HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>With an 18.6% growth in 1H22 profit from continuing operations, <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> has not disappointed us. Natural gas sales segment is a bright spot with solid growth.</li>
<li>Net cash swelled to Rmb10.2bn at end-Jun, about 2x more than the level at end-FY21. We estimate this roughly equals to 19% of the current share price. </li>
<li>New project momentum looks healthy and the market seems to have underestimated FY22 earnings. Its 8x and 7.5x PERs for FY22 and FY23 are clearly attractive. </li>
</ul>


With an 18.6% growth in 1H22 profit from continuing operations, Kunlun Energy (135 HK) has not disappointed us. Natural gas sales segment is a bright spot with solid growth.
Net cash swelled to Rmb10.2bn at end-Jun, about 2x more than the level at end-FY21. We estimate this roughly equals to 19% of the current share price. 
New project momentum looks healthy and the market seems to have underestimated FY22 earnings. Its 8x and 7.5x PERs for FY22 and FY23 are clearly attractive. 


Kunlun Energy (135 HK): An Excellent Show

<ul>
<li>Core net profit rose a healthy 10.9% at <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> in 1H22 despite challenges from pandemic lockdowns and surge in input costs.</li>
<li>We expect to see sequential improvement in both dollar margin for gas sales and overall gross margin in 2H22. Excellent integrated energy pipeline should add to earnings momentum.</li>
<li>Gearing improved 2.2pp in 1H22 and there is more room to deleverage in 2H22. While the stock's valuation is not particularly cheap, it has probably already hit the trough. </li>
</ul>


Core net profit rose a healthy 10.9% at ENN Energy (2688 HK) in 1H22 despite challenges from pandemic lockdowns and surge in input costs.
We expect to see sequential improvement in both dollar margin for gas sales and overall gross margin in 2H22. Excellent integrated energy pipeline should add to earnings momentum.
Gearing improved 2.2pp in 1H22 and there is more room to deleverage in 2H22. While the stock's valuation is not particularly cheap, it has probably already hit the trough. 


ENN Energy (2688 HK): Seeing Sign of an Upturn

<ul>
<li>We continued to be cautious on <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> given the challenges faced. It guided for a flat dollar margin in FY23 but we think this is optimistic.</li>
<li>Connection fees are likely to stay under pressure after a 42.1% decline in FY22. It only projects 2.6-2.9m new residential connections for FY23, compared with 2.9m in FY22.</li>
<li>Although China Gas is now the cheapest Hong Kong-listed China gas utilities company, it takes time to regain market confidence. At similar valuation, <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> looks more interesting. </li>
</ul>


We continued to be cautious on China Gas Holdings (384 HK) given the challenges faced. It guided for a flat dollar margin in FY23 but we think this is optimistic.
Connection fees are likely to stay under pressure after a 42.1% decline in FY22. It only projects 2.6-2.9m new residential connections for FY23, compared with 2.9m in FY22.
Although China Gas is now the cheapest Hong Kong-listed China gas utilities company, it takes time to regain market confidence. At similar valuation, Kunlun Energy (135 HK) looks more interesting. 


China Gas Holdings (384 HK): Not Giving It the Benefit of Doubt

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>The scheme document is out with the Court meeting scheduled for 10 June. The IFA considers the offer to be fair and reasonable. <a href="https://www.smartkarma.com/entities/suchuang-gas-corp-ltd" target="_blank" data-smartkarma-citation="entities:304:1" rel="noopener">Suchuang Gas Corp (1430 HK)</a> remains suspended.</li>
<li>Key conditions are the headcount test and approval by at least 75% of disinterested shareholders (&lt;10% of all disinterested shareholders rejection). </li>
<li>Excluding the irrecovables, no shareholder holds a blocking stake. As the timeframe to fulfil the resumption guidance remains highly uncertain, the offer is a welcome exit opportunity. </li>
</ul>


The scheme document is out with the Court meeting scheduled for 10 June. The IFA considers the offer to be fair and reasonable. Suchuang Gas Corp (1430 HK) remains suspended.
Key conditions are the headcount test and approval by at least 75% of disinterested shareholders (&lt;10% of all disinterested shareholders rejection). 
Excluding the irrecovables, no shareholder holds a blocking stake. As the timeframe to fulfil the resumption guidance remains highly uncertain, the offer is a welcome exit opportunity. 


Suchuang Gas’ Scheme Meeting on 10 June Is a Welcome Exit from the Ongoing Share Suspension

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<ul>
<li>
<strong><a href="https://www.smartkarma.com/entities/suchuang-gas-corp-ltd" target="_blank" data-smartkarma-citation="entities:304:1" rel="noopener">Suchuang Gas Corp (1430 HK)</a></strong>'s Scheme Document is now out. The Scheme Meeting will be held on the 10th June with expected payment on or before the 21 June. </li>
<li>The Independent Financial Advisor (Essence International) has concluded the offer by <a href="https://www.smartkarma.com/entities/china-resources-gas-group-ltd" target="_blank" data-smartkarma-citation="entities:20525:1" rel="noopener"><strong>CR Gas (1193 HK)</strong></a> is fair and reasonable. </li>
<li>The pain is almost over for shareholders. This is as good a deal one can expect under the circumstances. Shareholders should vote through the Offer resolutions and pocket the cash. </li>
</ul>



Suchuang Gas Corp (1430 HK)'s Scheme Document is now out. The Scheme Meeting will be held on the 10th June with expected payment on or before the 21 June. 
The Independent Financial Advisor (Essence International) has concluded the offer by CR Gas (1193 HK) is fair and reasonable. 
The pain is almost over for shareholders. This is as good a deal one can expect under the circumstances. Shareholders should vote through the Offer resolutions and pocket the cash. 


Suchuang Gas (1430 HK): 10th June Court Meeting As Shares Remain Suspended

Hong Kong

China Resources Gas Group Limited is an investment holding company primarily engaged in the sale and distribution of natural and liquefied gas, and the construction and connection of gas pipelines. The company also offers comprehensive services including the sale of gas appliances and related products, and provides design, construction, consultancy, and management services for gas connection projects, as well as operating gas stations. It was incorporated in 1994 and is based in Wan Chai, Hong Kong.

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China Resources Gas (1193 HK)

Kunlun Energy (135 HK): An Excellent Show

Impressive 1H22 result is a clear demonstration of Kunlun's operational strengths and cash generating ability. The market should ease concerns on...

Osbert Tang, CFA

ENN Energy (2688 HK): Seeing Sign of an Upturn

Dollar margin recovery, strong integrated energy pipeline and value added business growth are key drivers for ENN Energy in 2H22 and FY23....

Osbert Tang, CFA

China Gas Holdings (384 HK): Not Giving It the Benefit of Doubt

China Gas has a diasppointing FY22 and we think its operating and financial guidances for FY23 are likely to be optimistic. We prefer Kunlun Energy...

Osbert Tang, CFA

Suchuang Gas (1430 HK): 10th June Court Meeting As Shares Remain Suspended

Now that the Scheme Booklet is despatched - which needs to be signed off by the SFC - the SFC sanctions Suchaung Gas' privatisation provided the...

David Blennerhassett

Price Gauge

52-week Range

Market Cap (USDm)

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Kunlun Energy (135 HK): An Excellent Show

Impressive 1H22 result is a clear demonstration of Kunlun's operational strengths and cash generating ability. The market should ease concerns on...

Osbert Tang, CFA

ENN Energy (2688 HK): Seeing Sign of an Upturn

Dollar margin recovery, strong integrated energy pipeline and value added business growth are key drivers for ENN Energy in 2H22 and FY23....

Osbert Tang, CFA

China Gas Holdings (384 HK): Not Giving It the Benefit of Doubt

China Gas has a diasppointing FY22 and we think its operating and financial guidances for FY23 are likely to be optimistic. We prefer Kunlun Energy...

Osbert Tang, CFA

Suchuang Gas’ Scheme Meeting on 10 June Is a Welcome Exit from the Ongoing Share Suspension

The cash alternative is HK$2.50 per share. The Court meeting is on 10 June. As the timeframe to fulfil the resumption guidance remains highly...

Arun George

Suchuang Gas (1430 HK): 10th June Court Meeting As Shares Remain Suspended

Now that the Scheme Booklet is despatched - which needs to be signed off by the SFC - the SFC sanctions Suchaung Gas' privatisation provided the...

David Blennerhassett