This is a monthly version of our HK Connect Weekly note, in which I highlight Hong Kong-listed companies leading the southbound flow weekly. Over the past month, we have seen the outflow continue from January. In February, we have seen Chinese investors were selling Tencent in February after buying Tencent in January. Chinese investors were also buying domestic automotive manufacturers and Macau gaming sectors.
Our February Coverage of Hong Kong Connect southbound flow
As stock-market watchers begin to pick “resistance levels” for benchmark equity indexes that have been steadily heading north amid optimism over a US-China trade deal, we wonder if Trump and his tweets are the barrier point for crude’s rally.
And if they are, what might the US president’s “pain threshold” be? For his latest shot across OPEC’s bow, it appeared to be Brent touching a three-month high just above $67/barrel.
OPEC shrugged off Trump’s gentle warning. Saudi Energy Minister and de facto leader of the oil exporters’ group, Khalid al-Falih, appeared smiling and relaxed when asked about Trump’s tweet in a CNBC interview. OPEC was indeed “taking it easy,” he said. The group and its non-OPEC collaborators were determined to rebalance the markets, but with a “very slow and measured approach,” Al-Falih said.
We believe OPEC will be careful not to over-tighten the market this time around. Perhaps Trump was being over-cautious. If a US-China trade deal is signed in the next few weeks (that may happen on March 27, The Wall Street Journal reported on Monday), global stock markets could rally further. But they will not take crude along for the entire ride.
Our Chart of the Week shows that the rebound of the past two months in global equities has already left crude’s recovery far behind. The divergence should not come as a surprise. Crude may have already priced in most of the economic impetus of a US-China trade rapprochement. Unlike the MSCI global stock market index, which is closing in on its early-October levels (before the start of the financial markets turmoil), crude is highly unlikely to get within sight of the four-year highs it touched on October 3, shortly before it hit the skids.
We evaluate the attractiveness of Sea Ltd’s (SE US) US$1 bn follow-on public offering announced last Fri.
This offering is a typical opportunistic fundraising as its ADR price has recently surged.
At assumed deal price of US$21, SE post deal would trade at 4.6x 2019E P/adjusted sales (excl. 1P e-commerce sales), vs. peers average of 5.2x.
We would recommend investors to go for the deal if it is priced at US$20 or lower.
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In my initial insight on China Power New Energy Development Co (735 HK, “CPNED”)‘s privatisation by China Power New Energy Limited (the Offeror) by way of a Scheme, I concluded China Three Gorges, CPNED’s largest shareholder with 27.10%, will likely be required to abstain at the Court Meeting as it is presumed to be a connected party to the Offeror as per the Takeovers Code.
But the announcement states that CTG has given an irrevocable undertaking to vote for the Scheme and to elect the share alternative.
It seems illogical to mention in the irrevocable CTG will vote for the Scheme when in actuality it cannot vote. So, which one is it?
The short answer is: CTG cannot currently vote.
But understanding this requires diving into the minutiae of Hong Kong’s Takeovers Code. So I do.
We expect Haitian’s margins go up in 2019, because 1) steel price in China is expected to decrease by 10% yoy with the re-balance of sector demand-supply, 2) Haitian’s newly launched third generation PIMM, and increasing sales propotion of high margin products, would improve the company’s overall margin.
Market demand is warming up in March, according to the management. The third generation PIMM is expected to trigger clients’ demand on upgrading their existing machines. High margin products, all-electric PIMM and large two-plate PIMM, would further increasing their sales and profit contribution. Overseas revenue growth would continue going faster than domestic revenue growth, with its new plants in Germany and Turkey coming on stream. We estimate Haitian’s net profit growth to reach 15% yoy in 2019E, vs. a 4% yoy decline in 2018.
Market concern on potential risk from Trade War, which had triggered Haitian’s valuation de-rating, should fade. As we expected, Haitian’s business wasn’t hurt by the Trade War in 2018, as the company has only 3% of overall revenue from US market. And the negotiations between US and China are on the right way to terminate the Trade War. Valuation re-rating might come with earnings improvement.
Huishang Bank Corp Ltd H (3698 HK) looks interesting at first. Some trends are moving in the right direction and the valuation is hardly stretched.
So it seems. Closer inspection reveals subpar earnings quality and pressure on the top line from an elevated growth in funding costs and a double-digit reduction in income from non-credit earning assets. Impairments weighed heavily on the bottom line. Underlying “jaws” were extremely negative, putting the decrease in the Cost-Income ratio into perspective.
An improving NPL ratio of 0.95% (or 1.04% depending on which one you use) does not tell the whole story at all. Asset quality issues, of course, come through in the income statement with writedowns and loan loss provisions consuming a huge (and increasing) chunk of pre-impairment profit. The Balance Sheet exhibits strains and stresses from an explosion of doubtful loans, rising substandard loans, and arguably an unhealthy expansion of special mention loans. At least “unimpaired past-due” loans have moderated though they stand at 45% of headline NPLs. Some key capitalisation metrics are deteriorating while liquidity erodes given the 23% growth in credit which flatters the problem loan picture.
Suning, Alibaba, & Tencent Holdings join forces with three state-owned auto co’s to challenge Didi on ridesharing in China. LYFT Kool-Aid becomes more toxic with five new strategic developments in the past week. lululemon’s DTC reaches nearly 30% of sales in Q4.
lululemon: lululemon is looking to further leverage its cult-like following by investing in its digital ecosystem and launching a nationwide membership program as DTC reaches nearly 30% of sales in Q4.
Dollarama & Sleep Country Canada: We continue to caution against these value traps as Dollarama is still focusing on the base of the value pyramid and Sleep Country’s structural risk continues to rise with Casper looking to IPO.
Lyft: In the past week, there have been five new major strategic developments that add to the toxicity of the LYFT Kool-Aid.
My heart pounded as I sat in the WeWork conference room on Thursday, staring at the Skype screen, waiting to be interviewed live on Yahoo! Finance’s morning show by its host, Alexis Christofouros, on why I wasn’t drinking the LYFT Kool-Aid. I wish I could go back on the show as since I published my report just a week ago, there have been five major strategic developments, adding to the toxicity of the LYFT Kool-Aid. But I’m excited about the upcoming stampede of unicorns as my mindset is what Heidi Grant Halvorson and E. Tory Higgins call “promotion focus”, as they describe in their book Focus: Use Different Ways of Seeing the World for Success and Influence: “Promotion focus is about maximizing gains and avoiding missed opportunities. Prevention focus, on the other hand, is about minimizing losses” Just like we saw with the dotcoms nearly two decades ago, promotion-focused investors are now in danger of getting caught up in the “cult-like following” of these unicorns and drinking what I call the “pink Kool-Aid”.
Prevention-focused investors are also at risk of drinking the Kool-Aid. But the Kool-Aid in this case is blue, not pink, and the danger is the toxicity of “blue Kool-Aid” increases as the rate of structural disruption increases. For example, back in January 2008, I warned investors to stop drinking Yellow Pages’ “blue Kool-Aid” as I was worried the accelerating shift to online and emergence of the then new online disruptors like Facebook and Craigslist would increase its business risk profile. And I continue to caution investors against drinking the “blue Kool-Aid” of Canadian retailers like Dollarama and Sleep Country Canada as they still operate mainly at the base of the value pyramid.
On Monday, Bilibili Inc (BILI US) unveiled plans to raise around $192 million (based on the closing price of $18.95 per ADS) through a public offering of 10.6 million ADS and a concurrent offering of $300 million convertible senior notes. Also, certain selling shareholders will offer 6.5 ADS in the offering.
We believe bilibili’s fundamentals are mixed as rapid monthly active users (MAUs) and non-mobile games growth is offset by a declining margin and higher cash burn. Overall, the proposed offering is unnecessary and highly opportunistic, and we would not participate in the offering.
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We expect Haitian’s margins go up in 2019, because 1) steel price in China is expected to decrease by 10% yoy with the re-balance of sector demand-supply, 2) Haitian’s newly launched third generation PIMM, and increasing sales propotion of high margin products, would improve the company’s overall margin.
Market demand is warming up in March, according to the management. The third generation PIMM is expected to trigger clients’ demand on upgrading their existing machines. High margin products, all-electric PIMM and large two-plate PIMM, would further increasing their sales and profit contribution. Overseas revenue growth would continue going faster than domestic revenue growth, with its new plants in Germany and Turkey coming on stream. We estimate Haitian’s net profit growth to reach 15% yoy in 2019E, vs. a 4% yoy decline in 2018.
Market concern on potential risk from Trade War, which had triggered Haitian’s valuation de-rating, should fade. As we expected, Haitian’s business wasn’t hurt by the Trade War in 2018, as the company has only 3% of overall revenue from US market. And the negotiations between US and China are on the right way to terminate the Trade War. Valuation re-rating might come with earnings improvement.
Huishang Bank Corp Ltd H (3698 HK) looks interesting at first. Some trends are moving in the right direction and the valuation is hardly stretched.
So it seems. Closer inspection reveals subpar earnings quality and pressure on the top line from an elevated growth in funding costs and a double-digit reduction in income from non-credit earning assets. Impairments weighed heavily on the bottom line. Underlying “jaws” were extremely negative, putting the decrease in the Cost-Income ratio into perspective.
An improving NPL ratio of 0.95% (or 1.04% depending on which one you use) does not tell the whole story at all. Asset quality issues, of course, come through in the income statement with writedowns and loan loss provisions consuming a huge (and increasing) chunk of pre-impairment profit. The Balance Sheet exhibits strains and stresses from an explosion of doubtful loans, rising substandard loans, and arguably an unhealthy expansion of special mention loans. At least “unimpaired past-due” loans have moderated though they stand at 45% of headline NPLs. Some key capitalisation metrics are deteriorating while liquidity erodes given the 23% growth in credit which flatters the problem loan picture.
Suning, Alibaba, & Tencent Holdings join forces with three state-owned auto co’s to challenge Didi on ridesharing in China. LYFT Kool-Aid becomes more toxic with five new strategic developments in the past week. lululemon’s DTC reaches nearly 30% of sales in Q4.
lululemon: lululemon is looking to further leverage its cult-like following by investing in its digital ecosystem and launching a nationwide membership program as DTC reaches nearly 30% of sales in Q4.
Dollarama & Sleep Country Canada: We continue to caution against these value traps as Dollarama is still focusing on the base of the value pyramid and Sleep Country’s structural risk continues to rise with Casper looking to IPO.
Lyft: In the past week, there have been five new major strategic developments that add to the toxicity of the LYFT Kool-Aid.
My heart pounded as I sat in the WeWork conference room on Thursday, staring at the Skype screen, waiting to be interviewed live on Yahoo! Finance’s morning show by its host, Alexis Christofouros, on why I wasn’t drinking the LYFT Kool-Aid. I wish I could go back on the show as since I published my report just a week ago, there have been five major strategic developments, adding to the toxicity of the LYFT Kool-Aid. But I’m excited about the upcoming stampede of unicorns as my mindset is what Heidi Grant Halvorson and E. Tory Higgins call “promotion focus”, as they describe in their book Focus: Use Different Ways of Seeing the World for Success and Influence: “Promotion focus is about maximizing gains and avoiding missed opportunities. Prevention focus, on the other hand, is about minimizing losses” Just like we saw with the dotcoms nearly two decades ago, promotion-focused investors are now in danger of getting caught up in the “cult-like following” of these unicorns and drinking what I call the “pink Kool-Aid”.
Prevention-focused investors are also at risk of drinking the Kool-Aid. But the Kool-Aid in this case is blue, not pink, and the danger is the toxicity of “blue Kool-Aid” increases as the rate of structural disruption increases. For example, back in January 2008, I warned investors to stop drinking Yellow Pages’ “blue Kool-Aid” as I was worried the accelerating shift to online and emergence of the then new online disruptors like Facebook and Craigslist would increase its business risk profile. And I continue to caution investors against drinking the “blue Kool-Aid” of Canadian retailers like Dollarama and Sleep Country Canada as they still operate mainly at the base of the value pyramid.
On Monday, Bilibili Inc (BILI US) unveiled plans to raise around $192 million (based on the closing price of $18.95 per ADS) through a public offering of 10.6 million ADS and a concurrent offering of $300 million convertible senior notes. Also, certain selling shareholders will offer 6.5 ADS in the offering.
We believe bilibili’s fundamentals are mixed as rapid monthly active users (MAUs) and non-mobile games growth is offset by a declining margin and higher cash burn. Overall, the proposed offering is unnecessary and highly opportunistic, and we would not participate in the offering.
China Construction Bank (601939 CH) FY18 results reflected stability and some encouraging signs of positive fundamental momentum. The highlights were a positive “underlying jaws” of 220bps, fortified Capital Adequacy, enhanced Provisioning, and firmer net interest spread and margin. Liquidity remains prudent with credit and deposit growth both expanding by mid-single digits. In addition, the top-line exhibited solid growth with funding expense growth (an issue elsewhere) only mildly in excess of interest income growth. Sharply higher asset loan loss provisions reflected the ongoing battle with troubling systemic asset quality challenges.
CCB is committed to becoming a core comprehensive service provider for smart city development, in alignment with government strategic targets. In terms of technology, AI robots (in wealth management, for example), Intelligent Risk Management Platforms, Biometric verification plus a public and private “cloud ecosphere” are evolving. Big data is developing with data warehouse integrating internal and external data; with enterprise data management and application architecture; and via working platforms. CCB is wedded to IoT, blockchain as well as big data in industry chain finance, via internet-based “e Xin Tong”, “e Xin Tong” and “e Qi Tong”. The bank has a strategy of Mobile First, provision of internet-based smart financial services, booming WeChat banking, and integration of online banking services that combines transactions, sales, and customer service.
Automation and “intelligence” is the bedrock of risk management: the key area today of what is a highly leveraged system. Here, CCB is integrating corporate and retail early warning systems and unifying the monitoring of different exposures. Management launched a “new generation” retail customer scorecard model, elevating the level of automation and “intelligence” of risk metrics. In addition, the bank is attaining greater recognition and control of fraud. Regarding the remote monitoring system, CCB is adapting to the fast development of information, network and big data technology, by building a monitoring system with unified plans, standards, software and hardware.
While CCB trades at a P/Book of 0.8x (regional median, including Japan) and a franchise valuation of 9% (regional median, including Japan), the Earnings Yield of 17.4% is well in excess of regional median of 10%. The combination of a top decile PH Score™, capturing fundamental momentum, an underbought technical signal, and a reasonable franchise valuation position CCB in the top decile of opportunity globally. For a core strategic policy bank, this represents an opportunity.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Huishang Bank Corp Ltd H (3698 HK) looks interesting at first. Some trends are moving in the right direction and the valuation is hardly stretched.
So it seems. Closer inspection reveals subpar earnings quality and pressure on the top line from an elevated growth in funding costs and a double-digit reduction in income from non-credit earning assets. Impairments weighed heavily on the bottom line. Underlying “jaws” were extremely negative, putting the decrease in the Cost-Income ratio into perspective.
An improving NPL ratio of 0.95% (or 1.04% depending on which one you use) does not tell the whole story at all. Asset quality issues, of course, come through in the income statement with writedowns and loan loss provisions consuming a huge (and increasing) chunk of pre-impairment profit. The Balance Sheet exhibits strains and stresses from an explosion of doubtful loans, rising substandard loans, and arguably an unhealthy expansion of special mention loans. At least “unimpaired past-due” loans have moderated though they stand at 45% of headline NPLs. Some key capitalisation metrics are deteriorating while liquidity erodes given the 23% growth in credit which flatters the problem loan picture.
Suning, Alibaba, & Tencent Holdings join forces with three state-owned auto co’s to challenge Didi on ridesharing in China. LYFT Kool-Aid becomes more toxic with five new strategic developments in the past week. lululemon’s DTC reaches nearly 30% of sales in Q4.
lululemon: lululemon is looking to further leverage its cult-like following by investing in its digital ecosystem and launching a nationwide membership program as DTC reaches nearly 30% of sales in Q4.
Dollarama & Sleep Country Canada: We continue to caution against these value traps as Dollarama is still focusing on the base of the value pyramid and Sleep Country’s structural risk continues to rise with Casper looking to IPO.
Lyft: In the past week, there have been five new major strategic developments that add to the toxicity of the LYFT Kool-Aid.
My heart pounded as I sat in the WeWork conference room on Thursday, staring at the Skype screen, waiting to be interviewed live on Yahoo! Finance’s morning show by its host, Alexis Christofouros, on why I wasn’t drinking the LYFT Kool-Aid. I wish I could go back on the show as since I published my report just a week ago, there have been five major strategic developments, adding to the toxicity of the LYFT Kool-Aid. But I’m excited about the upcoming stampede of unicorns as my mindset is what Heidi Grant Halvorson and E. Tory Higgins call “promotion focus”, as they describe in their book Focus: Use Different Ways of Seeing the World for Success and Influence: “Promotion focus is about maximizing gains and avoiding missed opportunities. Prevention focus, on the other hand, is about minimizing losses” Just like we saw with the dotcoms nearly two decades ago, promotion-focused investors are now in danger of getting caught up in the “cult-like following” of these unicorns and drinking what I call the “pink Kool-Aid”.
Prevention-focused investors are also at risk of drinking the Kool-Aid. But the Kool-Aid in this case is blue, not pink, and the danger is the toxicity of “blue Kool-Aid” increases as the rate of structural disruption increases. For example, back in January 2008, I warned investors to stop drinking Yellow Pages’ “blue Kool-Aid” as I was worried the accelerating shift to online and emergence of the then new online disruptors like Facebook and Craigslist would increase its business risk profile. And I continue to caution investors against drinking the “blue Kool-Aid” of Canadian retailers like Dollarama and Sleep Country Canada as they still operate mainly at the base of the value pyramid.
On Monday, Bilibili Inc (BILI US) unveiled plans to raise around $192 million (based on the closing price of $18.95 per ADS) through a public offering of 10.6 million ADS and a concurrent offering of $300 million convertible senior notes. Also, certain selling shareholders will offer 6.5 ADS in the offering.
We believe bilibili’s fundamentals are mixed as rapid monthly active users (MAUs) and non-mobile games growth is offset by a declining margin and higher cash burn. Overall, the proposed offering is unnecessary and highly opportunistic, and we would not participate in the offering.
China Construction Bank (601939 CH) FY18 results reflected stability and some encouraging signs of positive fundamental momentum. The highlights were a positive “underlying jaws” of 220bps, fortified Capital Adequacy, enhanced Provisioning, and firmer net interest spread and margin. Liquidity remains prudent with credit and deposit growth both expanding by mid-single digits. In addition, the top-line exhibited solid growth with funding expense growth (an issue elsewhere) only mildly in excess of interest income growth. Sharply higher asset loan loss provisions reflected the ongoing battle with troubling systemic asset quality challenges.
CCB is committed to becoming a core comprehensive service provider for smart city development, in alignment with government strategic targets. In terms of technology, AI robots (in wealth management, for example), Intelligent Risk Management Platforms, Biometric verification plus a public and private “cloud ecosphere” are evolving. Big data is developing with data warehouse integrating internal and external data; with enterprise data management and application architecture; and via working platforms. CCB is wedded to IoT, blockchain as well as big data in industry chain finance, via internet-based “e Xin Tong”, “e Xin Tong” and “e Qi Tong”. The bank has a strategy of Mobile First, provision of internet-based smart financial services, booming WeChat banking, and integration of online banking services that combines transactions, sales, and customer service.
Automation and “intelligence” is the bedrock of risk management: the key area today of what is a highly leveraged system. Here, CCB is integrating corporate and retail early warning systems and unifying the monitoring of different exposures. Management launched a “new generation” retail customer scorecard model, elevating the level of automation and “intelligence” of risk metrics. In addition, the bank is attaining greater recognition and control of fraud. Regarding the remote monitoring system, CCB is adapting to the fast development of information, network and big data technology, by building a monitoring system with unified plans, standards, software and hardware.
While CCB trades at a P/Book of 0.8x (regional median, including Japan) and a franchise valuation of 9% (regional median, including Japan), the Earnings Yield of 17.4% is well in excess of regional median of 10%. The combination of a top decile PH Score™, capturing fundamental momentum, an underbought technical signal, and a reasonable franchise valuation position CCB in the top decile of opportunity globally. For a core strategic policy bank, this represents an opportunity.
China’s current efforts to gain prominence in the semiconductor market targets memory chips – large commodities. This three-part series of insights examines how China determined its strategy and explains which companies are the most threatened by it.
In the first part of this series we will see what motivated China to enter the market and how it plans to do so.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
China Construction Bank (601939 CH) FY18 results reflected stability and some encouraging signs of positive fundamental momentum. The highlights were a positive “underlying jaws” of 220bps, fortified Capital Adequacy, enhanced Provisioning, and firmer net interest spread and margin. Liquidity remains prudent with credit and deposit growth both expanding by mid-single digits. In addition, the top-line exhibited solid growth with funding expense growth (an issue elsewhere) only mildly in excess of interest income growth. Sharply higher asset loan loss provisions reflected the ongoing battle with troubling systemic asset quality challenges.
CCB is committed to becoming a core comprehensive service provider for smart city development, in alignment with government strategic targets. In terms of technology, AI robots (in wealth management, for example), Intelligent Risk Management Platforms, Biometric verification plus a public and private “cloud ecosphere” are evolving. Big data is developing with data warehouse integrating internal and external data; with enterprise data management and application architecture; and via working platforms. CCB is wedded to IoT, blockchain as well as big data in industry chain finance, via internet-based “e Xin Tong”, “e Xin Tong” and “e Qi Tong”. The bank has a strategy of Mobile First, provision of internet-based smart financial services, booming WeChat banking, and integration of online banking services that combines transactions, sales, and customer service.
Automation and “intelligence” is the bedrock of risk management: the key area today of what is a highly leveraged system. Here, CCB is integrating corporate and retail early warning systems and unifying the monitoring of different exposures. Management launched a “new generation” retail customer scorecard model, elevating the level of automation and “intelligence” of risk metrics. In addition, the bank is attaining greater recognition and control of fraud. Regarding the remote monitoring system, CCB is adapting to the fast development of information, network and big data technology, by building a monitoring system with unified plans, standards, software and hardware.
While CCB trades at a P/Book of 0.8x (regional median, including Japan) and a franchise valuation of 9% (regional median, including Japan), the Earnings Yield of 17.4% is well in excess of regional median of 10%. The combination of a top decile PH Score™, capturing fundamental momentum, an underbought technical signal, and a reasonable franchise valuation position CCB in the top decile of opportunity globally. For a core strategic policy bank, this represents an opportunity.
China’s current efforts to gain prominence in the semiconductor market targets memory chips – large commodities. This three-part series of insights examines how China determined its strategy and explains which companies are the most threatened by it.
In the first part of this series we will see what motivated China to enter the market and how it plans to do so.
On Friday, Qutoutiao Inc (QTT US) unveiled plans to raise around $11 million (based on the closing price of $11.45 per ADS) through a public offering of 1.1 million ADS. Also, certain selling shareholders will offer 7.5 ADS in the offering. The public offering comes hot on the heels of the announcement of a $171.1 million convertible loan from Alibaba Group Holding (BABA US) on 28 March.
We remain cautious on Qutoutiao as it faces an inescapable catch-22 as it cannot attract users without increasing its user acquisition spend and it cannot reach breakeven without lowering its user acquisition costs. Overall, we would not participate in the public offering.
Xtep International (1368 HK) has announced a placing and top-up subscription of new shares event, creating a capital base which is 9% larger.
XTEP states that they have considered various ways of raising funds and consider that it would be in their best interests to raise equity funding through the placing and the subscription.
With the share price down 16% since the placement, we examine what this means for the company’s fundamentals and shareholders. We believe the results will prove to be mixed for management and shareholders alike. We highlight how we expect the stock ranking to react, given we the placement was only a few days back and this is yet to reflect. This special situation analysis may surprise you with the conclusions.
INVESTMENT VIEW: The recovery in China’s March PMI index to 50.8 shows an unexpected expansion in economic activity. Historically, there is a strong correlation between the PMI and Chinese steel prices as well as Angang’s share price.
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
As stock-market watchers begin to pick “resistance levels” for benchmark equity indexes that have been steadily heading north amid optimism over a US-China trade deal, we wonder if Trump and his tweets are the barrier point for crude’s rally.
And if they are, what might the US president’s “pain threshold” be? For his latest shot across OPEC’s bow, it appeared to be Brent touching a three-month high just above $67/barrel.
OPEC shrugged off Trump’s gentle warning. Saudi Energy Minister and de facto leader of the oil exporters’ group, Khalid al-Falih, appeared smiling and relaxed when asked about Trump’s tweet in a CNBC interview. OPEC was indeed “taking it easy,” he said. The group and its non-OPEC collaborators were determined to rebalance the markets, but with a “very slow and measured approach,” Al-Falih said.
We believe OPEC will be careful not to over-tighten the market this time around. Perhaps Trump was being over-cautious. If a US-China trade deal is signed in the next few weeks (that may happen on March 27, The Wall Street Journal reported on Monday), global stock markets could rally further. But they will not take crude along for the entire ride.
Our Chart of the Week shows that the rebound of the past two months in global equities has already left crude’s recovery far behind. The divergence should not come as a surprise. Crude may have already priced in most of the economic impetus of a US-China trade rapprochement. Unlike the MSCI global stock market index, which is closing in on its early-October levels (before the start of the financial markets turmoil), crude is highly unlikely to get within sight of the four-year highs it touched on October 3, shortly before it hit the skids.
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
China’s current efforts to gain prominence in the semiconductor market targets memory chips – large commodities. This three-part series of insights examines how China determined its strategy and explains which companies are the most threatened by it.
In the first part of this series we will see what motivated China to enter the market and how it plans to do so.
On Friday, Qutoutiao Inc (QTT US) unveiled plans to raise around $11 million (based on the closing price of $11.45 per ADS) through a public offering of 1.1 million ADS. Also, certain selling shareholders will offer 7.5 ADS in the offering. The public offering comes hot on the heels of the announcement of a $171.1 million convertible loan from Alibaba Group Holding (BABA US) on 28 March.
We remain cautious on Qutoutiao as it faces an inescapable catch-22 as it cannot attract users without increasing its user acquisition spend and it cannot reach breakeven without lowering its user acquisition costs. Overall, we would not participate in the public offering.
Xtep International (1368 HK) has announced a placing and top-up subscription of new shares event, creating a capital base which is 9% larger.
XTEP states that they have considered various ways of raising funds and consider that it would be in their best interests to raise equity funding through the placing and the subscription.
With the share price down 16% since the placement, we examine what this means for the company’s fundamentals and shareholders. We believe the results will prove to be mixed for management and shareholders alike. We highlight how we expect the stock ranking to react, given we the placement was only a few days back and this is yet to reflect. This special situation analysis may surprise you with the conclusions.
INVESTMENT VIEW: The recovery in China’s March PMI index to 50.8 shows an unexpected expansion in economic activity. Historically, there is a strong correlation between the PMI and Chinese steel prices as well as Angang’s share price.
Qutoutiao Inc (QTT US) announced a USD 100 million share sales by the company and its shareholders, slightly more than two weeks after the lock-up expiration on March 13th. In this insight, we will provide our quick thought on the deal.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
On Friday, Qutoutiao Inc (QTT US) unveiled plans to raise around $11 million (based on the closing price of $11.45 per ADS) through a public offering of 1.1 million ADS. Also, certain selling shareholders will offer 7.5 ADS in the offering. The public offering comes hot on the heels of the announcement of a $171.1 million convertible loan from Alibaba Group Holding (BABA US) on 28 March.
We remain cautious on Qutoutiao as it faces an inescapable catch-22 as it cannot attract users without increasing its user acquisition spend and it cannot reach breakeven without lowering its user acquisition costs. Overall, we would not participate in the public offering.
Xtep International (1368 HK) has announced a placing and top-up subscription of new shares event, creating a capital base which is 9% larger.
XTEP states that they have considered various ways of raising funds and consider that it would be in their best interests to raise equity funding through the placing and the subscription.
With the share price down 16% since the placement, we examine what this means for the company’s fundamentals and shareholders. We believe the results will prove to be mixed for management and shareholders alike. We highlight how we expect the stock ranking to react, given we the placement was only a few days back and this is yet to reflect. This special situation analysis may surprise you with the conclusions.
INVESTMENT VIEW: The recovery in China’s March PMI index to 50.8 shows an unexpected expansion in economic activity. Historically, there is a strong correlation between the PMI and Chinese steel prices as well as Angang’s share price.
Qutoutiao Inc (QTT US) announced a USD 100 million share sales by the company and its shareholders, slightly more than two weeks after the lock-up expiration on March 13th. In this insight, we will provide our quick thought on the deal.
ZLH is a fast-growing real estate developer in China. Its completed projects are mostly in the Zhejiang Province but its projects under development are spread across the country.
It was highly leveraged in FY2016 as it ramped up its expansion efforts but had been able to reduce it significantly to about 260% net debt to equity levels while effective interest rates on debt has been falling every year.
In this insight, we will look at the company’s operations and financials, identify key corporate governance issues, and share our thoughts on peer valuation.
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Xtep International (1368 HK) has announced a placing and top-up subscription of new shares event, creating a capital base which is 9% larger.
XTEP states that they have considered various ways of raising funds and consider that it would be in their best interests to raise equity funding through the placing and the subscription.
With the share price down 16% since the placement, we examine what this means for the company’s fundamentals and shareholders. We believe the results will prove to be mixed for management and shareholders alike. We highlight how we expect the stock ranking to react, given we the placement was only a few days back and this is yet to reflect. This special situation analysis may surprise you with the conclusions.
INVESTMENT VIEW: The recovery in China’s March PMI index to 50.8 shows an unexpected expansion in economic activity. Historically, there is a strong correlation between the PMI and Chinese steel prices as well as Angang’s share price.
Qutoutiao Inc (QTT US) announced a USD 100 million share sales by the company and its shareholders, slightly more than two weeks after the lock-up expiration on March 13th. In this insight, we will provide our quick thought on the deal.
ZLH is a fast-growing real estate developer in China. Its completed projects are mostly in the Zhejiang Province but its projects under development are spread across the country.
It was highly leveraged in FY2016 as it ramped up its expansion efforts but had been able to reduce it significantly to about 260% net debt to equity levels while effective interest rates on debt has been falling every year.
In this insight, we will look at the company’s operations and financials, identify key corporate governance issues, and share our thoughts on peer valuation.
CIMC Vehicle, the largest manufacturer of semi-trailers in the world and a subsidiary of CIMC, will start to pre-market its USD300-500 million IPO in Hong Kong, as per media reports. In this insight, we will cover the following topics:
Company background
Semi-trailer and truck body industry
Shareholders and pre-IPO investors
Our thoughts on valuation
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
