Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

<p><strong><a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0323/2021032301657.pdf" target="_blank" rel="noopener">FY2020 Results</a></strong>for <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> came out this evening and clearly, the snow is melting. </p><p>Spring is definitely here.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/196/592/original/kunlun+spring.gif?1616517142" class="editor-image img-responsive" data-smartkarma-image-id="196592"></figure></section><p><strong>The KEY Takeaways are:</strong></p><ol>
<li>Profits were up 9.2% vs 2019, beating consensus Net Income by 6.7%. </li>
<li>Amazingly, this was with Profit from Continuing Operations up 47.8% on the year and the Sale Assets -20.6% on the year. </li>
<li>EPS was RMB 0.7002 which is HKD 0.834 which is about 8.4% better than consensus. </li>
<li>The proposed final dividends are for RMB 21.01cts/share for the FY2020 dividend and RMB213.66cts/share for the Special Dividend, totalling RMB 2.3467 or HK$2.7973 at last rate, to shareholders of record on 3 June 2021, to be confirmed at the AGM, and paid by end July 2021. This is at the low end of my expected range (but there is still a distribution for the calendar Q1 from the Sale Assets to Kunlun to take into account).</li>
</ol><p><em><strong>This is still not your grandfather's Kunlun.</strong></em></p><p>If you are just tuning in, start with <a href="https://www.smartkarma.com/insights/will-investors-find-shangri-la-in-kunlun" target="_blank" data-smartkarma-citation="insights:48113" rel="noopener">Will Investors Find Shangri-La in Kunlun?</a> and follow with <a href="https://www.smartkarma.com/insights/kunlun-energy-135-hk-it-s-different-than-you-think" target="_blank" data-smartkarma-citation="insights:49171" rel="noopener">Kunlun Energy (135 HK): It's Different Than You Think</a>.</p>

FY2020 Resultsfor Kunlun Energy (135 HK) came out this evening and clearly, the snow is melting. Spring is definitely here.The KEY Takeaways are:
Profits were up 9.2% vs 2019, beating consensus Net Income by 6.7%. 
Amazingly, this was with Profit from Continuing Operations up 47.8% on the year and the Sale Assets -20.6% on the year. 
EPS was RMB 0.7002 which is HKD 0.834 which is about 8.4% better than consensus. 
The proposed final dividends are for RMB 21.01cts/share for the FY2020 dividend and RMB213.66cts/share for the Special Dividend, totalling RMB 2.3467 or HK$2.7973 at last rate, to shareholders of record on 3 June 2021, to be confirmed at the AGM, and paid by end July 2021. This is at the low end of my expected range (but there is still a distribution for the calendar Q1 from the Sale Assets to Kunlun to take into account).
This is still not your grandfather's Kunlun.If you are just tuning in, start with Will Investors Find Shangri-La in Kunlun? and follow with Kunlun Energy (135 HK): It's Different Than You Think.

Kunlun Energy (135 HK) - Results & Big Divs Get You Closer to Shangri-La

HK/China Equity Long-Short

Osbert Tang, CFA

<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> announced good FY20 result with its continuing operations (excluding the disposal of pipeline and Dalian LNG terminal) registered a 47.8% YoY earnings growth. Interestingly, profit for its discontinued operations witnessed a 20.6% YoY decline.</p><p>Two immediate bright spots from the result announcement are: 1.) a special DPS of Rmb2.1366 is declared, in line with its guidance of 50% of the proceeds from disposal. Note that this is still subject to several conditions, meaning that the transaction is not yet completed as of 23 Mar; 2.) better profit at the remaining CORE natural gas business, with pre-tax profit up 28.1%.  For the special dividends, management still expects them to be paid on or before 30 Jul 2021.</p><p>We estimate Kunlun's continuing operations is trading on 11x PER for FY20, much lower than other gas utilities peers. We will provide more update after the analyst presentation. </p>

Kunlun Energy (135 HK) announced good FY20 result with its continuing operations (excluding the disposal of pipeline and Dalian LNG terminal) registered a 47.8% YoY earnings growth. Interestingly, profit for its discontinued operations witnessed a 20.6% YoY decline.Two immediate bright spots from the result announcement are: 1.) a special DPS of Rmb2.1366 is declared, in line with its guidance of 50% of the proceeds from disposal. Note that this is still subject to several conditions, meaning that the transaction is not yet completed as of 23 Mar; 2.) better profit at the remaining CORE natural gas business, with pre-tax profit up 28.1%.  For the special dividends, management still expects them to be paid on or before 30 Jul 2021.We estimate Kunlun's continuing operations is trading on 11x PER for FY20, much lower than other gas utilities peers. We will provide more update after the analyst presentation. 

Kunlun Energy (135 HK): Quick Update on FY20 Result And, More Importantly, Special Dividends

<p><a href="https://www.smartkarma.com/entities/enn-energy-holdings-ltd" target="_blank" data-smartkarma-citation="entities:316:1" rel="noopener">ENN Energy (2688 HK)</a> showcased an encouraging re-acceleration in 2H20 with a growth of 22.8% in its core earnings, though full-year growth of 18.2% is being dragged by the COVID-19 impaired 1H20. Both retail gas sales and value added services have seen their profit momentum recovered in the second half, and the strength for Integrated Energy (IE) stays on course (gross profit +84% YoY in 2H20).</p><p>Management painted a positive picture for FY21 in the post-result call, as guidance pointed to at least 15% gas volume growth, stable dollar margin, Rmb8-10bn IE revenue (Rmb5bn in FY20) and at least 15% core earnings growth. We think these are all very conservative expectations. 1Q21 gas volume has already grown by over 30% so far, though low base is one of the reasons. We continue to like ENN and maintain that it is the top pick among pure gas utilities companies in China and its premium to sector average is well deserved.</p>

ENN Energy (2688 HK) showcased an encouraging re-acceleration in 2H20 with a growth of 22.8% in its core earnings, though full-year growth of 18.2% is being dragged by the COVID-19 impaired 1H20. Both retail gas sales and value added services have seen their profit momentum recovered in the second half, and the strength for Integrated Energy (IE) stays on course (gross profit +84% YoY in 2H20).Management painted a positive picture for FY21 in the post-result call, as guidance pointed to at least 15% gas volume growth, stable dollar margin, Rmb8-10bn IE revenue (Rmb5bn in FY20) and at least 15% core earnings growth. We think these are all very conservative expectations. 1Q21 gas volume has already grown by over 30% so far, though low base is one of the reasons. We continue to like ENN and maintain that it is the top pick among pure gas utilities companies in China and its premium to sector average is well deserved.

ENN Energy (2688 HK): Well Justifies the Premium; and Management Guides for a Better FY21

<p>The mythical Shangri-la from the book <em>Lost Horizon</em> has never truly been found. Those who have done work on stduying the influences of James' Hilton's book suggest it might be Shambhala from the Tibetan Buddhist tradition, written in the Shambhala Sutra by the Sixth Panchen Lama of Tashihunpo Monastery in Tibet. The Shambhala ideal is one of a realm apart from 'the world' -  a place of timelessness and harmony between man and nature. The Sutra describes parts of Shambhala in Ngari, once part of the kingdom of Guge in western Tibet, and part of the Kunlun mountain range is within Ngari. Other suggestions include parts of Yunnan.</p><p>Getting to Shangri-la for Robert Conway, the protagonist in the book and movie, was somewhat unpleasant. I won't give away the whole book (or movie), but he had to crash a plane to be found, so that he could go on to "find" Shangri-la. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/301/original/Lost-Horizon-1937-A.png?1615732511" class="editor-image img-responsive" data-smartkarma-image-id="194301"></figure><p></p></section><p>Eventually, going over the mountains... </p><section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/304/original/losthorizonovermountain.jpeg?1615733006" class="editor-image img-responsive" data-smartkarma-image-id="194304"></figure></section></section><p>...while wearing cool hats...</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/303/original/losthorizon+funny+hats.jpeg?1615732715" class="editor-image img-responsive" data-smartkarma-image-id="194303"></figure></section><p>before arriving in Shangri-La.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/305/original/lost-horizon-shangri-la.jpeg?1615733024" class="editor-image img-responsive" data-smartkarma-image-id="194305"></figure></section><hr><h3>Investors seeking Shangri-la by approaching Kunlun from outside will have an easier approach.</h3><h3>It's a Different Kunlun. </h3><ol>
<li>Start by reading <a href="https://www.smartkarma.com/insights/will-investors-find-shangri-la-in-kunlun" target="_blank" data-smartkarma-citation="insights:48113" rel="noopener">Will Investors Find Shangri-La in Kunlun?</a> if you haven't already,</li>
<li>Read the rest of this insight below the fold,</li>
<li>Know that Kunlun shareholders overwhelmingly approved the asset disposal Friday.</li>
<li>Know what the future dividend looks like (it should be just under HK$2.50/share).</li>
<li>Know what the future company looks like <em>ex-dividen</em>d.</li>
<li>Calculate what your equity risk is if you buy the stock (right now it is equity + future cash) today. </li>
</ol><p>The rest is below the fold. </p>

The mythical Shangri-la from the book Lost Horizon has never truly been found. Those who have done work on stduying the influences of James' Hilton's book suggest it might be Shambhala from the Tibetan Buddhist tradition, written in the Shambhala Sutra by the Sixth Panchen Lama of Tashihunpo Monastery in Tibet. The Shambhala ideal is one of a realm apart from 'the world' -  a place of timelessness and harmony between man and nature. The Sutra describes parts of Shambhala in Ngari, once part of the kingdom of Guge in western Tibet, and part of the Kunlun mountain range is within Ngari. Other suggestions include parts of Yunnan.Getting to Shangri-la for Robert Conway, the protagonist in the book and movie, was somewhat unpleasant. I won't give away the whole book (or movie), but he had to crash a plane to be found, so that he could go on to "find" Shangri-la. Eventually, going over the mountains... ...while wearing cool hats...before arriving in Shangri-La.Investors seeking Shangri-la by approaching Kunlun from outside will have an easier approach.It's a Different Kunlun. 
Start by reading Will Investors Find Shangri-La in Kunlun? if you haven't already,
Read the rest of this insight below the fold,
Know that Kunlun shareholders overwhelmingly approved the asset disposal Friday.
Know what the future dividend looks like (it should be just under HK$2.50/share).
Know what the future company looks like ex-dividend.
Calculate what your equity risk is if you buy the stock (right now it is equity + future cash) today. 
The rest is below the fold. 

Kunlun Energy (135 HK): It's Different Than You Think

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

Quantitative Analysis

<p>EM Energy allocations are at record lows.  A big exodus in the first half of 2020 pushed allocations to their lowest levels since our records start in 2008.   The aggressive scaling back of positioning had a dramatic effect on prices, with the MSCI EM Energy sector suffering one of the worst 12 month periods of underperformance in nearly 2 decades.  But the ownership picture is beginning to stabilize.  </p><p>On a stock level, <a href="https://www.smartkarma.com/entities/lukoil-pjsc-2bfe0130-461e-4ff3-af12-93bec12e6325" target="_blank" data-smartkarma-citation="entities:27148:1" rel="noopener">LUKOIL (LKOH RM)</a> appears to be the GOAT, with its backing of almost half of the funds in our analysis, well spread across the style spectrum in addition to being a net overweight.  <a href="https://www.smartkarma.com/entities/reliance-industries-ltd" target="_blank" data-smartkarma-citation="entities:198:1" rel="noopener"> Reliance Industries (RIL IN)</a> is also a high conviction stock, held by fewer funds than Lukoil but in greater size.  It also represents a significant underweight to many EM investors.  The most depressed stock of the larger holdings is <a href="https://www.smartkarma.com/entities/cnooc-ltd" target="_blank" data-smartkarma-citation="entities:175:1" rel="noopener">CNOOC Ltd (883 HK)</a> , once held by over 60% of the funds in our analysis, now by just 24%.</p><p><em>Analysis taken from our EM research, covering the collective allocations of 242 Global Emerging Market active funds, with combined AUM of $460bn</em></p>

EM Energy allocations are at record lows.  A big exodus in the first half of 2020 pushed allocations to their lowest levels since our records start in 2008.   The aggressive scaling back of positioning had a dramatic effect on prices, with the MSCI EM Energy sector suffering one of the worst 12 month periods of underperformance in nearly 2 decades.  But the ownership picture is beginning to stabilize.  On a stock level, LUKOIL (LKOH RM) appears to be the GOAT, with its backing of almost half of the funds in our analysis, well spread across the style spectrum in addition to being a net overweight.   Reliance Industries (RIL IN) is also a high conviction stock, held by fewer funds than Lukoil but in greater size.  It also represents a significant underweight to many EM investors.  The most depressed stock of the larger holdings is CNOOC Ltd (883 HK) , once held by over 60% of the funds in our analysis, now by just 24%.Analysis taken from our EM research, covering the collective allocations of 242 Global Emerging Market active funds, with combined AUM of $460bn

EM Energy: Big Underperformance - Positioning at Record Lows, but Stabilizing.

Hong Kong

Sinopec Kantons Holdings Limited trades crude oil, petroleum and petrochemical products.  The Company also operates a crude oil jetty and its ancillary facilities and petrol stations.

AAG Energy Holdings Limited is  an energy exploration and development company. The Company engages in coalbed methane exploration and development.

United Energy Group, Ltd. is engaged in the exploration and production of oil and natural gas. The Company owns and operates a producing oilfield Liaohe Province of the P.R. of China and owns an interest in an exploration field in Madura PSC, Java, Indonesia.  UEG mainly engages in the upstream oil and natural gas business.

Productive Technologies Company Limited provides productivity solutions to semiconductor and solar cell manufacturers. The Company is engaged in advanced manufacturing of equipment applied in semiconductor and solar power businesses, as well as operates a crude oil asset. Productive Technologies serves customers in China.

China LNG Group Limited is a holding company whose group's principal activities are investment in and trading of assets and engagement in the development of new  energy businesses including investment, construction and operation of LNG filling stations, terminals and related infrastructure, sales and conversion of LNG vehicles and vessels, providing financial leasing service to customers.

Yanchang Petroleum International Limited and its subsidiaries is principally engaged in investments in the oil, gas and energy related business. The Company also invests in oil and gas exploration and operation, and the trading of fuel oil.

Yanchang Petroleum International (346 HK)

Hans Energy Company Limited, through its subsidiaries, operates storage and transshipment of oil and liquid petrochemical products in China.  The Company also manufactures and sells corrugated paper packaging products as well as trades petroleum products.

SouthGobi Resources Ltd. mines metallurgical and thermal coal in Mongolia.  The Company sells its coal to customers in China.

Strong Petrochemical Holdings, Ltd. offers trades of crude oil, petroleum products, and petrochemical products.

JTF International Holdings Limited operates as a holding company. The Company, through its subsidiaries, refined and blended fuel oil, petrol, and petrochemical products. JTF International Holdings markets its products throughout China.

Idemitsu Kosan Co., Ltd. explores, imports, refines, and distributes petroleum and its related products.  The Company also manufactures and sells petrochemical products.

China Petroleum & Chemical Corporation produces and trades petroleum and petrochemical products. The Company offers gasoline, diesel, jet fuel, kerosene, ethylene, synthetic fibers, synthetic rubber, synthetic resins, and chemical fertilizers. China Petroleum & Chemical markets its products throughout China.

SK Innovation Co., Ltd. refines, markets, and distributes oil.  The Company produces a variety of petroleum products, such as gasoline, kerosene, liquefied petroleumgas (LPG), and diesel oil.  SK Energy also manufactures petrochemical p roducts, including paraxylene, synthetic resins, styrene monomer, and ethylene.

Washington H. Soul Pattinson & Company Limited is an investment holding company. The Company owns shares and properties, coal mining, bulk handling, commercial television licensee, telecommunications carrier, merchant banking, funds management, pharmaceutical retailing, manufacture, processing and marketing of biscuits and cakes.

Washington H. Soul Pattinson and Co. Ltd (SOL AU)

Shanxi Xishan Coal & Electricity Power Co., Ltd. mines and processes coal. The Company also generates electric power.

Range Resources Corporation is an independent oil and gas company  that explore, develops, and acquires oil and gas properties. The Company conducts operations primarily in the Southwestern, Appalachian and Gulf Coast regions of the United States.

Shanxi Lu'an Environmental Energy Development Co., Ltd. mines, processes, and markets low sulfur high quality coal. The company also researches and develops coal and environment protection related technologies.

Shanxi Lu'An Environmental Energy Dev.Co (601699 CH)

Antero Resources Corporation explores, develops, and produces oil and natural gas. The Company focuses on the acquisition, development, and production of unconventional oil and liquids-rich natural gas properties. Antero Resources serves customers in the United States.

Chesapeake Energy Corporation produces oil and natural gas. The Company's operations are focused on discovering, developing, and acquiring conventional and unconventional natural gas reserves onshore in the United States.

PDC Energy, Inc. produces and distributes petroleum products. The Company produces, develops, explores and markets crude oil, natural gas, and natural gas liquids. PDC Energy operates in the United States.

Kunlun Energy Company Ltd, through its subsidiaries, explores and produces crude oil and natural gas in China.

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Kunlun Energy (135 HK)