HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>Various figures for the Chinese New Year holidays suggested that the domestic tourism market is lukewarm in 2022. However, there are evidences that high-end consumption is better than low-end.</li>
<li>Weak cross-province tourism and low-end spending are likely negative to <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a>, <a href="https://www.smartkarma.com/entities/maoyan-entertainment" target="_blank" data-smartkarma-citation="entities:27451:1" rel="noopener">Maoyan Entertainment (1896 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-pictures-group-ltd" target="_blank" data-smartkarma-citation="entities:20724:1" rel="noopener">Alibaba Pictures (1060 HK)</a> and <a href="https://www.smartkarma.com/entities/imax-china-holding-inc" target="_blank" data-smartkarma-citation="entities:888:1" rel="noopener">IMAX China Holding (1970 HK)</a>.  </li>
<li>Good duty-free sales and high-end spending are beneficial to <a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free-corp-ltd" target="_blank" data-smartkarma-citation="entities:12278:1" rel="noopener">CTG Duty Free Corp (601888 CH)</a>, <a href="https://www.smartkarma.com/entities/fosun-tourism-group" target="_blank" data-smartkarma-citation="entities:27439:1" rel="noopener">Fosun Tourism (1992 HK)</a>, <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> and <a href="https://www.smartkarma.com/entities/chow-tai-fook-jewellery-group" target="_blank" data-smartkarma-citation="entities:549:1" rel="noopener">Chow Tai Fook Jewellery (1929 HK)</a>. </li>
</ul>


Various figures for the Chinese New Year holidays suggested that the domestic tourism market is lukewarm in 2022. However, there are evidences that high-end consumption is better than low-end.
Weak cross-province tourism and low-end spending are likely negative to China Southern Airlines (1055 HK), Maoyan Entertainment (1896 HK), Alibaba Pictures (1060 HK) and IMAX China Holding (1970 HK).  
Good duty-free sales and high-end spending are beneficial to CTG Duty Free Corp (601888 CH), Fosun Tourism (1992 HK), Fosun International (656 HK) and Chow Tai Fook Jewellery (1929 HK). 


2022 Chinese New Year Holidays - Some Winners and Losers

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Why Do They Always Do This?: At a competitor conference, management ridiculously diminished government allegations. Tencent Holdings (700.HK) [Tencent] should simply answer “yes, we made mistakes and pushed the envelope but we are actively rectifying these issues. Its going to be painful for investors as we address the government's numerous over the near-term”;  
*Elephant In The Room: Mainland China's crackdown on capital markets activities has rapidly expanded under the broad narrative of "financial stability". There remains no doubt, in our view, that Tencent will follow Alibaba Group (BABA.US) [Alibaba] in the formation of a financial holding company. It’s pretty surprising that Tencent refuses to discuss this matter when financial services are the largest component of earnings and growth; and    
*Results Have Also Deteriorated As Distractions Mount: Tencent’s 2Q21 GAAP net income declined CNY 5.2 bn (10.8%) linked quarter – and were of poor quality. Results were challenged by: cost of revenue increase; operating expense increase; losses in associates; higher impairment charges; and weaker online games. Were it not for the artificially lower tax rate, results would have been even more challenged.

*Why Do They Always Do This?: At a competitor conference, management ridiculously diminished government allegations. Tencent Holdings (700.HK) [Tencent] should simply answer “yes, we made mistakes and pushed the envelope but we are actively rectifying these issues. Its going to be painful for investors as we address the government's numerous over the near-term”;  
*Elephant In The Room: Mainland China's crackdown on capital markets activities has rapidly expanded under the broad narrative of "financial stability". There remains no doubt, in our view, that Tencent will follow Alibaba Group (BABA.US) [Alibaba] in the formation of a financial holding company. It’s pretty surprising that Tencent refuses to discuss this matter when financial services are the largest component of earnings and growth; and    
*Results Have Also Deteriorated As Distractions Mount: Tencent’s 2Q21 GAAP net income declined CNY 5.2 bn (10.8%) linked quarter – and were of poor quality. Results were challenged by: cost of revenue increase; operating expense increase; losses in associates; higher impairment charges; and weaker online games. Were it not for the artificially lower tax rate, results would have been even more challenged.       

Tencent Holdings – Incredulous Management

Alibaba Group Holding  / Equity Bottom-Up

*The Hits Just Keep On Coming: Various media outlets have reported that Alibaba Holdings (BABA.US) [BABA] is planning to spend CNY 100 bn (USD 15.4 bn or nearly 2/3 of 2020 earnings) through 2025 in order to support the government's "common prosperity" initiatives – implying another significant earnings hit; and
*FHC Challenges Ahead As Well: BABA’s Ant Group subsidiary is also reorganizing as a financial holding company, and will now be regulated more along the lines of a commercial bank by the China Bank and Insurance Regulatory Commission (CBIRC). As a result, Ant Financial needs to adhere to minimum CAR capital requirements, and follow other bank regulatory guidelines.

*The Hits Just Keep On Coming: Various media outlets have reported that Alibaba Holdings (BABA.US) [BABA] is planning to spend CNY 100 bn (USD 15.4 bn or nearly 2/3 of 2020 earnings) through 2025 in order to support the government's "common prosperity" initiatives – implying another significant earnings hit; and
*FHC Challenges Ahead As Well: BABA’s Ant Group subsidiary is also reorganizing as a financial holding company, and will now be regulated more along the lines of a commercial bank by the China Bank and Insurance Regulatory Commission (CBIRC). As a result, Ant Financial needs to adhere to minimum CAR capital requirements, and follow other bank regulatory guidelines.

*Meh 1Q21 Result: Tencent Holdings (700.HK) [Tencent] reported 1Q21 total revenues of CNY 135.3 bn - increasing 25% YOY, while non-GAAP operating profit aggregated CNY 42.8 bn - increasing 20% YOY; and*Capital Raise Likely Coming: For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. At CNY 38.5 bn for full year 2020, FinTech represents a growing 28.8% of revenue – and is a key and growing component of Tencent’s current and future results. No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks. Earnings will compress, as capital requirements increase.

*Meh 1Q21 Result: Tencent Holdings (700.HK) [Tencent] reported 1Q21 total revenues of CNY 135.3 bn - increasing 25% YOY, while non-GAAP operating profit aggregated CNY 42.8 bn - increasing 20% YOY; and*Capital Raise Likely Coming: For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. At CNY 38.5 bn for full year 2020, FinTech represents a growing 28.8% of revenue – and is a key and growing component of Tencent’s current and future results. No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks. Earnings will compress, as capital requirements increase.

Tencent Holdings – Awaiting The Big Hit

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Just when you start to think that the friction between <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> and the Chinese government may have started settling down, the Chinese government dropped another bomb yesterday by asking <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> to dispose its media businesses.This news comes four days after the resignation of <a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial Services Group (6688 HK)</a> CEO, Mr. Simon Hu, on personal grounds, just over a month after Ant Group’s proposal to restructure Ant Group into financial holding company, which would be overseen by China's central bank. The latest decision by the government indicates that they are not done curbing Alibaba’s and Jack Ma's powers.

Just when you start to think that the friction between Alibaba Group (BABA US) and the Chinese government may have started settling down, the Chinese government dropped another bomb yesterday by asking Alibaba Group (9988 HK) to dispose its media businesses.This news comes four days after the resignation of Ant Financial Services Group (6688 HK) CEO, Mr. Simon Hu, on personal grounds, just over a month after Ant Group’s proposal to restructure Ant Group into financial holding company, which would be overseen by China's central bank. The latest decision by the government indicates that they are not done curbing Alibaba’s and Jack Ma's powers.

Xi & The Communist Party Is Not Done With Alibaba Yet

Hong Kong

Alibaba Pictures Group Ltd. produces and invests in television programming and motion pictures in China.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Alibaba Pictures (1060 HK)

2022 Chinese New Year Holidays - Some Winners and Losers

2022 Chinese New Year figures showed marginal decline domestic tourists, and pointed to better high-end consumption performance than low-end. We...

Osbert Tang, CFA

Tencent Holdings – Incredulous Management

TENCENT: At a competitor virtual conference, Tencent discussed the impact of regulatory changes but didn’t discuss its targeted financial services...

Thomas J. Monaco

Alibaba Group Holdings - Penance

ALIBABA: BABA is apparently launching a plan to spend CNY 100 bn (nearly 2/3 of 2020 earnings) by 2025 to the "common prosperity" – implying a...

Thomas J. Monaco

Tencent Holdings – Awaiting The Big Hit

TENCENT HOLDINGS: Tencent] reported 1Q21 YOY total revenue growth of 25%, while non-GAAP operating profit increased just 20%. An FHC suggests...

Thomas J. Monaco

Xi & The Communist Party Is Not Done With Alibaba Yet

Just when you start to think that the friction between Alibaba and the Chinese government may have started settling down, the Chinese government...

Oshadhi Kumarasiri

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)