China

In this briefing:

1. 58.com Inc. (NYSE: WUBA): Regulatory Pressure Has Long Term Implications
2. Autonomous Driving. Waymo Leading The Charge With Ten Million Miles Driven And Counting
3. Harbin Electric: The Price Is Not Right
4. 2019 Asia Selected Gaming Stock Outlook: Headwinds, Tailwinds and Our Top Picks for Entry Levels Now
5. Are US Stocks Still Expensive?

1. 58.com Inc. (NYSE: WUBA): Regulatory Pressure Has Long Term Implications

● We notice that Anjuke’s Oct.-Nov. traffic declined. We attribute this decline to the tightening of registration requirement in various cities, which will reduce the number of housing leads on WUBA platform;

● We, however, believe new home business will deliver strong revenue for WUBA this year, contributing Rmb2bn in revenues by our estimate;

● We rate the stock Buy and cut TP from US$84 to US$79.

2. Autonomous Driving. Waymo Leading The Charge With Ten Million Miles Driven And Counting

Waymo CEO John Krafcik made some bold decisions after taking the helm at Alphabet‘s self-driving project in September 2015. Chief among them was the fact that the company abandon its plans for Level 3 automated driving and focus exclusively on levels 4 & 5. Furthermore, he decreed that Waymo would no longer manufacture its own vehicles but would instead integrate their technology into those of other automakers. Three years later, those decisions would appear to be finally paying off.

On October 10 2018, Waymo reached a significant milestone having completed 10 million self-driving miles across 25 cities in the US. While their first million self-driving miles took 18 months to complete, Waymo now clocks up over a million self-driving miles per month.  The company also recently announced the launch of its robo taxi service in Phoenix, Arizona and looks set to quickly follow suit in California. Plans to extend its self-driving technology beyond robotaxis, most notably for trucks and last-mile transportation solutions are also in the works. Furthermore, the company has begun laying down a framework of innovative B2B revenue models which should help accelerate the speed with which they can eventually monetize their technology.

It hasn’t been smooth sailing all the way for Waymo however. Earlier this year, the company was derided for the driving style of its autonomous vehicles and faced the criticism that its driverless cars continue to have safety drivers. There was also an embarrassing incident where one of those very safety drivers caused the self-driving car he was monitoring to hit a motorcyclist when he attempted to take control of the vehicle. According to Waymo’s own analysis of the vehicle log files, the accident would not have happened had he not intervened. 

With ten million self-driving miles under their belt and a thoughtful, strategic approach to monetizing their technology beginning to emerge, Waymo remains firmly ahead of their peers in leading the autonomous driving charge.  

3. Harbin Electric: The Price Is Not Right

As speculated in Harbin Electric Expected To Be Privatised, Harbin Electric Co Ltd H (1133 HK) has now announced a privatisation Offer from parent and 60.41%-shareholder Harbin Electric Corporation (“HEC”) by way of a merger by absorption. 

The Offer price of $4.56/share, an 82.4% premium to last close, has been declared final. The price corresponds to the subscription of 329mn domestic shares (~47.16% of the existing issued domestic shares and ~24.02% of the existing total issued shares) @$4.56/share by HEC in January this year. 

Of greater significance, the Offer price is a 37% discount to HE’s net cash of $7.27/share as at 30 June 2018. Should the privatisation be successful, this Offer will cost HEC ~HK$3.08bn, following which it can pocket the remaining net cash of $9.3bn PLUS the power generation equipment manufacturer business thrown in for free.

On pricing, “fair” to me would be something like the distribution of net cash to zero then taking over the company on a PER with respect to peers. That is not happening. It will be difficult to see how independent directors can justify recommending an Offer to shareholders at any price which gave cash less cavalier than cash.

Dissension rights are available, however, what constitutes a “fair price” under those rights, and the timing of the settlement under such rights, are not evident. 

As all PRC approvals have been obtained, this transaction may complete earlier than prior mergers by absorption, which have taken 6-8 months from the initial announcement.

4. 2019 Asia Selected Gaming Stock Outlook: Headwinds, Tailwinds and Our Top Picks for Entry Levels Now

Our review of ten Asian gaming companies forward prospects for 2019 yielded our top five picks. Two of those comprise this insight. Three more will follow in Part Two. There is, in our opinion, some disconnect between continuing macro headwinds in both the VIP and mass sectors and a more bullish tone based on a recent upside trend in Macau, strong results in the Philippines and Cambodia. Given the battering of the market in general, the already 8 month old bearish tone to the sector and the current pricing of the two stocks noted here, we see significant upside opportunity as we near the beginning of 2019.

5. Are US Stocks Still Expensive?

There are striking parallels between 1929 and 2018.  

The 1929 crash put a halt to a nine-year bull run on the market.

Up until October 1929, same as this year, market consensus was that asset prices could only go up from their current level.

As we mentioned in When the Tide Goes Out, Dominoes Fall, a decade of building up excesses meant a painful burst, back 79 years ago: between October of 1929 and September of 1932, eighty-nine percent of the value of stocks was erased and the market didn’t recover to its former peak until 25 years later.

Are we in a similar situation right now? 

In this briefing:

1. TRACKING TRAFFIC/Containers & Air Cargo: Container Rates Up
2. Business Happenings in the Americas that May Be “Below the Radar” – Week Ending December 22, 2018
3. Singapore REIT – Preferred Picks 2019
4. Micron’s Guidance Bombshell Signals Troubled Times Ahead For Beleaguered Semiconductor Segment
5. TRACKING TRAFFIC/Chinese Express & Logistics: Parcel Pricing Weak, Again

1. TRACKING TRAFFIC/Containers & Air Cargo: Container Rates Up

Tracking Traffic/Containers & Air Cargo is the hub for all of our research on container shipping and air cargo, featuring analysis of monthly industry data, notes from our conversations with industry participants, and links to recent company and thematic pieces. 

Tracking Traffic/Containers & Air Cargo aims to highlight changes to existing trends, relationships, and views affecting the leading Asian companies in these two sectors. This month’s note includes data from about twenty different sources.

In this issue readers will find:

2. Business Happenings in the Americas that May Be “Below the Radar” – Week Ending December 22, 2018

Highlights of significant recent happenings include:

3. Singapore REIT – Preferred Picks 2019

With the FTSE ST REIT index’s decline of 9.3% year-to-date, value has emerged for some of the bellwether names in the Singapore REITs sector. The forward yield spread between these REITs and the Singapore government 10-year bond yield (2.13%) currently stand at least 390 basis points. In view of the increasing concerns over global economic growth, rising interest rates and the ongoing trade tension between the US and China, I present three quality REITs with fortified portfolios that are well-positioned to weather the near-term market uncertainties. They possess growth potential from acquisitions, positive rental reversions and deliver resilient forward distribution yield of more than 6%. Some of the bellwether names in the more resilient retail REIT sector, while offering lower yield of around 5.0% – 5.7%, are also in my buy list. 

4. Micron’s Guidance Bombshell Signals Troubled Times Ahead For Beleaguered Semiconductor Segment

After months of skirting around inventory build-up and a weakening demand outlook, Micron used their latest earnings report to call closing time on a revenue and profitability party that began in Q4 2016 and just got better and better with each passing quarter. 

Micron reported Q1 FY2019 results on December 18’th and while revenues were largely in line with recently lowered guidance from the company, their outlook for both Q2 and 2019 as a whole was worse than even the most bearish of expectations. 

Citing high inventory levels at key customers, Micron guided Q2 FY2019 revenues for $6 billion at the midpoint, down a staggering $1.9 billion, 24% QoQ and 18% YoY. At the same time, Micron revised down their CY2019 bit demand growth forecast for both DRAM (from 20% to 16%) and NAND (35%, the bottom of the previously forecasted range). The company plans to adjust both CapEx and bit supply output downwards to match.

In the wake of their guidance bombshell, Micron’s share price closed down almost 8% the following day to end the session at $31.41, a level last seen in August 2017. Micron is unique in reporting out of sync with its industry peers, making it the proverbial canary in a coal mine. The company’s gloomy outlook and clarion call for further CapEx reductions in a bid to rebalance supply and demand spells troubled times ahead for an already beleaguered semiconductor segment ahead of the upcoming earnings season. 

5. TRACKING TRAFFIC/Chinese Express & Logistics: Parcel Pricing Weak, Again

Tracking Traffic/Chinese Express & Logistics is the hub for our research on China’s express parcels and logistics sectors. Tracking Traffic/Chinese Express & Logistics features analysis of monthly Chinese express and logistics data, notes from our conversations with industry players, and links to company and thematic notes. 

This month’s issue covers the following topics:

In this briefing:

1. Reforms/US-Canada-China/ Economic Gloom/Bike Crash/Stocks
2. China’s Sluggish Inbound Tourism Industry

1. Reforms/US-Canada-China/ Economic Gloom/Bike Crash/Stocks

China News That Matters

• No one dictates to China but me
• US targets Chinese hackers as rift widens
• Weak data raise pressure for stimulus
• After high-speed climb, bike-share giant collapses
• A brighter new year for China’s stock market?

2. China’s Sluggish Inbound Tourism Industry

How can we explain the fact that in the five years from 2012 the number of tourist visits to China fell from 11.6 to 10.5 million per year? True, business and family reunion visits have risen, but such a culturally rich country should have more tourists.

In this briefing:

1. China’s Sluggish Inbound Tourism Industry

1. China’s Sluggish Inbound Tourism Industry

How can we explain the fact that in the five years from 2012 the number of tourist visits to China fell from 11.6 to 10.5 million per year? True, business and family reunion visits have risen, but such a culturally rich country should have more tourists.

In this briefing:

1. China’s Sluggish Inbound Tourism Industry
2. EM Relative Strength Is Bottoming: Overweight

1. China’s Sluggish Inbound Tourism Industry

How can we explain the fact that in the five years from 2012 the number of tourist visits to China fell from 11.6 to 10.5 million per year? True, business and family reunion visits have risen, but such a culturally rich country should have more tourists.

2. EM Relative Strength Is Bottoming: Overweight

Relative strength for MSCI EM is bottoming vs. MSCI EAFE despite continued global equity market weakness.  Although the MSCI EM’s price index remains in a downtrend, we are seeing signs of outperformance ona a relative strength basis and would add incremental exposure. In this report we highlight attractive and actionable themes within EM.

In this briefing:

1. Autonomous Driving. Waymo Leading The Charge With Ten Million Miles Driven And Counting
2. Harbin Electric: The Price Is Not Right
3. 2019 Asia Selected Gaming Stock Outlook: Headwinds, Tailwinds and Our Top Picks for Entry Levels Now
4. Are US Stocks Still Expensive?
5. TRACKING TRAFFIC/Containers & Air Cargo: Container Rates Up

1. Autonomous Driving. Waymo Leading The Charge With Ten Million Miles Driven And Counting

Waymo CEO John Krafcik made some bold decisions after taking the helm at Alphabet‘s self-driving project in September 2015. Chief among them was the fact that the company abandon its plans for Level 3 automated driving and focus exclusively on levels 4 & 5. Furthermore, he decreed that Waymo would no longer manufacture its own vehicles but would instead integrate their technology into those of other automakers. Three years later, those decisions would appear to be finally paying off.

On October 10 2018, Waymo reached a significant milestone having completed 10 million self-driving miles across 25 cities in the US. While their first million self-driving miles took 18 months to complete, Waymo now clocks up over a million self-driving miles per month.  The company also recently announced the launch of its robo taxi service in Phoenix, Arizona and looks set to quickly follow suit in California. Plans to extend its self-driving technology beyond robotaxis, most notably for trucks and last-mile transportation solutions are also in the works. Furthermore, the company has begun laying down a framework of innovative B2B revenue models which should help accelerate the speed with which they can eventually monetize their technology.

It hasn’t been smooth sailing all the way for Waymo however. Earlier this year, the company was derided for the driving style of its autonomous vehicles and faced the criticism that its driverless cars continue to have safety drivers. There was also an embarrassing incident where one of those very safety drivers caused the self-driving car he was monitoring to hit a motorcyclist when he attempted to take control of the vehicle. According to Waymo’s own analysis of the vehicle log files, the accident would not have happened had he not intervened. 

With ten million self-driving miles under their belt and a thoughtful, strategic approach to monetizing their technology beginning to emerge, Waymo remains firmly ahead of their peers in leading the autonomous driving charge.  

2. Harbin Electric: The Price Is Not Right

As speculated in Harbin Electric Expected To Be Privatised, Harbin Electric Co Ltd H (1133 HK) has now announced a privatisation Offer from parent and 60.41%-shareholder Harbin Electric Corporation (“HEC”) by way of a merger by absorption. 

The Offer price of $4.56/share, an 82.4% premium to last close, has been declared final. The price corresponds to the subscription of 329mn domestic shares (~47.16% of the existing issued domestic shares and ~24.02% of the existing total issued shares) @$4.56/share by HEC in January this year. 

Of greater significance, the Offer price is a 37% discount to HE’s net cash of $7.27/share as at 30 June 2018. Should the privatisation be successful, this Offer will cost HEC ~HK$3.08bn, following which it can pocket the remaining net cash of $9.3bn PLUS the power generation equipment manufacturer business thrown in for free.

On pricing, “fair” to me would be something like the distribution of net cash to zero then taking over the company on a PER with respect to peers. That is not happening. It will be difficult to see how independent directors can justify recommending an Offer to shareholders at any price which gave cash less cavalier than cash.

Dissension rights are available, however, what constitutes a “fair price” under those rights, and the timing of the settlement under such rights, are not evident. 

As all PRC approvals have been obtained, this transaction may complete earlier than prior mergers by absorption, which have taken 6-8 months from the initial announcement.

3. 2019 Asia Selected Gaming Stock Outlook: Headwinds, Tailwinds and Our Top Picks for Entry Levels Now

Our review of ten Asian gaming companies forward prospects for 2019 yielded our top five picks. Two of those comprise this insight. Three more will follow in Part Two. There is, in our opinion, some disconnect between continuing macro headwinds in both the VIP and mass sectors and a more bullish tone based on a recent upside trend in Macau, strong results in the Philippines and Cambodia. Given the battering of the market in general, the already 8 month old bearish tone to the sector and the current pricing of the two stocks noted here, we see significant upside opportunity as we near the beginning of 2019.

4. Are US Stocks Still Expensive?

There are striking parallels between 1929 and 2018.  

The 1929 crash put a halt to a nine-year bull run on the market.

Up until October 1929, same as this year, market consensus was that asset prices could only go up from their current level.

As we mentioned in When the Tide Goes Out, Dominoes Fall, a decade of building up excesses meant a painful burst, back 79 years ago: between October of 1929 and September of 1932, eighty-nine percent of the value of stocks was erased and the market didn’t recover to its former peak until 25 years later.

Are we in a similar situation right now? 

5. TRACKING TRAFFIC/Containers & Air Cargo: Container Rates Up

Tracking Traffic/Containers & Air Cargo is the hub for all of our research on container shipping and air cargo, featuring analysis of monthly industry data, notes from our conversations with industry participants, and links to recent company and thematic pieces. 

Tracking Traffic/Containers & Air Cargo aims to highlight changes to existing trends, relationships, and views affecting the leading Asian companies in these two sectors. This month’s note includes data from about twenty different sources.

In this issue readers will find:

In this briefing:

1. Business Happenings in the Americas that May Be “Below the Radar” – Week Ending December 22, 2018
2. Singapore REIT – Preferred Picks 2019
3. Micron’s Guidance Bombshell Signals Troubled Times Ahead For Beleaguered Semiconductor Segment
4. TRACKING TRAFFIC/Chinese Express & Logistics: Parcel Pricing Weak, Again
5. Reforms/US-Canada-China/ Economic Gloom/Bike Crash/Stocks

1. Business Happenings in the Americas that May Be “Below the Radar” – Week Ending December 22, 2018

Highlights of significant recent happenings include:

2. Singapore REIT – Preferred Picks 2019

With the FTSE ST REIT index’s decline of 9.3% year-to-date, value has emerged for some of the bellwether names in the Singapore REITs sector. The forward yield spread between these REITs and the Singapore government 10-year bond yield (2.13%) currently stand at least 390 basis points. In view of the increasing concerns over global economic growth, rising interest rates and the ongoing trade tension between the US and China, I present three quality REITs with fortified portfolios that are well-positioned to weather the near-term market uncertainties. They possess growth potential from acquisitions, positive rental reversions and deliver resilient forward distribution yield of more than 6%. Some of the bellwether names in the more resilient retail REIT sector, while offering lower yield of around 5.0% – 5.7%, are also in my buy list. 

3. Micron’s Guidance Bombshell Signals Troubled Times Ahead For Beleaguered Semiconductor Segment

After months of skirting around inventory build-up and a weakening demand outlook, Micron used their latest earnings report to call closing time on a revenue and profitability party that began in Q4 2016 and just got better and better with each passing quarter. 

Micron reported Q1 FY2019 results on December 18’th and while revenues were largely in line with recently lowered guidance from the company, their outlook for both Q2 and 2019 as a whole was worse than even the most bearish of expectations. 

Citing high inventory levels at key customers, Micron guided Q2 FY2019 revenues for $6 billion at the midpoint, down a staggering $1.9 billion, 24% QoQ and 18% YoY. At the same time, Micron revised down their CY2019 bit demand growth forecast for both DRAM (from 20% to 16%) and NAND (35%, the bottom of the previously forecasted range). The company plans to adjust both CapEx and bit supply output downwards to match.

In the wake of their guidance bombshell, Micron’s share price closed down almost 8% the following day to end the session at $31.41, a level last seen in August 2017. Micron is unique in reporting out of sync with its industry peers, making it the proverbial canary in a coal mine. The company’s gloomy outlook and clarion call for further CapEx reductions in a bid to rebalance supply and demand spells troubled times ahead for an already beleaguered semiconductor segment ahead of the upcoming earnings season. 

4. TRACKING TRAFFIC/Chinese Express & Logistics: Parcel Pricing Weak, Again

Tracking Traffic/Chinese Express & Logistics is the hub for our research on China’s express parcels and logistics sectors. Tracking Traffic/Chinese Express & Logistics features analysis of monthly Chinese express and logistics data, notes from our conversations with industry players, and links to company and thematic notes. 

This month’s issue covers the following topics:

5. Reforms/US-Canada-China/ Economic Gloom/Bike Crash/Stocks

China News That Matters

• No one dictates to China but me
• US targets Chinese hackers as rift widens
• Weak data raise pressure for stimulus
• After high-speed climb, bike-share giant collapses
• A brighter new year for China’s stock market?

In this briefing:

1. Last Week in Event SPACE: Harbin Electric, MYOB, TMB Bank, Halla Holdings
2. Are US Stocks A Buy Yet?
3. Uber IPO: Its Sprawling Empire And Battle Lines (Part 3)
4. Monthly Geopolitical Comment: Redrafting of Global Map of Political Alliances to Continue in 2019
5. 58.com Inc. (NYSE: WUBA): Regulatory Pressure Has Long Term Implications

1. Last Week in Event SPACE: Harbin Electric, MYOB, TMB Bank, Halla Holdings

Last Week in Event SPACE …

• Just how will Harbin Electric Co Ltd H (1133 HK)‘s independent directors justify recommending an Offer to shareholders at a price which gave cash less cavalier than cash?
• MYOB Group Ltd (MYO AU)‘s directors grudgingly yet understandably enter an agreed deal with KKR.
• A TMB Bank PCL (TMB TB) / Thanachart Capital (TCAP TB) courtship is a possibility after an earlier Krung Thai Bank Pub (KTB TB) /TMB alliance failed. 

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classification and Events – or SPACE – in the past week)

As previously discussed in Harbin Electric Expected To Be Privatised, Harbin Electric (HE) has now announced a privatisation Offer from parent and 60.41%-shareholder Harbin Electric Corporation (“HEC”) by way of a merger by absorption. The Offer price of $4.56/share, an 82.4% premium to last close, is bang in line with that paid by HEC in January this year for new domestic shares. The Offer price has been declared final. 

• Of note, the Offer price is a 37% discount to HE’s net cash of $7.27/share as at 30 June 2018. Should the privatisation be successful, this Offer will cost HEC ~HK$3.08bn, following which it can pocket the remaining net cash of $9.3bn PLUS the power generation equipment manufacturer business thrown in for free.
• On pricing, “fair” to me would be something like the distribution of net cash to zero then taking over the company on a PER with respect to peers. That is not happening. It will be difficult to see how independent directors (and the IFA) can justify recommending an Offer to shareholders at any price below the net cash/share, especially when the underlying business is profit-generating.
• Dissension rights are available, however, there is no administrative guidance on the substantive as well as procedural rules as to how the “fair price” will be determined under PRC and HK Law.
• Trading at a gross/annualised spread of 15%/28% assuming end-July completion, based on the average timeline for merger by absorption precedents. As HEC is only waiting for approval from independent H-shareholders suggests this transaction may complete earlier than precedents. 

(link to my insight: Harbin Electric: The Price Is Not Right)  

KKR and MYOB entered into Scheme Implementation Agreement (SIA) at $3.40/share, valuing MYOB, on a market cap basis, at A$2bn. MYOB’s board unanimously recommends shareholders to vote in favour of the Offer, in the absence of a superior proposal. The Offer price assumes no full-year dividend is paid.

• On balance, MYOB’s board has made the right decision to accept KKR’s reduced Offer. The argument that MYOB is a “known turnaround story” is challenged as cloud-based accounting software providers Xero Ltd (XRO AU)  and Intuit Inc (INTU US) grab market share. This is also reflected in MYOB’s forecast 7% revenue growth in FY18 and follows a 10% decline in first-half profit, despite a 61% jump in online subscribers.
• And there is justification for KKR’s lowering the Offer price: the ASX is down 10% since KKR’s initial tilt, the ASX technology index is off by ~14%, a basket of listed Aussie peers are down 17%, while Xero, the most comparable peer, is down ~20%. The Scheme Offer is at a ~27% premium to the estimated adjusted (for the ASX index) downside price of $2.68/share.

• Bain was okay selling at $3.15/share to KKR and will be fine selling its remaining ~6.5% stake at $3.40. Presumably, MYOB sounded out the other major shareholders such as Fidelity, Yarra Funds Management, Vanguard etc as to their read on the revised $3.40 offer, before agreeing to the SIA with KKR.

• If the markets avoid further declines, this deal will probably get up. If the markets rebound, the outcome is less assured. This Tuesday marks the beginning of a new year and a renewed mandate for investors to take risk, especially an agreed deal; but the current 5.3% annualised spread is tight.

(link to my insight: MYOB Caves And Agrees To KKR’s Reduced Offer)

TMB Bank PCL (TMB TB) (Mkt Cap: $1.2bn; Liquidity: $7mn)

The Ministry of Finance, the major shareholder of TMB, confirmed that both Krung Thai Bank Pub (KTB TB) and Thanachart Capital (TCAP TB) had engaged in merger talks with TMB. Considering an earlier KTB/TMB courtship failed, it is more likely, but by no means guaranteed, that the deal with Thanachart will happen. Bloomberg is also reporting that Thanachart and TMB want to do a deal before the next elections, which is less than two months away.

• TMB is much bigger than Thanachart and therefore it may boil down to whether TMB wants to be the target or acquirer. In Athaporn Arayasantiparb, CFA‘s view, a deal with Thanachart would leave TMB as the acquirer rather than the target. But Thanachart’s management has a better track record than TMB.
• Both banks have undergone extensive deals before this one: 1) TMB acquired DBS Thai Danu and IFCT; and 2) Thanachart engineered an acquisition of the much bigger, but struggling, SCIB.
• A merger between the two would still leave them smaller than Bank Of Ayudhya (BAY TB) and would not change the bank rankings; but it would give TMB a bigger presence in asset management, hire-purchase finance and a re-entry into the securities business.

(link to Athaporn’s insight: Sathorn Series M: TMB-Thanachart Courtship)  

Halla Holdings (060980 KS) / Mando Corp (204320 KS)

Mando accounts for 45% of Halla’s NAV, which is currently trading at a 50% discount. Sanghyun Park believes the recent narrowing in the discount may be due to the hype attached to Mando-Hella Elec, which he believes is overdone; and recommends a short Holdco and long Mando. Using Sanghyun’s figures, I see the discount to NAV at 51%, 2STD above the 12-month average of ~47%.

(link to Sanghyun’s insight: Halla Holdings Stub Trade: Downwardly Mean Reversion in Favor of Mando)  

• LG Chem Ltd (051910 KS)‘s 1P is now at a 44.20% discount to Common. The dividend will be the same as last year of ₩6,000 despite lower earnings. The dividend yield for Common will be 1.68%, and 3.03% for 1P or a dividend yield difference of 1.35%, a four-year high. (link to Sanghyun’s insight: LG Chem Share Class: Another Pref to Watch as Div Yield Gap at 4Y High)  

• Glow Energy Pcl (GLOW TB). In a strange twist to the tale, the ERC agrees to approve Global Power Synergy Company Ltd (GPSC TB)‘s takeover of Glow under a revised plan in which they have to: 1) sell Glow SPP1, a power plant with 124MW capacity and 90 tons/hr of steam; and 2) allow clients such as Pa Daeng to change providers. This will reduce Glow’s market share within the MapTaPhut area, but Athaporn Arayasantiparb, CFA thinks the purchase price (Bt139bn according to Bangkok Post) will have to be revised downwards too.  For more on the original deal, see Deal Alert! GPSC Goes For the Jugular! and Anti-Trust Should Be A Non-Issue In The GPSC/Glow Deal.

• Unisem (M) (UNI MK). The Offer is now unconditional and will remain open to acceptances until the 7 January 2019.
• Stanmore Coal (SMR AU). The offer has been extended until the 22 January 2019.

Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

2. Are US Stocks A Buy Yet?

• 5%-like rallies on Wall Street are signs of a bear market not a bull market
• Bull markets require strong liquidity and low risk appetite, neither yet apply
• Risk appetite readings at minus 12.6 are still above the minus 40 criterion for an upturn
• Recent large fall in risk appetite consistent with upcoming economic recession

3. Uber IPO: Its Sprawling Empire And Battle Lines (Part 3)

Although Uber aims to be an Amazon for transport, we will focus on the ride-hailing market in part 3 of this series. Here, we try to answer the following questions:

1. What are the indicative ride-hailing market shares of Uber vs Lyft in North America?
2. What is Uber’s share in other key countries?
3. What are the lawsuits investors should watch out for?
4. How do Uber’s revenue drivers compare with Lyft’s?
5. What are the timelines and key figures for both companies’ IPOs?

This is the third note in a series about the expected 2019 IPO of global ride-hailing giant Uber Technologies (0084207D US) and Lyft. Please read the earlier two pieces in the series for better contexts:

Uber IPO Preview: Its Sprawling Empire and Battle Lines (Part 1) written by me.

Uber IPO Preview: Fast-Growing Uber Eats Has Become a Material Part of Uber (Part 2) written by Daniel Hellberg

4. Monthly Geopolitical Comment: Redrafting of Global Map of Political Alliances to Continue in 2019

5. 58.com Inc. (NYSE: WUBA): Regulatory Pressure Has Long Term Implications

● We notice that Anjuke’s Oct.-Nov. traffic declined. We attribute this decline to the tightening of registration requirement in various cities, which will reduce the number of housing leads on WUBA platform;

● We, however, believe new home business will deliver strong revenue for WUBA this year, contributing Rmb2bn in revenues by our estimate;

● We rate the stock Buy and cut TP from US$84 to US$79.

In this briefing:

1. Global Markets Deteriorating…Except EM
2. Is China Losing the Soft Power Battle?

1. Global Markets Deteriorating…Except EM

With U.S. markets stumbling, the MSCI ACWI index is breaking down to new lows: defensive Sectors remain attractive. Relative to MSCI ACWI however, emerging markets are the place to be. China, Brazil, Hungary, Qatar, India, Poland, and Indonesia all display positive price and/or RS trends. In this report we recap technical important levels on all major indexes and highlight attractive stocks within Real Estate, Health Care/Pharma, Precious Metals Mining, and Utilities.

2. Is China Losing the Soft Power Battle?

Recent figures show China slipping down the Soft Power Index while Chinese language learning in the USA is also in decline. Have tighter controls over education policy and restrictions on academic freedom in China spooked the crowd?

In this briefing:

1. China’s Sluggish Inbound Tourism Industry
2. EM Relative Strength Is Bottoming: Overweight
3. Overview of My Winners and Losers in 2018…and 5 High Conviction Ideas Going into 2019
4. RRG Global Macro – US Fed Positive Outlook – Stocks Fall.  Politics Take Over from Fundamentals
5. Universal, SegaSammy & Dynam Sit Best Positioned Among Japan Companies in Race for IR Partnerships

1. China’s Sluggish Inbound Tourism Industry

How can we explain the fact that in the five years from 2012 the number of tourist visits to China fell from 11.6 to 10.5 million per year? True, business and family reunion visits have risen, but such a culturally rich country should have more tourists.

2. EM Relative Strength Is Bottoming: Overweight

Relative strength for MSCI EM is bottoming vs. MSCI EAFE despite continued global equity market weakness.  Although the MSCI EM’s price index remains in a downtrend, we are seeing signs of outperformance ona a relative strength basis and would add incremental exposure. In this report we highlight attractive and actionable themes within EM.

3. Overview of My Winners and Losers in 2018…and 5 High Conviction Ideas Going into 2019

In a follow up to my note from last year Overview of My Winners and Losers in 2017…and 5 High Conviction Ideas Going into 2018 I again look at my stock ideas that have worked out in 2018, those that have not and those where the verdict is still pending.

Last year I provided 5 high conviction ideas and here is their performance in a brutal year for Asian Stock Markets:

4 out of 5 had a positive performance.

Below I will make a new attempt to provide five high conviction ideas going into 2019.

4. RRG Global Macro – US Fed Positive Outlook – Stocks Fall.  Politics Take Over from Fundamentals

• US: Stocks fall on political turmoil despite positive noises from the Fed with a dovish rate hike, a reduction in expected 2019 hikes and positive trends on employment and inflation.
• Russia: Unexpected 25 bps rate hike in the face of higher inflation in Nov. Watch for impact of lower oil prices in coming quarters.
• Turkey: Economic developments remain negative. The outlook for retail sales is poor as the economy in general is faltering.
• Indonesia: Trade deficit in November. Exports down 3.3%; imports up 11.68%. This disappointing performance could be the beginning of a trend.

5. Universal, SegaSammy & Dynam Sit Best Positioned Among Japan Companies in Race for IR Partnerships

• We’ve reviewed 10 companies in the sector. Of those, three are the consensus favorites of our Tokyo based panel of industry, financial and economics observers of the IR initiative over many years.
• Based on pachinko alone, the stocks of these companies are fully valued. Based on potential tailwind from a license award within 6 months, they could be vastly undervalued.
• Each of the three noted here brings strength to a bid less based on financials than corporate focus, outlook and experience in the field.