Consumer

In this briefing:

1. Indonesia Property – In Search of the End of the Rainbow – Part 2 –  Bumi Serpong Damai (BSDE IJ)
2. Jcontentree (2nd Largest Korean Drama Production Firm): Three Key Catalysts
3. HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)

1. Indonesia Property – In Search of the End of the Rainbow – Part 2 –  Bumi Serpong Damai (BSDE IJ)

In this series under Smartkarma Originals, CrossASEAN Research insight providers Angus Mackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks. 

The second company we explore is leading township developer Bumi Serpong Damai (BSDE IJ), with exposure ranging from landed housing, shophouses, condominiums, as well as the defensive and growing buffer of nearly 20% of revenues coming from recurrent rental income.

Bumi Serpong Damai (BSDE IJ) has one of the largest land banks of any developer, with a land bank of over 4,000 ha, more than half of which is in its flagship township of BSD City in Serpong.

Given its breadth of exposure to the property segment, the company has the flexibility to switch its exposure between different segments depending on the health of the overall market. 

Its projects are well connected by toll-roads and railway but it is well positioned to benefit from new infrastructure such as the new MRT, LRT, as well as new toll road extensions, which will enhance the attractiveness of its developments.  

Management suggests that they will take a cautious start to the year ahead of the election but see a window for a pick-up in marketing sales in May, with the potential for a much better 2H19. 

Despite a run-up in the share price since the start of the year, valuations do not look challenging from a historical basis especially looking at its PBV. It also trades at a significant discount to NAV of 67%, as well as being below its 5 yr historical mean on a forward PER basis.

Catalysts ahead include a post-election pick-up in activity leading to more project launches, completion of infrastructure projects, aggressive mortgage lending by the banks, and a more dovish interest rate outlook. Valuations are already attractive but a rise in property market activity should also lead to earnings upgrades, which if sustained, may lead to property prices moving upwards.

2. Jcontentree (2nd Largest Korean Drama Production Firm): Three Key Catalysts

Jcontentree Corp (036420 KS) is the second largest drama production firm in Korea after Studio Dragon (253450 KS). The company has three key catalysts that could positively impact its share price in the next 6-12 months:

• Expansion of OTT Service by the Global Giants – One of the most favorable investment themes in the next several years is the tremendous growth of the global OTT services by global giants such as Netflix, Disney, and Amazon. These giants want to provide the very best contents that could be popular on a global basis and the Korean dramas have been becoming increasingly popular all over the world and Jcontentree should also be one of the key beneficiaries of this trend. 
• IPO of Megabox – The company also has a controlling stake in Megabox Joongang, which is the third largest movie theater chain in Korea. On February 19th, 2019, Jcontentree sent a RFP to eight securities firms for the IPO of Megabox. The company will soon finalize the securities firms for the IPO and plans to complete the IPO in 1H 2021. Various media have estimated the value of Megabox to be around 700 billion won or more. 
• Korean dramas may be re-aired in China in 2019 – The Korean dramas were blocked in China in the past two years but there are some cautious optimism that the Chinese regulators will allow some of the Korean dramas to air in 2019.

3. HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)

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

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

In this week’s HK Connect Discovery, we highlight the strong inflow to automobile stocks and Sands China. 

In this briefing:

1. TRADE IDEA – PCCW (8 HK) Stub: The Li Legacy Lives On
2. Dali Foods (3799:HK) FY18 Results: Revenue Growth Collapses in H2, But Margins Hold Up So Far
3. U.S. Equity Strategy: Bullish Outlook Intact
4. StubWorld: Naspers Embeds Another Layer Into Tencent
5. Ruhnn (如涵) IPO Review – Expensive Influence

1. TRADE IDEA – PCCW (8 HK) Stub: The Li Legacy Lives On

Have you ever wondered how a company secures the Chinese lucky number “8” as their ticker in Hong Kong? I’ll explain later on, but let’s just say that being the son of Li Ka Shing helps. 

Li Ka Shing is a name that hardly needs introduction in Hong Kong and Richard Li, Li Ka Shing’s youngest son and Chairman of PCCW Ltd (8 HK), follows suit. After being born into Hong Kong’s richest family, Richard Li was educated in the US where he worked various odd jobs at McDonald’s and as a caddy at a local golf course before enrolling at Menlo College and eventually withdrawing without a degree. As fate would have it, Mr. Li went on to set up STAR TV, Asia’s satellite-delivered cable TV service, at the tender age of 24. Three years after starting STAR TV, Richard Li sold the venture, which had amassed a viewer base of 45 million people, to Rupert Murdoch’s News Corp (NWS AU) for USD 1 billion in 1993. During the same year, Mr. Li founded the Pacific Century Group and began a streak of noteworthy acquisitions. 

You may be starting to wonder what all of this has to do with a trade on PCCW Ltd (8 HK) and I don’t blame you. In the rest of this insight I will:

• finish the historical overview of the Li family and PCCW
• present my trade idea and rationale
• give a detailed overview of the business units of PCCW and the associated performance of each
• recap ALL of my stub trades on Smartkarma and the performance of each  

2. Dali Foods (3799:HK) FY18 Results: Revenue Growth Collapses in H2, But Margins Hold Up So Far

We launched coverage of Dali Foods Group (3799 HK) in February with a Sell rating and a HK$4.18 target price. FY18 financial results, which were released late Tuesday March 26th, appear to confirm at least half of our negative thesis (slowing revenue growth), though the other half (margin compression) has failed to materialize so far.

Dali Foods appears to have met — just — the FY18 consensus EPS target of HK$0.307 per share. The company cut its Final dividend from HK$0.10 to HK$0.075 per share. 

However, the pace of revenue growth plummeted in H218. From solid growth of +11.4% YoY in H118, H218 revenues actually declined by -0.6% YoY in the latter half of the year. This result was beyond even our pessimistic view and we believe bulls on the company will be forced to revisit their overly optimistic assumptions about double-digit revenue growth in 2019e.

Besides assuming slower revenue growth going forward, the other leg of our negative thesis on Dali Foods was the expectation of margin compression due to rising raw materials costs, specifically for paper and key food and beverage ingredients. Although H218 gross margin declined versus H217 (to 37.7% from 37.8%), it did so only marginally, and probably due to a change in product mix (ie, a decline in high-margin beverage sales). 

After reviewing FY and H218 results, we see no reasons to change our negative view of Dali Foods, and our HK$4.18 price target (-26% potential downside) and Sell rating remain unchanged.

3. U.S. Equity Strategy: Bullish Outlook Intact

Market activity, both bonds and stocks, has been all about realigning expectations. Wednesday’s Fed announcement was more dovish than expected, and the market is now pricing in roughly 25bps of cuts by the end of 2019. Stocks reacted positively on Thursday, but then reversed (and then some) on Friday as global growth concerns became a little more serious. We continue to maintain our positive outlook. In today’s report we recap our bullish investment thesis and highlight attractive Groups and stocks within Consumer Staples, Materials, and Services.

4. StubWorld: Naspers Embeds Another Layer Into Tencent

This week in StubWorld …

• There is no apparent value enhancement to Naspers Ltd (NPN SJ)‘s spinning-off and separately listing Tencent Holdings (700 HK), while there is no change in governance and no monetisation at the parent level.

Preceding my comments on Naspers are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

5. Ruhnn (如涵) IPO Review – Expensive Influence

Ruhnn Holding Ltd (RUHN US) is looking to raise up to US$155m in its upcoming IPO. We have previously covered the company’s fundamentals in: Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk.

In this insight, we will value the company business segments by parts, look at the deal dynamics, and run the deal through our IPO framework.

In this briefing:

1. Jcontentree (2nd Largest Korean Drama Production Firm): Three Key Catalysts
2. HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)

1. Jcontentree (2nd Largest Korean Drama Production Firm): Three Key Catalysts

Jcontentree Corp (036420 KS) is the second largest drama production firm in Korea after Studio Dragon (253450 KS). The company has three key catalysts that could positively impact its share price in the next 6-12 months:

• Expansion of OTT Service by the Global Giants – One of the most favorable investment themes in the next several years is the tremendous growth of the global OTT services by global giants such as Netflix, Disney, and Amazon. These giants want to provide the very best contents that could be popular on a global basis and the Korean dramas have been becoming increasingly popular all over the world and Jcontentree should also be one of the key beneficiaries of this trend. 
• IPO of Megabox – The company also has a controlling stake in Megabox Joongang, which is the third largest movie theater chain in Korea. On February 19th, 2019, Jcontentree sent a RFP to eight securities firms for the IPO of Megabox. The company will soon finalize the securities firms for the IPO and plans to complete the IPO in 1H 2021. Various media have estimated the value of Megabox to be around 700 billion won or more. 
• Korean dramas may be re-aired in China in 2019 – The Korean dramas were blocked in China in the past two years but there are some cautious optimism that the Chinese regulators will allow some of the Korean dramas to air in 2019.

2. HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)

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

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

In this week’s HK Connect Discovery, we highlight the strong inflow to automobile stocks and Sands China. 

In this briefing:

1. Dali Foods (3799:HK) FY18 Results: Revenue Growth Collapses in H2, But Margins Hold Up So Far
2. U.S. Equity Strategy: Bullish Outlook Intact
3. StubWorld: Naspers Embeds Another Layer Into Tencent
4. Ruhnn (如涵) IPO Review – Expensive Influence
5. Golden Agri Bull Pivots to Get Involved

1. Dali Foods (3799:HK) FY18 Results: Revenue Growth Collapses in H2, But Margins Hold Up So Far

We launched coverage of Dali Foods Group (3799 HK) in February with a Sell rating and a HK$4.18 target price. FY18 financial results, which were released late Tuesday March 26th, appear to confirm at least half of our negative thesis (slowing revenue growth), though the other half (margin compression) has failed to materialize so far.

Dali Foods appears to have met — just — the FY18 consensus EPS target of HK$0.307 per share. The company cut its Final dividend from HK$0.10 to HK$0.075 per share. 

However, the pace of revenue growth plummeted in H218. From solid growth of +11.4% YoY in H118, H218 revenues actually declined by -0.6% YoY in the latter half of the year. This result was beyond even our pessimistic view and we believe bulls on the company will be forced to revisit their overly optimistic assumptions about double-digit revenue growth in 2019e.

Besides assuming slower revenue growth going forward, the other leg of our negative thesis on Dali Foods was the expectation of margin compression due to rising raw materials costs, specifically for paper and key food and beverage ingredients. Although H218 gross margin declined versus H217 (to 37.7% from 37.8%), it did so only marginally, and probably due to a change in product mix (ie, a decline in high-margin beverage sales). 

After reviewing FY and H218 results, we see no reasons to change our negative view of Dali Foods, and our HK$4.18 price target (-26% potential downside) and Sell rating remain unchanged.

2. U.S. Equity Strategy: Bullish Outlook Intact

Market activity, both bonds and stocks, has been all about realigning expectations. Wednesday’s Fed announcement was more dovish than expected, and the market is now pricing in roughly 25bps of cuts by the end of 2019. Stocks reacted positively on Thursday, but then reversed (and then some) on Friday as global growth concerns became a little more serious. We continue to maintain our positive outlook. In today’s report we recap our bullish investment thesis and highlight attractive Groups and stocks within Consumer Staples, Materials, and Services.

3. StubWorld: Naspers Embeds Another Layer Into Tencent

This week in StubWorld …

• There is no apparent value enhancement to Naspers Ltd (NPN SJ)‘s spinning-off and separately listing Tencent Holdings (700 HK), while there is no change in governance and no monetisation at the parent level.

Preceding my comments on Naspers are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

4. Ruhnn (如涵) IPO Review – Expensive Influence

Ruhnn Holding Ltd (RUHN US) is looking to raise up to US$155m in its upcoming IPO. We have previously covered the company’s fundamentals in: Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk.

In this insight, we will value the company business segments by parts, look at the deal dynamics, and run the deal through our IPO framework.

5. Golden Agri Bull Pivots to Get Involved

Golden Agri Resources (GGR SP) has started a basing process below pivot support at 0.30 as the daily MACD cycle has not been confirming recent lows for a case of underlying supportive bull divergence (sell pressure dwindling as downside momentum tapers off).

Bull divergence outlined in the MACD is supportive on a macro basis, however there is downside risk stemming from the micro rising wedge. A fresh diverging low is expected to market a price low to work into.

Immediate inflection levels at 0.30 and 0.26 will dictate near term direction out of the micro rising wedge. Ideal downside projections are noted along with a bullish resistance threshold.

In this briefing:

1. U.S. Equity Strategy: Bullish Outlook Intact
2. StubWorld: Naspers Embeds Another Layer Into Tencent
3. Ruhnn (如涵) IPO Review – Expensive Influence
4. Golden Agri Bull Pivots to Get Involved
5. Yunji (云集) Pre-IPO Review – Poor Disclosure on Data

1. U.S. Equity Strategy: Bullish Outlook Intact

Market activity, both bonds and stocks, has been all about realigning expectations. Wednesday’s Fed announcement was more dovish than expected, and the market is now pricing in roughly 25bps of cuts by the end of 2019. Stocks reacted positively on Thursday, but then reversed (and then some) on Friday as global growth concerns became a little more serious. We continue to maintain our positive outlook. In today’s report we recap our bullish investment thesis and highlight attractive Groups and stocks within Consumer Staples, Materials, and Services.

2. StubWorld: Naspers Embeds Another Layer Into Tencent

This week in StubWorld …

• There is no apparent value enhancement to Naspers Ltd (NPN SJ)‘s spinning-off and separately listing Tencent Holdings (700 HK), while there is no change in governance and no monetisation at the parent level.

Preceding my comments on Naspers are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

3. Ruhnn (如涵) IPO Review – Expensive Influence

Ruhnn Holding Ltd (RUHN US) is looking to raise up to US$155m in its upcoming IPO. We have previously covered the company’s fundamentals in: Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk.

In this insight, we will value the company business segments by parts, look at the deal dynamics, and run the deal through our IPO framework.

4. Golden Agri Bull Pivots to Get Involved

Golden Agri Resources (GGR SP) has started a basing process below pivot support at 0.30 as the daily MACD cycle has not been confirming recent lows for a case of underlying supportive bull divergence (sell pressure dwindling as downside momentum tapers off).

Bull divergence outlined in the MACD is supportive on a macro basis, however there is downside risk stemming from the micro rising wedge. A fresh diverging low is expected to market a price low to work into.

Immediate inflection levels at 0.30 and 0.26 will dictate near term direction out of the micro rising wedge. Ideal downside projections are noted along with a bullish resistance threshold.

5. Yunji (云集) Pre-IPO Review – Poor Disclosure on Data

Yunji Inc. (YJ US) is looking to raise about US$200m in its upcoming IPO. 

YJ is a membership-based social e-commerce platform. Growth from FY2016 to FY2018 has been stupendous. Revenue has grown at a 218% CAGR while gross profit grew at 175% CAGR. Losses have been shrinking as a percentage of revenue and the company seems to be close to break even.

However, the disclosure of data is poor. There is no clear explanation how the company has achieved such strong growth in FY2018 without having to provide a proportionately larger incentive in the same period. 

In this briefing:

1. Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO

1. Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO

In this version of the GER weekly research wrap, we assess the controversy surrounding potentially inflated revenue concerns for Best World International (BEST SP) . Secondly, we dig into the latest M&A situation for Graincorp Ltd A (GNC AU) amidst a testy AGM and a slow resolution to a binding bid which may limit a bump. In addition, we update on the KKR bid for MYOB Group Ltd (MYO AU) which Arun contends is unlikely to receive a counter bid due to KKR’s blocking stake. Finally, we initiate on the IPO of hotelier Zhejiang New Century Hotel Management Group (ZHEKAIH HK).  A calendar of upcoming catalysts is also attached. 

More details can be found below. 

Best of luck for the new week – Rickin, Venkat and Arun

In this briefing:

1. StubWorld: Naspers Embeds Another Layer Into Tencent
2. Ruhnn (如涵) IPO Review – Expensive Influence
3. Golden Agri Bull Pivots to Get Involved
4. Yunji (云集) Pre-IPO Review – Poor Disclosure on Data
5. F&F: Time to Take Profits – Up 95% This Year Driven by MLB Baseball Hats Potential in China

1. StubWorld: Naspers Embeds Another Layer Into Tencent

This week in StubWorld …

• There is no apparent value enhancement to Naspers Ltd (NPN SJ)‘s spinning-off and separately listing Tencent Holdings (700 HK), while there is no change in governance and no monetisation at the parent level.

Preceding my comments on Naspers are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

2. Ruhnn (如涵) IPO Review – Expensive Influence

Ruhnn Holding Ltd (RUHN US) is looking to raise up to US$155m in its upcoming IPO. We have previously covered the company’s fundamentals in: Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk.

In this insight, we will value the company business segments by parts, look at the deal dynamics, and run the deal through our IPO framework.

3. Golden Agri Bull Pivots to Get Involved

Golden Agri Resources (GGR SP) has started a basing process below pivot support at 0.30 as the daily MACD cycle has not been confirming recent lows for a case of underlying supportive bull divergence (sell pressure dwindling as downside momentum tapers off).

Bull divergence outlined in the MACD is supportive on a macro basis, however there is downside risk stemming from the micro rising wedge. A fresh diverging low is expected to market a price low to work into.

Immediate inflection levels at 0.30 and 0.26 will dictate near term direction out of the micro rising wedge. Ideal downside projections are noted along with a bullish resistance threshold.

4. Yunji (云集) Pre-IPO Review – Poor Disclosure on Data

Yunji Inc. (YJ US) is looking to raise about US$200m in its upcoming IPO. 

YJ is a membership-based social e-commerce platform. Growth from FY2016 to FY2018 has been stupendous. Revenue has grown at a 218% CAGR while gross profit grew at 175% CAGR. Losses have been shrinking as a percentage of revenue and the company seems to be close to break even.

However, the disclosure of data is poor. There is no clear explanation how the company has achieved such strong growth in FY2018 without having to provide a proportionately larger incentive in the same period. 

5. F&F: Time to Take Profits – Up 95% This Year Driven by MLB Baseball Hats Potential in China

F&F Co Ltd (007700 KS) shares have been soaring this year (up 95% YTD), versus KOSPI which is up only 5% YTD. F&F Co has been one of the top performing stocks in KOSPI this year. We believe it is time to take profits on this name and take it out of our model portfolio. 

One of the main reasons why F&F Co has been soaring this year has been due to the MLB (Major League Baseball) apparel business expansion in China. In February 2019, F&F Co secured the selling rights of the MLB branded apparel products in China from the MLB headquarters in the US. 

Baseball is becoming increasingly popular in China. According to the Chinese Baseball Association, more than 4 million Chinese play the game. The historical resistance to baseball is breaking down in China. For example, In April 2018, Tencent announced a deal to live stream 125 MLB games on platforms such as its its Tencent Sports app to Chinese audiences via their computers and mobile devices.

In this briefing:

1. Ruhnn (如涵) IPO Review – Expensive Influence
2. Golden Agri Bull Pivots to Get Involved
3. Yunji (云集) Pre-IPO Review – Poor Disclosure on Data
4. F&F: Time to Take Profits – Up 95% This Year Driven by MLB Baseball Hats Potential in China
5. Wesfarmers Puts Out A Bid for Lynas

1. Ruhnn (如涵) IPO Review – Expensive Influence

Ruhnn Holding Ltd (RUHN US) is looking to raise up to US$155m in its upcoming IPO. We have previously covered the company’s fundamentals in: Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk.

In this insight, we will value the company business segments by parts, look at the deal dynamics, and run the deal through our IPO framework.

2. Golden Agri Bull Pivots to Get Involved

Golden Agri Resources (GGR SP) has started a basing process below pivot support at 0.30 as the daily MACD cycle has not been confirming recent lows for a case of underlying supportive bull divergence (sell pressure dwindling as downside momentum tapers off).

Bull divergence outlined in the MACD is supportive on a macro basis, however there is downside risk stemming from the micro rising wedge. A fresh diverging low is expected to market a price low to work into.

Immediate inflection levels at 0.30 and 0.26 will dictate near term direction out of the micro rising wedge. Ideal downside projections are noted along with a bullish resistance threshold.

3. Yunji (云集) Pre-IPO Review – Poor Disclosure on Data

Yunji Inc. (YJ US) is looking to raise about US$200m in its upcoming IPO. 

YJ is a membership-based social e-commerce platform. Growth from FY2016 to FY2018 has been stupendous. Revenue has grown at a 218% CAGR while gross profit grew at 175% CAGR. Losses have been shrinking as a percentage of revenue and the company seems to be close to break even.

However, the disclosure of data is poor. There is no clear explanation how the company has achieved such strong growth in FY2018 without having to provide a proportionately larger incentive in the same period. 

4. F&F: Time to Take Profits – Up 95% This Year Driven by MLB Baseball Hats Potential in China

F&F Co Ltd (007700 KS) shares have been soaring this year (up 95% YTD), versus KOSPI which is up only 5% YTD. F&F Co has been one of the top performing stocks in KOSPI this year. We believe it is time to take profits on this name and take it out of our model portfolio. 

One of the main reasons why F&F Co has been soaring this year has been due to the MLB (Major League Baseball) apparel business expansion in China. In February 2019, F&F Co secured the selling rights of the MLB branded apparel products in China from the MLB headquarters in the US. 

Baseball is becoming increasingly popular in China. According to the Chinese Baseball Association, more than 4 million Chinese play the game. The historical resistance to baseball is breaking down in China. For example, In April 2018, Tencent announced a deal to live stream 125 MLB games on platforms such as its its Tencent Sports app to Chinese audiences via their computers and mobile devices.

5. Wesfarmers Puts Out A Bid for Lynas

This morning, Wesfarmers Ltd (WES AU) announced an indicative, non-binding proposal to the Board of Directors of Lynas Corp Ltd (LYC AU) to acquire Lynas at A$2.25/share, payable in cash in the form of a Scheme of Arrangement.  

This is a 44.7% premium to the one-day price and a 36.4% premium to the 60-day price.

It is, however, a 0% premium to the price at which Lynas was trading on 3 December 2018, the day before the Malaysian Minister for Energy, Science, Technology, Environment and Climate imposed two pre-conditions on the rolling over of the processing licence (later in 2019), and it is a 3.2% premium to the one-year average as of 4 December 2018. On December 5th, the shares fell to A$1.65 and they have not recovered.

David Blennerhassett gave an overview of the license renewal issues and timeline in Lynas: Between a Hard Place and Just Rock just a few weeks ago. It is definitely worth a read as background for those not up to speed on the situation. 

This is very early, non-binding, conditional in the extreme, and conditional non-binding offers are a graveyard of Australian arbitrageurs. The Offer is not all that attractive to boot. But I expect the stock will go up anyway, and that may make for some interesting trading opportunities.

In this briefing:

1. Golden Agri Bull Pivots to Get Involved
2. Yunji (云集) Pre-IPO Review – Poor Disclosure on Data
3. F&F: Time to Take Profits – Up 95% This Year Driven by MLB Baseball Hats Potential in China
4. Wesfarmers Puts Out A Bid for Lynas
5. Yunji IPO Preview: Balance Sheet Points to Waning Engagement

1. Golden Agri Bull Pivots to Get Involved

Golden Agri Resources (GGR SP) has started a basing process below pivot support at 0.30 as the daily MACD cycle has not been confirming recent lows for a case of underlying supportive bull divergence (sell pressure dwindling as downside momentum tapers off).

Bull divergence outlined in the MACD is supportive on a macro basis, however there is downside risk stemming from the micro rising wedge. A fresh diverging low is expected to market a price low to work into.

Immediate inflection levels at 0.30 and 0.26 will dictate near term direction out of the micro rising wedge. Ideal downside projections are noted along with a bullish resistance threshold.

2. Yunji (云集) Pre-IPO Review – Poor Disclosure on Data

Yunji Inc. (YJ US) is looking to raise about US$200m in its upcoming IPO. 

YJ is a membership-based social e-commerce platform. Growth from FY2016 to FY2018 has been stupendous. Revenue has grown at a 218% CAGR while gross profit grew at 175% CAGR. Losses have been shrinking as a percentage of revenue and the company seems to be close to break even.

However, the disclosure of data is poor. There is no clear explanation how the company has achieved such strong growth in FY2018 without having to provide a proportionately larger incentive in the same period. 

3. F&F: Time to Take Profits – Up 95% This Year Driven by MLB Baseball Hats Potential in China

F&F Co Ltd (007700 KS) shares have been soaring this year (up 95% YTD), versus KOSPI which is up only 5% YTD. F&F Co has been one of the top performing stocks in KOSPI this year. We believe it is time to take profits on this name and take it out of our model portfolio. 

One of the main reasons why F&F Co has been soaring this year has been due to the MLB (Major League Baseball) apparel business expansion in China. In February 2019, F&F Co secured the selling rights of the MLB branded apparel products in China from the MLB headquarters in the US. 

Baseball is becoming increasingly popular in China. According to the Chinese Baseball Association, more than 4 million Chinese play the game. The historical resistance to baseball is breaking down in China. For example, In April 2018, Tencent announced a deal to live stream 125 MLB games on platforms such as its its Tencent Sports app to Chinese audiences via their computers and mobile devices.

4. Wesfarmers Puts Out A Bid for Lynas

This morning, Wesfarmers Ltd (WES AU) announced an indicative, non-binding proposal to the Board of Directors of Lynas Corp Ltd (LYC AU) to acquire Lynas at A$2.25/share, payable in cash in the form of a Scheme of Arrangement.  

This is a 44.7% premium to the one-day price and a 36.4% premium to the 60-day price.

It is, however, a 0% premium to the price at which Lynas was trading on 3 December 2018, the day before the Malaysian Minister for Energy, Science, Technology, Environment and Climate imposed two pre-conditions on the rolling over of the processing licence (later in 2019), and it is a 3.2% premium to the one-year average as of 4 December 2018. On December 5th, the shares fell to A$1.65 and they have not recovered.

David Blennerhassett gave an overview of the license renewal issues and timeline in Lynas: Between a Hard Place and Just Rock just a few weeks ago. It is definitely worth a read as background for those not up to speed on the situation. 

This is very early, non-binding, conditional in the extreme, and conditional non-binding offers are a graveyard of Australian arbitrageurs. The Offer is not all that attractive to boot. But I expect the stock will go up anyway, and that may make for some interesting trading opportunities.

5. Yunji IPO Preview: Balance Sheet Points to Waning Engagement

Yunji Inc. (YJ US) is a leading membership-based social e-commerce platform in China which primarily sells merchandise through its Yunji app. Yunji is also referred to as a multi-level revenue sharing platform as the business model is based on providing incentives to members to promote products and invite new members through their social networks. Yunji is seeking to raise $200 million through a Nasdaq IPO.

In this briefing:

1. Indonesia Property – In Search of the End of the Rainbow – Part 2 –  Bumi Serpong Damai (BSDE IJ)
2. Jcontentree (2nd Largest Korean Drama Production Firm): Three Key Catalysts
3. HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)
4. Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO

1. Indonesia Property – In Search of the End of the Rainbow – Part 2 –  Bumi Serpong Damai (BSDE IJ)

In this series under Smartkarma Originals, CrossASEAN Research insight providers Angus Mackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks. 

The second company we explore is leading township developer Bumi Serpong Damai (BSDE IJ), with exposure ranging from landed housing, shophouses, condominiums, as well as the defensive and growing buffer of nearly 20% of revenues coming from recurrent rental income.

Bumi Serpong Damai (BSDE IJ) has one of the largest land banks of any developer, with a land bank of over 4,000 ha, more than half of which is in its flagship township of BSD City in Serpong.

Given its breadth of exposure to the property segment, the company has the flexibility to switch its exposure between different segments depending on the health of the overall market. 

Its projects are well connected by toll-roads and railway but it is well positioned to benefit from new infrastructure such as the new MRT, LRT, as well as new toll road extensions, which will enhance the attractiveness of its developments.  

Management suggests that they will take a cautious start to the year ahead of the election but see a window for a pick-up in marketing sales in May, with the potential for a much better 2H19. 

Despite a run-up in the share price since the start of the year, valuations do not look challenging from a historical basis especially looking at its PBV. It also trades at a significant discount to NAV of 67%, as well as being below its 5 yr historical mean on a forward PER basis.

Catalysts ahead include a post-election pick-up in activity leading to more project launches, completion of infrastructure projects, aggressive mortgage lending by the banks, and a more dovish interest rate outlook. Valuations are already attractive but a rise in property market activity should also lead to earnings upgrades, which if sustained, may lead to property prices moving upwards.

2. Jcontentree (2nd Largest Korean Drama Production Firm): Three Key Catalysts

Jcontentree Corp (036420 KS) is the second largest drama production firm in Korea after Studio Dragon (253450 KS). The company has three key catalysts that could positively impact its share price in the next 6-12 months:

• Expansion of OTT Service by the Global Giants – One of the most favorable investment themes in the next several years is the tremendous growth of the global OTT services by global giants such as Netflix, Disney, and Amazon. These giants want to provide the very best contents that could be popular on a global basis and the Korean dramas have been becoming increasingly popular all over the world and Jcontentree should also be one of the key beneficiaries of this trend. 
• IPO of Megabox – The company also has a controlling stake in Megabox Joongang, which is the third largest movie theater chain in Korea. On February 19th, 2019, Jcontentree sent a RFP to eight securities firms for the IPO of Megabox. The company will soon finalize the securities firms for the IPO and plans to complete the IPO in 1H 2021. Various media have estimated the value of Megabox to be around 700 billion won or more. 
• Korean dramas may be re-aired in China in 2019 – The Korean dramas were blocked in China in the past two years but there are some cautious optimism that the Chinese regulators will allow some of the Korean dramas to air in 2019.

3. HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)

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

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

In this week’s HK Connect Discovery, we highlight the strong inflow to automobile stocks and Sands China. 

4. Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO

In this version of the GER weekly research wrap, we assess the controversy surrounding potentially inflated revenue concerns for Best World International (BEST SP) . Secondly, we dig into the latest M&A situation for Graincorp Ltd A (GNC AU) amidst a testy AGM and a slow resolution to a binding bid which may limit a bump. In addition, we update on the KKR bid for MYOB Group Ltd (MYO AU) which Arun contends is unlikely to receive a counter bid due to KKR’s blocking stake. Finally, we initiate on the IPO of hotelier Zhejiang New Century Hotel Management Group (ZHEKAIH HK).  A calendar of upcoming catalysts is also attached. 

More details can be found below. 

Best of luck for the new week – Rickin, Venkat and Arun