Brief China: Amidst Sino-US Economic Uncertainty…US Ponders Plaza-Style Accord on Trade Dispute and more

In this briefing:

1. Amidst Sino-US Economic Uncertainty…US Ponders Plaza-Style Accord on Trade Dispute
2. AIG Sells PICC: A Clean-Up Trade Cum Liquidity Event
3. Autohome (ATHM): Promising Auto Loan, Waiting for Buying Opportunity
4. Futu Holdings IPO – Given the Team, Execution, and Backers, Might Be Worth a Look at the Low-End

1. Amidst Sino-US Economic Uncertainty…US Ponders Plaza-Style Accord on Trade Dispute

Successful resolution of geopolitical issues pertaining to China’s continued integration into the world economy remains crucial for global corporate profit expectations and risky assets.

Uncertainty about the US economic outlook has increased in recent weeks as testified by falling corporate profit growth expectations, while the recent government shutdown has delayed the release of crucial data required for monetary policy formulation.

China’s economy continues to decelerate, as testified by slowing big ticket activity, but record monthly credit growth in January indicates how the fallout from the US trade dispute has diverted attention away from lowering excessive leverage in the economy, as well as rising bond defaults. 

The US will insist that currency devaluation by China cannot be deployed under any Sino-US trade dispute resolution, but this will reduce China’s sovereignty over discretionary monetary policy conduct.

Meanwhile, rumours are circulating that the US wants to impose a Plaza Accord style memorandum for China to be committed to an orderly appreciation of the yuan as part of any trade dispute resolution, but China will be wary of the fate that befell Japan after 1985 following the Plaza agreement.

2. AIG Sells PICC: A Clean-Up Trade Cum Liquidity Event

AIG is selling its USD 450 million stakes in PICC today after market close. The deal scores negatively in our ECM Framework. 

We like the fact that it will increase the free-float significantly and hence there will be a liquidity event, meanwhile, we are also concerned that the deal size is large compared to its liquidity.

3. Autohome (ATHM): Promising Auto Loan, Waiting for Buying Opportunity

• The 4Q2018 results suggest that it is a right decision to close out direct automobile sales and start auto loan.
• The 4Q2018 results also suggest that ATHM has successfully completed the post-acquisition integration after three years.
• Peer companies’P/E ratios suggest ATHM is fairly valued, but we believe it will be a good opportunity to accumulate if the stock price falls.

4. Futu Holdings IPO – Given the Team, Execution, and Backers, Might Be Worth a Look at the Low-End

Futu Holdings Ltd (FHL US) plans to raise upto US$130m in its US listing. The deal has been downsized from its earlier indicative size of US$300m and the valuation too has been downsized by almost the same extent to around US$1.2-1.5bn.

In my earlier insights, Futu Holdings Pre-IPO – Great Metrics but in a Commoditised Industry and Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation, I looked at the company’s background and past financial performance.

 In this insight, I’ll run the deal through our IPO framework and comment on valuations. At the low-end the deal might be worth looking into, although free-float might end up being very small owing to US$30m being taken up Tencent which would leave just about US$100m as free-float.