HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Gas Holdings Ltd. invests in, operates and manages natural gas distribution pipelines.  The Company distributes and sells natural gas to residential, commercial and industrial users, and bottles and sells compressed natural gas.  China Gas also constructs and operates gas stations.

<ul>
<li>The spin-off of the value-added business (VAS) of <a href="https://www.smartkarma.com/entities/china-gas-holdings-ltd" target="_blank" data-smartkarma-citation="entities:14315:1" rel="noopener">China Gas Holdings (384 HK)</a> may add HK$0.22-0.83/share to the stock price, or 3.4-12.8%, based on our initial assessment.</li>
<li>VAS generated an operating profit of HK$1.58bn in FY24, up by 5.7% YoY. It is significant to China Gas as this accounted for 23.5% of its total segment profit.</li>
<li>The share price has not reacted much to the news because weak Chinese equity market and uncertainties on the upcoming 1H FY25 result. Once cleared, we see good upside.</li>
</ul>


The spin-off of the value-added business (VAS) of China Gas Holdings (384 HK) may add HK$0.22-0.83/share to the stock price, or 3.4-12.8%, based on our initial assessment.
VAS generated an operating profit of HK$1.58bn in FY24, up by 5.7% YoY. It is significant to China Gas as this accounted for 23.5% of its total segment profit.
The share price has not reacted much to the news because weak Chinese equity market and uncertainties on the upcoming 1H FY25 result. Once cleared, we see good upside.


China Gas Holdings (384 HK): Assessing the Spin-Off of Value-Added Business

CK Infrastructure Holdings / Equity Bottom-Up

CK Infrastructure Holdings Limited (CKI) operates as a real assets investment company. The Company invests in energy, transportation, water, and electricity generation sectors. CKI serves customers worldwide.

<ul>
<li>
<a href="https://www.smartkarma.com/entities/ck-infrastructure-holdings-l" target="_blank" data-smartkarma-citation="entities:163:1" rel="noopener">CK Infrastructure Holdings (1038 HK)</a> should thrive in the volatile market environment in 2025, given its stable earnings, diversified geography, low gearing, and consistent dividends.</li>
<li>Further reduction in US interest rate should potentially be positive to other currencies, and CKI has diversified exposure in the UK, Australia, Europe, and Canada to benefit.</li>
<li>Investors may turn more risk-averse in the next year. CKI's high earnings visibility, with many regulatory resets happening beyond 2025, is highly welcome in the market. </li>
</ul>



CK Infrastructure Holdings (1038 HK) should thrive in the volatile market environment in 2025, given its stable earnings, diversified geography, low gearing, and consistent dividends.
Further reduction in US interest rate should potentially be positive to other currencies, and CKI has diversified exposure in the UK, Australia, Europe, and Canada to benefit.
Investors may turn more risk-averse in the next year. CKI's high earnings visibility, with many regulatory resets happening beyond 2025, is highly welcome in the market. 


2025 High Conviction: CKI (1038 HK) - Perfect Harmony

Shanghai Electric Group Company / Equity Bottom-Up

Shanghai Electric Group Company Limited, through its subsidiaries, designs, manufactures, sells, and services a wide range of products and services in the power equipment, electromechanical equipment, transportation equipment and environmental system industries.

Shanghai Electric Group Company (2727 HK)

<ul>
<li>
<a href="https://www.smartkarma.com/entities/shanghai-electric-group-company-limited-d542164d-4d5a-4ce0-b33e-5fe6bc34722c" target="_blank" data-smartkarma-citation="entities:8777:1" rel="noopener">Shanghai Electric Group Company (2727 HK)</a> (SEC) has more than doubled since Oct, riding on the Fanuc Robots acquisition and speculation of a backdoor listing of SMEE.</li>
<li>The Fanuc acquisition is very earnings accretive. The SMEE backdoor listing, if happens, will allow SEC to enter the extremely strategic and lucrative EUV lithography machine sector.</li>
<li>SEC's 3Q24 result has some improvements, but with profitability and ROE still low, there will be more newsflow on asset optimisation and restructuring. </li>
</ul>



Shanghai Electric Group Company (2727 HK) (SEC) has more than doubled since Oct, riding on the Fanuc Robots acquisition and speculation of a backdoor listing of SMEE.
The Fanuc acquisition is very earnings accretive. The SMEE backdoor listing, if happens, will allow SEC to enter the extremely strategic and lucrative EUV lithography machine sector.
SEC's 3Q24 result has some improvements, but with profitability and ROE still low, there will be more newsflow on asset optimisation and restructuring. 


Shanghai Electric (2727 HK): What Is Driving It Crazy?

Thematic (Sector/Industry)

<ul>
<li>The Rmb6trn of the new debt swap quota may disappoint the market given the lack of one-time direct stimulus. However, the underlying implications should not be overlooked.</li>
<li>A better balance sheet and savings in interest expenses will free up the resources of local governments, benefiting <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a> and <a href="https://www.smartkarma.com/entities/china-everbright-environment-group-limited" target="_blank" data-smartkarma-citation="entities:15946:1" rel="noopener">China Everbright Environment (257 HK)</a>. </li>
<li>Shanghai has immediately rolled out consumption coupon distribution, which is positive for companies in the restaurant, travel, movies, and sports sectors. </li>
</ul>


The Rmb6trn of the new debt swap quota may disappoint the market given the lack of one-time direct stimulus. However, the underlying implications should not be overlooked.
A better balance sheet and savings in interest expenses will free up the resources of local governments, benefiting China Communications Construction (1800 HK) and China Everbright Environment (257 HK). 
Shanghai has immediately rolled out consumption coupon distribution, which is positive for companies in the restaurant, travel, movies, and sports sectors. 


China & HK Strategy: Stock Ideas on China's Debt Swap Plan

<ul>
<li>As Rmb moved from appreciation in 1Q23 to depreciation in 2Q23, there is a total change in the beneficiaries discussed in <a href="https://www.smartkarma.com/insights/china-strategy-it-is-the-foreign-exchange-impact-stupid" target="_blank" data-smartkarma-citation="insights:99729" rel="noopener">China Strategy: It Is the Foreign Exchange Impact, Stupid!</a> </li>
<li>The new beneficiaries are <a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">CIMC Enric Holdings (3899 HK)</a>, <a href="https://www.smartkarma.com/entities/china-energy-engineering-group" target="_blank" data-smartkarma-citation="entities:21017:1" rel="noopener">China Energy Engineering (3996 HK)</a>, <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a>, <a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a> and <a href="https://www.smartkarma.com/entities/avichina-industry-technology-h" target="_blank" data-smartkarma-citation="entities:16315:1" rel="noopener">AviChina Industry &amp; Technology H (2357 HK)</a>. </li>
<li>
<a href="https://www.smartkarma.com/entities/cimc-enric-holdings-ltd" target="_blank" data-smartkarma-citation="entities:47:1" rel="noopener">CIMC Enric Holdings (3899 HK)</a> generated 20.2% of FY22 earnings from exchange gain as Rmb depreciated. Revenue from outside China rose 10% in 1H23 and accounted for 54.4% of total.  </li>
</ul>


As Rmb moved from appreciation in 1Q23 to depreciation in 2Q23, there is a total change in the beneficiaries discussed in China Strategy: It Is the Foreign Exchange Impact, Stupid! 
The new beneficiaries are CIMC Enric Holdings (3899 HK), China Energy Engineering (3996 HK), China Communications Construction (1800 HK), Sinotrans (598 HK) and AviChina Industry &amp; Technology H (2357 HK). 

CIMC Enric Holdings (3899 HK) generated 20.2% of FY22 earnings from exchange gain as Rmb depreciated. Revenue from outside China rose 10% in 1H23 and accounted for 54.4% of total.  


China Strategy: The RMB Reversal Is Just Too Fast!

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.

Osbert Tang, CFA
HK/China Equity Long-Short

China Gas Holdings (384 HK): Assessing the Spin-Off of Value-Added Business

China Gas' spin-off of value-added services could boost the stock by 3.4-12.8%, with VAS contributing 23.5% of total segment profit. Weak market...

Osbert Tang, CFA

2025 High Conviction: CKI (1038 HK) - Perfect Harmony

CKI should thrive in a volatile market with stable earnings, diversified geography, low gearing, and consistent dividends. Further, a lower US...

Osbert Tang, CFA

Shanghai Electric (2727 HK): What Is Driving It Crazy?

SEC's stock surges on Fanuc Robots acquisition and potential backdoor listing of SMEE, allowing an entry into EUV lithography machine sector. Low...

Osbert Tang, CFA

China & HK Strategy: Stock Ideas on China's Debt Swap Plan

China's new debt swap quota will benefit local governments and infrastructure companies. Shanghai's consumption coupon distribution is positive for...

Osbert Tang, CFA

China Strategy: The RMB Reversal Is Just Too Fast!

Trump's presidency is expected to escalate the trade war and increase the possibility of a higher USD rate. That said, the Rmb will be under...

Osbert Tang, CFA

China Gas Holdings (384 HK): Assessing the Spin-Off of Value-Added Business

​China Gas' spin-off of value-added services could boost the stock by 3.4-12.8%, with VAS contributing 23.5% of total segment profit. Weak market...

Osbert Tang, CFA

2025 High Conviction: CKI (1038 HK) - Perfect Harmony

CKI should thrive in a volatile market with stable earnings, diversified geography, low gearing, and consistent dividends. Further, a lower US...

Osbert Tang, CFA

Shanghai Electric (2727 HK): What Is Driving It Crazy?

SEC's stock surges on Fanuc Robots acquisition and potential backdoor listing of SMEE, allowing an entry into EUV lithography machine sector. Low...

Osbert Tang, CFA

China & HK Strategy: Stock Ideas on China's Debt Swap Plan

China's new debt swap quota will benefit local governments and infrastructure companies. Shanghai's consumption coupon distribution is positive for...

Osbert Tang, CFA

China Strategy: The RMB Reversal Is Just Too Fast!

Trump's presidency is expected to escalate the trade war and increase the possibility of a higher USD rate. That said, the Rmb will be under...

Osbert Tang, CFA

China Gas' spin-off of value-added services could boost the stock by 3.4-12.8%, with VAS contributing 23.5% of total segment profit. Weak market...