China housing markets start 2019 off a record high base in 2018 in terms of new home sales volumes. With the official NBS January-February data at the national level only expected to be published mid-March, we take a brief look at the early indicators for January-February in the weekly data to February 24 and January data for some major cities and average contract sales for select developers.
During recent earnings calls memory chip makers have postulated that the market will return to higher margins once price elasticity causes demand to increase. This popular myth needs to be treated with great skepticism since, as this Insight will reveal, short-term price elasticity has a negligible impact upon memory chip sales if it has any impact at all.
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2019 NEV subsidy policy announced on March 26th, which cut subsidies deeper than expected. However, as the new policy will take effect only on June 25th, its negative impact on OEM’s FY2019 earnings would be less than our estimates.
Amongst the start-ups, we estimate Yudo would be hurt the most, as its lower ASP makes its sales more sensitive to the subsidy reduction.
Among traditional OEMs, BYD would be hurt the most by having its FY2019 net profit drop by nearly 14% yoy based on our estimates. BYD Yuan would be the biggest loser among BYD’s existing NEV models.
SOE State Power Investment Corporation (SPIC) is seeking to privatise China Power New Energy Development Co (735 HK) by way of a Scheme at $5.45/share, a 41.9% premium to last close and a 78.1% premium to the 30-day average.
A scrip alternative (6 New shares for one Scheme shares) into an unlisted vehicle under SPIC is also available.
China Three Gorges, CPNED’s largest shareholder with 27.10%, have given an irrevocable undertaking to vote for the Scheme and to elect the share alternative.
However, China Three Gorges is presumably required to abstain from voting at the court meeting, as it is deemed to be acting in concert with the SPIC under class (1) of the definition of the acting in concert in the Takeovers Code. The announcement does not make this clear.
Assuming China Three Gorges does abstain, a 10% blocking stake at the court meeting is equivalent to 4.48% of shares out or 53mn shares.
This looks like a pretty clean deal. It is priced above the highest close since its listing by way of introduction on the 18 July 2017, while the excitement over the potential injection of all nuclear power assets and businesses from State Nuclear Power Technology Company has been removed after the restructuring was cancelled in July last year.
The stock is currently trading at an attractive gross/annualised spread of 8.3%/28.9% conservatively assuming a late July completion, and inclusive of the final dividend.
The fact that the dollar has strengthened despite the dovish turn at the Fed this year and the significant fall in US rates and bond yields has confounded many analysts.
We view weakness in global equity markets over the past week as correcting a significant amount of the excess optimism. We recommend taking advantage of the pullback by adding exposure to our favorite areas – namely Technology. Our overall outlook on global equities (both the MSCI ACWI and ACWI ex-US) remains positive and we continue to expect higher equity prices going forward. In today’s report we provide a technical appraisal of all major markets and highlight actionable stocks throughout the int’l Technology and Communications sectors.
In April 2018, we published a FCF screen with the sole aim of identifying potential names which could prove to be strong candidates in a Small-Mid Cap portfolio. We move to update this list with a strong bias to the mid-cap stocks appearing.
This screen performs well with markets where the value style is in favour. Given the market appears to be trending back to this style, we believe the Small-Mid Cap universe should capitalise on this over the next 12-months. We identify within the screen some high trading liquidity deep value candidates across the Asia Pacific universe.
Our updated 2019 list of names contains 17 stocks, with a more diversified spread of countries and sectors, compared to April 2018. A point to note is that basic material stocks have strengthened within the composition. Interestingly, the style of stock which has increased its presence amongst the list is the contrarian style, highlighting an opening up in value.
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China housing markets start 2019 off a record high base in 2018 in terms of new home sales volumes. With the official NBS January-February data at the national level only expected to be published mid-March, we take a brief look at the early indicators for January-February in the weekly data to February 24 and January data for some major cities and average contract sales for select developers.
During recent earnings calls memory chip makers have postulated that the market will return to higher margins once price elasticity causes demand to increase. This popular myth needs to be treated with great skepticism since, as this Insight will reveal, short-term price elasticity has a negligible impact upon memory chip sales if it has any impact at all.
In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.
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Viva Biotechnology, a China-based drug discovery company, is seeking to raise USD 200m to list on the Hong Kong Stock Exchange. It has recently obtained approval for listing by the Hong Kong Stock Exchange. In our previous insight (link here), we discussed the company’s fundamentals, its unique business model, its shareholders, and our thoughts on its valuation.
In this insight, we look at its latest prospectus and review our valuation for Viva Biotech.
CanSino Biologics raised USD 148 million at HKD 22/share, at the high end of its guided price range. We have previously covered the IPO in the following note:
On Friday, March 15th, an estimated 1.6 million students in over 120 countries (source: Time magazine) walked out of classrooms and took to streets demanding radical climate action. Climate change activism rarely grabbed headlines or wider public attention as it is doing now. Rising climate activism will continue to train the spotlight on industries/businesses associated with carbon-emission making it increasingly difficult for them to expand capacities or secure funding. Large institutional investors – sovereign funds, pension funds, insurance companies – have begun toincorporate climate risk into investment policy and are limiting exposure to sectors that directly contribute to carbon emissions – primarily coal, crude oil producers and power plants based on them. Expect sector devaluation; active investors may well look beyond juicy near term earnings and dividend yield.
Even as scientists and meteorological organisations keep warning of dire consequences unless concrete action is taken to limit carbon emissions to stall climate change, political establishment/regulators in most countries are in denial while others are doing little more than lip service. If so, should corporates care? even though businesses are the ones that play a direct role in escalating carbon emissions. With rising consumer awareness and activism, several industries associated with carbon emissions are already facing operational and funding challenges; we believe, it pays for all businesses to be above par on ‘climate action’ – it would be in their own self-interest, not just general good. And do Investors bother?Under the aegis of Climate Action 100+, an investor initiative with 320 signatories having more than USD33 trillion in assets collectively under management, they have been engaging companies on improving governance, curbing emissions and strengthening climate-related financial disclosures. It has listed out Oil & Gas, Mining, Utilities and Auto manufacturers as target sectors. Investors have already been making an impact – by vote or exit. It sure makes logical sense to effect positive change and minimise climate risk when you have a long term investment horizon.
In the detailed note below we
discuss how rising consumer/investor activism and/or political/regulatory changes are posing challenges to key sectors –Coal, Oil & Gas, Automobiles/Aviation, Consumer goods – that are associated with carbon emissions.
analyse how rising climate activism is negatively impacting growth prospects and valuation of companies in these sectors.
highlight the opportunities for businesses to capitalise on changing consumer preferences for products that minimise carbon footprint and differentiate themselves by being on the right side of climate action.
present a quick primer on climate change and lay down the key facts and data on climate change as presented by World Meteorological Organisation, NASA and IPCC.
However, the report does NOT discuss potential risks to businesses from the aftermath of Climate change. Unlike our recently released report Fast Fashion in Asia: Trendy Clothing’s Toxic Trails – Investors Bewarethat looked into sector’s environmental violations and attempted to estimate potential earnings/growth/valuation downside as leading textile players adopt sustainable practices, we believe the impact of unpredictable climate change poses a threat that is not easy to identify or quantify.
Jinxin Fertility, a leading privately owned assisted reproductive service provider in China and the US, refiled to list in Hong Kong. Per news reports, the company planned to raise up to USD 500 million. In this insight, we will cover the following topics:
Business lines and its hospitals
The assisted reproductive service industry
Key risks
Shareholders and use of proceeds
Our early thoughts on valuation
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During recent earnings calls memory chip makers have postulated that the market will return to higher margins once price elasticity causes demand to increase. This popular myth needs to be treated with great skepticism since, as this Insight will reveal, short-term price elasticity has a negligible impact upon memory chip sales if it has any impact at all.
In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.
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Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
During recent earnings calls memory chip makers have postulated that the market will return to higher margins once price elasticity causes demand to increase. This popular myth needs to be treated with great skepticism since, as this Insight will reveal, short-term price elasticity has a negligible impact upon memory chip sales if it has any impact at all.
China has won the trade war so far, with China’s exports to the US rising 11.3% YoY in 2018, while its imports from the US rose just 0.7% YoY. For the latest two months (Dec18-Jan19), China’s exports to the US declined 3% YoY, but its imports from the US declined a precipitous 38.5% YoY. (The logic is obvious: less than half of China’s exports to the US carry tariffs, while over 80% of US exports to China must pay large import tariffs). Luckily for China, US President Trump has still allowed the March 1st deadline to be extended. That, combined with a weak US$ (and a far more dovish US Federal Reserve than 3 months ago) have taken pressure off the stressed Chinese economy. That any US-China trade deal will result in a stronger RMB takes further pressure off China, which otherwise saw net capital and services/income outflows of US$105bn in Nov18-Jan19 even amid the weakening of the US$ (numbers that would have been worse if the US$ had stayed strong, inducing larger capital outflows).
The stress is most evident in domestic demand, with China’s imports down 4.5% YoY in the latest two months. China’s car sales declined 6% YoY in 2018, the first yearly decline since 1990, with car sales down 16.7% YoY in 4Q 2018 and down 19% YoY in December, with Chinese car brands’ sales declining 22% YoY in January 2019 (while total passenger car sales fell 17.7% YoY). This was a climactic reversal, as China’s car output had grown 20-fold between 1995 and 2017. The PBOC has responded with 350bp of cuts in banks’ RRR (to 13.5% by , from 17% a year ago), in a move to boost the money-multiplier (but with a modest impact on M2 and loan growth).
China’s total social financing (TSF) rose by a record RMB4.64tn in January 2019, betraying signs that policy makers were panicking, hence turning on the shadow lending taps anew. Although TSF rose less in 2018 than in either 2016 or 2017, it rose more in 2H 2018 than in 2H 2017, responding to the monetary easing in 2H 2018. Despite a year of persistent and aggressive monetary easing, China’s M2 had grown a modest 8.1% YoY in 2018, up only marginally from 8% YoY at the end of October and November 2018; in January 2019, M2 accelerated to 8.4% YoY growth in response to the latest RRR cuts. FAI (fixed asset investment) slumped to just 2.5% YoY growth in May and July 2018, but then rebounded in the rest of 2018 (growing 5.9% YoY for the whole year). Opening the spigot of shadow lending involves the last throw of the dice: Premier Li Keqiang is among leading critics of this policy approach. For now, both the possibility of a trade deal and the weakness of the US$ are near-term positives that will buoy China. But the only remaining factor consistently buoying China’s growth is exports: so China will perforce need to make significant concessions in the final trade negotiations. If it does not, the positive scenario will rapidly deteriorate, and China’s high-wire act will collapse. We are cautiously bullish on China in the near-term (3-month horizon), but remain negative on a longer-term (9 months and longer) view.
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During recent earnings calls memory chip makers have postulated that the market will return to higher margins once price elasticity causes demand to increase. This popular myth needs to be treated with great skepticism since, as this Insight will reveal, short-term price elasticity has a negligible impact upon memory chip sales if it has any impact at all.
China has won the trade war so far, with China’s exports to the US rising 11.3% YoY in 2018, while its imports from the US rose just 0.7% YoY. For the latest two months (Dec18-Jan19), China’s exports to the US declined 3% YoY, but its imports from the US declined a precipitous 38.5% YoY. (The logic is obvious: less than half of China’s exports to the US carry tariffs, while over 80% of US exports to China must pay large import tariffs). Luckily for China, US President Trump has still allowed the March 1st deadline to be extended. That, combined with a weak US$ (and a far more dovish US Federal Reserve than 3 months ago) have taken pressure off the stressed Chinese economy. That any US-China trade deal will result in a stronger RMB takes further pressure off China, which otherwise saw net capital and services/income outflows of US$105bn in Nov18-Jan19 even amid the weakening of the US$ (numbers that would have been worse if the US$ had stayed strong, inducing larger capital outflows).
The stress is most evident in domestic demand, with China’s imports down 4.5% YoY in the latest two months. China’s car sales declined 6% YoY in 2018, the first yearly decline since 1990, with car sales down 16.7% YoY in 4Q 2018 and down 19% YoY in December, with Chinese car brands’ sales declining 22% YoY in January 2019 (while total passenger car sales fell 17.7% YoY). This was a climactic reversal, as China’s car output had grown 20-fold between 1995 and 2017. The PBOC has responded with 350bp of cuts in banks’ RRR (to 13.5% by , from 17% a year ago), in a move to boost the money-multiplier (but with a modest impact on M2 and loan growth).
China’s total social financing (TSF) rose by a record RMB4.64tn in January 2019, betraying signs that policy makers were panicking, hence turning on the shadow lending taps anew. Although TSF rose less in 2018 than in either 2016 or 2017, it rose more in 2H 2018 than in 2H 2017, responding to the monetary easing in 2H 2018. Despite a year of persistent and aggressive monetary easing, China’s M2 had grown a modest 8.1% YoY in 2018, up only marginally from 8% YoY at the end of October and November 2018; in January 2019, M2 accelerated to 8.4% YoY growth in response to the latest RRR cuts. FAI (fixed asset investment) slumped to just 2.5% YoY growth in May and July 2018, but then rebounded in the rest of 2018 (growing 5.9% YoY for the whole year). Opening the spigot of shadow lending involves the last throw of the dice: Premier Li Keqiang is among leading critics of this policy approach. For now, both the possibility of a trade deal and the weakness of the US$ are near-term positives that will buoy China. But the only remaining factor consistently buoying China’s growth is exports: so China will perforce need to make significant concessions in the final trade negotiations. If it does not, the positive scenario will rapidly deteriorate, and China’s high-wire act will collapse. We are cautiously bullish on China in the near-term (3-month horizon), but remain negative on a longer-term (9 months and longer) view.
In a surprising move, it was reported after the market close today that Amazon.com Inc (AMZN US) (market cap of US$804 billion) and Comcast (US$176 billion) will enter the race and have submitted initial bids to acquire Nexon Co Ltd (3659 JP)/NXC Corp.
The entrance of Amazon and Comcast is a major positive surprise and it should have a strong positive impact on Nexon’s share price. Prior to the entrance of Amazon and Comcast in this M&A battle, the market was firmly leaning towards the consortium including Tencent, Netmarble Games, and MBK Partners to acquire NXC Corp/Nexon.
Now, Amazon and Comcast’s entrance into this M&A battle has made it a lot more exciting and uncertain. Nexon Co Ltd (3659 JP)‘s share price is up 19% YTD but its share price trend has been flattening out in February. In the next few weeks, we expect further boost to Nexon’s share price (15%+), mainly because a lot more investors will think that the Tencent consortium, Amazon, and Comcast will try to pay higher price to acquire NXC Corp/Nexon. Kudos to Nexon shareholders!
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Successful resolution of geopolitical issues pertaining to China’s continued integration into the world economy remains crucial for global corporate profit expectations and risky assets.
Uncertainty about the US economic outlook has increased in recent weeks as testified by falling corporate profit growth expectations, while the recent government shutdown has delayed the release of crucial data required for monetary policy formulation.
China’s economy continues to decelerate, as testified by slowing big ticket activity, but record monthly credit growth in January indicates how the fallout from the US trade dispute has diverted attention away from lowering excessive leverage in the economy, as well as rising bond defaults.
The US will insist that currency devaluation by China cannot be deployed under any Sino-US trade dispute resolution, but this will reduce China’s sovereignty over discretionary monetary policy conduct.
Meanwhile, rumours are circulating that the US wants to impose a Plaza Accord style memorandum for China to be committed to an orderly appreciation of the yuan as part of any trade dispute resolution, but China will be wary of the fate that befell Japan after 1985 following the Plaza agreement.
AIG is selling its USD 450 million stakes in PICC today after market close. The deal scores negatively in our ECM Framework.
We like the fact that it will increase the free-float significantly and hence there will be a liquidity event, meanwhile, we are also concerned that the deal size is large compared to its liquidity.
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Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Successful resolution of geopolitical issues pertaining to China’s continued integration into the world economy remains crucial for global corporate profit expectations and risky assets.
Uncertainty about the US economic outlook has increased in recent weeks as testified by falling corporate profit growth expectations, while the recent government shutdown has delayed the release of crucial data required for monetary policy formulation.
China’s economy continues to decelerate, as testified by slowing big ticket activity, but record monthly credit growth in January indicates how the fallout from the US trade dispute has diverted attention away from lowering excessive leverage in the economy, as well as rising bond defaults.
The US will insist that currency devaluation by China cannot be deployed under any Sino-US trade dispute resolution, but this will reduce China’s sovereignty over discretionary monetary policy conduct.
Meanwhile, rumours are circulating that the US wants to impose a Plaza Accord style memorandum for China to be committed to an orderly appreciation of the yuan as part of any trade dispute resolution, but China will be wary of the fate that befell Japan after 1985 following the Plaza agreement.
AIG is selling its USD 450 million stakes in PICC today after market close. The deal scores negatively in our ECM Framework.
We like the fact that it will increase the free-float significantly and hence there will be a liquidity event, meanwhile, we are also concerned that the deal size is large compared to its liquidity.
Futu Holdings Ltd (FHL US) plans to raise upto US$130m in its US listing. The deal has been downsized from its earlier indicative size of US$300m and the valuation too has been downsized by almost the same extent to around US$1.2-1.5bn.
In this insight, I’ll run the deal through our IPO framework and comment on valuations. At the low-end the deal might be worth looking into, although free-float might end up being very small owing to US$30m being taken up Tencent which would leave just about US$100m as free-float.
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SOE State Power Investment Corporation (SPIC) is seeking to privatise China Power New Energy Development Co (735 HK) by way of a Scheme at $5.45/share, a 41.9% premium to last close and a 78.1% premium to the 30-day average.
A scrip alternative (6 New shares for one Scheme shares) into an unlisted vehicle under SPIC is also available.
China Three Gorges, CPNED’s largest shareholder with 27.10%, have given an irrevocable undertaking to vote for the Scheme and to elect the share alternative.
However, China Three Gorges is presumably required to abstain from voting at the court meeting, as it is deemed to be acting in concert with the SPIC under class (1) of the definition of the acting in concert in the Takeovers Code. The announcement does not make this clear.
Assuming China Three Gorges does abstain, a 10% blocking stake at the court meeting is equivalent to 4.48% of shares out or 53mn shares.
This looks like a pretty clean deal. It is priced above the highest close since its listing by way of introduction on the 18 July 2017, while the excitement over the potential injection of all nuclear power assets and businesses from State Nuclear Power Technology Company has been removed after the restructuring was cancelled in July last year.
The stock is currently trading at an attractive gross/annualised spread of 8.3%/28.9% conservatively assuming a late July completion, and inclusive of the final dividend.
The fact that the dollar has strengthened despite the dovish turn at the Fed this year and the significant fall in US rates and bond yields has confounded many analysts.
We view weakness in global equity markets over the past week as correcting a significant amount of the excess optimism. We recommend taking advantage of the pullback by adding exposure to our favorite areas – namely Technology. Our overall outlook on global equities (both the MSCI ACWI and ACWI ex-US) remains positive and we continue to expect higher equity prices going forward. In today’s report we provide a technical appraisal of all major markets and highlight actionable stocks throughout the int’l Technology and Communications sectors.
In April 2018, we published a FCF screen with the sole aim of identifying potential names which could prove to be strong candidates in a Small-Mid Cap portfolio. We move to update this list with a strong bias to the mid-cap stocks appearing.
This screen performs well with markets where the value style is in favour. Given the market appears to be trending back to this style, we believe the Small-Mid Cap universe should capitalise on this over the next 12-months. We identify within the screen some high trading liquidity deep value candidates across the Asia Pacific universe.
Our updated 2019 list of names contains 17 stocks, with a more diversified spread of countries and sectors, compared to April 2018. A point to note is that basic material stocks have strengthened within the composition. Interestingly, the style of stock which has increased its presence amongst the list is the contrarian style, highlighting an opening up in value.
Viva Biotechnology, a China-based drug discovery company, is seeking to raise USD 200m to list on the Hong Kong Stock Exchange. It has recently obtained approval for listing by the Hong Kong Stock Exchange. In our previous insight (link here), we discussed the company’s fundamentals, its unique business model, its shareholders, and our thoughts on its valuation.
In this insight, we look at its latest prospectus and review our valuation for Viva Biotech.
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