HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Conch Venture Holdings / Equity Bottom-Up

We think the secured project pipeline for <a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture Holdings (586 HK)</a> should drive encouraging double-digit growth in its core environmental business profit in the next three years. It expects a CAGR of 52.8% in completed waste incineration capacity and 30.2% in completed solid waste and hazardous waste capacity, which in our view, should underpin remarkable earnings outlook.The flat 1H21 profit is masked by a 5% drop in contribution from <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>. which, in flat, core earnings have surged 31.4% YoY. It solid new project win is an excellent demonstration of its competitiveness. Even for Anhui Conch, the 2H21 outlook is getting more positive than 1H21. We believe that at just 5.9x PER (ex-Anhui Conch) for FY21, the market has sharply undervalued Conch Venture's environmental operations, especially given its lower-than-peers gearing of 19.4% only.

We think the secured project pipeline for China Conch Venture Holdings (586 HK) should drive encouraging double-digit growth in its core environmental business profit in the next three years. It expects a CAGR of 52.8% in completed waste incineration capacity and 30.2% in completed solid waste and hazardous waste capacity, which in our view, should underpin remarkable earnings outlook.The flat 1H21 profit is masked by a 5% drop in contribution from Anhui Conch Cement (914 HK). which, in flat, core earnings have surged 31.4% YoY. It solid new project win is an excellent demonstration of its competitiveness. Even for Anhui Conch, the 2H21 outlook is getting more positive than 1H21. We believe that at just 5.9x PER (ex-Anhui Conch) for FY21, the market has sharply undervalued Conch Venture's environmental operations, especially given its lower-than-peers gearing of 19.4% only.

Conch Venture (586 HK): Better Fortunes Going Forward

China Everbright Environment / Equity Bottom-Up

We think <a href="https://www.smartkarma.com/entities/china-everbright-environment-group-limited" target="_blank" data-smartkarma-citation="entities:15946:1" rel="noopener">China Everbright Environment (257 HK)</a> (CEE) is the best-performing environment company within the China Everbright Group, as evidenced by the 38.8% YoY growth in 1H21 earnings (ex-consolidated subsidiaries <a href="https://www.smartkarma.com/entities/china-everbright-water-limited" target="_blank" data-smartkarma-citation="entities:31446:1" rel="noopener">China Everbright Water (1857 HK)</a> and <a href="https://www.smartkarma.com/entities/china-everbright-greentech-0377b31c-5401-466f-987e-9a176b05fb52" target="_blank" data-smartkarma-citation="entities:24085:1" rel="noopener">China Everbright Greentech (1257 HK)</a>). Management's indication in the post-1H21 call that operating cash flow rose 77% YoY in the period is also a good sign.Excellent new project momentum and secured project pipeline should drive CEE's earnings in the next two years. The trend of increase in operation service revenue is also positive as this should support the growth in recurrent income and operating cash flow. We continue to see encouraging outlook for its waste-to-energy business, and with 21 projects under construction, this segment will underpin its profit outlook.  In our view, CEE's valuations of 4.1x PER and 0.61x P/B for FY21 are very appealing.  <a href="https://www.smartkarma.com/entities/china-environment-ltd" target="_blank" data-smartkarma-citation="entities:2832:1" rel="noopener"></a>

We think China Everbright Environment (257 HK) (CEE) is the best-performing environment company within the China Everbright Group, as evidenced by the 38.8% YoY growth in 1H21 earnings (ex-consolidated subsidiaries China Everbright Water (1857 HK) and China Everbright Greentech (1257 HK)). Management's indication in the post-1H21 call that operating cash flow rose 77% YoY in the period is also a good sign.Excellent new project momentum and secured project pipeline should drive CEE's earnings in the next two years. The trend of increase in operation service revenue is also positive as this should support the growth in recurrent income and operating cash flow. We continue to see encouraging outlook for its waste-to-energy business, and with 21 projects under construction, this segment will underpin its profit outlook.  In our view, CEE's valuations of 4.1x PER and 0.61x P/B for FY21 are very appealing.  

China Everbright Environment (257 HK): The Most Impressive of All

China Everbright Water / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/china-everbright-water-limited" target="_blank" data-smartkarma-citation="entities:31446:1" rel="noopener">China Everbright Water (1857 HK)</a> (CEW) posted impressive 35.5% rise in 1H21 net profit to HK$548m, driven by strengths across all revenue sources. Besides good increase in construction revenue as more projects are under construction, the 42.4% surge in revenue from operation is a very positive trend. A 4.5pp higher dividend payout ratio YoY suggested that management is confident on 2H21 outlook. CEW has an excellent pipeline of new waste water treatment projects, with 26 of them currently under construction and this should underpin medium-term growth. Moreover, tariff hike will be an added driver for 2H21 bottom line. In our view, there is still huge room to growth through M&amp;As and upgrade of existing projects. At just 0.4x P/B and 3.7x PER for FY21, CEW's valuations have well reflected the concerns of weak cash flow and tight financial position and we believe the current multiples have grossly undervalued the stock.

China Everbright Water (1857 HK) (CEW) posted impressive 35.5% rise in 1H21 net profit to HK$548m, driven by strengths across all revenue sources. Besides good increase in construction revenue as more projects are under construction, the 42.4% surge in revenue from operation is a very positive trend. A 4.5pp higher dividend payout ratio YoY suggested that management is confident on 2H21 outlook. CEW has an excellent pipeline of new waste water treatment projects, with 26 of them currently under construction and this should underpin medium-term growth. Moreover, tariff hike will be an added driver for 2H21 bottom line. In our view, there is still huge room to growth through M&amp;As and upgrade of existing projects. At just 0.4x P/B and 3.7x PER for FY21, CEW's valuations have well reflected the concerns of weak cash flow and tight financial position and we believe the current multiples have grossly undervalued the stock.

China Everbright Water (1857 HK): Post 1H21 Call - Strengths Will Sustain

China Everbright Greentech / Equity Bottom-Up

Due to weaker construction revenue for biomass projects and higher finance costs, <a href="https://www.smartkarma.com/entities/china-everbright-greentech-0377b31c-5401-466f-987e-9a176b05fb52" target="_blank" data-smartkarma-citation="entities:24085:1" rel="noopener">China Everbright Greentech (1257 HK)</a> realised a 15% YoY decline in net profit in 1H21. But on HoH basis, this has still increased 3.2%. Except biomass construction, all business segments witnessed good growth. It is encouraging to see operational projects contributed 70% of revenue in 1H21, up massively from 56% a year ago. We believe this trend will improve its earnings quality and financial position over the medium term. Management expects good growth for hazardous and waste treatment segment, both in construction and operational revenue given the project pipeline. Lower capex, collection of subsidies and securitisation will further lift its financial position. At 3.9x PER for FY21, CEGT is not expensive but we still prefer <a href="https://www.smartkarma.com/entities/china-everbright-environment-group-limited" target="_blank" data-smartkarma-citation="entities:15946:1" rel="noopener">China Everbright Environment (257 HK)</a>. Alternatively, we cannot rule out the possibility that CEGT will be privatise some time in the future, given its undemanding 0.4x P/B and the reducing need for such a separately-listed vehicle within the China Everbright Group.

Due to weaker construction revenue for biomass projects and higher finance costs, China Everbright Greentech (1257 HK) realised a 15% YoY decline in net profit in 1H21. But on HoH basis, this has still increased 3.2%. Except biomass construction, all business segments witnessed good growth. It is encouraging to see operational projects contributed 70% of revenue in 1H21, up massively from 56% a year ago. We believe this trend will improve its earnings quality and financial position over the medium term. Management expects good growth for hazardous and waste treatment segment, both in construction and operational revenue given the project pipeline. Lower capex, collection of subsidies and securitisation will further lift its financial position. At 3.9x PER for FY21, CEGT is not expensive but we still prefer China Everbright Environment (257 HK). Alternatively, we cannot rule out the possibility that CEGT will be privatise some time in the future, given its undemanding 0.4x P/B and the reducing need for such a separately-listed vehicle within the China Everbright Group.

China Everbright Greentech (1257 HK): Updates from Post-1H21 Call

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK/China, and the Korean stock markets. The top topics are below:1) POTUS Executive Order: Updated List of Chinese Stocks to Be Deleted by Major Indices2) Kanzhun IPO3) Angelalign IPO 4) China: Allows Families to Have Three Children5) HYBE Rights Offering6) China Infrastructure REITs7) Aihuishou IPO8) Full Truck Alliance IPO9) Enjin IPO10) Xpeng: Positive Momentum Back11) Tesla China Losing Market Share12) CStone Pharma (2616.HK) - Time for a Revaluation13) JD Health Lock-Up Expiration14) Passive Money Tracking KOSPI15) SK IE Tech KOSPI 200 Fast-Entry16) DL Holdings with Recent Tender’s Increased Shares: Index Treatment 17) WH Group (288 HK)

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK/China, and the Korean stock markets. The top topics are below:1) POTUS Executive Order: Updated List of Chinese Stocks to Be Deleted by Major Indices2) Kanzhun IPO3) Angelalign IPO 4) China: Allows Families to Have Three Children5) HYBE Rights Offering6) China Infrastructure REITs7) Aihuishou IPO8) Full Truck Alliance IPO9) Enjin IPO10) Xpeng: Positive Momentum Back11) Tesla China Losing Market Share12) CStone Pharma (2616.HK) - Time for a Revaluation13) JD Health Lock-Up Expiration14) Passive Money Tracking KOSPI15) SK IE Tech KOSPI 200 Fast-Entry16) DL Holdings with Recent Tender’s Increased Shares: Index Treatment 17) WH Group (288 HK)

Smartkarma North Asia Weekly: POTUS Order, Kanzhun, Angelalign, & 3 Children Policy in China

Hong Kong

China Everbright International Limited provides environmental protection project management and consultancy services. The Company's operations are broken up into environmental energy, environmental water, environmental construction and environmental technology.

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China Everbright Environment (257 HK)

Conch Venture (586 HK): Better Fortunes Going Forward

Good secured pipeline of waste incineration and solid and hazardous waste treatment capacity should underpin very solid outlook for the core...

Osbert Tang, CFA