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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Hang Seng Indexes have announced the conclusions of the market consultation on the "Proposal to enhance the Hang Seng Index as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market".The main changes to the index are:<ul>
<li>Increase the number of constituents to 80 by mid-2022 and ultimately to have 100 stocks in 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>. </li>
<li>To have a more balanced representation of the Hong Kong stock market, 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> constituents will be selected from seven Industry Groups. The target is to achieve a market cap coverage of not less than 50% for each Industry Group.</li>
<li>To provide flexibility for the timely addition of new listings, the listing history requirement will be lowered to 3 months.</li>
<li>There will be 20-25 'Hong Kong companies' in 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 this number will be evaluated at least every 2 years.</li>
<li>All index constituents, including Secondary Listings and WVR Securities, will be subject to a weighting cap of 8%. The 8% cap will be applied to the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> constituents as well.</li>
</ul>There is no mention of the tranched inclusion of stocks in the index. This leads us to believe that 5 stocks (net) could be included in the index at each review, starting in June 2021 and concluding in June 2022.With a change in the Industry groups and a reduction in the target coverage (in terms of market cap) from 80% to 50% for each Industry group, we refresh our list of potential inclusions into and exclusions from the index.

Hang Seng Indexes have announced the conclusions of the market consultation on the "Proposal to enhance the Hang Seng Index as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market".The main changes to the index are:
Increase the number of constituents to 80 by mid-2022 and ultimately to have 100 stocks in the Hong Kong Hang Seng Index (HSI INDEX). 
To have a more balanced representation of the Hong Kong stock market, the Hong Kong Hang Seng Index (HSI INDEX) constituents will be selected from seven Industry Groups. The target is to achieve a market cap coverage of not less than 50% for each Industry Group.
To provide flexibility for the timely addition of new listings, the listing history requirement will be lowered to 3 months.
There will be 20-25 'Hong Kong companies' in the Hong Kong Hang Seng Index (HSI INDEX) and this number will be evaluated at least every 2 years.
All index constituents, including Secondary Listings and WVR Securities, will be subject to a weighting cap of 8%. The 8% cap will be applied to the Hang Seng China Enterprises Index (HSCEI INDEX) constituents as well.
There is no mention of the tranched inclusion of stocks in the index. This leads us to believe that 5 stocks (net) could be included in the index at each review, starting in June 2021 and concluding in June 2022.With a change in the Industry groups and a reduction in the target coverage (in terms of market cap) from 80% to 50% for each Industry group, we refresh our list of potential inclusions into and exclusions from the index.

HSI Market Consultation: BIG Changes Coming

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

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Independent and original Asian investment research

Aletheia Capital

Aletheia Capital (HK) Ltd. (previously known as Asianomics) combines the extensive knowledge of its experienced team with technology and regulatory changes to disrupt Global Markets business in Asia. The firm is completely independent with no conflicts of interest either on Investment Banking advisory or Capital Markets execution.

Equity Bottom-Up

We launched coverage of <a href="https://www.smartkarma.com/entities/1082" target="_blank" data-smartkarma-citation="entities:1082:1">Dali Foods Group (3799 HK)</a> in February with a Sell rating and a HK$4.18 target price. FY18 financial results, which were released late Tuesday March 26th, appear to confirm at least half of our negative thesis (slowing revenue growth), though the other half (margin compression) has failed to materialize so far.Dali Foods appears to have met -- just -- the FY18 consensus EPS target of HK$0.307 per share. The company cut its Final dividend from HK$0.10 to HK$0.075 per share. However, the pace of revenue growth plummeted in H218. From solid growth of +11.4% YoY in H118, H218 revenues actually declined by -0.6% YoY in the latter half of the year. This result was beyond even our pessimistic view and we believe bulls on the company will be forced to revisit their overly optimistic assumptions about double-digit revenue growth in 2019e.Besides assuming slower revenue growth going forward, the other leg of our negative thesis on Dali Foods was the expectation of margin compression due to rising raw materials costs, specifically for paper and key food and beverage ingredients. Although H218 gross margin declined versus H217 (to 37.7% from 37.8%), it did so only marginally, and probably due to a change in product mix (ie, a decline in high-margin beverage sales). After reviewing FY and H218 results, we see no reasons to change our negative view of Dali Foods, and our HK$4.18 price target (-26% potential downside) and Sell rating remain unchanged.

We launched coverage of Dali Foods Group (3799 HK) in February with a Sell rating and a HK$4.18 target price. FY18 financial results, which were released late Tuesday March 26th, appear to confirm at least half of our negative thesis (slowing revenue growth), though the other half (margin compression) has failed to materialize so far.Dali Foods appears to have met -- just -- the FY18 consensus EPS target of HK$0.307 per share. The company cut its Final dividend from HK$0.10 to HK$0.075 per share. However, the pace of revenue growth plummeted in H218. From solid growth of +11.4% YoY in H118, H218 revenues actually declined by -0.6% YoY in the latter half of the year. This result was beyond even our pessimistic view and we believe bulls on the company will be forced to revisit their overly optimistic assumptions about double-digit revenue growth in 2019e.Besides assuming slower revenue growth going forward, the other leg of our negative thesis on Dali Foods was the expectation of margin compression due to rising raw materials costs, specifically for paper and key food and beverage ingredients. Although H218 gross margin declined versus H217 (to 37.7% from 37.8%), it did so only marginally, and probably due to a change in product mix (ie, a decline in high-margin beverage sales). After reviewing FY and H218 results, we see no reasons to change our negative view of Dali Foods, and our HK$4.18 price target (-26% potential downside) and Sell rating remain unchanged.

Dali Foods (3799:HK) FY18 Results: Revenue Growth Collapses in H2, But Margins Hold Up So Far

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

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

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/077/659/original/dali_banner.png?1549025170" class="editor-image img-responsive" data-smartkarma-image-id="77659"></figure>
Chinese snack food and beverage maker <a href="https://www.smartkarma.com/entities/1082" target="_blank" data-smartkarma-citation="entities:1082:1">Dali Foods Group (3799 HK)</a> is well-loved by sell-side analysts, with 18 of 20 analysts rating the stock 'Buy' or 'Overweight'.
In contrast to the consensus 'bull' view of the company, we believe revenue growth is slowing and that core margins will soon come under intense pressure due to rising raw materials costs. As a result, our earnings estimates for Dali Foods are substantially lower than consensus.
Based on 13.5 times our 2019 EPS estimate, our target price for Dali Foods' shares is HK$4.18, about 23% below the closing price of HK$5.41 on February 1st.


Chinese snack food and beverage maker Dali Foods Group (3799 HK) is well-loved by sell-side analysts, with 18 of 20 analysts rating the stock 'Buy' or 'Overweight'.
In contrast to the consensus 'bull' view of the company, we believe revenue growth is slowing and that core margins will soon come under intense pressure due to rising raw materials costs. As a result, our earnings estimates for Dali Foods are substantially lower than consensus.
Based on 13.5 times our 2019 EPS estimate, our target price for Dali Foods' shares is HK$4.18, about 23% below the closing price of HK$5.41 on February 1st. 

Dali Foods (3799:HK): Short to HK$4.18 on Expected Cost Increases (Full Note)

Hong Kong

Nine Dragons Paper is a leading global paper manufacturing group specializing in the integrated production of pulp and paper. The company's main products include various types of environmentally friendly packaging paper, printing and writing paper, and high-end virgin paper. Headquartered in Dongguan City, Guangdong Province, China, the company was established in 1995.

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Nine Dragons Paper (2689 HK)

HSI Market Consultation: BIG Changes Coming

Hang Seng Indexes has announced the conclusions of the market consultation and the HSI is going to look different in a years time. Financials see a...

Brian Freitas

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

Dali Foods (3799:HK) FY18 Results: Revenue Growth Collapses in H2, But Margins Hold Up So Far

We launched coverage of Dali Foods Group (3799 HK) in February with a Sell rating and a HK$4.18 target price. FY18 financial results, which were...

Daniel Hellberg

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

Dali Foods (3799:HK): Short to HK$4.18 on Expected Cost Increases (Full Note)

Chinese snack food and beverage maker Dali Foods Group (3799 HK) is well-loved by sell-side analysts, with 18 of 20 analysts rating the stock...

Daniel Hellberg

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