HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<p>We think there are three developments at <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 Group Corp (916 HK)</a> that driven its recent strength and will stay supportive to the share price. They are: 1.) positive debut of <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>, 2.) approval from SASAC on merger with <a href="https://www.smartkarma.com/entities/inner-mongolia-pingzhuang-eng-resources" target="_blank" data-smartkarma-citation="entities:4267:1" rel="noopener">Pingzhuang Energy (000780 CH)</a>, and 3.) solid May and 5M21 generation. In particular, the positive performance of the IPO of CTGR is the most important factor, in our view. With potential further upside at CTGR in the near term, we believe Longyuan's strength will likely to hold as well.</p><p>SASAC's approval also marked an important step in Longyuan's proposed absorption and merger with Pingzhuang Energy, allowing it to access the liquidity in the domestic market. This adds to the continued solid wind and overall power generation in May, sustaining the encouraging trend of good underlying business momentum. With Longyuan currently trading on 13.5x FY21F PER, compared with CTGR's 19.5x, we believe its valuation is demanding at all. </p>

We think there are three developments at China Longyuan Power Group Corp (916 HK) that driven its recent strength and will stay supportive to the share price. They are: 1.) positive debut of China Three Gorges Renewables (600905 CH), 2.) approval from SASAC on merger with Pingzhuang Energy (000780 CH), and 3.) solid May and 5M21 generation. In particular, the positive performance of the IPO of CTGR is the most important factor, in our view. With potential further upside at CTGR in the near term, we believe Longyuan's strength will likely to hold as well.SASAC's approval also marked an important step in Longyuan's proposed absorption and merger with Pingzhuang Energy, allowing it to access the liquidity in the domestic market. This adds to the continued solid wind and overall power generation in May, sustaining the encouraging trend of good underlying business momentum. With Longyuan currently trading on 13.5x FY21F PER, compared with CTGR's 19.5x, we believe its valuation is demanding at all. 

China Longyuan (916 HK): Three Recent Positive Developments

<p><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 Group Corp (916 HK)</a> has a very strong turnout in Jan as its overall power generation was up by 47.5% YoY, with wind generation (+50.8%) being the most important driver. We do not think that a low base and distortion from timing of the Chinese New Year are the reasons for the impressive growth, and we see underlying momentum very solid. While Jan is a record-breaking month for generation, we believe the peak generation in this year is yet to come.</p><p>Longyuan has an attractive long term story, supported by factors including: 1.) beneficiary of government support, 2.) access to the A-share market, 3.) acquisition of Pingzhuang renewable assets, and 4.) increased potential from parent injection. Share price has rallied 59.5% YTD but valuations are still not too stretched. We believe any pull-back is opportunity for taking position in this encouraging long-term story of renewable energy development. </p>

China Longyuan Power Group Corp (916 HK) has a very strong turnout in Jan as its overall power generation was up by 47.5% YoY, with wind generation (+50.8%) being the most important driver. We do not think that a low base and distortion from timing of the Chinese New Year are the reasons for the impressive growth, and we see underlying momentum very solid. While Jan is a record-breaking month for generation, we believe the peak generation in this year is yet to come.Longyuan has an attractive long term story, supported by factors including: 1.) beneficiary of government support, 2.) access to the A-share market, 3.) acquisition of Pingzhuang renewable assets, and 4.) increased potential from parent injection. Share price has rallied 59.5% YTD but valuations are still not too stretched. We believe any pull-back is opportunity for taking position in this encouraging long-term story of renewable energy development. 

China Longyuan (916 HK): Record-Breaking Jan, and Strategically Positioned for the Long Term

Founder, Riedel Research

David Riedel

Founder

Independent equity research on GEM Markets

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Thematic (Sector/Industry)

<p><strong>Hungary:</strong> Faster earnings growth should drive GDP higher in coming months.<br><strong>Mexico:</strong> Expected to raise rates 50bps next Thursday in the wake of inflation reported this week at 5.3% (the highest rate in 8 years).  This is a critical positive development for the Peso.<br><strong>Saudi Arabia:</strong> Has the most to lose from lower prices as this complicates attempts to diversify their economy.  Iran is less concerned as they are just coming off of sanctions and any revenue they get is better than before.  Iraq would…</p>

Hungary: Faster earnings growth should drive GDP higher in coming months. Mexico: Expected to raise rates 50bps next Thursday in the wake of inflation reported this week at 5.3% (the highest rate in 8 years).  This is a critical positive development for the Peso. Saudi Arabia: Has the most to lose from lower prices as this complicates attempts to diversify their economy.  Iran is less concerned as they are just coming off of sanctions and any revenue they get is better than before.  Iraq would…

Who Wins and Who Loses from Oil Under $50? Hint: Invest in Asia

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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<p>The positive 2016 profit alerts from China’s coal companies are within expectations, with profit rebounds driven by higher coal prices. The benchmark Bohai-Rim Steam-Coal Price Index, or BSPI, closed at CNY 593 per tonne on Dec. 28, up 60% year over year. While the peak heating season should keep prices elevated over the next few months, we think coal prices will start to decline by the end of the first quarter of 2017 to be around 15%-20% below where they are now. We think the coal price gains are largely reflected in the current share prices, and anticipate limited upside boosts following a more subdued long-term view.</p><p>We maintain fair value estimates for narrow-moat <a href="https://www.smartkarma.com/entities/382" target="_blank" data-smartkarma-citation="entities:382:1">China Shenhua Energy Co H (1088 HK)</a> of HKD 16.40, and no-moat <a href="https://www.smartkarma.com/entities/383" target="_blank" data-smartkarma-citation="entities:383:1">China Coal Energy Co H (1898 HK)</a> and <a href="https://www.smartkarma.com/entities/384" target="_blank" data-smartkarma-citation="entities:384:1">Yanzhou Coal Mining Co H (1171 HK)</a> of HKD 3.30 and HKD 4.30, respectively, ahead of the full-year earnings results due out in March, pending more details.</p><p><em>Analysts: Jennifer Song and Lorraine Tan, CFA</em></p>

The positive 2016 profit alerts from China’s coal companies are within expectations, with profit rebounds driven by higher coal prices. The benchmark Bohai-Rim Steam-Coal Price Index, or BSPI, closed at CNY 593 per tonne on Dec. 28, up 60% year over year. While the peak heating season should keep prices elevated over the next few months, we think coal prices will start to decline by the end of the first quarter of 2017 to be around 15%-20% below where they are now. We think the coal price gains are largely reflected in the current share prices, and anticipate limited upside boosts following a more subdued long-term view.We maintain fair value estimates for narrow-moat China Shenhua Energy Co H (1088 HK) of HKD 16.40, and no-moat China Coal Energy Co H (1898 HK) and Yanzhou Coal Mining Co H (1171 HK) of HKD 3.30 and HKD 4.30, respectively, ahead of the full-year earnings results due out in March, pending more details.Analysts: Jennifer Song and Lorraine Tan, CFA

Surging Coal Prices Drove Positive 2016 Profit Alerts for Coal Companies

EM PM, Ecstrat

Emad Mostaque

EM PM

Ecstrat

Ecstrat is a consultancy advising on asset allocation between global equity markets, with a focus on the intersection of governments, geopolitics, governance and markets.
 
Over the past few years and more especially since the Great Financial Crisis (GFC), investors have become more focused on short-term market movements and real-time returns and have consequently neglected the analysis of the underlying structural themes that underpin longer term performance.
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More specifically we believe that the evolution of governance-based relationships between investors, controlling shareholders, labour and the state is one of the primary determinants of both relative and absolute performance between individual equity markets.
 
We will endeavour to provide investors with some of the context surrounding governance-related issues which encompass many different disciplines including history, economics and political science, as well as the financial metrics which are the most obvious manifestation of the structural characteristics of each market.
 
We will pay particular attention to the shifts and potential inflection points for governance in individual markets as these are often the best lead indicators for both economic and market performance.

<div>Oil prices have had a jittery week after the shock of the US elections leading to a dollar resurgence and abject confusion over the impact on the potential impending OPEC deal. </div><div>Short positions have steadily been building under the assumption a deal likely won't be done, or if it is done then it won't be enforceable and not take enough barrels off the market. </div><div>This had sparked a predictable series of leaks and a flurry of diplomatic activity from oil ministers and the OPEC Secretary General to try…</div>

Oil prices have had a jittery week after the shock of the US elections leading to a dollar resurgence and abject confusion over the impact on the potential impending OPEC deal. Short positions have steadily been building under the assumption a deal likely won't be done, or if it is done then it won't be enforceable and not take enough barrels off the market. This had sparked a predictable series of leaks and a flurry of diplomatic activity from oil ministers and the OPEC Secretary General to try…

China

Inner Mongolia PingZhuang Energy Resources Co.,Ltd mines coal.

Inner Mongolia PingZhuang Energy Resources (000780 CH)

Inner Mongolia PingZhuang Energy Resources

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Inner Mongolia PingZhuang Energy Resources (000780 CH)

China Longyuan (916 HK): Three Recent Positive Developments

We see the positive debut of CTGR, approval of the Pingzhuang merger and good May/5M21 generation figures are the key drivers behind Longyuan's...

Osbert Tang, CFA

China Longyuan (916 HK): Record-Breaking Jan, and Strategically Positioned for the Long Term

China Longyuan has a strong Jan generation with 50.8% YoY growth in wind generation. We expect it to benefit from China's clean energy initiatives...

Osbert Tang, CFA

Who Wins and Who Loses from Oil Under $50? Hint: Invest in Asia

Hungary: Faster earnings growth should drive GDP higher in coming months.Mexico: Expected to raise rates 50bps next Thursday in the wake of...

David Riedel

Surging Coal Prices Drove Positive 2016 Profit Alerts for Coal Companies

The positive 2016 profit alerts from China’s coal companies are within expectations, with profit rebounds driven by higher coal prices. The...

Morningstar, Inc.

Playing the OPEC Deal

Oil prices have had a jittery week after the shock of the US elections leading to a dollar resurgence and abject confusion over the impact on the...

Emad Mostaque

Price Gauge

52-week Range

Market Cap (USDm)

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