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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

Orient Overseas International / Event-Driven

<ul>
<li>Current at 66 constituents, we expect to reach 80 <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">HSI INDEX</a> constituents by the end of the year before moving higher towards 100 index members in 2023.</li>
<li>We list 10 stocks that could be added to the index in June - with one-way turnover close to 6%, the actual number of inclusions will be lower.</li>
<li>We also list out another 8 stocks that could possibly be added in June, though the probability of a September/ December inclusion is higher.</li>
</ul>


Current at 66 constituents, we expect to reach 80 HSI INDEX constituents by the end of the year before moving higher towards 100 index members in 2023.
We list 10 stocks that could be added to the index in June - with one-way turnover close to 6%, the actual number of inclusions will be lower.
We also list out another 8 stocks that could possibly be added in June, though the probability of a September/ December inclusion is higher.


HSI Index Rebalance Preview: Will The Pace of Inclusions Pick Up?

HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Various figures for the Chinese New Year holidays suggested that the domestic tourism market is lukewarm in 2022. However, there are evidences that high-end consumption is better than low-end.</li>
<li>Weak cross-province tourism and low-end spending are likely negative to <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a>, <a href="https://www.smartkarma.com/entities/maoyan-entertainment" target="_blank" data-smartkarma-citation="entities:27451:1" rel="noopener">Maoyan Entertainment (1896 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-pictures-group-ltd" target="_blank" data-smartkarma-citation="entities:20724:1" rel="noopener">Alibaba Pictures (1060 HK)</a> and <a href="https://www.smartkarma.com/entities/imax-china-holding-inc" target="_blank" data-smartkarma-citation="entities:888:1" rel="noopener">IMAX China Holding (1970 HK)</a>.  </li>
<li>Good duty-free sales and high-end spending are beneficial to <a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free-corp-ltd" target="_blank" data-smartkarma-citation="entities:12278:1" rel="noopener">CTG Duty Free Corp (601888 CH)</a>, <a href="https://www.smartkarma.com/entities/fosun-tourism-group" target="_blank" data-smartkarma-citation="entities:27439:1" rel="noopener">Fosun Tourism (1992 HK)</a>, <a href="https://www.smartkarma.com/entities/fosun-international-ltd" target="_blank" data-smartkarma-citation="entities:433:1" rel="noopener">Fosun International (656 HK)</a> and <a href="https://www.smartkarma.com/entities/chow-tai-fook-jewellery-group" target="_blank" data-smartkarma-citation="entities:549:1" rel="noopener">Chow Tai Fook Jewellery (1929 HK)</a>. </li>
</ul>


Various figures for the Chinese New Year holidays suggested that the domestic tourism market is lukewarm in 2022. However, there are evidences that high-end consumption is better than low-end.
Weak cross-province tourism and low-end spending are likely negative to China Southern Airlines (1055 HK), Maoyan Entertainment (1896 HK), Alibaba Pictures (1060 HK) and IMAX China Holding (1970 HK).  
Good duty-free sales and high-end spending are beneficial to CTG Duty Free Corp (601888 CH), Fosun Tourism (1992 HK), Fosun International (656 HK) and Chow Tai Fook Jewellery (1929 HK). 


2022 Chinese New Year Holidays - Some Winners and Losers

Equity Capital Markets

China Tourism Group Duty Free Corp Ltd / Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free-corp-ltd" target="_blank" data-smartkarma-citation="entities:12278:1" rel="noopener">China Tourism Group Duty Free Corp Ltd (601888 CH)</a> has received approval from CSRC for H-share issue and the HK hearing may come as early as Tuesday.</li>
<li>There is report that funds raised will scale down to US$5bn, from US$7bn previously, and this will mean a price of about HK$200, or 26% discount to the A-shares.</li>
<li>Valuations (29.3x PER for FY21 and 22x for FY22) are not too stretched, but following a weak 3Q21, it may need a cheaper level to ensure attractive debut.  </li>
</ul>



China Tourism Group Duty Free Corp Ltd (601888 CH) has received approval from CSRC for H-share issue and the HK hearing may come as early as Tuesday.
There is report that funds raised will scale down to US$5bn, from US$7bn previously, and this will mean a price of about HK$200, or 26% discount to the A-shares.
Valuations (29.3x PER for FY21 and 22x for FY22) are not too stretched, but following a weak 3Q21, it may need a cheaper level to ensure attractive debut.  


CTG Duty Free (601888 CH): Green Light for H-Share IPO and Updated View on Valuation

Forensic Analyst

Jason Yap, CFA

Equity Bottom-Up

Luk Fook Holdings Intl / Equity Bottom-Up

<div>
<p>In this insight, we discuss a long-short pair trade idea (long <a href="https://www.smartkarma.com/entities/luk-fook-holdings-intl-ltd" target="_blank" data-smartkarma-citation="entities:19054:1" rel="noopener">Luk Fook Holdings Intl (590 HK)</a> and short <a href="https://www.smartkarma.com/entities/chow-tai-fook-jewellery-group" target="_blank" data-smartkarma-citation="entities:549:1" rel="noopener">Chow Tai Fook Jewellery (1929 HK)</a>) amongst HK listed jewelers.  As China and HK based bitcoin holders scramble to protect their crypto assets in light of latest regulations, we build on a hypothetical premise that these investors would shift their crypto assets into an asset class that is both tactile and familiar to the <a href="https://www.kitco.com/news/2021-08-31/Chinese-gold-demand-from-millennials-picks-up.html" target="_blank" rel="noopener">Chinese</a> - that is, physical gold / jewelry. </p>
</div>
<p>There are two major reasons why we believe this is an attractive long-short pair trade: </p>
<p><strong>1) Relative Valuations </strong>- CTF has outperformed LF in the past year.  Year to date, CTF is up 56.3% while LF is up only 9.2%.  As a result, LF has become more attractive than CTF on a relative valuation basis: </p>
<div>
<div>
<ul style="list-style-type: disc;">
<li>LF trades at a forward P/E of 9.8x, which is 56% discount to CTF's  forward P/E of 22.2x. LF is also trading at EV/EBITDA of 5.3x, which is 63% discount to CTF's EV/EBITDA of 14.3x. We believe this valuation discount is too excessive for LF as compared to CTF.</li>
<li>LF trades at a discount of 3% to past 3 year historical average P/E (10.1x) whereas CTF trades at a premium of 41% to past 3 year historical average P/E (15.8x).</li>
<li>Similarly,  LF trades at a discount of 17% to past 3 year historical average P/B (1.2x) whereas CTF trades at a premium of 72% to past 3 year historical average P/B (2.9x). Hence, CTF appears overvalued relative to its historical average P/E and P/B multiples. </li>
<li>LF generates higher operating margins than CTF. LF generated operating margin of 11.5% versus 8.8% for CTF for last 12 months ended 31 March 2021.  Although, on an ROE basis, CTF beats LF (21.1% versus 9.4%) due to higher asset turnover (1.1x versus 0.6x) and higher debt leverage (43.2% versus 13.3%).  </li>
</ul>
</div>
</div>
<div>
<p><strong>2) G</strong><strong>radual improvement in HK and Macau, which benefits Luk Fook more</strong></p>
</div>
<ul>
<li>Mainland China sales account for 85% of CTF's sales and 60% of LF's sales. with the balance generated mainly from HK and Macau. CTF's larger exposure to Mainland China likely explains its share price outperformance relative to LF given stable pandemic conditions in China, albeit these factors now appear fully discounted into CTF's price.</li>
<li>Since 23 September 2020, China reinstated tourist visas, through which majority of visitors enter Macau, for all provinces and which is for quarantine free travel.  Visitors from greater China make up over 90% of tourists to the former Portuguese colony of Macau.</li>
<li>On 23 September 2021, HK <a href="https://news.cgtn.com/news/2021-09-22/Hong-Kong-s-Come2hk-scheme-to-boost-cross-border-travel-13LtdBJ6zny/index.html" target="_blank" rel="noopener">announced</a> quarantine free exemptions for non-HK residents travelling from Guangdong and Macao.  Returning visitors to China and Macau after HK visits remain subject to quarantine.  Nevertheless, this signals potential further easing of travel measures among China and the 2 Chinese territories. </li>
<li>The upcoming October 2021 Golden Week would be a good barometer of visitor traffic to HK under current travel measures. If the pandemic situation remains stable after the massive passenger flows expected during this period, this could boost optimism of earlier and fuller relaxation of intra Greater China travel measures. </li>
<li>In short, as visitor traffic to HK and Macau ramps up, LF stands to benefit more due to its larger exposure to these markets, with potential upside from further easing of travel measures.</li>
</ul>


In this insight, we discuss a long-short pair trade idea (long Luk Fook Holdings Intl (590 HK) and short Chow Tai Fook Jewellery (1929 HK)) amongst HK listed jewelers.  As China and HK based bitcoin holders scramble to protect their crypto assets in light of latest regulations, we build on a hypothetical premise that these investors would shift their crypto assets into an asset class that is both tactile and familiar to the Chinese - that is, physical gold / jewelry. 

There are two major reasons why we believe this is an attractive long-short pair trade: 
1) Relative Valuations - CTF has outperformed LF in the past year.  Year to date, CTF is up 56.3% while LF is up only 9.2%.  As a result, LF has become more attractive than CTF on a relative valuation basis: 



LF trades at a forward P/E of 9.8x, which is 56% discount to CTF's  forward P/E of 22.2x. LF is also trading at EV/EBITDA of 5.3x, which is 63% discount to CTF's EV/EBITDA of 14.3x. We believe this valuation discount is too excessive for LF as compared to CTF.
LF trades at a discount of 3% to past 3 year historical average P/E (10.1x) whereas CTF trades at a premium of 41% to past 3 year historical average P/E (15.8x).
Similarly,  LF trades at a discount of 17% to past 3 year historical average P/B (1.2x) whereas CTF trades at a premium of 72% to past 3 year historical average P/B (2.9x). Hence, CTF appears overvalued relative to its historical average P/E and P/B multiples. 
LF generates higher operating margins than CTF. LF generated operating margin of 11.5% versus 8.8% for CTF for last 12 months ended 31 March 2021.  Although, on an ROE basis, CTF beats LF (21.1% versus 9.4%) due to higher asset turnover (1.1x versus 0.6x) and higher debt leverage (43.2% versus 13.3%).  




2) Gradual improvement in HK and Macau, which benefits Luk Fook more


Mainland China sales account for 85% of CTF's sales and 60% of LF's sales. with the balance generated mainly from HK and Macau. CTF's larger exposure to Mainland China likely explains its share price outperformance relative to LF given stable pandemic conditions in China, albeit these factors now appear fully discounted into CTF's price.
Since 23 September 2020, China reinstated tourist visas, through which majority of visitors enter Macau, for all provinces and which is for quarantine free travel.  Visitors from greater China make up over 90% of tourists to the former Portuguese colony of Macau.
On 23 September 2021, HK announced quarantine free exemptions for non-HK residents travelling from Guangdong and Macao.  Returning visitors to China and Macau after HK visits remain subject to quarantine.  Nevertheless, this signals potential further easing of travel measures among China and the 2 Chinese territories. 
The upcoming October 2021 Golden Week would be a good barometer of visitor traffic to HK under current travel measures. If the pandemic situation remains stable after the massive passenger flows expected during this period, this could boost optimism of earlier and fuller relaxation of intra Greater China travel measures. 
In short, as visitor traffic to HK and Macau ramps up, LF stands to benefit more due to its larger exposure to these markets, with potential upside from further easing of travel measures.


HK Jewellers Pair Trade - All That Glitters Not Crypto, But Gold?

China Tourism Group Duty Free Corp Ltd / Equity Bottom-Up

<p>We have expressed our positive view on <a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free-corp-ltd" target="_blank" data-smartkarma-citation="entities:12278:1" rel="noopener">China Tourism Group Duty Free Corp Ltd (601888 CH)</a> in various Insights previously. In this Insight, we look at the proposed H-share IPO from the perspective of investors who do not know it well. For seasoned investors in this name, this Insight serves as a summary of our views and provides background details on the proposed IPO.</p><p>Fundamentally speaking, the key positives for CTG Duty Free are: 1.) absolute leadership in China's duty free market, 2.) encouraging growth outlook, and 3.) solid profitability and financial position. Key negatives are: 1.) policy risk and rising competition, 2.) concern on payback of new projects, and 3.) risk of overseas expansion. If the IPO is being priced at the current average H-A discount, it will be on 32.7x FY21F PER, we see this not expensive relative to the premium retailers listed in Hong Kong. </p>

We have expressed our positive view on China Tourism Group Duty Free Corp Ltd (601888 CH) in various Insights previously. In this Insight, we look at the proposed H-share IPO from the perspective of investors who do not know it well. For seasoned investors in this name, this Insight serves as a summary of our views and provides background details on the proposed IPO.Fundamentally speaking, the key positives for CTG Duty Free are: 1.) absolute leadership in China's duty free market, 2.) encouraging growth outlook, and 3.) solid profitability and financial position. Key negatives are: 1.) policy risk and rising competition, 2.) concern on payback of new projects, and 3.) risk of overseas expansion. If the IPO is being priced at the current average H-A discount, it will be on 32.7x FY21F PER, we see this not expensive relative to the premium retailers listed in Hong Kong. 

CTG Duty Free (601888 CH) H-Share Pre-IPO: Fundamentally Speaking

Hong Kong

Chow Tai Fook Jewellery Group Limited retails jewelry.  The Company sells rings, necklaces, earrings, pendants, bracelets, and small statues.  Chow Tai Fook Jewellery operates retail stores in China, Hong Kong, Macau, Taiwan, Malaysia, and Singapore.

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Chow Tai Fook Jewellery (1929 HK)

HSI Index Rebalance Preview: Will The Pace of Inclusions Pick Up?

There could be 5-6 inclusions to the HSI in June as part of the move to 80 members. We list 10 stocks that could be added to the index, and another...

Brian Freitas

2022 Chinese New Year Holidays - Some Winners and Losers

2022 Chinese New Year figures showed marginal decline domestic tourists, and pointed to better high-end consumption performance than low-end. We...

Osbert Tang, CFA

HK Jewellers Pair Trade - All That Glitters Not Crypto, But Gold?

We discuss a long-short trade for HK jewelers (CTF and LF). As HK/China bitcoin holders scramble to protect crypto assets, such investors could...

Jason Yap, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

HSI Index Rebalance Preview: Will The Pace of Inclusions Pick Up?

There could be 5-6 inclusions to the HSI in June as part of the move to 80 members. We list 10 stocks that could be added to the index, and another...

Brian Freitas

2022 Chinese New Year Holidays - Some Winners and Losers

2022 Chinese New Year figures showed marginal decline domestic tourists, and pointed to better high-end consumption performance than low-end. We...

Osbert Tang, CFA

CTG Duty Free (601888 CH): Green Light for H-Share IPO and Updated View on Valuation

CTG Duty Free may need to sweeten its upcoming IPO with cheaper multiples especially following a weak 3Q21 result and the pullback in share price...

Osbert Tang, CFA

HK Jewellers Pair Trade - All That Glitters Not Crypto, But Gold?

We discuss a long-short trade for HK jewelers (CTF and LF). As HK/China bitcoin holders scramble to protect crypto assets, such investors could...

Jason Yap, CFA

CTG Duty Free (601888 CH) H-Share Pre-IPO: Fundamentally Speaking

In relation to CTG Duty Free's H-share IPO, key positives are: 1.) absolute leadership in China's duty free market, 2.) encouraging growth outlook,...

Osbert Tang, CFA