Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

China Unicom Hong Kong / Equity Bottom-Up

<ul>
<li>Despite the recent share price gain, <strong><a href="https://www.smartkarma.com/entities/china-unicom-hong-kong-ltd" target="_blank" data-smartkarma-citation="entities:1016:1" rel="noopener">China Unicom (762 HK)</a> </strong>is inexpensive with respect to parent <strong><a href="https://www.smartkarma.com/entities/china-united-network-a" target="_blank" data-smartkarma-citation="entities:12620:1" rel="noopener">China United Network (600050 CH)</a></strong> - its pseudo domestic A-share twin - and to peers.</li>
<li>Preceding my comments on Unicom, are the current setup/unwind tables for Asia-Pacific Holdcos. </li>
<li>These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation &gt;20%.</li>
</ul>


Despite the recent share price gain, China Unicom (762 HK) is inexpensive with respect to parent China United Network (600050 CH) - its pseudo domestic A-share twin - and to peers.
Preceding my comments on Unicom, are the current setup/unwind tables for Asia-Pacific Holdcos. 
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation &gt;20%.


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<p>In StubWorld this week ...</p>
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<p><a href="https://www.smartkarma.com/entities/indofood-sukses-makmur-tbk-p" target="_blank" data-smartkarma-citation="entities:1053:1" rel="noopener"></a><a href="https://www.smartkarma.com/entities/pccw-ltd" target="_blank" data-smartkarma-citation="entities:873:1" rel="noopener">PCCW Ltd (8 HK)</a> <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0726/2021072600409.pdf" target="_blank" rel="noopener">enters into an SPA</a> with <a href="https://www.smartkarma.com/entities/digitalbridge-group-inc" target="_blank" data-smartkarma-citation="entities:20231:1" rel="noopener">DigitalBridge Group (DBRG US)</a> to sell its Hong Kong and Malaysian data center businesses for US$750mn. </p>
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<p>Preceding my comments on PCCW are the weekly setup/unwind tables for Asia-Pacific Holdcos.</p>
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<p>These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.</p>
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<p>As always, more below the fold.</p>
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In StubWorld this week ...



PCCW Ltd (8 HK) enters into an SPA with DigitalBridge Group (DBRG US) to sell its Hong Kong and Malaysian data center businesses for US$750mn. 



Preceding my comments on PCCW are the weekly setup/unwind tables for Asia-Pacific Holdcos.


These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.


As always, more below the fold.


Travis Lundy

Event-Driven

<p>In very early January, the NYSE decided that <a href="https://www.smartkarma.com/entities/china-mobile-ltd" target="_blank" data-smartkarma-citation="entities:27:1" rel="noopener">China Mobile (941 HK)</a> ADRs needed to be delisted. Then they didn't need to be delisted. Then they again needed to be delisted and we are on a path to seeing that complete shortly.</p><p>The stock was subject to Trump's Executive Order 13959 regarding Communist Chinese Military Companies as were the shares of other Chinese telcos and China Mobile shares were deleted from global indices. That event marked a local low in the first week of January and shares promptly rallied 30%, later settling at an easy 15-20% above the index deletion point. </p><p>This, and the fact that China a couple of years ago created a method for overseas-jurisdiction Chinese companies to list in China - particularly for very high market cap "tech" companies aiming to take market share from the US for its high-trading value "exported tickers" meant that at some point, the Chinese telcos creating a secondary listing in China was not going to be a surprise. </p><p>Taking the example of <a href="https://www.smartkarma.com/entities/china-telecom-corp-ltd-h" target="_blank" data-smartkarma-citation="entities:1015:1" rel="noopener">China Telecom Corp Ltd (H) (728 HK)</a> which received permission in April to list its shares in mainland markets, on 17 May China Mobile announced its board had decided to pursue a <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0517/2021051701190.pdf" target="_blank" rel="noopener">Proposed RMB Share Issue</a>.</p><p>A week later, and we have a <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0524/2021052400195.pdf" target="_blank" rel="noopener">Circular</a>.</p><p>China Mobile shareholders are being asked to accept that management issue some RMB 50+bn of shares for the stated purpose of investing in <em>"the development of premium 5G networks, the development of new infrastructure for cloud resources, the development of gigabit broadband and smart home, the development of smart mid-end platform, the research and development of the next-generation information technology and digitalized and intelligent ecosystem."</em></p><p>That sounds reasonable enough as a concept, but it ignores the fact that China Mobile has nine times that much money in available cash. and eight times that amount in net cash + securities holdings.</p><p>If China Mobile shares were trading at a high multiple, this might be forgivable, but the shares are trading at a forward adjusted EV/EBITDA multiple of 1.6x and an ex-net cash &amp; securities PER of less than 4x. </p><p>There are mitigants here. There is possible pricing at a premium to the Hs. There are "price stabilization measures". There are "shareholder return" measures. Some of these might be really worthwhile. </p><p>The governance issues involved in this Circular and project remain problematic. But there are little stars here, twinkling in the darkness. </p><p>More below the fold.</p>

In very early January, the NYSE decided that China Mobile (941 HK) ADRs needed to be delisted. Then they didn't need to be delisted. Then they again needed to be delisted and we are on a path to seeing that complete shortly.The stock was subject to Trump's Executive Order 13959 regarding Communist Chinese Military Companies as were the shares of other Chinese telcos and China Mobile shares were deleted from global indices. That event marked a local low in the first week of January and shares promptly rallied 30%, later settling at an easy 15-20% above the index deletion point. This, and the fact that China a couple of years ago created a method for overseas-jurisdiction Chinese companies to list in China - particularly for very high market cap "tech" companies aiming to take market share from the US for its high-trading value "exported tickers" meant that at some point, the Chinese telcos creating a secondary listing in China was not going to be a surprise. Taking the example of China Telecom Corp Ltd (H) (728 HK) which received permission in April to list its shares in mainland markets, on 17 May China Mobile announced its board had decided to pursue a Proposed RMB Share Issue.A week later, and we have a Circular.China Mobile shareholders are being asked to accept that management issue some RMB 50+bn of shares for the stated purpose of investing in "the development of premium 5G networks, the development of new infrastructure for cloud resources, the development of gigabit broadband and smart home, the development of smart mid-end platform, the research and development of the next-generation information technology and digitalized and intelligent ecosystem."That sounds reasonable enough as a concept, but it ignores the fact that China Mobile has nine times that much money in available cash. and eight times that amount in net cash + securities holdings.If China Mobile shares were trading at a high multiple, this might be forgivable, but the shares are trading at a forward adjusted EV/EBITDA multiple of 1.6x and an ex-net cash &amp; securities PER of less than 4x. There are mitigants here. There is possible pricing at a premium to the Hs. There are "price stabilization measures". There are "shareholder return" measures. Some of these might be really worthwhile. The governance issues involved in this Circular and project remain problematic. But there are little stars here, twinkling in the darkness. More below the fold.

China Mobile (941 HK) - It Could Have Been Done Better, But It Ain't Bad for Hs

Thematic (Sector/Industry)

<p>In 1998, before the US and China entered into Permanent Normal Trade Relations with China in 2000, the US Congress enacted a law requiring the Clinton Administration to publish a list of Chinese companies in the US which did business with the People's Liberation Army (Public Law 105-261, Section 1237), and a "Communist Chinese military company" was defined in that law as any company named in to Defense Intelligence Agency documents from 1990 and 1995 and "any other entity owned or controlled by the PLA and engaged in providing commercial services, manufacturing, or exporting."</p><p>That law basically lay dormant until last year when the Pentagon launched a review of such companies following the Trump White House's labelling of China (and Russia) a "revisionist" power in its first National Security Strategy <a href="https://www.whitehouse.gov/wp-content/uploads/2017/12/NSS-Final-12-18-2017-0905-2.pdf" target="_blank" rel="noopener">report</a> in 2017. The goal was to investigate and warn about supply-chain vulnerabilities. The Department of Defense published a list in June 2020 of 20 companies which were "Qualified Entities". It updated the list in late August 2020. The former Secretary of Defense was ousted several days ago and the new Secretary of Defense is now responsible for the list. </p><p>There is, as of last night, an Executive Order by the White House blocking US 'persons' investment in any of the names mentioned - a list now 31 names long.</p><p>More below on the impact.</p>

In 1998, before the US and China entered into Permanent Normal Trade Relations with China in 2000, the US Congress enacted a law requiring the Clinton Administration to publish a list of Chinese companies in the US which did business with the People's Liberation Army (Public Law 105-261, Section 1237), and a "Communist Chinese military company" was defined in that law as any company named in to Defense Intelligence Agency documents from 1990 and 1995 and "any other entity owned or controlled by the PLA and engaged in providing commercial services, manufacturing, or exporting."That law basically lay dormant until last year when the Pentagon launched a review of such companies following the Trump White House's labelling of China (and Russia) a "revisionist" power in its first National Security Strategy report in 2017. The goal was to investigate and warn about supply-chain vulnerabilities. The Department of Defense published a list in June 2020 of 20 companies which were "Qualified Entities". It updated the list in late August 2020. The former Secretary of Defense was ousted several days ago and the new Secretary of Defense is now responsible for the list. There is, as of last night, an Executive Order by the White House blocking US 'persons' investment in any of the names mentioned - a list now 31 names long.More below on the impact.

Trump's Executive Order on Chinese Military Companies

<p>Last Wednesday (12 August), after the close of trading, <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> announced its <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0812/2020081200403.pdf" target="_blank" rel="noopener">1H20</a> results, in which revenues increased 3.8% yoy to RMB150.4bn, and net profit increased by 10.1% yoy to RMB7.6bn. A decent set of numbers all round. Yet shares closed the next day up 25.6%, on 10x the normal volume. </p>
<p>Operational stats released on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0720/2020072000520.pdf" target="_blank" rel="noopener">20 July</a>, returned positive net adds for mobile ops in June, yet net adds are still down YTD. </p>
<p>For a quick comparative check. <a href="https://www.smartkarma.com/entities/china-mobile-ltd" target="_blank" data-smartkarma-citation="entities:27:1" rel="noopener">China Mobile (941 HK)</a> announced its 1H20 results on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0813/2020081300209.pdf" target="_blank" rel="noopener">13 August</a> (at lunchtime), with top-line growing 0.1% yoy to RMB38.9bn, and profit down 0.5% to RMB55.8bn. Share closed up 3.6% on the fourth-highest volume this year.</p>
<p><a href="https://www.smartkarma.com/entities/china-united-network-a" target="_blank" data-smartkarma-citation="entities:12620:1" rel="noopener">China United Network A (600050 CH)</a>, Unicom's largest shareholder, is not Unicom's domestic A-share twin. Yet for all intent and purpose, it is a pseudo-A to Unicom's H as there are no parent/stub assets of consequence. </p>
<p>Despite the significant share price gain, Unicom looks inexpensive with respect to its parent and to peers.</p>

Last Wednesday (12 August), after the close of trading, China Unicom Hong Kong (762 HK) announced its 1H20 results, in which revenues increased 3.8% yoy to RMB150.4bn, and net profit increased by 10.1% yoy to RMB7.6bn. A decent set of numbers all round. Yet shares closed the next day up 25.6%, on 10x the normal volume. 
Operational stats released on the 20 July, returned positive net adds for mobile ops in June, yet net adds are still down YTD. 
For a quick comparative check. China Mobile (941 HK) announced its 1H20 results on the 13 August (at lunchtime), with top-line growing 0.1% yoy to RMB38.9bn, and profit down 0.5% to RMB55.8bn. Share closed up 3.6% on the fourth-highest volume this year.
China United Network A (600050 CH), Unicom's largest shareholder, is not Unicom's domestic A-share twin. Yet for all intent and purpose, it is a pseudo-A to Unicom's H as there are no parent/stub assets of consequence. 
Despite the significant share price gain, Unicom looks inexpensive with respect to its parent and to peers.

China

China United Network Communications Limited provides a variety of telecommunication services, including GSM and CDMA wireless telecommunication services, international and domestic long distance communication services, data communication and Internet services, as well as paging services.

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China United Network A (600050 CH)

StubWorld: Unicom's "Hs" Are Cheap

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David Blennerhassett

StubWorld: The Trimming Of PCCW

One of two events are likely hereon- either HKT is taken over - not by PCCW - but by a PRC telecommunication company such as China United Network;...

David Blennerhassett

China Mobile (941 HK) - It Could Have Been Done Better, But It Ain't Bad for Hs

China Mobile will follow China Telecom in issuing A-shares. The constructs are almost identical. Both suggest upside to the Hs, perhaps more for...

Travis Lundy

Trump's Executive Order on Chinese Military Companies

The White House announced an Executive Order prohibiting "US persons" from "providing capital" to a list of "China Military Cos" which has been...

Travis Lundy

China Unicom (762 HK): The "Hs" Have It

Last Wednesday (12 August), after the close of trading, China Unicom Hong Kong (762 HK) announced its 1H20 results, in which revenues increased...

David Blennerhassett

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