HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Yangtze Power Co, Ltd. / Equity Bottom-Up

Despite outperformance against the Shanghai Composite Index, <a href="https://www.smartkarma.com/entities/china-yangtze-power-co-ltd" target="_blank" data-smartkarma-citation="entities:3210:1" rel="noopener">China Yangtze Power Co, Ltd. (600900 CH)</a> will continue to see positive factors driving its outlook and supporting its valuations. These factors include its excellent position to capture China's clean energy initiative, improvement in profitability, likely asset injections in the future and good overseas track record that underpins geographical expansion.The stock is currently trading on 19.5x PER and 3x P/B for FY20F; and these are premium valuations compared with its peers. However, its growth potential from asset injection, immense size (market cap of Rmb467bn) and GDR listing are edges that make it stands out against A-share peers like <a href="https://www.smartkarma.com/entities/huaneng-lancang-river-hydr-a" target="_blank" data-smartkarma-citation="entities:26585:1" rel="noopener">Huaneng Lancang River Hydr-A (600025 CH)</a>, <a href="https://www.smartkarma.com/entities/sichuan-chuantou-energy-stock-co-ltd" target="_blank" data-smartkarma-citation="entities:2557:1" rel="noopener">Sichuan Chuantou Energy Stock (600674 CH)</a> and <a href="https://www.smartkarma.com/entities/guangxi-guiguan-electric-a" target="_blank" data-smartkarma-citation="entities:20919:1" rel="noopener">Guangxi Guiguan Electric A (600236 CH)</a>.

Despite outperformance against the Shanghai Composite Index, China Yangtze Power Co, Ltd. (600900 CH) will continue to see positive factors driving its outlook and supporting its valuations. These factors include its excellent position to capture China's clean energy initiative, improvement in profitability, likely asset injections in the future and good overseas track record that underpins geographical expansion.The stock is currently trading on 19.5x PER and 3x P/B for FY20F; and these are premium valuations compared with its peers. However, its growth potential from asset injection, immense size (market cap of Rmb467bn) and GDR listing are edges that make it stands out against A-share peers like Huaneng Lancang River Hydr-A (600025 CH), Sichuan Chuantou Energy Stock (600674 CH) and Guangxi Guiguan Electric A (600236 CH). 

China Yangtze Power (600900 CH): Well Positioned to Capture China's Clean Energy Initiative

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

The <a href="https://www.smartkarma.com/entities/shanghai-shenzhen-csi-300-index" target="_blank" data-smartkarma-citation="entities:22906:1" rel="noopener">Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX)</a> consists of stocks from the Shanghai Stock Exchange and the Shenzhen Stock Exchange and is one of the most widely tracked A-share indices with passive tracking products listed in multiple markets globally. There are CFFEX listed futures that trade actively as well.There were 21 changes to the index at the June review, and we expect up to 24 changes in the December review. Estimated one-way turnover is 4.06% and there are 4 inclusions and 11 deletions that could have more than 1 day of ADV to trade.With passive tracking products holding around US$28bn of AUM, plus another US$35bn in open interest on the listed futures, there could be significant moves in the inclusion/exclusion names ahead of the rebalance announcement. There will only be 9-10 trading days between the announcement of the changes and the implementation, so having a pre-position should pay off.

The Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) consists of stocks from the Shanghai Stock Exchange and the Shenzhen Stock Exchange and is one of the most widely tracked A-share indices with passive tracking products listed in multiple markets globally. There are CFFEX listed futures that trade actively as well.There were 21 changes to the index at the June review, and we expect up to 24 changes in the December review. Estimated one-way turnover is 4.06% and there are 4 inclusions and 11 deletions that could have more than 1 day of ADV to trade.With passive tracking products holding around US$28bn of AUM, plus another US$35bn in open interest on the listed futures, there could be significant moves in the inclusion/exclusion names ahead of the rebalance announcement. There will only be 9-10 trading days between the announcement of the changes and the implementation, so having a pre-position should pay off.

CSI300 Index Rebalance Preview: 21 Changes in June, Could Be 24 in December

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

MSCI Emerging Markets Index / Technical Analysis

Our overall global outlook remains cautious and continued downward pressure on global equities remains our expectation. One bright spot is EM (more on this below), which continues to give us hope that global equities can bottom out.  We provide a technical appraisal of major markets and highlight actionable setups within the global Utilities and Staples Sectors.

Our overall global outlook remains cautious and continued downward pressure on global equities remains our expectation. One bright spot is EM (more on this below), which continues to give us hope that global equities can bottom out.  We provide a technical appraisal of major markets and highlight actionable setups within the global Utilities and Staples Sectors.

Global Ex-U.S. Equity Strategy: MSCI EM in Early Stages of Bottoming

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Thematic (Sector/Industry)

Despite improving power demand, China’s coal-fired independent power producers’, or IPPs’, fourth-quarter profits are set to be hit by surging coal prices. We estimate the operating margins for major coal-fired IPPs will be just around breakeven in the fourth quarter. For 2017, while the government’s confirmation that power tariffs will be unchanged is a little disappointing, we think government’s easing in coal supply restrictions will dampen coal prices, leading to margins recovery for coal-fired IPPs.We have reflected our slightly positive 2017 outlook into our earnings estimates and maintain our fair value estimates of HKD 7.40, HKD 2.54 and HKD 17.00 for <a href="https://www.smartkarma.com/entities/28" target="_blank" data-smartkarma-citation="entities:28:1">Huaneng Power Intl Inc H (902 HK)</a>, <a href="https://www.smartkarma.com/entities/3664" target="_blank" data-smartkarma-citation="entities:3664:1">Datang Intl Power Gen Co H (991 HK)</a>, and <a href="https://www.smartkarma.com/entities/5385" target="_blank" data-smartkarma-citation="entities:5385:1">China Resources Power Holdings Co. Ltd. (836 HK)</a>, respectively, ahead of the full-year earnings results in March.Analysts: Jennifer Song and Lorraine Tan, CFA

Despite improving power demand, China’s coal-fired independent power producers’, or IPPs’, fourth-quarter profits are set to be hit by surging coal prices. We estimate the operating margins for major coal-fired IPPs will be just around breakeven in the fourth quarter. For 2017, while the government’s confirmation that power tariffs will be unchanged is a little disappointing, we think government’s easing in coal supply restrictions will dampen coal prices, leading to margins recovery for coal-fired IPPs.We have reflected our slightly positive 2017 outlook into our earnings estimates and maintain our fair value estimates of HKD 7.40, HKD 2.54 and HKD 17.00 for Huaneng Power Intl Inc H (902 HK), Datang Intl Power Gen Co H (991 HK), and China Resources Power Holdings Co. Ltd. (836 HK), respectively, ahead of the full-year earnings results in March.Analysts: Jennifer Song and Lorraine Tan, CFA

Softening Coal Prices and Improving Demand Will Drive a Better 2017 Outlook for Coal-Fired IPPs.

After extending our explicit forecast periods to 10 years from five years, w e have raised our fair value estimate for <a href="https://www.smartkarma.com/entities/14315" target="_blank" data-smartkarma-citation="entities:14315:1">China Gas Holdings Ltd (384 HK)</a>, or CGH, to HKD 11.40 from HKD 10.30; that for <a href="https://www.smartkarma.com/entities/20525" target="_blank" data-smartkarma-citation="entities:20525:1">China Resources Gas Group Ltd (1193 HK)</a>, or CRG, to HKD 27.50 from HKD 22.50; and that for <a href="https://www.smartkarma.com/entities/316" target="_blank" data-smartkarma-citation="entities:316:1">Enn Energy Holdings Ltd (2688 HK)</a>, or ENN, to HKD 50.00 from HKD 44.00.We think CGH, CRG, and ENN still have further room to grow, as their penetration rates, at 52%, 45%, and 55%, respectively, are still relatively low compared with the average level of 70% in developed markets. At current price levels, CRG and ENN look attractive, while CGH is fairly valued, in our view.Analyst: Jennifer Song &amp; Chokwai Lee

After extending our explicit forecast periods to 10 years from five years, w e have raised our fair value estimate for China Gas Holdings Ltd (384 HK), or CGH, to HKD 11.40 from HKD 10.30; that for China Resources Gas Group Ltd (1193 HK), or CRG, to HKD 27.50 from HKD 22.50; and that for Enn Energy Holdings Ltd (2688 HK), or ENN, to HKD 50.00 from HKD 44.00.We think CGH, CRG, and ENN still have further room to grow, as their penetration rates, at 52%, 45%, and 55%, respectively, are still relatively low compared with the average level of 70% in developed markets. At current price levels, CRG and ENN look attractive, while CGH is fairly valued, in our view.Analyst: Jennifer Song &amp; Chokwai Lee

Raising Fair Value Estimates for City Gas Operators After Extending Our Forecast Periods

China

Sichuan Chuantou Energy Co., Ltd. invests in electric power projects through its subsidiaries, the Company also develops and manufactures cable, railroad control systems and other automation equipment.

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Sichuan Chuantou Energy (600674 CH)

China Yangtze Power (600900 CH): Well Positioned to Capture China's Clean Energy Initiative

China Yangtze Power's outlook will be driven by China's clean energy initiative, profitability improvement, asset injections and overseas...

Osbert Tang, CFA

CSI300 Index Rebalance Preview: 21 Changes in June, Could Be 24 in December

There could be 24 changes to the CSI300 index at the December review with an estimated one-way turnover of 4.06%. 4 inclusions and 11 deletions are...

Brian Freitas

Global Ex-U.S. Equity Strategy: MSCI EM in Early Stages of Bottoming

Our overall global outlook remains cautious and continued downward pressure on global equities remains our expectation. One bright spot is EM (more...

Vermilion Research

Softening Coal Prices and Improving Demand Will Drive a Better 2017 Outlook for Coal-Fired IPPs.

Despite improving power demand, China’s coal-fired independent power producers’, or IPPs’, fourth-quarter profits are set to be hit by surging coal...

Morningstar, Inc.

Raising Fair Value Estimates for City Gas Operators After Extending Our Forecast Periods

After extending our explicit forecast periods to 10 years from five years, w e have raised our fair value estimate for China Gas Holdings Ltd (384...

Morningstar, Inc.

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