HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Hope Education Group Co Ltd / Equity Bottom-Up

<ul>
<li>Following share price plunge even with decent FY21 result, most of the risks for <a href="https://www.smartkarma.com/entities/hope-education-group-co-ltd" target="_blank" data-smartkarma-citation="entities:27321:1" rel="noopener">Hope Education Group (1765 HK)</a> have been released, but its return profile looks more interesting now.</li>
<li>We see bright spots including good cash flow, solid financial position, positive business outlook, new stock option scheme and limited regulatory exposure the key investment merits. </li>
<li>Valuations appear undemanding at 10.4x and 8.4x PERs for FY21 and FY22. They are at premium to <a href="https://www.smartkarma.com/entities/china-yuhua-education" target="_blank" data-smartkarma-citation="entities:23627:1" rel="noopener">China Yuhua Education (6169 HK)</a> but discount to <a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a>. </li>
</ul>


Following share price plunge even with decent FY21 result, most of the risks for Hope Education Group (1765 HK) have been released, but its return profile looks more interesting now.
We see bright spots including good cash flow, solid financial position, positive business outlook, new stock option scheme and limited regulatory exposure the key investment merits. 
Valuations appear undemanding at 10.4x and 8.4x PERs for FY21 and FY22. They are at premium to China Yuhua Education (6169 HK) but discount to China Education Group (839 HK). 


Hope Education (1765 HK): Hopeful or Hopeless?

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-yuhua-education" target="_blank" data-smartkarma-citation="entities:23627:1" rel="noopener">China Yuhua Education (6169 HK)</a> has significantly cleaned up its K-9 business by deconsolidated from FY21 result with a Rmb1.04bn one-off losses. Reported profit, however, still reached Rmb824.5m. </li>
<li>The continuing business achieved a profit of Rmb1.2bn, growing by an estimated 48% YoY, suggesting that the higher and vocational segment is operating on a sound basis. </li>
<li>It is in the process to transform three K-9 schools into higher vocational schools. Guidance for FY22 is not less than 20% earnings growth for the continuing business.  </li>
</ul>



China Yuhua Education (6169 HK) has significantly cleaned up its K-9 business by deconsolidated from FY21 result with a Rmb1.04bn one-off losses. Reported profit, however, still reached Rmb824.5m. 
The continuing business achieved a profit of Rmb1.2bn, growing by an estimated 48% YoY, suggesting that the higher and vocational segment is operating on a sound basis. 
It is in the process to transform three K-9 schools into higher vocational schools. Guidance for FY22 is not less than 20% earnings growth for the continuing business.  


China Yuhua Education (6169 HK): Cleaner After a Big Bath?

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a> again announced solid result with adjusted net profit surged by 57.1% to Rmb1.55bn in FY21, ahead of guidance and also better than market expectations.</li>
<li>Management suggests positive FY22 outlook as student recruitment is encouraging, new schools and campuses add momentum and potential acquisitions provide upside. Unified new student enrollment increased 34% YoY.</li>
<li>CEG stays as our top pick in China Private Education Sector, and its PER of 14.5x for FY22F is undemanding given sustained solid earnings outlook and less regulatory exposure.</li>
</ul>



China Education Group (839 HK) again announced solid result with adjusted net profit surged by 57.1% to Rmb1.55bn in FY21, ahead of guidance and also better than market expectations.
Management suggests positive FY22 outlook as student recruitment is encouraging, new schools and campuses add momentum and potential acquisitions provide upside. Unified new student enrollment increased 34% YoY.
CEG stays as our top pick in China Private Education Sector, and its PER of 14.5x for FY22F is undemanding given sustained solid earnings outlook and less regulatory exposure.


China Education Group (839 HK): Post-FY21 Result Call Suggests Robust Year Ahead

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<ul>
<li>Numerous media accounts have mentioned that Didi could relaunch its ride-hailing app in China by the end of 2021.</li>
<li>In terms of share price trend, it is starting to form an attractive double bottom pattern, with increasing prices on rising volume. </li>
<li>Our base case valuation of DiDi Global is a target price of $12 per share, which represents a 35% upside from current levels.</li>
</ul>


Numerous media accounts have mentioned that Didi could relaunch its ride-hailing app in China by the end of 2021.
In terms of share price trend, it is starting to form an attractive double bottom pattern, with increasing prices on rising volume. 
Our base case valuation of DiDi Global is a target price of $12 per share, which represents a 35% upside from current levels.


Didi Global - Higher Probability of Relaunching Ride Hailing App in China by the End of 2021

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Quantitative Analysis

<p>This insight provides the output, and an overview of our, machine learning-driven, proprietary GEM screening model, which takes a three-pronged approach to find the best medium-term long ideas within the top100 largest stocks in the MSCI GEM Index. </p>
<p>The model is based on 1) a typical quantitative multifactor screening model, enhanced by two Artificial Intelligence Technology-based approaches using 2) a Deep Neural Network model, and 3) a Recurrent Neural Network model. </p>
<p>This model, which has been developed and tweaked over the past 3 years (and implemented in its current state for 17 months), has a solid real-world performance track record, which I set out in the detail below. </p>
<p>Notable new entrants to the top decile this month include Russian internet company <a href="https://www.smartkarma.com/entities/yandex-nv-a" target="_blank" data-smartkarma-citation="entities:414:1" rel="noopener">Yandex (YNDX US)</a>, Indian IT Services company <a href="https://www.smartkarma.com/entities/hcl-technologies-ltd" target="_blank" data-smartkarma-citation="entities:20025:1" rel="noopener">Hcl Technologies (HCLT IN)</a>, and a return to the top 10 for <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>.</p>
<table class="table table-striped">
<colgroup> <col> <col> <col> <col> <col> </colgroup>
<tbody>
<tr>
<td style="text-align: center; width: 48pt;">rank</td>
<td style="width: 169pt;">Name</td>
<td style="width: 119pt;">Sector</td>
<td style="width: 95pt;">Location</td>
<td style="text-align: center; width: 48pt;">prev.</td>
</tr>
<tr>
<td style="text-align: center;">1</td>
<td>
<a href="https://www.smartkarma.com/entities/lg-household-health-care" target="_blank" data-smartkarma-citation="entities:6501:1" rel="noopener">LG Household &amp; Health Care (051900 KS)</a> </td>
<td>Consumer Staples</td>
<td>Korea (South)</td>
<td style="text-align: center;">12</td>
</tr>
<tr>
<td style="text-align: center;">2</td>
<td>
<a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a> </td>
<td>Communication</td>
<td>China</td>
<td style="text-align: center;">2</td>
</tr>
<tr>
<td style="text-align: center;">3</td>
<td>
<a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com Inc. (9618 HK)</a> </td>
<td>Consumer Discretionary</td>
<td>China</td>
<td style="text-align: center;">10</td>
</tr>
<tr>
<td style="text-align: center;">4</td>
<td>
<a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a> </td>
<td>Information Technology</td>
<td>China</td>
<td style="text-align: center;">4</td>
</tr>
<tr>
<td style="text-align: center;">5</td>
<td>
<a href="https://www.smartkarma.com/entities/yandex-nv-a" target="_blank" data-smartkarma-citation="entities:414:1" rel="noopener">Yandex (YNDX US)</a> </td>
<td>Communication</td>
<td>Russian Federation</td>
<td style="text-align: center;">49</td>
</tr>
<tr>
<td style="text-align: center;">6</td>
<td>
<a href="https://www.smartkarma.com/entities/new-oriental-education-technology-group" target="_blank" data-smartkarma-citation="entities:32210:1" rel="noopener">New Oriental Education &amp; Technology Group (9901 HK)</a> </td>
<td>Consumer Discretionary</td>
<td>China</td>
<td style="text-align: center;">1</td>
</tr>
<tr>
<td style="text-align: center;">7</td>
<td>
<a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a> </td>
<td>Information Technology</td>
<td>Taiwan</td>
<td style="text-align: center;">16</td>
</tr>
<tr>
<td style="text-align: center;">8</td>
<td>
<a href="https://www.smartkarma.com/entities/al-rajhi-bank" target="_blank" data-smartkarma-citation="entities:27038:1" rel="noopener">Al Rajhi Bank (RJHI AB)</a> </td>
<td>Financials</td>
<td>Saudi Arabia</td>
<td style="text-align: center;">33</td>
</tr>
<tr>
<td style="text-align: center;">9</td>
<td>
<a href="https://www.smartkarma.com/entities/magazine-luiza-sa" target="_blank" data-smartkarma-citation="entities:27676:1" rel="noopener">Magazine Luiza SA (MGLU3 BZ)</a> </td>
<td>Consumer Discretionary</td>
<td>Brazil</td>
<td style="text-align: center;">15</td>
</tr>
<tr>
<td style="text-align: center;">10</td>
<td>
<a href="https://www.smartkarma.com/entities/hcl-technologies-ltd" target="_blank" data-smartkarma-citation="entities:20025:1" rel="noopener">Hcl Technologies (HCLT IN)</a> </td>
<td>Information Technology</td>
<td>India</td>
<td style="text-align: center;">83</td>
</tr>
<tr>
<td colspan="5" style="text-align: left;">Source: FactSet financial data and analytics, my estimates and calculations, Tensorflow, Keras, Google Colaboratory, pandas</td>
</tr>
</tbody>
</table>
<p><em>As usual, please feel free to reach out for the full output table, any questions, clarifications needed or suggestions.</em></p>

This insight provides the output, and an overview of our, machine learning-driven, proprietary GEM screening model, which takes a three-pronged approach to find the best medium-term long ideas within the top100 largest stocks in the MSCI GEM Index. 
The model is based on 1) a typical quantitative multifactor screening model, enhanced by two Artificial Intelligence Technology-based approaches using 2) a Deep Neural Network model, and 3) a Recurrent Neural Network model. 
This model, which has been developed and tweaked over the past 3 years (and implemented in its current state for 17 months), has a solid real-world performance track record, which I set out in the detail below. 
Notable new entrants to the top decile this month include Russian internet company Yandex (YNDX US), Indian IT Services company Hcl Technologies (HCLT IN), and a return to the top 10 for TSMC (2330 TT).

      


rank
Name
Sector
Location
prev.


1

LG Household &amp; Health Care (051900 KS) 
Consumer Staples
Korea (South)
12


2

NetEase (9999 HK) 
Communication
China
2


3

JD.com Inc. (9618 HK) 
Consumer Discretionary
China
10


4

Xiaomi Corp (1810 HK) 
Information Technology
China
4


5

Yandex (YNDX US) 
Communication
Russian Federation
49


6

New Oriental Education &amp; Technology Group (9901 HK) 
Consumer Discretionary
China
1


7

TSMC (2330 TT) 
Information Technology
Taiwan
16


8

Al Rajhi Bank (RJHI AB) 
Financials
Saudi Arabia
33


9

Magazine Luiza SA (MGLU3 BZ) 
Consumer Discretionary
Brazil
15


10

Hcl Technologies (HCLT IN) 
Information Technology
India
83


Source: FactSet financial data and analytics, my estimates and calculations, Tensorflow, Keras, Google Colaboratory, pandas



As usual, please feel free to reach out for the full output table, any questions, clarifications needed or suggestions.

China

TAL Education Group provides educational services. The Company offers comprehensive tutoring services to students covering core academic subjects such as mathematics, English, Chinese, physics, chemistry, political science, history, and biology. TAL Education Group serves students in China.

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TAL Education (TAL US)

Hope Education (1765 HK): Hopeful or Hopeless?

With a focus on higher education, Hope Education should see lesser regulatory risks. Good cash flow, solid financial position and positive business...

Osbert Tang, CFA

China Yuhua Education (6169 HK): Cleaner After a Big Bath?

A massive cleanup of K-9 segment should clear many uncertainties from the government's regulations. Focusing on higher and vocational colleges will...

Osbert Tang, CFA

China Education Group (839 HK): Post-FY21 Result Call Suggests Robust Year Ahead

After beating expectation in FY21 result, positive outlook will extend into FY22 as student recruitment is encouraging, new schools and campuses...

Osbert Tang, CFA

Didi Global - Higher Probability of Relaunching Ride Hailing App in China by the End of 2021

There have been numerous media accounts in the past two days that have mentioned that DiDi Global (DIDI US) is likely to relaunch its ride-hailing...

Douglas Kim

Screening for GEMs: November 2021

This insight provides an overview of our, machine learning-driven, proprietary GEM screening model, based on a Multifactor model, a Deep Neural...

Wium Malan, CFA

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