HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>We continued to be cautious on <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> given the challenges faced. It guided for a flat dollar margin in FY23 but we think this is optimistic.</li>
<li>Connection fees are likely to stay under pressure after a 42.1% decline in FY22. It only projects 2.6-2.9m new residential connections for FY23, compared with 2.9m in FY22.</li>
<li>Although China Gas is now the cheapest Hong Kong-listed China gas utilities company, it takes time to regain market confidence. At similar valuation, <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> looks more interesting. </li>
</ul>


We continued to be cautious on China Gas Holdings (384 HK) given the challenges faced. It guided for a flat dollar margin in FY23 but we think this is optimistic.
Connection fees are likely to stay under pressure after a 42.1% decline in FY22. It only projects 2.6-2.9m new residential connections for FY23, compared with 2.9m in FY22.
Although China Gas is now the cheapest Hong Kong-listed China gas utilities company, it takes time to regain market confidence. At similar valuation, Kunlun Energy (135 HK) looks more interesting. 


China Gas Holdings (384 HK): Not Giving It the Benefit of Doubt

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

Thematic (Sector/Industry)

<ul>
<li>Utilities ownership among Asia Ex-Japan funds has fallen to its lowest levels on record. Average fund weights stand at an all-time low of 0.98%, with just 41.3% of funds invested</li>
<li>Record underweights driven by benchmark increases in stocks that active managers have ignored (Adani Green Energy, Adani Transmission and Adani Gas).</li>
<li>Investor flight driven by Growth investors, with Aggressive Growth strategies all but abandoning the sector.  If risk assets continue to deteriorate, some of that rotation may start to reverse.</li>
</ul>


Utilities ownership among Asia Ex-Japan funds has fallen to its lowest levels on record. Average fund weights stand at an all-time low of 0.98%, with just 41.3% of funds invested
Record underweights driven by benchmark increases in stocks that active managers have ignored (Adani Green Energy, Adani Transmission and Adani Gas).
Investor flight driven by Growth investors, with Aggressive Growth strategies all but abandoning the sector.  If risk assets continue to deteriorate, some of that rotation may start to reverse.


Utilities: Record Underweight as Active Managers Exit

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

<ul>
<li>The scheme document is out with the Court meeting scheduled for 10 June. The IFA considers the offer to be fair and reasonable. <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> remains suspended.</li>
<li>Key conditions are the headcount test and approval by at least 75% of disinterested shareholders (&lt;10% of all disinterested shareholders rejection). </li>
<li>Excluding the irrecovables, no shareholder holds a blocking stake. As the timeframe to fulfil the resumption guidance remains highly uncertain, the offer is a welcome exit opportunity. </li>
</ul>


The scheme document is out with the Court meeting scheduled for 10 June. The IFA considers the offer to be fair and reasonable. Suchuang Gas Corp (1430 HK) remains suspended.
Key conditions are the headcount test and approval by at least 75% of disinterested shareholders (&lt;10% of all disinterested shareholders rejection). 
Excluding the irrecovables, no shareholder holds a blocking stake. As the timeframe to fulfil the resumption guidance remains highly uncertain, the offer is a welcome exit opportunity. 


Suchuang Gas’ Scheme Meeting on 10 June Is a Welcome Exit from the Ongoing Share Suspension

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<ul>
<li>
<strong><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></strong>'s Scheme Document is now out. The Scheme Meeting will be held on the 10th June with expected payment on or before the 21 June. </li>
<li>The Independent Financial Advisor (Essence International) has concluded the offer by <a href="https://www.smartkarma.com/entities/china-resources-gas-group-ltd" target="_blank" data-smartkarma-citation="entities:20525:1" rel="noopener"><strong>CR Gas (1193 HK)</strong></a> is fair and reasonable. </li>
<li>The pain is almost over for shareholders. This is as good a deal one can expect under the circumstances. Shareholders should vote through the Offer resolutions and pocket the cash. </li>
</ul>



Suchuang Gas Corp (1430 HK)'s Scheme Document is now out. The Scheme Meeting will be held on the 10th June with expected payment on or before the 21 June. 
The Independent Financial Advisor (Essence International) has concluded the offer by CR Gas (1193 HK) is fair and reasonable. 
The pain is almost over for shareholders. This is as good a deal one can expect under the circumstances. Shareholders should vote through the Offer resolutions and pocket the cash. 


Suchuang Gas (1430 HK): 10th June Court Meeting As Shares Remain Suspended

<ul>
<li>Healthy 17.2% growth in 1Q22 net profit of Kunlun Gas, the most important subsidiary 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>, provides a welcoming evidence to ease market concerns on costs.  </li>
<li>While gross margin was down 0.2pp YoY, it expanded by 0.4pp QoQ. Key cost items including selling, administrative and R&amp;D are all under control, boosting EBIT margin by 0.5pp YoY.</li>
<li>1Q22 is a record quarter for Kunlun Gas, and gearing stays comfortable with strong operating cash flow. We believe such set of result signals good 1Q22 for Kunlun Energy. </li>
</ul>


Healthy 17.2% growth in 1Q22 net profit of Kunlun Gas, the most important subsidiary of Kunlun Energy (135 HK), provides a welcoming evidence to ease market concerns on costs.  
While gross margin was down 0.2pp YoY, it expanded by 0.4pp QoQ. Key cost items including selling, administrative and R&amp;D are all under control, boosting EBIT margin by 0.5pp YoY.
1Q22 is a record quarter for Kunlun Gas, and gearing stays comfortable with strong operating cash flow. We believe such set of result signals good 1Q22 for Kunlun Energy. 


Kunlun Energy (135 HK): A Record Quarter for Kunlun Gas

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)

China Gas Holdings (384 HK): Not Giving It the Benefit of Doubt

China Gas has a diasppointing FY22 and we think its operating and financial guidances for FY23 are likely to be optimistic. We prefer Kunlun Energy...

Osbert Tang, CFA

Utilities: Record Underweight as Active Managers Exit

Utilities ownership among Asia Ex-Japan funds has fallen to its lowest levels on record. Average fund weights stand at an all-time low of 0.98%,...

Steven Holden

Suchuang Gas (1430 HK): 10th June Court Meeting As Shares Remain Suspended

Now that the Scheme Booklet is despatched - which needs to be signed off by the SFC - the SFC sanctions Suchaung Gas' privatisation provided the...

David Blennerhassett

Kunlun Energy (135 HK): A Record Quarter for Kunlun Gas

We view Kunlun Gas' healthy 1Q22 result a positive pointer to Kunlun Energy's profit trend in the quarter. It is welcoming to note only mild YoY...

Osbert Tang, CFA

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52-week Range

Market Cap (USDm)

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China Gas Holdings (384 HK): Not Giving It the Benefit of Doubt

China Gas has a diasppointing FY22 and we think its operating and financial guidances for FY23 are likely to be optimistic. We prefer Kunlun Energy...

Osbert Tang, CFA

Utilities: Record Underweight as Active Managers Exit

Utilities ownership among Asia Ex-Japan funds has fallen to its lowest levels on record. Average fund weights stand at an all-time low of 0.98%,...

Steven Holden

Suchuang Gas’ Scheme Meeting on 10 June Is a Welcome Exit from the Ongoing Share Suspension

The cash alternative is HK$2.50 per share. The Court meeting is on 10 June. As the timeframe to fulfil the resumption guidance remains highly...

Arun George

Suchuang Gas (1430 HK): 10th June Court Meeting As Shares Remain Suspended

Now that the Scheme Booklet is despatched - which needs to be signed off by the SFC - the SFC sanctions Suchaung Gas' privatisation provided the...

David Blennerhassett

Kunlun Energy (135 HK): A Record Quarter for Kunlun Gas

We view Kunlun Gas' healthy 1Q22 result a positive pointer to Kunlun Energy's profit trend in the quarter. It is welcoming to note only mild YoY...

Osbert Tang, CFA