Brief Hong Kong: Japan – Chinese Flu and more

In this briefing:

1. Japan – Chinese Flu
2. China Tower Results Confirm Lower Capex Outlook, but Were Otherwise Mixed
3. ESR Cayman Pre-IPO – A Giant in the Making
4. China Gas Placement – Larger Deals Traded Flat but Good Track Record Should Help

1. Japan – Chinese Flu

By Konstantinos Venetis, Senior Economist

• Japan skirts recession but near-term prospects remain weak
• Deflationary headwinds to persist in H1, threatening business spending
• Recovery likely in late 2019 as world trade finds a firmer footing

2. China Tower Results Confirm Lower Capex Outlook, but Were Otherwise Mixed

China Tower (788 HK) reported 4Q18 results that looks slightly disappointing. However, they did deliver strong net profit, confirmation that capex is likely to materially undershoot guidance, and the first dividend for the company. However, while that is positive, there were areas of disappointment, with weaker revenue growth and EBITDA.

Our view remains that China Tower’s shares are relatively undervalued and expect share prices to continue to move higher over time, as the stock reflects its inflecting ROIC. It remains our favored name in China given the risks of policy driven over-investment into 5G (see Chinese Telcos: Rising 5G Capex Risk Leads to Another Downgrade).

3. ESR Cayman Pre-IPO – A Giant in the Making

ESR Cayman (ESR HK) aims to raise up to US$1.5bn in its planned Hong Kong listing, as per media reports. The company is backed by Warburg Pincus and counts APG, the Netherlands’ largest pension provider, as one of its main investors.

ESR operates an end-to-end model starting from development of the asset to divesting it to one of its private funds and/or REITs. It operates in China, Japan, South Korea, Australia, Singapore and India. AUM has grown rapidly over the past few years as the company has undertaken a number of acquisitions in the recent past. 

In this insight, I’ll touch upon the company’s business model and provide an overview of its operations. 

4. China Gas Placement – Larger Deals Traded Flat but Good Track Record Should Help

A shareholder of China Gas Holdings (384 HK) is looking to sell about 142m shares worth approximatel US$443m. This is a clean-up trade.

The deal scores well on our framework owing to its pristine track record of outperformance and decent earnings momentum. It is also a clean-up trade, hence, no overhang on its share price.

However, the performance of prev deals show that placements larger than HK$3bn tend to perform flat over one-month period whereas placements with smaller deal size did well.