In today’s briefing:
- HSCI Index Rebalance Preview and Stock Connect: Potential Changes in June & September
- AAG Energy (2686 HK): New Scheme Vote Date, Different Result?
- Alibaba (9988 HK): Chinese Authorities Turning Opposite to Encourage Non-State-Owned Companies
- HK RE: Retail to Benefit from Tourism Recovery. Buy HLP 101 HK & NWD 17 HK on Attractive Valuation
- Skyworth (751 HK): Thoughts On Proration
- Energy China (3996 HK): Tempting Risk-Return Payoff
- BeiGene (6160.HK/BGNE.US) 23Q1 – Qualitative Changes Are Taking Place
- Agricultural Bank of China Ltd (1288 HK) – Target 13%-24% Uptrend in 2-3 Quarters.
- Shanghai Tofflon Science (300171.CH) 2022/23Q1 – It’s Better Not to Go Against the Trend
- AAG Energy (2686) Favors Buying Weakness
HSCI Index Rebalance Preview and Stock Connect: Potential Changes in June & September
- There is only one new listing as a potential inclusion to the HSCI in June. If added to the HSCI, it will also be added to Southbound Stock Connect.
- There are 18 potential inclusions and 19 potential deletions for the HSCI in September. There are a few close adds and there could be another 5 deletions on Prolonged Suspension.
- A lot of the potential deletions have large Southbound holdings. With all the stocks becoming sell-only, there could be unwinding of some positions over the next couple of months.
AAG Energy (2686 HK): New Scheme Vote Date, Different Result?
- Aag Energy Holdings (2686 HK)’s disclosed a revised timetable to vote on Xinjiang Xintai Natural Gas (603393 CH)’s HK$1.85 offer. The new scheme meeting is set for 2 June.
- Our analysis suggests that in the best case, Xinjiang Xintai would need to further swing NO votes representing 6.52%-8.34% of outstanding shares to YES to get the scheme approved.
- AAG’s case is unprecedented. The risk-reward remains unattractive as the upside to a scheme pass (13.5% upside) is equal to the downside to a scheme fail (average 13.5% downside).
Alibaba (9988 HK): Chinese Authorities Turning Opposite to Encourage Non-State-Owned Companies
- Chinese authorities have begun to ban public opinion against non-state-owned companies.
- These actions were the opposite to what the authorities did in past years.
- We believe the authorities need non-state-owned companies to bail the unemployed young people out of the weak job market.
HK RE: Retail to Benefit from Tourism Recovery. Buy HLP 101 HK & NWD 17 HK on Attractive Valuation
- Hong Kong retail sales strongly rebounded 41% yoy in March
- During May Day Holiday (Apr 29 – May 3), there was 625k mainland visitors to Hong Kong, around 63% of pre-COVID level
- Among all RE sub-sectors, retail and residential will be the first to recover (already seeing recovery), office will be lagging and the last.
Skyworth (751 HK): Thoughts On Proration
- Back on the 23 December, Skyworth Group (751 HK) announced another partial buyback – this time for 100mn shares (3.87% of shares out), at HK$3.80/share, a 20.25% premium to undisturbed.
- On the 28 March, terms were bumped to $5.00/share. Independent shareholders approved the whitewash waiver on the 5 May.
- The Offer closes on the 18 May. The minimum proration is 7.8%. Expect the final proration to be higher.
Energy China (3996 HK): Tempting Risk-Return Payoff
- China Energy Engineering (3996 HK) is a laggard in this round of “China style valuation” rally. With strong earnings and project backlog, there is good room to catch up.
- Its 1Q23 earnings growth is ahead of the infrastructure trio, and so as the new contracts signed. Moreover, it has a faster growth in overseas market.
- The 3-year EPS CAGR is projected at 16.3%, yet it just trades on 5x PER. Its ROE of 9.4% makes it attractively priced at only 0.4x P/B for FY23.
BeiGene (6160.HK/BGNE.US) 23Q1 – Qualitative Changes Are Taking Place
- A significant change in 23Q1 was not just a narrowing of net loss, but a sudden turnaround in sales profit under the rapid revenue growth, which was an important leap.
- BeiGene’s commercialization capabilities largely rely on high expense level that significantly deviating from the industry average, making eventual commercialization success more difficult. BeiGene is an “outlier” even among global peers.
- How to control expenses while ensuring sustained sales growth and long-term competitiveness is an important issue for BeiGene. If no new blockbuster product emerges ultimately, high valuation would not last.
Agricultural Bank of China Ltd (1288 HK) – Target 13%-24% Uptrend in 2-3 Quarters.
- At TMA we deliver high probability outcomes by focusing on our 3 pillars of technical analysis. •1) Response to key levels. •2) Price action. •3) Momentum confirmation.
- The LT downtrend structure in 1288 HK was simply defined by its 2018/2022 sequence of lower highs and lower lows. This structure was broken last week.
- LT momentum indicators (monthly RSI / MACD) have recently confirmed this bullish LT trend change. The current uptrend appears set to extend towards 3.60/3.90 (+13%-24%) in the coming 2-3 quarters.
Shanghai Tofflon Science (300171.CH) 2022/23Q1 – It’s Better Not to Go Against the Trend
- Tofflon needs to go through a considerable period of adjustment after experiencing the high point of performance. Its “periodicity” is obvious, which means the performance high growth is not sustainable.
- The decline in growth rate of contract liabilities suggests that the future prospects is highly uncertain. Overall margins could continue to drop due to reduction in high margin overseas orders.
- Unless there’s a major catalyst, it’s difficult to see significant valuation boost in short term. Given the current downward trend in performance, valuation may continue to decline in the future.
AAG Energy (2686) Favors Buying Weakness
- AAG Energy (2686) exhibits a clear wedge range to trade with an intermediate positive outcome as long as lower wedge support stands up near outlined 1.50 support.
- The intermediate cycle favors a bullish outcome as long as lower pattern support holds true. Wedge still needs time to mature.
- 1.70 is the level to clear for bull traction. Risk to 1.40 region if we fail to hold lower wedge support at 1.48.
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