China

In this briefing:

1. Petrochina Breakout and Laggard Play
2. Chinese Telcos: Rising 5G Capex Risk Leads to Another Downgrade
3. Best World (BEST SP): Not the Best Financials to Disprove The Business Times Allegations
4. HLX02: Innovation Could Overtake
5. January Headline Data for China

1. Petrochina Breakout and Laggard Play

Petrochina Co Ltd H (857 HK) has remains suppressed but with oil perking up there is a laggard upside play taking shape as we begin to see distribution in HK upside leaders. On weakness we like positioning on the long side and can be used as a pair with an index short or one of the steel counters.

Given stock leaders are showing deteriorating upside momentum, we expect laggards to attract more attention.

RSI and MACD breakout patterns outlined as well as the price breakout at 5.10.

A bigger descending wedge also shows promise as a secondary breakout trigger.

MACD pattern resistance will help define the trending capability post breakout.

2. Chinese Telcos: Rising 5G Capex Risk Leads to Another Downgrade

We recently downgraded the Chinese telcos on rising concerns that the telcos will be required to do “national service” to support China’s technological leadership in 5G.  The closure of many overseas markets to Chinese equipment suppliers (esp Huawei, but also Zte Corp H (763 HK)) means the risk of a more aggressive 5G roll-out has increased.  Markets have started to take notice but the initial reaction has been positive on excitement over the 5G opportunity. Given the lack of a strong business case for 5G currently, we don think additional capex is a positive. We model what an extreme roll-out could look like and the impact on the telcos. Along with a weakening macro outlook, we have further downgraded target prices for all three operators and cut China Mobile (941 HK) and China Telecom (728 HK) to Reduce and China Unicom (762 HK) to Neutral.

3. Best World (BEST SP): Not the Best Financials to Disprove The Business Times Allegations

Best World International (BEST SP) is a direct-selling company that distributes premium skincare and wellness products. On Monday, The Business Times claimed that it is difficult to verify Best World’s strong sales in China based on “an unimpressive online and offline footprint.” On the back of the Business Times article, Best World shares slid 17% before the company was granted a trading halt pending a clarification announcement.

4. HLX02: Innovation Could Overtake

The oncology treatment landscape in China is evolving rapidly as the government has prioritized access to innovative drugs to meet this significant unmet need. In particular, investors considering the Shanghai Henlius Biotech (1566213D HK) listing should be aware of the emergence of a drug that potentially is superior to Roche Holding AG (ROG SW)‘s Herceptin (and Shanghai Henlius’ HLX02) for the treatment of patients with HER2-positive breast cancer (and ultimately HER2-positive gastric cancer). While there should be good demand for cheaper alternatives to Herceptin, the availability of a superior alternative potentially shortens the lifecycle of Herceptin biosimilars. 

China has only recently “modernized” its drug approval and reimbursement, so there is little precedent to rely upon to estimate the speed and magnitude of changes in the market. As brokers rollout forecasts for the company and HLX02, investors should ask if the numbers somehow reflect this risk.

We do not have a view of the offering, but tag this Insight as Bearish because we are highlighting a potential risk.

5. January Headline Data for China

Sometimes at Balding’s World we explore worm holes of Chinese data. Yes, granular data is awesome, but the global economic calendar should not be overlooked nor headline data taken for granted. To that end today we take a look at some key figures to recently emerge.

In this briefing:

1. PBOC and the CNY Job
2. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data
3. New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations
4. Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao
5. Tencent (700 HK): In Fact Benefited from License Suspension

1. PBOC and the CNY Job

Over and over again we have commented on China’s FX market as a gauge for health of China’s markets. It is not just due to FX trading and rate shifts. It is also because it is easier to spot the PBOC gaming the system in the FX market. And we do believe that right now the PBOC is pushing the CNY away from what the value would be otherwise.

2. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data

3. New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations

Zhejiang New Century Hotel Management Group (ZHEKAIH HK) (ZNCH) is looking to raise US$220m in its upcoming IPO. 

ZNCH is a hotel operator and manager with presence across China. The company grew its revenue by a modest 5% from 2015 to 2017 but made significant improvements in profitability. Gross profit, EBITDA and PATMI grew by 33%, 61%, and 132% CAGR over the same period.

However, the improved profitability has not been driven by underlying operations. The company seemed a tad too ambitious to be expanding via leasing hotel when it already has a large hotel management pipeline.

In this insight, we will look at the company’s financial and operational performance, the drivers of its strong margin expansion, and include some questions for management.

4. Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao

Anheuser Busch Inbev Sa/Nv (ABI BB) is looking to list its Asian operations in order to lighten its debt burden. The listing will probably be in Hong Kong and the company could raise around US$5bn at a valuation of around US$70bn.

In my earlier insight, Ab InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China, I looked at how the Asian operations of ABI have shaped up over the past few years.  

In this insight, I’ll do a quick comparison of the past financial performance of China Resources Beer Holdin (291 HK) and Tsingtao Brewery Co Ltd H (168 HK).

5. Tencent (700 HK): In Fact Benefited from License Suspension

• Tencent’s market share as measured by the number of active users increased during the the period license suspension.
• We believe that Tencent’s market share as measured by active users will bring increased market share as measured by revenues.
• We also believe that during the hard times small companies always die.

In this briefing:

1. New Century Hotel Mgmt IPO Preview: Two-Speed Businesses
2. Naspers: Softbank Buyback a Guide for Naspers?
3. Global Equity Strategy: Constructive Outlook Intact, Bottoming Process Continues
4. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia
5. Free Money Has Flown

1. New Century Hotel Mgmt IPO Preview: Two-Speed Businesses

Zhejiang New Century Hotel Management Group (ZHEKAIH HK)  is a leading hotel group in China engaged in the operation and management of mid-scale and upscale hotel chains. New Century has started pre-marketing for a Hong Kong IPO to raise up to $200 million, according to press reports.

2. Naspers: Softbank Buyback a Guide for Naspers?

Recently, Softbank’s (9984 JP) shares jumped +18% after announcing a $5.5bn share buyback. Using Smartkarma’s holdco monitor, the discount to NAV had widened to around 55% prior to the announcement but is now sitting around 40-45%. There were a few key reasons for the buyback: (1) the Softbank Corp (9434 JP) (KK) IPO netted $20bn, giving the company the flexibility to do the buyback, and (2) Softbank is taking a more disciplined approach to further platform investments.

Both these arguments are also available to Naspers (NPN SJ) management and a move to buy back 5% of market cap is feasible and we believe would narrow the discount. The question is whether management are listening. They have been dismissive of buybacks in the past but this could change.

3. Global Equity Strategy: Constructive Outlook Intact, Bottoming Process Continues

We remain constructive overall and continue to believe that global equities (MSCI ACWI) are going through a bottoming process. Opportunities exist but Sector leadership is mixed.  In our February International Strategy document, we explore various themes which lead to our overall constructive outlook, as well as a technical appraisal of each Sector and the investable opportunities therein.

4. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia

Repsol SA (REP SM)‘s discovery is very significant for the companies involved and others around the area, which we discuss in detail below. It is also important for Indonesia, which requires more gas to supply domestic and export demand. It is also positive for exploration sentiment globally, to see a material discovery (Oil Exploration: We Expect a Resurgence in 2019 Pointing to Strong Performance for E&Ps) and this may encourage further M&A in Indonesia such as this deal: (Indonesia Upstream Gas Asset Sale: Positive Read-Through to Other SE Asia Gas Companies).

5. Free Money Has Flown

The world will soon discover that debt matters.

The announcement of each round of QE increased asset prices, but the effect on Treasury bond prices began to fade when central bank purchases began. This unexpected behaviour revealed a little-known fact: asset prices react more to the expectation of changes in liquidity than to the experience of greater liquidity in financial markets. By contrast, economic growth is subject to the fluctuating standards of commercial bank lending, which follow variations in the demand for credit. Consequently, financial markets lead the economy. Meanwhile, central banks focus on lagging indicators, so they’re followers, not leaders. Bond markets usually predict more accurately than stock markets. To work, central bank easing policies require real risk-adjusted interest rates. However, with those rates below zero in many countries, further reductions would penalise lenders without helping borrowers. Thus, only rising inflation can save stressed debtors.

In this briefing:

1. Naspers: Softbank Buyback a Guide for Naspers?
2. Global Equity Strategy: Constructive Outlook Intact, Bottoming Process Continues
3. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia
4. Free Money Has Flown
5. PBOC and the CNY Job

1. Naspers: Softbank Buyback a Guide for Naspers?

Recently, Softbank’s (9984 JP) shares jumped +18% after announcing a $5.5bn share buyback. Using Smartkarma’s holdco monitor, the discount to NAV had widened to around 55% prior to the announcement but is now sitting around 40-45%. There were a few key reasons for the buyback: (1) the Softbank Corp (9434 JP) (KK) IPO netted $20bn, giving the company the flexibility to do the buyback, and (2) Softbank is taking a more disciplined approach to further platform investments.

Both these arguments are also available to Naspers (NPN SJ) management and a move to buy back 5% of market cap is feasible and we believe would narrow the discount. The question is whether management are listening. They have been dismissive of buybacks in the past but this could change.

2. Global Equity Strategy: Constructive Outlook Intact, Bottoming Process Continues

We remain constructive overall and continue to believe that global equities (MSCI ACWI) are going through a bottoming process. Opportunities exist but Sector leadership is mixed.  In our February International Strategy document, we explore various themes which lead to our overall constructive outlook, as well as a technical appraisal of each Sector and the investable opportunities therein.

3. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia

Repsol SA (REP SM)‘s discovery is very significant for the companies involved and others around the area, which we discuss in detail below. It is also important for Indonesia, which requires more gas to supply domestic and export demand. It is also positive for exploration sentiment globally, to see a material discovery (Oil Exploration: We Expect a Resurgence in 2019 Pointing to Strong Performance for E&Ps) and this may encourage further M&A in Indonesia such as this deal: (Indonesia Upstream Gas Asset Sale: Positive Read-Through to Other SE Asia Gas Companies).

4. Free Money Has Flown

The world will soon discover that debt matters.

The announcement of each round of QE increased asset prices, but the effect on Treasury bond prices began to fade when central bank purchases began. This unexpected behaviour revealed a little-known fact: asset prices react more to the expectation of changes in liquidity than to the experience of greater liquidity in financial markets. By contrast, economic growth is subject to the fluctuating standards of commercial bank lending, which follow variations in the demand for credit. Consequently, financial markets lead the economy. Meanwhile, central banks focus on lagging indicators, so they’re followers, not leaders. Bond markets usually predict more accurately than stock markets. To work, central bank easing policies require real risk-adjusted interest rates. However, with those rates below zero in many countries, further reductions would penalise lenders without helping borrowers. Thus, only rising inflation can save stressed debtors.

5. PBOC and the CNY Job

Over and over again we have commented on China’s FX market as a gauge for health of China’s markets. It is not just due to FX trading and rate shifts. It is also because it is easier to spot the PBOC gaming the system in the FX market. And we do believe that right now the PBOC is pushing the CNY away from what the value would be otherwise.

In this briefing:

1. New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations
2. Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao
3. Tencent (700 HK): In Fact Benefited from License Suspension
4. Petrochina Breakout and Laggard Play
5. Chinese Telcos: Rising 5G Capex Risk Leads to Another Downgrade

1. New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations

Zhejiang New Century Hotel Management Group (ZHEKAIH HK) (ZNCH) is looking to raise US$220m in its upcoming IPO. 

ZNCH is a hotel operator and manager with presence across China. The company grew its revenue by a modest 5% from 2015 to 2017 but made significant improvements in profitability. Gross profit, EBITDA and PATMI grew by 33%, 61%, and 132% CAGR over the same period.

However, the improved profitability has not been driven by underlying operations. The company seemed a tad too ambitious to be expanding via leasing hotel when it already has a large hotel management pipeline.

In this insight, we will look at the company’s financial and operational performance, the drivers of its strong margin expansion, and include some questions for management.

2. Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao

Anheuser Busch Inbev Sa/Nv (ABI BB) is looking to list its Asian operations in order to lighten its debt burden. The listing will probably be in Hong Kong and the company could raise around US$5bn at a valuation of around US$70bn.

In my earlier insight, Ab InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China, I looked at how the Asian operations of ABI have shaped up over the past few years.  

In this insight, I’ll do a quick comparison of the past financial performance of China Resources Beer Holdin (291 HK) and Tsingtao Brewery Co Ltd H (168 HK).

3. Tencent (700 HK): In Fact Benefited from License Suspension

• Tencent’s market share as measured by the number of active users increased during the the period license suspension.
• We believe that Tencent’s market share as measured by active users will bring increased market share as measured by revenues.
• We also believe that during the hard times small companies always die.

4. Petrochina Breakout and Laggard Play

Petrochina Co Ltd H (857 HK) has remains suppressed but with oil perking up there is a laggard upside play taking shape as we begin to see distribution in HK upside leaders. On weakness we like positioning on the long side and can be used as a pair with an index short or one of the steel counters.

Given stock leaders are showing deteriorating upside momentum, we expect laggards to attract more attention.

RSI and MACD breakout patterns outlined as well as the price breakout at 5.10.

A bigger descending wedge also shows promise as a secondary breakout trigger.

MACD pattern resistance will help define the trending capability post breakout.

5. Chinese Telcos: Rising 5G Capex Risk Leads to Another Downgrade

We recently downgraded the Chinese telcos on rising concerns that the telcos will be required to do “national service” to support China’s technological leadership in 5G.  The closure of many overseas markets to Chinese equipment suppliers (esp Huawei, but also Zte Corp H (763 HK)) means the risk of a more aggressive 5G roll-out has increased.  Markets have started to take notice but the initial reaction has been positive on excitement over the 5G opportunity. Given the lack of a strong business case for 5G currently, we don think additional capex is a positive. We model what an extreme roll-out could look like and the impact on the telcos. Along with a weakening macro outlook, we have further downgraded target prices for all three operators and cut China Mobile (941 HK) and China Telecom (728 HK) to Reduce and China Unicom (762 HK) to Neutral.

In this briefing:

1. Global Equity Strategy: Constructive Outlook Intact, Bottoming Process Continues
2. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia
3. Free Money Has Flown
4. PBOC and the CNY Job
5. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data

1. Global Equity Strategy: Constructive Outlook Intact, Bottoming Process Continues

We remain constructive overall and continue to believe that global equities (MSCI ACWI) are going through a bottoming process. Opportunities exist but Sector leadership is mixed.  In our February International Strategy document, we explore various themes which lead to our overall constructive outlook, as well as a technical appraisal of each Sector and the investable opportunities therein.

2. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia

Repsol SA (REP SM)‘s discovery is very significant for the companies involved and others around the area, which we discuss in detail below. It is also important for Indonesia, which requires more gas to supply domestic and export demand. It is also positive for exploration sentiment globally, to see a material discovery (Oil Exploration: We Expect a Resurgence in 2019 Pointing to Strong Performance for E&Ps) and this may encourage further M&A in Indonesia such as this deal: (Indonesia Upstream Gas Asset Sale: Positive Read-Through to Other SE Asia Gas Companies).

3. Free Money Has Flown

The world will soon discover that debt matters.

The announcement of each round of QE increased asset prices, but the effect on Treasury bond prices began to fade when central bank purchases began. This unexpected behaviour revealed a little-known fact: asset prices react more to the expectation of changes in liquidity than to the experience of greater liquidity in financial markets. By contrast, economic growth is subject to the fluctuating standards of commercial bank lending, which follow variations in the demand for credit. Consequently, financial markets lead the economy. Meanwhile, central banks focus on lagging indicators, so they’re followers, not leaders. Bond markets usually predict more accurately than stock markets. To work, central bank easing policies require real risk-adjusted interest rates. However, with those rates below zero in many countries, further reductions would penalise lenders without helping borrowers. Thus, only rising inflation can save stressed debtors.

4. PBOC and the CNY Job

Over and over again we have commented on China’s FX market as a gauge for health of China’s markets. It is not just due to FX trading and rate shifts. It is also because it is easier to spot the PBOC gaming the system in the FX market. And we do believe that right now the PBOC is pushing the CNY away from what the value would be otherwise.

5. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data

In this briefing:

1. Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao
2. Tencent (700 HK): In Fact Benefited from License Suspension
3. Petrochina Breakout and Laggard Play
4. Chinese Telcos: Rising 5G Capex Risk Leads to Another Downgrade
5. Best World (BEST SP): Not the Best Financials to Disprove The Business Times Allegations

1. Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao

Anheuser Busch Inbev Sa/Nv (ABI BB) is looking to list its Asian operations in order to lighten its debt burden. The listing will probably be in Hong Kong and the company could raise around US$5bn at a valuation of around US$70bn.

In my earlier insight, Ab InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China, I looked at how the Asian operations of ABI have shaped up over the past few years.  

In this insight, I’ll do a quick comparison of the past financial performance of China Resources Beer Holdin (291 HK) and Tsingtao Brewery Co Ltd H (168 HK).

2. Tencent (700 HK): In Fact Benefited from License Suspension

• Tencent’s market share as measured by the number of active users increased during the the period license suspension.
• We believe that Tencent’s market share as measured by active users will bring increased market share as measured by revenues.
• We also believe that during the hard times small companies always die.

3. Petrochina Breakout and Laggard Play

Petrochina Co Ltd H (857 HK) has remains suppressed but with oil perking up there is a laggard upside play taking shape as we begin to see distribution in HK upside leaders. On weakness we like positioning on the long side and can be used as a pair with an index short or one of the steel counters.

Given stock leaders are showing deteriorating upside momentum, we expect laggards to attract more attention.

RSI and MACD breakout patterns outlined as well as the price breakout at 5.10.

A bigger descending wedge also shows promise as a secondary breakout trigger.

MACD pattern resistance will help define the trending capability post breakout.

4. Chinese Telcos: Rising 5G Capex Risk Leads to Another Downgrade

We recently downgraded the Chinese telcos on rising concerns that the telcos will be required to do “national service” to support China’s technological leadership in 5G.  The closure of many overseas markets to Chinese equipment suppliers (esp Huawei, but also Zte Corp H (763 HK)) means the risk of a more aggressive 5G roll-out has increased.  Markets have started to take notice but the initial reaction has been positive on excitement over the 5G opportunity. Given the lack of a strong business case for 5G currently, we don think additional capex is a positive. We model what an extreme roll-out could look like and the impact on the telcos. Along with a weakening macro outlook, we have further downgraded target prices for all three operators and cut China Mobile (941 HK) and China Telecom (728 HK) to Reduce and China Unicom (762 HK) to Neutral.

5. Best World (BEST SP): Not the Best Financials to Disprove The Business Times Allegations

Best World International (BEST SP) is a direct-selling company that distributes premium skincare and wellness products. On Monday, The Business Times claimed that it is difficult to verify Best World’s strong sales in China based on “an unimpressive online and offline footprint.” On the back of the Business Times article, Best World shares slid 17% before the company was granted a trading halt pending a clarification announcement.

In this briefing:

1. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia
2. Free Money Has Flown
3. PBOC and the CNY Job
4. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data
5. New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations

1. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia

Repsol SA (REP SM)‘s discovery is very significant for the companies involved and others around the area, which we discuss in detail below. It is also important for Indonesia, which requires more gas to supply domestic and export demand. It is also positive for exploration sentiment globally, to see a material discovery (Oil Exploration: We Expect a Resurgence in 2019 Pointing to Strong Performance for E&Ps) and this may encourage further M&A in Indonesia such as this deal: (Indonesia Upstream Gas Asset Sale: Positive Read-Through to Other SE Asia Gas Companies).

2. Free Money Has Flown

The world will soon discover that debt matters.

The announcement of each round of QE increased asset prices, but the effect on Treasury bond prices began to fade when central bank purchases began. This unexpected behaviour revealed a little-known fact: asset prices react more to the expectation of changes in liquidity than to the experience of greater liquidity in financial markets. By contrast, economic growth is subject to the fluctuating standards of commercial bank lending, which follow variations in the demand for credit. Consequently, financial markets lead the economy. Meanwhile, central banks focus on lagging indicators, so they’re followers, not leaders. Bond markets usually predict more accurately than stock markets. To work, central bank easing policies require real risk-adjusted interest rates. However, with those rates below zero in many countries, further reductions would penalise lenders without helping borrowers. Thus, only rising inflation can save stressed debtors.

3. PBOC and the CNY Job

Over and over again we have commented on China’s FX market as a gauge for health of China’s markets. It is not just due to FX trading and rate shifts. It is also because it is easier to spot the PBOC gaming the system in the FX market. And we do believe that right now the PBOC is pushing the CNY away from what the value would be otherwise.

4. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data

5. New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations

Zhejiang New Century Hotel Management Group (ZHEKAIH HK) (ZNCH) is looking to raise US$220m in its upcoming IPO. 

ZNCH is a hotel operator and manager with presence across China. The company grew its revenue by a modest 5% from 2015 to 2017 but made significant improvements in profitability. Gross profit, EBITDA and PATMI grew by 33%, 61%, and 132% CAGR over the same period.

However, the improved profitability has not been driven by underlying operations. The company seemed a tad too ambitious to be expanding via leasing hotel when it already has a large hotel management pipeline.

In this insight, we will look at the company’s financial and operational performance, the drivers of its strong margin expansion, and include some questions for management.

In this briefing:

1. Free Money Has Flown
2. PBOC and the CNY Job
3. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data
4. New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations
5. Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao

1. Free Money Has Flown

The world will soon discover that debt matters.

The announcement of each round of QE increased asset prices, but the effect on Treasury bond prices began to fade when central bank purchases began. This unexpected behaviour revealed a little-known fact: asset prices react more to the expectation of changes in liquidity than to the experience of greater liquidity in financial markets. By contrast, economic growth is subject to the fluctuating standards of commercial bank lending, which follow variations in the demand for credit. Consequently, financial markets lead the economy. Meanwhile, central banks focus on lagging indicators, so they’re followers, not leaders. Bond markets usually predict more accurately than stock markets. To work, central bank easing policies require real risk-adjusted interest rates. However, with those rates below zero in many countries, further reductions would penalise lenders without helping borrowers. Thus, only rising inflation can save stressed debtors.

2. PBOC and the CNY Job

Over and over again we have commented on China’s FX market as a gauge for health of China’s markets. It is not just due to FX trading and rate shifts. It is also because it is easier to spot the PBOC gaming the system in the FX market. And we do believe that right now the PBOC is pushing the CNY away from what the value would be otherwise.

3. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data

4. New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations

Zhejiang New Century Hotel Management Group (ZHEKAIH HK) (ZNCH) is looking to raise US$220m in its upcoming IPO. 

ZNCH is a hotel operator and manager with presence across China. The company grew its revenue by a modest 5% from 2015 to 2017 but made significant improvements in profitability. Gross profit, EBITDA and PATMI grew by 33%, 61%, and 132% CAGR over the same period.

However, the improved profitability has not been driven by underlying operations. The company seemed a tad too ambitious to be expanding via leasing hotel when it already has a large hotel management pipeline.

In this insight, we will look at the company’s financial and operational performance, the drivers of its strong margin expansion, and include some questions for management.

5. Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao

Anheuser Busch Inbev Sa/Nv (ABI BB) is looking to list its Asian operations in order to lighten its debt burden. The listing will probably be in Hong Kong and the company could raise around US$5bn at a valuation of around US$70bn.

In my earlier insight, Ab InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China, I looked at how the Asian operations of ABI have shaped up over the past few years.  

In this insight, I’ll do a quick comparison of the past financial performance of China Resources Beer Holdin (291 HK) and Tsingtao Brewery Co Ltd H (168 HK).

In this briefing:

1. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data
2. New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations
3. Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao
4. Tencent (700 HK): In Fact Benefited from License Suspension
5. Petrochina Breakout and Laggard Play

1. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data

2. New Century Hotel (浙江開元酒店) Pre-IPO – Improved Profitability Not Driven by Underlying Operations

Zhejiang New Century Hotel Management Group (ZHEKAIH HK) (ZNCH) is looking to raise US$220m in its upcoming IPO. 

ZNCH is a hotel operator and manager with presence across China. The company grew its revenue by a modest 5% from 2015 to 2017 but made significant improvements in profitability. Gross profit, EBITDA and PATMI grew by 33%, 61%, and 132% CAGR over the same period.

However, the improved profitability has not been driven by underlying operations. The company seemed a tad too ambitious to be expanding via leasing hotel when it already has a large hotel management pipeline.

In this insight, we will look at the company’s financial and operational performance, the drivers of its strong margin expansion, and include some questions for management.

3. Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao

Anheuser Busch Inbev Sa/Nv (ABI BB) is looking to list its Asian operations in order to lighten its debt burden. The listing will probably be in Hong Kong and the company could raise around US$5bn at a valuation of around US$70bn.

In my earlier insight, Ab InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China, I looked at how the Asian operations of ABI have shaped up over the past few years.  

In this insight, I’ll do a quick comparison of the past financial performance of China Resources Beer Holdin (291 HK) and Tsingtao Brewery Co Ltd H (168 HK).

4. Tencent (700 HK): In Fact Benefited from License Suspension

• Tencent’s market share as measured by the number of active users increased during the the period license suspension.
• We believe that Tencent’s market share as measured by active users will bring increased market share as measured by revenues.
• We also believe that during the hard times small companies always die.

5. Petrochina Breakout and Laggard Play

Petrochina Co Ltd H (857 HK) has remains suppressed but with oil perking up there is a laggard upside play taking shape as we begin to see distribution in HK upside leaders. On weakness we like positioning on the long side and can be used as a pair with an index short or one of the steel counters.

Given stock leaders are showing deteriorating upside momentum, we expect laggards to attract more attention.

RSI and MACD breakout patterns outlined as well as the price breakout at 5.10.

A bigger descending wedge also shows promise as a secondary breakout trigger.

MACD pattern resistance will help define the trending capability post breakout.