Brief China: Momo (MOMO): Paying Users Up 17%, Benefiting from Bankrupt Competitors, 80% Upside and more

In this briefing:

1. Momo (MOMO): Paying Users Up 17%, Benefiting from Bankrupt Competitors, 80% Upside
2. Meituan Dianping: Time to Bail? Relax, Core Business Progressing Toward Profitability
3. Ruhnn IPO Preview: Hard to Stay Red-Hot for Long
4. Raw Materials and Retail Pricing
5. Trade During Lunar New Year

1. Momo (MOMO): Paying Users Up 17%, Benefiting from Bankrupt Competitors, 80% Upside

• The stock price has risen 32% after the short seller J Capital slammed it.
• MOMO’s paying user base of live video increased 22% yoy in 3Q18 and 17% yoy in 4Q2018 even though the live show market shrank in 2018.
• We believe MOMO will benefit from small competitors’ bankruptcy.
• The growth rate of the main business revenues stopped declining.
• Our P/E band suggests upside of 80% for MOMO’s stock price.

2. 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).  

3. 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.

4. 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. 

5. 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.