Category Archives: Hong Kong Trading

Xiongan New Zone Hong Kong Stock Weekly Wrap

As mentioned in an earlier post,  at least 14 Hong Kong listed stocks showed a one day ramp up after the surprise announcement last weekend of a new economic zone, the Xiongan New Zone.

Xiongan New Area

Buoyed by the belief that this triangular area will be the next Shenzhen, at least 14 stocks moved sharply upwards on Monday in Hong Kong, following the weekend announcement.

For the week, 5 of the 14 stocks had a weekly change which resulted in a lower weekly move than that on the first day, indicating some rethinking of the over the top optimism on the relatively vague news.

econ zone upd1

econ zone upd2

The stellar performer was building materials and property owner and manager, BBMG 2009 HK.   The move on this large-cap,  industrial and real estate company was so unexpected that the company itself warned investors to be rational.   In the same announcement, it admitted to supplying about 60% of the cement output for the designated region.  Citi picked it as a winner in the new zone,  Credit Suisse raised it to Outperform, with a target price of 5.8hkd to 6.4 hkd, while Morgan Stanley removed it from its focus list, dropped it to Underweight, stating that cement regional sales would increase about 8%/year, giving the most benefits to Jidong Cement.  As I wrote here, BBMG’s financials and recent asset, liability and workforce increases make its future performance unpredictable.

The other big weekly movers, with the exception of Steel stock China Oriental, 581 hk, would need to show major financial improvement in the first quarter of 2017 since annual results showed either minimal revenue or operating net profit before taxes growth.

Tianjun Jinrun 1265

As shown above, Tianjin Jinrun, 1265 hk, utility company actually had a decline in revenues and a minimal increase in net profit.  Thanks to the weekly move, its now at a lofty 31.39 trailing p/e despite its 2016 revenue drop.
Tianjin Cap 1065.PNG

While sewage treatment utility company Tianjin Capital, 1065 hk, showed a substantial net profit growth of 36% in 2016, its revenue only increased by a little over 1%, indicating that other, non-core and more volatile items contributed to the increase.

Beijing N Star 588

Despite the real estate company’s Beijing N Star 588 hk, revenue increase of 37%, its gross profit increased by only 2.4%% and its net profit actually dropped by 6.8%. It’s doubtful that the first quarter will show much improvement, which could result in an immediate drop in the stock price after the first quarter’s earnings release.

China Oriental 581

The steel company China Oriental, 581 hk, had an impressive increase in net profit from 2015, which followed through with an increase in gross profit in terms of dollars and margins while operating income went from a loss to a profit.  While its trailing p/e is only 9.39, the stock has increased by 124% over the past year.

Kunlun Energy 135

Natural gas-related utility Kunlun Energy, 135 hk, although increasing over 10% last week to reflect a trailing p/e of 97, would need significant positive impact from the new area to justify its latest rise.

(All annual performance numbers taken from hk filngs.)

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China Anger with South Korea is Bad for Auto Stock BAIC

baic chart

China’s displeasure over South Korea’s move to allow the U.S to deploy the THAAD missile system on its territory is being felt by Hyundai.  Reports of lower production in China is bad news for BAIC 1958 hk, since Hyundai represents the largest portion of its unit sales.

BAIC hasn’t yet released its March sales. But year to date February sales and annual unit sales in 2016 indicate a large negative impact of a decline in Hyundai sales.

BAIC Jan Feb Sales.PNG

baic annual auto sales

BAIC closed down on 4/5/17 but hasn’t yet reported March sales. While it makes the biggest profit from its subsidiary, Beijing Benz, at 55% to 60% of its unit sales, a decline in Hyundai sales will hurt.

Auto Stocks Hong Kong Listed

 

Li Ka-Shing Digging Down Under

Three of 88 year old billionaires Li Ka-Shing’s companies approved a Joint Venture to buy Australia’s energy utility company, Duet, DUE ASX for $7.4 AUD ($5.5 USD).   The purchase, originally announced in November with a price rise in December, had already been approved by the Duet board but still has to get past Australian regulators. The involved companies are as follows: CKPH, 1113 HK, CKI, 1038 HK, PAH, 6 HK and Duet, DUE ASX.

Li Ka Shing Duet

Although Li Ka-Shing, his son and trust ownership had to abstain, given the percentage owned it’s not surprising the vote passed close to 100% for all three.

Li Ka Shing Ownership

Source: HK filing

The December 2016 offer of 3.00 AUD per share,  quickly bumped up the stock from its prior close of $2.35 to $2.71 and eventually to a peak of $2.92, but has since slid downward, with its year to date performance lagging that of the ASX 200.

Despite Li Ka-Shing’s assertions that the deal will pass the Foreign Investment Review Board, FIRB, his recent rejection to purchase a majority share in Ausgrid, owned by the New South Wales government, weighs on the stock price of DUE.

duet DUE stock

Stock Symbol DUE; Bloomberg

As to the Hong Kong stocks involved, only CKPH, the property holding stock, has come close to matching the Hang Seng’s rise.  For an interesting take on this, read the Bloomberg gadfly article.

Hong Kong and Mainland Stocks Continue to Rise

Thanks to Morgan Stanley and Goldman Sachs bullish notes on China, the Hang Seng and Shanghai composite continued their positive runs.  Goldman cited China economic growth as well as Xi’s incentive to keep things going well prior to the  19th Communist Party Congress in the fourth quarter of 2017.

HANG SENG SHANGHAI COMP

Data Source: Bloomberg

Practically all sectors were go for the Hang Seng, from banks to developers to consumer stocks.  The top 20 were as follows:

HANG SENG TOP 20

Data Source:  aastocks.com

Most Hang Seng stocks were up, with only 5 of the bottom 10 performers in negative territory.

HANG SENG BOTTOM 10

Data source: aastocks.com

 

China Bank Rally Takes A Breather

After a series of moves and reviews, the big 5 Chinese banks blasted upwards in February, outpacing the rocketing Hang Seng.  Over the past couple of days, however, they’ve retrenched.   If Morgan Stanley and Short trading interest are to be believed, this is a temporary reversal.

The banks include:

Name Acronym HK symbol
Industrial & Commercial Bank of China ICBC 1398
China Construction Bank CCB 939
Agricultural Bank of China ABC 1288
Bank of China BOC 3988
Bank of Communications BOCOM 3328

Despite rising Non performing loans, shrinking net interest margins and capital requirements, these banks have surpassed the rising Hang Seng thanks to interest rate rises, increased lending, China stimulus and PPI rises.

big-banks-rally-feb-2017

Timeline of positive factors:

1/24/2017 – Interest rates raised on medium term rates on loans.

2/03/2017 – Interest rates raised on short-term debt, reportedly in the interests of liquidity due to perceived resulting from the Chinese New Year.

2/14/2017 – Morgan Stanley published a bullish report on China Banks. Banks.

2/15/2017 – Bloomberg reported that options trading reacted positively to the bullish stance of Morgan Stanley on the big 4 banks, (all of banks listed above excluding BOCOM, which isn’t included in the  big 4).

None of these banks have reported annual earnings.  While earnings seasons has just about ended in the US, annual earnings reports for Hong Kong listed stocks are trickling in.  Regardless of the annual earnings, they won’t reflect the February 2017 change in interest rates and producer price inflation which Morgan Stanley reports.

Given the significant decline in short-term selling ratios for all but BOC, 3988 HK, the recent drop could signify a temporary drop versus a long-term decline.  At least for the short-term.

 

 

 

 

Index Changes HSI and HSCEI: In with the New, Out with the Old

Old Timers Li & Fung, 494 HK and Tsingtao Brewery, 168 HK  will be booted out of Hong Kong Indexes due to poor performance and or international dealings.  They’ll be replaced by home-grown Geely, 175 HK,  and infant IPO Postal Savings Bank, 1658 HK, favoring made in China and SOE investments, respectively.  The stock performance and market caps give a clue to the underlying reason but don’t explain it all.

hong-kong-index-changes

Data Source: Bloomberg

The mature, 50-member Hang Seng Index, HSI, loses Li & Fung, a member since 2000, as its profits and core earnings continue to drop.  It’s last reported interim statement showed a gross revenue drop of 6.4% and a core profit drop of 14.2%.  Li and Fung, a Wal-Mart and Marks and Spencer supplier, most recently reported getting 62% of its sales coming from the US.  It’s being replaced by Made In China and Sold in China: Geely Auto.  As Li and Fung’s stock has dropped, Geely has shot upwards, helping it achieve a market cap 3 times the size of veteran Li and Fung.  Geely’s sales climbed 50% in 2016, fueled by a 50% drop in the sales tax on cars with less than 1.6 liter engines.  While Geely’s annual sales climbed 50%, it reported on January 6, 2017 a preliminary profit climb of over 100%.

geely-annual-w

Geely has apparently kept the pedal to the metal with January year on year sales reported at an   annual increase of 71% although down 5.15% from December.  This increase is astounding, with the Lunar New Year starting in 2017 on Jan. 28 vs. 2016 in Feb. and Ford and GM both reporting yoy China drops of 24% and 32%, respectively, from HK filings.

geely-jan

As Home town Geely replaces exporter Li and Fung; Tsingtao Brewery, the first China incorporated  H-listed stock in history, is being removed from the younger Hang Seng China Enterprises Index, HSCEI; to be replaced by recent IPO Postal Savings Bank.  Tsingtao has faced declining sales; its last reported revenue drop of 5.3%.  However, perhaps more importantly, it has also been hit by rumors that Asahi Breweries of Japan is hoping to dump its 19.99% ownership interest. (The majority-holder of Tsingtao is Qingdao SASAC).  An index removal could reflect the  dissatisfaction of the effects of outside interests on Chinese companies.

The possible rationale for replacing Tsingtao  with Postal Savings Bank is more difficult  to explain than Geely replacing Li and Fung.  While Geely has been climbing, Postal Savings Bank has actually declined in price since its September IPO.  It’s first half report for 2016 was uninspiring, with loans increasing but net interest margin dropping significantly and a low core ratio.  It’s non-performing loan ratio of .78 is difficult to believe as world behemoth China’s Industrial and Commercial Bank,  1398 HK, ICBC, reported a npl ratio of 1.55 for the first ½ of 2016.  In the first half, ICBC had a capital adequacy ratio of 13.11 vs.  Postal Savings Bank’s first half CAR of 10.04% .

Postal Savings Bank had a less than spectacular IPO, heavily dependent upon its mostly majority state-owned cornerstone investors, which purchased over 75% of the offering.

Postal Cornerstone.PNG

 

 

Source: HK filings

*Acquisition Loans “may be” financed by SOE China Banks: China Construction Bank, 939 hk, Bank of Communications, 3328 hk, and Agricultural Bank of China, 1288 HK.
**One of 4 asset management firms set up in the 1990’s to deal with bad debt, related to the big 4 banks.  China Great Wall was linked with Agricultural Bank of China.

Rather than a strictly index-related move, the inclusion of Postal Bank could be more to the aid of those cornerstone investors,  which would face an expiration of their 6-month lock-up period close to the time of the index inclusion.  Whether this will give Postal the boost it needs remains to be seen.

 

 

 

 

 

Wanda Wins Thanks to No Shows

 

 

Wanda Final Vote

Dalian Wanda,  3699 HK,  won its fight to de-list, thanks to low voter turnout.  Wanda showed that it got more than the 75% votes needed to de-list its H-shares. The against votes were also less than the needed 10% to defeat. However, the “For” votes only represented 58% of the eligible Independent votes, which would have been well below the 75% needed assuming those absent voted either against or abstained.  The missing 217,357,004 of eligible voters represents a whopping 34% of the shares.  Makes you wonder why they didn’t vote.  No mail or internet?  No flights to Beijing? (Also makes me feel a little better about what I wrote here.)

The shares, which closed at 51.2 hkd prior to suspension on 8/16/2016, will resume trading on 8/16/16.  The offer price was 52.8, hkd.  Dalian Wanda will be filing for the listing withdrawal.  The H shares represented just 14.4% of the total shares of the company or about $4.4 Billion US of the $30.8 Billion US market cap based on the offer per share.  Of that $30.8 billion US, about $17 Billion US is currently owned by Jianlin Wang and Wanda directors.

Next Up: the A share listing.  The extension of the A share listing was approved by 99% of the total shares and will be pursued.

Current Ownership

Here are the owners as presented at the date of the meeting.

wanda a and h owners

i Ms. LIN Ning is the spouse of Mr. WANG Jianlin
.ii Mr. DING Benxi, Mr. QI Jie, Mr. ZHANG Lin and Mr. YIN Hai are directors of Dalian Wanda Group.Mr. LIU Zhaohui is a director of the Company and the vice president of Dalian Wanda Group.Mr. QU Dejun is a director of the Company and the president of a wholly-owned subsidiary of Dalian Wanda Group.
iii Dalian Wanda Group is controlled by Mr. WANG Jianlin through Dalian Hexing. which in turn controls approximately 99.76% of the voting rights in Dalian Wanda Group.The remaining 0.24% voting rights in Dalian Wanda Group is controlled by Mr. WANG Jianlin directly.
iv This includes the shareholding of one Director.In respect of the Domestic Shares, Mr. WANG Zhibin, an executive Director, held 1,600,000.Domestic Shares.In respect of the H Shares, Mr. QI Daqing, an independent non-executive Director, held 20,000 H Shares.
v CICC is the financial advisor to the Joint Offerors and relevant members of the CICC group
vi The limited partners of WD Knight VIII are PA Investment Funds SPC II and PA Investment Funds SPC III,and all the management shares.in both companies are owned by Ping An of China Securities (Hong Kong) Company Limited, a subsidiary of Ping An Insurance (Group) Company of China, Ltd.Certain group members of Ping An Insurance (Group) Company of China, Ltd, hold in aggregate 505,561 H Shares.All such H Shares are not proprietary interests of PA Investment Funds SPC II and PA Investment Funds SPC III,
vii One of the limited partners of WD Knight IX is Guotai Junan Finance (Hong Kong) Limited.Guotai Junan Securities (Hong Kong) Limited is a fellow subsidiary of Guotai Junan Finance (Hong Kong) Ltd.
viii All these Domestic Shareholders who hold H Shares have abstained from voting on the resolution in relation to Delisting in the EGM and in the H Share Class Meeting.
ix The percentage numbers of total Shares in issue in the above table add up to only 99.99% due to rounding
x This means H Shares held by the Independent H Shareholders, being H Shareholders other than theOfferers and persons acting in concert with any of them.Such Joint Offerors and persons acting in concert with any of them do not include relevant members of CICC.group, Ping An Insurance (Group) Company of China, Ltd., Guotai Junan Securities (Hong Kong) Limited whichholding of interests. H Shares are non-discretionary and not their proprietary owned.