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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<p>The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 21 May. The constituent changes will be effective after the close of trading on 4 June.</p><p>For the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a>, there are 2 inclusions and 3 exclusions. This brings the number of index constituents back down to 50.</p><p>The inclusions are <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> and <a href="https://www.smartkarma.com/entities/evergrande-property-services" target="_blank" data-smartkarma-citation="entities:30921:1" rel="noopener">Evergrande Property Services (6666 HK)</a>, while <a href="https://www.smartkarma.com/entities/guangdong-investment-ltd" target="_blank" data-smartkarma-citation="entities:12109:1" rel="noopener">Guangdong Investment (270 HK)</a>, <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> and <a href="https://www.smartkarma.com/entities/china-tower-corp-ltd" target="_blank" data-smartkarma-citation="entities:27037:1" rel="noopener">China Tower (788 HK)</a> have been deleted from the index. This is exactly in line with our <a href="https://www.smartkarma.com/insights/hscei-june-2021-index-rebalance-preview-three-adds-four-deletes-possible" target="_blank" rel="noopener">forecast</a>.</p><p>One-way turnover is estimated at 8.37% and will result in a one-way trade of HK$5.98bn. The largest passive inflows will be on <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> and <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> as a result of the capping change from 5% to 8%, while the largest outflows will be on <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>, <a href="https://www.smartkarma.com/entities/china-construction-bank-h" target="_blank" data-smartkarma-citation="entities:45:1" rel="noopener">China Construction Bank H (939 HK)</a> and <a href="https://www.smartkarma.com/entities/china-tower-corp-ltd" target="_blank" data-smartkarma-citation="entities:27037:1" rel="noopener">China Tower (788 HK)</a>.</p><p>There are only 10 trading days to implementation of the changes and there should be some impact on the stocks even though the changes were largely expected (at least by us). <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> was widely expected to be included but <a href="https://www.smartkarma.com/entities/evergrande-property-services" target="_blank" data-smartkarma-citation="entities:30921:1" rel="noopener">Evergrande Property Services (6666 HK)</a> was not on everyone's list. With 4 days ADV to buy on <a href="https://www.smartkarma.com/entities/evergrande-property-services" target="_blank" data-smartkarma-citation="entities:30921:1" rel="noopener">Evergrande Property Services (6666 HK)</a>, the stock could outperform till implementation date. </p>

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 21 May. The constituent changes will be effective after the close of trading on 4 June.For the Hang Seng China Enterprises Index (HSCEI INDEX), there are 2 inclusions and 3 exclusions. This brings the number of index constituents back down to 50.The inclusions are BYD (1211 HK) and Evergrande Property Services (6666 HK), while Guangdong Investment (270 HK), China Unicom Hong Kong (762 HK) and China Tower (788 HK) have been deleted from the index. This is exactly in line with our forecast.One-way turnover is estimated at 8.37% and will result in a one-way trade of HK$5.98bn. The largest passive inflows will be on Meituan (3690 HK) and Alibaba Group (9988 HK) as a result of the capping change from 5% to 8%, while the largest outflows will be on Tencent (700 HK), China Construction Bank H (939 HK) and China Tower (788 HK).There are only 10 trading days to implementation of the changes and there should be some impact on the stocks even though the changes were largely expected (at least by us). BYD (1211 HK) was widely expected to be included but Evergrande Property Services (6666 HK) was not on everyone's list. With 4 days ADV to buy on Evergrande Property Services (6666 HK), the stock could outperform till implementation date. 

HSCEI Index Rebalance: BYD's Double Inclusion; Capping Changes Lead to High Turnover

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<p>The most important subsidiary and key source of earnings 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> - unlisted Kunlun Gas - reported a fantastic 42.9% YoY growth in earnings for 1Q21. Even relative to 1Q19, the net profit figure is still 30.8% higher. While gross margin contracted YoY, likely due to higher procurement costs, the exciting volume growth has offset the impact of cost inflation, in our view.</p><p>Kunlun Gas' 1Q21 net profit already equals to 37.5% of its total in last year, indicating a very positive start for FY21. Moreover, it has a very comfortable gearing of 19.5% and good operating cash flow, meaning that there is no need for it to seek funding from parent Kunlun Energy. Hence, Kunlun Energy can pursue more value-enhancing acquisitions through its cash on hand. All in all, the result implies great start for Kunlun Energy in 1Q21 - Kunlun Gas accounted for 72% of Kunlun Energy's net profit from continuing operations in last year. </p>

The most important subsidiary and key source of earnings of Kunlun Energy (135 HK) - unlisted Kunlun Gas - reported a fantastic 42.9% YoY growth in earnings for 1Q21. Even relative to 1Q19, the net profit figure is still 30.8% higher. While gross margin contracted YoY, likely due to higher procurement costs, the exciting volume growth has offset the impact of cost inflation, in our view.Kunlun Gas' 1Q21 net profit already equals to 37.5% of its total in last year, indicating a very positive start for FY21. Moreover, it has a very comfortable gearing of 19.5% and good operating cash flow, meaning that there is no need for it to seek funding from parent Kunlun Energy. Hence, Kunlun Energy can pursue more value-enhancing acquisitions through its cash on hand. All in all, the result implies great start for Kunlun Energy in 1Q21 - Kunlun Gas accounted for 72% of Kunlun Energy's net profit from continuing operations in last year. 

Kunlun Energy (135 HK): A Fantastic 1Q21 at Kunlun Gas

<p>Share price of <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 dropped by 12.3% in the last three days after the 7.5% new share placement to raise HK$11.6bn. While there will be EPS dilution over the next two years, we still see EPS growth at a decent level with ROE staying high at 22.8% for FY22F. In fact, the frequent corporate moves recently including exploring hydrogen energy, developing LNG terminal and co-operating with major central SOEs are encouraging developments.</p><p>Its cooperation with <a href="https://www.smartkarma.com/entities/cnooc-ltd" target="_blank" data-smartkarma-citation="entities:175:1" rel="noopener">CNOOC Ltd (883 HK)</a> on hydrogen production and hydrogen refueling station will potentially open a growth driver to capture the numerous opportunities in this rapidly growing market segment. Meanwhile, the construction of LNG terminal will provide it a tighter grip on LNG cost and procurement. We see such strategic and operational developments positive to the long-term well-being of China Gas.  </p>

Share price of China Gas Holdings (384 HK) has dropped by 12.3% in the last three days after the 7.5% new share placement to raise HK$11.6bn. While there will be EPS dilution over the next two years, we still see EPS growth at a decent level with ROE staying high at 22.8% for FY22F. In fact, the frequent corporate moves recently including exploring hydrogen energy, developing LNG terminal and co-operating with major central SOEs are encouraging developments.Its cooperation with CNOOC Ltd (883 HK) on hydrogen production and hydrogen refueling station will potentially open a growth driver to capture the numerous opportunities in this rapidly growing market segment. Meanwhile, the construction of LNG terminal will provide it a tighter grip on LNG cost and procurement. We see such strategic and operational developments positive to the long-term well-being of China Gas.  

China Gas Holdings (384 HK): Placement, Hydrogen Energy, LNG Terminal and Unicom/Sinopec Co-Ops

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

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.

Equity Capital Markets

China Gas Holdings / Equity Capital Markets

<div><p><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>is looking to raise around US$1.5bn via a top-up placement. This is the fourth placement for the company since 2019.</p></div><div><p>We have covered the previous deals in our previous notes:</p></div><div><ul style="list-style-type: disc;">
<li>US$450m in Mar 2019: <a href="https://www.smartkarma.com/insights/china-gas-placement-larger-deals-traded-flat-but-good-track-record-should-help" target="_blank" rel="noopener">China Gas Placement - Larger Deals Traded Flat but Good Track Record Should Help</a>
</li>
<li>US$600m selldown in Sep 2019 by SK E&amp;S: <a href="https://www.smartkarma.com/insights/china-gas-placement-great-track-record-and-past-deals-have-done-well" target="_blank" rel="noopener">China Gas Placement - Great Track Record and Past Deals Have Done Well</a>
</li>
<li>US$1.5bn selldown in Apr 2020 by SK E&amp;S: <a href="https://www.smartkarma.com/insights/china-gas-placement-big-deal-to-digest-but-track-record-should-help" target="_blank" rel="noopener">China Gas Placement - Big Deal to Digest but Track Record Should Help</a>
</li>
</ul></div><div><p>In this note, we will run the deal through framework and talk about deal dynamics.</p></div>

China Gas Holdings (384 HK) is looking to raise around US$1.5bn via a top-up placement. This is the fourth placement for the company since 2019.We have covered the previous deals in our previous notes:
US$450m in Mar 2019: China Gas Placement - Larger Deals Traded Flat but Good Track Record Should Help

US$600m selldown in Sep 2019 by SK E&amp;S: China Gas Placement - Great Track Record and Past Deals Have Done Well

US$1.5bn selldown in Apr 2020 by SK E&amp;S: China Gas Placement - Big Deal to Digest but Track Record Should Help

In this note, we will run the deal through framework and talk about deal dynamics.

China Gas Placement - Deal Size Is Similar to Last Placement but Dynamics Are Different

<p><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 post-FY20 result conference call revealed that the company sees a stable growth in FY21, with improvement expected for the natural gas, LNG processing and exploration &amp; production (E&amp;P) segments. The company also highlights that the new management that come on board in Nov 2020 will push for more involvement in new energy. </p><p>Based on our back-of-the-envelope calculation, Kunlun's earnings growth will range between 25-28% in FY21, depending largely on the extent of the turnaround of the E&amp;P segment. On such expectation, we still see Kunlun trades on undemanding 8.8x PER for FY21, with a net cash position even after paying out the special dividends.</p>

Kunlun Energy (135 HK)'s post-FY20 result conference call revealed that the company sees a stable growth in FY21, with improvement expected for the natural gas, LNG processing and exploration &amp; production (E&amp;P) segments. The company also highlights that the new management that come on board in Nov 2020 will push for more involvement in new energy. Based on our back-of-the-envelope calculation, Kunlun's earnings growth will range between 25-28% in FY21, depending largely on the extent of the turnaround of the E&amp;P segment. On such expectation, we still see Kunlun trades on undemanding 8.8x PER for FY21, with a net cash position even after paying out the special dividends.

Kunlun Energy (135 HK): Key Takeaways from Post-Result Call

China

ENN Energy Holdings Ltd. distributes natural gas in China.  The Company, through its subsidiaries, invests in, operates, and manages gas pipelines, and sells and distributes piped and bottled gas in China.

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ENN Energy (2688 HK)

HSCEI Index Rebalance: BYD's Double Inclusion; Capping Changes Lead to High Turnover

The 2 adds and 3 deletes for the HSCEI are just what we expected. BYD is an inclusion in the HSI too and could move higher over the next 2 weeks....

Brian Freitas

Kunlun Energy (135 HK): A Fantastic 1Q21 at Kunlun Gas

Kunlun Energy's most important unlisted subsidiary Kunlun Gas achieved net profit growth of 42.9% in 1Q21, and this is an impressive start for the...

Osbert Tang, CFA

China Gas Holdings (384 HK): Placement, Hydrogen Energy, LNG Terminal and Unicom/Sinopec Co-Ops

We are not too negative on the new share placement by China Gas. We think the recent strategic and operational initiatives position it well in the...

Osbert Tang, CFA

China Gas Placement - Deal Size Is Similar to Last Placement but Dynamics Are Different

China Gas Holdings (384 HK) is looking to raise around US$1.5bn via a top-up placement. This is the fourth placement for the company since 2019.

Sumeet Singh

Kunlun Energy (135 HK): Key Takeaways from Post-Result Call

Kunlun's post-result call suggested a stable growth expectation for FY21, and we estimate 25-28% growth. There will be more involvement in new...

Osbert Tang, CFA

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