HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

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

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Sino American Silicon Products / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/sino-american-silicon-products-inc" target="_blank" data-smartkarma-citation="entities:3441:1" rel="noopener">Sino American Silicon Products (5483 TT)</a>  is a Taiwan-based company mainly engaged in the research, development, design, manufacture, and distribution of semiconductor wafer products with subsidiaries in both listed and unlisted companies including <a href="https://www.smartkarma.com/entities/globalwafers-co-ltd" target="_blank" data-smartkarma-citation="entities:17916:1" rel="noopener">Globalwafers (6488 TT)</a> , <a href="https://www.smartkarma.com/entities/parade-technologies-ltd" target="_blank" data-smartkarma-citation="entities:6987:1" rel="noopener">Parade Technologies (4966 TT)</a> , <a href="https://www.smartkarma.com/entities/actron-technology-corp" target="_blank" data-smartkarma-citation="entities:4989:1" rel="noopener">Actron Technology (8255 TT)</a> and <a href="https://www.smartkarma.com/entities/advanced-wireless-semiconduc" target="_blank" data-smartkarma-citation="entities:16559:1" rel="noopener">Advanced Wireless Semiconduc (8086 TT)</a> with only in Globalwafers - SAS owns more than 51%.
The large discount between SAS and its subsidiaries could be due to 1) lack of bulge-bracket coverage, 2) higher polysilicon price 3) and 3) weak 1H demand from the solar and the semiconductor from COVID-19 plague which caused investors to care less about the value dislocation between SAS and its subsidiaries.
With a somewhat certain 28-30% gain in the earning as early Q1 2022, investors should start slowly building positions in SAS as the risk-off beast may disturb the confidence in the equity market much longer than what investors would like. The second scenario of increasing stake in Parade Tech should be treated as a call option as when it happens, it is a bonus of another 24%. Thus the total upside could be around 54%. 
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Besides the above-mentioned reasons, <a href="https://www.smartkarma.com/entities/sino-american-silicon-products-inc" target="_blank" data-smartkarma-citation="entities:3441:1" rel="noopener">Sino American Silicon Products (5483 TT)</a> remains a smart way to gain exposure in Globalwafers which trades at 24x PER, compared to SAS that trades at 13x PER. The other factor is that Globalwafers dividend yield is 2.28% while SAS is 5.22%. 
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Sino American Silicon Products (5483 TT)  is a Taiwan-based company mainly engaged in the research, development, design, manufacture, and distribution of semiconductor wafer products with subsidiaries in both listed and unlisted companies including Globalwafers (6488 TT) , Parade Technologies (4966 TT) , Actron Technology (8255 TT) and Advanced Wireless Semiconduc (8086 TT) with only in Globalwafers - SAS owns more than 51%.
The large discount between SAS and its subsidiaries could be due to 1) lack of bulge-bracket coverage, 2) higher polysilicon price 3) and 3) weak 1H demand from the solar and the semiconductor from COVID-19 plague which caused investors to care less about the value dislocation between SAS and its subsidiaries.
With a somewhat certain 28-30% gain in the earning as early Q1 2022, investors should start slowly building positions in SAS as the risk-off beast may disturb the confidence in the equity market much longer than what investors would like. The second scenario of increasing stake in Parade Tech should be treated as a call option as when it happens, it is a bonus of another 24%. Thus the total upside could be around 54%. 

Besides the above-mentioned reasons, Sino American Silicon Products (5483 TT) remains a smart way to gain exposure in Globalwafers which trades at 24x PER, compared to SAS that trades at 13x PER. The other factor is that Globalwafers dividend yield is 2.28% while SAS is 5.22%. 


Sino American Silicon (5483): Entry to Globalwafers and Others

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

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.

Hong Kong Exchange publishes share repurchases by listed companies on a daily basis. In our weekly note, we will provide statistics on top repurchases over one week, one month, one quarter and one year periods ended on Jul 30.In the past 7 days, the top 3 companies that repurchased the most shares from the market were  <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a> (HKD 196.9 million worth of buybacks), <a href="https://www.smartkarma.com/entities/new-world-development" target="_blank" data-smartkarma-citation="entities:7037:1" rel="noopener">New World Development (17 HK)</a> (HKD 170.2 million worth of buybacks), <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> (HKD 86.6 million worth of buybacks).

Hong Kong Exchange publishes share repurchases by listed companies on a daily basis. In our weekly note, we will provide statistics on top repurchases over one week, one month, one quarter and one year periods ended on Jul 30.In the past 7 days, the top 3 companies that repurchased the most shares from the market were  Xiaomi Corp (1810 HK) (HKD 196.9 million worth of buybacks), New World Development (17 HK) (HKD 170.2 million worth of buybacks), China Gas Holdings (384 HK) (HKD 86.6 million worth of buybacks).

Hong Kong Buybacks: HK$200m Buyback by Xiaomi

<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> should have a decent operating performance in 1H21, with good growth achieved for natural gas sales, LPG sales, LNG terminal and also the exploration and production segment. Their performance all look to be ahead of the full-year guidance put forward in FY20 result announcement in Mar 2021 - this is encouraging.Gas project M&amp;A momentum stays decent and, with IRRs of 10-12%, the returns are ahead of the hurdle level of 8%. Following <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>  Shiyan gas explosion, local governments now prefer large SOEs to invest in projects given their more stringent safety standards, and this is an advantage of Kunlun. The gas industry also entails less regulatory risks amid government's heightened regulatory measures towards various industries lately. The recent pull-back has made valuations even more appealing, in our view.

Kunlun Energy (135 HK) should have a decent operating performance in 1H21, with good growth achieved for natural gas sales, LPG sales, LNG terminal and also the exploration and production segment. Their performance all look to be ahead of the full-year guidance put forward in FY20 result announcement in Mar 2021 - this is encouraging.Gas project M&amp;A momentum stays decent and, with IRRs of 10-12%, the returns are ahead of the hurdle level of 8%. Following China Gas Holdings' (384 HK)  Shiyan gas explosion, local governments now prefer large SOEs to invest in projects given their more stringent safety standards, and this is an advantage of Kunlun. The gas industry also entails less regulatory risks amid government's heightened regulatory measures towards various industries lately. The recent pull-back has made valuations even more appealing, in our view.  

Kunlun Energy (135 HK): Positive Takeaways from Discussion with Company

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)

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