In today’s briefing:
- SenseTime (20 HK): Lock-Up Expiry Will Bring BIG Passive Flow
- HSCI Index Rebalance and Stock Connect: Potential Changes in June and September
- Kunlun Energy (135 HK): A Record Quarter for Kunlun Gas
- China Comm Const (1800 HK): Grossly Undervalued by the Market
- Shenzhen Mindray Bio-Medical Electronics (300760.CH) – Still a “Safe Play” Despite Growth Slowdown
SenseTime (20 HK): Lock-Up Expiry Will Bring BIG Passive Flow
- SenseTime Group (20 HK) currently has a float of 1.4%. That will increase to 46% at the end of June as pre-IPO and cornerstone investor lock-ups end.
- The Hang Seng Tech Index FAF increase and potential inclusion in the Hang Seng China Enterprises Index will require passive trackers to buy 700m shares early September.
- Economic stimulus in China, outlook for China tech, lock-up expiry, inclusion in Southbound Connect and flows from passive trackers will drive the stock for few months and provide trading opportunities.
HSCI Index Rebalance and Stock Connect: Potential Changes in June and September
- We see seven new listings as potential inclusions to the HSCI in June. One is already a part of Connect while five will be added to Southbound Stock Connect.
- We see 19 potential changes to the HSCI in September. Seven of the deletions are on market cap, four on liquidity, and eight due to prolonged trading suspension.
- Some of the potential deletions have large Southbound holdings and some of these could be trimmed over the next couple of months.
Kunlun Energy (135 HK): A Record Quarter for Kunlun Gas
- Healthy 17.2% growth in 1Q22 net profit of Kunlun Gas, the most important subsidiary of Kunlun Energy (135 HK), provides a welcoming evidence to ease market concerns on costs.
- While gross margin was down 0.2pp YoY, it expanded by 0.4pp QoQ. Key cost items including selling, administrative and R&D are all under control, boosting EBIT margin by 0.5pp YoY.
- 1Q22 is a record quarter for Kunlun Gas, and gearing stays comfortable with strong operating cash flow. We believe such set of result signals good 1Q22 for Kunlun Energy.
China Comm Const (1800 HK): Grossly Undervalued by the Market
- China Communications Construction (1800 HK) has bucked the trend of weaker earnings growth in the last two quarters by posting a healthy 17.7% YoY net profit growth for 1Q22.
- While gross margin contracted slightly, the good control on selling and administrative expenses have partly absorbed margin contraction. Its new contract value for 1Q22 has also reached record high.
- With government’s aggressive special purpose bond issue and infrastructure investment, we expect new contract momentum to pick up. Trading at 3.2x PER and 0.22x P/B, CCCC is massively undervalued.
Shenzhen Mindray Bio-Medical Electronics (300760.CH) – Still a “Safe Play” Despite Growth Slowdown
- In 2021/22Q1, Mindray’s 20%+ growth rate is not easy in this difficult/complicated environment, but the market hopes to see stronger data and a fresh logic of growth to restore confidence.
- After China’s “new infrastructure” projects finish, how to maintain its 20%+ growth could be a challenge in the long term if Mindray couldn’t make breakthrough in internationalization or innovation.
- However, Mindray is still a “safe play”. Its current PE/TTM is also more reasonable, but definitely not undervalued. It would be much better to long Mindray at a lower valuation.
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