HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Foreign exchange gains/losses are major swing factors in FY22 results of many companies and we think investors may have overlooked their importance in driving FY23 earnings. </li>
<li>With Rmb/USD exchange rate appreciated YTD, reversing the 8.5% depreciation in last year, the demons of many companies in last year will become positive earnings contributor. </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>, <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>, <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> and <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> are key beneficiaries, while <a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">CIMC Enric (3899 HK)</a> may turned into exchange losses.</li>
</ul>


Foreign exchange gains/losses are major swing factors in FY22 results of many companies and we think investors may have overlooked their importance in driving FY23 earnings. 
With Rmb/USD exchange rate appreciated YTD, reversing the 8.5% depreciation in last year, the demons of many companies in last year will become positive earnings contributor. 

Shenzhen International (152 HK), ENN Energy (2688 HK), Shenzhen Expressway (548 HK) and Kunlun Energy (135 HK) are key beneficiaries, while CIMC Enric (3899 HK) may turned into exchange losses.


China Strategy: It Is the Foreign Exchange Impact, Stupid!

Equity Bottom-Up

China Everbright Environment / Equity Bottom-Up

<ul>
<li>Plunge in net profit, high gearing and slowdown in new projects are market concerns, but should have well reflected in its share price. Its 3.6x PER is just too cheap. </li>
<li>FY23 will see profit recovery, backed by decent project pipeline and lack of one-offs like impairment and exchange losses. Consensus forecast of 15% profit growth is too conservative.</li>
<li>Cash flow will improve over the next two years as collection of national subsidies accelerates, capex moderates and contribution from operating projects increases. </li>
</ul>


Plunge in net profit, high gearing and slowdown in new projects are market concerns, but should have well reflected in its share price. Its 3.6x PER is just too cheap. 
FY23 will see profit recovery, backed by decent project pipeline and lack of one-offs like impairment and exchange losses. Consensus forecast of 15% profit growth is too conservative.
Cash flow will improve over the next two years as collection of national subsidies accelerates, capex moderates and contribution from operating projects increases. 


China Everbright Environment (257 HK): The Dust Should Have Settled

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/moya-holdings-asia-ltd" target="_blank" data-smartkarma-citation="entities:2293:1" rel="noopener">Moya Holdings Asia (MHAL SP)</a> received a delisting proposal from Tamaris Infrastructure (a 72.84% shareholder) at S$0.092 per share, a 41.5% premium to the undisturbed price (8 September).</li>
<li>The key condition is shareholder approval. Gateway Partners, which holds a blocking stake, will likely use the offer as an opportunity to exit an underperforming investment.</li>
<li>The offer price is attractive. At the last close price, the gross and annualised spread for a year-end effective date is 3.4% and 11.5%, respectively.</li>
</ul>



Moya Holdings Asia (MHAL SP) received a delisting proposal from Tamaris Infrastructure (a 72.84% shareholder) at S$0.092 per share, a 41.5% premium to the undisturbed price (8 September).
The key condition is shareholder approval. Gateway Partners, which holds a blocking stake, will likely use the offer as an opportunity to exit an underperforming investment.
The offer price is attractive. At the last close price, the gross and annualised spread for a year-end effective date is 3.4% and 11.5%, respectively.


Canvest Environmental Protection Group / Equity Bottom-Up

<ul>
<li>The 25.6% increase in net profit for <a href="https://www.smartkarma.com/entities/canvest-environmental-protection-group-co-ltd" target="_blank" data-smartkarma-citation="entities:100:1" rel="noopener">Canvest Environmental Protection Group (1381 HK)</a> in 1H22 is a resilient show given cost inflation and pandemic/lockdowns in the period.</li>
<li>Good pipeline should support growth for the next two years as projects under construction/planning accounted for 54% of the existing capacity in Aug.</li>
<li>Canvest's expectation that gearing has peaked suggests that it will start deleverage in next year. This is a positive message in an industry traditionally with weak cashflow.</li>
</ul>


The 25.6% increase in net profit for Canvest Environmental Protection Group (1381 HK) in 1H22 is a resilient show given cost inflation and pandemic/lockdowns in the period.
Good pipeline should support growth for the next two years as projects under construction/planning accounted for 54% of the existing capacity in Aug.
Canvest's expectation that gearing has peaked suggests that it will start deleverage in next year. This is a positive message in an industry traditionally with weak cashflow.


Canvest Env (1381 HK): Streaming Ahead Despite Tough Time

China Conch Environment Protection Holdings / Equity Bottom-Up

China Conch Environment Protection Holdings

<ul>
<li>The sharp plunge in share price of <a href="https://www.smartkarma.com/entities/china-conch-environment-protection-holdings-ltd" target="_blank" data-smartkarma-citation="entities:4827:1" rel="noopener">China Conch Environment Protection Holdings (587 HK)</a> has not yet brought its valuations back to more reasonable levels and we see more downside.</li>
<li>Its 10.1x PER for FY22F is at a significant premium over peer average. Even taking into account the impressive ROE, we still cannot find justifications for its high P/B multiple.  </li>
<li>Negative catalysts include overly aggressive expansion target, slower profit growth than rise in capacity and surge in gearing and finance costs - they will potentially lead to earnings disappointment.</li>
</ul>


The sharp plunge in share price of China Conch Environment Protection Holdings (587 HK) has not yet brought its valuations back to more reasonable levels and we see more downside.
Its 10.1x PER for FY22F is at a significant premium over peer average. Even taking into account the impressive ROE, we still cannot find justifications for its high P/B multiple.  
Negative catalysts include overly aggressive expansion target, slower profit growth than rise in capacity and surge in gearing and finance costs - they will potentially lead to earnings disappointment.


Conch Environment (587 HK): Don't Overly Bet on the Blue Sky Scenario

Hong Kong

Canvest Environment Protection Group Company Limited focuses on the development, management, and operation of waste-to-energy plants. The Company's plants are located in China.

Canvest Environmental Protection Group (1381 HK)

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Canvest Environmental Protection Group (1381 HK)

China Strategy: It Is the Foreign Exchange Impact, Stupid!

Shenzhen Intl, ENN Energy, Shenzhen Expressway and Kunlun Energy are the key beneficiaries of the reverse in Rmb/USD depreciation trend in FY23,...

Osbert Tang, CFA

China Everbright Environment (257 HK): The Dust Should Have Settled

FY23 outlook has brightened as it will be supported by healthy project pipeline and lack of one-off items. There is potential for financial...

Osbert Tang, CFA

Moya Holding’s S$0.092 Delisting Offer

The offer price is attractive. At the last close price, the gross and annualised spread for a year-end effective date is 3.4% and 11.5%, respectively.

Arun George

Canvest Env (1381 HK): Streaming Ahead Despite Tough Time

After a good start in 1H22, we think there is room for Canvest's earnings to further improve in 2H22. Its improved cash flow and potential to...

Osbert Tang, CFA

Conch Environment (587 HK): Don't Overly Bet on the Blue Sky Scenario

There still exists downside risk on CCEP despite the 64% fall in share price since listing; and key negative catalysts are overly aggressive...

Osbert Tang, CFA

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