HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Russia-Ukraine war has raised commodity prices which are negative towards commodity users in short term. However, we see silver linings for Chinese utilities and energy companies in the longer term.</li>
<li>The conflict is expected to accelerate the progress of renewable projects currently under development, lead to a faster diversification away from fossils and increase gas supply from Russia to China. </li>
<li>Key beneficiaries include <a href="https://www.smartkarma.com/entities/xinjiang-goldwind-science-technology-h" target="_blank" data-smartkarma-citation="entities:10112:1" rel="noopener">Xinjiang Goldwind (2208 HK)</a>, <a href="https://www.smartkarma.com/entities/dongfang-electric-corporation-limited" target="_blank" data-smartkarma-citation="entities:1251:1" rel="noopener">Dongfang Electric (1072 HK)</a>, <a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd" target="_blank" data-smartkarma-citation="entities:14215:1" rel="noopener">China Longyuan Power (916 HK)</a>, <a href="https://www.smartkarma.com/entities/china-energy-engineering-group" target="_blank" data-smartkarma-citation="entities:21017:1" rel="noopener">Energy China (3996 HK)</a>, <a href="https://www.smartkarma.com/entities/power-construction-corporation-of-china-limited" target="_blank" data-smartkarma-citation="entities:24220:1" rel="noopener">Power China (601669 CH)</a> and the gas utilities.</li>
</ul>


Russia-Ukraine war has raised commodity prices which are negative towards commodity users in short term. However, we see silver linings for Chinese utilities and energy companies in the longer term.
The conflict is expected to accelerate the progress of renewable projects currently under development, lead to a faster diversification away from fossils and increase gas supply from Russia to China. 
Key beneficiaries include Xinjiang Goldwind (2208 HK), Dongfang Electric (1072 HK), China Longyuan Power (916 HK), Energy China (3996 HK), Power China (601669 CH) and the gas utilities.


Russia-Ukraine War: Longer Term Implications for China Utilities and Energy

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

<ul>
<li>China Utilities stocks are lightly held, underweight and underowned in active China portfolios.  However, recent fund activity shows an turnaround in sentiment is playing out.</li>
<li>For MSCI China, China A-Share and Greater China funds it was among the top beneficiaries of recent manager rebalancing across domestic sectors.</li>
<li>As investors look for sectors that are insulated from further regulation or red-tape, China &amp; HK Utilities stocks are back on the radar.</li>
</ul>


China Utilities stocks are lightly held, underweight and underowned in active China portfolios.  However, recent fund activity shows an turnaround in sentiment is playing out.
For MSCI China, China A-Share and Greater China funds it was among the top beneficiaries of recent manager rebalancing across domestic sectors.
As investors look for sectors that are insulated from further regulation or red-tape, China &amp; HK Utilities stocks are back on the radar.


China & HK Utilities: Safehaven Comes in to Play

Equity Bottom-Up

China Three Gorges Renewables / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-three-gorges-renewables" target="_blank" data-smartkarma-citation="entities:28950:1" rel="noopener">China Three Gorges Renewables (600905 CH)</a> (CTGR) has an splendid FY21 as it pre-announced result with a range of 46.5-53.1% growth in recurring profit, fuelled by generation and disposal gains. </li>
<li>The first full-year contribution of many projects commissioned in 4Q21, which boosted a 28.4% QoQ surge in power generation, should underpin FY22 earnings - consensus forecast is expecting 41% growth.</li>
<li>YTD, CTGR's share price performed in line with Shanghai Composite Index (-6.1%), but its strong EPS CAGR of 22% for FY21-23 provides room for it to outperformed in medium term. </li>
</ul>



China Three Gorges Renewables (600905 CH) (CTGR) has an splendid FY21 as it pre-announced result with a range of 46.5-53.1% growth in recurring profit, fuelled by generation and disposal gains. 
The first full-year contribution of many projects commissioned in 4Q21, which boosted a 28.4% QoQ surge in power generation, should underpin FY22 earnings - consensus forecast is expecting 41% growth.
YTD, CTGR's share price performed in line with Shanghai Composite Index (-6.1%), but its strong EPS CAGR of 22% for FY21-23 provides room for it to outperformed in medium term. 


China Three Gorges Renewables (600905 CH): Good, and Better Is Coming

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

Guodian Technology & Environment Group / Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/guodian-technology-environment-group-corp" target="_blank" data-smartkarma-citation="entities:3941:1" rel="noopener">Guodian Technology &amp; Environment Group (1296 HK)</a> announced a pre-conditional privatisation offer from China Energy at HK$1.08 per H share, a 47.59% premium to the last close. </li>
<li>The key conditions for the delisting will be approval by at least 75% independent H-shareholders (&lt;10% of all independent H-shareholders rejection). There is no minimum acceptance condition.  </li>
<li>The offer is attractive in comparison to long-term historical share prices and multiples. We think that the privatisation proposal will likely succeed. </li>
</ul>



Guodian Technology &amp; Environment Group (1296 HK) announced a pre-conditional privatisation offer from China Energy at HK$1.08 per H share, a 47.59% premium to the last close. 
The key conditions for the delisting will be approval by at least 75% independent H-shareholders (&lt;10% of all independent H-shareholders rejection). There is no minimum acceptance condition.  
The offer is attractive in comparison to long-term historical share prices and multiples. We think that the privatisation proposal will likely succeed. 


<ul>
<li>Nov and Dec wind generation continue to accelerate on a YoY basis, and it is also noteworthy that other renewable energy generation surged 346% MoM and 992% YoY in Dec.</li>
<li>SASAC's latest guidance for the centrally-owned SOEs on installed renewable capacity target of over 50% of total by 2025 is another signal of strong government support on wind power.</li>
<li>Acceptance by Shenzhen Stock Exchange of <a href="https://www.smartkarma.com/entities/inner-mongolia-pingzhuang-energy-resources-co-ltd" target="_blank" data-smartkarma-citation="entities:4267:1" rel="noopener">Inner Mongolia PingZhuang Energy Resources (000780 CH)</a> listing withdrawal application marks another step towards <a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd" target="_blank" data-smartkarma-citation="entities:14215:1" rel="noopener">China Longyuan Power Group Corp (916 HK)</a> return to A-share.</li>
</ul>


Nov and Dec wind generation continue to accelerate on a YoY basis, and it is also noteworthy that other renewable energy generation surged 346% MoM and 992% YoY in Dec.
SASAC's latest guidance for the centrally-owned SOEs on installed renewable capacity target of over 50% of total by 2025 is another signal of strong government support on wind power.
Acceptance by Shenzhen Stock Exchange of Inner Mongolia PingZhuang Energy Resources (000780 CH) listing withdrawal application marks another step towards China Longyuan Power Group Corp (916 HK) return to A-share.


China Longyuan (916 HK): The Trend Is Your Friend

China

China Longyuan Power Group Corp Ltd designs, develops, manages, and operates wind farms.  The Company also sells the electricity generated by the wind farms.

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China Longyuan Power (916 HK)

Russia-Ukraine War: Longer Term Implications for China Utilities and Energy

We should not overlook the potential long term impact of the Russia-Ukraine war on the Chinese utilities and energy companies as we find some...

Osbert Tang, CFA

China & HK Utilities: Safehaven Comes in to Play

China Utilities stocks are lightly held, underweight and underowned in active China portfolios. However, recent fund activity shows an turnaround...

Steven Holden

China Three Gorges Renewables (600905 CH): Good, and Better Is Coming

CTGR's pre-announced FY21 result beats market expectations, and FY22 beyond will be fuelled by more new capacity completion, particularly from...

Osbert Tang, CFA

Guodian Tech’s Privatisation Offer

Guodian Tech announced a privatisation offer from China Energy at HK$1.08 per H share, a 47.59% premium to last close. The offer is attractive in...

Arun George

China Longyuan (916 HK): The Trend Is Your Friend

Good generation trend is positive, particularly a sharp improvement in other renewables. SASAC's latest SOEs energy targets and a step closer to...

Osbert Tang, CFA

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