Asian Hedge Fund Manager, Long Short Equity, Macro

David Mudd

Equity Bottom-Up

<ul>
<li>ETF flows in the Asian region continued their positive momentum during August with Southbound Connect positive again for the week.</li>
<li>
<a href="https://www.smartkarma.com/entities/stella-international" target="_blank" data-smartkarma-citation="entities:7610:1" rel="noopener">Stella International (1836 HK)</a> will increase its dividends and buybacks after positive earnings surprise. <a href="https://www.smartkarma.com/entities/aia-group-ltd" target="_blank" data-smartkarma-citation="entities:14895:1" rel="noopener">AIA Group Ltd (1299 HK)</a> saw a surge in new policies from mainlanders in HK.
</li>
<li>
<a href="https://www.smartkarma.com/entities/lufax-holding-ltd-b751749a-8feb-4b4d-85a7-d99ac0308fe7" target="_blank" data-smartkarma-citation="entities:40067:1" rel="noopener">Lufax Holding (6623 HK)</a> reported an earnings miss with declining loan volume. <a href="https://www.smartkarma.com/entities/yancoal-australia" target="_blank" data-smartkarma-citation="entities:8427:1" rel="noopener">Yancoal Australia (3668 HK)</a> reported a decline of 57% in earnings which was below analysts' estimates.
</li>
</ul>


ETF flows in the Asian region continued their positive momentum during August with Southbound Connect positive again for the week.

Stella International (1836 HK) will increase its dividends and buybacks after positive earnings surprise. AIA Group Ltd (1299 HK) saw a surge in new policies from mainlanders in HK.


Lufax Holding (6623 HK) reported an earnings miss with declining loan volume. Yancoal Australia (3668 HK) reported a decline of 57% in earnings which was below analysts' estimates.



The Heat Is On: News Flow and Sentiment in CHINA / HONG KONG (August 26)

Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

Shougang Fushan Resources / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/shougang-fushan-resources-group-ltd" target="_blank" data-smartkarma-citation="entities:19494:1" rel="noopener">Shougang Fushan Resources (639 HK)</a> is a play on strengthening coking coal prices with downside protection due to its net cash reserves of 1.1 bn USD (Vs. Mkt Cap 2.1).</li>
<li>At the lower end of the cost curve, its EBITDA margins have averaged 54% (last 16 years), with its lowest EBITDA number of 19% in FY15.</li>
<li>With an 80% payout, the company trades at a trailing yield of 9% (the average spot price assumed is 1900 RMB/ton).</li>
</ul>



Shougang Fushan Resources (639 HK) is a play on strengthening coking coal prices with downside protection due to its net cash reserves of 1.1 bn USD (Vs. Mkt Cap 2.1).
At the lower end of the cost curve, its EBITDA margins have averaged 54% (last 16 years), with its lowest EBITDA number of 19% in FY15.
With an 80% payout, the company trades at a trailing yield of 9% (the average spot price assumed is 1900 RMB/ton).


Fushan Energy (639 HK): Coking Coal Prices To Strengthen With Anglo Accident

<ul>
<li>We preview <a href="https://www.smartkarma.com/entities/shougang-fushan-resources-group-ltd" target="_blank" data-smartkarma-citation="entities:19494:1" rel="noopener">Shougang Fushan Resources (639 HK)</a> earnings for FY23. We expect revenue /profit growth of -15%/12% YoY with H2FY23 revenue/profit -1.7%/2.3% YoY due to lower coking coal prices.</li>
<li>We expect the company to pay an FY23 dividend of 36 HKD cents, implying an 11.3% yield. At the current spot price, the implied yield is 11.3%. </li>
<li>The company's balance sheet is rich in cash, with more than a billion USD (~50% of market capitalization). However, we are skeptical that the company will pay big special dividends. </li>
</ul>


We preview Shougang Fushan Resources (639 HK) earnings for FY23. We expect revenue /profit growth of -15%/12% YoY with H2FY23 revenue/profit -1.7%/2.3% YoY due to lower coking coal prices.
We expect the company to pay an FY23 dividend of 36 HKD cents, implying an 11.3% yield. At the current spot price, the implied yield is 11.3%. 
The company's balance sheet is rich in cash, with more than a billion USD (~50% of market capitalization). However, we are skeptical that the company will pay big special dividends. 


Shougang Fushan Resource (639 HK): FY23 Earnings, 11% Dividend Yield With ~50% of Mkt Cap in Cash

<ul>
<li>
<a href="https://www.smartkarma.com/entities/shougang-fushan-resources-group-ltd" target="_blank" data-smartkarma-citation="entities:19494:1" rel="noopener">Shougang Fushan Resources (639 HK)</a> energy, a pure play on high coking coal prices, now trades at 5.7x FY24 PE (1.5x EV-EBITDA), assuming 2,200 RMB/ton prices (vs spot 2500). </li>
<li>The company has ~7.5 bn HKD of net cash (on H12023), representing 50% of the market cap despite conducting a recent buyback of 5% and paying all its outstanding dividends/taxes. </li>
<li>With an 80% payout, we can also expect a dividend yield of 14% for FY24 if prices average 2200 RMB/ton.  </li>
</ul>



Shougang Fushan Resources (639 HK) energy, a pure play on high coking coal prices, now trades at 5.7x FY24 PE (1.5x EV-EBITDA), assuming 2,200 RMB/ton prices (vs spot 2500). 
The company has ~7.5 bn HKD of net cash (on H12023), representing 50% of the market cap despite conducting a recent buyback of 5% and paying all its outstanding dividends/taxes. 
With an 80% payout, we can also expect a dividend yield of 14% for FY24 if prices average 2200 RMB/ton.  


Fushan Energy: Coking Coal Prices High and Dividend Yield >10% with ~50% of Mkt Cap in Cash

<ul>
<li>The pivot in capital allocation plans of <a href="https://www.smartkarma.com/entities/whitehaven-coal-ltd" target="_blank" data-smartkarma-citation="entities:14253:1" rel="noopener">Whitehaven Coal (WHC AU)</a> by suspending its buyback program (up to 25% of outstanding shares) is a big negative for us. </li>
<li>We think the increase in capex spending in a frothy pricing environment and focus on M&amp;A for spending the 2.6 bn of cash is a coin toss on capital allocation. </li>
<li>We prefer names that keep their capital allocation plans consistent, e.g., <a href="https://www.smartkarma.com/entities/indo-tambangraya-megah-tbk-p" target="_blank" data-smartkarma-citation="entities:15891:1" rel="noopener">Indo Tambangraya Megah (ITMG IJ)</a>, and would take money off the table here.</li>
</ul>


The pivot in capital allocation plans of Whitehaven Coal (WHC AU) by suspending its buyback program (up to 25% of outstanding shares) is a big negative for us. 
We think the increase in capex spending in a frothy pricing environment and focus on M&amp;A for spending the 2.6 bn of cash is a coin toss on capital allocation. 
We prefer names that keep their capital allocation plans consistent, e.g., Indo Tambangraya Megah (ITMG IJ), and would take money off the table here.


Whitehaven Coal Suspension of Buyback: A Negative Despite Rising Coal Price/ Potential Acquisition

Hong Kong

Shougang Fushan Resources is an investment holding company primarily engaged in the mining, production, and sale of coking coal products, including premium hard coking coal and semi-hard coking coal. It operates three coking coal mines in Liulin County, Shanxi Province, China. The company is headquartered in Hong Kong and was founded in 1985.

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Shougang Fushan Resources (639 HK)

The Heat Is On: News Flow and Sentiment in CHINA / HONG KONG (August 26)

ETF flows were again led by China. Stella International reported a surge in earnings and AIA announced new policy growth exceeded expectations....

David Mudd

Fushan Energy (639 HK): Coking Coal Prices To Strengthen With Anglo Accident

We highlight Fushan Energy (639 HK) as a way to play the recent Anglo-American coking coal mine disaster. Fushan is a pure play on coking coal,...

Sameer Taneja

Shougang Fushan Resource (639 HK): FY23 Earnings, 11% Dividend Yield With ~50% of Mkt Cap in Cash

We summarize our expectations for 639 HK ( Shougang Fushan Resources ). The stock trades at an 11.3% dividend yield on our estimated FY23 earnings...

Sameer Taneja

Fushan Energy: Coking Coal Prices High and Dividend Yield >10% with ~50% of Mkt Cap in Cash

Shougang Fushan Resources (639 HK) energy, a pure play on high coking coal prices, now trades at 5.7x FY24 PE (1.5x EV-EBITDA), assuming 2,200 RMB...

Sameer Taneja

Whitehaven Coal Suspension of Buyback: A Negative Despite Rising Coal Price/ Potential Acquisition

We provide a rationale for why we do not like Whitehaven Coal's suspension of its buy back program despite the strong coal price environment and...

Sameer Taneja

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