Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

The September rebalance of the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> was implemented at the close of trading on 3 September. Hang Seng Indexes should announce the results of the December 2021 review of the Hang Seng Family of Indexes on 12 November. The constituent changes will be effective after the close of trading on 3 December.The review period for the December rebalance ends on 30 September and stocks that have at least 3 month of trading history by the review meeting date are eligible for inclusion in the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a>.There were 3 inclusions at the June rebalance and 3 inclusions and 1 exclusion at the September rebalance to take the number of index constituents to 60.With Hang Seng Indexes looking to get up to 80 <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> members by mid-2022, there could be 20 inclusions over the next 3 index rebalances.Stocks that are ranked towards the top of their Industry group and are potential inclusions are <a href="https://www.smartkarma.com/entities/smoore-international" target="_blank" data-smartkarma-citation="entities:28241:1" rel="noopener">Smoore International (6969 HK)</a>, <a href="https://www.smartkarma.com/entities/nongfu-spring" target="_blank" data-smartkarma-citation="entities:28955:1" rel="noopener">Nongfu Spring (9633 HK)</a>, <a href="https://www.smartkarma.com/entities/china-resources-beer-holdings" target="_blank" data-smartkarma-citation="entities:399:1" rel="noopener">China Resources Beer Holdings (291 HK)</a>, <a href="https://www.smartkarma.com/entities/china-resources-mixc-lifestyle-services" target="_blank" data-smartkarma-citation="entities:29285:1" rel="noopener">China Resources Mixc Lifestyle Services (1209 HK)</a>, <a href="https://www.smartkarma.com/entities/sunac-china-holdings-ltd" target="_blank" data-smartkarma-citation="entities:240:1" rel="noopener">Sunac China Holdings (1918 HK)</a>, <a href="https://www.smartkarma.com/entities/china-gas-holdings-ltd" target="_blank" data-smartkarma-citation="entities:14315:1" rel="noopener">China Gas Holdings (384 HK)</a>, <a href="https://www.smartkarma.com/entities/jd-health-international-inc" target="_blank" data-smartkarma-citation="entities:29677:1" rel="noopener">JD Health (6618 HK)</a>, <a href="https://www.smartkarma.com/entities/hansoh-pharmaceutical-group" target="_blank" data-smartkarma-citation="entities:23675:1" rel="noopener">Hansoh Pharmaceutical (3692 HK)</a>, <a href="https://www.smartkarma.com/entities/china-hongqiao-group-ltd" target="_blank" data-smartkarma-citation="entities:1909:1" rel="noopener">China Hongqiao (1378 HK)</a> and <a href="https://www.smartkarma.com/entities/fosun-international-ltd" target="_blank" data-smartkarma-citation="entities:433:1" rel="noopener">Fosun International (656 HK)</a>.Given that the index committee consciously avoided including stocks from sectors that were targeted by tightening regulations in China, this list will be revised closer to the index committee meeting in November. Another factor that will determine the number of inclusions is the turnover at the rebalance - while it is less than 4% now with the 10 inclusions, that number will move higher as stocks move around and there are capping changes on the largest constituents.

The September rebalance of the Hong Kong Hang Seng Index (HSI INDEX) was implemented at the close of trading on 3 September. Hang Seng Indexes should announce the results of the December 2021 review of the Hang Seng Family of Indexes on 12 November. The constituent changes will be effective after the close of trading on 3 December.The review period for the December rebalance ends on 30 September and stocks that have at least 3 month of trading history by the review meeting date are eligible for inclusion in the Hong Kong Hang Seng Index (HSI INDEX).There were 3 inclusions at the June rebalance and 3 inclusions and 1 exclusion at the September rebalance to take the number of index constituents to 60.With Hang Seng Indexes looking to get up to 80 Hong Kong Hang Seng Index (HSI INDEX) members by mid-2022, there could be 20 inclusions over the next 3 index rebalances.Stocks that are ranked towards the top of their Industry group and are potential inclusions are Smoore International (6969 HK), Nongfu Spring (9633 HK), China Resources Beer Holdings (291 HK), China Resources Mixc Lifestyle Services (1209 HK), Sunac China Holdings (1918 HK), China Gas Holdings (384 HK), JD Health (6618 HK), Hansoh Pharmaceutical (3692 HK), China Hongqiao (1378 HK) and Fosun International (656 HK).Given that the index committee consciously avoided including stocks from sectors that were targeted by tightening regulations in China, this list will be revised closer to the index committee meeting in November. Another factor that will determine the number of inclusions is the turnover at the rebalance - while it is less than 4% now with the 10 inclusions, that number will move higher as stocks move around and there are capping changes on the largest constituents.

HSI Index Rebalance Preview: Potential Inclusions in December

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Everbright Greentech / Equity Bottom-Up

Due to weaker construction revenue for biomass projects and higher finance costs, <a href="https://www.smartkarma.com/entities/china-everbright-greentech-0377b31c-5401-466f-987e-9a176b05fb52" target="_blank" data-smartkarma-citation="entities:24085:1" rel="noopener">China Everbright Greentech (1257 HK)</a> realised a 15% YoY decline in net profit in 1H21. But on HoH basis, this has still increased 3.2%. Except biomass construction, all business segments witnessed good growth. It is encouraging to see operational projects contributed 70% of revenue in 1H21, up massively from 56% a year ago. We believe this trend will improve its earnings quality and financial position over the medium term. Management expects good growth for hazardous and waste treatment segment, both in construction and operational revenue given the project pipeline. Lower capex, collection of subsidies and securitisation will further lift its financial position. At 3.9x PER for FY21, CEGT is not expensive but we still prefer <a href="https://www.smartkarma.com/entities/china-everbright-environment-group-limited" target="_blank" data-smartkarma-citation="entities:15946:1" rel="noopener">China Everbright Environment (257 HK)</a>. Alternatively, we cannot rule out the possibility that CEGT will be privatise some time in the future, given its undemanding 0.4x P/B and the reducing need for such a separately-listed vehicle within the China Everbright Group.

Due to weaker construction revenue for biomass projects and higher finance costs, China Everbright Greentech (1257 HK) realised a 15% YoY decline in net profit in 1H21. But on HoH basis, this has still increased 3.2%. Except biomass construction, all business segments witnessed good growth. It is encouraging to see operational projects contributed 70% of revenue in 1H21, up massively from 56% a year ago. We believe this trend will improve its earnings quality and financial position over the medium term. Management expects good growth for hazardous and waste treatment segment, both in construction and operational revenue given the project pipeline. Lower capex, collection of subsidies and securitisation will further lift its financial position. At 3.9x PER for FY21, CEGT is not expensive but we still prefer China Everbright Environment (257 HK). Alternatively, we cannot rule out the possibility that CEGT will be privatise some time in the future, given its undemanding 0.4x P/B and the reducing need for such a separately-listed vehicle within the China Everbright Group.

China Everbright Greentech (1257 HK): Updates from Post-1H21 Call

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

China Conch Venture Holdings / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture Holdings (586 HK)</a>'s stub ops are coming into their own.
Those ops accounted for an estimated 10% of earnings in FY18, increasing to ~18% last year. Based on forecast estimates, those operations may contribute over 30% of the bottom-line in FY22E.
A recent acquisition of solid waste treatment business resulting in <a href="https://www.smartkarma.com/entities/west-china-cement-ltd" target="_blank" data-smartkarma-citation="entities:9423:1" rel="noopener">West China Cement (2233 HK)</a> becoming a minority shareholder lends a further degree of support for CCV. 
In contrast, 17.8%-held <a href="https://www.smartkarma.com/entities/anhui-conch-cement-co-ltd-094855ab-abec-4b71-956b-5bfc85e22fdd" target="_blank" data-smartkarma-citation="entities:389:1" rel="noopener">Anhui Conch Cement Co Ltd A (600585 CH)</a>, China’s second-largest cement producer, is expected to grow the slowest amongst its cement peers over the next couple of years. An expected index deletion and China clamping down on excess debt is not helping.
CCV's discount to NAV is around its narrowest in the last 12-months, yet this looks too early to call a reversal.
More below the fold.

China Conch Venture Holdings (586 HK)'s stub ops are coming into their own.
Those ops accounted for an estimated 10% of earnings in FY18, increasing to ~18% last year. Based on forecast estimates, those operations may contribute over 30% of the bottom-line in FY22E.
A recent acquisition of solid waste treatment business resulting in West China Cement (2233 HK) becoming a minority shareholder lends a further degree of support for CCV. 
In contrast, 17.8%-held Anhui Conch Cement Co Ltd A (600585 CH), China’s second-largest cement producer, is expected to grow the slowest amongst its cement peers over the next couple of years. An expected index deletion and China clamping down on excess debt is not helping.
CCV's discount to NAV is around its narrowest in the last 12-months, yet this looks too early to call a reversal.
More below the fold.

China Conch Venture (586 HK): Stub Ops Momentum

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

The Venerable David Webb just increased his position in <a href="https://www.smartkarma.com/entities/analogue-holdings-ltd" target="_blank" data-smartkarma-citation="entities:28661:1" rel="noopener">Analogue Holdings Ltd (1977 HK)</a> as the company is transforming from a traditional E&amp;M player into a smart city and high tech building management company that has won a contract from the HK Housing Authority. <div class="content-highlight">The company is trading at a deep discount to its peers in various valuation multiples but with the amount of cash in the balance sheet, the ex-cash PER is even lower at 5.2x. It has a 5.5% dividend yield that is quite enviable for a small-cap with a growth prospect. What not to like?</div>

The Venerable David Webb just increased his position in Analogue Holdings Ltd (1977 HK) as the company is transforming from a traditional E&amp;M player into a smart city and high tech building management company that has won a contract from the HK Housing Authority. The company is trading at a deep discount to its peers in various valuation multiples but with the amount of cash in the balance sheet, the ex-cash PER is even lower at 5.2x. It has a 5.5% dividend yield that is quite enviable for a small-cap with a growth prospect. What not to like?

Analogue Holding (1977): From E&M to Smart City

We take the FY21 guidances for <a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture Holdings (586 HK)</a> positively and believe they are more important than the FY20 result. In fact, despite a slowdown from 40-50% YoY growth in the previous two years, Conch Venture's 24.6% growth in its core environmental business in FY20 is still a very decent show under a COVID-19 impacted situation.Conch Venture is expecting 76% growth in solid waste treatment volume and a 65% growth in municipal waste treated in its waste incineration business in FY21, on the back of capacity completion. We believe such volume growth should easily support over 80% surge in core environment profit in this year. Its solid project pipeline will further ensure growth beyond FY21. Adding low gearing and undemanding valuation multiples, Conch Venture is well placed in China's environment sector.

We take the FY21 guidances for China Conch Venture Holdings (586 HK) positively and believe they are more important than the FY20 result. In fact, despite a slowdown from 40-50% YoY growth in the previous two years, Conch Venture's 24.6% growth in its core environmental business in FY20 is still a very decent show under a COVID-19 impacted situation.Conch Venture is expecting 76% growth in solid waste treatment volume and a 65% growth in municipal waste treated in its waste incineration business in FY21, on the back of capacity completion. We believe such volume growth should easily support over 80% surge in core environment profit in this year. Its solid project pipeline will further ensure growth beyond FY21. Adding low gearing and undemanding valuation multiples, Conch Venture is well placed in China's environment sector. 

Conch Venture (586 HK): Still Very Well Placed

China

China Conch Venture Holdings Limited operates as an investment holding company. The Company, through its subsidiaries, provides energy preservation and environmental protection solutions and offers environment-friendly building materials.

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China Conch Venture Holdings (586 HK)

HSI Index Rebalance Preview: Potential Inclusions in December

There could be 10 inclusions to the HSI at the Dec rebalance to help reach the 80 index member count by mid-2022. Index turnover & regulations will...

Brian Freitas

China Everbright Greentech (1257 HK): Updates from Post-1H21 Call

1H21 net profit is behind expectation but the good news is that earnings quality has improved with slowdown in the rise in gearing. We still prefer...

Osbert Tang, CFA

China Conch Venture (586 HK): Stub Ops Momentum

If you had set up a long CCV, short Anhui, I'd continue to track that trade. I think it's too early to reverse the stub here, in light of the index...

David Blennerhassett

Analogue Holding (1977): From E&M to Smart City

The company is trading at a deep discount to its peers' multiples but the ex-cash PER is even lower at 5.2x. It has a 5.5% dvd yield that is quite...

Henry Soediarko

Conch Venture (586 HK): Still Very Well Placed

Conch Venture's core environmental profit will grow by at least 80% in FY21, based on guidances for solid waste and waste incineration volume. Its...

Osbert Tang, CFA

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