In this briefing:
- Baidu: Time to Swoop In, with NAV Discount Widening Substantially
- Pinduoduo (PDD US): Follow-On Offering Is a Smart Move for the Company, Rather than for Investors
- A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies
- Wilmar: China Listing at ~20x Might Prove Too Optimistic.
- Koolearn: Losses in Full View
1. Baidu: Time to Swoop In, with NAV Discount Widening Substantially
- Our stub valuation analysis reveals that Baidu Inc (ADR) (BIDU US) attractively trades at near 2 SD below its 3-yr average of NAV discount.
- Fundamentally, BIDU’s core business (Baidu Core) has grown healthily, with strong cash flows generation.
- China consumption slowdown is likely to mean modest sales growth deceleration (not a “sales falling off the cliff” scenario) for BIDU in 2019E.
- Implied in the current ADR price, the market is unjustifiably valuing Baidu Core (11.2x 2019E PE) as an “Old economy” company with little to no growth prospect, in our opinion.
- Our PT for next 3-6 mo, assuming 10% holdco discount to NAV, works out to be US$224/ADR, representing a 27% upside potential.
2. Pinduoduo (PDD US): Follow-On Offering Is a Smart Move for the Company, Rather than for Investors
With the shares hitting all-time highs, Pinduoduo (PDD US) announced a follow-on public offering to raise net proceeds (potentially of $1.1 billion) from the sale of 37 million ADS along with the placing of 14.8 million ADS from existing shareholders (post-lockup expiry).
We have been bulls on Pinduoduo with the shares up 60% since its IPO. While Pinduoduo is a good company, we believe this follow-on offering is highly opportunistic and provides limited upside to investors participating in this offering.
3. A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies
Our analysis shows that there are an unbelievable 25+ LNG developers that have stated (within the last year) they will take a final investment decision (FID) on their LNG liquefaction plants in 2019. Unless demand surprises to the upside, the expected LNG supply deficit in the mid-2020s could easily turn into a glut. In total there is almost 250 million tonnes per annum (mtpa) of capacity that plans to take FID this year – the equivalent of 80% of current global supply. In total there are ~US$180bn of contracts up for grabs – it should be a bumper year for the oil service (E&C) companies. This should be positive for the LNG contractors such as Mcdermott Intl (MDR US), TechnipFMC PLC (FTI FP), Chiyoda Corp (6366 JP) and Jgc Corp (1963 JP) .
Exxon Q4’18 conference call, “While we see a lot of high growth opportunities in LNG, capacity will come on in big chunks. It won’t be necessarily coordinated, so we’ll see, I suspect, periods of oversupply.”
4. Wilmar: China Listing at ~20x Might Prove Too Optimistic.
INVESTMENT VIEW: Management sounded confident that they could list its China operations at ~20x PER and unlock value in Wilmar International (WIL SP) shares by 1) paying a special dividend from the listing proceeds, and 2) investors using the SOTP valuation to see deep value in the ex-China portion of the business. However, our review of Wilmar-China’s listed A-share peers highlights significant vulnerability in management’s key assumption on its potential listing multiple. We recommend investors take profits from the recent rally in the shares and expect them to trade back towards the lower end of its recent trading range.
5. Koolearn: Losses in Full View
When we previously argued that the Koolearn IPO was ‘hurtling towards losses’, its latest PHIP update provided little reprieve to our postulation. Further analysis on the latest update can be found below the fold.
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