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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 21 May. The constituent changes will be effective after the close of trading on 4 June.For 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>, there are 2 inclusions and 3 exclusions. This brings the number of index constituents back down to 50.The inclusions are <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> and <a href="https://www.smartkarma.com/entities/evergrande-property-services" target="_blank" data-smartkarma-citation="entities:30921:1" rel="noopener">Evergrande Property Services (6666 HK)</a>, while <a href="https://www.smartkarma.com/entities/guangdong-investment-ltd" target="_blank" data-smartkarma-citation="entities:12109:1" rel="noopener">Guangdong Investment (270 HK)</a>, <a href="https://www.smartkarma.com/entities/china-unicom-hong-kong-ltd" target="_blank" data-smartkarma-citation="entities:1016:1" rel="noopener">China Unicom Hong Kong (762 HK)</a> and <a href="https://www.smartkarma.com/entities/china-tower-corp-ltd" target="_blank" data-smartkarma-citation="entities:27037:1" rel="noopener">China Tower (788 HK)</a> have been deleted from the index. This is exactly in line with our <a href="https://www.smartkarma.com/insights/hscei-june-2021-index-rebalance-preview-three-adds-four-deletes-possible" target="_blank" rel="noopener">forecast</a>.One-way turnover is estimated at 8.37% and will result in a one-way trade of HK$5.98bn. The largest passive inflows will be on <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> and <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> as a result of the capping change from 5% to 8%, while the largest outflows will be on <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>, <a href="https://www.smartkarma.com/entities/china-construction-bank-h" target="_blank" data-smartkarma-citation="entities:45:1" rel="noopener">China Construction Bank H (939 HK)</a> and <a href="https://www.smartkarma.com/entities/china-tower-corp-ltd" target="_blank" data-smartkarma-citation="entities:27037:1" rel="noopener">China Tower (788 HK)</a>.There are only 10 trading days to implementation of the changes and there should be some impact on the stocks even though the changes were largely expected (at least by us). <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> was widely expected to be included but <a href="https://www.smartkarma.com/entities/evergrande-property-services" target="_blank" data-smartkarma-citation="entities:30921:1" rel="noopener">Evergrande Property Services (6666 HK)</a> was not on everyone's list. With 4 days ADV to buy on <a href="https://www.smartkarma.com/entities/evergrande-property-services" target="_blank" data-smartkarma-citation="entities:30921:1" rel="noopener">Evergrande Property Services (6666 HK)</a>, the stock could outperform till implementation date.

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 21 May. The constituent changes will be effective after the close of trading on 4 June.For the Hang Seng China Enterprises Index (HSCEI INDEX), there are 2 inclusions and 3 exclusions. This brings the number of index constituents back down to 50.The inclusions are BYD (1211 HK) and Evergrande Property Services (6666 HK), while Guangdong Investment (270 HK), China Unicom Hong Kong (762 HK) and China Tower (788 HK) have been deleted from the index. This is exactly in line with our forecast.One-way turnover is estimated at 8.37% and will result in a one-way trade of HK$5.98bn. The largest passive inflows will be on Meituan (3690 HK) and Alibaba Group (9988 HK) as a result of the capping change from 5% to 8%, while the largest outflows will be on Tencent (700 HK), China Construction Bank H (939 HK) and China Tower (788 HK).There are only 10 trading days to implementation of the changes and there should be some impact on the stocks even though the changes were largely expected (at least by us). BYD (1211 HK) was widely expected to be included but Evergrande Property Services (6666 HK) was not on everyone's list. With 4 days ADV to buy on Evergrande Property Services (6666 HK), the stock could outperform till implementation date. 

HSCEI Index Rebalance: BYD's Double Inclusion; Capping Changes Lead to High Turnover

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 21 May. The constituent changes will be effective after the close of trading on 4 June.For the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> there are 3 inclusions - <a href="https://www.smartkarma.com/entities/xinyi-solar-holdings-ltd" target="_blank" data-smartkarma-citation="entities:318:1" rel="noopener">Xinyi Solar Holdings (968 HK)</a>, <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> and <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a>.The 3 inclusions will increase the number of index constituents to 58. With the target of getting to 80 stocks by mid-2022, the expectation was for more stocks to be included at this review. What likely resulted in fewer stocks being added was the large turnover due to the capping changes.While we had expected the inclusion of <a href="https://www.smartkarma.com/entities/xinyi-solar-holdings-ltd" target="_blank" data-smartkarma-citation="entities:318:1" rel="noopener">Xinyi Solar Holdings (968 HK)</a> and <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a>, the inclusion of <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> will have a big impact since the stock has also been 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>. One-way turnover is estimated at 7.77% and will result in a one-way trade of HK$16.82bn.  The largest passive inflows will be on <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> and <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> as a result of the capping change from 5% to 8%, while the largest outflows will be from <a href="https://www.smartkarma.com/entities/aia-group-ltd" target="_blank" data-smartkarma-citation="entities:14895:1" rel="noopener">AIA Group Ltd (1299 HK)</a>, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> and <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc" target="_blank" data-smartkarma-citation="entities:516:1" rel="noopener">HSBC Holdings (5 HK)</a> due to the capping change from 10% to 8%.There are only 10 trading days to implementation of the changes and we expect all 3 inclusions to open higher on Monday and continue to outperform the market over the period.

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 21 May. The constituent changes will be effective after the close of trading on 4 June.For the Hong Kong Hang Seng Index (HSI INDEX) there are 3 inclusions - Xinyi Solar Holdings (968 HK), BYD (1211 HK) and Country Garden Services Holdings (6098 HK).The 3 inclusions will increase the number of index constituents to 58. With the target of getting to 80 stocks by mid-2022, the expectation was for more stocks to be included at this review. What likely resulted in fewer stocks being added was the large turnover due to the capping changes.While we had expected the inclusion of Xinyi Solar Holdings (968 HK) and Country Garden Services Holdings (6098 HK), the inclusion of BYD (1211 HK) will have a big impact since the stock has also been included in the Hang Seng China Enterprises Index (HSCEI INDEX). One-way turnover is estimated at 7.77% and will result in a one-way trade of HK$16.82bn.  The largest passive inflows will be on Meituan (3690 HK) and Alibaba Group (9988 HK) as a result of the capping change from 5% to 8%, while the largest outflows will be from AIA Group Ltd (1299 HK), Tencent (700 HK) and HSBC Holdings (5 HK) due to the capping change from 10% to 8%.There are only 10 trading days to implementation of the changes and we expect all 3 inclusions to open higher on Monday and continue to outperform the market over the period.

HSI Index Rebalance: Only 3 Additions but BIG Turnover

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.

Quantitative Analysis

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 May 21.In the past 7 days, the top 3 companies that repurchased the most shares from the market were China Gas Holdings Limited (384 HK) (HKD 199.1 million worth of buybacks), Haier Smart Home Co., Ltd. (6690 HK) (HKD 48.1 million worth of buybacks), Want Want China Holdings Limited (151 HK) (HKD 26.5 million worth of buybacks).In the past 30 days, the top 3 companies that repurchased the most shares from the market were Xiaomi Corporation (1810 HK) (HKD 892.4 million worth of buybacks), Hopson Development Holdings Limited-100 (754 HK) (HKD 259.5 million worth of buybacks), China Gas Holdings Limited (384 HK) (HKD 199.1 million worth of buybacks).In the past 90 days, the top 3 companies that repurchased the most shares from the market were Xiaomi Corporation (1810 HK) (HKD 4,992.9 million worth of buybacks), Want Want China Holdings Limited (151 HK) (HKD 676.3 million worth of buybacks), Hengan International Group Company Limited (1044 HK) (HKD 452.4 million worth of buybacks).In the past 365 days, the top 3 companies that repurchased the most shares from the market were Xiaomi Corporation (1810 HK) (HKD 4,992.9 million worth of buybacks), China Evergrande Group (3333 HK) (HKD 3,824.6 million worth of buybacks), Want Want China Holdings Limited (151 HK) (HKD 2,142.9 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 May 21.In the past 7 days, the top 3 companies that repurchased the most shares from the market were China Gas Holdings Limited (384 HK) (HKD 199.1 million worth of buybacks), Haier Smart Home Co., Ltd. (6690 HK) (HKD 48.1 million worth of buybacks), Want Want China Holdings Limited (151 HK) (HKD 26.5 million worth of buybacks).In the past 30 days, the top 3 companies that repurchased the most shares from the market were Xiaomi Corporation (1810 HK) (HKD 892.4 million worth of buybacks), Hopson Development Holdings Limited-100 (754 HK) (HKD 259.5 million worth of buybacks), China Gas Holdings Limited (384 HK) (HKD 199.1 million worth of buybacks).In the past 90 days, the top 3 companies that repurchased the most shares from the market were Xiaomi Corporation (1810 HK) (HKD 4,992.9 million worth of buybacks), Want Want China Holdings Limited (151 HK) (HKD 676.3 million worth of buybacks), Hengan International Group Company Limited (1044 HK) (HKD 452.4 million worth of buybacks).In the past 365 days, the top 3 companies that repurchased the most shares from the market were Xiaomi Corporation (1810 HK) (HKD 4,992.9 million worth of buybacks), China Evergrande Group (3333 HK) (HKD 3,824.6 million worth of buybacks), Want Want China Holdings Limited (151 HK) (HKD 2,142.9 million worth of buybacks).

Hong Kong Buybacks: China Gas, Haier Smart Home, Want Want

Smartkarma Research Team, Smartkarma

Smartkarma Research

Smartkarma Research Team

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

Smoore International Holdings / Event-Driven

For our next Webinar, we 're excited to welcome back Insight Provider <a href="https://www.smartkarma.com/profiles/brian-freitas" target="_blank" data-smartkarma-citation="accounts:4091" rel="noopener">Brian Freitas</a> , who will discuss the upcoming rebalance of the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a>. Scheduled for June 2021, the HSI rebalance is slated to increase constituents to 80 by mid-2022, better balance representation among industry groups, and rationalise the weighting cap to 8% for all stocks.<h3>The webinar will be hosted on Wednesday, 19 May 2021, 17:00 SGT/HKT.</h3><div class="content-highlight"><h2><a href="https://share.hsforms.com/1H9pFZOB-RF2J00kbvMmxcw2c5gj?zoom_webinar_id=87998710285" target="_blank" rel="noopener">Register for the Webinar here</a></h2></div>Brian Freitas is a highly experienced ex-delta one trader with over 17 years of experience. He was previously with Barclays, Macquarie, Credit Suisse and BNP Paribas.

For our next Webinar, we 're excited to welcome back Insight Provider Brian Freitas , who will discuss the upcoming rebalance of the Hong Kong Hang Seng Index (HSI INDEX). Scheduled for June 2021, the HSI rebalance is slated to increase constituents to 80 by mid-2022, better balance representation among industry groups, and rationalise the weighting cap to 8% for all stocks.The webinar will be hosted on Wednesday, 19 May 2021, 17:00 SGT/HKT.Register for the Webinar hereBrian Freitas is a highly experienced ex-delta one trader with over 17 years of experience. He was previously with Barclays, Macquarie, Credit Suisse and BNP Paribas.

Smartkarma Webinar | Hang Seng (HSI INDEX) Rebalance: What's in Store for June?

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

The most important subsidiary and key source of earnings 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> - unlisted Kunlun Gas - reported a fantastic 42.9% YoY growth in earnings for 1Q21. Even relative to 1Q19, the net profit figure is still 30.8% higher. While gross margin contracted YoY, likely due to higher procurement costs, the exciting volume growth has offset the impact of cost inflation, in our view.Kunlun Gas' 1Q21 net profit already equals to 37.5% of its total in last year, indicating a very positive start for FY21. Moreover, it has a very comfortable gearing of 19.5% and good operating cash flow, meaning that there is no need for it to seek funding from parent Kunlun Energy. Hence, Kunlun Energy can pursue more value-enhancing acquisitions through its cash on hand. All in all, the result implies great start for Kunlun Energy in 1Q21 - Kunlun Gas accounted for 72% of Kunlun Energy's net profit from continuing operations in last year.

The most important subsidiary and key source of earnings of Kunlun Energy (135 HK) - unlisted Kunlun Gas - reported a fantastic 42.9% YoY growth in earnings for 1Q21. Even relative to 1Q19, the net profit figure is still 30.8% higher. While gross margin contracted YoY, likely due to higher procurement costs, the exciting volume growth has offset the impact of cost inflation, in our view.Kunlun Gas' 1Q21 net profit already equals to 37.5% of its total in last year, indicating a very positive start for FY21. Moreover, it has a very comfortable gearing of 19.5% and good operating cash flow, meaning that there is no need for it to seek funding from parent Kunlun Energy. Hence, Kunlun Energy can pursue more value-enhancing acquisitions through its cash on hand. All in all, the result implies great start for Kunlun Energy in 1Q21 - Kunlun Gas accounted for 72% of Kunlun Energy's net profit from continuing operations in last year. 

Kunlun Energy (135 HK): A Fantastic 1Q21 at Kunlun Gas

Hong Kong

Zhongyu Gas Holdings Limited operates in exploration, exploitation, development and production of coal bed methane and the sale of coalbed methane in the PRC. It also develops, constructs and operates natural gas projects in PRC, which include design and construction of natural gas pipeline network and ancillary facilities, and sale and maintenance of natural gas and its appliances.

China Resources Gas Group Ltd distributes natural gas and petroleum gas in the cities of Chengdu, Fuyang, Huaibei, Linhai, Suzhou and Wuxi in the PRC. The Company also operates compressed natural gas filling stations in Chengdu, Nanjing and Wuxi. The group also is involved in bottled liquefied petroleum gas distribution in cities of Fuyang, Suzhou and Wuxi.

Towngas China Company Ltd. distributes and markets gas.  The Company sells LPG (liquefied petroleum gas) in  bulk and in cylinder, provides piped LPG and natural gas, constructs gas pipelines, operates city gas-pipeline networks and gas stations, and sells LPG  and natural gas household appliances.

Binhai Investment Company Ltd, through its subsidiaries, operates gas businesses.  The Company constructs gas pipeline networks, provides piped gas to customers in mainland China, wholesales and retails liquefied petroleum gas (LPG) by way of refueling gas cylinders or tanks for domestic, industrial and commercial customers, and sell LPG equipment and domestic gas appliances.

China Power International Development Limited, through its subsidiaries, develops, constructs, owns, manages, and operates large power plants in China.

HK Electric Investments and HK Electric Investments Limited is a fixed single investment trust in Hong Kong with a focus on the power industry. The Trust is a vertically integrated power utility and its operations comprise the generation, transmission, distribution, and supply of electricity to Hong Kong Island and Lamma Island.

Guangdong Investment Limited, through its subsidiaries, operates water supply, power and electricity, and infrastructure businesses.  The Company also invests in and develops real estate properties, operates department stores, and provides financial services.

China Oil and Gas Group Ltd. is engaged in the investments in, and the operation and management of the natural gas and energy related business. Gas operations include city piped gas business, natural gas vehicle refilling stations, pipeline construction and operation, as well as transportation, delivery and distribution of compressed natural gas (CNG) and liquefied natural gas (LNG).

Beijing Gas Blue Sky Holdings Limited operates as an integrated natural gas provider, distributor, and operator. The Company offers natural gas transportation, trading, and distribution services. Beijing Gas Blue Sky Holdings serves customers in Hong Kong.

Beijing Enterprises Water Group Limited, through its subsidiaries, develops water treatment systems.  The Group specializes in water services and environmental protection businesses, with waste water treatment as its core business segment.

Southwest Gas Corporation purchases, transports, and distributes natural gas to residential, commercial, and industrial customers in portions of Arizona, Nevada, and California.  The Company also provides construction services to utility companies, including trenching and installation, replacement, and maintenance services for energy distribution systems.

National Fuel Gas Company is an integrated natural gas company with operations in all segments of the natural gas industry, including utility, pipeline and storage, exploration and production, and marketing operations.  The Company operates across the United States.

Indraprastha Gas Limited processes and distributes compressed natural gas and liquefied petroleum gas. The Company has been jointly promoted by Bharat Petroleum Corporation and Gas Authority of India.

UGI Corporation distributes and markets energy products and services.  The Company is a domestic and international distributor of propane.  UGI also distributes and markets natural gas and electricity, and sells related products and services in the Middle Atlantic region of the United States.

New Jersey Resources Corporation provides retail and wholesale energy services to customers in New Jersey and in states from the Gulf Coast to New England, and Canada.  The Company's principal subsidiary, New Jersey Natural Gas Co., is a local distribution company serving customers in central and northern New Jersey.

Gujarat Gas Limited provides natural gas. The Company supplies piped natural gas to residential, commercial, and industrial customers. Gujarat Gas serves customers in India.

ONE Gas, Inc. is a regulated natural gas utility. The Company distributes natural gas to customers in Oklahoma, Kansas and Texas. ONE Gas serves the residential, commercial, industrial, transportation, and wholesale industries.

Spire Inc. is a public utility company involved in the retail distribution of natural gas. The Company serves an area in eastern Missouri and parts of several other counties. Spire also operates underground natural gas storage fields and transports and stores liquid propane.

Enagas SA imports, stores, and transports natural gas. The Company imports liquid natural gas on methane carriers and operates regasification plants in Barcelona, Huelva, and Cartagena. Enagas also receives natural gas through pipelines over the Pyrenees Mountains and across the Strait of Gibraltar. The Company transports gas throughout Spain through its high-pressure pipelines.

Italgas S.p.A. provides gas distribution services. The Company offers delivery points management, pressure reduction plants, withdrawal cabins, fault reporting, and laboratory testing services. Italgas conducts its business in Italy.

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)

HSCEI Index Rebalance: BYD's Double Inclusion; Capping Changes Lead to High Turnover

The 2 adds and 3 deletes for the HSCEI are just what we expected. BYD is an inclusion in the HSI too and could move higher over the next 2 weeks....

Brian Freitas

HSI Index Rebalance: Only 3 Additions but BIG Turnover

There are 3 inclusions (BYD, Xinyi Solar, CG Services) to the HSI taking the number of constituents up to 58. Turnover is high at 7.77% and will...

Brian Freitas

Hong Kong Buybacks: China Gas, Haier Smart Home, Want Want

In the past 7 days, the top 3 companies that repurchased the most shares from the market were China Gas Holdings Limited (384 HK), Haier Smart Home...

Ke Yan, CFA, FRM

Smartkarma Webinar | Hang Seng (HSI INDEX) Rebalance: What's in Store for June?

On 19 May, 5PM SGT, join our webinar with Brian Freitas, where we will discuss the upcoming rebalance of the Hong Kong Hang Seng Index (HSI INDEX)...

Smartkarma Research

Kunlun Energy (135 HK): A Fantastic 1Q21 at Kunlun Gas

Kunlun Energy's most important unlisted subsidiary Kunlun Gas achieved net profit growth of 42.9% in 1Q21, and this is an impressive start for the...

Osbert Tang, CFA

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