Brief China: Tesla’s New Plan – Buy Before You Try and more

In this briefing:

1. Tesla’s New Plan – Buy Before You Try
2. Up Fintech (Tiger Brokers) Pre-IPO Quick Note – Much Too Reliant on IBKR
3. JD.com (JD): The Real Main Business Grew 46% YoY, and Not 20% YoY in 4Q2018
4. Sea Ltd: Further Share Re-Rating After a 35% Daily Gain? Why Not?

1. Tesla’s New Plan – Buy Before You Try

Buried in the lede is that Tesla also is initiating additional price cuts across the board, including for Models S and X. It’s moving to an online-only sales strategy and closing hundreds of stores which will trigger additional layoffs.

Oh, and the first quarter will not be profitable after all, according to CEO Elon Musk on the conference call today to discuss Tesla’s announcements.

So is Telsa pursuing a new, evolving strategy for the future or is it being pushed to retrench?

Read on for Bond Angle analysis.

2. Up Fintech (Tiger Brokers) Pre-IPO Quick Note – Much Too Reliant on IBKR

Up Fintech (TIGR US) plans to raise up to US$150m in its US listing. The company counts Xiaomi Corp (1810 HK) and Interactive Brokers Group, Inc (IBKR US) as its main investors.

While TIGR has grown at a stupendous pace over the past three years, it has been able to do so owing to IBKR doing most of the heavy lifting of execution and clearing. While its trying to change that now, nearly all the revenue is still being driven by its IBKR affiliation.

I’ve covered some of the aspects of TIGR’s model in Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics. In this insight, I’ll take a quick look at the company’s performance and the issues highlighted above. 

3. JD.com (JD): The Real Main Business Grew 46% YoY, and Not 20% YoY in 4Q2018

• We believe the real main business line is service (commission), but not product (direct sales).
• In 4Q2018, service revenues grew by 46% YoY, but nominal main business line, product, grew only 20%.
• JD raised its commission rate in 2018, as demonstrating  that the company still has the bargaining power over retailers.
• Historical GMV numbers suggest significant upside.

4. Sea Ltd: Further Share Re-Rating After a 35% Daily Gain? Why Not?

• The biggest positive surprise from Sea Ltd’s (SE US) conference call is strong 2019 adjusted sales guidance: 82%-97% YoY growth for Garena (digital entertainment division) and 117-127% YoY growth for Shopee (e-commerce arm).
• Management expects first positive quarterly EBITDA for Shopee Taiwan operations in 1Q19, indicating there is a path to profitability for Shopee’s business model.
• Another great news: management expresses high confidence that Shopee’s S&M expenses in terms of absolute dollars would trend down in 2019, vs. 2018.
• After a 35% daily share gain on 27 Feb, SE trades at 4.1x 2019E P/adjusted revenue excl. 1P sales, yet still a whopping 49% discount to Pinduoduo’s (PDD US) 8.1x P/S.