HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>The recent surge in Eurozone sovereign yields, particularly for France, has created pressure on the outlook for some HK-listed companies. </li>
<li>While the 100 largest companies generated an average of only 6% of revenue from Europe, 10 companies derived over 20%.</li>
<li>
<a href="https://www.smartkarma.com/entities/ck-hutchison-holdings-ltd" target="_blank" data-smartkarma-citation="entities:132:1" rel="noopener">CK Hutchison (1 HK)</a> group, <a href="https://www.smartkarma.com/entities/shein-global-holdings-limited" target="_blank" data-smartkarma-citation="entities:55372:1" rel="noopener">SHEIN Global (625 HK)</a>, <a href="https://www.smartkarma.com/entities/xiaomi-corporation-class-b" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi (1810 HK)</a>, <a href="https://www.smartkarma.com/entities/lenovo-group-limited" target="_blank" data-smartkarma-citation="entities:13359:1" rel="noopener">Lenovo (992 HK)</a>, <a href="https://www.smartkarma.com/entities/wuxi-biologics-cayman-inc" target="_blank" data-smartkarma-citation="entities:23679:1" rel="noopener">Wuxi Biologics (2269 HK)</a> group, and <a href="https://www.smartkarma.com/entities/cosco-shipping-holdings-co-ltd-class-h" target="_blank" data-smartkarma-citation="entities:286:1" rel="noopener">COSCO SHIPPING Holdings (1919 HK)</a> are the top. </li>
</ul>


The recent surge in Eurozone sovereign yields, particularly for France, has created pressure on the outlook for some HK-listed companies. 
While the 100 largest companies generated an average of only 6% of revenue from Europe, 10 companies derived over 20%.

CK Hutchison (1 HK) group, SHEIN Global (625 HK), Xiaomi (1810 HK), Lenovo (992 HK), Wuxi Biologics (2269 HK) group, and COSCO SHIPPING Holdings (1919 HK) are the top. 


HK Strategy: Exposure to Europe - Who Are at Risk?

Equity Bottom-Up

Sa Sa International Holdings Limited is a leading beauty product retailing group in Asia, engaged in the retail and wholesale of cosmetic products. The company offers a wide range of skincare, fragrance, make-up, body care, hair care, inner beauty, personal care, health and fitness products, and beauty equipment through its retail stores and e-commerce platforms. Sa Sa was founded in 1978 and is headquartered in Chai Wan, Hong Kong.

<ul>
<li>
<a href="https://www.smartkarma.com/entities/sa-sa-international-holdings-limited" target="_blank" data-smartkarma-citation="entities:20143:1" rel="noopener">Sa Sa (178 HK)</a>'s positive profit alert suggests net profit will reach HK$150m in 1H FY26/27, equaling a 2x YoY increase, ahead of the consensus. </li>
<li>2H net profit has been historically better than 1H, meaning the market's full-year forecast of HK$277m provides room for an upgrade. The Jul retail sales trend also supports this.</li>
<li>Despite a 106% YTD rally, its 2.7x 12-month P/B is only slightly above average. With an ROE of 21-24% and net cash of HK$0.16, valuations remain not stretched.</li>
</ul>



Sa Sa (178 HK)'s positive profit alert suggests net profit will reach HK$150m in 1H FY26/27, equaling a 2x YoY increase, ahead of the consensus. 
2H net profit has been historically better than 1H, meaning the market's full-year forecast of HK$277m provides room for an upgrade. The Jul retail sales trend also supports this.
Despite a 106% YTD rally, its 2.7x 12-month P/B is only slightly above average. With an ROE of 21-24% and net cash of HK$0.16, valuations remain not stretched.


Equity Capital Markets

Shenzhen Transsion Holdings / Equity Capital Markets

Shenzhen Transsion Holdings Co., Ltd. manufactures and distributes communication devices. The Company produces mobile phones and phone accessories. Shenzhen Transsion Holdings markets products in China, Africa, and other countries and regions.

<ul>
<li>The H-share IPO of <a href="https://www.smartkarma.com/entities/shenzhen-transsion-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:58740:1" rel="noopener">Shenzhen Transsion Holdings (2636 HK)</a>, a smart device and mobile Internet service provider, appears to provide some upside at the maximum IPO price.</li>
<li>Its earnings have recovered sharply in 1H26, and for FY25-28F, it is expected to achieve an EPS CAGR of 30.2% as it expands its market and products.</li>
<li>We value it at 12.5x FY26 PER, 10% discount to <a href="https://www.smartkarma.com/entities/tcl-electronics-holdings-limited" target="_blank" data-smartkarma-citation="entities:15654:1" rel="noopener">TCL Electronics (1070 HK)</a>, implying a fair price of HK$43.73, or 12.7% upside.  </li>
</ul>


The H-share IPO of Shenzhen Transsion Holdings (2636 HK), a smart device and mobile Internet service provider, appears to provide some upside at the maximum IPO price.
Its earnings have recovered sharply in 1H26, and for FY25-28F, it is expected to achieve an EPS CAGR of 30.2% as it expands its market and products.
We value it at 12.5x FY26 PER, 10% discount to TCL Electronics (1070 HK), implying a fair price of HK$43.73, or 12.7% upside.  


Shenzhen Transsion (2636 HK) IPO: Still Some Upside

<ul>
<li>With the US$ rate likely to trend higher over the next 12 months, 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> constituent stocks with high gearing will be exposed. </li>
<li>
<a href="https://www.smartkarma.com/entities/hong-kong-china-gas-co-ltd" target="_blank" data-smartkarma-citation="entities:375:1" rel="noopener">Hong Kong and China Gas (3 HK)</a> and <a href="https://www.smartkarma.com/entities/clp-holdings-limited" target="_blank" data-smartkarma-citation="entities:14433:1" rel="noopener">CLP (2 HK)</a> are on top of the list, given their leveraged balance sheet and relatively high proportion of floating-rate debt.</li>
<li>
<a href="https://www.smartkarma.com/entities/wharf-real-estate-investment-company-limited" target="_blank" data-smartkarma-citation="entities:26031:1" rel="noopener">Wharf Real Estate (1997 HK)</a>, <a href="https://www.smartkarma.com/entities/henderson-land-development-co-ltd" target="_blank" data-smartkarma-citation="entities:376:1" rel="noopener">Henderson Land Development (12 HK)</a>, and <a href="https://www.smartkarma.com/entities/sun-hung-kai-properties-limited" target="_blank" data-smartkarma-citation="entities:111:1" rel="noopener">Sun Hung Kai Properties (16 HK)</a> have lots of floating-rate debt, but their gearing levels are low.  </li>
</ul>


With the US$ rate likely to trend higher over the next 12 months, the Hang Seng Index (HSI INDEX) constituent stocks with high gearing will be exposed. 

Hong Kong and China Gas (3 HK) and CLP (2 HK) are on top of the list, given their leveraged balance sheet and relatively high proportion of floating-rate debt.

Wharf Real Estate (1997 HK), Henderson Land Development (12 HK), and Sun Hung Kai Properties (16 HK) have lots of floating-rate debt, but their gearing levels are low.  


HK Strategy: Rate Hike Exposure - Fixed & Floating Rate Debt Analysis

COSCO SHIPPING Energy Transportation / Equity Bottom-Up

COSCO SHIPPING Energy Transportation is a specialized company primarily engaged in the global shipment of energy, including crude oil, refined oil products, liquefied natural gas (LNG), and liquefied petroleum gas (LPG). It also provides vessel chartering and shipping agency services. The company is headquartered in Shanghai, China, and was established in 2016.

COSCO SHIPPING Energy Transportation (1138 HK)

<ul>
<li>With spot VLCC rates at U$1.26m/day, the market has significantly underestimated the net profit for <a href="https://www.smartkarma.com/entities/cosco-shipping-energy-transportation-co-ltd-class-h" target="_blank" data-smartkarma-citation="entities:646:1" rel="noopener">COSCO SHIPPING Energy Transportation (1138 HK)</a> in 2H26. </li>
<li>The upcoming 3Q26 results announcement by end-Oct is likely to be a blowout, providing a positive surprise and leading to meaningful earnings upgrades. </li>
<li>At 24.5% FY26F ROE, its 12-month forward P/B of 1.64x is not stretched. Also, its decline in gearing from 77.4% in FY24 to 16% in FY27F justifies a higher P/B.   </li>
</ul>


With spot VLCC rates at U$1.26m/day, the market has significantly underestimated the net profit for COSCO SHIPPING Energy Transportation (1138 HK) in 2H26. 
The upcoming 3Q26 results announcement by end-Oct is likely to be a blowout, providing a positive surprise and leading to meaningful earnings upgrades. 
At 24.5% FY26F ROE, its 12-month forward P/B of 1.64x is not stretched. Also, its decline in gearing from 77.4% in FY24 to 16% in FY27F justifies a higher P/B.   


COSCO Shipping Energy (1138 HK): Skyrocketing

Osbert Tang is an equity analyst with over 20 years of experience with focuses on China transport, infrastructure, industrials and utilities sectors. He has been based in Shanghai since 2003, accumulated nearly 20 years of on-ground knowledge on the Chinese economy and financial markets, and has a wealth of contacts with China corporates and government entities. 

Osbert has received votes from top-tier institutional investors and has been a highly-ranked transport and infrastructure analyst in the Asiamoney, Institutional Investors and Greenwich surveys. In addition to his extensive experience with international investment banks including RBS, ABN AMRO (both served as Shanghai Chief Representative), Paribas Asia Equity, Maybank Kim Eng and DBS Securities, he has been a senior analyst with Moody’s Investors Service with focus on ratings of China infrastructure and related LGFV issuers. He has also worked in the area of strategic development at Sun Hung Kai Properties Limited. 

Osbert holds a BBA from the Chinese University of Hong Kong, an MBA from the University of Texas at Austin and a MSSc in Applied Psychology from the City University of Hong Kong. He was accredited with the CFA charter in 1997, and is a member of both British Psychological Society and Hong Kong Psychological Society.