HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>While <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> expects better gas dollar margin HoH, there are still high profit uncertainties and its full-year operational guidance does not look exciting.</li>
<li>The expectation of flat to 10% YoY decline in new residential household connections is not encouraging. With 1H FY23 profit only amounted to 42% of consensus, we see downgrade risks.</li>
<li>Despite achieving positive free cash flow, its high gearing of 69.9% (+4pp HoH) is still very stretched relative to peers. We prefer <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>.</li>
</ul>


While China Gas Holdings (384 HK) expects better gas dollar margin HoH, there are still high profit uncertainties and its full-year operational guidance does not look exciting.
The expectation of flat to 10% YoY decline in new residential household connections is not encouraging. With 1H FY23 profit only amounted to 42% of consensus, we see downgrade risks.
Despite achieving positive free cash flow, its high gearing of 69.9% (+4pp HoH) is still very stretched relative to peers. We prefer Kunlun Energy (135 HK).


China Gas Holdings (384 HK): Still Not Meeting Expectations

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>The HSCEI sees 4 names out, 4 names in. The ADDs are <a href="https://www.smartkarma.com/entities/petrochina-co-ltd-h" target="_blank" data-smartkarma-citation="entities:262:1" rel="noopener">PetroChina (857 HK)</a>, <a href="https://www.smartkarma.com/entities/zhongsheng-group-holdings" target="_blank" data-smartkarma-citation="entities:10573:1" rel="noopener">Zhongsheng Group (881 HK)</a>, <a href="https://www.smartkarma.com/entities/li-auto-inc-3dbe6187-544f-40dd-b9f9-72fba9c0110e" target="_blank" data-smartkarma-citation="entities:33811:1" rel="noopener">Li Auto (2015 HK)</a>, <a href="https://www.smartkarma.com/entities/haier-smart-home-co-ltd-b3ef445f-0f54-4586-8c58-9073de98d60e" target="_blank" data-smartkarma-citation="entities:31105:1" rel="noopener">Haier Smart Home Co Ltd (6690 HK)</a>. </li>
<li>The DELETEs are <a href="https://www.smartkarma.com/entities/alibaba-health-information-technology-ltd" target="_blank" data-smartkarma-citation="entities:453:1" rel="noopener">Alibaba Health Information Technology (241 HK)</a>, <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>, <a href="https://www.smartkarma.com/entities/innovent-biologics-inc" target="_blank" data-smartkarma-citation="entities:27452:1" rel="noopener">Innovent Biologics Inc (1801 HK)</a>, and <a href="https://www.smartkarma.com/entities/bilibili-inc-83a27302-cd7d-4e6a-a1de-bcf93eb022c3" target="_blank" data-smartkarma-citation="entities:32215:1" rel="noopener">Bilibili (9626 HK)</a>. </li>
<li>One way volume is just under 4.7% with all the name changes, FAF changes, and capping flows.</li>
</ul>


The HSCEI sees 4 names out, 4 names in. The ADDs are PetroChina (857 HK), Zhongsheng Group (881 HK), Li Auto (2015 HK), Haier Smart Home Co Ltd (6690 HK). 
The DELETEs are Alibaba Health Information Technology (241 HK), China Gas Holdings (384 HK), Innovent Biologics Inc (1801 HK), and Bilibili (9626 HK). 
One way volume is just under 4.7% with all the name changes, FAF changes, and capping flows.


HSCEI Dec 2022 Rebalance - 4 IN, 4 OUT, 3% One-Way Flow

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

Index Rebalance

<ul>
<li>There are 4 adds and 4 deletes for the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> at the December rebalance. The only surprises are some non-adds and non-deletes.</li>
<li>Using prices from the close on 18 November, estimated one-way turnover is 4.64% and will result in a one-way trade of HK$2,612m at the close on 2 December.</li>
<li>Short interest is larger on the deletes than the adds. However, at 17 days of ADV to cover and 11.7% of float, short interest on <a href="https://www.smartkarma.com/entities/zhongsheng-group-holdings" target="_blank" data-smartkarma-citation="entities:10573:1" rel="noopener">Zhongsheng Group</a> is huge.</li>
</ul>


There are 4 adds and 4 deletes for the Hang Seng China Enterprises Index (HSCEI INDEX) at the December rebalance. The only surprises are some non-adds and non-deletes.
Using prices from the close on 18 November, estimated one-way turnover is 4.64% and will result in a one-way trade of HK$2,612m at the close on 2 December.
Short interest is larger on the deletes than the adds. However, at 17 days of ADV to cover and 11.7% of float, short interest on Zhongsheng Group is huge.


HSCEI Index Rebalance: Four Sets of Changes; And Some Close Calls

Asia Pac ECM and Index Rebal, Shenton Research

Ke Yan, CFA, FRM

Asia Pac ECM and Index Rebal

Asia Pac IPO & Placement Research, China Biotech

DZT Research

DZT Research is an independent Asia Pacific equity specialist. Our quantitative research covers index rebalancing flows, alongside exchange data analytics accross Asia Pacific. On the equity capital markets side, we focus on Asia Pacific ECM, especially biotech and TMT. Our lead analyst is frequently cited by international media.

Quantitative Analysis

<ul>
<li>We analyze the weekly Hong Kong Connect flows with our data engine for holding position as of September 16th.</li>
<li>The top stocks by inflows and outflows were tabulated for all market, HSCEI, mid cap and s/mid cap groups.</li>
<li>We highlight inflows into Wuxi Biologics (Cayman) Inc and CNOOC. </li>
</ul>


We analyze the weekly Hong Kong Connect flows with our data engine for holding position as of September 16th.
The top stocks by inflows and outflows were tabulated for all market, HSCEI, mid cap and s/mid cap groups.
We highlight inflows into Wuxi Biologics (Cayman) Inc and CNOOC. 


Hong Kong Connect Flows (Sep 16th): Chinese Buying Wuxi Biologics After Biden's New Executive Order

<ul>
<li>There could be up to 6 changes to the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> at the December rebalance, mainly driven by the deletions.</li>
<li>If there are six changes to the index, estimated one-way turnover is 6.47% and will result in a one-way trade of HK$4,124m.</li>
<li>There is large short interest on quite a lot of stocks and will play an important role in the rebalance.</li>
</ul>


There could be up to 6 changes to the Hang Seng China Enterprises Index (HSCEI INDEX) at the December rebalance, mainly driven by the deletions.
If there are six changes to the index, estimated one-way turnover is 6.47% and will result in a one-way trade of HK$4,124m.
There is large short interest on quite a lot of stocks and will play an important role in the rebalance.


HSCEI Index Rebalance Preview: Could Be A BIG One

Hong Kong

China Gas is a leading energy supplier and service provider primarily engaged in the investment, construction, and management of city gas pipeline infrastructure. It distributes natural gas and liquefied petroleum gas (LPG) to residential, industrial, and commercial users, and operates CNG/LNG refilling stations. The company was founded in 1995 and is headquartered in Hong Kong.

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China Gas (384 HK)

China Gas Holdings (384 HK): Still Not Meeting Expectations

1H FY23 result is disappointing and we see downside risks for consensus forecasts. We think 2H earnings will be at best flattish and its high...

Osbert Tang, CFA

HSCEI Dec 2022 Rebalance - 4 IN, 4 OUT, 3% One-Way Flow

The HSCEI Index has seen significant pain year-to date and there is less to trade than before, but one-way turnover is ~4.7% and a bare minimum of...

Travis Lundy

HSCEI Index Rebalance: Four Sets of Changes; And Some Close Calls

There are 4 sets of changes for the HSCEI. Some stocks are notable non-adds/non-deletes. one-way turnover is 4.6%. Haier Smart Home is a double...

Brian Freitas

Hong Kong Connect Flows (Sep 16th): Chinese Buying Wuxi Biologics After Biden's New Executive Order

We analyzed Hong Connect flows last week and highlight Chinese purchase of Wuxi Biologics post new executive order signed on Monday.

Ke Yan, CFA, FRM

HSCEI Index Rebalance Preview: Could Be A BIG One

There could be up to 6 changes to the HSCEI in December resulting in one-way turnover of 6.47% and in a one-way trade of HK$4,124m. Short interest...

Brian Freitas

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