CMBI Research China & Hong Kong Stock Picks (June 2024)
Is China running out of dollars? Plus United Energy Group, Xiaomi, Proya Cosmetics, Prudential PLC, Haidilao, Cafe De Coral, Nio, Ke Holdings, Haier Smart Home, GigaCloud, Li Auto, etc.
CMB International Capital Corporation is a wholly owned subsidiary of China Merchants Bank (SHA: 600036 / HKG: 3968 / OTCMKTS: CIHKY / OTCMKTS: CIHHF) - one of the largest banking groups and the largest privately-owned bank in China. They come out with (and post on their website) a steady stream of free research pieces - namely China and Hong Kong stock picks (see our front page for a full list of TAGS for our EM Stock Pick Tear Sheets)
Stocks covered during the month of June and in this post include:
United Energy Group, Xiaomi Corp, Bosideng International Holdings, Proya Cosmetics, BOE Varitronix, Q Technology (Group) Company, Prudential PLC, FIT Hon Teng, Sunny Optical, Haidilao International Holding, Kuaishou Technology, Innovent Biologics, Cafe De Coral, Zhihu Inc, ImmuneOnco Biopharmaceuticals (Shanghai), Meituan, NIO Inc, Sichuan Kelun-Biotech Biopharmaceutical, Dingdang Health Technology Group Ltd & Ke Holdings
They also come out with (and post on their website) a monthly list of 20+ high conviction stock ideas - namely Chinese stock picks (see our May, June, July, August, September, October, November, December, January-February, March, April & May posts summarizing those) BUT these lists do not change too much from month to month. Stocks covered by the CMBI June list (including Additions and Deletions) and included in this post with updated stats and charts include:
Li Auto, Geely Automobile Holdings, Xtep, Zoomlion Heavy Industry, Zhejiang Dingli Machinery, JNBY Design, Haier Smart Home, Vesync, Kweichow Moutai, BeiGene, Shenzhen Mindray Bio-Medical Electronics, PICC Property and Casualty Co Ltd, Tencent, Alibaba, Pinduoduo, Amazon.com, Netflix, Kuaishou Technology, GigaCloud Technology, CR Land, FIT Hon Teng, Xiaomi Corp, BYD Electronic International Co Ltd, Zhongji Innolight Co Ltd, NAURA Technology Group & Kingdee International Software
Zero Hedge recently published this thought provoking series on China albeit its not clear who exactly the author GeoVest is (some of the points raised reminds me of the writings about China on the General Crisis Watch Substack):
📰 Has China Run Out of Dollars? (Zero Hedge) June 2024 🗃️
My thesis is that China has made so many bad dollar-denominated loans that their true net holdings of dollars is either negative or close to going negative. And based on watching how China operates for 30 years, I believe they may be supplementing their currency reserve account with yuan, which has technically been a reserve currency since 2016.
The biggest problem for China, by far, is the fact that contract manufacturing is migrating out of China and with it, China’s biggest source of dollars in trade. The once bustling cities of Shenzhen, Dongguan, Guangzhou, and Hangzhou are starting to resemble Detroit with empty factories and apartment buildings. The private owners of these factories are closing their doors because there are insufficient orders from foreign buyers. The ones that do keep the lights on are forced to price at the margin and often finance the orders themselves. We normally see this kind of activity in companies that are close to bankruptcy where they are simply generating cash flow to make it to next month.
The political class wants you to ignore what I believe is obvious and potentially contagious. I believe China is close to running out of dollars and when it happens, we’re going to see scarcity in the Eurodollar markets along with financial insolvency far worse than 2008.
Note: Tom Luongo’s GOLD GOATS 'N GUNS website and podcast often delves into the intricacies of how the Eurodollar market works, what Powell’s policies are doing to it (apparently draining it…), etc.
This was an interesting reader comment (bold is mine):
Personal anecdotal data point to suggest this article is totally correct:
I lived in China for years, up until recently. Whenever I wanted to convert from the RMB I was making to USD to send it out of the country, it was expressly made as difficult as possible. Not just capital controls, but daily, monthly, and yearly limits, both for foreigners and citizens. They absolutely did not want to give me any dollars for my RMB. I couldn't understand why then. I do now. They are USD poor. It ironic but the US is trying to starve the foreign markets of dollars to prevent a flood of those same dollars from returning home to the US and destroying the economy even more through massive inflation. That's also why the USD has been strenghtening relative to many other currencies.
And from a different reader (bold is mine):
Congrats ZH! You finally posted from somebody who understands how the global euro-dollar system works. You used to post from Jeff Snider [@JeffSnider_EDU - Host Eurodollar University channel] years ago, but, well...anyway, China selling US treasuries isn't china saying, "**** you America". What it's actually saying is, "**** me, we pissed away our massive tradesurplusonfasttrainsthatnobodyridesandextraapartmentsthatcanhouseatotalof3blnpeople,andwestillhaveallthese loans we need to pay off!"
Here is part 2 of the series:
📰 China v Dollar II - Impact on Eurodollar Market (Zero Hedge) June 2024 🗃️
Can deflation in Eurodollars and inflation in domestic dollars happen concurrently? It's happening.
Since Eurodollar deposits are lightly regulated, banks and funds have been able to invest those dollars aggressively into emerging economies. The bald truth is that the Eurodollar market built China and now China is in the process of destroying the Eurodollar thanks to ridiculously bad investing. Once a bad investment is written down to salvage value, the difference between the face value of the loan and the salvage value deflates bank assets.
This was an interesting reader observation (although another reader accurately pointed out that “there is nothing low-end about China's manufacturing…”):
"Xi Jinping is reputed to believe that he can use this gold to turn the world into a Communist state with China at the top. It’s not going to happen. It takes more than gold and low-end manufacturing to be the Global Alpha."
precisely correct.
and in addition, gold simply cannot support modern trade velocity - a gold standard will result in a 19th century volume of world-wide trade, which will collapse both the u.s. and china.
Here’s the last instalment:
📰 China v Dollars III - The Future of China (Zero Hedge) June 2024 🗃️
China's problems are far deeper than just excess debt and a deflating housing stock.
The government’s response has been a series of bad McKinsey presentations based on Xi’s scattered thoughts on the subject. First, they were going to centralize industries to create “super competitors” that enjoy channel leverage in international markets, then they were going to throw billions of yuan at semiconductors/solar panels/lithium batteries, etc. to lead the global green revolution. The only thing Xi hasn’t tried is getting out of the way and trusting the Chinese people.
This reader comment about the whole series is worth noting (bold is mine):
That is the best series I have read on China. I have followed China closely for 20 years now as it became such a powerful force in globalism.
I would equate China to the US dollar as one of the tallest midgets in the room. There are no truly well run nations anymore. The EU being the worst with its NetZero and Ukrainian adventurism causing serious deindustrialization.
Russia is a mess too but probably the best man in the game now. This can be attributed to the hardship of sanctions and existential destruction desired by the globalist. It is also because Putin is probably the most competent stateman at the moment.
This points more to systematic decline than a future of hegemony for China. I suspect globalism will bifurcate rapidly in just a few short years. This will hammer China and the US dramatically because of how dependent they are on each other.
This is going to cost trillions right off the bottom not some obscure number that we see in high finance. This will be with resource generating value chains.
The west has its own decline profile. I see the US as better prepared for this because of the red states. The red states are resisting the globalist corporatism which is a mix of fascism of multinationals and the Marxism of the victimization groups and credentialed class.
It's a dangerous world ahead of pain and suffering. Tech is destroying what is left of systematic resilience needed for a systematic decline process. What good is digital everything when the grid destabilizes and the trucks don't run on time?
Getting back to CMBI research: Note that when I click on CMBI’s website, I receive NO pop-up asking what sort of investor I am or my location; but there is this disclaimer at the end of each research report that readers need to be aware of:
This post will NOT be quoting directly from the research documents themselves (beyond giving the title to the linked research report - please keep the above disclosures in mind).
To make your life easier, this post includes:
A heading with the stock name.
A quick description of the stock pick with links to the IR page and stock quote(s) on Yahoo! Finance.
A link to any Wikipedia page (for what it might be worth…)
The title of the report linked to the file page on the CMBI website about the stock pick.
A price/book (most recent quarter) ratio plus forward or trailing P/E and dividend yields linked back to the Yahoo! Finance statistics page.
The latest long term technical chart linked back to Yahoo! Finance.
And as always, this post is provided for informational purposes only (and to make your life easier…). It does not constitute investment advice and/or a recommendation…
CMBI Research (June 2024)
United Energy Group
United Energy Group (HKG: 0467 / FRA: 1UEN / OTCMKTS: UNEGF) has established itself as a reputed international energy company with oil, gas and renewable energy assets across the globe. The company’s headquarter is in Hong Kong, with subsidiaries in China, UAE, Pakistan, Iraq and Egypt. UEG has a diverse team of over 1,900 highly professional and dedicated employees.
Focus on the Acquisition & Investment in Oil & Gas Fields
UEG has a history of making strategic investments that result in rapid growth. Our success story in Pakistan illustrates this example well:
In September 2011, acquired oil major BP’s upstream asset in Pakistan, for a total consideration of approximately US$ 750 million.
In April 2012, UEG obtained the license for a 99 MW Wind Power Project in Pakistan’s Jhimpir Wind Corridor. The project was one of the 14 top-priority, early-harvest projects of the China-Pakistan Economic Corridor (CPEC).
In August 2017, acquired 50% interests of KOTRI NORTH block in Pakistan.
In April 2018, UEG acquired the upstream assets of Asia Resources Oil Limited (AROL) in Pakistan for a transaction value of approximately US$ 75.66 million.
In June 2018, acquired the upstream assets of OMV Group in Pakistan, for a transaction value of approximately EURO€ 158 million.
In June 2018, initialed the Development and Production Contract for the Sindbad oil field in Iraq.
In March 2019, acquired Kuwait Energy plc (KEC) which has significant operations in the Middle East and North Africa (MENA) region, for a transaction value of approximately US$1 billion.
Apart from acquisitions, UEG has also invested heavily in Pakistan and introduced Chinese oil and gas expertise and supply chain management, resulting in the complete turn-around of the Pakistan business, which was facing a steep production decline from 2009 to 2011. Following the acquisition by UEG, over the next five years, the Pakistan subsidiary achieved 25% year-on-year production growth. Today, United Energy Pakistan (UEP) stands tall as Pakistan's largest foreign oil and gas company. With the successful M&A of Kuwait Energy, UEG has also turned its role into high growth international energy group.
Wikipedia
Price/Book (Most Recent Quarter): 0.67
Forward P/E: 2.77 / Forward Annual Dividend Yield: N/A (Yahoo! Finance)
Xiaomi Corp
Xiaomi (HKG: 1810 / FRA: 3CP / OTCMKTS: XIACF) is a consumer electronics and smart manufacturing company with smartphones and smart hardware connected by an IoT platform at its core.
As of the second quarter of 2023, Xiaomi ranked among the top 3 in the global smartphone market, in terms of smartphone shipments, according to Canalys. The company has also established the world’s leading consumer AIoT (AI+IoT) platform, with 606.0 million smart devices connected to its platform, excluding smartphones, tablets and laptops, as of June 30, 2023. Xiaomi products are present in more than 100 countries and regions around the world. In August 2023, the company listed as Fortune Global 500 for the 5th consecutive year.
Xiaomi (1810 HK) - CMBI Corp Day takeaways: Growth outlook intact; market concerns overdone
Price/Book (Most Recent Quarter): 2.37
Forward P/E: 21.83 / Forward Annual Dividend Yield: N/A (Yahoo! Finance)
Bosideng International Holdings
Bosideng International Holdings (HKG: 3998 / FRA: 3BD / OTCMKTS: BSDGY / BSDGF) is a renowned operator in China with down apparel brands. Founded in 1976, the Group commenced its operations in extremely difficult conditions under the leadership of Mr. Gao Dekang.
With a focus on down apparel business, the Group has developed into an expert in down apparel which has been widely recognized by consumers and a leader in the development of the industry. Currently, the Group's down apparel brands include Bosideng, Snow Flying, Bengen, etc. These brands have been supporting the Group in meeting the needs of different groups of customers and enhancing its position as a leader in the PRC market. Among them, the down apparel business under the Bosideng brand maintained a significant lead in the industry for 27 consecutive years (1995 - 2021) in terms of sales volume in the PRC.
Currently, the Group's ladieswear brands include JESSIE, BUOU BUOU, KOREANO, KLOVA; and the school uniform brand is Sameite.
Bosideng (3998 HK) - Beautifully executed the solid strategies
Price/Book (Most Recent Quarter): 3.07
Forward P/E: 11.64 / Forward Annual Dividend Yield: 6.05% (Yahoo! Finance)
