Forensic Analyst

Jason Yap, CFA

Forensic Accounting

Incorporated in Beijing in July 2014, <a href="https://www.smartkarma.com/entities/china-tower-corp-ltd" target="_blank" data-smartkarma-citation="entities:27037:1" rel="noopener">China Tower (788 HK)</a> is a state-owned telecommunications company that provides telecommunications tower construction, tower maintenance, ancillary facilities management and related services in China. 
As at 31 December 2020, China Tower operated and managed 2.023 million tower sites and its total assets were RMB337.4 billion, and it was therefore commonly known as the world's largest telecommunications tower infrastructure service provider. 
Amid aggressive 5G rollout in China in 2020, <a href="https://www.smartkarma.com/entities/china-tower-corp-ltd" target="_blank" data-smartkarma-citation="entities:27037:1" rel="noopener">China Tower (788 HK)</a> was initially poised to be a key beneficiary of the 5G secular growth story. Instead, its share price performance has significantly underperformed both the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> and its telecommunication tower infrastructure peers listed internationally over the past 12 to 18 months. 
This was attributed to <a href="https://asia.nikkei.com/Spotlight/5G-networks/Chinese-telecom-operators-cut-back-5G-network-construction" target="_blank" rel="noopener">weaker</a> than expected 5G-related demand for new towers, which was in turn due to a combination of factors, such as:
<ol>
<li>slower than expected 5G adoption;</li>
<li>China telecom operators, namely <a href="https://www.smartkarma.com/entities/china-telecom-corp-ltd-h" target="_blank" data-smartkarma-citation="entities:1015:1" rel="noopener">China Telecom (H) (728 HK)</a>, <a href="https://www.smartkarma.com/entities/china-unicom-hong-kong-ltd" target="_blank" data-smartkarma-citation="entities:1016:1" rel="noopener">China Unicom Hong Kong (762 HK)</a>, <a href="https://www.smartkarma.com/entities/china-mobile-ltd" target="_blank" data-smartkarma-citation="entities:27:1" rel="noopener">China Mobile (941 HK)</a> and new entrant China Broadcast Network, striking partnerships to share network frequency bands; and </li>
<li>where possible, China telecom operators opting for co-location of base stations to save tower deployment capital expenditures. </li>
</ol>
In this Insight, we discuss if China Tower is past its trough and whether the upcoming tower lease negotiations in 2022 will become an overhang. Further, we address potential corporate governance concerns given that its major shareholders - that is, the Big 3 China telecom operators - are also its largest customers and therefore have considerable influence on China Tower's business decisions.

Incorporated in Beijing in July 2014, China Tower (788 HK) is a state-owned telecommunications company that provides telecommunications tower construction, tower maintenance, ancillary facilities management and related services in China. 
As at 31 December 2020, China Tower operated and managed 2.023 million tower sites and its total assets were RMB337.4 billion, and it was therefore commonly known as the world's largest telecommunications tower infrastructure service provider. 
Amid aggressive 5G rollout in China in 2020, China Tower (788 HK) was initially poised to be a key beneficiary of the 5G secular growth story. Instead, its share price performance has significantly underperformed both the Hong Kong Hang Seng Index (HSI INDEX) and its telecommunication tower infrastructure peers listed internationally over the past 12 to 18 months. 
This was attributed to weaker than expected 5G-related demand for new towers, which was in turn due to a combination of factors, such as:

slower than expected 5G adoption;
China telecom operators, namely China Telecom (H) (728 HK), China Unicom Hong Kong (762 HK), China Mobile (941 HK) and new entrant China Broadcast Network, striking partnerships to share network frequency bands; and 
where possible, China telecom operators opting for co-location of base stations to save tower deployment capital expenditures. 

In this Insight, we discuss if China Tower is past its trough and whether the upcoming tower lease negotiations in 2022 will become an overhang. Further, we address potential corporate governance concerns given that its major shareholders - that is, the Big 3 China telecom operators - are also its largest customers and therefore have considerable influence on China Tower's business decisions. 

China Tower (788 HK) - Deep Value, Though Lease Negotiation Overhang Persists

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

Event-Driven

<ul>
<li>There are currently 76 index constituents and we can (maybe? finally! hopefully 🤞) get to 80 members in March before commencing the next leg up to 100 index constituents.</li>
<li>We list 10 potential inclusions to the index in March. Adding all 10 stocks will lead to over 6% one-way turnover, so there will be fewer inclusions.</li>
<li>All stocks will have over 1 day of ADV to buy from passive trackers. Some stocks have short interest of over 7% of float.</li>
</ul>


There are currently 76 index constituents and we can (maybe? finally! hopefully 🤞) get to 80 members in March before commencing the next leg up to 100 index constituents.
We list 10 potential inclusions to the index in March. Adding all 10 stocks will lead to over 6% one-way turnover, so there will be fewer inclusions.
All stocks will have over 1 day of ADV to buy from passive trackers. Some stocks have short interest of over 7% of float.


HSI Index Rebalance Preview: Better Late Than Never?

<ul>
<li>With a day to go in the review period, there could be 2 changes for the <a href="https://www.smartkarma.com/entities/ishares-china-large-cap-etf" target="_blank" data-smartkarma-citation="entities:766:1" rel="noopener">iShares China Large-Cap (FXI) (FXI US)</a> in June.</li>
<li>There should be more than 1x ADV to buy on one of the adds while there will be nearly 5x ADV to sell on one of the deletes.</li>
<li>There will be positioning in all the potential changes but there appears to be higher interest in one of the potential adds and one of the potential deletes.</li>
</ul>


With a day to go in the review period, there could be 2 changes for the iShares China Large-Cap (FXI) (FXI US) in June.
There should be more than 1x ADV to buy on one of the adds while there will be nearly 5x ADV to sell on one of the deletes.
There will be positioning in all the potential changes but there appears to be higher interest in one of the potential adds and one of the potential deletes.


FXI Rebalance Preview: Cutoff Today; Two Changes Likely in June

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

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.

Quantitative Analysis

<ul>
<li>We analyze the monthly Hong Kong Connect flows with our data engine.</li>
<li>We tabulate the top stocks by inflows, outflows, and holding by mainland investors.</li>
<li>We highlight inflows into CNOOC, China Telecom, China Mobile, Li Auto, Meituan. </li>
</ul>


We analyze the monthly Hong Kong Connect flows with our data engine.
We tabulate the top stocks by inflows, outflows, and holding by mainland investors.
We highlight inflows into CNOOC, China Telecom, China Mobile, Li Auto, Meituan. 


Hong Kong Connect Flows (February): CNOOC, China Telecom, China Mobile, Li Auto, Meituan

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

<ul>
<li>A share indices were up on the week. HK stock indices were down except for HS Tech. H-shares with A-share pairs were up. </li>
<li>Net SOUTHBOUND buying was HK$9.1bn in the second post-holiday week after being +HK$20bn in the first week. LOTS of SOEs on the net buying side. Still.</li>
<li>SOUTHBOUND continues to buy high-div SOEs. ex-div is still three months away, and given the new KPIs discussed late January by SASAC official, these still seem to be appropriate targets.</li>
</ul>


A share indices were up on the week. HK stock indices were down except for HS Tech. H-shares with A-share pairs were up. 
Net SOUTHBOUND buying was HK$9.1bn in the second post-holiday week after being +HK$20bn in the first week. LOTS of SOEs on the net buying side. Still.
SOUTHBOUND continues to buy high-div SOEs. ex-div is still three months away, and given the new KPIs discussed late January by SASAC official, these still seem to be appropriate targets.


HK Connect SOUTHBOUND Flows (To 1 Mar 2024); Continued Big Buys of SOEs (Getting Boring to Say This)

China

China Tower Corporation Limited operates as a telecommunication company. The Company provides telecommunication towers construction, towers maintenance, ancillary facilities management, and other services. China Tower provides its services throughout China.

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China Tower (788 HK)