China/Asia TMT

Shawn Yang

China growth and global non-US Internet equities

Blue Lotus Research Institute

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

Thematic (Sector/Industry)

<ul>
<li>BABA: Jack Ma appears in Hangzhou on heels of State Council’s China Development Forum (+)</li>
<li>XPEV: Xpeng P7i's lead time extends to 8 weeks on its APP</li>
<li>LKNCY / BABA: Starbucks and Amap collaborate on “Drive-Thru” service(//+)</li>
</ul>


BABA: Jack Ma appears in Hangzhou on heels of State Council’s China Development Forum (+)
XPEV: Xpeng P7i's lead time extends to 8 weeks on its APP
LKNCY / BABA: Starbucks and Amap collaborate on “Drive-Thru” service(//+)


China TMT Update （Mar. 28）- XPEV / LKNCY/BABA : Jack Ma Appears in Hangzhou

<ul>
<li>Even though we are long-term optimistic on the rise of Chinese consumer brands, we believe short-term optimism is misplaced. </li>
<li>Two themes: (1) structural changes led by China’s transition to an older and more affluent society, (2) substitution and globalization that can break the ceiling for valuation;</li>
<li>Our TOP PICKS are Li Auto, Atour, Luckin, FUTU, BEKE and Miniso</li>
</ul>


Even though we are long-term optimistic on the rise of Chinese consumer brands, we believe short-term optimism is misplaced. 
Two themes: (1) structural changes led by China’s transition to an older and more affluent society, (2) substitution and globalization that can break the ceiling for valuation;
Our TOP PICKS are Li Auto, Atour, Luckin, FUTU, BEKE and Miniso


[Consumer Brands Deep Dive]:Structural and Substitution Drive Chinese Consumer

Equity Bottom-Up

<ul>
<li>Luckin Coffee reported its 4Q22 revenue, non-GAAP operating income, and non-GAAP net income (9.1%), (11.4%), (57.9%) lower than our estimate. </li>
<li>The store temporary close due to Covid impact is the main reason for revenue miss, and the higher income tax payment is the reason for the miss on NI.  </li>
<li>We expect Luckin to catch up the store expansion schedule in 1Q23 at 730 new stores, and reach to 10,500 total stores by the end of 2023. </li>
</ul>


Luckin Coffee reported its 4Q22 revenue, non-GAAP operating income, and non-GAAP net income (9.1%), (11.4%), (57.9%) lower than our estimate. 
The store temporary close due to Covid impact is the main reason for revenue miss, and the higher income tax payment is the reason for the miss on NI.  
We expect Luckin to catch up the store expansion schedule in 1Q23 at 730 new stores, and reach to 10,500 total stores by the end of 2023. 


[Luckin Coffee Inc. (LKNCY US) Earnings Review]: A Few Bright Spots in a Transactional Quarter

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

<ul>
<li>The MSCI EM vs.EAFE ratio (local currency) shows EM has outperformed relative to EAFE since the DXY peaked in November 2022, and also shows signs of reversing the 2-year downtrend.</li>
<li>As long as the DXY remains below $103.50-$106, we expect outperformance from EM to continue.</li>
<li>China/Hong Kong, Greece, South Africa, and Mexico stand out as attractive countries. Our top actionable Sectors include Communications, Consumer Discretionary, and Technology. We highlight 76 attractive EM stocks.</li>
</ul>


The MSCI EM vs.EAFE ratio (local currency) shows EM has outperformed relative to EAFE since the DXY peaked in November 2022, and also shows signs of reversing the 2-year downtrend.
As long as the DXY remains below $103.50-$106, we expect outperformance from EM to continue.
China/Hong Kong, Greece, South Africa, and Mexico stand out as attractive countries. Our top actionable Sectors include Communications, Consumer Discretionary, and Technology. We highlight 76 attractive EM stocks.


EM Outperformance to Continue (Vs. EAFE) -- Add on a Pullback; DXY Needs to Hold Below $106

<ul>
<li>We initiated Luckin with a BUY with TP $40 because we believe Luckin is a rising challenger in a rising market, half way through a rising business model; </li>
<li>We see room for Luckin to expand transaction frequency and transacting customers before expanding ASP in order to drive same store sales;</li>
<li>In the long run, we see coffee + western bakery to gain market share over tea house + Chinese dim sum in the snack + breakfast market. </li>
</ul>


We initiated Luckin with a BUY with TP $40 because we believe Luckin is a rising challenger in a rising market, half way through a rising business model; 
We see room for Luckin to expand transaction frequency and transacting customers before expanding ASP in order to drive same store sales;
In the long run, we see coffee + western bakery to gain market share over tea house + Chinese dim sum in the snack + breakfast market. 


Luckin(LKNCY.US) Initiation: Rising Challenger, Market and Business Model

China

Luckin Coffee Inc. provides non-alcoholic beverages. The Company offers various types of coffee. Luckin Coffee serves customers in China.

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Luckin Coffee (LKNCY US)

China TMT Update （Mar. 28）- XPEV / LKNCY/BABA : Jack Ma Appears in Hangzhou

Baba: Jack Ma appears in Hangzhou on heels of State Council’s China Development Forum; Xpeng P7i's lead time extends to 8 weeks; LKNCY/BABA:...

Blue Lotus Research Institute

[Consumer Brands Deep Dive]:Structural and Substitution Drive Chinese Consumer

Chinese underconsumption is only half true. It only occurs in categories associated with development stages; Our TOP PICKS are Li Auto, Atour,...

Blue Lotus Research Institute

[Luckin Coffee Inc. (LKNCY US) Earnings Review]: A Few Bright Spots in a Transactional Quarter

The store temporary close due to Covid impact is the main reason for revenue miss, and the higher income tax payment is the reason for the miss on NI.

Blue Lotus Research Institute

EM Outperformance to Continue (Vs. EAFE) -- Add on a Pullback; DXY Needs to Hold Below $106

EM vs. EAFE ratio (local currency) shows EM has outperformed relative to EAFE since the $DXY peaked in November 2022. If the DXY remains below...

Vermilion Research

Luckin(LKNCY.US) Initiation: Rising Challenger, Market and Business Model

We believe Luckin is in a rising market with its chief competitor self-cornered. Luckin’s business model is about half-way to its peak. We initiate...

Blue Lotus Research Institute

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