Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Thematic (Sector/Industry)

<ul>
<li>2021's vintage of my 5 High Convictions Ideas did extremely well</li>
<li>
<a href="https://www.smartkarma.com/entities/pc-partner-group-ltd" target="_blank" data-smartkarma-citation="entities:8492:1" rel="noopener">PC Partner (1263 HK)</a> was up 543%, <a href="https://www.smartkarma.com/entities/rex-international-holding" target="_blank" data-smartkarma-citation="entities:17074:1" rel="noopener">Rex International Holding (REXI SP)</a> was up 80%, <a href="https://www.smartkarma.com/entities/straits-trading-co-ltd" target="_blank" data-smartkarma-citation="entities:15745:1" rel="noopener">Straits Trading (STRTR SP)</a> was up almost 74% and Shougang Fushan just under 40%.</li>
<li>The underperformer award goes to HK restaurant operator <a href="https://www.smartkarma.com/entities/taste-gourmet-group-ltd" target="_blank" data-smartkarma-citation="entities:27339:1" rel="noopener">Taste Gourmet Group Ltd (8371 HK)</a> as it declined 25%. Below the fold we'll give our 5 High Conviction Ideas for 2022.</li>
</ul>


2021's vintage of my 5 High Convictions Ideas did extremely well

PC Partner (1263 HK) was up 543%, Rex International Holding (REXI SP) was up 80%, Straits Trading (STRTR SP) was up almost 74% and Shougang Fushan just under 40%.
The underperformer award goes to HK restaurant operator Taste Gourmet Group Ltd (8371 HK) as it declined 25%. Below the fold we'll give our 5 High Conviction Ideas for 2022.


Overview of My Winners and Losers in 2021... And 5 High Conviction Ideas Going Into 2022

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

Equity Bottom-Up

Perennial Energy Holdings Ltd / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/perennial-energy-holdings-ltd" target="_blank" data-smartkarma-citation="entities:32219:1" rel="noopener">Perennial Energy Holdings Ltd (2798 HK)</a> has had a stellar run over the last year, with the share price up over 680% since January 3rd, 2020.  We firmly believe that with forward earnings at around 30x PE FY21 and 19x PE FY22,  it's time to take money off the table from this name. We do understand that there is some anticipation of the stocks inclusion in the MSCI, which has been written about by fellow insight provider <a href="https://www.smartkarma.com/profiles/brian-freitas" target="_blank" data-smartkarma-citation="accounts:4091" rel="noopener">Brian Freitas</a> in his insight yesterday <a href="https://www.smartkarma.com/insights/msci-may-21-index-rebalance-preview-review-period-is-a-wrap" target="_blank" data-smartkarma-citation="insights:50978" rel="noopener">MSCI May 21 Index Rebalance Preview: Review Period Is a Wrap</a>. We would take this opportunity to sell into strength.
There is better value for money in owning <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>, which I have written about in my insight <a href="https://www.smartkarma.com/insights/shougang-fushan-deep-value-play-with-coking-coal-price-move-upside" target="_blank" data-smartkarma-citation="insights:43878" rel="noopener">Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside</a>. Trading at 2.5x EV-EBITDA with a 10% dividend yield <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> offers way more stability and margin of safety to <a href="https://www.smartkarma.com/entities/perennial-energy-holdings-ltd" target="_blank" data-smartkarma-citation="entities:32219:1" rel="noopener">Perennial Energy Holdings Ltd (2798 HK)</a>.

Perennial Energy Holdings Ltd (2798 HK) has had a stellar run over the last year, with the share price up over 680% since January 3rd, 2020.  We firmly believe that with forward earnings at around 30x PE FY21 and 19x PE FY22,  it's time to take money off the table from this name. We do understand that there is some anticipation of the stocks inclusion in the MSCI, which has been written about by fellow insight provider Brian Freitas in his insight yesterday MSCI May 21 Index Rebalance Preview: Review Period Is a Wrap. We would take this opportunity to sell into strength.
There is better value for money in owning Shougang Fushan Resources (639 HK), which I have written about in my insight Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside. Trading at 2.5x EV-EBITDA with a 10% dividend yield Shougang Fushan Resources (639 HK) offers way more stability and margin of safety to Perennial Energy Holdings Ltd (2798 HK).

Perennial Energy (2798 HK): Take Money Off The Table Into Potential MSCI Up Weight

Shougang Fushan Resources / Equity Bottom-Up

In our previous insight on <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>, <a href="https://www.smartkarma.com/insights/shougang-fushan-deep-value-play-with-coking-coal-price-move-upside" target="_blank" data-smartkarma-citation="insights:43878" rel="noopener">Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside</a>, we highlighted the stock as a good pure play on coking coal with :<ul>
<li>More than 45% of the market capitalization or 96 cents of the share price ( 1.95 HKD/share ) in cash.  We believe that number will have grown since the buyback as the company is generating solid cash flow.</li>
<li>FCF yield of 12% and a dividend yield of 8.5% with upside risk as coking coal prices in China are rising due to a crackdown on imports for coking coal from Australia and strong pig iron production.</li>
<li>The stock still trades on cheap valuations of 2.8/2.3x EV-EBITDA FY20e/FY21e. </li>
</ul>We see the possibility of a strong breakout in pricing for coking coal in the near term as Chinese mills can pass on the high raw material costs, which will benefit <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> in the short-term.

In our previous insight on Shougang Fushan Resources (639 HK), Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside, we highlighted the stock as a good pure play on coking coal with :
More than 45% of the market capitalization or 96 cents of the share price ( 1.95 HKD/share ) in cash.  We believe that number will have grown since the buyback as the company is generating solid cash flow.
FCF yield of 12% and a dividend yield of 8.5% with upside risk as coking coal prices in China are rising due to a crackdown on imports for coking coal from Australia and strong pig iron production.
The stock still trades on cheap valuations of 2.8/2.3x EV-EBITDA FY20e/FY21e. 
We see the possibility of a strong breakout in pricing for coking coal in the near term as Chinese mills can pass on the high raw material costs, which will benefit Shougang Fushan Resources (639 HK) in the short-term.

Shougang Fushan: Increasing Coking Coal Price to Drive the Share Price Higher

<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 deep value pure play on coking coal.  The broad thesis of investing in this name is:
<ul>
<li>
The company is a low-cost coking coal play with EBITDA margins above 45% across the cycle and net margins of over 20%.  The company has been profitable through downcycles as well.</li>
<li>
54% of the market capitalization is in net cash ( post the buyback that reduced the share count from 5.3 bn shares to 5.05 bn shares or by 4.7%).</li>
<li>
It's got a rich free cash flow yield of 13% and a dividend yield of 10% based on their 10-year pricing of 1270 RMB/ton ( current spot prices 1250 RMB/ton down 9% YTD). </li>
<li>
The stock trades at 1.9x EV-EBITDA on FY20e earnings and 1.5x on FY21 earnings. </li>
</ul>
We think that Chinese coking coal prices have their downside capped as :
<ul>
<li>Chinese pig iron production remains elevated.</li>
<li>Demand from the rest of the world will also rise as the steel production world gradually improves, especially in countries like India, Brazil, Russia, etc. This would put less pressure on Chinese prices.</li>
<li>China has been absorbing globally deflated prices resulting in their domestic prices being inflated if they impose restrictions on imports, leading to prices rising domestically.</li>
</ul>
At 4.0 EV-EBITDA valuation, we believe there is a possibility of a 70% upside. There are also catalysts in the form of:
<ol>
<li>
Increased dividend payouts as the majority shareholders (Shougang Group and Sinolife Insurance) just increased their stakes by not participating in the buybacks.</li>
<li>
Upside that could arise potentially if coking coal prices moved up, which we believe would happen gradually as steel production starts to recover post-COVID. </li>
</ol>

Shougang Fushan Resources (639 HK) is a deep value pure play on coking coal.  The broad thesis of investing in this name is:


The company is a low-cost coking coal play with EBITDA margins above 45% across the cycle and net margins of over 20%.  The company has been profitable through downcycles as well.

54% of the market capitalization is in net cash ( post the buyback that reduced the share count from 5.3 bn shares to 5.05 bn shares or by 4.7%).

It's got a rich free cash flow yield of 13% and a dividend yield of 10% based on their 10-year pricing of 1270 RMB/ton ( current spot prices 1250 RMB/ton down 9% YTD). 

The stock trades at 1.9x EV-EBITDA on FY20e earnings and 1.5x on FY21 earnings. 

We think that Chinese coking coal prices have their downside capped as :

Chinese pig iron production remains elevated.
Demand from the rest of the world will also rise as the steel production world gradually improves, especially in countries like India, Brazil, Russia, etc. This would put less pressure on Chinese prices.
China has been absorbing globally deflated prices resulting in their domestic prices being inflated if they impose restrictions on imports, leading to prices rising domestically.

At 4.0 EV-EBITDA valuation, we believe there is a possibility of a 70% upside. There are also catalysts in the form of:


Increased dividend payouts as the majority shareholders (Shougang Group and Sinolife Insurance) just increased their stakes by not participating in the buybacks.

Upside that could arise potentially if coking coal prices moved up, which we believe would happen gradually as steel production starts to recover post-COVID. 


Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week In Event SPACE: Line Corp, Esprit, Sembcorp Ind, Car Inc, Accordia Golf, Skyworth, JCNC

Hong Kong

Shougang Fushan Resources Group Ltd. produces and sells coking coal products and side products in China. The Company is principally engaged in mining of coking coal and production and sales of raw and clean coking coal,

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Shougang Fushan Resources (639 HK)

Overview of My Winners and Losers in 2021... And 5 High Conviction Ideas Going Into 2022

2021's vintage of 5 High Conviction Ideas did extremely well led by star performer Pc Partner. Our new selection for 2022 will hopefully have some...

Nicolas Van Broekhoven

Perennial Energy (2798 HK): Take Money Off The Table Into Potential MSCI Up Weight

Insight on Perennial Energy (2798 HK) a Chinese Coking Coal producer which is up 680% since Jan 2020. Future prospects for growth in this company,...

Sameer Taneja

Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside

Shougang Fushan Resources (639 HK) is a deep value play

Sameer Taneja

Last Week In Event SPACE: Line Corp, Esprit, Sembcorp Ind, Car Inc, Accordia Golf, Skyworth, JCNC

Last Week in Event SPACE ... There is a built-in ability, nay prerogative, for the companies involved in LINE Corp (3938 JP) to go get a...

David Blennerhassett

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Overview of My Winners and Losers in 2021... And 5 High Conviction Ideas Going Into 2022

2021's vintage of 5 High Conviction Ideas did extremely well led by star performer Pc Partner. Our new selection for 2022 will hopefully have some...

Nicolas Van Broekhoven

Perennial Energy (2798 HK): Take Money Off The Table Into Potential MSCI Up Weight

Insight on Perennial Energy (2798 HK) a Chinese Coking Coal producer which is up 680% since Jan 2020. Future prospects for growth in this company,...

Sameer Taneja

Shougang Fushan: Increasing Coking Coal Price to Drive the Share Price Higher

Fushan is a pure-play on increasing Chinese domestic coking coal prices. With over 45% of the market capitalization in cash and an 8.5% dividend...

Sameer Taneja

Shougang Fushan: Deep Value Play with Coking Coal Price Move Upside

Shougang Fushan Resources (639 HK) is a deep value play

Sameer Taneja

Last Week In Event SPACE: Line Corp, Esprit, Sembcorp Ind, Car Inc, Accordia Golf, Skyworth, JCNC

Last Week in Event SPACE ... There is a built-in ability, nay prerogative, for the companies involved in LINE Corp (3938 JP) to go get a...

David Blennerhassett