Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

Brilliance China Automotive / Event-Driven

<ul>
<li>We see 3 potential adds for the HSCI in December. We also see 26 potential adds and 16 potential deletes for the index in March.</li>
<li>Following the March rebalance, we see 22 potential inclusions to Stock Connect while we expect 37 stocks to be removed from the link.</li>
<li>Some of the potential deletions/ Stock Connect drops have large Southbound holdings and some of these positions could be pared back over the next few months.</li>
</ul>


We see 3 potential adds for the HSCI in December. We also see 26 potential adds and 16 potential deletes for the index in March.
Following the March rebalance, we see 22 potential inclusions to Stock Connect while we expect 37 stocks to be removed from the link.
Some of the potential deletions/ Stock Connect drops have large Southbound holdings and some of these positions could be pared back over the next few months.


HSCI Index Rebalance and Stock Connect: Changes at the Margins

Zhejiang Leapmotor Technologie / Event-Driven

<ul>
<li>We see three new listings as potential inclusions to the HSCI in December. One is already in Stock Connect, one will be added to Stock Connect while one will not.</li>
<li>Given the large market moves, there will be many changes to the HSCI in March 2023. Quite a few stocks could remain in the HSCI but drop out of Connect.</li>
<li>Some of the potential deletions/ Stock Connect drops have large Southbound holdings and some of these positions could be pared back over the next few months.</li>
</ul>


We see three new listings as potential inclusions to the HSCI in December. One is already in Stock Connect, one will be added to Stock Connect while one will not.
Given the large market moves, there will be many changes to the HSCI in March 2023. Quite a few stocks could remain in the HSCI but drop out of Connect.
Some of the potential deletions/ Stock Connect drops have large Southbound holdings and some of these positions could be pared back over the next few months.


HSCI Index Rebalance and Stock Connect: Potential Changes in December & March (There's a Lot!)

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Hope Education Group Co Ltd / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/hope-education-group-co-ltd" target="_blank" data-smartkarma-citation="entities:27321:1" rel="noopener">Hope Education Group Co Ltd (1765 HK)</a> achieved good student enrollment quota increase for 2022/2023 academic year and student recruitment results at overseas schools are also very encouraging. </li>
<li>Improvement in teaching quality and better facilities should narrow the gap of fees per student (Rmb11,814) with the national average (Rmb20,000), driving net profit growth in 3-5 years. </li>
<li>Capex will come down over time given good upside in utilisation and the removal of management fees will relieve financial position. Its relative valuation is also inexpensive. </li>
</ul>



Hope Education Group Co Ltd (1765 HK) achieved good student enrollment quota increase for 2022/2023 academic year and student recruitment results at overseas schools are also very encouraging. 
Improvement in teaching quality and better facilities should narrow the gap of fees per student (Rmb11,814) with the national average (Rmb20,000), driving net profit growth in 3-5 years. 
Capex will come down over time given good upside in utilisation and the removal of management fees will relieve financial position. Its relative valuation is also inexpensive. 


Hope Education (1765 HK): More than Just Hopes

Research on Tech Companies

Evelyn Zhang

Thematic (Sector/Industry)

A series of recent Chinese policies promoting vocational schools instead of traditional secondary education, and efforts to eliminate after-class cramming makes me to recommend short K12 education related stocks and long vocational training related stocks.

A series of recent Chinese policies promoting vocational schools instead of traditional secondary education, and efforts to eliminate after-class cramming makes me to recommend short K12 education related stocks and long vocational training related stocks.

A Twist of Fate – China’s Suppression of Secondary Education in Favor of Vocational Education

Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

<a href="https://www.smartkarma.com/entities/edvantage-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:28114:1" rel="noopener">Edvantage Group (382 HK)</a> is a play on private higher education in China with a presence in the Greater Bay Area. At a market capitalization of roughly 800 mn USD, this company is a good fit for funds that invest in mid-caps. With a recent capacity expansion by 46%, we see a clear roadmap for increasing enrollments by 8-10% over four years. In addition to this, we believe that tuition fees can sustainably increase by 5-7% CAGR  for the next 3-4 years due to reasonable placement rates in their colleges and strengthening brand recognition.
<h3>The investment thesis here is :</h3>
<ul>
<li>
The stock is inexpensive and can re-rate as the execution drives more conviction: We believe the valuation is cheap at 15x FY21/12xFY22  P-E(x) and 23% CAGR revenue growth, predicated on enrolments increasing by 12% CAGR as well as tuition fees increasing by 7-8% CAGR over the next 3-4 years.</li>
<li>
The additional upside from costs declining: Education costs account for 15% of sales. A majority of the cost ~76 mn RMB for FY20 (or 13% of the tuition fee of Huanshang College) is an annual licensing fee paid to Guangdong University of Finance and Economics (GUFE), for co-branding with a renowned public university in the region. However, new MoJ Draft regulations require the university to become independent by 2022.  The Group intends to become independent by 2021. If this happens, the education cost will go down to 0 from 76 mn RMB in a phased manner over 3-4 years. We do not factor this into our future estimates. </li>
<li>
Strong cash position to pursue further growth: The company has a net cash position of 520 mn RMB.  With Capex plans of 800 mn RMB for its new campus, we believe the company can easily expand its balance sheet and internal accruals.</li>
</ul>
We see this stock easily rerate to a 20x multiple based on its ability to execute and trade higher at 9-10 HKD/share, fuelled by these catalysts.
<h3>Risks </h3>
<ul>
<li>
Regulations on Fees:  Tuition fees charged by PRC Operating Schools are generally subject to China's relevant government pricing authorities' approval. However, in recent years, PRC government authorities have gradually loosened controls over tuition fees and boarding fees. </li>
<li>
Disappointing M&amp;A: The company overpaying for assets would be negative for the share price.
</li>
<li>
Execution: Given the company recently IPOed, its track record is short.  How the new campus ramps up will be the key to the thesis.  Any stumbles will be bad for the share price.</li>
</ul>

Edvantage Group (382 HK) is a play on private higher education in China with a presence in the Greater Bay Area. At a market capitalization of roughly 800 mn USD, this company is a good fit for funds that invest in mid-caps. With a recent capacity expansion by 46%, we see a clear roadmap for increasing enrollments by 8-10% over four years. In addition to this, we believe that tuition fees can sustainably increase by 5-7% CAGR  for the next 3-4 years due to reasonable placement rates in their colleges and strengthening brand recognition.
The investment thesis here is :


The stock is inexpensive and can re-rate as the execution drives more conviction: We believe the valuation is cheap at 15x FY21/12xFY22  P-E(x) and 23% CAGR revenue growth, predicated on enrolments increasing by 12% CAGR as well as tuition fees increasing by 7-8% CAGR over the next 3-4 years.

The additional upside from costs declining: Education costs account for 15% of sales. A majority of the cost ~76 mn RMB for FY20 (or 13% of the tuition fee of Huanshang College) is an annual licensing fee paid to Guangdong University of Finance and Economics (GUFE), for co-branding with a renowned public university in the region. However, new MoJ Draft regulations require the university to become independent by 2022.  The Group intends to become independent by 2021. If this happens, the education cost will go down to 0 from 76 mn RMB in a phased manner over 3-4 years. We do not factor this into our future estimates. 

Strong cash position to pursue further growth: The company has a net cash position of 520 mn RMB.  With Capex plans of 800 mn RMB for its new campus, we believe the company can easily expand its balance sheet and internal accruals.

We see this stock easily rerate to a 20x multiple based on its ability to execute and trade higher at 9-10 HKD/share, fuelled by these catalysts.
Risks 


Regulations on Fees:  Tuition fees charged by PRC Operating Schools are generally subject to China's relevant government pricing authorities' approval. However, in recent years, PRC government authorities have gradually loosened controls over tuition fees and boarding fees. 

Disappointing M&amp;A: The company overpaying for assets would be negative for the share price.


Execution: Given the company recently IPOed, its track record is short.  How the new campus ramps up will be the key to the thesis.  Any stumbles will be bad for the share price.


Edvantage Group: Executing in a Tough Environment

China

China Kepei Education Group Limited provides educational services. The Company offers high-quality profession-oriented education services and other services. China Kepei Education Group provides services in China.

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Kepei Education (1890 HK)

HSCI Index Rebalance and Stock Connect: Changes at the Margins

We see 3 inclusions for the index in Dec, and then 26 adds/16 deletions in March. Following the March rebal, we see 22 adds/37 deletions for Stock...

Brian Freitas

HSCI Index Rebalance and Stock Connect: Potential Changes in December & March (There's a Lot!)

There could be 3 adds in December while there will be MANY more changes in March. The adds should outnumber the deletes, but there will be many...

Brian Freitas

Hope Education (1765 HK): More than Just Hopes

The beaten-down stock has a good enrollment quota growth in China and encouraging overseas student recruitment result. Lower capex and removal of...

Osbert Tang, CFA

A Twist of Fate – China’s Suppression of Secondary Education in Favor of Vocational Education

Change is afoot in one of China's main social mobility mechanism, the education system. The country is promoting vocational education in an effort...

Evelyn Zhang

Edvantage Group: Executing in a Tough Environment

Edvantage Group (382 HK), is a great long-term play on education in the Greater Bay Area. Trading at 15x FY21/12x FY22 with >20% CAGR growth and...

Sameer Taneja

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