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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Haidilao International Holding / Event-Driven

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the 2020 Q3 review of the Hang Seng Family of Indexes on 6 November. The constituent changes will be effective after the close of trading on 4 December.With only 3 changes permitted in the September <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> review post the methodology change that included WVR securities and Secondary Listings in the eligible Universe, there could be as many as 9 changes in the December review.We see a high probability of <a href="https://www.smartkarma.com/entities/china-overseas-land-invest" target="_blank" data-smartkarma-citation="entities:419:1" rel="noopener">China Overseas Land &amp; Investment Ltd (688 HK)</a>, <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com (HK) (9618 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-health-information-technology-ltd" target="_blank" data-smartkarma-citation="entities:453:1" rel="noopener">Alibaba Health Information Technology (241 HK)</a>, <a href="https://www.smartkarma.com/entities/haidilao-international-holding-ltd" target="_blank" data-smartkarma-citation="entities:27044:1" rel="noopener">Haidilao (6862 HK)</a>, <a href="https://www.smartkarma.com/entities/china-feihe-ltd" target="_blank" data-smartkarma-citation="entities:24413:1" rel="noopener">China Feihe (6186 HK)</a>, <a href="https://www.smartkarma.com/entities/semiconductor-manufacturing" target="_blank" data-smartkarma-citation="entities:14231:1" rel="noopener">Semiconductor Manufacturing (981 HK)</a> and <a href="https://www.smartkarma.com/entities/evergrande-real-estate-group-limited" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a> being included in the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a>, and of <a href="https://www.smartkarma.com/entities/china-taiping-insurance-hldgs-co-ltd" target="_blank" data-smartkarma-citation="entities:489:1" rel="noopener">China Taiping Insurance Hldgs (966 HK)</a>, <a href="https://www.smartkarma.com/entities/china-telecom-corp-ltd-h" target="_blank" data-smartkarma-citation="entities:1015:1" rel="noopener">China Telecom Corp Ltd (H) (728 HK)</a>, <a href="https://www.smartkarma.com/entities/china-minsheng-banking-h" target="_blank" data-smartkarma-citation="entities:8983:1" rel="noopener">China Minsheng Banking H (1988 HK)</a>, <a href="https://www.smartkarma.com/entities/china-vanke-co-ltd-h" target="_blank" data-smartkarma-citation="entities:18368:1" rel="noopener">China Vanke Co Ltd (H) (2202 HK)</a>, <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>, <a href="https://www.smartkarma.com/entities/china-citic-bank-corp-ltd-ea6c25fd-4b20-45cb-a4a6-df7a60136f03" target="_blank" data-smartkarma-citation="entities:653:1" rel="noopener">China Citic Bank Corp Ltd H (998 HK)</a> and <a href="https://www.smartkarma.com/entities/china-shenhua-energy-co-h" target="_blank" data-smartkarma-citation="entities:382:1" rel="noopener">China Shenhua Energy Co H (1088 HK)</a> being deleted from the index.Depending on price movements between now and 30 September, <a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a> and <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> could be included in the index, which would see <a href="https://www.smartkarma.com/entities/want-want-china-holdings-ltd" target="_blank" data-smartkarma-citation="entities:355:1" rel="noopener">Want Want (151 HK)</a> and <a href="https://www.smartkarma.com/entities/picc-property-casualty-h" target="_blank" data-smartkarma-citation="entities:350:1" rel="noopener">PICC Property &amp; Casualty H (2328 HK)</a> being deleted.Estimated one-way turnover for the rebalance is 9.63% which is lower than the turnover at the September rebalance, but significant nonetheless.The expected review changes will alter the sectoral composition of the index with an increase in the weight of the Consumer Discretionary, Information Technology and Health Care sectors at the expense of Financials and Energy. There will also be an impact on the HSCEI 2021 dividend futures, a large part of which has already been discounted by the market.

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the 2020 Q3 review of the Hang Seng Family of Indexes on 6 November. The constituent changes will be effective after the close of trading on 4 December.With only 3 changes permitted in the September Hang Seng China Enterprises Index (HSCEI INDEX) review post the methodology change that included WVR securities and Secondary Listings in the eligible Universe, there could be as many as 9 changes in the December review.We see a high probability of China Overseas Land &amp; Investment Ltd (688 HK), JD.com (HK) (9618 HK), Alibaba Health Information Technology (241 HK), Haidilao (6862 HK), China Feihe (6186 HK), Semiconductor Manufacturing (981 HK) and Evergrande Real Estate Group (3333 HK) being included in the Hang Seng China Enterprises Index (HSCEI INDEX), and of China Taiping Insurance Hldgs (966 HK), China Telecom Corp Ltd (H) (728 HK), China Minsheng Banking H (1988 HK), China Vanke Co Ltd (H) (2202 HK), Fosun International (656 HK), China Citic Bank Corp Ltd H (998 HK) and China Shenhua Energy Co H (1088 HK) being deleted from the index.Depending on price movements between now and 30 September, NetEase (9999 HK) and Hansoh Pharmaceutical (3692 HK) could be included in the index, which would see Want Want (151 HK) and PICC Property &amp; Casualty H (2328 HK) being deleted.Estimated one-way turnover for the rebalance is 9.63% which is lower than the turnover at the September rebalance, but significant nonetheless.The expected review changes will alter the sectoral composition of the index with an increase in the weight of the Consumer Discretionary, Information Technology and Health Care sectors at the expense of Financials and Energy. There will also be an impact on the HSCEI 2021 dividend futures, a large part of which has already been discounted by the market.

HSCEI Index Rebalance Preview - December 2020: HUGE Number of Changes and Turnover Expected

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/ganfeng-lithium-co-ltd" target="_blank" data-smartkarma-citation="entities:26795:1" rel="noopener">Ganfeng Lithium (1772 HK)</a> aims to raise around US$191m to fund its capacity expansion plans. We have covered the H-shares listing in 2018, <a href="https://www.smartkarma.com/insights/ganfeng-lithium-ipo-falling-lithium-prices-weigh-on-the-leading-producer" target="_blank" data-smartkarma-citation="insights:24529" rel="noopener">Ganfeng Lithium IPO (赣锋锂业): Falling Lithium Prices Weigh on the Leading Producer.</a>The shares have more than doubled on YTD basis, even though earnings have far from kept pace. However, analyst continue to be positive on the stock and are building in much faster growth ahead.

Ganfeng Lithium (1772 HK) aims to raise around US$191m to fund its capacity expansion plans. We have covered the H-shares listing in 2018, Ganfeng Lithium IPO (赣锋锂业): Falling Lithium Prices Weigh on the Leading Producer.The shares have more than doubled on YTD basis, even though earnings have far from kept pace. However, analyst continue to be positive on the stock and are building in much faster growth ahead.

Ganfeng Lithium Placement - Momentum Play

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Tesla was not included in the S&amp;P 500 in its latest revision with the S&amp;P committee instead choosing to include the much smaller Etsy, Teradyne and Catalent. In addition, the company was the subject of a less than flattering review of its Full Self-Driving functionality by Consumer Reports. A review whose implications were underlined by an accident in China on Saturday where two people were killed and six injured with a Tesla driven by a 51-year-old woman involved. Downside risks are starting to accumulate here.

Tesla was not included in the S&amp;P 500 in its latest revision with the S&amp;P committee instead choosing to include the much smaller Etsy, Teradyne and Catalent. In addition, the company was the subject of a less than flattering review of its Full Self-Driving functionality by Consumer Reports. A review whose implications were underlined by an accident in China on Saturday where two people were killed and six injured with a Tesla driven by a 51-year-old woman involved. Downside risks are starting to accumulate here.

Tesla – Fully Self-Driven, but Badly And Not Into the S&P

Hang Seng China Enterprises Index / Event-Driven

With everything almost done and dusted on the HSCEI 2020 dividend futures, the focus has shifted firmly to the HSCEI dividend futures contract expiring in 2021.The HSCEI 2021 dividend futures contract has dropped from a high of almost 500 index points in May 2018 and 400 index points in January 2020 to just 278 index points now. The change is mostly driven by Hang Seng Indexes' decision to include WVR securities and Secondary Listings in the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a>, and with COVID-19 contributing to a sharp drop in company earnings.The HSCEI 2021 dividend futures are trading near our fair value at the moment. However, there are still many more catalysts that will keep things interesting for the next few months. Further changes in the index composition and the capping applied to WVR securities and Secondary Listings, pressure on megabanks to support the real economy at the expense of profits and shareholder return, and companies that have never paid dividends starting to pay are just some of them.We discuss all this in more detail below.

With everything almost done and dusted on the HSCEI 2020 dividend futures, the focus has shifted firmly to the HSCEI dividend futures contract expiring in 2021.The HSCEI 2021 dividend futures contract has dropped from a high of almost 500 index points in May 2018 and 400 index points in January 2020 to just 278 index points now. The change is mostly driven by Hang Seng Indexes' decision to include WVR securities and Secondary Listings in the Hang Seng China Enterprises Index (HSCEI INDEX), and with COVID-19 contributing to a sharp drop in company earnings.The HSCEI 2021 dividend futures are trading near our fair value at the moment. However, there are still many more catalysts that will keep things interesting for the next few months. Further changes in the index composition and the capping applied to WVR securities and Secondary Listings, pressure on megabanks to support the real economy at the expense of profits and shareholder return, and companies that have never paid dividends starting to pay are just some of them.We discuss all this in more detail below.

HSCEI Dividends: Multiple Catalysts to Drive Fair Value Changes

Equity Analyst, LightStream Research

Aqila Ali

Equity Analyst

In <a href="https://www.smartkarma.com/insights/xpeng-following-lixiang-s-ipo-plan" target="_blank" data-smartkarma-citation="insights:41747" rel="noopener">Xpeng: Following Lixiang’s IPO Plan</a>, we covered Xpeng’’s background, its business model, growth prospects, comparing it with peers Tesla, Nio and Li. In <a href="https://www.smartkarma.com/insights/xpeng-ipo-financial-analysis-more-products-than-li-but-generates-a-gross-loss-and-wider-net-loss" target="_blank" data-smartkarma-citation="insights:42182" rel="noopener">Xpeng IPO (Financial Analysis): More Products Than Li, But Generates A Gross Loss and Wider Net Loss</a>, we looked at the company’s financial performance in comparison to its peers. We concluded that Xpeng’s business model and the product development plan is better than Lixiang’s. However, we noted that relatively low delivery growth rates and consumer concerns regarding Xpeng’s products are potential red flags and that the company’s financial performance is not better than peers.According to the latest filings, Xpeng aims to raise around $972m or more, offering 85 million American depositary shares (one ADS represents two ordinary shares), at an IPO price range of $11-$13 per ADS.  This insight covers Xpeng’s valuation based on two possible scenarios, comparing it with closest peers. Our key points:<ul>
<li>The company looks expensive on a moderate growth case, thus, we did not look at a possible low growth scenario.</li>
<li>High growth case, which assumes revenue  CAGR of 133% through FY2019-2021 is challenging but not entirely impossible for Xpeng to achieve. In this scenario, IPO price range implies  FY2EV/sales of 3.3-3.9x, below Tesla’s (6.8x) but above Nio’s (1.6x). Thus, Xpeng could see a potential upside if it can extract a multiple similar to Tesla’s.</li>
<li>The IPO price range implies 9.3-10.8x FY2 EV/sales under our moderate growth assumptions, where the company is expected to enjoy 75% revenue CAGR through FY2019-2021. Under our base-case assumptions, the company looks overvalued at a c.47% premium to Tesla’s FY2 EV/Sales and c.528% premium to Nio’s.</li>
<li>That said, Xpeng shares could pop anyway due to the positive sentiment on EVs.</li>
<li>Overall, risks rewards are not attractive for a buy recommendation.</li>
</ul><div><div></div></div>

In Xpeng: Following Lixiang’s IPO Plan, we covered Xpeng’’s background, its business model, growth prospects, comparing it with peers Tesla, Nio and Li. In Xpeng IPO (Financial Analysis): More Products Than Li, But Generates A Gross Loss and Wider Net Loss, we looked at the company’s financial performance in comparison to its peers. We concluded that Xpeng’s business model and the product development plan is better than Lixiang’s. However, we noted that relatively low delivery growth rates and consumer concerns regarding Xpeng’s products are potential red flags and that the company’s financial performance is not better than peers.According to the latest filings, Xpeng aims to raise around $972m or more, offering 85 million American depositary shares (one ADS represents two ordinary shares), at an IPO price range of $11-$13 per ADS.  This insight covers Xpeng’s valuation based on two possible scenarios, comparing it with closest peers. Our key points:
The company looks expensive on a moderate growth case, thus, we did not look at a possible low growth scenario.
High growth case, which assumes revenue  CAGR of 133% through FY2019-2021 is challenging but not entirely impossible for Xpeng to achieve. In this scenario, IPO price range implies  FY2EV/sales of 3.3-3.9x, below Tesla’s (6.8x) but above Nio’s (1.6x). Thus, Xpeng could see a potential upside if it can extract a multiple similar to Tesla’s.
The IPO price range implies 9.3-10.8x FY2 EV/sales under our moderate growth assumptions, where the company is expected to enjoy 75% revenue CAGR through FY2019-2021. Under our base-case assumptions, the company looks overvalued at a c.47% premium to Tesla’s FY2 EV/Sales and c.528% premium to Nio’s.
That said, Xpeng shares could pop anyway due to the positive sentiment on EVs.
Overall, risks rewards are not attractive for a buy recommendation.


Xpeng IPO (Valuation): Positive EV Momentum But Priced High

China

BYD Company Limited, through its subsidiaries, manufactures and sells automobiles. The Company also researches, develops, manufactures and sells batteries, which are applied on mobile phones, cordless phones, power tools and other kinds of portable electronic devices.

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BYD (1211 HK)

HSCEI Index Rebalance Preview - December 2020: HUGE Number of Changes and Turnover Expected

The Hang Seng Indexes Company Limited (HSIL) will announce the results of the 2020 Q2 review of the Hang Seng Family of Indexes in mid August. The...

Brian Freitas

Ganfeng Lithium Placement - Momentum Play

Ganfeng Lithium IPO (赣锋锂业): Falling Lithium Prices Weigh on the Leading Producer

Sumeet Singh

Tesla – Fully Self-Driven, but Badly And Not Into the S&P

Tesla was not included in the S&P 500 in its latest revision with the S&P committee instead choosing to include the much smaller Etsy,...

Mio Kato

HSCEI Dividends: Multiple Catalysts to Drive Fair Value Changes

With multiple catalysts driving fair value estimates, there will be significant trading opportunities in the HSCEI 2021 dividend futures.

Brian Freitas

Xpeng IPO (Valuation): Positive EV Momentum But Priced High

In Xpeng: Following Lixiang’s IPO Plan, we covered Xpeng’’s background, its business model, growth prospects, comparing it with peers Tesla, Nio...

Aqila Ali

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