HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Three Gorges Renewables / Equity Bottom-Up

China Three Gorges Renewables (600905 CH)

<ul>
<li>A "Long <a href="https://www.smartkarma.com/entities/china-three-gorges-renewables" target="_blank" data-smartkarma-citation="entities:28950:1" rel="noopener">China Three Gorges Renewables (600905 CH)</a>, short <a href="https://www.smartkarma.com/entities/huaneng-power-intl-inc-a" target="_blank" data-smartkarma-citation="entities:24739:1" rel="noopener">Huaneng Power Intl Inc-A (600011 CH)</a>" pair trade should generate good return in China's utilities sector given the current industry dynamics.</li>
<li>The key supporting factors are: CTGR has pure exposure to renewable, faster capacity growth and a stronger balance sheet. They should underpin better earnings quality and outlook relative to HPI.</li>
<li>CTGR trades on higher PER and P/B multiples, but these should not be hurdles as they are just reflection of more promising prospects. We expect CTGR's YTD outperformance to continue.</li>
</ul>


A "Long China Three Gorges Renewables (600905 CH), short Huaneng Power Intl Inc-A (600011 CH)" pair trade should generate good return in China's utilities sector given the current industry dynamics.
The key supporting factors are: CTGR has pure exposure to renewable, faster capacity growth and a stronger balance sheet. They should underpin better earnings quality and outlook relative to HPI.
CTGR trades on higher PER and P/B multiples, but these should not be hurdles as they are just reflection of more promising prospects. We expect CTGR's YTD outperformance to continue.


China Utilities: Long China Three Gorges Renewables (600905 CH), Short Huaneng Power Int (600011 CH)

China Longyuan Power Group / Equity Bottom-Up

<ul>
<li>Share price of <a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd" target="_blank" data-smartkarma-citation="entities:14215:1" rel="noopener">China Longyuan Power (916 HK)</a> has been under pressure over the last two weeks due to concern on future offshore wind power project return.</li>
<li>We believe the low tariff of Rmb0.19/kWh won by a Huaneng Power Group consortium in Fujian is more an exceptional case and should not be taken as a new normal.</li>
<li>China Longyuan's growth has been well secured by its project pipeline as well as 21GW potential injection from parent. This round of de-rating is just too excessive. </li>
</ul>


Share price of China Longyuan Power (916 HK) has been under pressure over the last two weeks due to concern on future offshore wind power project return.
We believe the low tariff of Rmb0.19/kWh won by a Huaneng Power Group consortium in Fujian is more an exceptional case and should not be taken as a new normal.
China Longyuan's growth has been well secured by its project pipeline as well as 21GW potential injection from parent. This round of de-rating is just too excessive. 


China Longyuan (916 HK): A De-Rating Too Excessive

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

Shanghai Pudong Development Bank Co. / Index Rebalance

Shanghai Pudong Development Bank Co. (600000 CH)

<ul>
<li>There are 5 changes for the <a href="https://www.smartkarma.com/entities/shanghai-stock-exchange-sse-50-a-share-index" target="_blank" data-smartkarma-citation="entities:31073:1" rel="noopener">SSE50 Index</a> that will be implemented at the close on 9 June. The impact is pretty chunky on a few deletions.</li>
<li>Apart from the passive assets tracking the index, there are some liquid index futures and the impact on the stocks will be larger than just the headline numbers.</li>
<li>The adds underperformed the deletes in March and April but have come roaring back in May. Playing the trade via long/short pairs could provide better risk adjusted returns.</li>
</ul>


There are 5 changes for the SSE50 Index that will be implemented at the close on 9 June. The impact is pretty chunky on a few deletions.
Apart from the passive assets tracking the index, there are some liquid index futures and the impact on the stocks will be larger than just the headline numbers.
The adds underperformed the deletes in March and April but have come roaring back in May. Playing the trade via long/short pairs could provide better risk adjusted returns.


SSE50 Index Rebalance: Some Large Impact Changes

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-three-gorges-renewables" target="_blank" data-smartkarma-citation="entities:28950:1" rel="noopener">China Three Gorges Renewables (600905 CH)</a> (CTGR) has an splendid FY21 as it pre-announced result with a range of 46.5-53.1% growth in recurring profit, fuelled by generation and disposal gains. </li>
<li>The first full-year contribution of many projects commissioned in 4Q21, which boosted a 28.4% QoQ surge in power generation, should underpin FY22 earnings - consensus forecast is expecting 41% growth.</li>
<li>YTD, CTGR's share price performed in line with Shanghai Composite Index (-6.1%), but its strong EPS CAGR of 22% for FY21-23 provides room for it to outperformed in medium term. </li>
</ul>



China Three Gorges Renewables (600905 CH) (CTGR) has an splendid FY21 as it pre-announced result with a range of 46.5-53.1% growth in recurring profit, fuelled by generation and disposal gains. 
The first full-year contribution of many projects commissioned in 4Q21, which boosted a 28.4% QoQ surge in power generation, should underpin FY22 earnings - consensus forecast is expecting 41% growth.
YTD, CTGR's share price performed in line with Shanghai Composite Index (-6.1%), but its strong EPS CAGR of 22% for FY21-23 provides room for it to outperformed in medium term. 


China Three Gorges Renewables (600905 CH): Good, and Better Is Coming

Contemporary Amperex Technology (CATL) / Index Rebalance

Contemporary Amperex Technology (CATL) (300750 CH)

<ul>
<li>There are 28 changes for the <a href="https://www.smartkarma.com/entities/shanghai-shenzhen-csi-300-index" target="_blank" data-smartkarma-citation="entities:22906:1" rel="noopener">Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX)</a> at the upcoming rebalance that will be implemented at the close of trading on 10 December.</li>
<li>The inclusion of ChiNext stocks with 1 year of listing history (down from 3 years) and the inclusion of other large stocks results in a one-way turnover greater than 10%.</li>
<li>There are 10 trading days to implementation and we expect the inclusions to outperform the market. A long inclusion basket can be hedged with CSI300 index futures.</li>
</ul>


There are 28 changes for the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) at the upcoming rebalance that will be implemented at the close of trading on 10 December.
The inclusion of ChiNext stocks with 1 year of listing history (down from 3 years) and the inclusion of other large stocks results in a one-way turnover greater than 10%.
There are 10 trading days to implementation and we expect the inclusions to outperform the market. A long inclusion basket can be hedged with CSI300 index futures.


CSI300 Index Rebalance: Methodology Tweak Results in More Changes & Larger Turnover

China

China Three Gorges Renewables (Group) Co.,Ltd. operates renewable energy generation businesses. The Company generates onshore wind power, photovoltaic power, wind power, hydropower, solar power, and other power products. China Three Gorges Renewables (Group) also operates investment businesses.

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China Three Gorges Renewables (600905 CH)

China Utilities: Long China Three Gorges Renewables (600905 CH), Short Huaneng Power Int (600011 CH)

CTGR's pure exposure to renewable, faster capacity growth and stronger balance sheet are the key merits when compared with HPI. We believe these...

Osbert Tang, CFA

China Longyuan (916 HK): A De-Rating Too Excessive

The plunge in valuation has more than reflected the concerns on weaker return outlook for offshore wind power projects, but China Longyuan's long...

Osbert Tang, CFA

SSE50 Index Rebalance: Some Large Impact Changes

There are 5 changes to the SSE50 Index in June that will have one-way turnover estimated at 3.95% and will result in a one-way trade of CNY 3,187m....

Brian Freitas