HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>The 42% collapse in share price of <a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a> (CEG) seems to be overreaction to the speculated regulatory measures which we think many of them are counter-intuitive.</li>
<li>These measures center around the legality of Variable Interest Entity, ban on future M&amp;As, ownership of school assets and prohibition of increase in tuition fee at will.</li>
<li>Higher education, unlike after school tutoring, supports government policy, lightens governments' financial pressure and enhances common prosperity; and CEG remains the best play on this angle. </li>
</ul>


The 42% collapse in share price of China Education Group (839 HK) (CEG) seems to be overreaction to the speculated regulatory measures which we think many of them are counter-intuitive.
These measures center around the legality of Variable Interest Entity, ban on future M&amp;As, ownership of school assets and prohibition of increase in tuition fee at will.
Higher education, unlike after school tutoring, supports government policy, lightens governments' financial pressure and enhances common prosperity; and CEG remains the best play on this angle. 


China Education Group (839 HK): Further Regulatory Headwinds?

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> declared an interim dividend by way of in-specie distribution of JD.com.  That interim dividend is ~ 3.0%. Not phenomenally large, but hints at possibilities to come. </li>
<li>Dye &amp; Durham come over the top with an all-cash bid for <a href="https://www.smartkarma.com/entities/link-administration-holdings-ltd" target="_blank" data-smartkarma-citation="entities:970:1" rel="noopener">Link Administration Holdings (LNK AU)</a> as Carlyle remains silent after five weeks of due diligence.</li>
<li>
<a href="https://www.smartkarma.com/entities/china-mobile-ltd" target="_blank" data-smartkarma-citation="entities:27:1" rel="noopener">China Mobile (941 HK)</a> has priced its A-share IPO at RMB 57.58/share which is slightly disappointing in terms of premium to the H-share.  The "reasoning" is basically hogwash. </li>
</ul>



Tencent (700 HK) declared an interim dividend by way of in-specie distribution of JD.com.  That interim dividend is ~ 3.0%. Not phenomenally large, but hints at possibilities to come. 
Dye &amp; Durham come over the top with an all-cash bid for Link Administration Holdings (LNK AU) as Carlyle remains silent after five weeks of due diligence.

China Mobile (941 HK) has priced its A-share IPO at RMB 57.58/share which is slightly disappointing in terms of premium to the H-share.  The "reasoning" is basically hogwash. 


Last Week in Event SPACE: Tencent /JD.com, Link Admin, China Mobile, Sydney Airport, Katakura

<ul>
<li>
<a href="https://www.smartkarma.com/entities/fosun-international-ltd" target="_blank" data-smartkarma-citation="entities:433:1" rel="noopener">Fosun International (656 HK)</a>, the major shareholder of <a href="https://www.smartkarma.com/entities/babytree-group" target="_blank" data-smartkarma-citation="entities:27351:1" rel="noopener">BabyTree Group (1761 HK)</a>, a maternity and child-focussed community platform in China, is in discussion to increase its holding.</li>
<li>Should this share transfer proceed, it may trigger a mandatory general offer. Other substantial shareholders in BabyTree include <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> and <a href="https://www.smartkarma.com/entities/tal-education-group" target="_blank" data-smartkarma-citation="entities:1124:1" rel="noopener">TAL Education (TAL US)</a>.</li>
<li>No price was mentioned. BabyTree was listed in November 2018 at $8.80/share. Shares are currently trading at $0.98/share.</li>
</ul>



Fosun International (656 HK), the major shareholder of BabyTree Group (1761 HK), a maternity and child-focussed community platform in China, is in discussion to increase its holding.
Should this share transfer proceed, it may trigger a mandatory general offer. Other substantial shareholders in BabyTree include Alibaba Group (9988 HK) and TAL Education (TAL US).
No price was mentioned. BabyTree was listed in November 2018 at $8.80/share. Shares are currently trading at $0.98/share.


BabyTree (1761 HK): Possible Offer From Fosun

<ul>
<li>Following share price plunge even with decent FY21 result, most of the risks for <a href="https://www.smartkarma.com/entities/hope-education-group-co-ltd" target="_blank" data-smartkarma-citation="entities:27321:1" rel="noopener">Hope Education Group (1765 HK)</a> have been released, but its return profile looks more interesting now.</li>
<li>We see bright spots including good cash flow, solid financial position, positive business outlook, new stock option scheme and limited regulatory exposure the key investment merits. </li>
<li>Valuations appear undemanding at 10.4x and 8.4x PERs for FY21 and FY22. They are at premium to <a href="https://www.smartkarma.com/entities/china-yuhua-education" target="_blank" data-smartkarma-citation="entities:23627:1" rel="noopener">China Yuhua Education (6169 HK)</a> but discount to <a href="https://www.smartkarma.com/entities/china-education-group-holdin" target="_blank" data-smartkarma-citation="entities:18218:1" rel="noopener">China Education Group (839 HK)</a>. </li>
</ul>


Following share price plunge even with decent FY21 result, most of the risks for Hope Education Group (1765 HK) have been released, but its return profile looks more interesting now.
We see bright spots including good cash flow, solid financial position, positive business outlook, new stock option scheme and limited regulatory exposure the key investment merits. 
Valuations appear undemanding at 10.4x and 8.4x PERs for FY21 and FY22. They are at premium to China Yuhua Education (6169 HK) but discount to China Education Group (839 HK). 


Hope Education (1765 HK): Hopeful or Hopeless?

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<ul>
<li>On 2nd Dec 2021, Securities Exchange Commission (SEC) issued Final amendments to implement the Holding Foreign Companies Accountable Act (HFCAA).</li>
<li>On 24th Mar 2021, SEC had issued Amendments, Seeks Public Comment on HFCAA. This was a follow up on the HFCAA.</li>
<li>In this note, we'll talk about the final amendments and its possible timelines and implications, and a possible trade setup.</li>
</ul>


On 2nd Dec 2021, Securities Exchange Commission (SEC) issued Final amendments to implement the Holding Foreign Companies Accountable Act (HFCAA).
On 24th Mar 2021, SEC had issued Amendments, Seeks Public Comment on HFCAA. This was a follow up on the HFCAA.
In this note, we'll talk about the final amendments and its possible timelines and implications, and a possible trade setup.


China ADRs Delisting - US Tightens and HK Loosens Requirements - Long/Short Basket Trade

China

TAL Education Group provides educational services. The Company offers comprehensive tutoring services to students covering core academic subjects such as mathematics, English, Chinese, physics, chemistry, political science, history, and biology. TAL Education Group serves students in China.

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TAL Education (TAL US)

China Education Group (839 HK): Further Regulatory Headwinds?

Regulatory speculations have beaten down CEG but may concerns are counter-intuitive and share price has over-reacted. Private participation in...

Osbert Tang, CFA

Last Week in Event SPACE: Tencent /JD.com, Link Admin, China Mobile, Sydney Airport, Katakura

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

BabyTree (1761 HK): Possible Offer From Fosun

It's not clear whether an MGO is intended to delist BabyTree, or simply an obligation under the Takeovers Code. Despite trading below net cash,...

David Blennerhassett

Hope Education (1765 HK): Hopeful or Hopeless?

With a focus on higher education, Hope Education should see lesser regulatory risks. Good cash flow, solid financial position and positive business...

Osbert Tang, CFA

China ADRs Delisting - US Tightens and HK Loosens Requirements - Long/Short Basket Trade

On 2nd Dec 2021, SEC issued Final amendments to implement the Holding Foreign Companies Accountable Act. In this note we will talk about the final...

Sumeet Singh

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