HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>The proposed privatisation price for <a href="https://www.smartkarma.com/entities/enn-energy-holdings-ltd" target="_blank" data-smartkarma-citation="entities:316:1" rel="noopener">ENN Energy (2688 HK)</a> appears reasonable, which is estimated to be 1.73x P/B and 11.5x PER on a 12-month forward basis. </li>
<li>The valuations are both at a good premium over the average since 2024. ENN Energy is also being put at the top of the sector's PER range. </li>
<li>Scheme shareholders will hold new H-shares of <a href="https://www.smartkarma.com/entities/enn-natural-gas-co-ltd" target="_blank" data-smartkarma-citation="entities:16456:1" rel="noopener">ENN Natural Gas (600803 CH)</a>, which historically has a more volatile earnings record, but its A-share has been doing well. </li>
</ul>


The proposed privatisation price for ENN Energy (2688 HK) appears reasonable, which is estimated to be 1.73x P/B and 11.5x PER on a 12-month forward basis. 
The valuations are both at a good premium over the average since 2024. ENN Energy is also being put at the top of the sector's PER range. 
Scheme shareholders will hold new H-shares of ENN Natural Gas (600803 CH), which historically has a more volatile earnings record, but its A-share has been doing well. 


ENN Energy (2688 HK): Our Initial View on the Privatisation - Valuation and Fundamentals

<ul>
<li>
<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>'s net profit grew 7.9% in 2H24, accelerating from 2.6% in 1H24. It is encouraging to see the dividend payout ratio increase by 2pp YoY.</li>
<li>An increase in the adoption of the residential price linkage system is positive for the dollar margin, while the distortion from E&amp;P expiry will no longer impact earnings. </li>
<li>With net cash equals HK$2.56/share, or 31% of the share price, such financial strength is unmatched by peers. Its PER valuations are also inexpensive.</li>
</ul>



Kunlun Energy (135 HK)'s net profit grew 7.9% in 2H24, accelerating from 2.6% in 1H24. It is encouraging to see the dividend payout ratio increase by 2pp YoY.
An increase in the adoption of the residential price linkage system is positive for the dollar margin, while the distortion from E&amp;P expiry will no longer impact earnings. 
With net cash equals HK$2.56/share, or 31% of the share price, such financial strength is unmatched by peers. Its PER valuations are also inexpensive.


Kunlun Energy (135 HK): Remains Very Decent

<ul>
<li>
<a href="https://www.smartkarma.com/entities/enn-energy-holdings-ltd" target="_blank" data-smartkarma-citation="entities:316:1" rel="noopener">ENN Energy (2688 HK)</a> has suspended trading. The possibilities include privatisation, third-party offer, increase in stake by <a href="https://www.smartkarma.com/entities/enn-natural-gas-co-ltd" target="_blank" data-smartkarma-citation="entities:16456:1" rel="noopener">ENN Natural Gas (600803 CH)</a>, and a change in control. </li>
<li>It trades on 1.16x 12-month forward P/B, vs. 5-year average of 2.42x and 1.31x since 2024. Given the lower forward ROE, it is difficult to return to the 5-year average.</li>
<li>For PER, it should be higher than <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> but lower than <a href="https://www.smartkarma.com/entities/china-resources-gas-group-ltd" target="_blank" data-smartkarma-citation="entities:20525:1" rel="noopener">CR Gas (1193 HK)</a>. At 10.8x (average of the two), it equates to HK$74.26.  </li>
</ul>



ENN Energy (2688 HK) has suspended trading. The possibilities include privatisation, third-party offer, increase in stake by ENN Natural Gas (600803 CH), and a change in control. 
It trades on 1.16x 12-month forward P/B, vs. 5-year average of 2.42x and 1.31x since 2024. Given the lower forward ROE, it is difficult to return to the 5-year average.
For PER, it should be higher than China Gas Holdings (384 HK) but lower than CR Gas (1193 HK). At 10.8x (average of the two), it equates to HK$74.26.  


ENN Energy (2688 HK): Privatisation or What? A Look at the Valuations

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/enn-energy-holdings-ltd" target="_blank" data-smartkarma-citation="entities:316:1" rel="noopener">ENN Energy (2688 HK)</a> is in a trading halt “<em>pending the issuance of an announcement pursuant to the Hong Kong Code on Takeovers and Mergers containing inside information of the Company</em>." </li>
<li>
<a href="https://www.smartkarma.com/entities/enn-natural-gas-co-ltd" target="_blank" data-smartkarma-citation="entities:16456:1" rel="noopener">ENN Natural Gas (600803 CH)</a>, also in a trading halt, is likely seeking to privatise ENN through a Cayman scheme. A high AGM minority participation necessitates an attractive offer.</li>
<li>I use several methods to triangulate the likely offer price, which suggests a price range of HK$66.50-85.01, with an average of HK$76.04, a 28% premium to the last close.</li>
</ul>



ENN Energy (2688 HK) is in a trading halt “pending the issuance of an announcement pursuant to the Hong Kong Code on Takeovers and Mergers containing inside information of the Company." 

ENN Natural Gas (600803 CH), also in a trading halt, is likely seeking to privatise ENN through a Cayman scheme. A high AGM minority participation necessitates an attractive offer.
I use several methods to triangulate the likely offer price, which suggests a price range of HK$66.50-85.01, with an average of HK$76.04, a 28% premium to the last close.


ENN Energy (2688 HK): ENN Natural Gas to Launch a Privatisation Offer?

<ul>
<li>Despite <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>'s marginal 3.8% drop in 1H FY25 net profit, it has rebounded from a 25.8% collapse in FY24. It maintained an interim DPS of HK$0.15.</li>
<li>Dollar margin expanded Rmb0.02/cu.m. and gross margin was up 0.8pp. Profit from value-added services grew 15.4%, though overall earnings are dragged by LPG and JVs.</li>
<li>FY25 is a year of profit recovery. Its improving cash flow, reduction in capex, and stronger balance sheet should support a stable dividend, putting it on a 7.8% yield.  </li>
</ul>


Despite China Gas Holdings (384 HK)'s marginal 3.8% drop in 1H FY25 net profit, it has rebounded from a 25.8% collapse in FY24. It maintained an interim DPS of HK$0.15.
Dollar margin expanded Rmb0.02/cu.m. and gross margin was up 0.8pp. Profit from value-added services grew 15.4%, though overall earnings are dragged by LPG and JVs.
FY25 is a year of profit recovery. Its improving cash flow, reduction in capex, and stronger balance sheet should support a stable dividend, putting it on a 7.8% yield.  


China Gas Holdings (384 HK): Earnings Have Stabilised

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)

ENN Energy (2688 HK): Our Initial View on the Privatisation - Valuation and Fundamentals

The privatisation price appears reasonable, at a premium over average since 2024 and at the top of sector's PER range. Scheme shareholders will...

Osbert Tang, CFA

Kunlun Energy (135 HK): Remains Very Decent

Kunlun's net profit grew 7.9% in 2H24, accelerating from 2.6% in 1H24. Its increased dividend payout ratio, strong financial position and positive...

Osbert Tang, CFA

ENN Energy (2688 HK): Privatisation or What? A Look at the Valuations

Possibilities for ENN Energy including privatisation, third-party offer, stake increase by parent, and change in control. A price of at least...

Osbert Tang, CFA

ENN Energy (2688 HK): ENN Natural Gas to Launch a Privatisation Offer?

I use several methods to triangulate the likely offer price, which suggests a price range of HK$66.50-85.01, with an average of HK$76.04, a 28%...

Arun George

China Gas Holdings (384 HK): Earnings Have Stabilised

China Gas saw a slight dip in 1H FY25 profit but is rebounding from the sharp drop in FY24. Improved margins, profit from VAS, and a stronger...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

ENN Energy (2688 HK): Our Initial View on the Privatisation - Valuation and Fundamentals

​The privatisation price appears reasonable, at a premium over average since 2024 and at the top of sector's PER range. Scheme shareholders will...

Osbert Tang, CFA

Kunlun Energy (135 HK): Remains Very Decent

​Kunlun's net profit grew 7.9% in 2H24, accelerating from 2.6% in 1H24. Its increased dividend payout ratio, strong financial position and positive...

Osbert Tang, CFA

ENN Energy (2688 HK): Privatisation or What? A Look at the Valuations

​Possibilities for ENN Energy including privatisation, third-party offer, stake increase by parent, and change in control. A price of at least...

Osbert Tang, CFA

ENN Energy (2688 HK): ENN Natural Gas to Launch a Privatisation Offer?

I use several methods to triangulate the likely offer price, which suggests a price range of HK$66.50-85.01, with an average of HK$76.04, a 28%...

Arun George

China Gas Holdings (384 HK): Earnings Have Stabilised

​China Gas saw a slight dip in 1H FY25 profit but is rebounding from the sharp drop in FY24. Improved margins, profit from VAS, and a stronger...

Osbert Tang, CFA

The privatisation price appears reasonable, at a premium over average since 2024 and at the top of sector's PER range. Scheme shareholders will...

Kunlun's net profit grew 7.9% in 2H24, accelerating from 2.6% in 1H24. Its increased dividend payout ratio, strong financial position and positive...

Possibilities for ENN Energy including privatisation, third-party offer, stake increase by parent, and change in control. A price of at least...

China Gas saw a slight dip in 1H FY25 profit but is rebounding from the sharp drop in FY24. Improved margins, profit from VAS, and a stronger...