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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

Brilliance China Automotive / Event-Driven

<ul>
<li>We see 44 potential adds (including plenty of new listings) and 19 potential deletes (on market cap, liquidity and suspension) for the Hang Seng Composite Index in March.</li>
<li>We expect 37 stocks to be added to Southbound Stock Connect following the rebalance while 37 stocks could be deleted from the trading link and become Sell-only. </li>
<li>There are stocks that have a very high percentage of holdings via Stock Connect and there could be some unwinding prior to the stocks becoming Sell-only.</li>
</ul>


We see 44 potential adds (including plenty of new listings) and 19 potential deletes (on market cap, liquidity and suspension) for the Hang Seng Composite Index in March.
We expect 37 stocks to be added to Southbound Stock Connect following the rebalance while 37 stocks could be deleted from the trading link and become Sell-only. 
There are stocks that have a very high percentage of holdings via Stock Connect and there could be some unwinding prior to the stocks becoming Sell-only.


HSCI Index Rebalance Preview and Stock Connect: A Lot of Change

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Shenzhen International / Equity Bottom-Up

<ul>
<li>Given Shenzhen Airlines is already in negative equity, <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> will not record any of its losses in 2H22, making a big HoH swing in its impact.</li>
<li>The injections of Hangzhou and Hefei logistics projects will be completed by end-FY22, bringing in one-off gains. Jul-Aug toll revenue of <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway (548 HK)</a> has also recovered vs. 1H22.</li>
<li>While there will not be profit at logistics parks transformation business in 2H22, Qianhai Phase II has completed pre-sale in Sep, bring in potentially Rmb3bn to be booked in FY23.</li>
</ul>


Given Shenzhen Airlines is already in negative equity, Shenzhen International (152 HK) will not record any of its losses in 2H22, making a big HoH swing in its impact.
The injections of Hangzhou and Hefei logistics projects will be completed by end-FY22, bringing in one-off gains. Jul-Aug toll revenue of Shenzhen Expressway (548 HK) has also recovered vs. 1H22.
While there will not be profit at logistics parks transformation business in 2H22, Qianhai Phase II has completed pre-sale in Sep, bring in potentially Rmb3bn to be booked in FY23.


Shenzhen Intl (152 HK): Updates on Latest Developments

Shenzhen Expressway Co H / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway Co H (548 HK)</a> guided that many drivers are presented for the rest of the year to support growth, after a 24% YoY decline in 1Q22 net profit. </li>
<li>Toll road business should benefit from organic growth and project completions, while clean energy and waste treatment businesses will experience astronomical growth from capacity acquisitions. </li>
<li>There exists room to leverage up for growth as liabilities-to-asset ratio is still 11pp below its tolerance level of 65%. Besides below-average PERs, FY22F yield of 10% is attractive too.</li>
</ul>



Shenzhen Expressway Co H (548 HK) guided that many drivers are presented for the rest of the year to support growth, after a 24% YoY decline in 1Q22 net profit. 
Toll road business should benefit from organic growth and project completions, while clean energy and waste treatment businesses will experience astronomical growth from capacity acquisitions. 
There exists room to leverage up for growth as liabilities-to-asset ratio is still 11pp below its tolerance level of 65%. Besides below-average PERs, FY22F yield of 10% is attractive too.


Shenzhen Expressway (548 HK): Cautiously Optimistic

<ul>
<li>By deconsolidating <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway (548 HK)</a> (SZX) from <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> (SZI), SZI's net book value reached HK$16.4bn. Its current market cap of HK$18.9bn implies SZX is almost free. </li>
<li>SZI's high gearing is primarily due to SZX. Excluding SZX, SZI's gearing is just 32.3%. As Shenzhen's flagship SOE, there is consistent monitoring and huge support from the local government.   </li>
<li>SZI's 0.47x P/B is more than 2SD below historical average; but it has proven capability to realise value of underlying assets. Excluding SZX, SZI is on even cheaper 0.32x P/B. </li>
</ul>


By deconsolidating Shenzhen Expressway (548 HK) (SZX) from Shenzhen International (152 HK) (SZI), SZI's net book value reached HK$16.4bn. Its current market cap of HK$18.9bn implies SZX is almost free. 
SZI's high gearing is primarily due to SZX. Excluding SZX, SZI's gearing is just 32.3%. As Shenzhen's flagship SOE, there is consistent monitoring and huge support from the local government.   
SZI's 0.47x P/B is more than 2SD below historical average; but it has proven capability to realise value of underlying assets. Excluding SZX, SZI is on even cheaper 0.32x P/B. 


Shenzhen Intl (152 HK): Deep Dissection Indicates Truly Undervalued

Thematic (Sector/Industry)

<ul>
<li>China Education Sector, specifically <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>, should see better performance in 2022 as regulatory concerns gradually ease. 1H22 result for higher education segment should be a proof.</li>
<li>
<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> could reverse the bad fortune in 2022 on the back of realisation of undervalued assets, expansion of logistics facilities and better performance at Shenzhen Airlines.</li>
<li>
<a href="https://www.smartkarma.com/entities/china-dongxiang-group-co" target="_blank" data-smartkarma-citation="entities:1068:1" rel="noopener">China Dongxiang (3818 HK)</a> remains an undervalued asset play. Its ability to realise value of its investment portfolio, potential resumption of dividend payout and recovery of sportswear business are drivers.</li>
</ul>


China Education Sector, specifically China Education Group (839 HK), should see better performance in 2022 as regulatory concerns gradually ease. 1H22 result for higher education segment should be a proof.

Shenzhen International (152 HK) could reverse the bad fortune in 2022 on the back of realisation of undervalued assets, expansion of logistics facilities and better performance at Shenzhen Airlines.

China Dongxiang (3818 HK) remains an undervalued asset play. Its ability to realise value of its investment portfolio, potential resumption of dividend payout and recovery of sportswear business are drivers.


Our Three Worst Calls in Last Year and Any Room for a Reversal in 2022?

China

Shenzhen Expressway Company Limited constructs, manages and operates toll highways and expressways in China.

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Shenzhen Expressway Co H (548 HK)

HSCI Index Rebalance Preview and Stock Connect: A Lot of Change

We forecast 44 adds/19 deletes for the HSCI in March leading to 37 adds/deletes for Southbound Stock Connect. There could be more Connect changes...

Brian Freitas

Shenzhen Intl (152 HK): Updates on Latest Developments

We find positive developments which point to HoH improvement in 2H22 earnings. Recovery of toll roads, lessening of loss burden in Shenzhen...

Osbert Tang, CFA

Shenzhen Expressway (548 HK): Cautiously Optimistic

SZEX is expected to gain earnings momentum over the next few quarters as toll traffic recovers, clean energy and waste management capacity...

Osbert Tang, CFA

Shenzhen Intl (152 HK): Deep Dissection Indicates Truly Undervalued

We deconsolidated Shenzhen Expressway from Shenzhen Intl and find that SZI is trading on very cheap 0.32x P/B based on its standalone net asset...

Osbert Tang, CFA

Our Three Worst Calls in Last Year and Any Room for a Reversal in 2022?

China Education Sector, Shenzhen Intl and China Dongxiang are the three worst calls that we made in last year. We believe there is room for a...

Osbert Tang, CFA

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