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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

<p>Hang Seng Indexes Company (HSIL) reviews the constituents of the Hang Seng Composite Index (HSCI) on a half yearly basis in March and September with data cut-off dates as of the end of December and June. The review announcement for the September 2021 review should be made on 13 August and will be effective after the close of trading on 3 September.</p><p>Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors.</p><p>We see 28 potential inclusions to the HSCI at the rebalance and 15 potential deletions, plus another 7 close deletions. Only 10 of the potential deletions will be removed from Southbound Stock Connect buy list since the other deletions are either not a part of Stock Connect currently or have listed A-shares.</p><p>The inclusions to the HSCI outperformed the deletions at the March rebalance from review cut-off to announcement of the changes before giving by some of the gains to implementation and then some more for the 1 month post the implementation of the changes.</p>

Hang Seng Indexes Company (HSIL) reviews the constituents of the Hang Seng Composite Index (HSCI) on a half yearly basis in March and September with data cut-off dates as of the end of December and June. The review announcement for the September 2021 review should be made on 13 August and will be effective after the close of trading on 3 September.Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors.We see 28 potential inclusions to the HSCI at the rebalance and 15 potential deletions, plus another 7 close deletions. Only 10 of the potential deletions will be removed from Southbound Stock Connect buy list since the other deletions are either not a part of Stock Connect currently or have listed A-shares.The inclusions to the HSCI outperformed the deletions at the March rebalance from review cut-off to announcement of the changes before giving by some of the gains to implementation and then some more for the 1 month post the implementation of the changes.

HSCI Index Rebalance & Stock Connect: Expected Changes in September

<p>Hang Seng Indexes Company (HSIL) reviews the constituents of the Hang Seng Composite Index (HSCI) on a half yearly basis in March and September with data cut-off dates as of the end of December and June. The review announcement for the September 2021 review should be made on 13 August and will be effective after the close of trading on 3 September.</p><p>The June review will see the inclusion of stocks that were newly listed from 1 January to 31 March and meet the criteria for joining the index.</p><p>Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors.</p><div><p>There are a lot of stocks that will join the HSCI and will subsequently be included as a part of the Southbound Stock Connect program - these stocks could be bought by mainland investors and could outperform their peers and the market.</p></div><div><p>There are stocks that will be deleted from the HSCI and consequently deleted from the Southbound Stock Connect buy list while some stocks will be deleted from the HSCI but maintained in Stock Connect since they have listed A-shares.</p></div><div><p>Read on for more details and the stocks affected by the changes.</p></div>

Hang Seng Indexes Company (HSIL) reviews the constituents of the Hang Seng Composite Index (HSCI) on a half yearly basis in March and September with data cut-off dates as of the end of December and June. The review announcement for the September 2021 review should be made on 13 August and will be effective after the close of trading on 3 September.The June review will see the inclusion of stocks that were newly listed from 1 January to 31 March and meet the criteria for joining the index.Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors.There are a lot of stocks that will join the HSCI and will subsequently be included as a part of the Southbound Stock Connect program - these stocks could be bought by mainland investors and could outperform their peers and the market.There are stocks that will be deleted from the HSCI and consequently deleted from the Southbound Stock Connect buy list while some stocks will be deleted from the HSCI but maintained in Stock Connect since they have listed A-shares.Read on for more details and the stocks affected by the changes.

HSCI Index Rebalance and Stock Connect: Potential Changes in June and September

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

Sichuan Languang Justbon Service Group / Event-Driven

<p><a href="https://www.smartkarma.com/entities/sichuan-languang-justbon-service-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:28337:1" rel="noopener">Sichuan Languang Justbon Service Group (2606 HK)</a> has despatched the composite document in relation to <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a> base and enhanced offer. Currently, Country Garden owns 71.17% of the outstanding shares comprising 66.99% of the domestic shares and 71.20% of the H Shares. </p><p>The base offer is an unconditional mandatory cash offer for all the issued shares is HK$51.0571 per H-share (RMB42.8547 per domestic share. The enhanced share offer, which is payable only if the delisting is approved, is HK$54.3000 per H-share (RMB45.5768 per domestic share). </p><p>Unsurprisingly, the IFA considers the base and enhanced offer to be fair and reasonable. We broadly agree with the IFA analysis with the exception that the peer multiple comparisons could be improved. </p><p>The two key conditions for the delisting will be approval by at least 75% independent H-shareholders (&lt;10% of all independent H-shareholders rejection) and the satisfaction of the minimum acceptance condition (90% of H-shares held by independent H-shareholders). Satisfaction of the minimum acceptance condition is the key hurdle. We note the privatisation proposals for <a href="https://www.smartkarma.com/entities/beijing-jingneng-clean-energy-co-ltd" target="_blank" data-smartkarma-citation="entities:16316:1" rel="noopener">Beijing Jingneng Clean Energy (579 HK)</a> and <a href="https://www.smartkarma.com/entities/harbin-electric-co-ltd-h" target="_blank" data-smartkarma-citation="entities:11116:1" rel="noopener">Harbin Electric Co Ltd H (1133 HK)</a> have previously failed due to the inability to meet the 90% minimum acceptance condition.  </p><div class="content-highlight"><p>Country Garden Services has bought itself some leeway by having the right to extend the closing date from 17 June to not later than 3 September. In theory, the extended time period should provide a greater chance of meeting the 90% threshold. At the last close, the gross spread to the enhanced offer price of HK$54.3000 stands at 4.9%.</p></div>

Sichuan Languang Justbon Service Group (2606 HK) has despatched the composite document in relation to Country Garden Services Holdings (6098 HK) base and enhanced offer. Currently, Country Garden owns 71.17% of the outstanding shares comprising 66.99% of the domestic shares and 71.20% of the H Shares. The base offer is an unconditional mandatory cash offer for all the issued shares is HK$51.0571 per H-share (RMB42.8547 per domestic share. The enhanced share offer, which is payable only if the delisting is approved, is HK$54.3000 per H-share (RMB45.5768 per domestic share). Unsurprisingly, the IFA considers the base and enhanced offer to be fair and reasonable. We broadly agree with the IFA analysis with the exception that the peer multiple comparisons could be improved. The two key conditions for the delisting will be approval by at least 75% independent H-shareholders (&lt;10% of all independent H-shareholders rejection) and the satisfaction of the minimum acceptance condition (90% of H-shares held by independent H-shareholders). Satisfaction of the minimum acceptance condition is the key hurdle. We note the privatisation proposals for Beijing Jingneng Clean Energy (579 HK) and Harbin Electric Co Ltd H (1133 HK) have previously failed due to the inability to meet the 90% minimum acceptance condition.  Country Garden Services has bought itself some leeway by having the right to extend the closing date from 17 June to not later than 3 September. In theory, the extended time period should provide a greater chance of meeting the 90% threshold. At the last close, the gross spread to the enhanced offer price of HK$54.3000 stands at 4.9%.

Languang Justbon’s Composite Document, IFA Opinion and Extended Closing Date

<p><a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a> has entered into agreements with three vendors to purchase a combined 71.17% of outstanding shares in <a href="https://www.smartkarma.com/entities/sichuan-languang-justbon-service-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:28337:1" rel="noopener">Sichuan Languang Justbon Service Group (2606 HK)</a> for RMB42.8546 (equivalent to HK$51.0569).</p><p>As a reminder on 25 February 2021, Languang Justbon announced that Languang Hejun, the controlling shareholder, entered a memorandum of understanding (MOU) with Country Garden Services to sell 115.1 million H shares (64.62% of the outstanding shares) at a price of RMB42.1105 per H share. On 11 March, the MOU was updated such that Languang Hejun will sell Country Garden Services 0.75 million domestic shares (0.42% of the outstanding shares) in addition to the previously agreed 115.1 million H shares (64.62% of the outstanding shares). The acquisition price was modestly bumped 1.8% from RMB42.1105 per H share to RMB42.8546 per H share or per domestic share. </p><p>On completion of the agreements, Country Garden Services will be required to make an unconditional mandatory cash offer under Rule 26.1 of the Takeovers Code. The unconditional mandatory cash offer (base offer) for all the issued shares is HK$51.0571 per H-share (RMB42.8547 per domestic share). Notably, Country Garden Services proposes to delist Languang Justbon by offering an enhanced cash offer of HK$54.3000 per H-share (RMB45.5768 per domestic share). The enhanced share offer, which is payable only if the delisting is approved, is a 3.6% premium to the last close of HK$52.40 and a 39.41% premium to the unaffected price of HK$38.95 (22 February 2021 prior to the first trading halt). </p><div class="content-highlight"><p>The two key conditions for the delisting will be approval by at least 75% independent H-shareholders (&lt;10% of all independent H-shareholders rejection) and the satisfaction of the minimum acceptance condition (90% of H-shares held by independent H-shareholders). Independent H-shareholders shareholders represent 51.0 million shares which are 28.62% of outstanding shares. Consequently, the 10% blocking stake is 5.1 million shares which is 2.86% of the outstanding shares. Overall, as we think that the enhanced offer price is reasonable, the delisting proposal will likely succeed. </p></div>

Country Garden Services Holdings (6098 HK) has entered into agreements with three vendors to purchase a combined 71.17% of outstanding shares in Sichuan Languang Justbon Service Group (2606 HK) for RMB42.8546 (equivalent to HK$51.0569).As a reminder on 25 February 2021, Languang Justbon announced that Languang Hejun, the controlling shareholder, entered a memorandum of understanding (MOU) with Country Garden Services to sell 115.1 million H shares (64.62% of the outstanding shares) at a price of RMB42.1105 per H share. On 11 March, the MOU was updated such that Languang Hejun will sell Country Garden Services 0.75 million domestic shares (0.42% of the outstanding shares) in addition to the previously agreed 115.1 million H shares (64.62% of the outstanding shares). The acquisition price was modestly bumped 1.8% from RMB42.1105 per H share to RMB42.8546 per H share or per domestic share. On completion of the agreements, Country Garden Services will be required to make an unconditional mandatory cash offer under Rule 26.1 of the Takeovers Code. The unconditional mandatory cash offer (base offer) for all the issued shares is HK$51.0571 per H-share (RMB42.8547 per domestic share). Notably, Country Garden Services proposes to delist Languang Justbon by offering an enhanced cash offer of HK$54.3000 per H-share (RMB45.5768 per domestic share). The enhanced share offer, which is payable only if the delisting is approved, is a 3.6% premium to the last close of HK$52.40 and a 39.41% premium to the unaffected price of HK$38.95 (22 February 2021 prior to the first trading halt). The two key conditions for the delisting will be approval by at least 75% independent H-shareholders (&lt;10% of all independent H-shareholders rejection) and the satisfaction of the minimum acceptance condition (90% of H-shares held by independent H-shareholders). Independent H-shareholders shareholders represent 51.0 million shares which are 28.62% of outstanding shares. Consequently, the 10% blocking stake is 5.1 million shares which is 2.86% of the outstanding shares. Overall, as we think that the enhanced offer price is reasonable, the delisting proposal will likely succeed. 

Languang Justbon’s Mandatory Offer and Voluntary Delisting Proposal from Country Garden Services

Equity Capital Markets

Evergrande Property Services / Equity Capital Markets

<div>
<p><a href="https://www.smartkarma.com/entities/evergrande-property-services" target="_blank" data-smartkarma-citation="entities:30921:1" rel="noopener">Evergrande Services (EGS HK)</a> is a Chinese property management provider. Evergrande ranked fourth in GFA under management, among the Top 100 property management companies in China in 2019, according to CIA. The controlling shareholder is <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a>.</p>
<p>At the proposed IPO price range of HK$8.50-9.75 per share, Evergrande will have a market cap of HK$91,891.9-105,405.4 million ($11.9-13.6 billion). At the mid-point of the IPO price range, the total proceeds are HK$14,797 million ($1.9 billion) which is equally split between a primary and secondary raise. The selling shareholder is CEG Holdings, which is owned by China Evergrande Group. </p>
</div><div><p>21 cornerstone investors will subscribe for HK$7,207.9 million worth of the offer shares (48.68% of the offer shares at the IPO mid-point). The cornerstone investors are mostly "friends-and-family" accounts and over half have business ties with Evergrande Group. </p></div><div><div><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/evergrande-property-services-ipo-initiation-standing-out" target="_blank" data-smartkarma-citation="insights:45554" rel="noopener">Evergrande Property Services IPO Initiation: Standing Out</a>, we stated that Evergrande’s fundamentals are strong. Our valuation analysis suggests that the IPO price range is attractive. </p></div></div></div>


Evergrande Services (EGS HK) is a Chinese property management provider. Evergrande ranked fourth in GFA under management, among the Top 100 property management companies in China in 2019, according to CIA. The controlling shareholder is Evergrande Real Estate Group (3333 HK).
At the proposed IPO price range of HK$8.50-9.75 per share, Evergrande will have a market cap of HK$91,891.9-105,405.4 million ($11.9-13.6 billion). At the mid-point of the IPO price range, the total proceeds are HK$14,797 million ($1.9 billion) which is equally split between a primary and secondary raise. The selling shareholder is CEG Holdings, which is owned by China Evergrande Group. 
21 cornerstone investors will subscribe for HK$7,207.9 million worth of the offer shares (48.68% of the offer shares at the IPO mid-point). The cornerstone investors are mostly "friends-and-family" accounts and over half have business ties with Evergrande Group. In Evergrande Property Services IPO Initiation: Standing Out, we stated that Evergrande’s fundamentals are strong. Our valuation analysis suggests that the IPO price range is attractive. 

Evergrande Property Services IPO: Valuation Insights

China

Colour Life Services Group Co., Ltd. is a real estate management company in the People's Republic of China.

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Colour Life Services (1778 HK)

HSCI Index Rebalance & Stock Connect: Expected Changes in September

Currently we see 28 potential inclusions & 22 deletions from the HSCI at the Sep rebalance. Most of the inclusions will join Stock Connect while...

Brian Freitas

HSCI Index Rebalance and Stock Connect: Potential Changes in June and September

A look at the potential changes to the HSCI at the June & September reviews and stocks that could be included in/excluded from Stock Connect. These...

Brian Freitas

Languang Justbon’s Composite Document, IFA Opinion and Extended Closing Date

Satisfaction of the minimum acceptance condition is the key hurdle. At the last close, the gross spread to the enhanced offer price of HK$54.3000...

Arun George

Languang Justbon’s Mandatory Offer and Voluntary Delisting Proposal from Country Garden Services

CGS has announced a voluntary delisting proposal at HK$54.3000 per H-share subject to shareholder approval and min acceptance conditions. We think...

Arun George

Evergrande Property Services IPO: Valuation Insights

Evergrande has launched its IPO to raise total proceeds of $1.9 billion at the mid-point. Our valuation analysis suggests that the IPO price range...

Arun George

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