CHINA/HK FIRST TO MARKET

Research evidence excerpt

CHINA/HK FIRST TO MARKET

gas margins. We

expect a round of earnings cuts post results; our FY26-27E earnings forecasts are ~7% below consensus.

Despite YTD underperformance and undemanding valuations (~6% yield on average), we believe a turning

point for the sector is yet to come as winter gas prices may climb yoy, bringing uncertainty to winter gas

margins. We remain selective on stocks and suggest to buy on dips post-results. Our top pick is ENN

Energy, as the company offers >7% yield in FY26E with guaranteed DPS (HK$3/share). We see room for a

cut to growth capex and improving FCF, and we think management may consider a buyback/raising DPS

amid the significant underperformance YTD, which is not factored in to the price.

China Basic Materials (Avery Chan)

June 26 NBS data: Resilient demand to support high metal prices and strengthen miners’ earnings

Against a still-cautious domestic demand backdrop, as reflected in June activity data (link to report), we see

a growing disconnect between resilient metals fundamentals and subdued equity expectations (MSCI China

Materials Index -14% MTD vs. HSCEI +1.4% MTD), while a less hawkish rate narrative could support a

sector re-rating if expectations continue to moderate. Fundamentals remain broadly healthy in our preferred

areas: copper supply remains tight; aluminum has been stronger than expected with strong exports and

lower-than-expected Indonesian capacity additions; and lithium appears to have largely priced in CATL’s

Jianxiawo mine restart following land-use permit confirmation. By contrast, coal and steel remain weaker

pockets, as Shanxi supply disruption was less severe than feared, hydro substitution weighed on coal

prices, and higher raw-material costs continued to pressure steel margins.