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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

<p>The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 26 February. The constituent changes will be effective after the close of trading on 12 March.</p><p>For 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>, there are 3 inclusions - <a href="https://www.smartkarma.com/entities/alibaba-health-information-technology-ltd" target="_blank" data-smartkarma-citation="entities:453:1" rel="noopener">Alibaba Health Information Technology (241 HK)</a>, <a href="https://www.smartkarma.com/entities/longfor-properties" target="_blank" data-smartkarma-citation="entities:8149:1" rel="noopener">Longfor Properties (960 HK)</a> and <a href="https://www.smartkarma.com/entities/haidilao-international-holding-ltd" target="_blank" data-smartkarma-citation="entities:27044:1" rel="noopener">Haidilao (6862 HK)</a>. This takes the number of index constituents to 55 and sets the stage for a further increase in the number of stocks as a part of the market consultation, the conclusions of which are to be announced on 1 March.</p><p>One-way turnover is estimated at 2.65% and will result in a one-way trade of HK$6.08bn. The highest impact is on <a href="https://www.smartkarma.com/entities/longfor-properties" target="_blank" data-smartkarma-citation="entities:8149:1" rel="noopener">Longfor Properties (960 HK)</a> while the impact on <a href="https://www.smartkarma.com/entities/alibaba-health-information-technology-ltd" target="_blank" data-smartkarma-citation="entities:453:1" rel="noopener">Alibaba Health Information Technology (241 HK)</a> and <a href="https://www.smartkarma.com/entities/haidilao-international-holding-ltd" target="_blank" data-smartkarma-citation="entities:27044:1" rel="noopener">Haidilao (6862 HK)</a> is lower, though still substantial.</p><p>There are only 10 trading days to implementation of the changes, so the three stocks should move up on Monday and outperform their peers till implementation date.</p><p>Hang Seng Indexes is scheduled to announce the conclusions of the market consultation on Monday, 1 March and there will be a lot more changes to the index. These changes should commence at the June 2021 review and will most likely be implemented in 4 tranches, concluding at the March 2022 review.</p>

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 26 February. The constituent changes will be effective after the close of trading on 12 March.For the Hong Kong Hang Seng Index (HSI INDEX), there are 3 inclusions - Alibaba Health Information Technology (241 HK), Longfor Properties (960 HK) and Haidilao (6862 HK). This takes the number of index constituents to 55 and sets the stage for a further increase in the number of stocks as a part of the market consultation, the conclusions of which are to be announced on 1 March.One-way turnover is estimated at 2.65% and will result in a one-way trade of HK$6.08bn. The highest impact is on Longfor Properties (960 HK) while the impact on Alibaba Health Information Technology (241 HK) and Haidilao (6862 HK) is lower, though still substantial.There are only 10 trading days to implementation of the changes, so the three stocks should move up on Monday and outperform their peers till implementation date.Hang Seng Indexes is scheduled to announce the conclusions of the market consultation on Monday, 1 March and there will be a lot more changes to the index. These changes should commence at the June 2021 review and will most likely be implemented in 4 tranches, concluding at the March 2022 review.

Hang Seng Index Rebalance: Three Adds; Market Consultation Conclusions on 1 March

Quantitative Analysis

<div><p>We take a look at the latest SFC data released today evening on short position reporting in Hong Kong for the week ended 28 February 2020.</p></div><div><p>Total short notional in Hong Kong decreased from HKD 473.72bn to HKD 459.81bn over the week mainly driven by lower stock prices.</p></div><div><p>The largest short positions for the week were built in <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc" target="_blank" rel="noopener" data-smartkarma-citation="entities:516:1">HSBC Holdings (5 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" rel="noopener" data-smartkarma-citation="entities:28434:1">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:24409:1">Xiaomi Corp (1810 HK)</a> and <a href="https://www.smartkarma.com/entities/wuxi-apptec" target="_blank" rel="noopener" data-smartkarma-citation="entities:23679:1">Wuxi Biologics (Cayman) Inc (2269 HK)</a> while shorts were covered in <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:12880:1">Ping An Insurance (H) (2318 HK)</a>, <a href="https://www.smartkarma.com/entities/galaxy-entertainment-group-limited" target="_blank" rel="noopener" data-smartkarma-citation="entities:806:1">Galaxy Entertainment Group (27 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-hlth-infrmtn-tchnlgy-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:453:1">Alibaba Hlth Infrmtn Tchnlgy (241 HK)</a> and <a href="https://www.smartkarma.com/entities/clp-holdings-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:14433:1">CLP Holdings (2 HK)</a>.   </p></div><div><p>Shorts increased in Financials (US$359m), Information Technology (US$181m) and Industrials (US$85m) while shorts were covered in Materials (US$52m).</p></div>

We take a look at the latest SFC data released today evening on short position reporting in Hong Kong for the week ended 28 February 2020.Total short notional in Hong Kong decreased from HKD 473.72bn to HKD 459.81bn over the week mainly driven by lower stock prices.The largest short positions for the week were built in HSBC Holdings (5 HK), Alibaba Group (9988 HK), Xiaomi Corp (1810 HK) and Wuxi Biologics (Cayman) Inc (2269 HK) while shorts were covered in Ping An Insurance (H) (2318 HK), Galaxy Entertainment Group (27 HK), Alibaba Hlth Infrmtn Tchnlgy (241 HK) and CLP Holdings (2 HK).   Shorts increased in Financials (US$359m), Information Technology (US$181m) and Industrials (US$85m) while shorts were covered in Materials (US$52m).

Shorts on Hong Kong Banks Continue Rising

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Equity Bottom-Up

<p>We lower our fair value estimate for CLP to HKD 64 per share from HKD 70, following the decision by the government to cut the Scheme of Control, or SoC, regulated return on Hong Kong’s electric utilities to 8% from the current 9.99% from 2019 for 15 years. This outcome is 1% lower than our base-case assumption, leading us to downgrade our midcycle forecasts. However, there is no material change to our narrow moat rating, as the return of 8% is still above the firm’s weighted average cost of capital of 7.4%. In addition, we don’t expect CLP to cut its absolute dividend payouts, as the firm’s robust balance sheet and strong cash generation ability should be able to support its dividend payout policy. Track record also reaffirms this view: CLP maintained a stable dividend in 2009, when it received a cut in SoC return to 9.99% from 14.40%. Nonetheless, we think the shares are overvalued at the current level, trading at 1.9 times price/book, which is higher than its five-year average of 1.8 times. The earnings outlook is dampened following the reduced returns hurdle rate.</p><p>The 2% cut in SoC return is in line with our worse-case scenario, and is 1% lower than our base-case assumption, and we expect CLP to see a 7.5% drop in our forecast earnings to HKD 12.3 billion, from 13.3 billion in 2019. This will also lead to a 7.3% cut in our midcycle earnings forecast to HKD 17.6 billion, as well as a 1.5% reduction in midcycle operating margin to 19.3%. Relative to <a href="https://www.smartkarma.com/entities/788" target="_blank" data-smartkarma-citation="entities:788:1">Power Assets Holdings Ltd (6 HK)</a>, we anticipate more weakness in CLP because the former only holds 33% in Hong Kong Electric and there is no impact to PAH’s dividend forecast, while the acquisition of <a href="https://www.smartkarma.com/entities/601" target="_blank" data-smartkarma-citation="entities:601:1">DUET Group (DUE AU)</a> mitigates the impact to returns and cash flow.</p><p><em>Analysts: Jennifer Song and Lorraine Tan, CFA</em></p>

We lower our fair value estimate for CLP to HKD 64 per share from HKD 70, following the decision by the government to cut the Scheme of Control, or SoC, regulated return on Hong Kong’s electric utilities to 8% from the current 9.99% from 2019 for 15 years. This outcome is 1% lower than our base-case assumption, leading us to downgrade our midcycle forecasts. However, there is no material change to our narrow moat rating, as the return of 8% is still above the firm’s weighted average cost of capital of 7.4%. In addition, we don’t expect CLP to cut its absolute dividend payouts, as the firm’s robust balance sheet and strong cash generation ability should be able to support its dividend payout policy. Track record also reaffirms this view: CLP maintained a stable dividend in 2009, when it received a cut in SoC return to 9.99% from 14.40%. Nonetheless, we think the shares are overvalued at the current level, trading at 1.9 times price/book, which is higher than its five-year average of 1.8 times. The earnings outlook is dampened following the reduced returns hurdle rate.The 2% cut in SoC return is in line with our worse-case scenario, and is 1% lower than our base-case assumption, and we expect CLP to see a 7.5% drop in our forecast earnings to HKD 12.3 billion, from 13.3 billion in 2019. This will also lead to a 7.3% cut in our midcycle earnings forecast to HKD 17.6 billion, as well as a 1.5% reduction in midcycle operating margin to 19.3%. Relative to Power Assets Holdings Ltd (6 HK), we anticipate more weakness in CLP because the former only holds 33% in Hong Kong Electric and there is no impact to PAH’s dividend forecast, while the acquisition of DUET Group (DUE AU) mitigates the impact to returns and cash flow.Analysts: Jennifer Song and Lorraine Tan, CFA

SoC Return Reset to 8% from 9.99%, and CLP's FVE Lowered to HKD 64

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>The despatch of <a href="https://www.smartkarma.com/entities/19341" target="_blank" data-smartkarma-citation="entities:19341:1">Television Broadcasts Ltd (511 HK)</a>'s Offer Document has been delayed thrice since TLG’s <a href="http://www.hkexnews.hk/listedco/listconews/SEHK/2017/0307/LTN20170307602.pdf" target="_blank">"bid"</a> failed to materialise.</p><p>The last two despatch delays hinged on when the Takeovers and Mergers Panel (the “Panel”) would rule on the whitewash waiver. That Panel hearing, originally tabled for the 5 April, has been rescheduled for the 27 April.</p><p>In this note, I detail why the whitewash waiver is required, recent decisions handed down by the Panel and whether or not this could jeopardise the outcome of the buyback/partial offer.</p>

The despatch of Television Broadcasts Ltd (511 HK)'s Offer Document has been delayed thrice since TLG’s "bid" failed to materialise.The last two despatch delays hinged on when the Takeovers and Mergers Panel (the “Panel”) would rule on the whitewash waiver. That Panel hearing, originally tabled for the 5 April, has been rescheduled for the 27 April.In this note, I detail why the whitewash waiver is required, recent decisions handed down by the Panel and whether or not this could jeopardise the outcome of the buyback/partial offer.

Hong Kong

CLP Holdings Limited is an investment holding company primarily engaged in the generation, retail, transmission, and distribution of electricity across the Asia-Pacific region, including Hong Kong, Mainland China, Australia, India, Thailand, and Taiwan. The company utilizes a diversified energy portfolio, including coal, gas, nuclear, and renewable sources, and also provides energy and infrastructure solutions. It was founded in 1901 and is headquartered in Kowloon, Hong Kong.

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CLP (2 HK)

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Brian Freitas

Shorts on Hong Kong Banks Continue Rising

We take a look at the latest SFC data released today evening on short position reporting in Hong Kong for the week ended 28 February 2020.Total...

Brian Freitas

SoC Return Reset to 8% from 9.99%, and CLP's FVE Lowered to HKD 64

We lower our fair value estimate for CLP to HKD 64 per share from HKD 70, following the decision by the government to cut the Scheme of Control, or...

Morningstar, Inc.

TVB - Whitewash Musings

The despatch of Television Broadcasts Ltd (511 HK)'s Offer Document has been delayed thrice since TLG’s "bid" failed to materialise.The last two...

David Blennerhassett

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