HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Our positive calls on <a href="https://www.smartkarma.com/entities/fu-shou-yuan-international" target="_blank" data-smartkarma-citation="entities:18168:1" rel="noopener">Fu Shou Yuan (1448 HK)</a> and <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (753 HK)</a> and negative call on <a href="https://www.smartkarma.com/entities/china-conch-environment-protection-holdings-ltd" target="_blank" data-smartkarma-citation="entities:4827:1" rel="noopener">Conch Environment (587 HK)</a> have generated the best wins in 2022.</li>
<li>These calls achieved returns of 56.8%, 34.2% and 43.5%, respectively, which we think are remarkable given the losses of 16.3% for HSI and 19.3% for HSCEI YTD.</li>
<li>In 2023, we expect Fu Shou Yuan <a href="https://www.smartkarma.com/entities/fu-shou-yuan-international" target="_blank" data-smartkarma-citation="entities:18168:1" rel="noopener"></a>continue to do well and Conch Environment to remain under pressure. It may be prudent to take some profit on Air China. <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener"></a> </li>
</ul>


Our positive calls on Fu Shou Yuan (1448 HK) and Air China Ltd (753 HK) and negative call on Conch Environment (587 HK) have generated the best wins in 2022.
These calls achieved returns of 56.8%, 34.2% and 43.5%, respectively, which we think are remarkable given the losses of 16.3% for HSI and 19.3% for HSCEI YTD.
In 2023, we expect Fu Shou Yuan continue to do well and Conch Environment to remain under pressure. It may be prudent to take some profit on Air China.  


Our Three Best Calls in 2022: Review and Outlook for 2023

Equity Bottom-Up

China Conch Venture Holdings / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture Holdings (586 HK)</a> is now at negative stub value, the low-end since 2020. This is despite a 16.4% growth in 1H22 core earnings to Rmb542m.</li>
<li>The company's waste-to-energy (WTE) capacity will increase by 25% in FY23 and its internal target calls for an earnings CAGR of 33% between FY21 and FY25 for WTE segment.</li>
<li>We should not underestimate the potential from new business initiatives including cathode and anode materials and lithium battery recycling. They have good medium-to-long term exposure to China's new energy industry.</li>
</ul>



China Conch Venture Holdings (586 HK) is now at negative stub value, the low-end since 2020. This is despite a 16.4% growth in 1H22 core earnings to Rmb542m.
The company's waste-to-energy (WTE) capacity will increase by 25% in FY23 and its internal target calls for an earnings CAGR of 33% between FY21 and FY25 for WTE segment.
We should not underestimate the potential from new business initiatives including cathode and anode materials and lithium battery recycling. They have good medium-to-long term exposure to China's new energy industry.


Conch Venture (586 HK): An Overlooked Value Play

<ul>
<li>Following listing of <a href="https://www.smartkarma.com/entities/china-conch-environment-protection-holdings-ltd" target="_blank" data-smartkarma-citation="entities:4827:1" rel="noopener">China Conch Environment (587 HK)</a>, <a href="https://www.smartkarma.com/entities/china-conch-venture-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19943:1" rel="noopener">China Conch Venture (586 HK)</a> is seeking a spin-off of CV Green Energy in A-share market and we view this move positively.</li>
<li>Limited details are currently available, but we think CV Green Energy, which operates WTE businesses, will trade at significantly higher multiples than its Hong Kong peers. </li>
<li>Assuming CV Green Energy to hold all Conch Venture's WTE businesses, we estimate the IPO will boost the latter's sum-of-the-parts value by 8% or HK$2.14 per share.</li>
</ul>


Following listing of China Conch Environment (587 HK), China Conch Venture (586 HK) is seeking a spin-off of CV Green Energy in A-share market and we view this move positively.
Limited details are currently available, but we think CV Green Energy, which operates WTE businesses, will trade at significantly higher multiples than its Hong Kong peers. 
Assuming CV Green Energy to hold all Conch Venture's WTE businesses, we estimate the IPO will boost the latter's sum-of-the-parts value by 8% or HK$2.14 per share.


Conch Venture (586 HK): Another Spin-Off in the Pipeline

China Everbright Environment / Equity Bottom-Up

<ul>
<li>Despite a 3.8% decline in FY23 net profit, <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>'s profitability has still outperformed its peers by significant magnitudes. </li>
<li>Positive notes in the result are an increase in operation service revenue proportion, expansion in EBITDA margin, improvement in financial position, and addition of new projects.</li>
<li>It is easy for CEE to achieve the market expectation of a 9.8% growth in FY24. Yet, it just trade on 3.6x PER, 8.5% yield, and 0.34x P/B. </li>
</ul>


Despite a 3.8% decline in FY23 net profit, China Everbright Environment (257 HK)'s profitability has still outperformed its peers by significant magnitudes. 
Positive notes in the result are an increase in operation service revenue proportion, expansion in EBITDA margin, improvement in financial position, and addition of new projects.
It is easy for CEE to achieve the market expectation of a 9.8% growth in FY24. Yet, it just trade on 3.6x PER, 8.5% yield, and 0.34x P/B. 


China Everbright Environment (257 HK): Being Penalised Too Much

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

Hygon Information Technology C / Event-Driven

<ul>
<li>The changes for the <a href="https://www.smartkarma.com/entities/sse-science-and-technology-innovation-board-50-index" target="_blank" data-smartkarma-citation="entities:29279:1" rel="noopener">SSE STAR50 (STAR50 INDEX)</a> and STAR100 Index were announced post market close on Friday.</li>
<li>The coming week is a full one with capping cutoffs, review cutoffs, announcements and implementations apart from futures expiries.</li>
<li>With China open after Lunar New Year, the National Team is back pouring money into ETFs with the largest inflows to the <a href="https://www.smartkarma.com/entities/shanghai-shenzhen-csi-300-inde" target="_blank" data-smartkarma-citation="entities:22906:1" rel="noopener">CSI 300</a>, <a href="https://www.smartkarma.com/entities/csi-smallcap-500-index-shang" target="_blank" data-smartkarma-citation="entities:35347:1" rel="noopener">CSI 500</a>, <a href="https://www.smartkarma.com/entities/chinext-index" target="_blank" data-smartkarma-citation="entities:25483:1" rel="noopener">ChiNext</a> and <a href="https://www.smartkarma.com/entities/sse-science-and-technology-innovation-board-50-index" target="_blank" data-smartkarma-citation="entities:29279:1" rel="noopener">STAR50</a> indices.</li>
</ul>


The changes for the SSE STAR50 (STAR50 INDEX) and STAR100 Index were announced post market close on Friday.
The coming week is a full one with capping cutoffs, review cutoffs, announcements and implementations apart from futures expiries.
With China open after Lunar New Year, the National Team is back pouring money into ETFs with the largest inflows to the CSI 300, CSI 500, ChiNext and STAR50 indices.


Index Rebalance & ETF Flow Recap: HSCEI, HSCI, HSTECH, HSIII, STTF, Top50, Div+, FXI, FnGuide

Hong Kong

China Conch Environment Protection Holdings (587 HK)

China Conch Environment Protection Holdings

China Conch Environment Protection Holdings (587 HK)

Our Three Best Calls in 2022: Review and Outlook for 2023

In 2023, we expect share prices of Fu Shou Yuan to continue to do well and Conch Environment to remain under pressure. For Air China, given rich...

Osbert Tang, CFA

Conch Venture (586 HK): An Overlooked Value Play

The market has deeply undervalued Conch Venture's waste-to-energy business as reflected by the negative stub value. New business initiatives and...

Osbert Tang, CFA

Conch Venture (586 HK): Another Spin-Off in the Pipeline

The proposed spin-off of CV Green Energy in Shanghai should benefit Conch Venture's valuations given the higher multiples for waste-to-energy...

Osbert Tang, CFA

China Everbright Environment (257 HK): Being Penalised Too Much

There are positive messages in FY23 result: an increase in operation service revenue proportion, expansion in EBITDA margin, improvement in...

Osbert Tang, CFA

Index Rebalance & ETF Flow Recap: HSCEI, HSCI, HSTECH, HSIII, STTF, Top50, Div+, FXI, FnGuide

This recap highlights Insights covering Asian index rebalances (announcements/ forecasts/ IPO Fast Entry/ M&A driven changes). We also highlight...

Brian Freitas