September previously.

 A 632-page Application Proof for the listing of HSH H-shares has now been lodged. This will be a listing by introduction.

The question at the time of the Scheme announcement, as it is now – is where will the HSH (as yet unlisted) H-shares trade with respect to the HSH A-shares? 

An independent valuer backed out an indicative value under the Scheme of HK$31.11-HK$31.90 – or $31.51 at the mid-point. However, this was just a valuer’s opinion. There is no guarantee this is where the Hs will trade. 

The market is assigning around a 37% discount (HSH Hs vs. HSH As). Relative to a basket of liquid A/Hs and listed A/H peers, this is a level to get involved.

More below the fold.

Chindata Group IPO Initiation: Where the Cloud Meets the Ground

By Arun George

Chindata (CD US) is a data centre operator. It is the largest carrier-neutral hyperscale data centre operator in Asia-Pacific emerging markets as measured by capacity in service, with 21.5% market share out of a total market size of 829 MW, according to Frost & Sullivan. Chindata is backed by Bain Capital (57.17% shareholder), APG Strategic Real Estate Pool/Dutch pension funds (10.43%) and SK Holdings (034730 KS) (8.94%). It is seeking to raise up to $800 million (primary and secondary sale) through a Nasdaq IPO, according to press reports. 

The Asia-Pacific hyperscale data centre market is a structural growth market in part due to the increasing prevalence of outsourcing data centre services, rising client demand for higher power density and scalability, and increasing compliance and regulatory requirements on data security. Overall, we think that Chindata is an attractive play on these favourable market dynamics. 

Sinotrans (598 HK): A REIT Perspective

By Osbert Tang, CFA

We look at Sinotrans (598 HK) from the infrastructure REIT perspective given its numerous storage and logistics assets spreading all over China. At end-1H20, it owns over 10m sq.m. of land and over 4m sq.m. of warehouses/logistics centres with a total book cost of Rmb19.6bn. We believe these are significant assets for repackaging into a REIT to allow it to realise their underlying values.

Based on our assumptions, we estimate that a REIT issuance backed by its logistics assets will be able to boost its market cap by at least 16.5%. Moreover, this is only a conservative estimate as we think that the H-share will benefit more than the A-share. Moreover, Sinotrans can take this opportunity to cash in on these assets partially for funding its future investment in logistics infrastructure.  

Zoomlion (1157.HK): Time to Switch from Sany into Zoomlion

By Victoria Li

YTD, Zoomlion’s share price is up 18%, but has lagged  Sany Heavy’s (600031.CH) 35% and its own A-share’s 19.8%.  We believe this has happened mainly due to Zoomlion’s relatively lagging earrings recovery since 2018. 

However, as we expected, Zoomlion’s earnings recovery accelerated in 2Q2020 with market demand moving onwards to late cycle products. In 2Q2020, Zoomlion reported a 90% yoy growth of net profit, vs. 78% yoy growth of Sany’s.

Moreover, Zoomlion plans to use most of the proceeds from A-share private placement on excavator and related components. It plans to gain market share in excavators and targets to be one of Top 5 suppliers in 5 years. As we’ve seen, local excavator brands successfully gained market shares from global leaders in the past few years and improved sector concentration. This strengthens our conviction that Zoomlion’s excavators would take some market share from smaller players and this will be an earnings driver in the next few years.

We believe Zoomlion would outperform Sany Heavy in 2H2020, especially after A-share placement adjustment.

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