HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/enn-energy-holdings-ltd" target="_blank" data-smartkarma-citation="entities:316:1" rel="noopener">ENN Energy (2688 HK)</a> is not required to submit a merger control filing to the SAMR, suggesting it is making a step ahead in meeting the pre-conditions. </li>
<li>The use of onshore bank loans and cash balance as a refinancing source and consideration payment will lower financing costs, boosting the value of ENN Natural Gas H-share.</li>
<li>The current share price is 9.3 and 17.7% below the low-bound and high-bound of our estimated value range. It is also less vulnerable to the current tariff war.</li>
</ul>



ENN Energy (2688 HK) is not required to submit a merger control filing to the SAMR, suggesting it is making a step ahead in meeting the pre-conditions. 
The use of onshore bank loans and cash balance as a refinancing source and consideration payment will lower financing costs, boosting the value of ENN Natural Gas H-share.
The current share price is 9.3 and 17.7% below the low-bound and high-bound of our estimated value range. It is also less vulnerable to the current tariff war.


ENN Energy (2688 HK): Privatisation Progressing Well Ahead

<ul>
<li>
<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> posted a healthy 2.6% earnings growth for 1H24. If not for the expiry of two oilfields last year, its earnings growth would have reached 6.8%. </li>
<li>Natural gas sales pre-tax margin contracted 0.5pp YoY, but has recovered significantly HoH. Other businesses have all seen good margin expansion. </li>
<li>The company has further accumulated net cash which increased 8.3% in the last six months. At HK$2.76/share, this equals 35% of the share price.</li>
</ul>



Kunlun Energy (135 HK) posted a healthy 2.6% earnings growth for 1H24. If not for the expiry of two oilfields last year, its earnings growth would have reached 6.8%. 
Natural gas sales pre-tax margin contracted 0.5pp YoY, but has recovered significantly HoH. Other businesses have all seen good margin expansion. 
The company has further accumulated net cash which increased 8.3% in the last six months. At HK$2.76/share, this equals 35% of the share price.


Kunlun Energy (135 HK): The Most Solid Play

<ul>
<li>Dismal share price performance for <a href="https://www.smartkarma.com/entities/china-gas-holdings-ltd" target="_blank" data-smartkarma-citation="entities:14315:1" rel="noopener">China Gas Holdings (384 HK)</a> has created an opportunity for bottom fishing. Management also looks positive with 30% profit growth guidance for FY23.</li>
<li>There are rooms for good dollar margin recovery, unit sales rebound and improvement in free cash flow in FY24. Spin-off of value-added services is also a value-enhancing move. </li>
<li>De-Rating over the last three years has put the stock on undemanding multiples of 8x PER and 0.75x P/B. Its 14.8% 3-year EPS CAGR is also better than sector average.</li>
</ul>


Dismal share price performance for China Gas Holdings (384 HK) has created an opportunity for bottom fishing. Management also looks positive with 30% profit growth guidance for FY23.
There are rooms for good dollar margin recovery, unit sales rebound and improvement in free cash flow in FY24. Spin-off of value-added services is also a value-enhancing move. 
De-Rating over the last three years has put the stock on undemanding multiples of 8x PER and 0.75x P/B. Its 14.8% 3-year EPS CAGR is also better than sector average.


China Gas Holdings (384 HK): Worth a Bet Now

<ul>
<li>The proposed privatisation price for <a href="https://www.smartkarma.com/entities/enn-energy-holdings-ltd" target="_blank" data-smartkarma-citation="entities:316:1" rel="noopener">ENN Energy (2688 HK)</a> appears reasonable, which is estimated to be 1.73x P/B and 11.5x PER on a 12-month forward basis. </li>
<li>The valuations are both at a good premium over the average since 2024. ENN Energy is also being put at the top of the sector's PER range. </li>
<li>Scheme shareholders will hold new H-shares of <a href="https://www.smartkarma.com/entities/enn-natural-gas-co-ltd" target="_blank" data-smartkarma-citation="entities:16456:1" rel="noopener">ENN Natural Gas (600803 CH)</a>, which historically has a more volatile earnings record, but its A-share has been doing well. </li>
</ul>


The proposed privatisation price for ENN Energy (2688 HK) appears reasonable, which is estimated to be 1.73x P/B and 11.5x PER on a 12-month forward basis. 
The valuations are both at a good premium over the average since 2024. ENN Energy is also being put at the top of the sector's PER range. 
Scheme shareholders will hold new H-shares of ENN Natural Gas (600803 CH), which historically has a more volatile earnings record, but its A-share has been doing well. 


ENN Energy (2688 HK): Our Initial View on the Privatisation - Valuation and Fundamentals

<ul>
<li>
<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>'s net profit grew 7.9% in 2H24, accelerating from 2.6% in 1H24. It is encouraging to see the dividend payout ratio increase by 2pp YoY.</li>
<li>An increase in the adoption of the residential price linkage system is positive for the dollar margin, while the distortion from E&amp;P expiry will no longer impact earnings. </li>
<li>With net cash equals HK$2.56/share, or 31% of the share price, such financial strength is unmatched by peers. Its PER valuations are also inexpensive.</li>
</ul>



Kunlun Energy (135 HK)'s net profit grew 7.9% in 2H24, accelerating from 2.6% in 1H24. It is encouraging to see the dividend payout ratio increase by 2pp YoY.
An increase in the adoption of the residential price linkage system is positive for the dollar margin, while the distortion from E&amp;P expiry will no longer impact earnings. 
With net cash equals HK$2.56/share, or 31% of the share price, such financial strength is unmatched by peers. Its PER valuations are also inexpensive.


Kunlun Energy (135 HK): Remains Very Decent

China

Shenzhen Gas Corporation Ltd., supplies gas in Shenzhen. The Company business includes wholesale of gas, pipeline and the supply of bottled gas, investment and construction in the distribution network of gas transmission.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
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Shenzhen Gas Corp Ltd A (601139 CH)

ENN Energy (2688 HK): Privatisation Progressing Well Ahead

ENN Energy is progressing on meeting pre-conditions, with no merger control filing needed. Refinancing with onshore bank loans and using cash...

Osbert Tang, CFA

Kunlun Energy (135 HK): The Most Solid Play

Kunlun Energy reports 2.6% profit growth in 1H24. Natural gas sales margin contracted YoY but recovered HoH, while other businesses saw margin...

Osbert Tang, CFA

China Gas Holdings (384 HK): Worth a Bet Now

There are rooms for good dollar margin recovery, unit sales rebound and improvement in free cash flow in FY24. Spin-off of value-added services is...

Osbert Tang, CFA

ENN Energy (2688 HK): Our Initial View on the Privatisation - Valuation and Fundamentals

The privatisation price appears reasonable, at a premium over average since 2024 and at the top of sector's PER range. Scheme shareholders will...

Osbert Tang, CFA

Kunlun Energy (135 HK): Remains Very Decent

Kunlun's net profit grew 7.9% in 2H24, accelerating from 2.6% in 1H24. Its increased dividend payout ratio, strong financial position and positive...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

ENN Energy (2688 HK): Privatisation Progressing Well Ahead

​ENN Energy is progressing on meeting pre-conditions, with no merger control filing needed. Refinancing with onshore bank loans and using cash...

Osbert Tang, CFA

Kunlun Energy (135 HK): The Most Solid Play

​Kunlun Energy reports 2.6% profit growth in 1H24. Natural gas sales margin contracted YoY but recovered HoH, while other businesses saw margin...

Osbert Tang, CFA

China Gas Holdings (384 HK): Worth a Bet Now

There are rooms for good dollar margin recovery, unit sales rebound and improvement in free cash flow in FY24. Spin-off of value-added services is...

Osbert Tang, CFA

ENN Energy (2688 HK): Our Initial View on the Privatisation - Valuation and Fundamentals

​The privatisation price appears reasonable, at a premium over average since 2024 and at the top of sector's PER range. Scheme shareholders will...

Osbert Tang, CFA

Kunlun Energy (135 HK): Remains Very Decent

​Kunlun's net profit grew 7.9% in 2H24, accelerating from 2.6% in 1H24. Its increased dividend payout ratio, strong financial position and positive...

Osbert Tang, CFA

ENN Energy is progressing on meeting pre-conditions, with no merger control filing needed. Refinancing with onshore bank loans and using cash...

Kunlun Energy reports 2.6% profit growth in 1H24. Natural gas sales margin contracted YoY but recovered HoH, while other businesses saw margin...

The privatisation price appears reasonable, at a premium over average since 2024 and at the top of sector's PER range. Scheme shareholders will...

Kunlun's net profit grew 7.9% in 2H24, accelerating from 2.6% in 1H24. Its increased dividend payout ratio, strong financial position and positive...