HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>We think <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> will see its operating momentum accelerate in 2H23, leading by better natural gas sales growth and sustained positive dollar margin performance.</li>
<li>It has strengthened its financial position in 1H23, with net cash amounting to 36% of market cap. This has demonstrated its cash-generating capability and controlled capex. </li>
<li>Its 7.0x and 6.6x PERs for FY23 and FY24 are inexpensive. Its annualised ROE of 10.6% is also attractive. There is room for the other businesses to recover in 2H23.</li>
</ul>


We think Kunlun Energy (135 HK) will see its operating momentum accelerate in 2H23, leading by better natural gas sales growth and sustained positive dollar margin performance.
It has strengthened its financial position in 1H23, with net cash amounting to 36% of market cap. This has demonstrated its cash-generating capability and controlled capex. 
Its 7.0x and 6.6x PERs for FY23 and FY24 are inexpensive. Its annualised ROE of 10.6% is also attractive. There is room for the other businesses to recover in 2H23.


Kunlun Energy (135 HK): The Story Is Still Going On

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

Pertamina Geothermal Energy PT / Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/pertamina-geothermal-energy-pt" target="_blank" data-smartkarma-citation="entities:36725:1" rel="noopener">Pertamina Geothermal Energy (PGEO IJ)</a> priced its IPO at IDR875 per share to raise gross proceeds of IDR9.1 trillion (US$600 million). The shares will start trading tomorrow.</li>
<li>We previously discussed the IPO in <a href="https://www.smartkarma.com/insights/pertamina-geothermal-ipo-the-investment-case" target="_blank" data-smartkarma-citation="insights:95013" rel="noopener">Pertamina Geothermal IPO: The Investment Case</a> and <a href="https://www.smartkarma.com/insights/pertamina-geothermal-ipo-valuation-insights" target="_blank" data-smartkarma-citation="insights:95096" rel="noopener">Pertamina Geothermal IPO: Valuation Insights</a>. </li>
<li>Peers have modestly re-rated and the IPO price continues to imply a discount to the median peer CY2023 EV/EBITDA multiple. Therefore, the IPO price remains attractive.</li>
</ul>



Pertamina Geothermal Energy (PGEO IJ) priced its IPO at IDR875 per share to raise gross proceeds of IDR9.1 trillion (US$600 million). The shares will start trading tomorrow.
We previously discussed the IPO in Pertamina Geothermal IPO: The Investment Case and Pertamina Geothermal IPO: Valuation Insights. 
Peers have modestly re-rated and the IPO price continues to imply a discount to the median peer CY2023 EV/EBITDA multiple. Therefore, the IPO price remains attractive.


<ul>
<li>
<a href="https://www.smartkarma.com/entities/pertamina-geothermal-energy-pt" target="_blank" data-smartkarma-citation="entities:36725:1" rel="noopener">Pertamina Geothermal (0125738D IJ)</a>/PGE, a subsidiary of <a href="https://www.smartkarma.com/entities/pt-pertamina-persero" target="_blank" data-smartkarma-citation="entities:35862:1" rel="noopener">PT Pertamina (Persero) (PERT IJ)</a>, is seeking to raise up to US$600 million at a narrowed price range of IDR875-880 per share.</li>
<li>We previously discussed the IPO in <a href="https://www.smartkarma.com/insights/pertamina-geothermal-ipo-the-investment-case" target="_blank" data-smartkarma-citation="insights:95013" rel="noopener">Pertamina Geothermal IPO: The Investment Case</a>. </li>
<li>PGE is attractively valued at the IPO price range. We would participate. Books will be closed on 10 February and the shares will start trading on 24 February.</li>
</ul>



Pertamina Geothermal (0125738D IJ)/PGE, a subsidiary of PT Pertamina (Persero) (PERT IJ), is seeking to raise up to US$600 million at a narrowed price range of IDR875-880 per share.
We previously discussed the IPO in Pertamina Geothermal IPO: The Investment Case. 
PGE is attractively valued at the IPO price range. We would participate. Books will be closed on 10 February and the shares will start trading on 24 February.


Pertamina Geothermal IPO: Valuation Insights

<ul>
<li>While <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> expects better gas dollar margin HoH, there are still high profit uncertainties and its full-year operational guidance does not look exciting.</li>
<li>The expectation of flat to 10% YoY decline in new residential household connections is not encouraging. With 1H FY23 profit only amounted to 42% of consensus, we see downgrade risks.</li>
<li>Despite achieving positive free cash flow, its high gearing of 69.9% (+4pp HoH) is still very stretched relative to peers. We prefer <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>.</li>
</ul>


While China Gas Holdings (384 HK) expects better gas dollar margin HoH, there are still high profit uncertainties and its full-year operational guidance does not look exciting.
The expectation of flat to 10% YoY decline in new residential household connections is not encouraging. With 1H FY23 profit only amounted to 42% of consensus, we see downgrade risks.
Despite achieving positive free cash flow, its high gearing of 69.9% (+4pp HoH) is still very stretched relative to peers. We prefer Kunlun Energy (135 HK).


China Gas Holdings (384 HK): Still Not Meeting Expectations

<ul>
<li>Core net profit rose a healthy 10.9% at <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> in 1H22 despite challenges from pandemic lockdowns and surge in input costs.</li>
<li>We expect to see sequential improvement in both dollar margin for gas sales and overall gross margin in 2H22. Excellent integrated energy pipeline should add to earnings momentum.</li>
<li>Gearing improved 2.2pp in 1H22 and there is more room to deleverage in 2H22. While the stock's valuation is not particularly cheap, it has probably already hit the trough. </li>
</ul>


Core net profit rose a healthy 10.9% at ENN Energy (2688 HK) in 1H22 despite challenges from pandemic lockdowns and surge in input costs.
We expect to see sequential improvement in both dollar margin for gas sales and overall gross margin in 2H22. Excellent integrated energy pipeline should add to earnings momentum.
Gearing improved 2.2pp in 1H22 and there is more room to deleverage in 2H22. While the stock's valuation is not particularly cheap, it has probably already hit the trough. 


ENN Energy (2688 HK): Seeing Sign of an Upturn

China

Shenzhen Gas Corporation Ltd., supplies gas in Shenzhen. The Company business includes wholesale of gas, pipeline and the supply of bottled gas, investment and construction in the distribution network of gas transmission.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Shenzhen Gas Corp Ltd A (601139 CH)

Kunlun Energy (135 HK): The Story Is Still Going On

Kunlun is expected to accelerate its operating momentum in 2H23, driven by increased natural gas sales and a positive dollar margin. Its strong...

Osbert Tang, CFA

Pertamina Geothermal IPO: Trading Debut

Peers have modestly re-rated and the IPO price continues to imply a discount to the median peer CY2023 EV/EBITDA multiple. Therefore, the IPO price...

Arun George

Pertamina Geothermal IPO: Valuation Insights

The price range has been narrowed from IDR820-945 to IDR875-880 per share. PGE is attractively valued at the IPO price range. We would participate.

Arun George

China Gas Holdings (384 HK): Still Not Meeting Expectations

1H FY23 result is disappointing and we see downside risks for consensus forecasts. We think 2H earnings will be at best flattish and its high...

Osbert Tang, CFA

ENN Energy (2688 HK): Seeing Sign of an Upturn

Dollar margin recovery, strong integrated energy pipeline and value added business growth are key drivers for ENN Energy in 2H22 and FY23....

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Kunlun Energy (135 HK): The Story Is Still Going On

​Kunlun is expected to accelerate its operating momentum in 2H23, driven by increased natural gas sales and a positive dollar margin. Its strong...

Osbert Tang, CFA

Pertamina Geothermal IPO: Trading Debut

Peers have modestly re-rated and the IPO price continues to imply a discount to the median peer CY2023 EV/EBITDA multiple. Therefore, the IPO price...

Arun George

Pertamina Geothermal IPO: Valuation Insights

The price range has been narrowed from IDR820-945 to IDR875-880 per share. PGE is attractively valued at the IPO price range. We would participate.

Arun George

China Gas Holdings (384 HK): Still Not Meeting Expectations

1H FY23 result is disappointing and we see downside risks for consensus forecasts. We think 2H earnings will be at best flattish and its high...

Osbert Tang, CFA

ENN Energy (2688 HK): Seeing Sign of an Upturn

Dollar margin recovery, strong integrated energy pipeline and value added business growth are key drivers for ENN Energy in 2H22 and FY23....

Osbert Tang, CFA

Kunlun is expected to accelerate its operating momentum in 2H23, driven by increased natural gas sales and a positive dollar margin. Its strong...