HK/China Equity Long-Short

Osbert Tang, CFA

Osbert Tang is an equity analyst with over 20 years of experience with focuses on China transport, infrastructure, industrials and utilities sectors. He has been based in Shanghai since 2003, accumulated nearly 20 years of on-ground knowledge on the Chinese economy and financial markets, and has a wealth of contacts with China corporates and government entities. 

Osbert has received votes from top-tier institutional investors and has been a highly-ranked transport and infrastructure analyst in the Asiamoney, Institutional Investors and Greenwich surveys. In addition to his extensive experience with international investment banks including RBS, ABN AMRO (both served as Shanghai Chief Representative), Paribas Asia Equity, Maybank Kim Eng and DBS Securities, he has been a senior analyst with Moody’s Investors Service with focus on ratings of China infrastructure and related LGFV issuers. He has also worked in the area of strategic development at Sun Hung Kai Properties Limited. 

Osbert holds a BBA from the Chinese University of Hong Kong, an MBA from the University of Texas at Austin and a MSSc in Applied Psychology from the City University of Hong Kong. He was accredited with the CFA charter in 1997, and is a member of both British Psychological Society and Hong Kong Psychological Society.

Oil Support Break and Macro Downside Risk

Kunlun Energy (135 HK): Kunlun Gas to Lead Re-Rating

Kunlun Energy (135 HK): Very Favourable Valuation for Pipeline and Dalian LNG Disposals

Kunlun Energy (135 HK): Solid Growth in Downstream Gas Sales Is the Driver

Kunlun Energy (135 HK): Deserves a Gas Utilities Valuation?

Kunlun Energy (135 HK): Positive Implications from PetroChina and Sinopec Pipelines Disposal

Kunlun Energy (135 HK): No Immediate Impact from National Pipeline Company

Equity Bottom-Up

<p>We believe the 18.5% drop in core profit in 1H20 for <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> is largely a result of the loss at the E&amp;P segment.  The swing from profit to loss at E&amp;P amounted to Rmb830m, well accounted for the Rmb780m reduction in 1H20 reported profit. While the other segments are mostly weaker YoY, the magnitude is generally manageable (except LNG processing and terminal). At the same time, the contraction in dollar margin is disappointing.</p><p>In our view, the weak result is within expectation. We expect sequential improvement in 2H20, as higher oil price reduces E&amp;P loss, gas sales growth stays solid, dollar margin improves slightly and LNG gasification volume rebounds. Meanwhile, we think the near-term catalyst will be the progress of its sale of pipeline to PipeChina, and the potential special dividend as resulted. At 0.95x 12-month forward P/B multiple, which is 1 SD below the average since 2016, we view Kunlun's valuation as inexpensive. We put Kunlun at HK$9.00 per share based on sum-of-the-parts valuation.</p>

We believe the 18.5% drop in core profit in 1H20 for Kunlun Energy (135 HK) is largely a result of the loss at the E&amp;P segment.  The swing from profit to loss at E&amp;P amounted to Rmb830m, well accounted for the Rmb780m reduction in 1H20 reported profit. While the other segments are mostly weaker YoY, the magnitude is generally manageable (except LNG processing and terminal). At the same time, the contraction in dollar margin is disappointing.In our view, the weak result is within expectation. We expect sequential improvement in 2H20, as higher oil price reduces E&amp;P loss, gas sales growth stays solid, dollar margin improves slightly and LNG gasification volume rebounds. Meanwhile, we think the near-term catalyst will be the progress of its sale of pipeline to PipeChina, and the potential special dividend as resulted. At 0.95x 12-month forward P/B multiple, which is 1 SD below the average since 2016, we view Kunlun's valuation as inexpensive. We put Kunlun at HK$9.00 per share based on sum-of-the-parts valuation.

Kunlun Energy (135 HK): Weak 1H20 Expected, Near Term Focus on Pipeline Disposal