HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">Cimc Enric Holdings (3899 HK)</a> posted a set of encouraging result for FY21. It achieved a 37.4% YoY growth in 2H21 even after a 77.5% growth in 1H21. </li>
<li>Management suggests that gross margin will improve in this year as measures have been taken to cope with the factors that lead to the 2.3pp contraction in FY21.</li>
<li>Hydrogen energy is a bright spot - though contribution is still small, it expects to at least double its revenue in FY22, and remains bullish on the long term prospects.</li>
</ul>



Cimc Enric Holdings (3899 HK) posted a set of encouraging result for FY21. It achieved a 37.4% YoY growth in 2H21 even after a 77.5% growth in 1H21. 
Management suggests that gross margin will improve in this year as measures have been taken to cope with the factors that lead to the 2.3pp contraction in FY21.
Hydrogen energy is a bright spot - though contribution is still small, it expects to at least double its revenue in FY22, and remains bullish on the long term prospects.


CIMC Enric (3899 HK): Still Running on the Fast Lane

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

<ul>
<li>We expect more supportive measures to be rolled out on hydrogen energy development in 2022, and the recently announced MIIT Plan already showed an escalation of its industrial use. </li>
<li>Hydrogen may potentially account for 5% of final energy consumption in 2030 and 20% in 2060. Industrial use may represent 60% of total, driving tremendous opportunities for the players.</li>
<li>We think <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/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">Cimc Enric Holdings (3899 HK)</a> and <a href="https://www.smartkarma.com/entities/weichai-power-co-ltd-h" target="_blank" data-smartkarma-citation="entities:12508:1" rel="noopener">Weichai Power Co Ltd H (2338 HK)</a> are the prime beneficiaries and they have made good progress lately.</li>
</ul>


We expect more supportive measures to be rolled out on hydrogen energy development in 2022, and the recently announced MIIT Plan already showed an escalation of its industrial use. 
Hydrogen may potentially account for 5% of final energy consumption in 2030 and 20% in 2060. Industrial use may represent 60% of total, driving tremendous opportunities for the players.
We think Dongfang Electric (1072 HK), Cimc Enric Holdings (3899 HK) and Weichai Power Co Ltd H (2338 HK) are the prime beneficiaries and they have made good progress lately.


China's Hydrogen Economy: More Excitements into 2022

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Quantitative Analysis

<ul>
<li>As of Friday Nov 19, the average A/H premium of 134 A/H stocks are 109.3%. The average A/H premium changed by -1.4ppt over the past one week.</li>
<li>The sector with the biggest A/H premium increase was Utilities (ΔA/H premium=5.1ppt) while the sector with the biggest A/H premium decrease was Consumer Discretionary (ΔA/H premium=-13.1ppt).</li>
<li>The top 3 stocks based on increase in A/H premium in the past week were SINOPEC SHANG, YANTAI NORTH, and SINOPEC OILFIELD.</li>
</ul>


As of Friday Nov 19, the average A/H premium of 134 A/H stocks are 109.3%. The average A/H premium changed by -1.4ppt over the past one week.
The sector with the biggest A/H premium increase was Utilities (ΔA/H premium=5.1ppt) while the sector with the biggest A/H premium decrease was Consumer Discretionary (ΔA/H premium=-13.1ppt).
The top 3 stocks based on increase in A/H premium in the past week were SINOPEC SHANG, YANTAI NORTH, and SINOPEC OILFIELD.


A/H Premium Weekly: Utility Led the Premium Increase

<p><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> (DEC) achieved an encouraging 3Q21 with reported net profit increased 33.5% YoY and new orders signed reached Rmb12.6bn for 3Q21 and Rmb47bn for 9M21. Although recurring profit grew a slower 12.9%, it is still decent amid higher input costs. In particular, we are pleased to see its gross margin for 3Q21 expanded by 1.6pp YoY. Its solid financial position with 51% of share price being net cash is an added strength. </p><p>We believe there is room for the Street to upgrade FY21 forecasts, as DEC's 9M21 result has already reached 79% of full-year consensus estimate. Earnings outlook appears to be secured as we estimate DEC's backlog enough to cover FY20 revenue at 2.63x. DEC's long-term exposure to pumped storage and hydrogen economy of China is very appealing and is yet to be captured in the earnings over the next two years. Even so, its valuations for FY21 and FY22 are still inexpensive, in our view. </p>

Dongfang Electric (1072 HK) (DEC) achieved an encouraging 3Q21 with reported net profit increased 33.5% YoY and new orders signed reached Rmb12.6bn for 3Q21 and Rmb47bn for 9M21. Although recurring profit grew a slower 12.9%, it is still decent amid higher input costs. In particular, we are pleased to see its gross margin for 3Q21 expanded by 1.6pp YoY. Its solid financial position with 51% of share price being net cash is an added strength. We believe there is room for the Street to upgrade FY21 forecasts, as DEC's 9M21 result has already reached 79% of full-year consensus estimate. Earnings outlook appears to be secured as we estimate DEC's backlog enough to cover FY20 revenue at 2.63x. DEC's long-term exposure to pumped storage and hydrogen economy of China is very appealing and is yet to be captured in the earnings over the next two years. Even so, its valuations for FY21 and FY22 are still inexpensive, in our view. 

Dongfang Electric (1072 HK): Healthy 3Q21 Result with Positive Order Flow

China

Dongfang Electric Corporation Limited manufactures and sells hydro and steam power generators and AC/DC electric motors. The Company also provides repair, upgrade, maintenance, and other services for the products.

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Dongfang Electric (1072 HK)

CIMC Enric (3899 HK): Still Running on the Fast Lane

Management expects gross margin to recover in FY22 and it should ride on positive natural gas, chemical & environmental and liquid food demand....

Osbert Tang, CFA

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's Hydrogen Economy: More Excitements into 2022

China's push for hydrogen energy use is likely to further escalate in 2022, following a soon-to-be announcement of top-level design plan for the...

Osbert Tang, CFA

A/H Premium Weekly: Utility Led the Premium Increase

We highlight the utility sector as the biggest A/H premium gainer and the Consumer Discretionary as the biggest A/H premium lager.

Ke Yan, CFA, FRM

Dongfang Electric (1072 HK): Healthy 3Q21 Result with Positive Order Flow

DEC achieved good 3Q21 earnings growth with healthy orders signed in 9M21. We see room for upgrade in Street forecasts, and continue to like its...

Osbert Tang, CFA

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