HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a>'s 27.8% growth in net profit affirmed its solid fundamentals and minimal exposure to regulatory risks. We also welcome its resumption of dividends.</li>
<li>Management expects profitability will be driven by the 48% new student enrollment growth, potential for tuition increase and global education segment recovery. Consensus forecasts are currently too conservative.</li>
<li>Weaker 2H FY22 profit is due to higher depreciation and finance costs but will be absorbed with higher enrollment. Capex will be light and we also like its deleveraging move. </li>
</ul>



China Education Group (839 HK)'s 27.8% growth in net profit affirmed its solid fundamentals and minimal exposure to regulatory risks. We also welcome its resumption of dividends.
Management expects profitability will be driven by the 48% new student enrollment growth, potential for tuition increase and global education segment recovery. Consensus forecasts are currently too conservative.
Weaker 2H FY22 profit is due to higher depreciation and finance costs but will be absorbed with higher enrollment. Capex will be light and we also like its deleveraging move. 


China Education Group (839 HK): Shining Through

Thematic (Sector/Industry)

<ul>
<li>The sharp rally of China's higher education stocks on 18 Nov reflects positive sentiment from announcement of "Implementation Plan for the Project of Reaching the Standards for Running Vocational Schools".</li>
<li>For <a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a>, potential resumption of dividend will be a driver. The 48% increase in 2022/23 registered students and 10pp utilisation growth have secured FY23 outlook.  </li>
<li>CEG's premium valuations are justified by execution capability, asset quality and earnings outlook. FY23 consensus forecasts are just too low and upgrades will be positive catalysts.</li>
</ul>


The sharp rally of China's higher education stocks on 18 Nov reflects positive sentiment from announcement of "Implementation Plan for the Project of Reaching the Standards for Running Vocational Schools".
For China Education Group (839 HK), potential resumption of dividend will be a driver. The 48% increase in 2022/23 registered students and 10pp utilisation growth have secured FY23 outlook.  
CEG's premium valuations are justified by execution capability, asset quality and earnings outlook. FY23 consensus forecasts are just too low and upgrades will be positive catalysts.


China Private Education: A Massive Comeback?

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

Brilliance China Automotive / Index Rebalance

<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 / Index Rebalance

<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!)

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a> has retreated 23% from recent high with no regulatory and company news. Given its secured earnings growth outlook, we see an opportunity. </li>
<li>We believe drivers are higher enrollment and tuition, further capacity growth, good progress in overseas education and light capex. There are positive developments in these aspects recently. </li>
<li>CEG may return unused share buyback funds to shareholders via dividend, suggesting a potential resumption of payout. At just 5.7x PER for FY23F, its growth prospect is undervalued.</li>
</ul>



China Education Group (839 HK) has retreated 23% from recent high with no regulatory and company news. Given its secured earnings growth outlook, we see an opportunity. 
We believe drivers are higher enrollment and tuition, further capacity growth, good progress in overseas education and light capex. There are positive developments in these aspects recently. 
CEG may return unused share buyback funds to shareholders via dividend, suggesting a potential resumption of payout. At just 5.7x PER for FY23F, its growth prospect is undervalued.


China Education Group (839 HK): Sustaining Growth Trajectory

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)

China Education Group (839 HK): Shining Through

FY23 profit will be driven by a 48% new student enrollment growth, potential for tuition increase and global education segment recovery. The...

Osbert Tang, CFA

China Private Education: A Massive Comeback?

China's latest announcements on vocational education suggested that private involvement in higher education will continue to be welcomed. We like...

Osbert Tang, CFA

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

China Education Group (839 HK): Sustaining Growth Trajectory

Higher enrollment and tuition, further capacity growth, good progress in overseas education and light capex are developments that will potentially...

Osbert Tang, CFA

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