HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Despite the good share price performance after going ex-dividends, <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> still has significant upside potential, in our view. YTD, industry and peer figures have already showed a very solid underlying picture of China's gas consumption market. We updated our financial projections to incorporate the good 1Q21 result of Kunlun Gas, particularly to reflect the lower-than-expected minority interests which means that its wholly-owned subsidiaries are more profitable than non-wholly-owned which is a fact likely to be missed by the market.We project 3-year EPS CAGR of 20% for Kunlun's continuing operations, with ROE of 10.9% for FY22; and the stock trades on just 10.9x PER for FY21F and 0.9x P/B for FY22F. Such growth, return and valuation metrics clearly put the stock in an attractive zone relative to the peers' multiples - average sector growth is 15.9% at PER of 15.6x and average ROE of 17.7% at 2.2x P/B. More importantly, we see its net cash over the next two years to amount to 26-37% of the current share price.

Despite the good share price performance after going ex-dividends, Kunlun Energy (135 HK) still has significant upside potential, in our view. YTD, industry and peer figures have already showed a very solid underlying picture of China's gas consumption market. We updated our financial projections to incorporate the good 1Q21 result of Kunlun Gas, particularly to reflect the lower-than-expected minority interests which means that its wholly-owned subsidiaries are more profitable than non-wholly-owned which is a fact likely to be missed by the market.We project 3-year EPS CAGR of 20% for Kunlun's continuing operations, with ROE of 10.9% for FY22; and the stock trades on just 10.9x PER for FY21F and 0.9x P/B for FY22F. Such growth, return and valuation metrics clearly put the stock in an attractive zone relative to the peers' multiples - average sector growth is 15.9% at PER of 15.6x and average ROE of 17.7% at 2.2x P/B. More importantly, we see its net cash over the next two years to amount to 26-37% of the current share price.

Kunlun Energy (135 HK): Updated Financial Projections Point to Still Very Undemanding Valuations

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

The Dividend has gone Ex. And the shares fell sharply. That was nuts. At one point the shares were trading HK$5.75 which was down 4% from the previous close on a dividend adjusted basis (HK$8.81 less HK$2.8041 gets one to HK$6.00 and HK$5.75 is a bit more than 4% down from that adjusted basis. Shares, of course, closed higher at HK$5.86 - down about 2.5% on the day. Today, shares bounced nearly 5% as the three HK-listed peers averaged a slight fall. On a dividend-adjusted basis, it has been a good two days, but on a dividend-adjusted basis, Kunlun is up 7% vs peers from Monday morning. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/210/505/original/Screenshot+2021-06-01+at+8.05.52+PM.png?1622549225" class="editor-image img-responsive" data-smartkarma-image-id="210505"></figure></section>But that is not the reason for the insight. The reason for this insight is a technical thing.

The Dividend has gone Ex. And the shares fell sharply. That was nuts. At one point the shares were trading HK$5.75 which was down 4% from the previous close on a dividend adjusted basis (HK$8.81 less HK$2.8041 gets one to HK$6.00 and HK$5.75 is a bit more than 4% down from that adjusted basis. Shares, of course, closed higher at HK$5.86 - down about 2.5% on the day. Today, shares bounced nearly 5% as the three HK-listed peers averaged a slight fall. On a dividend-adjusted basis, it has been a good two days, but on a dividend-adjusted basis, Kunlun is up 7% vs peers from Monday morning. But that is not the reason for the insight. The reason for this insight is a technical thing. 

Kunlun Energy (135 HK) - Choose Your Fighter (With That One Neat Trick!)

Chart based progressive global trading strategies, Chart Partners

Thomas Schroeder

Chart based progressive global trading strategies

Chart Partners

Chart Partners objective is to discover medium-term cycle turns and profit opportunities before they unfold, within structural trends while preserving capital with clear degrees of risk. We have real return ideas. 

Markets are dynamic and trading systems must reflect this. It is crucial to determine underlying correlations and lead-lag relationships within global markets and the impact on linked instruments. Our weekly Chartonics product gives you short-term trading strategies that can be applied within the medium and longer term macro trends that are mapped out in our strategy updates. 

Our methodology fuses global market variables and isolates drivers in trends. We specialize in FX, index trade in NY and Asia with a focus on Asian stocks. 

Technical Analysis

<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> was already setting up for a top before the special dividend and sides with Kunlun witnessing continued downside pressure to higher degree long support near the 5.0 and 4.70 key supports. Use an uptick to sell or even short near gap resistance.Gap below wedge support stands out as a negative on the back of the rejection at the 6.50 old high zone.MACD bear set up noteworthy and will weigh on near term price action and again in late June.Trendline and price support is the zone to pinpoint a fresh long.

Kunlun Energy (135 HK) was already setting up for a top before the special dividend and sides with Kunlun witnessing continued downside pressure to higher degree long support near the 5.0 and 4.70 key supports. Use an uptick to sell or even short near gap resistance.Gap below wedge support stands out as a negative on the back of the rejection at the 6.50 old high zone.MACD bear set up noteworthy and will weigh on near term price action and again in late June.Trendline and price support is the zone to pinpoint a fresh long.

Event-Driven

This is a warning insight. It is not actionable per se. It is designed to be informative. The dividend payment ex-dates are confusing. Some people are confusing. This insight hopes to put that right in the safest way possible so investors do not make an error on what will be a one-time 30% dividend.

This is a warning insight. It is not actionable per se. It is designed to be informative. The dividend payment ex-dates are confusing. Some people are confusing. This insight hopes to put that right in the safest way possible so investors do not make an error on what will be a one-time 30% dividend. 

Kunlun Energy (135) - Be Careful Of The Special Div Dates

Last year, the major gas pipeline companies owned by the SOEs all announced they were selling their intercity infrastructure and port offloading and storage operations to a new SOE called PipeChina. A few SOEs signed Sale and Purchase agreements in mid-2020. <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> signed theirs in December. For Kunlun, that agreement went through at the end of March. The bulk of the payment should have gone through at the end of April, and When Kunlun reported its earnings in late March, it reported full-year on an ongoing basis with the Discontinued Assets representing a different set of numbers. At that point, Kunlun became an energy distribution company which was primarily a city gas company, and a big pile of cash. As <a href="https://www.smartkarma.com/profiles/osbert-tang-cfa" target="_blank" data-smartkarma-citation="accounts:3879" rel="noopener">Osbert Tang, CFA</a> discussed in <a href="https://www.smartkarma.com/insights/kunlun-energy-135-hk-a-fantastic-1q21-at-kunlun-gas" target="_blank" data-smartkarma-citation="insights:50930" rel="noopener">Kunlun Energy (135 HK): A Fantastic 1Q21 at Kunlun Gas</a> the largest contributor to the remaining business had a "fantastic Q1". Year-on-year results this year were always going to be "good" simply because of the growth from start of year to end of year in 2020. Straightline serial no-growth in 2021 would still have resulted in year-on-year growth, which itself seemed not to be in the minds of analysts looking at the pro-forma post-sale Kunlun. Surprisingly, since the announcement in December that the trade had been done, while Kunlun is up, because others are up just as much, the relative cheapness of Kunlun vs peers has actually increased.Below are data/visualizations suggesting how to look at Kunlun today.

Last year, the major gas pipeline companies owned by the SOEs all announced they were selling their intercity infrastructure and port offloading and storage operations to a new SOE called PipeChina. A few SOEs signed Sale and Purchase agreements in mid-2020. Kunlun Energy (135 HK) signed theirs in December. For Kunlun, that agreement went through at the end of March. The bulk of the payment should have gone through at the end of April, and When Kunlun reported its earnings in late March, it reported full-year on an ongoing basis with the Discontinued Assets representing a different set of numbers. At that point, Kunlun became an energy distribution company which was primarily a city gas company, and a big pile of cash. As Osbert Tang, CFA discussed in Kunlun Energy (135 HK): A Fantastic 1Q21 at Kunlun Gas the largest contributor to the remaining business had a "fantastic Q1". Year-on-year results this year were always going to be "good" simply because of the growth from start of year to end of year in 2020. Straightline serial no-growth in 2021 would still have resulted in year-on-year growth, which itself seemed not to be in the minds of analysts looking at the pro-forma post-sale Kunlun. Surprisingly, since the announcement in December that the trade had been done, while Kunlun is up, because others are up just as much, the relative cheapness of Kunlun vs peers has actually increased.Below are data/visualizations suggesting how to look at Kunlun today. 

Kunlun Energy (135 HK) Approaching The Special Div - Still The Wrong Price

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)