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> posted a very impressive 1H21 result with profit from continuing operations soared 249.9% YoY. All business segments recorded profitability improvement with very encouraging 46.7% YoY growth for its natural gas sales business. The exploration and production segment also achieved a good turnaround, thanks to a 28.3% YoY increase in average realised oil price.We believe the market should be happy with Kunlun's 1% increase in natural gas sales dollar margin even in a period of rising LNG price. Also, the solid momentum of new projects, which 16 were added in 1H21, compares well with peers. We think there is upside to our earnings forecasts and its current valuation of 11.5x PER (on continuing operations) for FY21 is appealing relative to peers. More updates will be provided after the post-1H21 result call.

Kunlun Energy (135 HK) posted a very impressive 1H21 result with profit from continuing operations soared 249.9% YoY. All business segments recorded profitability improvement with very encouraging 46.7% YoY growth for its natural gas sales business. The exploration and production segment also achieved a good turnaround, thanks to a 28.3% YoY increase in average realised oil price.We believe the market should be happy with Kunlun's 1% increase in natural gas sales dollar margin even in a period of rising LNG price. Also, the solid momentum of new projects, which 16 were added in 1H21, compares well with peers. We think there is upside to our earnings forecasts and its current valuation of 11.5x PER (on continuing operations) for FY21 is appealing relative to peers. More updates will be provided after the post-1H21 result call.

Kunlun Energy (135 HK): Our Initial Thoughts on 1H21 - Sharply Ahead of Expectations

<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 underperformed the gas utilities sector average by a massive 26pp over the last three months. While the dilution from its Apr placement and its Shiyan, Hubei gas project explosion in Jun are reasons, we think that the depressed valuations should have reflected most of the negative concerns. At 12x PER and 1.9x P/B, it is cheaper than peers like <a href="https://www.smartkarma.com/entities/china-resources-gas-group-ltd" target="_blank" data-smartkarma-citation="entities:20525:1" rel="noopener">CR Gas (1193 HK)</a> and <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>. We see room to narrow such underperformance.Despite the Shiyan explosion incident, China Gas has managed to sign a strategic cooperation agreement in Aug with Xiangyang, which is the third-largest city in Hubei. We think this suggested that the incident does not have significant impact on its ability to secure projects in the province. Its new businesses include LPG Smart MicroGrid and distributed urban heating are both progressing well, and such initiatives to be potential added drivers. Lastly, its expansion into hydrogen energy on cooperation with <a href="https://www.smartkarma.com/entities/cnooc-ltd" target="_blank" data-smartkarma-citation="entities:175:1" rel="noopener">CNOOC Ltd (883 HK)</a> may be a wild card in the long term.

China Gas Holdings (384 HK) has underperformed the gas utilities sector average by a massive 26pp over the last three months. While the dilution from its Apr placement and its Shiyan, Hubei gas project explosion in Jun are reasons, we think that the depressed valuations should have reflected most of the negative concerns. At 12x PER and 1.9x P/B, it is cheaper than peers like CR Gas (1193 HK) and ENN Energy (2688 HK). We see room to narrow such underperformance.Despite the Shiyan explosion incident, China Gas has managed to sign a strategic cooperation agreement in Aug with Xiangyang, which is the third-largest city in Hubei. We think this suggested that the incident does not have significant impact on its ability to secure projects in the province. Its new businesses include LPG Smart MicroGrid and distributed urban heating are both progressing well, and such initiatives to be potential added drivers. Lastly, its expansion into hydrogen energy on cooperation with CNOOC Ltd (883 HK) may be a wild card in the long term.

China Gas Holdings (384 HK): Looks like the Negatives Have Been Well Factored In

<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> should have a decent operating performance in 1H21, with good growth achieved for natural gas sales, LPG sales, LNG terminal and also the exploration and production segment. Their performance all look to be ahead of the full-year guidance put forward in FY20 result announcement in Mar 2021 - this is encouraging.Gas project M&amp;A momentum stays decent and, with IRRs of 10-12%, the returns are ahead of the hurdle level of 8%. Following <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>  Shiyan gas explosion, local governments now prefer large SOEs to invest in projects given their more stringent safety standards, and this is an advantage of Kunlun. The gas industry also entails less regulatory risks amid government's heightened regulatory measures towards various industries lately. The recent pull-back has made valuations even more appealing, in our view.

Kunlun Energy (135 HK) should have a decent operating performance in 1H21, with good growth achieved for natural gas sales, LPG sales, LNG terminal and also the exploration and production segment. Their performance all look to be ahead of the full-year guidance put forward in FY20 result announcement in Mar 2021 - this is encouraging.Gas project M&amp;A momentum stays decent and, with IRRs of 10-12%, the returns are ahead of the hurdle level of 8%. Following China Gas Holdings' (384 HK)  Shiyan gas explosion, local governments now prefer large SOEs to invest in projects given their more stringent safety standards, and this is an advantage of Kunlun. The gas industry also entails less regulatory risks amid government's heightened regulatory measures towards various industries lately. The recent pull-back has made valuations even more appealing, in our view.  

Kunlun Energy (135 HK): Positive Takeaways from Discussion with Company

Despite the good share price performance after going ex-dividends, <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> still has significant upside potential, in our view. YTD, industry and peer figures have already showed a very solid underlying picture of China's gas consumption market. We updated our financial projections to incorporate the good 1Q21 result of Kunlun Gas, particularly to reflect the lower-than-expected minority interests which means that its wholly-owned subsidiaries are more profitable than non-wholly-owned which is a fact likely to be missed by the market.We project 3-year EPS CAGR of 20% for Kunlun's continuing operations, with ROE of 10.9% for FY22; and the stock trades on just 10.9x PER for FY21F and 0.9x P/B for FY22F. Such growth, return and valuation metrics clearly put the stock in an attractive zone relative to the peers' multiples - average sector growth is 15.9% at PER of 15.6x and average ROE of 17.7% at 2.2x P/B. More importantly, we see its net cash over the next two years to amount to 26-37% of the current share price.

Despite the good share price performance after going ex-dividends, Kunlun Energy (135 HK) still has significant upside potential, in our view. YTD, industry and peer figures have already showed a very solid underlying picture of China's gas consumption market. We updated our financial projections to incorporate the good 1Q21 result of Kunlun Gas, particularly to reflect the lower-than-expected minority interests which means that its wholly-owned subsidiaries are more profitable than non-wholly-owned which is a fact likely to be missed by the market.We project 3-year EPS CAGR of 20% for Kunlun's continuing operations, with ROE of 10.9% for FY22; and the stock trades on just 10.9x PER for FY21F and 0.9x P/B for FY22F. Such growth, return and valuation metrics clearly put the stock in an attractive zone relative to the peers' multiples - average sector growth is 15.9% at PER of 15.6x and average ROE of 17.7% at 2.2x P/B. More importantly, we see its net cash over the next two years to amount to 26-37% of the current share price.

Kunlun Energy (135 HK): Updated Financial Projections Point to Still Very Undemanding Valuations

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

This is a warning insight. It is not actionable per se. It is designed to be informative. The dividend payment ex-dates are confusing. Some people are confusing. This insight hopes to put that right in the safest way possible so investors do not make an error on what will be a one-time 30% dividend.

This is a warning insight. It is not actionable per se. It is designed to be informative. The dividend payment ex-dates are confusing. Some people are confusing. This insight hopes to put that right in the safest way possible so investors do not make an error on what will be a one-time 30% dividend. 

Kunlun Energy (135) - Be Careful Of The Special Div Dates

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.

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Shenzhen Gas Corp Ltd A (601139 CH)

Kunlun Energy (135 HK): Our Initial Thoughts on 1H21 - Sharply Ahead of Expectations

We think the market should welcome Kunlun's very solid 1H21 result, and particularly its 1% expansion in gas sales dollar margin and the turnaround...

Osbert Tang, CFA

China Gas Holdings (384 HK): Looks like the Negatives Have Been Well Factored In

China Gas' depressed share price should have reflected the negatives related to share placement and Shiyan explosion. Its new business momentum...

Osbert Tang, CFA

Kunlun Energy (135 HK): Positive Takeaways from Discussion with Company

Kunlun Energy should have a decent 1H21 driven by good natural gas sales, LPG sales, LNG terminal and recovery of the exploration and production...

Osbert Tang, CFA

Kunlun Energy (135 HK): Updated Financial Projections Point to Still Very Undemanding Valuations

Our updated financial projections, referencing its valuation relative to peers, point to the fact that there is still very significant upside...

Osbert Tang, CFA

Kunlun Energy (135) - Be Careful Of The Special Div Dates

Kunlun's Special Div is upon us. BE CAREFUL OF YOUR DATES. There appears to be some confusion out there. Check and double check the docs and your...

Travis Lundy

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