China

In this briefing:

1. HK Connect Discovery Weekly: PICC, Xinyi Solar (2019-03-08)
2. Weekly Oil Views: Crude Eyes Tightening Supply but in the Shadow of Gloom
3. Short Haidilao (海底捞) Before Earning & Lock-Up Expiry
4. Futu Holdings IPO Trading Update – Might Be Trading a Little Too High
5. New Century Hotel (浙江開元酒店) Trading Update – Low Free Float, Poor Liquidity

1. HK Connect Discovery Weekly: PICC, Xinyi Solar (2019-03-08)

In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.

We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.

In this insight, we will highlight PICC and Xinyi Solar.

2. Weekly Oil Views: Crude Eyes Tightening Supply but in the Shadow of Gloom

Crude has been gradually reconnecting with its supply-demand fundamentals, and the impact of highly disciplined OPEC cuts just two months into the group’s production restraint deal is becoming evident in relatively stable prices. Through much of last week, crude prices firmed and stood their ground even as global stock markets were skidding.

However, oil is not completely out of the shadows of the global economic sentiment. Crude prices were whiplashed last Friday along with the equity markets as a fresh wave of gloom and doom from the European Central Bank’s downward revision of eurozone growth projections rattled investors. Earlier in the week, China set off fresh alarm bells, by officially revising down its 2019 GDP growth target to 6-6.5%, while Premier Li Keqiang warned that the country’s economy faced a “tough struggle” ahead.

Nonetheless, benchmark Brent and WTI  crude futures resisted the lows plumbed during intraday trading Friday, to close marginally higher on the week. While global oil demand growth forecasts remain tentative, supply fundamentals are clearly firming. Output from 11 of OPEC’s 14 members that agreed to collectively curb output by around 812,000 b/d starting January this year almost reached 100% of the target in February.

The race to the compliance finish line was helped by Saudi Arabia, which is slashing its output way beyond its commitment. Meanwhile, the three OPEC members exempted from the latest round of production cuts — Iran, Libya and Venezuela — are also under-delivering. That amounted to OPEC-14 production plunging by around 1.7 million b/d compared with the high of last October.

OPEC will need to be careful not to over-tighten the market, as happened through the first half of last year. We believe the group will be cautious on that front, given its experience of 2018, when it was forced to make two policy U-turns in the space of six months. 

3. Short Haidilao (海底捞) Before Earning & Lock-Up Expiry

Haidilao International, the largest Chinese cuisine player by valuation, was listed on September 26th last year and lock-up expiry will be on March 26th. The stock has returned 24% since listing. 

• As it heads into lock-up expiry, we will examine Haidilao’s shareholder structure and potential shares up for sale.
• Haidilao was included in the Hong Kong Connect Scheme on December 10th, 2018 and shares held by mainland investors have been consistently increasing.
• But we think Haidilao’s valuation has built in a perfect growth scenario.
• Risk of de-rating for Haidilao warrants a short position.

Our previous coverage on Meituan Dianping

• Haidilao IPO First Glance: Legendary Hot Pot Restaurant that Will Be Hot (Part 1)
• Haidilao (海底捞) IPO: Superior Metrics in a Scalable Segment (Part 2)
• Haidilao (海底捞) IPO: Near Term Rapid Growth but Deceleration Ahead (Part 3)
• Haidilao (海底捞) IPO: Appealing Valuation at the Low End for a Branded National Champion (Part 4) 
• Haidilao (海底捞) Post-IPO Trading Update: Not Much Upside from High End, Lessons from Meituan

4. Futu Holdings IPO Trading Update – Might Be Trading a Little Too High

Futu Holdings Ltd (FHL US)‘s IPO was priced at the top-end at US$12/ADS raising a total of US$160m, including the US$70m raised from General Atlantic via a concurrent private placement.

In my earlier insights, I looked at the company’s background,  past financial performance, scored the deal on our IPO framework and compared it to Tiger Brokers: 

• Futu Holdings Pre-IPO – Great Metrics but in a Commoditised Industry, 
• Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation,
• Futu Holdings IPO – Given the Team, Execution, and Backers, Might Be Worth a Look at the Low-End, and
• Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics

In this insight, I will re-visit some of the deal dynamics, comment on share price drivers and provide a table with implied valuations.

5. New Century Hotel (浙江開元酒店) Trading Update – Low Free Float, Poor Liquidity

Zhejiang New Century Hotel Management Group (1158 HK) (NCH) raised about US$136m at HK$16.50 per share, just slightly below the mid point of its IPO price range. We have previously covered the IPO in:

• New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations
• New Century Hotel (浙江開元酒店) IPO Review – Higher ADR and RevPAR than Peers but Margins Fall Short

In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.

In this briefing:

1. Weekly Oil Views: Crude Eyes Tightening Supply but in the Shadow of Gloom
2. Short Haidilao (海底捞) Before Earning & Lock-Up Expiry
3. Futu Holdings IPO Trading Update – Might Be Trading a Little Too High
4. New Century Hotel (浙江開元酒店) Trading Update – Low Free Float, Poor Liquidity
5. Tesla’s Plan B 2.0; Y Not

1. Weekly Oil Views: Crude Eyes Tightening Supply but in the Shadow of Gloom

Crude has been gradually reconnecting with its supply-demand fundamentals, and the impact of highly disciplined OPEC cuts just two months into the group’s production restraint deal is becoming evident in relatively stable prices. Through much of last week, crude prices firmed and stood their ground even as global stock markets were skidding.

However, oil is not completely out of the shadows of the global economic sentiment. Crude prices were whiplashed last Friday along with the equity markets as a fresh wave of gloom and doom from the European Central Bank’s downward revision of eurozone growth projections rattled investors. Earlier in the week, China set off fresh alarm bells, by officially revising down its 2019 GDP growth target to 6-6.5%, while Premier Li Keqiang warned that the country’s economy faced a “tough struggle” ahead.

Nonetheless, benchmark Brent and WTI  crude futures resisted the lows plumbed during intraday trading Friday, to close marginally higher on the week. While global oil demand growth forecasts remain tentative, supply fundamentals are clearly firming. Output from 11 of OPEC’s 14 members that agreed to collectively curb output by around 812,000 b/d starting January this year almost reached 100% of the target in February.

The race to the compliance finish line was helped by Saudi Arabia, which is slashing its output way beyond its commitment. Meanwhile, the three OPEC members exempted from the latest round of production cuts — Iran, Libya and Venezuela — are also under-delivering. That amounted to OPEC-14 production plunging by around 1.7 million b/d compared with the high of last October.

OPEC will need to be careful not to over-tighten the market, as happened through the first half of last year. We believe the group will be cautious on that front, given its experience of 2018, when it was forced to make two policy U-turns in the space of six months. 

2. Short Haidilao (海底捞) Before Earning & Lock-Up Expiry

Haidilao International, the largest Chinese cuisine player by valuation, was listed on September 26th last year and lock-up expiry will be on March 26th. The stock has returned 24% since listing. 

• As it heads into lock-up expiry, we will examine Haidilao’s shareholder structure and potential shares up for sale.
• Haidilao was included in the Hong Kong Connect Scheme on December 10th, 2018 and shares held by mainland investors have been consistently increasing.
• But we think Haidilao’s valuation has built in a perfect growth scenario.
• Risk of de-rating for Haidilao warrants a short position.

Our previous coverage on Meituan Dianping

• Haidilao IPO First Glance: Legendary Hot Pot Restaurant that Will Be Hot (Part 1)
• Haidilao (海底捞) IPO: Superior Metrics in a Scalable Segment (Part 2)
• Haidilao (海底捞) IPO: Near Term Rapid Growth but Deceleration Ahead (Part 3)
• Haidilao (海底捞) IPO: Appealing Valuation at the Low End for a Branded National Champion (Part 4) 
• Haidilao (海底捞) Post-IPO Trading Update: Not Much Upside from High End, Lessons from Meituan

3. Futu Holdings IPO Trading Update – Might Be Trading a Little Too High

Futu Holdings Ltd (FHL US)‘s IPO was priced at the top-end at US$12/ADS raising a total of US$160m, including the US$70m raised from General Atlantic via a concurrent private placement.

In my earlier insights, I looked at the company’s background,  past financial performance, scored the deal on our IPO framework and compared it to Tiger Brokers: 

• Futu Holdings Pre-IPO – Great Metrics but in a Commoditised Industry, 
• Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation,
• Futu Holdings IPO – Given the Team, Execution, and Backers, Might Be Worth a Look at the Low-End, and
• Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics

In this insight, I will re-visit some of the deal dynamics, comment on share price drivers and provide a table with implied valuations.

4. New Century Hotel (浙江開元酒店) Trading Update – Low Free Float, Poor Liquidity

Zhejiang New Century Hotel Management Group (1158 HK) (NCH) raised about US$136m at HK$16.50 per share, just slightly below the mid point of its IPO price range. We have previously covered the IPO in:

• New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations
• New Century Hotel (浙江開元酒店) IPO Review – Higher ADR and RevPAR than Peers but Margins Fall Short

In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.

5. Tesla’s Plan B 2.0; Y Not

Employees, customers, suppliers, and investors still are reeling over Tesla’s startling decision, announced February 28th, to move immediately to online-only sales, a dramatic reversal of strategy still in place as of the 2018 10-K filing on February 19th in which the company had touted growth via recent store expansions and substantial additions planned globally going forward. 

Tesla explained that even with now three substantial price cuts on all its cars and now three significant layoffs since last summer, it must slash costs even more to support the launch of its long overdue $35,000 base version of the flagship Model 3 (see my report Tesla’s New Plan: Buy Before You Try).

I warned clients that Tesla’s stunning strategy reversal seemed driven more by alarming cash consumption plus much weaker than expected sales and profit margins already apparent in what is shaping up to be a disastrous first quarter–troubling trends that may continue. However, as I noted, it also costs money to close stores, get out of leases (good luck with that), fire employees and redistribute remaining staff, and sell off fairly new equipment at steep losses.

Not to mention that shiny new Tesla stores suddenly going dark may appear ominously similar to retail stores going out of business seen increasingly all over the country–a bad look for Tesla, especially given customers already are spooked by its escalating quality, reliability, and service problems (see “Musk and Weird Q3 Developments Are Driving Investors to Telsa’s Rivals” and “Tesla – Dave’s Not Here, and Musk Won’t Leave” and “Tesla: Down to the Wire” and Tesla – Truth and Consequences).

Tesla probably hasn’t seen the light–it’s just received as of March 1st a desperately needed cash infusion by finally securing overdue funding for Tesla Shanghai Gigafactory 3 which has been under construction since January (see Tesla – Shanghai Surprise). Unfortunately, the four banks in Tesla’s new “China Loan Agreement,” which the company announced on Thursday with a rare 8-K filing, committed only to fund a one-year limited purpose loan for up to 3.5 billion yuan ($521 million). This is barely enough time or cash to get the Shanghai assembly plant up and running–much less also stave off the current cash crunch.

But Tesla must keep up appearances as well as bolster its liquidity through at least the end of the quarter as it gets ready to reveal Thursday evening the long-awaited Model Y–though I suspect this won’t result in a massive burst of cash from new reservations as Tesla hopes.

Years of robbing Peter to pay Paul hasn’t produced a sustainable growth model for Tesla, mostly because its business strategy still is better described as, “Wow, we didn’t see that coming.”

Continue reading for Bond Angle analysis.

In this briefing:

1. Short Haidilao (海底捞) Before Earning & Lock-Up Expiry
2. Futu Holdings IPO Trading Update – Might Be Trading a Little Too High
3. New Century Hotel (浙江開元酒店) Trading Update – Low Free Float, Poor Liquidity
4. Tesla’s Plan B 2.0; Y Not
5. National People’s Congress/Political Loyalty/Trade War/Huawei Sues

1. Short Haidilao (海底捞) Before Earning & Lock-Up Expiry

Haidilao International, the largest Chinese cuisine player by valuation, was listed on September 26th last year and lock-up expiry will be on March 26th. The stock has returned 24% since listing. 

• As it heads into lock-up expiry, we will examine Haidilao’s shareholder structure and potential shares up for sale.
• Haidilao was included in the Hong Kong Connect Scheme on December 10th, 2018 and shares held by mainland investors have been consistently increasing.
• But we think Haidilao’s valuation has built in a perfect growth scenario.
• Risk of de-rating for Haidilao warrants a short position.

Our previous coverage on Meituan Dianping

• Haidilao IPO First Glance: Legendary Hot Pot Restaurant that Will Be Hot (Part 1)
• Haidilao (海底捞) IPO: Superior Metrics in a Scalable Segment (Part 2)
• Haidilao (海底捞) IPO: Near Term Rapid Growth but Deceleration Ahead (Part 3)
• Haidilao (海底捞) IPO: Appealing Valuation at the Low End for a Branded National Champion (Part 4) 
• Haidilao (海底捞) Post-IPO Trading Update: Not Much Upside from High End, Lessons from Meituan

2. Futu Holdings IPO Trading Update – Might Be Trading a Little Too High

Futu Holdings Ltd (FHL US)‘s IPO was priced at the top-end at US$12/ADS raising a total of US$160m, including the US$70m raised from General Atlantic via a concurrent private placement.

In my earlier insights, I looked at the company’s background,  past financial performance, scored the deal on our IPO framework and compared it to Tiger Brokers: 

• Futu Holdings Pre-IPO – Great Metrics but in a Commoditised Industry, 
• Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation,
• Futu Holdings IPO – Given the Team, Execution, and Backers, Might Be Worth a Look at the Low-End, and
• Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics

In this insight, I will re-visit some of the deal dynamics, comment on share price drivers and provide a table with implied valuations.

3. New Century Hotel (浙江開元酒店) Trading Update – Low Free Float, Poor Liquidity

Zhejiang New Century Hotel Management Group (1158 HK) (NCH) raised about US$136m at HK$16.50 per share, just slightly below the mid point of its IPO price range. We have previously covered the IPO in:

• New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations
• New Century Hotel (浙江開元酒店) IPO Review – Higher ADR and RevPAR than Peers but Margins Fall Short

In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.

4. Tesla’s Plan B 2.0; Y Not

Employees, customers, suppliers, and investors still are reeling over Tesla’s startling decision, announced February 28th, to move immediately to online-only sales, a dramatic reversal of strategy still in place as of the 2018 10-K filing on February 19th in which the company had touted growth via recent store expansions and substantial additions planned globally going forward. 

Tesla explained that even with now three substantial price cuts on all its cars and now three significant layoffs since last summer, it must slash costs even more to support the launch of its long overdue $35,000 base version of the flagship Model 3 (see my report Tesla’s New Plan: Buy Before You Try).

I warned clients that Tesla’s stunning strategy reversal seemed driven more by alarming cash consumption plus much weaker than expected sales and profit margins already apparent in what is shaping up to be a disastrous first quarter–troubling trends that may continue. However, as I noted, it also costs money to close stores, get out of leases (good luck with that), fire employees and redistribute remaining staff, and sell off fairly new equipment at steep losses.

Not to mention that shiny new Tesla stores suddenly going dark may appear ominously similar to retail stores going out of business seen increasingly all over the country–a bad look for Tesla, especially given customers already are spooked by its escalating quality, reliability, and service problems (see “Musk and Weird Q3 Developments Are Driving Investors to Telsa’s Rivals” and “Tesla – Dave’s Not Here, and Musk Won’t Leave” and “Tesla: Down to the Wire” and Tesla – Truth and Consequences).

Tesla probably hasn’t seen the light–it’s just received as of March 1st a desperately needed cash infusion by finally securing overdue funding for Tesla Shanghai Gigafactory 3 which has been under construction since January (see Tesla – Shanghai Surprise). Unfortunately, the four banks in Tesla’s new “China Loan Agreement,” which the company announced on Thursday with a rare 8-K filing, committed only to fund a one-year limited purpose loan for up to 3.5 billion yuan ($521 million). This is barely enough time or cash to get the Shanghai assembly plant up and running–much less also stave off the current cash crunch.

But Tesla must keep up appearances as well as bolster its liquidity through at least the end of the quarter as it gets ready to reveal Thursday evening the long-awaited Model Y–though I suspect this won’t result in a massive burst of cash from new reservations as Tesla hopes.

Years of robbing Peter to pay Paul hasn’t produced a sustainable growth model for Tesla, mostly because its business strategy still is better described as, “Wow, we didn’t see that coming.”

Continue reading for Bond Angle analysis.

5. National People’s Congress/Political Loyalty/Trade War/Huawei Sues

China News That Matters

• Still faster than most of the world
• Stick with Xi, if y’know what’s good for ya
• Trade deficit grows as war drags on 
• I’ll see you and raise you: Huawei sues Washington

In this briefing:

1. Futu Holdings IPO Trading Update – Might Be Trading a Little Too High
2. New Century Hotel (浙江開元酒店) Trading Update – Low Free Float, Poor Liquidity
3. Tesla’s Plan B 2.0; Y Not
4. National People’s Congress/Political Loyalty/Trade War/Huawei Sues
5. Meituan Dianping (3690 HK): Lock-Up Expiry – Good 4Q18 Required

1. Futu Holdings IPO Trading Update – Might Be Trading a Little Too High

Futu Holdings Ltd (FHL US)‘s IPO was priced at the top-end at US$12/ADS raising a total of US$160m, including the US$70m raised from General Atlantic via a concurrent private placement.

In my earlier insights, I looked at the company’s background,  past financial performance, scored the deal on our IPO framework and compared it to Tiger Brokers: 

• Futu Holdings Pre-IPO – Great Metrics but in a Commoditised Industry, 
• Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation,
• Futu Holdings IPO – Given the Team, Execution, and Backers, Might Be Worth a Look at the Low-End, and
• Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics

In this insight, I will re-visit some of the deal dynamics, comment on share price drivers and provide a table with implied valuations.

2. New Century Hotel (浙江開元酒店) Trading Update – Low Free Float, Poor Liquidity

Zhejiang New Century Hotel Management Group (1158 HK) (NCH) raised about US$136m at HK$16.50 per share, just slightly below the mid point of its IPO price range. We have previously covered the IPO in:

• New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations
• New Century Hotel (浙江開元酒店) IPO Review – Higher ADR and RevPAR than Peers but Margins Fall Short

In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.

3. Tesla’s Plan B 2.0; Y Not

Employees, customers, suppliers, and investors still are reeling over Tesla’s startling decision, announced February 28th, to move immediately to online-only sales, a dramatic reversal of strategy still in place as of the 2018 10-K filing on February 19th in which the company had touted growth via recent store expansions and substantial additions planned globally going forward. 

Tesla explained that even with now three substantial price cuts on all its cars and now three significant layoffs since last summer, it must slash costs even more to support the launch of its long overdue $35,000 base version of the flagship Model 3 (see my report Tesla’s New Plan: Buy Before You Try).

I warned clients that Tesla’s stunning strategy reversal seemed driven more by alarming cash consumption plus much weaker than expected sales and profit margins already apparent in what is shaping up to be a disastrous first quarter–troubling trends that may continue. However, as I noted, it also costs money to close stores, get out of leases (good luck with that), fire employees and redistribute remaining staff, and sell off fairly new equipment at steep losses.

Not to mention that shiny new Tesla stores suddenly going dark may appear ominously similar to retail stores going out of business seen increasingly all over the country–a bad look for Tesla, especially given customers already are spooked by its escalating quality, reliability, and service problems (see “Musk and Weird Q3 Developments Are Driving Investors to Telsa’s Rivals” and “Tesla – Dave’s Not Here, and Musk Won’t Leave” and “Tesla: Down to the Wire” and Tesla – Truth and Consequences).

Tesla probably hasn’t seen the light–it’s just received as of March 1st a desperately needed cash infusion by finally securing overdue funding for Tesla Shanghai Gigafactory 3 which has been under construction since January (see Tesla – Shanghai Surprise). Unfortunately, the four banks in Tesla’s new “China Loan Agreement,” which the company announced on Thursday with a rare 8-K filing, committed only to fund a one-year limited purpose loan for up to 3.5 billion yuan ($521 million). This is barely enough time or cash to get the Shanghai assembly plant up and running–much less also stave off the current cash crunch.

But Tesla must keep up appearances as well as bolster its liquidity through at least the end of the quarter as it gets ready to reveal Thursday evening the long-awaited Model Y–though I suspect this won’t result in a massive burst of cash from new reservations as Tesla hopes.

Years of robbing Peter to pay Paul hasn’t produced a sustainable growth model for Tesla, mostly because its business strategy still is better described as, “Wow, we didn’t see that coming.”

Continue reading for Bond Angle analysis.

4. National People’s Congress/Political Loyalty/Trade War/Huawei Sues

China News That Matters

• Still faster than most of the world
• Stick with Xi, if y’know what’s good for ya
• Trade deficit grows as war drags on 
• I’ll see you and raise you: Huawei sues Washington

5. Meituan Dianping (3690 HK): Lock-Up Expiry – Good 4Q18 Required

Meituan Dianping (3690 HK)‘s shares currently trade 18% below its IPO price of HK$69.00 per share. Meituan will announce its 4Q18 results on Monday, 11 March 2019, after market close. Notably, Meituan’s six-month lock-up period expires on 19 March 2019.

In this briefing:

1. Tesla’s Plan B 2.0; Y Not
2. National People’s Congress/Political Loyalty/Trade War/Huawei Sues
3. Meituan Dianping (3690 HK): Lock-Up Expiry – Good 4Q18 Required
4. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive
5. ECM Weekly (9 March 2019) – Lyft, Shenwan Hongyuan, RHB Bank, Sea Ltd, Xinyi Solar, China Gas

1. Tesla’s Plan B 2.0; Y Not

Employees, customers, suppliers, and investors still are reeling over Tesla’s startling decision, announced February 28th, to move immediately to online-only sales, a dramatic reversal of strategy still in place as of the 2018 10-K filing on February 19th in which the company had touted growth via recent store expansions and substantial additions planned globally going forward. 

Tesla explained that even with now three substantial price cuts on all its cars and now three significant layoffs since last summer, it must slash costs even more to support the launch of its long overdue $35,000 base version of the flagship Model 3 (see my report Tesla’s New Plan: Buy Before You Try).

I warned clients that Tesla’s stunning strategy reversal seemed driven more by alarming cash consumption plus much weaker than expected sales and profit margins already apparent in what is shaping up to be a disastrous first quarter–troubling trends that may continue. However, as I noted, it also costs money to close stores, get out of leases (good luck with that), fire employees and redistribute remaining staff, and sell off fairly new equipment at steep losses.

Not to mention that shiny new Tesla stores suddenly going dark may appear ominously similar to retail stores going out of business seen increasingly all over the country–a bad look for Tesla, especially given customers already are spooked by its escalating quality, reliability, and service problems (see “Musk and Weird Q3 Developments Are Driving Investors to Telsa’s Rivals” and “Tesla – Dave’s Not Here, and Musk Won’t Leave” and “Tesla: Down to the Wire” and Tesla – Truth and Consequences).

Tesla probably hasn’t seen the light–it’s just received as of March 1st a desperately needed cash infusion by finally securing overdue funding for Tesla Shanghai Gigafactory 3 which has been under construction since January (see Tesla – Shanghai Surprise). Unfortunately, the four banks in Tesla’s new “China Loan Agreement,” which the company announced on Thursday with a rare 8-K filing, committed only to fund a one-year limited purpose loan for up to 3.5 billion yuan ($521 million). This is barely enough time or cash to get the Shanghai assembly plant up and running–much less also stave off the current cash crunch.

But Tesla must keep up appearances as well as bolster its liquidity through at least the end of the quarter as it gets ready to reveal Thursday evening the long-awaited Model Y–though I suspect this won’t result in a massive burst of cash from new reservations as Tesla hopes.

Years of robbing Peter to pay Paul hasn’t produced a sustainable growth model for Tesla, mostly because its business strategy still is better described as, “Wow, we didn’t see that coming.”

Continue reading for Bond Angle analysis.

2. National People’s Congress/Political Loyalty/Trade War/Huawei Sues

China News That Matters

• Still faster than most of the world
• Stick with Xi, if y’know what’s good for ya
• Trade deficit grows as war drags on 
• I’ll see you and raise you: Huawei sues Washington

3. Meituan Dianping (3690 HK): Lock-Up Expiry – Good 4Q18 Required

Meituan Dianping (3690 HK)‘s shares currently trade 18% below its IPO price of HK$69.00 per share. Meituan will announce its 4Q18 results on Monday, 11 March 2019, after market close. Notably, Meituan’s six-month lock-up period expires on 19 March 2019.

4. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive

• Capital flows are strongly Granger causal
• Gross capital flows lead World shipping activity by 4 months
• Capital flows have been slowly rising since June 2018: in February they jumped
• Reinforces out pro-Asia and pro-China investment message

5. ECM Weekly (9 March 2019) – Lyft, Shenwan Hongyuan, RHB Bank, Sea Ltd, Xinyi Solar, China Gas

Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 63.6% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings

• Ruhnn (the U.S, ~US$200m)
• Sun Car Insurance (Hong Kong, >US$100m)
• Sichuan Languang Justbon Services (Hong Kong, ~US$100m)
• Mabpharm (Hong Kong, re-filed)
• Intellicentrics (Hong Kong, CLSA sole-sponsor, likely to be <US$100m)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

News on Upcoming IPOs

• Chinese drone maker EHang plans US IPO
• Airport REIT could finance Singapore’s massive infrastructure ambitions
• PNB MetLife Insurance IPO likely in Q2FY20

Smartkarma Community’s this week Analysis on Upcoming IPO

• Lyft IPO Preview
• Lyft IPO Preview: Maybe We’ll Just Walk?
• LYFT Pre-IPO – Drivers and Shared Rides Hold the Key But the Numbers Are Missing
• Embassy Office Parks REIT – Comparison with AIT and a Look at the Required Yield
• Shenwan Hongyuan (申万宏源) A+H: A Commoditized Broker Business
• Polycab IPO: Largest Cables Player, Asset-Heavy Low ROE Model = Vulnerable to Govt Capex Slowdown
• Hyundai Autoever IPO Valuation Analysis

In this briefing:

1. National People’s Congress/Political Loyalty/Trade War/Huawei Sues
2. Meituan Dianping (3690 HK): Lock-Up Expiry – Good 4Q18 Required
3. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive
4. ECM Weekly (9 March 2019) – Lyft, Shenwan Hongyuan, RHB Bank, Sea Ltd, Xinyi Solar, China Gas
5. Japan – Chinese Flu

1. National People’s Congress/Political Loyalty/Trade War/Huawei Sues

China News That Matters

• Still faster than most of the world
• Stick with Xi, if y’know what’s good for ya
• Trade deficit grows as war drags on 
• I’ll see you and raise you: Huawei sues Washington

2. Meituan Dianping (3690 HK): Lock-Up Expiry – Good 4Q18 Required

Meituan Dianping (3690 HK)‘s shares currently trade 18% below its IPO price of HK$69.00 per share. Meituan will announce its 4Q18 results on Monday, 11 March 2019, after market close. Notably, Meituan’s six-month lock-up period expires on 19 March 2019.

3. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive

• Capital flows are strongly Granger causal
• Gross capital flows lead World shipping activity by 4 months
• Capital flows have been slowly rising since June 2018: in February they jumped
• Reinforces out pro-Asia and pro-China investment message

4. ECM Weekly (9 March 2019) – Lyft, Shenwan Hongyuan, RHB Bank, Sea Ltd, Xinyi Solar, China Gas

Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 63.6% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings

• Ruhnn (the U.S, ~US$200m)
• Sun Car Insurance (Hong Kong, >US$100m)
• Sichuan Languang Justbon Services (Hong Kong, ~US$100m)
• Mabpharm (Hong Kong, re-filed)
• Intellicentrics (Hong Kong, CLSA sole-sponsor, likely to be <US$100m)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

News on Upcoming IPOs

• Chinese drone maker EHang plans US IPO
• Airport REIT could finance Singapore’s massive infrastructure ambitions
• PNB MetLife Insurance IPO likely in Q2FY20

Smartkarma Community’s this week Analysis on Upcoming IPO

• Lyft IPO Preview
• Lyft IPO Preview: Maybe We’ll Just Walk?
• LYFT Pre-IPO – Drivers and Shared Rides Hold the Key But the Numbers Are Missing
• Embassy Office Parks REIT – Comparison with AIT and a Look at the Required Yield
• Shenwan Hongyuan (申万宏源) A+H: A Commoditized Broker Business
• Polycab IPO: Largest Cables Player, Asset-Heavy Low ROE Model = Vulnerable to Govt Capex Slowdown
• Hyundai Autoever IPO Valuation Analysis

5. Japan – Chinese Flu

By Konstantinos Venetis, Senior Economist

• Japan skirts recession but near-term prospects remain weak
• Deflationary headwinds to persist in H1, threatening business spending
• Recovery likely in late 2019 as world trade finds a firmer footing

In this briefing:

1. ESR Cayman Pre-IPO – A Giant in the Making
2. China Headwinds May Have Less Impact on Macau VIP Revenue than Forecasted
3. Xinyi Solar Placement – Past Deals Have Done Well, Improvement in Sentiment Should Help
4. NIO (NIO US): Lock-Up Expiry – This Could Get Messy
5. Matahari Department Store (LPPF IJ) – A Retail Conundrum

1. ESR Cayman Pre-IPO – A Giant in the Making

ESR Cayman (ESR HK) aims to raise up to US$1.5bn in its planned Hong Kong listing, as per media reports. The company is backed by Warburg Pincus and counts APG, the Netherlands’ largest pension provider, as one of its main investors.

ESR operates an end-to-end model starting from development of the asset to divesting it to one of its private funds and/or REITs. It operates in China, Japan, South Korea, Australia, Singapore and India. AUM has grown rapidly over the past few years as the company has undertaken a number of acquisitions in the recent past. 

In this insight, I’ll touch upon the company’s business model and provide an overview of its operations. 

2. China Headwinds May Have Less Impact on Macau VIP Revenue than Forecasted

• Our profile of VIP gamblers indicate greater resiliency to slowing macro economics due to the nature of their wealth sources and motivations. We continue to believe Macau stocks are cheap.
• Our overall market forecast for 2019 remains +8% y/y. It includes a 4% upside in VIP.
• VIP gamblers behavior patterns lean to more influence from personal, rather than economic factors such as macro headwinds.

3. Xinyi Solar Placement – Past Deals Have Done Well, Improvement in Sentiment Should Help

Xinyi Solar Holdings (968 HK) is looking to raise about US$170m in its top-up placement with an upsize option of 225m shares.

The deal scored well on our framework owing to its good track record, strong earnings and price momentum. The company’s 2H 2018 result had marginally beaten estimates while the news of China potentially reversing its effort to reduce solar subsidy has helped improve the overall sentiment of Xinyi Solar. On top of that, the past deals have generally done well.

4. NIO (NIO US): Lock-Up Expiry – This Could Get Messy

Yesterday, NIO Inc (NIO US)’s share tumbled 20% on the back of poor 1Q19 guidance. NIO warned that deliveries of ES8, its electric SUV, have been sluggish so far in 2019 and scrapped plans to build its Shanghai Manufacturing Plant. NIO blamed the slump on uncertainty over government subsidies for electric vehicles, China’s slowing economy and disruption caused by the Chinese New Year holidays.

5. Matahari Department Store (LPPF IJ) – A Retail Conundrum

Pt Matahari Department Store (LPPF IJ)‘s FY18 results call was an interesting combination of kitchen sinking, a cautious outlook, combined with some more optimistic strategies on specialty stores with new brands and smaller format stores for regional expansion. The big question is whether these strategies will win out or will the company continue to underwhelm on its growth prospects? 

Pt Matahari Department Store (LPPF IJ) remains a market leader in its space with 159 departments stores across Indonesia selling affordable fashion to the middle classes but it has underwhelmed on a few occasions on its growth and guidance. It is reducing its dividend payout to facilitate the build-out of specialty stores with new brands on board. 

Valuations do now look interesting with the company trading on 6.0x FY19E PER and 5.4x FY20E PER. It generates a forecast ROE of 70% and ROE of 30%, which is extremely high for a retailer. The question is how much analysts will downgrade and whether investors will look through its Lippo connection. After another 9% fall in the share price today after 22% yesterday, a lot does seem to have been factored in already.

In this briefing:

1. Meituan Dianping (3690 HK): Lock-Up Expiry – Good 4Q18 Required
2. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive
3. ECM Weekly (9 March 2019) – Lyft, Shenwan Hongyuan, RHB Bank, Sea Ltd, Xinyi Solar, China Gas
4. Japan – Chinese Flu
5. China Tower Results Confirm Lower Capex Outlook, but Were Otherwise Mixed

1. Meituan Dianping (3690 HK): Lock-Up Expiry – Good 4Q18 Required

Meituan Dianping (3690 HK)‘s shares currently trade 18% below its IPO price of HK$69.00 per share. Meituan will announce its 4Q18 results on Monday, 11 March 2019, after market close. Notably, Meituan’s six-month lock-up period expires on 19 March 2019.

2. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive

• Capital flows are strongly Granger causal
• Gross capital flows lead World shipping activity by 4 months
• Capital flows have been slowly rising since June 2018: in February they jumped
• Reinforces out pro-Asia and pro-China investment message

3. ECM Weekly (9 March 2019) – Lyft, Shenwan Hongyuan, RHB Bank, Sea Ltd, Xinyi Solar, China Gas

Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 63.6% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings

• Ruhnn (the U.S, ~US$200m)
• Sun Car Insurance (Hong Kong, >US$100m)
• Sichuan Languang Justbon Services (Hong Kong, ~US$100m)
• Mabpharm (Hong Kong, re-filed)
• Intellicentrics (Hong Kong, CLSA sole-sponsor, likely to be <US$100m)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

News on Upcoming IPOs

• Chinese drone maker EHang plans US IPO
• Airport REIT could finance Singapore’s massive infrastructure ambitions
• PNB MetLife Insurance IPO likely in Q2FY20

Smartkarma Community’s this week Analysis on Upcoming IPO

• Lyft IPO Preview
• Lyft IPO Preview: Maybe We’ll Just Walk?
• LYFT Pre-IPO – Drivers and Shared Rides Hold the Key But the Numbers Are Missing
• Embassy Office Parks REIT – Comparison with AIT and a Look at the Required Yield
• Shenwan Hongyuan (申万宏源) A+H: A Commoditized Broker Business
• Polycab IPO: Largest Cables Player, Asset-Heavy Low ROE Model = Vulnerable to Govt Capex Slowdown
• Hyundai Autoever IPO Valuation Analysis

4. Japan – Chinese Flu

By Konstantinos Venetis, Senior Economist

• Japan skirts recession but near-term prospects remain weak
• Deflationary headwinds to persist in H1, threatening business spending
• Recovery likely in late 2019 as world trade finds a firmer footing

5. China Tower Results Confirm Lower Capex Outlook, but Were Otherwise Mixed

China Tower (788 HK) reported 4Q18 results that looks slightly disappointing. However, they did deliver strong net profit, confirmation that capex is likely to materially undershoot guidance, and the first dividend for the company. However, while that is positive, there were areas of disappointment, with weaker revenue growth and EBITDA.

Our view remains that China Tower’s shares are relatively undervalued and expect share prices to continue to move higher over time, as the stock reflects its inflecting ROIC. It remains our favored name in China given the risks of policy driven over-investment into 5G (see Chinese Telcos: Rising 5G Capex Risk Leads to Another Downgrade).

In this briefing:

1. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive
2. ECM Weekly (9 March 2019) – Lyft, Shenwan Hongyuan, RHB Bank, Sea Ltd, Xinyi Solar, China Gas
3. Japan – Chinese Flu
4. China Tower Results Confirm Lower Capex Outlook, but Were Otherwise Mixed
5. ESR Cayman Pre-IPO – A Giant in the Making

1. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive

• Capital flows are strongly Granger causal
• Gross capital flows lead World shipping activity by 4 months
• Capital flows have been slowly rising since June 2018: in February they jumped
• Reinforces out pro-Asia and pro-China investment message

2. ECM Weekly (9 March 2019) – Lyft, Shenwan Hongyuan, RHB Bank, Sea Ltd, Xinyi Solar, China Gas

Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 63.6% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings

• Ruhnn (the U.S, ~US$200m)
• Sun Car Insurance (Hong Kong, >US$100m)
• Sichuan Languang Justbon Services (Hong Kong, ~US$100m)
• Mabpharm (Hong Kong, re-filed)
• Intellicentrics (Hong Kong, CLSA sole-sponsor, likely to be <US$100m)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

News on Upcoming IPOs

• Chinese drone maker EHang plans US IPO
• Airport REIT could finance Singapore’s massive infrastructure ambitions
• PNB MetLife Insurance IPO likely in Q2FY20

Smartkarma Community’s this week Analysis on Upcoming IPO

• Lyft IPO Preview
• Lyft IPO Preview: Maybe We’ll Just Walk?
• LYFT Pre-IPO – Drivers and Shared Rides Hold the Key But the Numbers Are Missing
• Embassy Office Parks REIT – Comparison with AIT and a Look at the Required Yield
• Shenwan Hongyuan (申万宏源) A+H: A Commoditized Broker Business
• Polycab IPO: Largest Cables Player, Asset-Heavy Low ROE Model = Vulnerable to Govt Capex Slowdown
• Hyundai Autoever IPO Valuation Analysis

3. Japan – Chinese Flu

By Konstantinos Venetis, Senior Economist

• Japan skirts recession but near-term prospects remain weak
• Deflationary headwinds to persist in H1, threatening business spending
• Recovery likely in late 2019 as world trade finds a firmer footing

4. China Tower Results Confirm Lower Capex Outlook, but Were Otherwise Mixed

China Tower (788 HK) reported 4Q18 results that looks slightly disappointing. However, they did deliver strong net profit, confirmation that capex is likely to materially undershoot guidance, and the first dividend for the company. However, while that is positive, there were areas of disappointment, with weaker revenue growth and EBITDA.

Our view remains that China Tower’s shares are relatively undervalued and expect share prices to continue to move higher over time, as the stock reflects its inflecting ROIC. It remains our favored name in China given the risks of policy driven over-investment into 5G (see Chinese Telcos: Rising 5G Capex Risk Leads to Another Downgrade).

5. ESR Cayman Pre-IPO – A Giant in the Making

ESR Cayman (ESR HK) aims to raise up to US$1.5bn in its planned Hong Kong listing, as per media reports. The company is backed by Warburg Pincus and counts APG, the Netherlands’ largest pension provider, as one of its main investors.

ESR operates an end-to-end model starting from development of the asset to divesting it to one of its private funds and/or REITs. It operates in China, Japan, South Korea, Australia, Singapore and India. AUM has grown rapidly over the past few years as the company has undertaken a number of acquisitions in the recent past. 

In this insight, I’ll touch upon the company’s business model and provide an overview of its operations. 

In this briefing:

1. ECM Weekly (9 March 2019) – Lyft, Shenwan Hongyuan, RHB Bank, Sea Ltd, Xinyi Solar, China Gas
2. Japan – Chinese Flu
3. China Tower Results Confirm Lower Capex Outlook, but Were Otherwise Mixed
4. ESR Cayman Pre-IPO – A Giant in the Making
5. China Headwinds May Have Less Impact on Macau VIP Revenue than Forecasted

1. ECM Weekly (9 March 2019) – Lyft, Shenwan Hongyuan, RHB Bank, Sea Ltd, Xinyi Solar, China Gas

Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 63.6% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings

• Ruhnn (the U.S, ~US$200m)
• Sun Car Insurance (Hong Kong, >US$100m)
• Sichuan Languang Justbon Services (Hong Kong, ~US$100m)
• Mabpharm (Hong Kong, re-filed)
• Intellicentrics (Hong Kong, CLSA sole-sponsor, likely to be <US$100m)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

News on Upcoming IPOs

• Chinese drone maker EHang plans US IPO
• Airport REIT could finance Singapore’s massive infrastructure ambitions
• PNB MetLife Insurance IPO likely in Q2FY20

Smartkarma Community’s this week Analysis on Upcoming IPO

• Lyft IPO Preview
• Lyft IPO Preview: Maybe We’ll Just Walk?
• LYFT Pre-IPO – Drivers and Shared Rides Hold the Key But the Numbers Are Missing
• Embassy Office Parks REIT – Comparison with AIT and a Look at the Required Yield
• Shenwan Hongyuan (申万宏源) A+H: A Commoditized Broker Business
• Polycab IPO: Largest Cables Player, Asset-Heavy Low ROE Model = Vulnerable to Govt Capex Slowdown
• Hyundai Autoever IPO Valuation Analysis

2. Japan – Chinese Flu

By Konstantinos Venetis, Senior Economist

• Japan skirts recession but near-term prospects remain weak
• Deflationary headwinds to persist in H1, threatening business spending
• Recovery likely in late 2019 as world trade finds a firmer footing

3. China Tower Results Confirm Lower Capex Outlook, but Were Otherwise Mixed

China Tower (788 HK) reported 4Q18 results that looks slightly disappointing. However, they did deliver strong net profit, confirmation that capex is likely to materially undershoot guidance, and the first dividend for the company. However, while that is positive, there were areas of disappointment, with weaker revenue growth and EBITDA.

Our view remains that China Tower’s shares are relatively undervalued and expect share prices to continue to move higher over time, as the stock reflects its inflecting ROIC. It remains our favored name in China given the risks of policy driven over-investment into 5G (see Chinese Telcos: Rising 5G Capex Risk Leads to Another Downgrade).

4. ESR Cayman Pre-IPO – A Giant in the Making

ESR Cayman (ESR HK) aims to raise up to US$1.5bn in its planned Hong Kong listing, as per media reports. The company is backed by Warburg Pincus and counts APG, the Netherlands’ largest pension provider, as one of its main investors.

ESR operates an end-to-end model starting from development of the asset to divesting it to one of its private funds and/or REITs. It operates in China, Japan, South Korea, Australia, Singapore and India. AUM has grown rapidly over the past few years as the company has undertaken a number of acquisitions in the recent past. 

In this insight, I’ll touch upon the company’s business model and provide an overview of its operations. 

5. China Headwinds May Have Less Impact on Macau VIP Revenue than Forecasted

• Our profile of VIP gamblers indicate greater resiliency to slowing macro economics due to the nature of their wealth sources and motivations. We continue to believe Macau stocks are cheap.
• Our overall market forecast for 2019 remains +8% y/y. It includes a 4% upside in VIP.
• VIP gamblers behavior patterns lean to more influence from personal, rather than economic factors such as macro headwinds.