IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

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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

<a href="https://www.smartkarma.com/entities/suchuang-gas-corp-ltd" target="_blank" data-smartkarma-citation="entities:304:1" rel="noopener">Suchuang Gas Corp (1430 HK)</a> is the dominant piped natural gas operator in Taicang, Jiangsu Province. After market close on Wednesday, it announced a privatisation offer by way of a scheme of arrangement from <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>. The offeror will offer either a cash alternative (HK$2.50 in cash for each scheme share) or a share alternative (1 new share in HoldCo for every scheme share).The bid represents a premium of 27.6% over the closing price of HK$1.96 per share on the undisturbed date (10 August 2021 prior to irregular price movements) and a premium of 2.9% over the closing price of HK$2.43 per share on the last trading date (13 August 2021 prior to the trading halt). The completion conditions include regulatory approvals from the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and State Administration for Market Regulation (SAMR). As CR Gas is a subsidiary of China Resources (Holdings) Company Limited, an SOE, regulatory approval should be forthcoming. <div class="content-highlight">The key condition precedents are the headcount test along with the scheme approved by at least 75% disinterested shareholders and &lt;10% rejection by all disinterested shareholders. As disinterested scheme shareholders represent 565.4 million shares or 62.61% of shares outstanding, the 10% blocking stake is 56.5 million shares or 6.26% of shares outstanding. Excluding the irrecovables, no disinterested shareholder holds a blocking stake. Overall, we think the offer price is ok and that the privatisation bid will be successful. </div>

Suchuang Gas Corp (1430 HK) is the dominant piped natural gas operator in Taicang, Jiangsu Province. After market close on Wednesday, it announced a privatisation offer by way of a scheme of arrangement from CR Gas (1193 HK). The offeror will offer either a cash alternative (HK$2.50 in cash for each scheme share) or a share alternative (1 new share in HoldCo for every scheme share).The bid represents a premium of 27.6% over the closing price of HK$1.96 per share on the undisturbed date (10 August 2021 prior to irregular price movements) and a premium of 2.9% over the closing price of HK$2.43 per share on the last trading date (13 August 2021 prior to the trading halt). The completion conditions include regulatory approvals from the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and State Administration for Market Regulation (SAMR). As CR Gas is a subsidiary of China Resources (Holdings) Company Limited, an SOE, regulatory approval should be forthcoming. The key condition precedents are the headcount test along with the scheme approved by at least 75% disinterested shareholders and &lt;10% rejection by all disinterested shareholders. As disinterested scheme shareholders represent 565.4 million shares or 62.61% of shares outstanding, the 10% blocking stake is 56.5 million shares or 6.26% of shares outstanding. Excluding the irrecovables, no disinterested shareholder holds a blocking stake. Overall, we think the offer price is ok and that the privatisation bid will be successful. 

Suchuang Gas’ Privatisation Bid from CR Gas

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

We came out of the post-1H21 result call 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> with unchanged positive view, and the message from management suggested that outlook for 2H21 stay promising and the pull-back in share price is unwarranted. We increased our earnings forecasts and based on our latest projections, Kunlun is trading on just 9.2x PER for FY21 (on continuing operations), making it the cheapest among China's gas utilities stocks.We think the good new project momentum, stable margin outlook, commencement of new projects, better profitability at LNG terminals and stronger LPG volume are the major drivers for Kunlun. We estimate an ROE of 10.6% for FY21, and yet it will still be in a net cash position at end-FY21, which compares well with most peers which are at much higher leverage levels.

We came out of the post-1H21 result call of Kunlun Energy (135 HK) with unchanged positive view, and the message from management suggested that outlook for 2H21 stay promising and the pull-back in share price is unwarranted. We increased our earnings forecasts and based on our latest projections, Kunlun is trading on just 9.2x PER for FY21 (on continuing operations), making it the cheapest among China's gas utilities stocks.We think the good new project momentum, stable margin outlook, commencement of new projects, better profitability at LNG terminals and stronger LPG volume are the major drivers for Kunlun. We estimate an ROE of 10.6% for FY21, and yet it will still be in a net cash position at end-FY21, which compares well with most peers which are at much higher leverage levels.

Kunlun Energy (135 HK): Quick Take After Post-1H21 Call, Stays Positive

<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 very impressive 1H21 result with profit from continuing operations soared 249.9% YoY. All business segments recorded profitability improvement with very encouraging 46.7% YoY growth for its natural gas sales business. The exploration and production segment also achieved a good turnaround, thanks to a 28.3% YoY increase in average realised oil price.We believe the market should be happy with Kunlun's 1% increase in natural gas sales dollar margin even in a period of rising LNG price. Also, the solid momentum of new projects, which 16 were added in 1H21, compares well with peers. We think there is upside to our earnings forecasts and its current valuation of 11.5x PER (on continuing operations) for FY21 is appealing relative to peers. More updates will be provided after the post-1H21 result call.

Kunlun Energy (135 HK) posted a very impressive 1H21 result with profit from continuing operations soared 249.9% YoY. All business segments recorded profitability improvement with very encouraging 46.7% YoY growth for its natural gas sales business. The exploration and production segment also achieved a good turnaround, thanks to a 28.3% YoY increase in average realised oil price.We believe the market should be happy with Kunlun's 1% increase in natural gas sales dollar margin even in a period of rising LNG price. Also, the solid momentum of new projects, which 16 were added in 1H21, compares well with peers. We think there is upside to our earnings forecasts and its current valuation of 11.5x PER (on continuing operations) for FY21 is appealing relative to peers. More updates will be provided after the post-1H21 result call.

Kunlun Energy (135 HK): Our Initial Thoughts on 1H21 - Sharply Ahead of Expectations

We see the 1H21 earnings report of <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> is a healthy one, given a 18.4% YoY growth in core earnings. Its gross margin contracted 0.7pp YoY with only gas wholesale segment recording margin expansion. In particular, just 11% growth in retail gas gross profit and a Rmb0.05/cu.m. or about 8.2% YoY contraction in dollar margin are concerns.Management expects slower gas sales growth in 2H21 with stable margin. It secured 4 new city-gas projects in 1H21 which looks slow, though the integrated energy segment has 16 new projects. While the 1H21 result itself is not bad, we think its 20.6x PER for FY21 does not provide much upside potential from current level. After a 45% rally YTD and only 9.2% off all-time high, we see risk that ENN is vulnerable to profit-taking in the near term, based on the excuse of weaker-than-expected retail gas business.

We see the 1H21 earnings report of ENN Energy (2688 HK) is a healthy one, given a 18.4% YoY growth in core earnings. Its gross margin contracted 0.7pp YoY with only gas wholesale segment recording margin expansion. In particular, just 11% growth in retail gas gross profit and a Rmb0.05/cu.m. or about 8.2% YoY contraction in dollar margin are concerns.Management expects slower gas sales growth in 2H21 with stable margin. It secured 4 new city-gas projects in 1H21 which looks slow, though the integrated energy segment has 16 new projects. While the 1H21 result itself is not bad, we think its 20.6x PER for FY21 does not provide much upside potential from current level. After a 45% rally YTD and only 9.2% off all-time high, we see risk that ENN is vulnerable to profit-taking in the near term, based on the excuse of weaker-than-expected retail gas business.  

ENN Energy (2688 HK): Concerns on Margin Squeeze, Key Takeaways from Post-Result Call

<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> has underperformed the gas utilities sector average by a massive 26pp over the last three months. While the dilution from its Apr placement and its Shiyan, Hubei gas project explosion in Jun are reasons, we think that the depressed valuations should have reflected most of the negative concerns. At 12x PER and 1.9x P/B, it is cheaper than peers like <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> and <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>. We see room to narrow such underperformance.Despite the Shiyan explosion incident, China Gas has managed to sign a strategic cooperation agreement in Aug with Xiangyang, which is the third-largest city in Hubei. We think this suggested that the incident does not have significant impact on its ability to secure projects in the province. Its new businesses include LPG Smart MicroGrid and distributed urban heating are both progressing well, and such initiatives to be potential added drivers. Lastly, its expansion into hydrogen energy on cooperation with <a href="https://www.smartkarma.com/entities/cnooc-ltd" target="_blank" data-smartkarma-citation="entities:175:1" rel="noopener">CNOOC Ltd (883 HK)</a> may be a wild card in the long term.

China Gas Holdings (384 HK) has underperformed the gas utilities sector average by a massive 26pp over the last three months. While the dilution from its Apr placement and its Shiyan, Hubei gas project explosion in Jun are reasons, we think that the depressed valuations should have reflected most of the negative concerns. At 12x PER and 1.9x P/B, it is cheaper than peers like CR Gas (1193 HK) and ENN Energy (2688 HK). We see room to narrow such underperformance.Despite the Shiyan explosion incident, China Gas has managed to sign a strategic cooperation agreement in Aug with Xiangyang, which is the third-largest city in Hubei. We think this suggested that the incident does not have significant impact on its ability to secure projects in the province. Its new businesses include LPG Smart MicroGrid and distributed urban heating are both progressing well, and such initiatives to be potential added drivers. Lastly, its expansion into hydrogen energy on cooperation with CNOOC Ltd (883 HK) may be a wild card in the long term.

China Gas Holdings (384 HK): Looks like the Negatives Have Been Well Factored In

Hong Kong

China Gas Holdings Ltd. invests in, operates and manages natural gas distribution pipelines.  The Company distributes and sells natural gas to residential, commercial and industrial users, and bottles and sells compressed natural gas.  China Gas also constructs and operates gas stations.

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China Gas Holdings (384 HK)

Suchuang Gas’ Privatisation Bid from CR Gas

Suchuang Gas received a privatisation offer from CR Gas for a cash alternative (HK$2.50) or a share alternative. We think the offer price is ok and...

Arun George

Kunlun Energy (135 HK): Quick Take After Post-1H21 Call, Stays Positive

Our impression on Kunlun remains unchanged after the post-1H21 result call. Outlook is still encouraging and new project momentum is solid. Our...

Osbert Tang, CFA

Kunlun Energy (135 HK): Our Initial Thoughts on 1H21 - Sharply Ahead of Expectations

We think the market should welcome Kunlun's very solid 1H21 result, and particularly its 1% expansion in gas sales dollar margin and the turnaround...

Osbert Tang, CFA

ENN Energy (2688 HK): Concerns on Margin Squeeze, Key Takeaways from Post-Result Call

ENN's has a healthy 1H21 but the concerns are the slow growth in retail gas segment and the sharp contraction in margin. With 45% YTD rally and at...

Osbert Tang, CFA

China Gas Holdings (384 HK): Looks like the Negatives Have Been Well Factored In

China Gas' depressed share price should have reflected the negatives related to share placement and Shiyan explosion. Its new business momentum...

Osbert Tang, CFA

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