HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>Core earnings of <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> rose 25.2% in FY22, providing solid evidence for its strength against peers. We are delighted to see dollar margin even expanded 4.1%.</li>
<li>Pace of new project addition has not weakened as it secured 25 new projects in FY22. Collectively, they will increase sales volume by 3.2bn cu.m., 7% of FY22 volume.</li>
<li>Net cash of Rmb13.6bn equals 28% of share price, making 8.9% ROE look decent. Market earnings forecast is too low; and even so, it trades on just 7.2x FY23 PER.</li>
</ul>


Core earnings of Kunlun Energy (135 HK) rose 25.2% in FY22, providing solid evidence for its strength against peers. We are delighted to see dollar margin even expanded 4.1%.
Pace of new project addition has not weakened as it secured 25 new projects in FY22. Collectively, they will increase sales volume by 3.2bn cu.m., 7% of FY22 volume.
Net cash of Rmb13.6bn equals 28% of share price, making 8.9% ROE look decent. Market earnings forecast is too low; and even so, it trades on just 7.2x FY23 PER.


Kunlun Energy (135 HK): Rock Solid as Usual

<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> disclosed that it has reached agreement to dispose of its 25% stake in the K&amp;K oilfields in Azerbaijan. Although the transaction is relatively small given that it does not pass the 5% threshold of the listing rule, we still think such a small move has big positive meaning. In our view, the disposal marks an important step in its plan to exit the volatile Exploration &amp; Production segment which dragged on its valuation; and the market should welcome this.The current high oil price environment is good for Kunlun from both an operational and a transactional point of view. We estimate that at crude oil price of US$75/bbl, the E&amp;P segment may bring in an addition of at least Rmb300-400m of pre-tax profit in 2H21. Despite the good share price movement YTD (+73% including dividends), it is still trading on just 11x PER for FY21, the cheapest among its key peers. The removal of a volatile E&amp;P segment from its business portfolio should narrow Kunlun's discount, in our view.

Kunlun Energy (135 HK) disclosed that it has reached agreement to dispose of its 25% stake in the K&amp;K oilfields in Azerbaijan. Although the transaction is relatively small given that it does not pass the 5% threshold of the listing rule, we still think such a small move has big positive meaning. In our view, the disposal marks an important step in its plan to exit the volatile Exploration &amp; Production segment which dragged on its valuation; and the market should welcome this.The current high oil price environment is good for Kunlun from both an operational and a transactional point of view. We estimate that at crude oil price of US$75/bbl, the E&amp;P segment may bring in an addition of at least Rmb300-400m of pre-tax profit in 2H21. Despite the good share price movement YTD (+73% including dividends), it is still trading on just 11x PER for FY21, the cheapest among its key peers. The removal of a volatile E&amp;P segment from its business portfolio should narrow Kunlun's discount, in our view. 

Kunlun Energy (135 HK): Small Move, Big Meaning

External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

<ul><li>CRG’s operating performance showed better recovery, with retailed /residential/industrial/commercial gas sales up by 10%/13%/10%/17% YoY in Aug.</li><li>In Jan-Aug 2023, the retailed gas sales growth recorded 7.1% YoY. For dollar margin, CRG achieved RMB0.58/cbm in Aug and RMB0.52-0.53/cbm in Jan-Aug.</li><li>We regard CRG can reach the target of gas sales growth of 8% YoY and a dollar margin of RMB0.5/cbm. </li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

CRG’s operating performance showed better recovery, with retailed /residential/industrial/commercial gas sales up by 10%/13%/10%/17% YoY in Aug.In Jan-Aug 2023, the retailed gas sales growth recorded 7.1% YoY. For dollar margin, CRG achieved RMB0.58/cbm in Aug and RMB0.52-0.53/cbm in Jan-Aug.We regard CRG can reach the target of gas sales growth of 8% YoY and a dollar margin of RMB0.5/cbm. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

CR Gas (1193 HK) – Sound Operating Data in Aug with Steady Growth Outlook

<ul><li>CR Gas’s 1H23 net profit rose by 16% YoY to HK$3,545mn, beating market expectation.</li><li>The strong earnings growth was mainly driven by gas sales volume growth of 6.9% YoY on the back of rebound of residential and commercial gas sales, which contributed 12.0%/6.9% volume growth respectively.</li><li>Looking ahead in 2H23E, CR Gas expects gas consumption to continue to recover gradually, with dollar margin of RMB0.5/cbm.</li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

CR Gas’s 1H23 net profit rose by 16% YoY to HK$3,545mn, beating market expectation.The strong earnings growth was mainly driven by gas sales volume growth of 6.9% YoY on the back of rebound of residential and commercial gas sales, which contributed 12.0%/6.9% volume growth respectively.Looking ahead in 2H23E, CR Gas expects gas consumption to continue to recover gradually, with dollar margin of RMB0.5/cbm.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

CR Gas (1193 HK) – 1H23 Results Marginally Beat

<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 2.2% drop in core earnings in FY23 is distorted by the expiry of exploration rights of oilfield projects. All other segments have done well.  </li>
<li>FY24 outlook is positive - reduction in E&amp;P distortion, addition of more city gas projects, higher utilisation of LNG plants and terminals, and optimisation of gas pricing mechanism.</li>
<li>Net cash of Rmb20.4bn equals 29% of market capitalisation, providing room for a higher dividend payout. A re-inclusion into the HSI is not totally out of the cards.</li>
</ul>



Kunlun Energy (135 HK)'s 2.2% drop in core earnings in FY23 is distorted by the expiry of exploration rights of oilfield projects. All other segments have done well.  
FY24 outlook is positive - reduction in E&amp;P distortion, addition of more city gas projects, higher utilisation of LNG plants and terminals, and optimisation of gas pricing mechanism.
Net cash of Rmb20.4bn equals 29% of market capitalisation, providing room for a higher dividend payout. A re-inclusion into the HSI is not totally out of the cards.


Kunlun Energy (135 HK): Delivering Resilience

Hong Kong

China Resources Gas Group Ltd distributes natural gas and petroleum gas in the cities of Chengdu, Fuyang, Huaibei, Linhai, Suzhou and Wuxi in the PRC. The Company also operates compressed natural gas filling stations in Chengdu, Nanjing and Wuxi. The group also is involved in bottled liquefied petroleum gas distribution in cities of Fuyang, Suzhou and Wuxi.

CR Gas (1193 HK)

Kunlun Energy (135 HK): Rock Solid as Usual

Kunlun's core profit growth is decent and, more importantly, demonstrated the resilience of dollar margin. New project flow is encouraging and we...

Osbert Tang, CFA

Kunlun Energy (135 HK): Small Move, Big Meaning

The disposal of the Azerbaijan oilfields, though a small transaction, has significant implication. Kunlun will increasingly become a pure gas...

Osbert Tang, CFA

CR Gas (1193 HK) – Sound Operating Data in Aug with Steady Growth Outlook

CRG’s operating performance showed better recovery, with retailed /residential/industrial/commercial gas sales up by 10%/13%/10%/17% YoY in Aug.

CMB International

CR Gas (1193 HK) – 1H23 Results Marginally Beat

Looking ahead in 2H23E, CR Gas expects gas consumption to continue to recover gradually, with dollar margin of RMB0.5/cbm.

CMB International

Kunlun Energy (135 HK): Delivering Resilience

Kunlun's FY23 core earnings drop is distorted by oilfield project expiry, but other segments perform well. FY24 outlook is positive with more city...

Osbert Tang, CFA

Kunlun Energy (135 HK): Rock Solid as Usual

Kunlun's core profit growth is decent and, more importantly, demonstrated the resilience of dollar margin. New project flow is encouraging and we...

Osbert Tang, CFA

Kunlun Energy (135 HK): Small Move, Big Meaning

The disposal of the Azerbaijan oilfields, though a small transaction, has significant implication. Kunlun will increasingly become a pure gas...

Osbert Tang, CFA

CR Gas (1193 HK) – Sound Operating Data in Aug with Steady Growth Outlook

CRG’s operating performance showed better recovery, with retailed /residential/industrial/commercial gas sales up by 10%/13%/10%/17% YoY in Aug.

CMB International

CR Gas (1193 HK) – 1H23 Results Marginally Beat

Looking ahead in 2H23E, CR Gas expects gas consumption to continue to recover gradually, with dollar margin of RMB0.5/cbm.

CMB International

Kunlun Energy (135 HK): Delivering Resilience

​Kunlun's FY23 core earnings drop is distorted by oilfield project expiry, but other segments perform well. FY24 outlook is positive with more city...

Osbert Tang, CFA

Kunlun's FY23 core earnings drop is distorted by oilfield project expiry, but other segments perform well. FY24 outlook is positive with more city...