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Granite Bay Capital

An innovation focussed investment company

Granite Bay Capital is an innovation focussed investment company with a deep focus on the companies at the leading edge of innovation across major themes such as AI, ubiquitous computing, sustainability, automation and longevity.

Thematic (Sector/Industry)

Headline Developments China has likened online computer games to opium, causing shares in Tencent (700.HK) and NetEase (9999.HK) to drop 10% and 15% respectively.  The article, which appeared in state-run Economic Information Daily (before being removed), said more than half of China’s children were nearsighted and online games affects their education; adding that gaming addiction is widespread and could negatively impact their growth.

Headline Developments China has likened online computer games to opium, causing shares in Tencent (700.HK) and NetEase (9999.HK) to drop 10% and 15% respectively.  The article, which appeared in state-run Economic Information Daily (before being removed), said more than half of China’s children were nearsighted and online games affects their education; adding that gaming addiction is widespread and could negatively impact their growth.

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

China A-Shares represent the 6th largest country holding among active EM investors, if taken as a separate allocation from their non A-Share peers.  Average holding weights of 4.74% puts them sandwiched between Russia and Brazil, and inline with the benchmark iShares MSCI Emerging Markets ETF weight.Industrials and Consumer Discretionary are the most widely held sectors, as well as being the largest allocations and biggest overweights in active EM portfolios.  Financials are the key underweight holding.The most widely held stocks are <a href="https://www.smartkarma.com/entities/kweichow-moutai-co-ltd-a" target="_blank" data-smartkarma-citation="entities:1553:1" rel="noopener">Kweichow Moutai (600519 CH)</a> and <a href="https://www.smartkarma.com/entities/midea-group-co-ltd-a" target="_blank" data-smartkarma-citation="entities:16185:1" rel="noopener">Midea Group Co Ltd A (000333 CH)</a>, both held by 23% of the funds in our analysis.  There is a reasonable gap to the 2nd tier, with <a href="https://www.smartkarma.com/entities/gree-electric-appliances-inc-of-zhuhai" target="_blank" data-smartkarma-citation="entities:7622:1" rel="noopener">Gree Electric Appliances (000651 CH)</a>, <a href="https://www.smartkarma.com/entities/sany-heavy-industry-co-ltd" target="_blank" data-smartkarma-citation="entities:20183:1" rel="noopener">Sany Heavy Industry (600031 CH)</a> and <a href="https://www.smartkarma.com/entities/contemporary-amperex-techn-a" target="_blank" data-smartkarma-citation="entities:24404:1" rel="noopener">CATL (A) (300750 CH)</a> held by 14% of funds at much lower average weights.Over the last 6-months, <a href="https://www.smartkarma.com/entities/sungrow-power-supply-co-ltd" target="_blank" data-smartkarma-citation="entities:4255:1" rel="noopener">Sungrow Power Supply (300274 CH)</a> saw the largest increase in the percentage of EM Funds invested (+6.3%), followed by <a href="https://www.smartkarma.com/entities/contemporary-amperex-techn-a" target="_blank" data-smartkarma-citation="entities:24404:1" rel="noopener">CATL (A) (300750 CH)</a> and <a href="https://www.smartkarma.com/entities/longi-green-energy-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:12703:1" rel="noopener">LONGi Green Energy Technology (601012 CH)</a>.

China A-Shares represent the 6th largest country holding among active EM investors, if taken as a separate allocation from their non A-Share peers.  Average holding weights of 4.74% puts them sandwiched between Russia and Brazil, and inline with the benchmark iShares MSCI Emerging Markets ETF weight.Industrials and Consumer Discretionary are the most widely held sectors, as well as being the largest allocations and biggest overweights in active EM portfolios.  Financials are the key underweight holding.The most widely held stocks are Kweichow Moutai (600519 CH) and Midea Group Co Ltd A (000333 CH), both held by 23% of the funds in our analysis.  There is a reasonable gap to the 2nd tier, with Gree Electric Appliances (000651 CH), Sany Heavy Industry (600031 CH) and CATL (A) (300750 CH) held by 14% of funds at much lower average weights.Over the last 6-months, Sungrow Power Supply (300274 CH) saw the largest increase in the percentage of EM Funds invested (+6.3%), followed by CATL (A) (300750 CH) and LONGi Green Energy Technology (601012 CH).

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

We view the FY21 (Year end Mar) result of <a href="https://www.smartkarma.com/entities/china-dongxiang-group-co" target="_blank" data-smartkarma-citation="entities:1068:1" rel="noopener">China Dongxiang Group Co (3818 HK)</a> positively, despite a dividend payout ratio which is lower than expected. As we wrote in <a href="https://www.smartkarma.com/insights/china-dongxiang-3818-hk-what-can-we-expect-from-the-final-result" target="_blank" data-smartkarma-citation="insights:53174" rel="noopener">China Dongxiang (3818 HK): What Can We Expect from the Final Result?</a>, its sportswear business in China has recorded good turnaround, with gross profit soared 46.3% YoY and 27.9% HoH. Meanwhile, its investment business also registered an income of Rmb2.1bn for full-year, or Rmb759.7m for 2H21, up 88.7% YoY.Going forward, we expect CNDX's strategy to bring about further improvement in its sportswear business in China. It has also disclosed more names of listed equity that it hold both directly and indirectly and they are all of good quality, in our view. The stock is trading on 47% discount to book value which made up of 14% of net cash, 73% of investment portfolio and 13% of other net assets. Frankly, we think such valuation is too depressed and believe there is more upside room even after a 52% rally in share price YTD.

We view the FY21 (Year end Mar) result of China Dongxiang Group Co (3818 HK) positively, despite a dividend payout ratio which is lower than expected. As we wrote in China Dongxiang (3818 HK): What Can We Expect from the Final Result?, its sportswear business in China has recorded good turnaround, with gross profit soared 46.3% YoY and 27.9% HoH. Meanwhile, its investment business also registered an income of Rmb2.1bn for full-year, or Rmb759.7m for 2H21, up 88.7% YoY.Going forward, we expect CNDX's strategy to bring about further improvement in its sportswear business in China. It has also disclosed more names of listed equity that it hold both directly and indirectly and they are all of good quality, in our view. The stock is trading on 47% discount to book value which made up of 14% of net cash, 73% of investment portfolio and 13% of other net assets. Frankly, we think such valuation is too depressed and believe there is more upside room even after a 52% rally in share price YTD.

China Dongxiang (3818 HK): Lower-Than-Expected Dividends but Still A Marvelous FY21

Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Equity Capital Markets

<h2>Preliminary review application</h2>The KRX announced that it had received an application for preliminary examination for the listing of LG Energy Solution. LG Energy Solutions aims to be listed on the KOSPI within this year.LG Energy Solutions was established on December 1st last year through a physical spin-off of LG Chem's battery business division. Currently, LG Energy Solution is LG Chem's wholly-owned subsidiary. As of 2020, its sales were ₩1.46T, with a net loss of ₩451.8B.<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"LG Energy Solution financials for 2020"}'>LG Energy Solution financials for 2020</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Sales"}'>Sales</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1461.1}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩1,461.1B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Operating loss"}'>Operating loss</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-475.2}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>-₩475.2B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Net loss"}'>Net loss</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-451.8}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>-₩451.8B</td>
</tr>
<tr>
<td>Assets</td>
<td style="text-align: right;">₩19,941.8B</td>
</tr>
<tr>
<td>Equity</td>
<td style="text-align: right;">₩7,565.4B</td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table><h2>Listing schedule</h2>The preliminary examination for listing is a process of reviewing whether a company wishing to be listed meets the listing requirements specified in the listing regulations. For local companies, the preliminary examination for listing takes 45 days.A listing applicant who has received approval for the preliminary examination for listing shall submit a registration statement (commonly called IPO book) to the Financial Services Commission. This process takes about 15 days.So, we will likely see an IPO book from LG Energy Solution in early August. Then, another 4 weeks should pass until listing, meaning that LG Energy Solution will likely make its public market debut in early September.

Preliminary review applicationThe KRX announced that it had received an application for preliminary examination for the listing of LG Energy Solution. LG Energy Solutions aims to be listed on the KOSPI within this year.LG Energy Solutions was established on December 1st last year through a physical spin-off of LG Chem's battery business division. Currently, LG Energy Solution is LG Chem's wholly-owned subsidiary. As of 2020, its sales were ₩1.46T, with a net loss of ₩451.8B.





LG Energy Solution financials for 2020

Sales
₩1,461.1B


Operating loss
-₩475.2B


Net loss
-₩451.8B


Assets
₩19,941.8B


Equity
₩7,565.4B

Source: KRX

Listing scheduleThe preliminary examination for listing is a process of reviewing whether a company wishing to be listed meets the listing requirements specified in the listing regulations. For local companies, the preliminary examination for listing takes 45 days.A listing applicant who has received approval for the preliminary examination for listing shall submit a registration statement (commonly called IPO book) to the Financial Services Commission. This process takes about 15 days.So, we will likely see an IPO book from LG Energy Solution in early August. Then, another 4 weeks should pass until listing, meaning that LG Energy Solution will likely make its public market debut in early September.

LG Energy Solution KOSPI IPO: Listing Schedule & Valuation Issues

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

We highlight several positive developments that have occurred since last week’s Int’l Compass report, all of which continue to support our overall constructive outlook. Last week we noted Europe’s STOXX 500 was on the cusp of a breakout above 4040; we got the breakout. WTI and Brent crude oil also broke above key multi-year resistance at $67 and $70, respectively. The MSCI ACWI, ACWI ex-US, and EAFE indexes each hit new all-time highs and remain in uptrends. The MSCI Emerging Markets index (EEM-US) bullishly inflected above short-term resistance at $55.35 and RS is reversing the downtrend. These are all bullish signals for global equities, and our constructive outlook remains appropriate.

We highlight several positive developments that have occurred since last week’s Int’l Compass report, all of which continue to support our overall constructive outlook. Last week we noted Europe’s STOXX 500 was on the cusp of a breakout above 4040; we got the breakout. WTI and Brent crude oil also broke above key multi-year resistance at $67 and $70, respectively. The MSCI ACWI, ACWI ex-US, and EAFE indexes each hit new all-time highs and remain in uptrends. The MSCI Emerging Markets index (EEM-US) bullishly inflected above short-term resistance at $55.35 and RS is reversing the downtrend. These are all bullish signals for global equities, and our constructive outlook remains appropriate.

Major Breakouts For WTI and Brent Crude Oil. Actionable Themes: Energy, Manufacturing, Autos/Parts

China

Contemporary Amperex Technology Co., Limited. operates as a battery products manufacturing company. The Company produces and sells power battery materials, energy storage batteries energy storage battery cells, systems, and other products. Contemporary Amperex Technology also provides batteries recycling services.

Contemporary Amperex Technology (CATL) (300750 CH)

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Contemporary Amperex Technology (CATL) (300750 CH)

Weekly Innovation Review (WIRE) #43

Headline Developments: China has likened online computer games to opium, causing shares in Tencent (700.HK) and NetEase (9999.HK) to drop 10% and...

Granite Bay Capital

China A-Shares - EM Fund Ownership Guide

China A-Shares represent the 6th largest country holding among active EM investors. In this analysis, we analyse the current set up of A-Shares in...

Steven Holden

China Dongxiang (3818 HK): Lower-Than-Expected Dividends but Still A Marvelous FY21

China Dongxiang has delivered impressive FY21 result with good recovery in sportswear and surge in investment income. At 47% discount to book...

Osbert Tang, CFA

LG Energy Solution KOSPI IPO: Listing Schedule & Valuation Issues

This post looks into the IPO schedule and valuation issues of LG Energy Solution, which applied for a preliminary listing review yesterday.

Sanghyun Park

Major Breakouts For WTI and Brent Crude Oil. Actionable Themes: Energy, Manufacturing, Autos/Parts

Today we highlight several positive developments that have occurred since last week’s Int’l Compass report, all of which continue to support our...

Vermilion Research

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