Investment Advisors, JL Warren Capital

Junheng Li

Investment Advisors

JL Warren Capital

JL Warren Capital LLC is a leading independent equity research firm focused on Chinese companies and listed multinationals in China. We employ a bottom-up research approach that takes great care to avoid the acquisition of material non-public information. Through investigative due diligence including channel surveys and interviews, our research helps clients to pinpoint the dislocations in the market.

Equity Bottom-Up

New Oriental Education & Techn / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/531" target="_blank" data-smartkarma-citation="entities:531:1">New Oriental Education &amp; Tech Grp (Adr) (EDU US)</a>Recommendation: Buy on WeaknessFor most Chinese families, regardless of the income level, social status, and lifestyle, spending on their children’s education is “THE PRIORITY “, even ahead of buying homes. Unlike American parents, who generally believe that education should be fun and experience based, Chinese parents view education as a zero-sum competition, a selection process where one child’s gain is another’s loss.  The deeply rooted belief that schooling is primarily about getting ahead has many historical, cultural and sociological reasons. Education is one of the few bastions for personal advancement in a bureaucratic, collectivist and autocratic state with 1.4 billion people. Interestingly, as China’s economy has grown, society advances and families become wealthier, the urgency for winning in schools becomes even greater than ever.  Pre K and K12 after school tutoring services consequently have become one of the fastest growing industries. A decade ago, students went for supplementary after-school classes before taking their college entrance exams.  Today, the schedule has leapfrogged forward by a number of years.  Taking tutoring classes has become the norm – a way to keep up, not lag behind.  The trend started in T1 cities and now has spread all over the country.   Within the education industry, we have a strong preference for tutoring and vocational training service providers over full-time schools as investments. Tutoring businesses tend to have greater leverage and thus a higher return on investment.  There are two listed tutoring companies in the US: New Oriental (NYSE: EDU) and TAL Education (NYSE: TAL).  While we believe that both are winners and worth owing due to their deep roots in the industry and strong franchise, we prefer EDU because  it’s product portfolio is broad (from pre K, K12, college, and vocational training), and it’s the footprint is national (23% in T1, 39% in T2 and 38% in smaller-tier cities).  Education services, similar to resources (including real estate) and healthcare in China, are highly regulated on the supply side. Urbanization increases the demand (in this case, schools and after-school education), however the supply is constrained by the requirement for government issued licenses to operate in this business. Although never explicitly stated, there has been an agreement in the system that the after-school tutoring is a positive necessity: teachers benefit from additional income from willing parents who are eager to buy some edge for their only child to get ahead in school.  Therefore, the supply constraints will likely to continue, due to the unwritten policies designed by the establishment.  Critical entrance tests (high schools and colleges) are designed to be harder than what common school education prepares, making after school tutoring a necessity, not a choice for many students and parents.

New Oriental Education &amp; Tech Grp (Adr) (EDU US)Recommendation: Buy on WeaknessFor most Chinese families, regardless of the income level, social status, and lifestyle, spending on their children’s education is “THE PRIORITY “, even ahead of buying homes. Unlike American parents, who generally believe that education should be fun and experience based, Chinese parents view education as a zero-sum competition, a selection process where one child’s gain is another’s loss.  The deeply rooted belief that schooling is primarily about getting ahead has many historical, cultural and sociological reasons. Education is one of the few bastions for personal advancement in a bureaucratic, collectivist and autocratic state with 1.4 billion people. Interestingly, as China’s economy has grown, society advances and families become wealthier, the urgency for winning in schools becomes even greater than ever.  Pre K and K12 after school tutoring services consequently have become one of the fastest growing industries. A decade ago, students went for supplementary after-school classes before taking their college entrance exams.  Today, the schedule has leapfrogged forward by a number of years.  Taking tutoring classes has become the norm – a way to keep up, not lag behind.  The trend started in T1 cities and now has spread all over the country.   Within the education industry, we have a strong preference for tutoring and vocational training service providers over full-time schools as investments. Tutoring businesses tend to have greater leverage and thus a higher return on investment.  There are two listed tutoring companies in the US: New Oriental (NYSE: EDU) and TAL Education (NYSE: TAL).  While we believe that both are winners and worth owing due to their deep roots in the industry and strong franchise, we prefer EDU because  it’s product portfolio is broad (from pre K, K12, college, and vocational training), and it’s the footprint is national (23% in T1, 39% in T2 and 38% in smaller-tier cities).  Education services, similar to resources (including real estate) and healthcare in China, are highly regulated on the supply side. Urbanization increases the demand (in this case, schools and after-school education), however the supply is constrained by the requirement for government issued licenses to operate in this business. Although never explicitly stated, there has been an agreement in the system that the after-school tutoring is a positive necessity: teachers benefit from additional income from willing parents who are eager to buy some edge for their only child to get ahead in school.  Therefore, the supply constraints will likely to continue, due to the unwritten policies designed by the establishment.  Critical entrance tests (high schools and colleges) are designed to be harder than what common school education prepares, making after school tutoring a necessity, not a choice for many students and parents. 

China's After-School Tutoring Continues to Benefit from Secure Growth Trend

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

Equity Capital Markets

Bright Scholar Education Holdi / Equity Capital Markets

China's richest woman, Ms. Yang Huiyan, the major shareholder of the Chinese property developer <a href="https://www.smartkarma.com/entities/5225" target="_blank" data-smartkarma-citation="entities:5225:1">Country Garden Holdings Co (2007 HK),</a> is listing her K-12 education provider <a href="https://www.smartkarma.com/entities/24126" target="_blank" data-smartkarma-citation="entities:24126:1">Bright Scholar Education (BEDU US)</a> on NASDAQ, aiming to raise US$120m to US$150m to expand its school network. We covered IPOs of several HK-listed education players over the past year. In this insight, we will cover the company's background, our thoughts on its related party transaction, compare its performance to the listed…

China's richest woman, Ms. Yang Huiyan, the major shareholder of the Chinese property developer Country Garden Holdings Co (2007 HK), is listing her K-12 education provider Bright Scholar Education (BEDU US) on NASDAQ, aiming to raise US$120m to US$150m to expand its school network. We covered IPOs of several HK-listed education players over the past year. In this insight, we will cover the company's background, our thoughts on its related party transaction, compare its performance to the listed…

Bright Scholar Education IPO: Related Party Synergy or Bugbear?

Asia Ex-J Consumer/ Transport analyst

Valerie Law, CFA

China Distance Education Holdings Ltd (ADR) / Equity Bottom-Up

China Distance Education Holdings Ltd (ADR)

As part of the Edtech series introduced earlier, I will be featuring educational companies focused on mobile learning and virtual classrooms, or technology firms investing in the education sector. The first is <a href="https://www.smartkarma.com/entities/9679" target="_blank" data-smartkarma-citation="entities:9679:1">China Distance Education Hldgs Ltd (Adr) (DL US)</a> , a company that has been listed on the New York Stock Exchange since August 2008. Long established as an online education provider that helps professionals obtain and maintain professional licenses, it is now evolving into a lifelong learning platform.  In this piece, I attempt to answer the following questions:(1) China's online education market is forecast to grow at 38% CAGR, so why is CDE trading at 'low' valuations of ~ 12X FY17 PE? (2) What are my views on issues affecting the company (ie regulatory changes and competition)? (3) How is its valuation compared to peers?

As part of the Edtech series introduced earlier, I will be featuring educational companies focused on mobile learning and virtual classrooms, or technology firms investing in the education sector. The first is China Distance Education Hldgs Ltd (Adr) (DL US) , a company that has been listed on the New York Stock Exchange since August 2008. Long established as an online education provider that helps professionals obtain and maintain professional licenses, it is now evolving into a lifelong learning platform.  In this piece, I attempt to answer the following questions:(1) China's online education market is forecast to grow at 38% CAGR, so why is CDE trading at 'low' valuations of ~ 12X FY17 PE? (2) What are my views on issues affecting the company (ie regulatory changes and competition)? (3) How is its valuation compared to peers?

An Online Education Company Whose Negatives Are Priced-In, but Growth Is Not

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Thematic (Sector/Industry)

This week the Macau government proposed to the Second Standing Committee of Macau Legislative Assembly to allow smoking only in smoking lounges in casinos effective on Jan. 1, 2019, one year later than our existing expectation. Our current forecasts across our narrow moat coverage universe already factor in a negative mid-single-digit percentage point impact to VIP play in 2018, and postponing that one year is not expected to have any significant impact to our fair value estimates. Our current fair value estimates per share are HKD 17 for <a href="https://www.smartkarma.com/entities/472" target="_blank" data-smartkarma-citation="entities:472:1">MGM China Holdings Ltd (2282 HK)</a>, HKD 36 for <a href="https://www.smartkarma.com/entities/182" target="_blank" data-smartkarma-citation="entities:182:1">Sands China Ltd (1928 HK)</a>, HKD 14 for <a href="https://www.smartkarma.com/entities/473" target="_blank" data-smartkarma-citation="entities:473:1">Wynn Macau Ltd (1128 HK)</a>, USD 17 for <a href="https://www.smartkarma.com/entities/810" target="_blank" data-smartkarma-citation="entities:810:1">Melco Crown Entertainment ADR (MPEL US)</a>, HKD 36 for <a href="https://www.smartkarma.com/entities/806" target="_blank" data-smartkarma-citation="entities:806:1">Galaxy Entertainment Group Limited (27 HK)</a>, HKD 6.6 for <a href="https://www.smartkarma.com/entities/805" target="_blank" data-smartkarma-citation="entities:805:1">SJM Holdings Ltd (880 HK)</a>, $133 for <a href="https://www.smartkarma.com/entities/606" target="_blank" data-smartkarma-citation="entities:606:1">Wynn Resorts Ltd (WYNN US)</a>, $56 for <a href="https://www.smartkarma.com/entities/807" target="_blank" data-smartkarma-citation="entities:807:1">Las Vegas Sands Corp (LVS US)</a>, and $29.50 for <a href="https://www.smartkarma.com/entities/16227" target="_blank" data-smartkarma-citation="entities:16227:1">MGM Resorts International (MGM US)</a>. We continue to see Wynn trading at an attractive margin of safety.The revised bill creates a level playing field for casino operators. We have confirmed with a Macau legislative assembly member that the revised bill outlines that all VIP smoking gaming areas will be closed and that all casinos will be able to establish smoking lounges on both VIP and mass gaming floors. Therefore, under the proposed bill newer casinos will be able to establish smoking lounges in VIP gaming areas, while the older casinos will lose the smoking premium mass and VIP smoking area. As a result, Cotai casinos as a whole stand to gain market share at the expense of Macau peninsula casinos.Analyst: Chelsea Tam

This week the Macau government proposed to the Second Standing Committee of Macau Legislative Assembly to allow smoking only in smoking lounges in casinos effective on Jan. 1, 2019, one year later than our existing expectation. Our current forecasts across our narrow moat coverage universe already factor in a negative mid-single-digit percentage point impact to VIP play in 2018, and postponing that one year is not expected to have any significant impact to our fair value estimates. Our current fair value estimates per share are HKD 17 for MGM China Holdings Ltd (2282 HK), HKD 36 for Sands China Ltd (1928 HK), HKD 14 for Wynn Macau Ltd (1128 HK), USD 17 for Melco Crown Entertainment ADR (MPEL US), HKD 36 for Galaxy Entertainment Group Limited (27 HK), HKD 6.6 for SJM Holdings Ltd (880 HK), $133 for Wynn Resorts Ltd (WYNN US), $56 for Las Vegas Sands Corp (LVS US), and $29.50 for MGM Resorts International (MGM US). We continue to see Wynn trading at an attractive margin of safety.The revised bill creates a level playing field for casino operators. We have confirmed with a Macau legislative assembly member that the revised bill outlines that all VIP smoking gaming areas will be closed and that all casinos will be able to establish smoking lounges on both VIP and mass gaming floors. Therefore, under the proposed bill newer casinos will be able to establish smoking lounges in VIP gaming areas, while the older casinos will lose the smoking premium mass and VIP smoking area. As a result, Cotai casinos as a whole stand to gain market share at the expense of Macau peninsula casinos.Analyst: Chelsea Tam

Expected Macau Smoking Ban Creates a Level Playing Field for Operators

Investing in high growth Asian frontier economies., Asia Frontier Capital

Scott Osheroff

Investing in high growth Asian frontier economies.

Asia Frontier Capital

Asia Frontier Capital Ltd. is a pioneering fund management company based in Hong Kong that specializes in investing in high growth Asian frontier economies by managing the AFC Asia Frontier Fund , AFC Iraq Fund and the AFC Vietnam Fund.

The AFC Asia Frontier Fund invests in public equities of Asian frontier countries that are seeing increasing consumption due to favorable demographic trends, rising incomes and high GDP growth. The fund invests in listed equities of companies that have their principal business activities in Bangladesh, Bhutan, Cambodia, Iraq, Laos, Maldives, Mongolia, Myanmar (Burma), Nepal, Pakistan, Papua New Guinea, Sri Lanka and Vietnam. The AFC Asia Frontier Fund is positioned to take advantage of the continuing economic shifts in these countries and offers high returns combined with significant diversification opportunities. This fund is directed by the founder and CEO of Asia Frontier Capital, Thomas Hugger, who has been investing in frontier markets across Asia and Africa for more than 20 years.

The AFC Iraq Fund was launched on the 26th June 2015 and aims to achieve long-term capital appreciation for investors by capturing value and growth potential in the post conflict high-growth & resource rich Iraq market. The fund emphasises long term investment horizon to truly capture the opportunity in Iraq. The fund's investable universe consists of locally listed companies that have their principal business activities in Iraq as well as foreign listed companies that have the majority of the business in Iraq as a whole including the prosperous Kurdish Region of Iraq (KRI). The AFC Iraq Fund offers access to investments in post conflict recovery potential of Iraq, including the KRI, and/or stability in its territory. The AFC Iraq Fund is managed by Asia Frontier Capital (Iraq) Limited, Cayman Islands under the executive leadership team of Thomas Hugger (CEO & Fund Manager) and Ahmed Tabaqchali (CIO) who have more than 47 years of investment experience as well as an extensive background covering global, emerging, frontier and MENA markets.

The AFC Vietnam Fund invests exclusively in listed Vietnamese equities to capture value in growth companies with a focus on the small to medium size companies. This market segment offers a unique investment opportunity as the valuation gap between large- and small-cap stocks in Vietnam is presently much wider than in comparable neighboring markets and the valuations are significantly depressed versus their regional peers. The fund adopts a fundamental-quantitative approach and employs an in-house earnings model to identify attractive companies where we see high growth opportunities. In conjunction with targeting the maximum upside potential the portfolio has been structured to mitigate corporate government and liquidity risks. The fund invests in a diversified portfolio of 70-90 attractively valued companies to carefully control concentration risk.  This approach allows the fund to sell, or buy, positions without having a significant market impact. The fund is directed under the executive leadership of Thomas Hugger and Andreas Vogelsanger who have more than 50 years combined experience managing investments in frontier markets, Asia and around the world.

For more information about the fund, management team and investment strategy please contact us at info@asiafrontiercapital.com.

In line with our process of being on the ground in the countries we invest in, Scott Osheroff, Analyst at Asia Frontier Capital, traveled to Laos to visit portfolio companies and other companies on our shortlist. The photos in this article are all by AFC.

In line with our process of being on the ground in the countries we invest in, Scott Osheroff, Analyst at Asia Frontier Capital, traveled to Laos to visit portfolio companies and other companies on our shortlist. The photos in this article are all by AFC.

Asia Frontier Capital Travel Report: Laos

China

New Oriental Education & Technology Group, Inc. offers educational services. The Company offers foreign language training, test preparation courses for admissions and assessment tests in the United States, the PRC and Commonwealth countries, primary and secondary school education, and other services. New Oriental Education & Technology Group also operates software development.

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New Oriental Education & Techn (EDU US)

China's After-School Tutoring Continues to Benefit from Secure Growth Trend

New Oriental Education & Tech Grp (Adr) (EDU US)Recommendation: Buy on WeaknessFor most Chinese families, regardless of the income level,...

JL Warren Capital

An Online Education Company Whose Negatives Are Priced-In, but Growth Is Not

As part of the Edtech series introduced earlier, I will be featuring educational companies focused on mobile learning and virtual classrooms,...

Valerie Law, CFA

Expected Macau Smoking Ban Creates a Level Playing Field for Operators

This week the Macau government proposed to the Second Standing Committee of Macau Legislative Assembly to allow smoking only in smoking lounges in...

Morningstar, Inc.

Asia Frontier Capital Travel Report: Laos

In line with our process of being on the ground in the countries we invest in, Scott Osheroff, Analyst at Asia Frontier Capital, traveled to Laos...

Asia Frontier Capital

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China's After-School Tutoring Continues to Benefit from Secure Growth Trend

New Oriental Education & Tech Grp (Adr) (EDU US)Recommendation: Buy on WeaknessFor most Chinese families, regardless of the income level,...

JL Warren Capital

Bright Scholar Education IPO: Related Party Synergy or Bugbear?

China's richest woman, Ms. Yang Huiyan, the major shareholder of the Chinese property developer Country Garden Holdings Co (2007 HK), is...

Ke Yan, CFA, FRM

An Online Education Company Whose Negatives Are Priced-In, but Growth Is Not

As part of the Edtech series introduced earlier, I will be featuring educational companies focused on mobile learning and virtual classrooms,...

Valerie Law, CFA

Expected Macau Smoking Ban Creates a Level Playing Field for Operators

This week the Macau government proposed to the Second Standing Committee of Macau Legislative Assembly to allow smoking only in smoking lounges in...

Morningstar, Inc.

Asia Frontier Capital Travel Report: Laos

In line with our process of being on the ground in the countries we invest in, Scott Osheroff, Analyst at Asia Frontier Capital, traveled to Laos...

Asia Frontier Capital