China

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

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

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

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

In this briefing:

1. Trade War/China Strategy/Credit Growth/Bonds/Taiwan
2. ECM Weekly (6 April 2019) – Bilibili, Huya, Qutoutiao, Polycab, PNB Metlife, CIMC Vehicle
3. Battery Technology- The Key To An Electric Vehicle Future
4. ICBC: Opportunity in Disguise
5. Shanghai/Shenzhen Connect – Inflow Turned Cautious in March but MSCI Adjustment Ahead

1. Trade War/China Strategy/Credit Growth/Bonds/Taiwan

China News That Matters

• Praying the US-China end-game is near
• What to do about China?
• Stability, phew. Or just a false dawn?
• OTC bonds sell like hot cakes 
• Even worse than a trade war…

2. ECM Weekly (6 April 2019) – Bilibili, Huya, Qutoutiao, Polycab, PNB Metlife, CIMC Vehicle

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 72.4% for IPOs and 63.5% for Placements 

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

New IPO filings

• Changliao AKA 派派(Hong Kong, ~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

• Leong Hup – comeback sunny side up
• Polycab India eyes to raise around Rs 1,345 crore through IPO
• Carlyle-backed Metropolis Healthcare’s IPO nears halfway mark on second day
• Eagle Hospitality Trust eyes Singapore IPO to raise up to US$575m
• Cancer Treatment Firm Plans Hong Kong IPO
• Goldman-Backed Chinese Online Pet Store Boqii Plans IPO
• China drone maker EHang delays IPO plan, eyes private funding-sources

This week Analysis on Upcoming IPO

• Map Aktif Follow-On Offering – Lace up for a Potential Long Run
• Zhongliang (中梁地产) Pre-IPO Review – Incredible Growth Bogged Down by Related Party Transactions
• CIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead
• PNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
• Polycab India Limited IPO – Probably Near Peak Margins, Improvements Unexplained

3. Battery Technology- The Key To An Electric Vehicle Future

The Insight is structured as follows:

• A. Key  Conclusions
• B. Report Highlights
• C.History of Electric Vehicles
• E. History of Rechargeable Battery Technologies And An In-Depth Analysis on Li-ion Batteries
• F. Batteries Beyond Li-ion
• G. Supply Constraints for Key Raw Materials
• H. The Competitive Landscape

A. Key  Conclusions

Global sales of EV’s reached 2m units in 2018. As a base case scenario, we expect a combination of improving EV battery cost-effectiveness, increasingly challenging emissions standards and ongoing incentives by various governments to propel unit sales to 8m units annually by 2025. Against this, we consider battery material price increases, a reduction of EV incentives in the US and China and political and environmental risks from the mining of metals used in batteries as downside risks which could delay the growth of the EV market.

Surprisingly, the EV battery technology that will drive us towards that 8m unit goal is still very much a work in progress. While Lithium Ion is the by far the dominant technology, there are striking differences between variants of the technology, battery pack design, battery management systems and manufacturing scale between the leading contenders. Furthermore, while there’s nothing on the horizon to completely displace Lithium Ion within the next decade, it remains unclear whether the technology will be the one to achieve the $100/kWh price target that would make the EV cost-neutral compared to its internal combustion predecessors. 

Quite apart from the technology,  the EV battery segment faces other significant challenges including increasing costs for core materials such as Cobalt, increasing safety concerns as the mix of that very same cobalt is reduced in the cathode, the growing risk of litigation amidst a fiercely competitive environment and last but not least, the appetite of various governments to maintain a favourable subsidy framework. 

4. ICBC: Opportunity in Disguise

ICBC (H) (1398 HK) delivered a robust PH Score of 8.5 – our quantamental value-quality gauge.

A highlight was the trend in cost-control. The bank delivered underlying “jaws” of 420bps. Besides OPEX restraint, including payroll, Efficiency gains were supported by robust underlying top-line expansion as  growth in interest income on earning assets, underpinned by moderate credit growth, broadly matched expansion of interest expenses on interest-bearing Liabilities. This combination is not so prevalent in China these days, especially in smaller or medium-sized lenders.

It is well-flagged that the system is grappling with Asset Quality issues and there is a debate about the interrelated property market. ICBC is not immune, similar to other SOEs, from migration of souring loans. However, by China standards, rising asset writedowns which exerted a negative pull on Pre-Tax Profit as a % of pre-impairment Operating Profit, high charge-offs, and swelling (though not exploding) substandard and loss loans look arguably manageable given ICBC‘s sheer scale. The Asset Quality issue here is also not as bad as it was in bygone years (2004 springs to mind) when capital injections, asset transfers, and government-subsidised bad loan disposals were the order of the day. This is a “Big Four” player.

Shares are not expensive. ICBC trades at a P/Book of 0.8x, a Franchise Valuation of 10%, an Earnings Yield of 16.7%, a Dividend Yield of 4.9%, and a Total Return Ratio of 1.6x.

5. Shanghai/Shenzhen Connect – Inflow Turned Cautious in March but MSCI Adjustment Ahead

In our Discover SZ/SH Connect series, we aim to help our investors understand the flow of northbound trades via the Shanghai Connect and Shenzhen Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by offshore investors in the past seven days.

We split the stocks eligible for the northbound trade into three groups: those with a market capitalization of above USD 5 billion, and those with a market capitalization between USD 1 billion and USD 5 billion.

We note that in March, northbound inflows turned more cautious vs strong inflows in February (link to our Feb note) and January (link to our Jan note). Nevertheless we see strong inflows into Healthcare sector, led by Jiangsu Hengrui Medicine Co., (600276 CH). We also highlight Universal Scientific Industrial Shanghai (601231 CH 环旭电子) in the mid cap space that attracted strong northbound inflows.

In this briefing:

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

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

In this briefing:

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

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

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

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. 

In this briefing:

1. ECM Weekly (6 April 2019) – Bilibili, Huya, Qutoutiao, Polycab, PNB Metlife, CIMC Vehicle
2. Battery Technology- The Key To An Electric Vehicle Future
3. ICBC: Opportunity in Disguise
4. Shanghai/Shenzhen Connect – Inflow Turned Cautious in March but MSCI Adjustment Ahead
5. More Volatility in the LNG Markets as JKM Drops Below TTF – Oil Majors Increase Exposure to US LNG

1. ECM Weekly (6 April 2019) – Bilibili, Huya, Qutoutiao, Polycab, PNB Metlife, CIMC Vehicle

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 72.4% for IPOs and 63.5% for Placements 

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

New IPO filings

• Changliao AKA 派派(Hong Kong, ~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

• Leong Hup – comeback sunny side up
• Polycab India eyes to raise around Rs 1,345 crore through IPO
• Carlyle-backed Metropolis Healthcare’s IPO nears halfway mark on second day
• Eagle Hospitality Trust eyes Singapore IPO to raise up to US$575m
• Cancer Treatment Firm Plans Hong Kong IPO
• Goldman-Backed Chinese Online Pet Store Boqii Plans IPO
• China drone maker EHang delays IPO plan, eyes private funding-sources

This week Analysis on Upcoming IPO

• Map Aktif Follow-On Offering – Lace up for a Potential Long Run
• Zhongliang (中梁地产) Pre-IPO Review – Incredible Growth Bogged Down by Related Party Transactions
• CIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead
• PNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
• Polycab India Limited IPO – Probably Near Peak Margins, Improvements Unexplained

2. Battery Technology- The Key To An Electric Vehicle Future

The Insight is structured as follows:

• A. Key  Conclusions
• B. Report Highlights
• C.History of Electric Vehicles
• E. History of Rechargeable Battery Technologies And An In-Depth Analysis on Li-ion Batteries
• F. Batteries Beyond Li-ion
• G. Supply Constraints for Key Raw Materials
• H. The Competitive Landscape

A. Key  Conclusions

Global sales of EV’s reached 2m units in 2018. As a base case scenario, we expect a combination of improving EV battery cost-effectiveness, increasingly challenging emissions standards and ongoing incentives by various governments to propel unit sales to 8m units annually by 2025. Against this, we consider battery material price increases, a reduction of EV incentives in the US and China and political and environmental risks from the mining of metals used in batteries as downside risks which could delay the growth of the EV market.

Surprisingly, the EV battery technology that will drive us towards that 8m unit goal is still very much a work in progress. While Lithium Ion is the by far the dominant technology, there are striking differences between variants of the technology, battery pack design, battery management systems and manufacturing scale between the leading contenders. Furthermore, while there’s nothing on the horizon to completely displace Lithium Ion within the next decade, it remains unclear whether the technology will be the one to achieve the $100/kWh price target that would make the EV cost-neutral compared to its internal combustion predecessors. 

Quite apart from the technology,  the EV battery segment faces other significant challenges including increasing costs for core materials such as Cobalt, increasing safety concerns as the mix of that very same cobalt is reduced in the cathode, the growing risk of litigation amidst a fiercely competitive environment and last but not least, the appetite of various governments to maintain a favourable subsidy framework. 

3. ICBC: Opportunity in Disguise

ICBC (H) (1398 HK) delivered a robust PH Score of 8.5 – our quantamental value-quality gauge.

A highlight was the trend in cost-control. The bank delivered underlying “jaws” of 420bps. Besides OPEX restraint, including payroll, Efficiency gains were supported by robust underlying top-line expansion as  growth in interest income on earning assets, underpinned by moderate credit growth, broadly matched expansion of interest expenses on interest-bearing Liabilities. This combination is not so prevalent in China these days, especially in smaller or medium-sized lenders.

It is well-flagged that the system is grappling with Asset Quality issues and there is a debate about the interrelated property market. ICBC is not immune, similar to other SOEs, from migration of souring loans. However, by China standards, rising asset writedowns which exerted a negative pull on Pre-Tax Profit as a % of pre-impairment Operating Profit, high charge-offs, and swelling (though not exploding) substandard and loss loans look arguably manageable given ICBC‘s sheer scale. The Asset Quality issue here is also not as bad as it was in bygone years (2004 springs to mind) when capital injections, asset transfers, and government-subsidised bad loan disposals were the order of the day. This is a “Big Four” player.

Shares are not expensive. ICBC trades at a P/Book of 0.8x, a Franchise Valuation of 10%, an Earnings Yield of 16.7%, a Dividend Yield of 4.9%, and a Total Return Ratio of 1.6x.

4. Shanghai/Shenzhen Connect – Inflow Turned Cautious in March but MSCI Adjustment Ahead

In our Discover SZ/SH Connect series, we aim to help our investors understand the flow of northbound trades via the Shanghai Connect and Shenzhen Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by offshore investors in the past seven days.

We split the stocks eligible for the northbound trade into three groups: those with a market capitalization of above USD 5 billion, and those with a market capitalization between USD 1 billion and USD 5 billion.

We note that in March, northbound inflows turned more cautious vs strong inflows in February (link to our Feb note) and January (link to our Jan note). Nevertheless we see strong inflows into Healthcare sector, led by Jiangsu Hengrui Medicine Co., (600276 CH). We also highlight Universal Scientific Industrial Shanghai (601231 CH 环旭电子) in the mid cap space that attracted strong northbound inflows.

5. More Volatility in the LNG Markets as JKM Drops Below TTF – Oil Majors Increase Exposure to US LNG

The JKM has halved its value since December, continuing its steady decline and dropping below the TTF, the benchmark for European LNG prices. Asian LNG spot prices are now at their lowest level since May 2015. While a prolonged LNG price downturn could force many projects to be cancelled, the winners among the developers are starting to emerge, aggressively pushing ahead their projects closer to the final investment decision.

Both Tellurian Inc (TELL US) and NextDecade Corp (NEXT US) signed high-profile deals, respectively with Total Sa (FP FP) and Royal Dutch Shell (RDSA LN), that could significantly de-risk their proposed LNG projects and increase the probability to reach FID in 2019. In Russia, LNG newcomer Novatek PJSC (NVTK LI) agreed two long-term offtake deals with Repsol SA (REP SM) and Vitol thereby moving a step closer to FID its Arctic LNG 2 project.

In this briefing:

1. Xinyi Solar Placement – Past Deals Have Done Well, Improvement in Sentiment Should Help
2. NIO (NIO US): Lock-Up Expiry – This Could Get Messy

1. 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.

2. 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.

In this briefing:

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

1. 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.

In this briefing:

1. Battery Technology- The Key To An Electric Vehicle Future
2. ICBC: Opportunity in Disguise
3. Shanghai/Shenzhen Connect – Inflow Turned Cautious in March but MSCI Adjustment Ahead
4. More Volatility in the LNG Markets as JKM Drops Below TTF – Oil Majors Increase Exposure to US LNG
5. Nexon Sale: Key Questions at This Point & Most Realistic Answers

1. Battery Technology- The Key To An Electric Vehicle Future

The Insight is structured as follows:

• A. Key  Conclusions
• B. Report Highlights
• C.History of Electric Vehicles
• E. History of Rechargeable Battery Technologies And An In-Depth Analysis on Li-ion Batteries
• F. Batteries Beyond Li-ion
• G. Supply Constraints for Key Raw Materials
• H. The Competitive Landscape

A. Key  Conclusions

Global sales of EV’s reached 2m units in 2018. As a base case scenario, we expect a combination of improving EV battery cost-effectiveness, increasingly challenging emissions standards and ongoing incentives by various governments to propel unit sales to 8m units annually by 2025. Against this, we consider battery material price increases, a reduction of EV incentives in the US and China and political and environmental risks from the mining of metals used in batteries as downside risks which could delay the growth of the EV market.

Surprisingly, the EV battery technology that will drive us towards that 8m unit goal is still very much a work in progress. While Lithium Ion is the by far the dominant technology, there are striking differences between variants of the technology, battery pack design, battery management systems and manufacturing scale between the leading contenders. Furthermore, while there’s nothing on the horizon to completely displace Lithium Ion within the next decade, it remains unclear whether the technology will be the one to achieve the $100/kWh price target that would make the EV cost-neutral compared to its internal combustion predecessors. 

Quite apart from the technology,  the EV battery segment faces other significant challenges including increasing costs for core materials such as Cobalt, increasing safety concerns as the mix of that very same cobalt is reduced in the cathode, the growing risk of litigation amidst a fiercely competitive environment and last but not least, the appetite of various governments to maintain a favourable subsidy framework. 

2. ICBC: Opportunity in Disguise

ICBC (H) (1398 HK) delivered a robust PH Score of 8.5 – our quantamental value-quality gauge.

A highlight was the trend in cost-control. The bank delivered underlying “jaws” of 420bps. Besides OPEX restraint, including payroll, Efficiency gains were supported by robust underlying top-line expansion as  growth in interest income on earning assets, underpinned by moderate credit growth, broadly matched expansion of interest expenses on interest-bearing Liabilities. This combination is not so prevalent in China these days, especially in smaller or medium-sized lenders.

It is well-flagged that the system is grappling with Asset Quality issues and there is a debate about the interrelated property market. ICBC is not immune, similar to other SOEs, from migration of souring loans. However, by China standards, rising asset writedowns which exerted a negative pull on Pre-Tax Profit as a % of pre-impairment Operating Profit, high charge-offs, and swelling (though not exploding) substandard and loss loans look arguably manageable given ICBC‘s sheer scale. The Asset Quality issue here is also not as bad as it was in bygone years (2004 springs to mind) when capital injections, asset transfers, and government-subsidised bad loan disposals were the order of the day. This is a “Big Four” player.

Shares are not expensive. ICBC trades at a P/Book of 0.8x, a Franchise Valuation of 10%, an Earnings Yield of 16.7%, a Dividend Yield of 4.9%, and a Total Return Ratio of 1.6x.

3. Shanghai/Shenzhen Connect – Inflow Turned Cautious in March but MSCI Adjustment Ahead

In our Discover SZ/SH Connect series, we aim to help our investors understand the flow of northbound trades via the Shanghai Connect and Shenzhen Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by offshore investors in the past seven days.

We split the stocks eligible for the northbound trade into three groups: those with a market capitalization of above USD 5 billion, and those with a market capitalization between USD 1 billion and USD 5 billion.

We note that in March, northbound inflows turned more cautious vs strong inflows in February (link to our Feb note) and January (link to our Jan note). Nevertheless we see strong inflows into Healthcare sector, led by Jiangsu Hengrui Medicine Co., (600276 CH). We also highlight Universal Scientific Industrial Shanghai (601231 CH 环旭电子) in the mid cap space that attracted strong northbound inflows.

4. More Volatility in the LNG Markets as JKM Drops Below TTF – Oil Majors Increase Exposure to US LNG

The JKM has halved its value since December, continuing its steady decline and dropping below the TTF, the benchmark for European LNG prices. Asian LNG spot prices are now at their lowest level since May 2015. While a prolonged LNG price downturn could force many projects to be cancelled, the winners among the developers are starting to emerge, aggressively pushing ahead their projects closer to the final investment decision.

Both Tellurian Inc (TELL US) and NextDecade Corp (NEXT US) signed high-profile deals, respectively with Total Sa (FP FP) and Royal Dutch Shell (RDSA LN), that could significantly de-risk their proposed LNG projects and increase the probability to reach FID in 2019. In Russia, LNG newcomer Novatek PJSC (NVTK LI) agreed two long-term offtake deals with Repsol SA (REP SM) and Vitol thereby moving a step closer to FID its Arctic LNG 2 project.

5. Nexon Sale: Key Questions at This Point & Most Realistic Answers

This post discusses the key questions on Nexon sale at this point. It then provides the most realistic answers to these questions from various circumstantial aspects. This post is based on the recent news reports and also various local sources.