Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

B-shares - remember them?
Created in 1992 to attract foreign investors,  their introduction, which followed the launch of A-shares, was a precursor to wider market access reforms for foreigners, as China integrated itself with the global economy.
Fast forward and years of market liberalisation provide foreign investors access to 3,000+ companies with A-shares. As a result, the combined market value of B shares accounts for less than 0.2% of the capitalisation of A-shares issued by companies in Shanghai. More importantly, the average daily trading volume for B-shares is ~0.1% of its peers.
Over the last decade, the HSI is up 30%. The Shanghai Exchange is up 18%, whereas the Shanghai B-share index is down 22%. For Shenzhen, the main index is up 70% versus 37% for the B-share index. 
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/975/original/image_19472098951615942317700.png?1615942320" class="editor-image img-responsive" data-smartkarma-image-id="194975"></figure>
<div style="text-align: left;" class="content-caption">Source: CapIQ</div>
B shares have become a sort of zombie market for foreigners. 
The authorities could merge the B and A shares, which would result in a spike in the Bs, given their historical trading discount.
Alternatively, B shares can be transferred into H-shares for trading on the Hong Kong exchange, as seen in <a href="https://www.smartkarma.com/entities/china-international-marine-cntnrs-gp-ltd" target="_blank" data-smartkarma-citation="entities:11752:1" rel="noopener">China International Marine Cntnrs Gp (2039 HK)</a>, <a href="https://www.smartkarma.com/entities/china-vanke-co-ltd-h" target="_blank" data-smartkarma-citation="entities:18368:1" rel="noopener">China Vanke Co Ltd (H) (2202 HK)</a>, and <a href="https://www.smartkarma.com/entities/livzon-pharmaceutical-group-inc" target="_blank" data-smartkarma-citation="entities:18726:1" rel="noopener">Livzon Pharmaceutical Group (1513 HK)</a>.
<h3>The New News</h3>
On the 29 January 2021, <a href="https://www.smartkarma.com/entities/shandong-chenming-paper-a" target="_blank" data-smartkarma-citation="entities:19264:1" rel="noopener">Shandong Chenming Paper A (000488 CH)/(1812 HK)</a> <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0201/2021020100079.pdf" target="_blank" rel="noopener">announced</a> the proposed listing of its domestic (B-shares) on the Hong Kong Stock Exchange, as H-shares. The circular is <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0221/2021022100021.pdf" target="_blank" rel="noopener">here</a>, and shareholders approved the transfer on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0314/2021031400011.pdf" target="_blank" rel="noopener">9 March</a>.
B-shares closed yesterday at HK$5.49/share. Yet the H-shares - in which the B-shares will be converted into - are trading at HK$6.70/share.
More below the fold ...

B-shares - remember them?
Created in 1992 to attract foreign investors,  their introduction, which followed the launch of A-shares, was a precursor to wider market access reforms for foreigners, as China integrated itself with the global economy.
Fast forward and years of market liberalisation provide foreign investors access to 3,000+ companies with A-shares. As a result, the combined market value of B shares accounts for less than 0.2% of the capitalisation of A-shares issued by companies in Shanghai. More importantly, the average daily trading volume for B-shares is ~0.1% of its peers.
Over the last decade, the HSI is up 30%. The Shanghai Exchange is up 18%, whereas the Shanghai B-share index is down 22%. For Shenzhen, the main index is up 70% versus 37% for the B-share index. 

Source: CapIQ
B shares have become a sort of zombie market for foreigners. 
The authorities could merge the B and A shares, which would result in a spike in the Bs, given their historical trading discount.
Alternatively, B shares can be transferred into H-shares for trading on the Hong Kong exchange, as seen in China International Marine Cntnrs Gp (2039 HK), China Vanke Co Ltd (H) (2202 HK), and Livzon Pharmaceutical Group (1513 HK).
The New News
On the 29 January 2021, Shandong Chenming Paper A (000488 CH)/(1812 HK) announced the proposed listing of its domestic (B-shares) on the Hong Kong Stock Exchange, as H-shares. The circular is here, and shareholders approved the transfer on the 9 March.
B-shares closed yesterday at HK$5.49/share. Yet the H-shares - in which the B-shares will be converted into - are trading at HK$6.70/share.
More below the fold ...

Shandong Chenming Paper (1812 HK): The H/B Convergence Trade

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

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.

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/scg-packaging-public-company-limited" target="_blank" data-smartkarma-citation="entities:28684:1" rel="noopener">SCG Packaging (SCGP TB)</a> aims to raise around US$1.2bn in its Thailand IPO. It is a part of the <a href="https://www.smartkarma.com/entities/siam-cement-pcl-the" target="_blank" data-smartkarma-citation="entities:2589:1" rel="noopener">Siam Cement (SCC TB)</a> group.SCGP is a packaging solutions provider in ASEAN offering fiber-based packaging, performance and polymer packaging, food service products, design, printing and other solutions. SCGP is the largest packaging paper and corrugated containers producer in ASEAN, as per Frost &amp; Sullivan. SCGP has been steadily increasing its exposure to the packaging segment via acquiring smaller competitors across ASEAN. Its efforts appear to be paying off as EBITDA and PATMI margins bottomed in 2016 and have been improving since. However, its asset growth has been running ahead of earnings growth for most of the prior years. Since its operating cash flows haven’t been enough to cover its capex needs and acquisition expenses in most of the past few years, this has led to a rise in leverage. Furthermore, a look at its recent financials indicate that most of the growth has been owing to its recent Indonesian acquisition.Our previous coverage of the IPO: <a href="https://www.smartkarma.com/insights/scg-packaging-pre-ipo-shift-to-packaging-has-been-aiding-margins-but-acquisition-drove-up-leverage" target="_blank" rel="noopener">SCG Packaging Pre-IPO - Shift to packaging has been aiding margins but acquisitions have driven up leverage</a>

SCG Packaging (SCGP TB) aims to raise around US$1.2bn in its Thailand IPO. It is a part of the Siam Cement (SCC TB) group.SCGP is a packaging solutions provider in ASEAN offering fiber-based packaging, performance and polymer packaging, food service products, design, printing and other solutions. SCGP is the largest packaging paper and corrugated containers producer in ASEAN, as per Frost &amp; Sullivan. SCGP has been steadily increasing its exposure to the packaging segment via acquiring smaller competitors across ASEAN. Its efforts appear to be paying off as EBITDA and PATMI margins bottomed in 2016 and have been improving since. However, its asset growth has been running ahead of earnings growth for most of the prior years. Since its operating cash flows haven’t been enough to cover its capex needs and acquisition expenses in most of the past few years, this has led to a rise in leverage. Furthermore, a look at its recent financials indicate that most of the growth has been owing to its recent Indonesian acquisition.Our previous coverage of the IPO: SCG Packaging Pre-IPO - Shift to packaging has been aiding margins but acquisitions have driven up leverage

Global Special Situations & Strategy, SR Services Ltd

David Lepper

Global Special Situations & Strategy

SR Services Ltd

SR Services provides Strategic Knowledge and Solutions services for Family Offices and Corporate Business. 

We deliver this via advisory services, strategic planning, opportunity analysis/sourcing, as well as solution implementation. 

Whilst, we create intellectual discipline and operational leverage for your projects or daily activities, our ultimate objective is to empower whilst enhancing your decision making. 

Strategic Knowledge and Solutions

Equity Bottom-Up

On the eve of the Chinese New Year holiday Nine Dragon Paper (NDP) released a profit warning regarding their H1 FY19 fiscal earnings. This warning came ahead of the 26th February 2019 Board Meeting.
Management guidance calls for a decrease for H1-2019 of approximately 45% YoY and revenue line of not less than RMB2.4bn. NDP cites an increase in raw materials and a decrease in the selling price of the products. 
Despite the negative news, the share price has rallied 15% since the announcement. We examine the implications.

On the eve of the Chinese New Year holiday Nine Dragon Paper (NDP) released a profit warning regarding their H1 FY19 fiscal earnings. This warning came ahead of the 26th February 2019 Board Meeting.
Management guidance calls for a decrease for H1-2019 of approximately 45% YoY and revenue line of not less than RMB2.4bn. NDP cites an increase in raw materials and a decrease in the selling price of the products. 
Despite the negative news, the share price has rallied 15% since the announcement. We examine the implications.

Notes from the Silk Road: Nine Dragons Paper Holdings (2689.HK) - Potential Volatility Risk

Consumer Analyst / Channel Surveillance Specialist, Trudence Capital Advisors

Pranav Bhavsar

Consumer Analyst / Channel Surveillance Specialist

ASA Capital Management

ASA Capital Management is a boutique Research and Investment Advisory firm focusing on primary research in India. ASA provides bespoke research services to Institutional Clients with a focus on due diligence backed with primary research, Field Trips & Channel Checks.

Thematic (Sector/Industry)

We recently met a second-generation entrepreneur, operating in the paper industry for over two decades dealing with companies in India, UAE, China, Egypt, Turkey, Europe, South Korea &amp; African countries.  The discussion was aimed at understanding the key trends that have shaped the paper Industry in India and China for the last two years in order to answer the question: will the dream run in stock prices continue? Our discussions are focused on <a href="https://www.smartkarma.com/entities/12452" target="_blank" data-smartkarma-citation="entities:12452:1">Jk Paper Ltd (CPM IN)</a> , <a href="https://www.smartkarma.com/entities/8738" target="_blank" data-smartkarma-citation="entities:8738:1">West Coast Paper Mills (WCPM IN)</a> &amp; <a href="https://www.smartkarma.com/entities/3678" target="_blank" data-smartkarma-citation="entities:3678:1">International Paper Appm (IPAP IN)</a> along with possible implications for <a href="https://www.smartkarma.com/entities/528" target="_blank" data-smartkarma-citation="entities:528:1">Nine Dragons Paper (2689 HK)</a> covered by <a href="https://www.smartkarma.com/profiles/2021" target="_blank" data-smartkarma-citation="accounts:2021">David Lepper</a> &amp; <a href="https://www.smartkarma.com/profiles/1208" target="_blank" data-smartkarma-citation="accounts:1208">Nicolas Van Broekhoven</a>. 
We maintain a cautious to negative view on the sector, we shall review our stance on the Industry post Q3 earnings releases. We would like to endorse the long view on <a href="https://www.smartkarma.com/entities/528" target="_blank" data-smartkarma-citation="entities:528:1">Nine Dragons Paper (2689 HK)</a>

We recently met a second-generation entrepreneur, operating in the paper industry for over two decades dealing with companies in India, UAE, China, Egypt, Turkey, Europe, South Korea &amp; African countries.  The discussion was aimed at understanding the key trends that have shaped the paper Industry in India and China for the last two years in order to answer the question: will the dream run in stock prices continue? Our discussions are focused on Jk Paper Ltd (CPM IN) , West Coast Paper Mills (WCPM IN) &amp; International Paper Appm (IPAP IN) along with possible implications for Nine Dragons Paper (2689 HK) covered by David Lepper &amp; Nicolas Van Broekhoven. 
We maintain a cautious to negative view on the sector, we shall review our stance on the Industry post Q3 earnings releases. We would like to endorse the long view on Nine Dragons Paper (2689 HK)

India's Paper Industry Ready for a Hangover? | Insights from Meeting with Supplier & Trader

<ul class="">
<li>
We have decided to reiterate our positive bias call on Nine Dragons Paper (NDP), following several key industry and company updates. From a company perspective, the annual results released in September and subsequent commentary have confirmed that the company is on track to achieve its profitability. The recent stock price weakness is more around China macro concerns as opposed to the company itself.</li>
<li>
2018 Revenue and bottom line exceeded our expectations by 4% and 10% respectively highlighting the momentum the NDP has at present, with 34.8% top-line and 79% NPAT YoY growth. Whilst the profitability in fiscal 2018 was not quite to the level we had in our forecasts, namely missing our expectations at the gross profit line but meeting our EBIT line, the attributable factor appears to be the volatile nature of the recycled paper market in China. NDP increased its recycled paper sourcing domestically from 57% to  66% in fiscal 2018. With China’s Environmental regulations taking greater hold over fiscal 2019, we would expect raw material pricing volatility to abate allowing for greater visibility on budget for the group.</li>
<li>
Post incorporation of results we have upgraded our outlook by 6% and 33% respectively for fiscal 2019 and 2020. We believe the group is well positioned to benefit from China’s Environmental Clean Initiatives whilst also taking advantage of the consumer parcel packaging surge due to the e-commerce revolution.</li>
<li>
We believe the investment case for NDP remains intact. Whilst the short-term volatility of the global market may have some impact, the longer term trends brought about by E-commerce demands remains intact. In our view, investors looking for China paper and packaging exposure should consider NDP, as it not only presents favourably as a value stock candidate which should provide adequate reward through sustainable dividends and a renewed share price performance.</li>
</ul>



We have decided to reiterate our positive bias call on Nine Dragons Paper (NDP), following several key industry and company updates. From a company perspective, the annual results released in September and subsequent commentary have confirmed that the company is on track to achieve its profitability. The recent stock price weakness is more around China macro concerns as opposed to the company itself.

2018 Revenue and bottom line exceeded our expectations by 4% and 10% respectively highlighting the momentum the NDP has at present, with 34.8% top-line and 79% NPAT YoY growth. Whilst the profitability in fiscal 2018 was not quite to the level we had in our forecasts, namely missing our expectations at the gross profit line but meeting our EBIT line, the attributable factor appears to be the volatile nature of the recycled paper market in China. NDP increased its recycled paper sourcing domestically from 57% to  66% in fiscal 2018. With China’s Environmental regulations taking greater hold over fiscal 2019, we would expect raw material pricing volatility to abate allowing for greater visibility on budget for the group.

Post incorporation of results we have upgraded our outlook by 6% and 33% respectively for fiscal 2019 and 2020. We believe the group is well positioned to benefit from China’s Environmental Clean Initiatives whilst also taking advantage of the consumer parcel packaging surge due to the e-commerce revolution.

We believe the investment case for NDP remains intact. Whilst the short-term volatility of the global market may have some impact, the longer term trends brought about by E-commerce demands remains intact. In our view, investors looking for China paper and packaging exposure should consider NDP, as it not only presents favourably as a value stock candidate which should provide adequate reward through sustainable dividends and a renewed share price performance.


Notes from the Silk Road: Nine Dragons Paper Holdings (2689.HK) - Packaged for Growth and Value

Hong Kong

Lee & Man Paper Manufacturing Limited, through its subsidiaries, produces linerboard and corrugating medium.  The Company's linerboard and corrugating medium are divided into a range of grades with different specifications customized for different industrial and consumer packaging purposes.

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Lee & Man Paper Manufacturing (2314 HK)

Shandong Chenming Paper (1812 HK): The H/B Convergence Trade

On the expectation of a 3-6 month timeline, if you can source borrow on the H's, do so, and buy the Bs. Hearing borrow costs of 10-20%,

David Blennerhassett

SCG Packaging IPO - Unexciting

SCG Packaging (SCGP TB) aims to raise around US$1.2bn in its Thailand IPO. It is a part of the Siam Cement (SCC TB) group, which aims to hold at...

Sumeet Singh

Notes from the Silk Road: Nine Dragons Paper Holdings (2689.HK) - Potential Volatility Risk

On the eve of the Chinese New Year holiday Nine Dragon Paper (NDP) released a profit warning regarding their H1 FY19 fiscal earnings. This warning...

David Lepper

India's Paper Industry Ready for a Hangover? | Insights from Meeting with Supplier & Trader

We recently met a second-generation entrepreneur, operating in the paper industry for over two decades dealing with companies in India, UAE, China,...

Pranav Bhavsar

Notes from the Silk Road: Nine Dragons Paper Holdings (2689.HK) - Packaged for Growth and Value

We have decided to reiterate our positive bias call on Nine Dragons Paper (NDP), following several key industry and company updates. From a...

David Lepper

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