Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: Yangzijiang Shipbuilding, NIO Inc, CPMC Holdings, Bank of Chongqing Co Ltd H, PTT Global Chemical, CJ Logistics, Global Green Chemicals and more

In today’s briefing:

  • Yangzijiang – Happy New Year: Give Us Back Our Stock Or We Will Pay You A Dividend
  • NIO: NIO Day Unveils Downside Risks
  • CPMC Holdings (906 HK): An Attractive Inexpensive Alternative Consumption Play
  • Bank of Chongqing: Robust Trends and Cheap Valuation Characterise Chongqing
  • PTTGC: Expect Strong Recovery in 4Q20 Earnings
  • CJ Logistics: Still Lacking Focus, Still Unlikely to Reach 6,000+ EPS Any Time Soon
  • GGC: Benefits from an Increase in Palm Price


NIO: NIO Day Unveils Downside Risks

By Victoria Li

We see more risks to the NIO story from the information given NIO Day on 9th Jan. Sooner rather than later, NIO’s monthly car delivery would be overtaken by Xpeng and Li Auto – and that would be the start point of its share performance weakness.

NIO has no new car model this year. This would be a risk to the company’s market share, while Tesla Shanghai’s Model Y and Xpeng P5 would definitely gain market share.

eT7, the first sedan of NIO to be delivered in 1Q2021, is almost twice as expensive as Xpeng P7, with very close performance and looks. This makes eT7 difficult to have big sales volume.

Promised solid-state battery with1000km NEDC range is still under R&D and  would not come until 4Q2020. NIO cars NEDC range would remain shorter than its peers for at least another two years.

What exactly NAD could do is unclear. Only information about NAD is that the hardware employed would have 7 times TOPs as Tesla’s. While Xpeng’s navigated autopilot (NGP) is coming in 1Q2021 with great feedback on its trial version.

Second generation battery swap station doubled battery capacity, but the overall station network build-up would remain behind original schedule.


CPMC Holdings (906 HK): An Attractive Inexpensive Alternative Consumption Play

By Osbert Tang, CFA

We believe CPMC Holdings (906 HK) is an attractive alternative consumption play given its exposure to the rise in demand for food, beverages and household chemical product packaging in China. It is among the top player in China’s packaging manufacturing (1-piece cans, 2-piece cans, tinplate packaging and plastic containers) with prominent customer profile including Coca-Cola, Tsingtao, Carlsberg, Blue Moon, Feihe, Yili and Jiaduobao etc. 

The combination of margin expansion, capacity growth and surging consumption demand, we expect CPMC to post a steady rising ROE. We expect special DPS payout on the receipt of Rmb1.5bn repurchase consideration from JDB settlement, and this will place its dividend yield at least at 7.8%. Its 8.9x PER and 0.69x P/B represent deep discounts to its customers (40x PER) and packaging peers (23.4x) which are unjustified in our view.


Bank of Chongqing: Robust Trends and Cheap Valuation Characterise Chongqing

By Paul Hollingworth

As is often cited, China maintains certain advantages over other parts of the world regarding the terrible weight of C19 that is so devastating other parts of the globe and in relation to the interrelated current macro picture.

Bank Of Chongqing Co Ltd H (1963 HK)has been expanding its business well in recent years, whether it be Corporate, SME, Consumer, Trade Finance, Capital Markets, or Financial Leasing. Management is fortifying the application of financial technologies, with the online loan business growing fast, while deposits are growing forcefully. Balance Sheet expansion is broadly in line with the System. In addition, the Bank has strengthened governance, and put in place a mechanism for online tracking of asset quality and a risk monitoring system that combines micro and macro aspects. Management has beefed up risk control tools, advanced post-loan online service and the online management of credit authorisation and inquiry, and promoted the tools used to expand the credit business. Fintech innovation is centred on 5G, AI, blockchain and other technologies through lean management robots, remote banks, intelligent WAN and integrated operation and maintenance projects.

Recent results show positive fundamental momentum and trends with clear improvement in Efficiency, NIM and Spread, as well as better headline Asset Quality, Liquidity and Provisioning. Given the increase in LLPs, Profitability though eroded slightly while Capital Adequacy deteriorated somewhat. Growth in “Core Income” was robust, especially in Net Interest Income, spurred by lower Funding Costs and System-like credit expansion of 13% YoY.

A FV of 4%, a PBV of 0.37x, an Earnings Yield of 30.7%, a Dividend Yield of 5.3%, and a Total Return Ratio of 6x are highly attractive. The bank commands both a top quartile PH Score™ and VFM ranking. Chongqing is also a “3 year off, 1 year on” stock.


PTTGC: Expect Strong Recovery in 4Q20 Earnings

By Research Group at Country Group Securities

We reiterate our ‘BUY’ rating with the upgraded target price to Bt75.0 (from Bt56.5), derived from 1.2xPBV’21E which is equal to its 10 year average trading.

• We expect PTTGC to report a strong earnings momentum in 4Q20 on the back of recovered spread in overall value chain and sales volume growth QoQ.
• Besides petrochemical recovery, the company will realize new PO/Polyols capacity in 1Q21 (+10% capacity) and low turnaround during 1H21.
• HDPE spread has reversed to its 5-year average at US$592/ton (+100%YoY, +13%QoQ) in 4Q20 and we expect it to remain high during Chinese New Year.
• Gasoline and diesel inventory has been falling since 3Q20, supporting GRM recovery in 2021.

CJ Logistics: Still Lacking Focus, Still Unlikely to Reach 6,000+ EPS Any Time Soon

By Daniel Hellberg

It’s been a long time since we looked at and wrote about CJ Logistics (000120 KS). In a note we published here way back in June 2017, we said it was highly unlikely CJ Logistics would see the margin improvement needed to hit analysts’ consensus forecast of 6,400 won per share in 2018.

Specifically, we doubted that higher margins would be driven by growth of the company’s Global segment, which includes CJ’s international freight forwarding business and several overseas logistics units CJ had acquired in an effort to create a “Pan-Asian Logistics Network”.

Since we last wrote about the company, CJ Logistics has apparently abandoned its push to become a major player in logistics outside of Korea, focusing instead on a disparate list of domestic initiatives. Overall profitability remains similar to depressed levels from 3-4 years ago. 

Since we last tracked them, CJ Logistics’ shares haven’t performed well: they’re down about 24% compared to their 5-year high reached in mid-2016, though like many stocks they have risen from depressed Q120 levels. Unless CJ Logistics can articulate a winning long-term strategy, and then show consistent progress towards executing it successfully, we would avoid the shares. 


GGC: Benefits from an Increase in Palm Price

By Research Group at Country Group Securities

We reiterate our BUY rating with the target price at Bt10.9, derived from 1.1xPBV’21E which is equal Asia-ex Japan material sector.

• We expect GGC to show a strong core earnings at roughly Bt150-200m in 4Q20E, supported by growing sales volume and improved B100 margin.
• Meanwhile, we foresee a mild recovery to continue in 1Q21, backed by rising CPO price and new glycerine capacity (+3% capacity)(COD in December).
• We expect CPO and biodiesel price to remain at high level until 1Q21, due to low CPO inventory in regional market and recovered demand.

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