HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a> has retreated 23% from recent high with no regulatory and company news. Given its secured earnings growth outlook, we see an opportunity. </li>
<li>We believe drivers are higher enrollment and tuition, further capacity growth, good progress in overseas education and light capex. There are positive developments in these aspects recently. </li>
<li>CEG may return unused share buyback funds to shareholders via dividend, suggesting a potential resumption of payout. At just 5.7x PER for FY23F, its growth prospect is undervalued.</li>
</ul>



China Education Group (839 HK) has retreated 23% from recent high with no regulatory and company news. Given its secured earnings growth outlook, we see an opportunity. 
We believe drivers are higher enrollment and tuition, further capacity growth, good progress in overseas education and light capex. There are positive developments in these aspects recently. 
CEG may return unused share buyback funds to shareholders via dividend, suggesting a potential resumption of payout. At just 5.7x PER for FY23F, its growth prospect is undervalued.


China Education Group (839 HK): Sustaining Growth Trajectory

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a> demonstrates resilience amid market concerns on policy uncertainties by posting a 40.5% growth in 1H22 reported net profit and 20.1% growth in adjusted net profit. </li>
<li>Higher education segment saw 44% profit growth and strengths will sustain into 2H22. Weaker secondary vocational and global education segments will witness a sharp recovery, based on latest application statistics.</li>
<li>CEG has secured increase in tuition and quota in the coming school year, and this will boost FY23 outlook. It opts for an Rmb500m buyback, instead of paying interim dividend.</li>
</ul>



China Education Group (839 HK) demonstrates resilience amid market concerns on policy uncertainties by posting a 40.5% growth in 1H22 reported net profit and 20.1% growth in adjusted net profit. 
Higher education segment saw 44% profit growth and strengths will sustain into 2H22. Weaker secondary vocational and global education segments will witness a sharp recovery, based on latest application statistics.
CEG has secured increase in tuition and quota in the coming school year, and this will boost FY23 outlook. It opts for an Rmb500m buyback, instead of paying interim dividend.


China Education Group (839 HK): Impressive 1H22 Result, Positive Takeaways from Call

<ul>
<li>The 42% collapse in share price of <a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a> (CEG) seems to be overreaction to the speculated regulatory measures which we think many of them are counter-intuitive.</li>
<li>These measures center around the legality of Variable Interest Entity, ban on future M&amp;As, ownership of school assets and prohibition of increase in tuition fee at will.</li>
<li>Higher education, unlike after school tutoring, supports government policy, lightens governments' financial pressure and enhances common prosperity; and CEG remains the best play on this angle. </li>
</ul>


The 42% collapse in share price of China Education Group (839 HK) (CEG) seems to be overreaction to the speculated regulatory measures which we think many of them are counter-intuitive.
These measures center around the legality of Variable Interest Entity, ban on future M&amp;As, ownership of school assets and prohibition of increase in tuition fee at will.
Higher education, unlike after school tutoring, supports government policy, lightens governments' financial pressure and enhances common prosperity; and CEG remains the best play on this angle. 


China Education Group (839 HK): Further Regulatory Headwinds?

Thematic (Sector/Industry)

<ul>
<li>The companies that suffered exchange losses in FY23 due to Rmb depreciation will now benefit from potential Rmb appreciation in 2H24 and FY25. Meanwhile, gainers will become losers. </li>
<li>The beneficiaries are <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (753 HK)</a>, <a href="https://www.smartkarma.com/entities/shenzhen-international-holdings-limited" target="_blank" data-smartkarma-citation="entities:9:1" rel="noopener">Shenzhen International (152 HK)</a>, <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a>, <a href="https://www.smartkarma.com/entities/xinjiang-goldwind-science-technology-h" target="_blank" data-smartkarma-citation="entities:10112:1" rel="noopener">Xinjiang Goldwind (2208 HK)</a>, and <a href="https://www.smartkarma.com/entities/china-eastern-airlines-co-h" target="_blank" data-smartkarma-citation="entities:1079:1" rel="noopener">China Eastern Airlines (670 HK)</a>. </li>
<li>
<a href="https://www.smartkarma.com/entities/fosun-tourism-group" target="_blank" data-smartkarma-citation="entities:27439:1" rel="noopener">Fosun Tourism (1992 HK)</a>, <a href="https://www.smartkarma.com/entities/china-east-education-holdings" target="_blank" data-smartkarma-citation="entities:27843:1" rel="noopener">China East Education (667 HK)</a>, and <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a> may need to book exchange losses (vs. gains in FY23). </li>
</ul>


The companies that suffered exchange losses in FY23 due to Rmb depreciation will now benefit from potential Rmb appreciation in 2H24 and FY25. Meanwhile, gainers will become losers. 
The beneficiaries are Air China Ltd (753 HK), Shenzhen International (152 HK), China Southern Airlines (1055 HK), Xinjiang Goldwind (2208 HK), and China Eastern Airlines (670 HK). 

Fosun Tourism (1992 HK), China East Education (667 HK), and China Communications Construction (1800 HK) may need to book exchange losses (vs. gains in FY23). 


China Strategy: Re-Assessing the Rmb Exchange Impacts

Asian Hedge Fund Manager, Long Short Equity, Macro

David Mudd

<ul>
<li>Consumer sectors in China are gaining more focus as the government lays out steps to increase domestic consumption.</li>
<li>Hong Kong markets performed well relative to region during recent market turmoil.</li>
<li>
<a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a> and <a href="https://www.smartkarma.com/entities/china-reinsurance-group-corp" target="_blank" data-smartkarma-citation="entities:993:1" rel="noopener">China Reinsurance (Group) (1508 HK)</a> experienced breakouts and <a href="https://www.smartkarma.com/entities/china-telecom-corp-ltd-h" target="_blank" data-smartkarma-citation="entities:1015:1" rel="noopener">China Telecom (H) (728 HK)</a> had a breakdown. <a href="https://www.smartkarma.com/entities/anhui-conch-cement-co-ltd" target="_blank" data-smartkarma-citation="entities:159:1" rel="noopener">Anhui Conch Cement (914 HK)</a> is more positive.
</li>
</ul>


Consumer sectors in China are gaining more focus as the government lays out steps to increase domestic consumption.
Hong Kong markets performed well relative to region during recent market turmoil.

China Education Group (839 HK) and China Reinsurance (Group) (1508 HK) experienced breakouts and China Telecom (H) (728 HK) had a breakdown. Anhui Conch Cement (914 HK) is more positive.



Technically Speaking, Breakouts and Breakdowns: HONG KONG (AUGUST 9)

China

China East Education Holdings Limited provides vocational training educational services. The Company offers culinary education, internet technology education, automotive education, and other services. China East Education Holdings provides services in China.

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China East Education (667 HK)

China Education Group (839 HK): Sustaining Growth Trajectory

Higher enrollment and tuition, further capacity growth, good progress in overseas education and light capex are developments that will potentially...

Osbert Tang, CFA

China Education Group (839 HK): Impressive 1H22 Result, Positive Takeaways from Call

CEG's 1H22 result is not only impressive by itself, but also clears the market's concerns on policy impacts. Guidances for 2H22 suggest good upside...

Osbert Tang, CFA

China Education Group (839 HK): Further Regulatory Headwinds?

Regulatory speculations have beaten down CEG but may concerns are counter-intuitive and share price has over-reacted. Private participation in...

Osbert Tang, CFA

China Strategy: Re-Assessing the Rmb Exchange Impacts

The Rmb has appreciated by 1.3% against the USD so far in Aug. With the US interest rate heading lower, there is further room for the Rmb to...

Osbert Tang, CFA

Technically Speaking, Breakouts and Breakdowns: HONG KONG (AUGUST 9)

HK markets had lower volatility than other regional markets this week. China Ed and China Re had technical break outs while China Tel broke...

David Mudd

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