Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: Shinsei Bank, Huifu Payment, Vedanta, Cardinal Resources, Jih Sun Finance

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/kunlun-energy-co-ltd" target="_blank" data-smartkarma-citation="entities:10054:1" rel="noopener">Kunlun Energy (135 HK)</a> finally concluded the sale of its 60% equity interest in Beijing Pipeline and 75% equity interest in Dalian LNG to PipeChina at a very favourable 1.9x P/B multiple. This is significantly better than 1.21x and 1.43x that <a href="https://www.smartkarma.com/entities/petrochina-co-ltd-h" target="_blank" data-smartkarma-citation="entities:262:1" rel="noopener">Petrochina Co Ltd H (857 HK)</a> and <a href="https://www.smartkarma.com/entities/china-petroleum-chemical-h" target="_blank" data-smartkarma-citation="entities:369:1" rel="noopener">China Petroleum &amp; Chemical (386 HK)</a> got from their deals with PipeChina, respectively.With net cash inflow of Rmb37bn, or HK$4.94/share (ie 77% of current share price), Kunlun intends to pay out 50% of such cash. That said, the overall dividend yield for FY21F will reach 40.5%. After the transaction, based on sum-of-the-parts valuation, we place Kunlun at HK$10.58, meaning that it trades on a steep 39% discount. We believe Kunlun will escalate its expansion into the downstream gas sales business going forward, and this should narrow its valuation discount to gas utilities peers.

Kunlun Energy (135 HK) finally concluded the sale of its 60% equity interest in Beijing Pipeline and 75% equity interest in Dalian LNG to PipeChina at a very favourable 1.9x P/B multiple. This is significantly better than 1.21x and 1.43x that Petrochina Co Ltd H (857 HK) and China Petroleum &amp; Chemical (386 HK) got from their deals with PipeChina, respectively.With net cash inflow of Rmb37bn, or HK$4.94/share (ie 77% of current share price), Kunlun intends to pay out 50% of such cash. That said, the overall dividend yield for FY21F will reach 40.5%. After the transaction, based on sum-of-the-parts valuation, we place Kunlun at HK$10.58, meaning that it trades on a steep 39% discount. We believe Kunlun will escalate its expansion into the downstream gas sales business going forward, and this should narrow its valuation discount to gas utilities peers. 

Kunlun Energy (135 HK): Very Favourable Valuation for Pipeline and Dalian LNG Disposals

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

At long last, Hang Seng Indexes (HSIL) has released the consultation paper on the "Proposal to enhance 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> as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market". Market participants have until 24 January to submit their views to the HSIL.There are 5 main proposals in the consultation paper:<ol>
<li>Select constituents by industry group based on a target coverage for each industry group</li>
<li>Increase the number of constituents to between 65 to 80</li>
<li>Removal of the Minimum Listing History requirement for eligible candidates</li>
<li>Maintain a certain number of constituents classified as Hong Kong companies to sustain the level of representation of Hong Kong portion in the index</li>
<li>Lower the weighting cap of individual constituents from 10% to 8%, and increase the weighting cap of WVRs and Secondary Listings from 5% to 8%.</li>
</ol>The simulated one-way turnover of increasing the number of constituents to between 65-80 is estimated at 15-20% and HSIL proposes to implement the transition to the enhanced methodology within one year.In this Insight, we look at the impact on the index from the proposed changes.

At long last, Hang Seng Indexes (HSIL) has released the consultation paper on the "Proposal to enhance the Hong Kong Hang Seng Index (HSI INDEX) as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market". Market participants have until 24 January to submit their views to the HSIL.There are 5 main proposals in the consultation paper:
Select constituents by industry group based on a target coverage for each industry group
Increase the number of constituents to between 65 to 80
Removal of the Minimum Listing History requirement for eligible candidates
Maintain a certain number of constituents classified as Hong Kong companies to sustain the level of representation of Hong Kong portion in the index
Lower the weighting cap of individual constituents from 10% to 8%, and increase the weighting cap of WVRs and Secondary Listings from 5% to 8%.
The simulated one-way turnover of increasing the number of constituents to between 65-80 is estimated at 15-20% and HSIL proposes to implement the transition to the enhanced methodology within one year.In this Insight, we look at the impact on the index from the proposed changes.

HSI Market Consultation - Wide Ranging Changes Proposed

Index Rebalance

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the March 2021 review of the Hang Seng Family of Indexes on 19 February. The constituent changes will be effective after the close of trading on 5 March.We expect the March 21 review for 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> to have only 1 deletion, though there is a low probability of another set of changes. Post <a href="https://www.smartkarma.com/entities/jd-health-international" target="_blank" data-smartkarma-citation="entities:29677:1" rel="noopener">JD Health (6618 HK)</a>'s Fast Entry into the index, there needs to be one deletion at the March review. At the current time, the lowest ranked index constituent is <a href="https://www.smartkarma.com/entities/petrochina-co-ltd-h" target="_blank" data-smartkarma-citation="entities:262:1" rel="noopener">Petrochina Co Ltd H (857 HK)</a> and the stock should be deleted at the March review.There was a medium probability of <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> being included in the index. That has now become a low probability event post <a href="https://www.smartkarma.com/entities/jd-health-international" target="_blank" data-smartkarma-citation="entities:29677:1" rel="noopener">JD Health (6618 HK)</a>'s inclusion in the index. If <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> is included in the index, then <a href="https://www.smartkarma.com/entities/hengan-intl-group-co-ltd" target="_blank" data-smartkarma-citation="entities:29:1" rel="noopener">Hengan Intl Group (1044 HK)</a> could be deleted.The potential changes 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> over the next 6 months will also have serious implications for the dividend futures expiring in 2021, 2022 and beyond.

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the March 2021 review of the Hang Seng Family of Indexes on 19 February. The constituent changes will be effective after the close of trading on 5 March.We expect the March 21 review for the Hang Seng China Enterprises Index (HSCEI INDEX) to have only 1 deletion, though there is a low probability of another set of changes. Post JD Health (6618 HK)'s Fast Entry into the index, there needs to be one deletion at the March review. At the current time, the lowest ranked index constituent is Petrochina Co Ltd H (857 HK) and the stock should be deleted at the March review.There was a medium probability of Country Garden Services Holdings (6098 HK) being included in the index. That has now become a low probability event post JD Health (6618 HK)'s inclusion in the index. If Country Garden Services Holdings (6098 HK) is included in the index, then Hengan Intl Group (1044 HK) could be deleted.The potential changes to the Hang Seng China Enterprises Index (HSCEI INDEX) over the next 6 months will also have serious implications for the dividend futures expiring in 2021, 2022 and beyond.

HSCEI Index Rebalance Preview: One Deletion For Sure, Could Be One More Change

Last Week in Event SPACE: Haier, Tokyo Dome, Cowell, Infratil, Link Admin, Sapporo/Asahi, Mcdonald's

China

PetroChina Company Limited operates as an oil and gas company. The Company offers crude oil and oil products exploration, development, production and marketing. PetroChina also markets petrochemical products and derivative chemicals.

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PetroChina (601857 CH)

Last Week in Event SPACE: Shinsei Bank, Huifu Payment, Vedanta, Cardinal Resources, Jih Sun Finance

The weekend is upon us - pour yourself some coffee (or mulled wine) and sift through a brief summary of insights on various events discussed during...

David Blennerhassett

Kunlun Energy (135 HK): Very Favourable Valuation for Pipeline and Dalian LNG Disposals

Kunlun secured a very good deal of 1.9x P/B for the disposal of its interest in Beijing pipeline and Dalian LNG. It will payout 50% of proceeds at...

Osbert Tang, CFA

HSI Market Consultation - Wide Ranging Changes Proposed

HSIL has announced the market consultation for the Hang Seng Index. The conclusions should be announced in February. If the market agrees to most...

Brian Freitas

HSCEI Index Rebalance Preview: One Deletion For Sure, Could Be One More Change

Following JD Health's Fast Entry into the HSCEI, PetroChina is a high probability deletion in March. There is a low probability of Country Garden...

Brian Freitas

Last Week in Event SPACE: Haier, Tokyo Dome, Cowell, Infratil, Link Admin, Sapporo/Asahi, Mcdonald's

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

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