In this briefing:
- New J. Hutton Exploration Report (Week Ending 01/02/19)
- Tesla (TSLA): SWOT Analysis Leads To…Rivian
- Dali Foods (3799:HK): Short to HK$4.18 on Expected Cost Increases (Full Note)
- TRACKING TRAFFIC/Chinese Tourism: HK & Macau Gained ‘Share’ in December, Continuing H218 Trend
- Aeon Credit Service (Asia) – Giant Yield and ROA, but at Low Price
1. New J. Hutton Exploration Report (Week Ending 01/02/19)
- Gold Road Resources (GOR AU) Recommend BUY
- Gruyere JV (50/50) 91% complete, on schedule and budget
- 150koz pa Au attributable production to GOR, first bullion pour Q219
- Forecast EBIT $A74-84m pa, substantial cashflows starting Q419
- Price/EBIT ratio 8 to 9.1, A$44m cash – no debt
- Own virtually the entire Yamarna Greenstone Belt (~ 6,500km2)
- A$20m 2019 exploration budget – exceptional prospectivity
- Corporate takeover target likely by Gold Fields Ltd (GFI SJ)
- Aura Energy Ltd (AEE AU), Catalyst Metals (CYL AU), Liontown Resources (LTR AU), Millennium Minerals (MOY AU), Southern Gold (SAU AU), Azumah Resources (AZM AU), Focus Minerals (FML AU), Oklo Resources (OKU AU), Red 5 Ltd (RED AU), Troy Resources (TRY AU)
2. Tesla (TSLA): SWOT Analysis Leads To…Rivian
What happens when innovation becomes commoditized? We believe this is a core concern to every Tesla watcher, bulls and bears so we began our Lunar New Year week (or Pro Am 2019 week in Pebble Beach) with a quick and dirty SWOT analysis of Tesla to see where the next potential existential threat can come from…and we ended up looking at Rivian.
Tesla: A SWOT Analysis
Tesla’s key strengths that we see are Elon Musk’s charismatic personality that lends to fund raising capability and marketing prowess. The company’s weakness lies in its collective inexperience in the automotive industry, and the fact that the car business is a mere component in Musk’s vision of a vertically integrated, electrified future. This has created and continues to exert tremendous amount of pressure on management. We believe opportunities for new entrants are that EVs are not as difficult to design and produce, as well as to finance, as Tesla fanboys in the financial industry and media make it sound. A key Threat to Tesla could be companies like Rivian, a U.S. BEV light truck dedicated OEM based in Detroit, which is currently taking customer deposits on 2020 deliveries of its R1S SUV and the R1T pickup truck (https://preorders.rivian.com/2322956400/checkouts/29de1808b812748f8fe476718e460bea).
Rivian is a private company that has not issued public debt so financial information on the company is unavailable in the U.S. public domain, so we poured through strategic investor Sumitomo Corp’s Yuho reports to see if we can find any tidbits in Japan but found nothing there either. Hence, while we cannot make much financial observations about the company at this point, we do see a number of strategic signs from Rivian’s actions that may indicating that it is most likely improving upon the Tesla experience to avoid the hiccups and the bumps on the road to premium EV segment dominance.
From an APAC stock market perspective, we see LG Chem and Sumitomo Corp as two entities that could potentially see financial impact from Rivian in the next several years. Teslerati has made an educated guess on LG Chem as Rivian’s cell supplier which we believe to be reasonable, although Rivian and LG Chem have neither confirmed nor denied the relationship (https://insideevs.com/new-details-rivian-battery-pack-design/, https://www.teslarati.com/rivian-battery-lab-irvine-california-megapack-production/). Current investment in Rivian by Sumitomo Corp is most likely an insignificant amount from the latter’s perspective but could perhaps grow into something bigger at some point in the future.
The Rivian R1S
3. Dali Foods (3799:HK): Short to HK$4.18 on Expected Cost Increases (Full Note)
Chinese snack food and beverage maker Dali Foods Group (3799 HK) is well-loved by sell-side analysts, with 18 of 20 analysts rating the stock ‘Buy’ or ‘Overweight’.
In contrast to the consensus ‘bull’ view of the company, we believe revenue growth is slowing and that core margins will soon come under intense pressure due to rising raw materials costs. As a result, our earnings estimates for Dali Foods are substantially lower than consensus.
Based on 13.5 times our 2019 EPS estimate, our target price for Dali Foods’ shares is HK$4.18, about 23% below the closing price of HK$5.41 on February 1st.
4. TRACKING TRAFFIC/Chinese Tourism: HK & Macau Gained ‘Share’ in December, Continuing H218 Trend
Tracking Traffic/Chinese Tourism is the hub for all of our research on China’s tourism sector. This monthly report features analysis of Chinese tourism data, notes from our conversations with industry participants, and links to recent company news and thematic pieces. Our aim is to highlight important trends in China’s tourism sector (and changes to those trends).
In this issue readers can find:
- As it has throughout the latter half of 2018, HK & Macau traffic boomed in December: Over the last several months, we believe Chinese tourists have been staying ‘closer to home’, for a variety of reasons. December’s Chinese outbound tourist figures support this idea, as visits to nearby Hong Kong and Macau surged, and trips to destinations farther afield moderated.
- An analysis of December domestic Chinese travel activity, which remained subdued: Overall domestic travel demand, measured in passenger-kms, grew by 3.4% in December, similar to H118 growth. But while rail and highway travel growth held up relatively well compared to earlier in 2018, air travel in December was again weak relative to H118’s strength, up 9.1% after climbing 13.8% in the first half of the year.
- China-to-USA travel activity continued to weaken in December: US tourist and student visa issuance and visits to Hawaii all declined again in December. We think the declines reflect some Chinese tourists turning cautious on the economy (and thus disposable income), but the declines may also reflect changing Chinese policy.
Although we remain positive on the long-term growth of Chinese tourism, it’s clear that near-term demand growth has slowed, and that Chinese tourists are generally staying closer to home and probably spending less than they were a year ago.
Happy New Year (of the Pig)!
5. Aeon Credit Service (Asia) – Giant Yield and ROA, but at Low Price
As we expand over analysis of exceptionally high yield lenders, we continue to see interesting ideas outside of mainstream commercial banks. Aeon Credit Service Asia Co (900 HK) is another specialty lending that fits well with the several we have highlighted in our past research. There is one glaring difference though: value.
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