Brief China: StubWorld: PCCW Is “Cheap” but Stub Ops Are Deteriorating and more

In this briefing:

1. StubWorld: PCCW Is “Cheap” but Stub Ops Are Deteriorating
2. CStone Pharma (基石药业) Post-IPO: Strong Debut but Lacks near Term Catalysts
3. Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation
4. Baidu (BIDU): Stagnant in 4Q18, Wrong Change Feeds a 24% User Increase to Google
5. China’s Coal Conundrum

1. StubWorld: PCCW Is “Cheap” but Stub Ops Are Deteriorating

This week in StubWorld …

• Select media ops (Free TV and OTT), together with substantial losses booked to other businesses and eliminations, continue to weigh heavily on PCCW Ltd (8 HK)‘s stub ops.

Preceding my comments on PCCW and other stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

2. CStone Pharma (基石药业) Post-IPO: Strong Debut but Lacks near Term Catalysts

CStone Pharma’s IPO was priced at HKD 12.00/share and started trading today. In this insight, we summarize the allocation, the use of proceeds and recap our view on our valuation. We also look at past few biotech listings and discuss our thoughts on the market sentiments. We are of the view that despite a strong debut performance, CStone lacks near term catalysts that can continue to drive performance after the first day. 

Our Previous Coverage of CStone

• CStone Pharma (基石药业) IPO: Strong Assembly and Backing (Part 1)
• CStone Pharma (基石药业) IPO: Thoughts on Valuation (Part 2)

3. Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation

Futu Holdings Ltd (FHL US) plans to raise around US$300m in its US IPO. The company is backed by Tencent Holdings (700 HK) , Matrix Partners and Sequoia.

In my earlier insight, Futu Holdings Pre-IPO – Great Metrics but in a Commoditised Industry, I looked at the company’s background and past financial performance along with some of the other firms that are competing in the same space. 

This insight covers the positive and negative takeaways from the FY18 updated filing and also includes our thoughts on valuation.

4. Baidu (BIDU): Stagnant in 4Q18, Wrong Change Feeds a 24% User Increase to Google

• Baidu posted a weak result for 4Q2018.
• We believe it is a wrong decision to change Baidu into an in-house search engine.
• Alphabet Inc Cl C (GOOG US) ’s monthly active users in mainland China increased 24% QoQ in January 2019.
• We believe Baidu’s stock price has been fairly impacted.

5. China’s Coal Conundrum

Last Friday China torpedoed Australia’s coal imports after announcing that the middle kingdom would no longer accept coal imports from Australia. This leads us to consider some of the energy issues related to China. We write often about coal and the importance it has on China’s energy consumption.