In this briefing:
- Meituan Dianping: Time to Bail? Relax, Core Business Progressing Toward Profitability
- Ruhnn IPO Preview: Hard to Stay Red-Hot for Long
- Raw Materials and Retail Pricing
- Trade During Lunar New Year
- Why China’s Stimulus Will Disappoint
1. Meituan Dianping: Time to Bail? Relax, Core Business Progressing Toward Profitability
- Conference call with Meituan Dianping (3690 HK) reveals that ballooning losses from new initiatives (incl. one-off expenses) largely contributed to record quarterly EBIT losses in 4Q18.
- Importantly, this masks Meituan Core’s (combined food delivery and in-store, hotel & travel divisions) continued progress toward profitability.
- Management is bullish on every division’s outlook in 2019, particularly guiding for 1) balanced growth and profitability strategy for food delivery and 2) disciplined investments in new initiatives.
- Meituan attractively trades at 2.9x 2019E P/S, only around half of peers’ valuation (5.5x).
2. Ruhnn IPO Preview: Hard to Stay Red-Hot for Long
Ruhnn Holding Ltd (RUHN US) is an e-commerce platform which drives sales through KOLs (key opinion leaders). Ruhnn is the largest internet KOL facilitator in China as measured by revenue, the number of online stores and GMV in 2018 according to Frost & Sullivan. Ruhnn is backed by Alibaba Group Holding (BABA US), an 8.6% shareholder, and is seeking to raise $200 million through a Nasdaq IPO.
However, Ruhnn’s rhetoric does not match its financial performance. On balance, we are inclined to give this IPO a pass.
3. Raw Materials and Retail Pricing
What the pricing data seems to imply is that consumer prices remain relatively steady but trending slightly downward, likely from weakness in household consumption that mirrors the broader economic trends. Corporate and producer sector data is driven by weakness in commodities and raw materials that seem hard pressed to accelerate in 2019 given the high base effect from 2018.
4. Trade During Lunar New Year
An underlying issue regarding February data is just how pressurized it is. Between cross armed speculations about trade talk negotiations and the biggest Chinese holiday, it should come as no surprises that February data is underwhelming. Chinese markets are still grappling with a way forward in the trade talk quagmire, but February numbers are in many ways seasonal, due to the holiday snapshot it encompasses.
5. Why China’s Stimulus Will Disappoint
By Lawrence Brainard, Chief Emerging Market Economist at TS Lombard
- In a Chinese version of QE the PBoC is flooding markets with liquidity
- Commercial banks will be slow to use it to boost lending to SMEs
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