Thematic (Sector/Industry)

In the next installment of our Webinar Wednesdays, we are glad to welcome Smartkarma Insight Provider Shifara Samsudeen, ACMA, CGMA , as she takes us through her insights and top picks in Japan’s investment space. From bubbling trends, to what’s next in the space, do join us to get the full picture.

The webinar will be hosted on Wednesday, 03 May 2023, 17:00 SGT/HKT.

Shifara Samsudeen, ACMA, CGMA is a chartered management accountant with more than 10 years of rich experience in investment research and financial analysis. She has worked as an equity analyst for one of the world’s largest asset managers with USD2.5 trillion in AUM covering numerous sectors including chemicals, retail, tech, autos, telco, real-estate and banks, globally. She is experienced in fundamental equity research, industry research, commodity studies, forensic accounting, and due diligence reviews.

• SK Hynix reported a Q1’23 net loss of ~ US$1.9 billion
• As was the case with Micron, the company pegged Q1’23 as the trough for the current downturn and now expect quarterly revenues to grow sequentially
• Recovery may be nigh, but the macro outlook has actually worsened. The road to recovery will be a long and winding one. 

• Active China A-Share funds scale back Financials exposure to record lows.
• A-Share Financials are the largest sector underweight by some distance, held below benchmark by -8.6% on average
• Outside of 6 well held stocks, active A-Share managers are staying well clear of a long tail of companies that are well represented in the MSCI China A-Share benchmark.

• Demand for hotel rooms and air tickets during this year’s Labor Day holiday is on track to exceed pre-pandemic levels of 2019, industry data showed
• Many of the bookings were for destinations in the Yangtze River Delta region, Chongqing municipality, Chengdu and the Beijing-Tianjin-Hebei cluster
• The rebound in travel comes amid a broader recovery in tourism, with Qunar saying that tickets tourist attractions in Beijing, Shanghai, Nanjing, Guangzhou and Xi’an have been selling fast.

• The past three quarters have seen memory revenues collapse by 60%
• DRAM and NAND prices have reach cost, and the business should remain profitless for an indefinite time
• Management appears to have no idea when this situation will end

• Wealthy Japanese staying in Japan, more people acquiring wealth, a return of inbound tourists and better merchandising and store investment. 
• All combined to help department stores rebound strongly in 2022 but there has been a sharp shift in where department stores make their money.
• Further growth is expected but only for some, and in some product categories much more than others.

• BZ: Kanzhun Limited: China State Council issued a series of policies to stabilize employment market.(+)
• BILI/1024HK/3690HK: New Internet ads measures take effect since May 1(-/-/+)
• 3690 HK: RED preparing to launch group buying function (-)

• We see the future, post decoupling world to have two operating systems, one surrounding US and the other surrounding China.
• Both US and China will develop respective partners to complete their ecosystems. We will soon have a world running on two sets of standards
• While the western world dominates the old order and the new frontiers, China is leading in the new order of energy, drug and manufacturing.

• Taiwan’s UMC, the world’s third largest foundry, reported Q1’23 revenues of NT$54.2 billion, a decrease of 20.1% QoQ and a 14.5% YoY, in line with expectations
• Q2’23 forecasted flat sequentially, outperforming TSMC’s outlook for a 6.5% QoQ decline
• Management foresees recovery being slower than previously anticipated and to admits to having very limited visibility into H2’23

• WTR-CMI last week. In what was a mixed week for the market, with the Russell 2000 appreciating 0.6% and the S&P 500 remaining virtually unchanged at (0.1%), our WTR-CMI index of 30 chemicals and materials technology stocks underperformed, declining 0.3%, as lithium stocks led by ALB suffered from Chile’s decision to nationalize its lithium mining industry, once existing contracts with private companies (mainly SQM and ALB) expire.
• SHW exits another paint market. When the company acquired Valspar, it did not only shore up its presence in the North American big-box distribution channel and expand its industrial coatings business, but it also gained exposure to non-North American paint markets, specifically China and Australia.
• SHW divested the Australian business two years ago and now has also found a buyer (Akzo) for its Chinese paint business, which may have contributed to SHW topping the list of WTR-CMI stocks appreciating last week.

• Chinese outbound air travel in the region surged in March, up 50%+ versus February
• Domestic improvement more muted, but still up about 75% Y/Y in Q123
• Is the expected recovery on track? Sure, but so far no upside surprises for investors

• BABA/700.HK/BIDU: AliCloud will significantly cuts prices of its cloud products (-/-/-)
• PDD: Temu expands into multiple European countries in Germany, Netherland, France, Italy, Spain, and the United Kingdom. (+)
• BGNE: Ociperlimab/Novartis trimmed 10% of its pipeline in C1Q23 earnings and did not mention Ociperlimab (-)

• China’s retail pharmacy market has entered a new era of integration as the industry growth is slowing down. After JD Health/Alibaba Health enter this industry, the game rule changes. 
• In the short term, the offline chain pharmacies, JD Health, Alibaba Health, etc. would still have the opportunity to carve up market share under the trend of prescription outflow.
• In the long term, it depends on who’re the first to establish new omni-channel retail scenarios, because the “new retail” model would comprehensively surpass traditional model from cost to experience.

• HK has recently organized several large-scale and international events such as Global Leaders Summit, Bank for International Settlement (BIS) meeting and Web 3.0 Conference in Hong Kong
• Government has unveiled policies and initiatives to push for development of Web 3.0, Fintech and Blockchain related Technology, including better regulatory framework, licensing regimes and more collaboration
• HK has also set up a HKD30bn fund Hong Kong Investment Corp to fund HK companies.  These sectors offer tremendous opportunities and future of HK is exciting 

• 3690HK / 1024HK:  Douyin launches local services partner conference (-)
• NIO: Wait times for NIO ES7 shortened to 3 weeks (-)
• LEGN:  Legend Bio announced positive Caltitude-4 data, raising private placement of US$200mn（/）

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Providers, Leonard Law, CFA and Trung Nguyen, as they share their thoughts on High Yield Opportunities in Asia. From developing trends, to what to expect in the space, join us for this next installment of our #webinar Wednesdays to get the full picture.

The webinar will be hosted on Wednesday, 26 April 2023, 17:00 SGT/HKT.

Leonard Law, CFA 
Leonard Law covers a portfolio of Chinese and Indonesian high-yield corporate credits. Prior to joining Lucror in 2017, he was an Associate Analyst with Moody’s Investors Service for three years, responsible for credit analysis and research.

Trung Nguyen 
Trung Nguyen is responsible for covering high-yield companies in the Southeast Asia region. He joined Lucror in 2013 from ST Asset Management, a credit investment arm of Temasek Holdings, where he spent over six years in investment research and portfolio management.

• 3690.HK: Meituan food delivery drivers in Shanwei go on strike over low wages (-)
• 2150HK: Lelecha confirm to launch franchise model, targeting at Mid and South-west China(+)
• 700 HK / TME : WeChat tests in-app music function(+)

• Broad equity indexes remained range-bound, as the S&P 500 and the MSCI World Index ended the week -0.06% and +0.07%, respectively.
• The S&P 500 has been stuck between 4,070 and 4,170 for the past three weeks.
• Small caps finished slightly better, with the Russell 2000 up 0.59% from last week.

• WTR Sustainable Index: During the week ended April 21, 2023, the WTR Sustainable Index underperformed the broader market, falling 7.3% W/W versus the S&P 500 Index (down 0.1%), the Russell 2000 Index (up 0.6%), and the Nasdaq Composite Index (down 0.4%). Advanced Transportation Solutions (67.2% of the index) contributed to the index underperformance, falling 10.2%, while Energy Technology (8.3% of the index) was down 4.4% and Industrial Climate and Ag Technology was up 0.5%.
• Valuation: Based on forward 12-month consensus estimates, the current P/E ratio of the WTR Sustainable index is 27.6x versus 18.9x for the S&P 500.
• Consensus estimates changes: During the week ended April 21, 2023, there were four increases (three in Energy Technology, and one in Industrial Climate and Ag Technology) 2022 revenue estimates.

• With ~2x exposure to memory compared to its peers, LRCX is feeling the pain
• Q1 revenues of  $3.87 billion were marginally higher than the forecasted midpoint, down 26.7% sequentially and down 4.4% YoY.
• For the current quarter, LRCX expects revenues to decline a further ~ 20% to $3.1 billion at the midpoint.

• Hong Kong is an important gateway to China, allowing foreign investors to invest in China. The City’s strategic location and strong financial infrastructure make it possible
• In this insight we discuss Hong Kong’s uniqueness and its role in channeling capital to and from China, as well as HK being the most important offshore RMB Center 
• These factors solidify Hong Kong’s significance in the global economy.  We expect Hong Kong to continue to ride on its unique competitive advantages

• BILI/ 700 HK: April domestic game codes published by NPPA
• JD/ PDD/ BABA/JDL: JD commits to maintain its low-price strategy
• BABA/PDD/JD/VIPS: Taobao cancels fees and adjusts algorithm for upcoming “Super Cost-effective Event”

• Q1 2023 revenues of $16.72 billion, at the bottom end of the guided range, down 16.1% sequentially and 4.8% compared to the year ago period
• TSMC pegged Q2 2023 as their trough quarter of the current semiconductor downturn
• 2023 CapEx of $34 billion at the midpoint, while flat sequentially, represents yet another in a long series of big bets on the future of semiconductors

• The Global Emerging Markets Weekly provides a summary of the key news and related developments impacting the largest countries and constituents of the Global Emerging Markets equity indices.
• Macro data points: Chinese GDP, Industrial production, and retail sales; Indonesian interest rates
• Companies mentioned:Alibaba Group (9988 HK), Ant Financial Services Group (6688 HK), Taiwan Semiconductor (TSMC) (2330 TT)

• Earnings Season Thus Far- Meanwhile Mixed Economic Messages Earnings season picks up this week with the technology heavyweights like Alphabet, Microsoft, Amazon, and Meta are all set to report their results.
• During the upcoming week, 180 S&P 500 companies (including 14 Dow 30 components) are scheduled to report results for the first quarter.
• Overall, 18% of the companies in the S&P 500 have reported actual results for Q1 2023 to date.

• No change to FY 2023 outlook but some EUV orders for H2 2024 still remain to be booked
• Net systems bookings fell sharply during the quarter, down ~40% sequentially
• With an order backlog of ~$39 billion, we see ASML riding out this semi storm relatively unscathed compared to their peers.  

• We explore the importance of the equity market in HK in this insight.  Despite all the volatilities in 2022, HK still achieved 3rd place in terms of capital raised globally.
• The Stock Connect (Northbound and Southbound), despite already seeing solid growth, still embeds huge potential, as China welcomes more foreign investor participation and Chinese investors aim to invest through HK 
• Overall, there is still huge growth potential in the equity market.  China has publicly stated that “One Country, Two System” will continue, hopefully enhancing investors’ confidence in the city.

• After countless delays, the first, and potentially biggest winner of the Japan IR license game is now reality as both MGM and its partner Orix begin development work.
• The US$9b to $10b property complex will debut in Osaka, by 2029. The area is already a top international tourist and business meeting center.
• Fears of dilution across Asia=Pacific casino countries are tempered by forward forecasts by researchers of healthy CAGR growth through 2030.

• In reality,  with 18A already sampling since Q4 ’22, it’s effectively a done deal already
• Despite being “manufacturing ready” since December 2022, the first product based on Intel 4 likely won’t hit the shelves until Q4 ’23
• “5 nodes in 4 years” is meaningless unless qualified with unit volume, ramp speed and yield metrics. These are where the real challenges lie.  

• In our view, the Korean government could allow a fourth major telco in Korea in the next 1-2 years. 
• The launch of the fourth major telco in Korea would have a significant negative impact on the three existing Korean telcos. 
• In the local media, the following companies have been mentioned as potential candidates to inject capital into the 4th telecom operator in Korea: Coupang, Naver, Kakao, Viva Republica, and Shinsegae.

• Major Chinese manufacturers’ new-energy vehicle (NEV) sales were all over the map in March, with companies that recently released budget-friendly cars outperforming their rivals amid a raging price war across the industry.
• Last month, NEV sales of BYD Co. Ltd., Guangzhou Automobile Group Co. Ltd., Li Auto Inc. and Nio Inc. grew 97.5%, 89.8%, 88.7% and 3.9% year-on-year, respectively, according to company statements.
• The NEV category mainly covers pure electric and plug-in hybrid vehicles.

• Record number of active EM funds overweight in Internet Retail, with 60.9% of funds overweight the iShares EEM ETF.
• Alibaba Group Holdings is the most widely held stock in Internet Retail, followed by JD.com Inc. and MercadoLibre.
• Growth investors remain optimistic about Internet Retail, while recent price declines prompt Value investors to raise allocations

• Working from home in the San Francisco Metro area is not extreme.  The office occupancy rate in all top ten US metro areas is 50% below pre-Covid levels.
• USD 2.5 trillion of CRE debt will mature in the coming five years and will have to be refinanced at much higher interest rates or doesn’t get refinanced at all.
• Value declines will force CRE borrowers to add capital or hand in the keys, which is bad news for US regional banks providing nearly 70% of CRE loans.

• 700 HK： < Metal Slug: Awakenings > officially launches（ + ）
• LEGN: CARVYKTI C1Q23 revenue rebounded QoQ but below our expectation(/)
• JD/BABA/VIPS/3690.HK: March NBS consumption strengthened, especially apparel and catering (-/+/+/+)

• HKD peg has been a financial cornerstone for HKSAR since 1983. The peg helps maintain financial stability, but it also ties Hong Kong’s monetary policy to the U.S. Federal Reserve.
• HKMA maintains a narrow band of 7.75 – 7.85 HKD per USD.  HKMA’s undertaking is to step in if the FX hits either strong or weak side of the band
• While there are (continued) discussions if HK should change or break the peg, HKMA ex-chief Norman Chan mentioned there are “4 essential conditions” for such consideration to take place

• OVERSEAS. Small Gains in Equities Industrials, Energy, Materials up on BTE China 1Q GDP Print; GS no so great  as earnings miss; NVIDIA up on final Sell->Buy capitalation
• JAPAN. NKY Futs flat vs Cash; USDJPY 134.1; BOJ may forecast 2% CPI in FY25;  Tokyo Condo px hit new records; S&i to resist VALUEACT board change demands
• NUGGET. BOJ to forecast 2% CPI in FY25. This is an interesting “leak” to the press.  Clearly BOJ is in no rush to tighten monetary policy

• XPEV:  Xpeng unveils next – gen technology architecture ( + )
• LKNCY: Hot weather supports new product sales, bodes well for 2Q23(+)
• 1211HK: Brazilian President Lula met with BYD CEO to promote opening of local EV plant (+)