HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>We continued to be cautious on <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> given the challenges faced. It guided for a flat dollar margin in FY23 but we think this is optimistic.</li>
<li>Connection fees are likely to stay under pressure after a 42.1% decline in FY22. It only projects 2.6-2.9m new residential connections for FY23, compared with 2.9m in FY22.</li>
<li>Although China Gas is now the cheapest Hong Kong-listed China gas utilities company, it takes time to regain market confidence. At similar valuation, <a href="https://www.smartkarma.com/entities/kunlun-energy-co-ltd" target="_blank" data-smartkarma-citation="entities:10054:1" rel="noopener">Kunlun Energy (135 HK)</a> looks more interesting. </li>
</ul>


We continued to be cautious on China Gas Holdings (384 HK) given the challenges faced. It guided for a flat dollar margin in FY23 but we think this is optimistic.
Connection fees are likely to stay under pressure after a 42.1% decline in FY22. It only projects 2.6-2.9m new residential connections for FY23, compared with 2.9m in FY22.
Although China Gas is now the cheapest Hong Kong-listed China gas utilities company, it takes time to regain market confidence. At similar valuation, Kunlun Energy (135 HK) looks more interesting. 


China Gas Holdings (384 HK): Not Giving It the Benefit of Doubt

<ul>
<li>Healthy 17.2% growth in 1Q22 net profit of Kunlun Gas, the most important subsidiary of <a href="https://www.smartkarma.com/entities/kunlun-energy-co-ltd" target="_blank" data-smartkarma-citation="entities:10054:1" rel="noopener">Kunlun Energy (135 HK)</a>, provides a welcoming evidence to ease market concerns on costs.  </li>
<li>While gross margin was down 0.2pp YoY, it expanded by 0.4pp QoQ. Key cost items including selling, administrative and R&amp;D are all under control, boosting EBIT margin by 0.5pp YoY.</li>
<li>1Q22 is a record quarter for Kunlun Gas, and gearing stays comfortable with strong operating cash flow. We believe such set of result signals good 1Q22 for Kunlun Energy. </li>
</ul>


Healthy 17.2% growth in 1Q22 net profit of Kunlun Gas, the most important subsidiary of Kunlun Energy (135 HK), provides a welcoming evidence to ease market concerns on costs.  
While gross margin was down 0.2pp YoY, it expanded by 0.4pp QoQ. Key cost items including selling, administrative and R&amp;D are all under control, boosting EBIT margin by 0.5pp YoY.
1Q22 is a record quarter for Kunlun Gas, and gearing stays comfortable with strong operating cash flow. We believe such set of result signals good 1Q22 for Kunlun Energy. 


Kunlun Energy (135 HK): A Record Quarter for Kunlun Gas

<ul>
<li>
<a href="https://www.smartkarma.com/entities/kunlun-energy-co-ltd" target="_blank" data-smartkarma-citation="entities:10054:1" rel="noopener">Kunlun Energy (135 HK)</a> posted a 43.6% YoY growth in net profit for FY21, which is ahead of peers like <a href="https://www.smartkarma.com/entities/enn-energy-holdings-ltd" target="_blank" data-smartkarma-citation="entities:316:1" rel="noopener">ENN Energy (2688 HK)</a> and <a href="https://www.smartkarma.com/entities/china-resources-gas-group-ltd" target="_blank" data-smartkarma-citation="entities:20525:1" rel="noopener">CR Gas (1193 HK)</a>. </li>
<li>While 2H21 gas sales segment is weaker, the contraction of dollar margin for Kunlun is light at 3.8% YoY. The other gas utilities companies are seeing 12-15% decline.</li>
<li>Its net cash reached Rmb3.3bn at end-FY21, and number of new city gas projects reached 17 in 2H21, vs. 13 only in 1H21, indicating good pick-up in momentum. </li>
</ul>



Kunlun Energy (135 HK) posted a 43.6% YoY growth in net profit for FY21, which is ahead of peers like ENN Energy (2688 HK) and CR Gas (1193 HK). 
While 2H21 gas sales segment is weaker, the contraction of dollar margin for Kunlun is light at 3.8% YoY. The other gas utilities companies are seeing 12-15% decline.
Its net cash reached Rmb3.3bn at end-FY21, and number of new city gas projects reached 17 in 2H21, vs. 13 only in 1H21, indicating good pick-up in momentum. 


Kunlun Energy (135 HK): Better FY21 than Peers

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Quantitative Analysis

<ul>
<li>An overview (and output) of our machine learning-driven GEM screening model, which seeks to find the best medium-term long ideas within the top100 stocks in the MSCI GEM Index.</li>
<li>The model is based on 1) a quantitative multifactor screening model, enhanced by two AI Technology-based approaches; 2) a Deep Neural Network model, and 3) a Recurrent Neural Network model.</li>
<li>Developed over nearly 4 years and implemented in its current state for nearly 2 years, the model has a solid real-world alpha-generating performance track record, discussed in detail below.</li>
</ul>


An overview (and output) of our machine learning-driven GEM screening model, which seeks to find the best medium-term long ideas within the top100 stocks in the MSCI GEM Index.
The model is based on 1) a quantitative multifactor screening model, enhanced by two AI Technology-based approaches; 2) a Deep Neural Network model, and 3) a Recurrent Neural Network model.
Developed over nearly 4 years and implemented in its current state for nearly 2 years, the model has a solid real-world alpha-generating performance track record, discussed in detail below.


Thematic (Sector/Industry)

<ul>
<li>Russia-Ukraine war has raised commodity prices which are negative towards commodity users in short term. However, we see silver linings for Chinese utilities and energy companies in the longer term.</li>
<li>The conflict is expected to accelerate the progress of renewable projects currently under development, lead to a faster diversification away from fossils and increase gas supply from Russia to China. </li>
<li>Key beneficiaries include <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>, <a href="https://www.smartkarma.com/entities/dongfang-electric-corporation-limited" target="_blank" data-smartkarma-citation="entities:1251:1" rel="noopener">Dongfang Electric (1072 HK)</a>, <a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd" target="_blank" data-smartkarma-citation="entities:14215:1" rel="noopener">China Longyuan Power (916 HK)</a>, <a href="https://www.smartkarma.com/entities/china-energy-engineering-group" target="_blank" data-smartkarma-citation="entities:21017:1" rel="noopener">Energy China (3996 HK)</a>, <a href="https://www.smartkarma.com/entities/power-construction-corporation-of-china-limited" target="_blank" data-smartkarma-citation="entities:24220:1" rel="noopener">Power China (601669 CH)</a> and the gas utilities.</li>
</ul>


Russia-Ukraine war has raised commodity prices which are negative towards commodity users in short term. However, we see silver linings for Chinese utilities and energy companies in the longer term.
The conflict is expected to accelerate the progress of renewable projects currently under development, lead to a faster diversification away from fossils and increase gas supply from Russia to China. 
Key beneficiaries include Xinjiang Goldwind (2208 HK), Dongfang Electric (1072 HK), China Longyuan Power (916 HK), Energy China (3996 HK), Power China (601669 CH) and the gas utilities.


Russia-Ukraine War: Longer Term Implications for China Utilities and Energy

China

ENN Energy Holdings Ltd. distributes natural gas in China.  The Company, through its subsidiaries, invests in, operates, and manages gas pipelines, and sells and distributes piped and bottled gas in China.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

ENN Energy (2688 HK)

China Gas Holdings (384 HK): Not Giving It the Benefit of Doubt

China Gas has a diasppointing FY22 and we think its operating and financial guidances for FY23 are likely to be optimistic. We prefer Kunlun Energy...

Osbert Tang, CFA

Kunlun Energy (135 HK): A Record Quarter for Kunlun Gas

We view Kunlun Gas' healthy 1Q22 result a positive pointer to Kunlun Energy's profit trend in the quarter. It is welcoming to note only mild YoY...

Osbert Tang, CFA

Kunlun Energy (135 HK): Better FY21 than Peers

Kunlun has a milder pressue on dollar margin than its peers and the LNG Processing and Terminal segment has provided us some nice surprises. Net...

Osbert Tang, CFA

Screening for GEMs: March 2022

This insight provides an overview of our, machine learning-driven, proprietary GEM screening model, based on a Multifactor model, a Deep Neural...

Wium Malan, CFA

Russia-Ukraine War: Longer Term Implications for China Utilities and Energy

We should not overlook the potential long term impact of the Russia-Ukraine war on the Chinese utilities and energy companies as we find some...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)