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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

Orient Overseas (International) / Index Rebalance

<p>Hang Seng Indexes Company (HSIL) reviews the constituents of the Hang Seng Composite Index (HSCI) on a half yearly basis in March and September with data cut-off dates as of the end of December and June.</p><p>The December review will see the inclusion of stocks that were newly listed from 1 July to 30 September and meet the criteria for joining the index.</p><p>We expect <a href="https://www.smartkarma.com/entities/brii-biosciences" target="_blank" data-smartkarma-citation="entities:33014:1" rel="noopener">Brii Biosciences (2137 HK)</a>, <a href="https://www.smartkarma.com/entities/helen-s-international-holdings" target="_blank" data-smartkarma-citation="entities:34113:1" rel="noopener">Helen's International Holdings (9869 HK)</a>, <a href="https://www.smartkarma.com/entities/medlive-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:32985:1" rel="noopener">Medlive Technology (2192 HK)</a>, <a href="https://www.smartkarma.com/entities/keymed-biosciences-inc" target="_blank" data-smartkarma-citation="entities:33011:1" rel="noopener">Keymed Biosciences Inc (2162 HK)</a> and <a href="https://www.smartkarma.com/entities/sce-intelligent-commercial-management" target="_blank" data-smartkarma-citation="entities:33500:1" rel="noopener">SCE Intelligent Commercial Management (606 HK)</a> to be included in the index at the close of trading on 3 December.</p><p>For the regular rebalance in March 2022, we see 17 potential inclusions to the index and 4 potential deletions. There are 4 stocks that are close adds and 5 that are close deletes.</p><div><p>Although there are no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors. There is pre-positioning in the stocks in the lead up to the announcement and prior to the stocks being open for purchase by mainland investors.</p></div>

Hang Seng Indexes Company (HSIL) reviews the constituents of the Hang Seng Composite Index (HSCI) on a half yearly basis in March and September with data cut-off dates as of the end of December and June.The December review will see the inclusion of stocks that were newly listed from 1 July to 30 September and meet the criteria for joining the index.We expect Brii Biosciences (2137 HK), Helen's International Holdings (9869 HK), Medlive Technology (2192 HK), Keymed Biosciences Inc (2162 HK) and SCE Intelligent Commercial Management (606 HK) to be included in the index at the close of trading on 3 December.For the regular rebalance in March 2022, we see 17 potential inclusions to the index and 4 potential deletions. There are 4 stocks that are close adds and 5 that are close deletes.Although there are no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors. There is pre-positioning in the stocks in the lead up to the announcement and prior to the stocks being open for purchase by mainland investors.

HSCI Index Rebalance and Stock Connect: Potential Changes in December and March

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<p>We take the recent newsflow on business development at <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> positively. While the market may still skeptical towards the company due to the sector's regulatory worries, CEG is standing in a better position than many of its peers given its focus on the vocational and higher education segment. In our view, the beaten-down performance of CEG's share price is not justified, and it is an interesting time to look at its long-term promising outlook now.   </p><p>The 58% increase in approval higher education enrollment quota for 2021/2022 academic year, upside from contribution of the newly added Chengdu Jincheng College, support from banks and IFC through provisions of seven-year loan facilities at low pricing, rapid execution of M&amp;A and further potential pipeline acquisitions all lend support to CEG's business prospects amid a turbulent time. Our belief is that at 13.5x PER for FY22, CEG is inexpensively priced relative to growth.</p>

We take the recent newsflow on business development at China Education Group (839 HK) positively. While the market may still skeptical towards the company due to the sector's regulatory worries, CEG is standing in a better position than many of its peers given its focus on the vocational and higher education segment. In our view, the beaten-down performance of CEG's share price is not justified, and it is an interesting time to look at its long-term promising outlook now.   The 58% increase in approval higher education enrollment quota for 2021/2022 academic year, upside from contribution of the newly added Chengdu Jincheng College, support from banks and IFC through provisions of seven-year loan facilities at low pricing, rapid execution of M&amp;A and further potential pipeline acquisitions all lend support to CEG's business prospects amid a turbulent time. Our belief is that at 13.5x PER for FY22, CEG is inexpensively priced relative to growth.

China Education (839 HK): More Flows of Positive Development

<p><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> (CEG) reported an impressive 50.2% YoY growth in its adjusted net profit for 1H21, driven by the combination of good organic momentum and contribution from new schools added. By segment, higher education and global education are the key underpinning factors, as vocational education enrollment has disrupted more by COVID-19.</p><p>In the post-1H21 result call, management revealed that 6 M&amp;A projects are now in advance discussion and expects many of them can be concluded in this year. This will add to the organic growth backed by higher enrollment, increase in tuition and efficiency enhancement. We take the guidance of a 32-41% of adjusted net profit growth for FY21 positively, and so is the market as the share price was up 7% so far today. Its valuation multiples are highly justified by the earnings growth prospects, execution capability and quality management, in our view.</p>

China Education Group (839 HK) (CEG) reported an impressive 50.2% YoY growth in its adjusted net profit for 1H21, driven by the combination of good organic momentum and contribution from new schools added. By segment, higher education and global education are the key underpinning factors, as vocational education enrollment has disrupted more by COVID-19.In the post-1H21 result call, management revealed that 6 M&amp;A projects are now in advance discussion and expects many of them can be concluded in this year. This will add to the organic growth backed by higher enrollment, increase in tuition and efficiency enhancement. We take the guidance of a 32-41% of adjusted net profit growth for FY21 positively, and so is the market as the share price was up 7% so far today. Its valuation multiples are highly justified by the earnings growth prospects, execution capability and quality management, in our view.

China Education Group (839 HK): Encouraging Takeaways from 1H21 Result Call

<p><a href="https://www.smartkarma.com/entities/china-yuhua-education" target="_blank" data-smartkarma-citation="entities:23627:1" rel="noopener">China Yuhua Education (6169 HK)</a> posted a 39.7% YoY growth in adjusted net profit as its higher education segment turned into a key earnings engine. Decent 4pp margin expansion was achieved from higher enrollment, hike in tuition and excellent cost control. We also saw an impressive 127.8% YoY increase in operating cash flow.</p><p>Management points to further margin expansion for most of its universities, and this will drive contribution to net profit (91% of 1H21 profit from higher education). While M&amp;A activities have slowed, organic growth is expected to stay at least at 25% for the near term. Given its sufficient capacity, there is no need for fund raising from the market. In our view, its 16.3x PER and 4.8x P/B (FY21F ROE: 32%) are highly justified, and Yuhua Education remains one of our top picks as stated in <a href="https://www.smartkarma.com/insights/china-private-education-this-is-where-the-future-lies" target="_blank" data-smartkarma-citation="insights:48727" rel="noopener">China Private Education: This Is Where the Future Lies</a>. </p>

China Yuhua Education (6169 HK) posted a 39.7% YoY growth in adjusted net profit as its higher education segment turned into a key earnings engine. Decent 4pp margin expansion was achieved from higher enrollment, hike in tuition and excellent cost control. We also saw an impressive 127.8% YoY increase in operating cash flow.Management points to further margin expansion for most of its universities, and this will drive contribution to net profit (91% of 1H21 profit from higher education). While M&amp;A activities have slowed, organic growth is expected to stay at least at 25% for the near term. Given its sufficient capacity, there is no need for fund raising from the market. In our view, its 16.3x PER and 4.8x P/B (FY21F ROE: 32%) are highly justified, and Yuhua Education remains one of our top picks as stated in China Private Education: This Is Where the Future Lies. 

China Yuhua Education (6169 HK): Decent 1H21, Key Takeaways from Post-Result Call

APAC IPOs & Placements

Zhen Zhou, Toh

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Zhihu Technology / Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/zhihu-technology-ltd" target="_blank" data-smartkarma-citation="entities:32185:1" rel="noopener">Zhihu Technology (ZH US)</a> raised US$773m at the bottom-end of the IPO price range (including the US$250m concurrent placement).</p></div><div><p>In this note, we will discuss what is circulating in the market and share our thoughts on how it impacts Zhihu.</p></div><div><p>Our previous coverage of Zhihu:</p></div><div><ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/zhihu-pre-ipo-in-the-early-stages-of-monetization" target="_blank" data-smartkarma-citation="insights:49157" rel="noopener">Zhihu (知乎) Pre-IPO - In the Early Stages of Monetization</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/zhihu-censorship-as-top-risk-may-follow-fate-of-weibo" target="_blank" data-smartkarma-citation="insights:49184" rel="noopener">Zhihu (知乎): Censorship as Top Risk, May Follow Fate of Weibo</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/zhihu-ipo-monetizing-curiosity" target="_blank" data-smartkarma-citation="insights:49467" rel="noopener">Zhihu (知乎) IPO - Monetizing Curiosity</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/zhihu-ipo-trading-peers-have-corrected-significantly-but-still-has-a-modest-upside" target="_blank" data-smartkarma-citation="insights:49684" rel="noopener">Zhihu (知乎) IPO Trading - Peers Have Corrected Significantly but Still Has a Modest Upside</a> </li>
</ul></div>

Zhihu Technology (ZH US) raised US$773m at the bottom-end of the IPO price range (including the US$250m concurrent placement).In this note, we will discuss what is circulating in the market and share our thoughts on how it impacts Zhihu.Our previous coverage of Zhihu:

Zhihu (知乎) Pre-IPO - In the Early Stages of Monetization 

Zhihu (知乎): Censorship as Top Risk, May Follow Fate of Weibo 

Zhihu (知乎) IPO - Monetizing Curiosity 

Zhihu (知乎) IPO Trading - Peers Have Corrected Significantly but Still Has a Modest Upside 


Zhihu (知乎) IPO Trading Update - Peers Took Another Leg Down on the Back of Rumored Document

China

China Maple Leaf Educational Systems operates bilingual private and preschools, offering K-12 education with A-level, International Baccalaureate, and Maple Leaf World School curriculums. The company also provides educational consultancy, school uniforms, educational books, and catering services. It was founded in 1995 and is headquartered in Shenzhen, China.

China Maple Leaf Educational Systems (1317 HK)

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China Maple Leaf Educational Systems (1317 HK)

HSCI Index Rebalance and Stock Connect: Potential Changes in December and March

There could be 5 adds to the HSCI in December. In March, there could be 17 adds and 4 deletes. There will be pre-positioning on the inclusions...

Brian Freitas

China Education (839 HK): More Flows of Positive Development

Good enrollment quota growth, confidence from banking community and IFC and rapid execution of M&As are driving FY22 outlook for CEG, and this...

Osbert Tang, CFA

China Education Group (839 HK): Encouraging Takeaways from 1H21 Result Call

After the good 1H21 result, CEG continues to suggest a robust outlook for the rest of the year, and guided for good full-year growth. More M&As are...

Osbert Tang, CFA

China Yuhua Education (6169 HK): Decent 1H21, Key Takeaways from Post-Result Call

Yuhua Education should see good organic earnings prospects as it benefits from higher student enrollment, hike in tuition and cost control. There...

Osbert Tang, CFA

Zhihu (知乎) IPO Trading Update - Peers Took Another Leg Down on the Back of Rumored Document

We think the drop is overdone. Sure, Zhihu is sort of an educational website but it is nowhere close to what the techedu companies are doing.

Zhen Zhou, Toh

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