In this briefing:
- Pinduoduo (拼多多) Placement – Not a Good Sign
- Screening the Silkroad: Small-Mid Cap – Possible High-Risk Names: Q1 2019
- Behaving Predictably – China’s Car Sales in 2018 Were Not a Sign of Economic Weakness
- 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
1. Pinduoduo (拼多多) Placement – Not a Good Sign
Pinduoduo (PDD US) is looking to raise about US$1.5bn in its follow-up offering. The placement is a mix of primary and secondary selldown.
The deal scores poorly on our framework due to its large deal size and expensive valuation relative to peers. We find that the timing of the placement to be peculiar and the large overhang post-offering is a worry. Banyan’s selldown in this placement suggested that principal shareholders may progressively look to exit their stakes contrary to our previous assumption and their shares will add pressure to the share price in the near-term.
2. Screening the Silkroad: Small-Mid Cap – Possible High-Risk Names: Q1 2019
Increasing risk apparent
- Q4-2018 Small-Mid Cap High-Risk screen ( Screening the Silkroad: Small-Mid Cap – High-Risk Names To Avoid Q4 2018 ) delivered a market cap average share price decline of 4.5%. This compares with the MSCI Asia Pacific Index appreciating 4.2% over the same period.
- Our screen looks for high valuation multiples presented by candidates, with significant earnings growth forecasts, as well as financial indicators that suggest balance sheet distress.
- The Risk to this screen: The Financial and Utility sectors are not covered in this screen. Moreover, “risk is not a number, it is a concept or notion”, as James Mortiner cited during his time at Société Genéralé. Hence, some stocks due to their business model being realigned to a more profitable approach may appear on this screen, whilst also be a member of more positive value or quality screens.
- 26-stocks appear in our Q1 2019 screen. Eight (8) of which are new, namely from Korea, Japan and Taiwan. Singapore remains absent from the screen for the third quarter running, whilst New Zealand has only presented one candidate in Q4 2018.
Our screen suggests that risk is increasing amongst the small-mid cap universe, as the Alman Z average score slips to 1.14 in Q1 2019 from 1.16 in Q4 2018 and 1.38 in Q3 2018. Moreover, our average stock in the list has a ranking of 42.3, compared to 54.9 in Q4 2019.
Our screening styles
For those that follow us, you will know our Stock Ranking system from our Notes from the Silk Road: Setting Out Our Small-Mid Cap Lemonade Stand For newcomers to our notes, it is merely a tool for identifying favourable and unfavourable stocks. In addition, to add more depth to our selection process we also monitor a series of “style categories” namely:
■ Growth,
■ Value,
■ Quality,
■ Momentum,
■ Deep Value,
■ Income,
■ Underperformance.
Within these style categories, we drill down further through a series of alpha momentum screens allowing us to differentiate and identify stock picks.
3. Behaving Predictably – China’s Car Sales in 2018 Were Not a Sign of Economic Weakness
When one is looking for something in an economy it is usually not difficult to find corroborating evidence, any economy and at any time. Economists and analysts are masters of massaging data to suit their own agendas. China’s car sales in 2018 are a case in point.
4. Dali Foods (3799:HK): Short to HK$4.18 on Expected Cost Increases (Full Note)
![](https://static-prod.smartkarma.com/images/media/000/077/659/original/dali_banner.png?1549025170)
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.
5. TRACKING TRAFFIC/Chinese Tourism: HK & Macau Gained ‘Share’ in December, Continuing H218 Trend
![](https://static-prod.smartkarma.com/images/media/000/077/519/original/BANNER-TOURISM-FINAL.png?1548942434)
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)!
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