HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>
<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>'s 2.2% drop in core earnings in FY23 is distorted by the expiry of exploration rights of oilfield projects. All other segments have done well.  </li>
<li>FY24 outlook is positive - reduction in E&amp;P distortion, addition of more city gas projects, higher utilisation of LNG plants and terminals, and optimisation of gas pricing mechanism.</li>
<li>Net cash of Rmb20.4bn equals 29% of market capitalisation, providing room for a higher dividend payout. A re-inclusion into the HSI is not totally out of the cards.</li>
</ul>



Kunlun Energy (135 HK)'s 2.2% drop in core earnings in FY23 is distorted by the expiry of exploration rights of oilfield projects. All other segments have done well.  
FY24 outlook is positive - reduction in E&amp;P distortion, addition of more city gas projects, higher utilisation of LNG plants and terminals, and optimisation of gas pricing mechanism.
Net cash of Rmb20.4bn equals 29% of market capitalisation, providing room for a higher dividend payout. A re-inclusion into the HSI is not totally out of the cards.


Kunlun Energy (135 HK): Delivering Resilience

<ul>
<li>Dismal share price performance for <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 created an opportunity for bottom fishing. Management also looks positive with 30% profit growth guidance for FY23.</li>
<li>There are rooms for good dollar margin recovery, unit sales rebound and improvement in free cash flow in FY24. Spin-off of value-added services is also a value-enhancing move. </li>
<li>De-Rating over the last three years has put the stock on undemanding multiples of 8x PER and 0.75x P/B. Its 14.8% 3-year EPS CAGR is also better than sector average.</li>
</ul>


Dismal share price performance for China Gas Holdings (384 HK) has created an opportunity for bottom fishing. Management also looks positive with 30% profit growth guidance for FY23.
There are rooms for good dollar margin recovery, unit sales rebound and improvement in free cash flow in FY24. Spin-off of value-added services is also a value-enhancing move. 
De-Rating over the last three years has put the stock on undemanding multiples of 8x PER and 0.75x P/B. Its 14.8% 3-year EPS CAGR is also better than sector average.


China Gas Holdings (384 HK): Worth a Bet Now

<ul>
<li>With an 18.6% growth in 1H22 profit from continuing operations, <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> has not disappointed us. Natural gas sales segment is a bright spot with solid growth.</li>
<li>Net cash swelled to Rmb10.2bn at end-Jun, about 2x more than the level at end-FY21. We estimate this roughly equals to 19% of the current share price. </li>
<li>New project momentum looks healthy and the market seems to have underestimated FY22 earnings. Its 8x and 7.5x PERs for FY22 and FY23 are clearly attractive. </li>
</ul>


With an 18.6% growth in 1H22 profit from continuing operations, Kunlun Energy (135 HK) has not disappointed us. Natural gas sales segment is a bright spot with solid growth.
Net cash swelled to Rmb10.2bn at end-Jun, about 2x more than the level at end-FY21. We estimate this roughly equals to 19% of the current share price. 
New project momentum looks healthy and the market seems to have underestimated FY22 earnings. Its 8x and 7.5x PERs for FY22 and FY23 are clearly attractive. 


Kunlun Energy (135 HK): An Excellent Show

<ul>
<li>Core earnings growth of 14.6% YoY at <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 not very exciting. Gas sales gross profit was down 5% while integrated energy looks better with 51.2% growth.</li>
<li>Management guidance of 12-15% growth in FY22 seems to be optimistic, especially in a period of time where high input cost is likely to eat into margin still.</li>
<li>Valuations are not too stretched, yet not very appealing. Its net debt position also does not compare well with <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/kunlun-energy-co-ltd" target="_blank" data-smartkarma-citation="entities:10054:1" rel="noopener">Kunlun Energy (135 HK)</a>. </li>
</ul>


Core earnings growth of 14.6% YoY at ENN Energy (2688 HK) is not very exciting. Gas sales gross profit was down 5% while integrated energy looks better with 51.2% growth.
Management guidance of 12-15% growth in FY22 seems to be optimistic, especially in a period of time where high input cost is likely to eat into margin still.
Valuations are not too stretched, yet not very appealing. Its net debt position also does not compare well with CR Gas (1193 HK) and Kunlun Energy (135 HK). 


ENN Energy (2688 HK): Mediocre FY21, Management Update Not Exciting

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>The last time I wrote about <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> was in early June 2021 when I discussed the little extra trick one might use to maximise dividend payout. It worked. But I was bullish.</p><p>At that time, my conclusion was...</p><blockquote><p>I am still VERY bullish on Kunlun Energy vs a basket of the three listed HK peers, and at this point, a dollar-neutral position is probably appropriate. </p></blockquote><p>The stock was a little wishy-washy the day the Special Dividend went ex- - for whatever reason I do not know - then rallied sharply but since 4 June, though the stock itself rallied 30% from that post ex-div rally to early September, the sharp rise in gas input costs caused the shares to fall back to their post-div rally point last week. However the stock has continued to outperform peers - outperforming a basket of three liquid HK-listed city gas peers by 37.9% since I last wrote (the dots). </p><section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/237/339/original/Screenshot+2021-10-25+at+6.55.32+PM.png?1635159349" class="editor-image img-responsive" data-smartkarma-image-id="237339"></figure></section><p>But despite that performance... </p></section><p>I am still VERY bullish on Kunlun Energy vs a basket of the three listed HK peers, and at this point, EITHER a dollar-neutral position OR an outright long is appropriate. </p><p>More below the fold. </p>

The last time I wrote about Kunlun Energy (135 HK) was in early June 2021 when I discussed the little extra trick one might use to maximise dividend payout. It worked. But I was bullish.At that time, my conclusion was...I am still VERY bullish on Kunlun Energy vs a basket of the three listed HK peers, and at this point, a dollar-neutral position is probably appropriate. The stock was a little wishy-washy the day the Special Dividend went ex- - for whatever reason I do not know - then rallied sharply but since 4 June, though the stock itself rallied 30% from that post ex-div rally to early September, the sharp rise in gas input costs caused the shares to fall back to their post-div rally point last week. However the stock has continued to outperform peers - outperforming a basket of three liquid HK-listed city gas peers by 37.9% since I last wrote (the dots). But despite that performance... I am still VERY bullish on Kunlun Energy vs a basket of the three listed HK peers, and at this point, EITHER a dollar-neutral position OR an outright long is appropriate. More below the fold. 

Kunlun Energy - People Still Don't Get It So Gas It Up Some More

Hong Kong

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.

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CR Gas (1193 HK)

Kunlun Energy (135 HK): Delivering Resilience

Kunlun's FY23 core earnings drop is distorted by oilfield project expiry, but other segments perform well. FY24 outlook is positive with more city...

Osbert Tang, CFA

China Gas Holdings (384 HK): Worth a Bet Now

There are rooms for good dollar margin recovery, unit sales rebound and improvement in free cash flow in FY24. Spin-off of value-added services is...

Osbert Tang, CFA

Kunlun Energy (135 HK): An Excellent Show

Impressive 1H22 result is a clear demonstration of Kunlun's operational strengths and cash generating ability. The market should ease concerns on...

Osbert Tang, CFA

ENN Energy (2688 HK): Mediocre FY21, Management Update Not Exciting

ENN Energy's FY21 result is not particularly encouraging and we also found management's update on the post-result call not very exciting....

Osbert Tang, CFA

Kunlun Energy - People Still Don't Get It So Gas It Up Some More

There are a few ways to look at Kunlun Energy vs Peers. Traditional measures show Kunlun as dreadfully cheap vs peers. The traditional measures are...

Travis Lundy

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Kunlun Energy (135 HK): Delivering Resilience

​Kunlun's FY23 core earnings drop is distorted by oilfield project expiry, but other segments perform well. FY24 outlook is positive with more city...

Osbert Tang, CFA

China Gas Holdings (384 HK): Worth a Bet Now

There are rooms for good dollar margin recovery, unit sales rebound and improvement in free cash flow in FY24. Spin-off of value-added services is...

Osbert Tang, CFA

Kunlun Energy (135 HK): An Excellent Show

Impressive 1H22 result is a clear demonstration of Kunlun's operational strengths and cash generating ability. The market should ease concerns on...

Osbert Tang, CFA

ENN Energy (2688 HK): Mediocre FY21, Management Update Not Exciting

ENN Energy's FY21 result is not particularly encouraging and we also found management's update on the post-result call not very exciting....

Osbert Tang, CFA

Kunlun Energy - People Still Don't Get It So Gas It Up Some More

There are a few ways to look at Kunlun Energy vs Peers. Traditional measures show Kunlun as dreadfully cheap vs peers. The traditional measures are...

Travis Lundy

Kunlun's FY23 core earnings drop is distorted by oilfield project expiry, but other segments perform well. FY24 outlook is positive with more city...