Daily China: Apple (AAPL): Reduces Prices in Mainland China – Right Action, But Not Enough and more

In this briefing:

1. Apple (AAPL): Reduces Prices in Mainland China – Right Action, But Not Enough
2. China Kepei Edu (科培教育) IPO – Regulation Poses Significant Near-Term Risks
3. Ten Years On – Asia’s Time Is Coming, Don’t Miss The Boat
4. Weekly Oil Views: Crude Back in a Bull Market but Cheer Momentum Wanes
5. HK Connect Discovery Weekly: China Tower, Tencent, New China Life (2019-01-11)

1. Apple (AAPL): Reduces Prices in Mainland China – Right Action, But Not Enough

• Tim Cook passed the buck to the weak sales in China. However, we believe China’s retailing is running well based on our visits to shopping malls with Apple stores.
• Luxury goods sold better in China than all other major markets in the world in 2018.
• We believe that the price reduction in Mainland China is just taking market share from Apple Stores in Hong Kong, but not from competitors.
• We also believe that the app review process is the fatal shortcoming for AAPL.

2. China Kepei Edu (科培教育) IPO – Regulation Poses Significant Near-Term Risks

China Kepei Education (1890 HK) is looking to raise up to US$122m in its upcoming IPO. 

Overall, the company has continued to show that its undergraduate program is the driver behind its growth. It grew its 8M 2018 revenue and gross profit both by about 24% YoY. However, there are significant near-term risks if the MOJ Draft for Comments gets implemented. It may result in Kepei registering its schools as for-profit private schools which would shrink its net profit margin.

In this insight, we will provide updates on the company’s 8M 2018 financials and operating performance, the potential impact of policy change and compare its valuation to other listed education peers. We will also run the deal through our framework.

3. Ten Years On – Asia’s Time Is Coming, Don’t Miss The Boat

We noted in   Ten Years On – Asia Outperforms Advanced Economies Asia’s economies and companies have outperformed advanced country peers in the ten years to 2017.  Growing by 6.8%, real, through the crisis the region is 188% larger in US dollar terms while US dollar per capita incomes 170% higher compared with 2007. In this note we argue even though Asian stock markets have underperformed since 2010 and the bulk of global capital flows have gone to advanced countries, Asia’s time is coming. Valuations are cheap. Growth fundamentals strong. There are few external or internal imbalances. Macroeconomic management has been better than in advanced economies and the scope to ease policy to ward off headwinds in 2019 is greater. China has already started.

4. Weekly Oil Views: Crude Back in a Bull Market but Cheer Momentum Wanes

A nine-day winning streak until Thursday, January 10, had put Brent and WTI back in the bull market (gains of >20% from their 52-week lows). It was capped by a highly volatile trading day and a lower close of the benchmark crude futures on Friday, pointing to a return of uncertainty and indecisiveness in the market.

US-China trade talks over January 7-8, which were extended to January 9, set last week off to a flying start. There were no deals for sure, but the two sides appeared to have narrowed their differences. That was enough to send the stock markets climbing, with crude prices in tow.

Follow-up negotiations at a higher level are expected in the US later this month, though no dates have been announced yet. For now, it seems the financial markets, probably in gloom fatigue and perhaps oversold, needed any excuse to recover and a baby step towards the resolution of the US-China trade dispute was as good as any.

Of course, one can’t ignore the US Fed’s dovish turn, which also provided a major boost to sentiment. US Federal Reserve Chairman Jerome Powell said on Thursday that the central bank would be “patient” over future rate hikes. It was music to investors’ ears.

OPEC heavyweight Saudi Arabia repeated its promise to slash exports, with the energy minister providing specific figures for the benefit of the media and the market, and fundamentals had done their bit to help crude’s rally.

However, macroeconomic data and business outlook from companies across the world continues to be weak and disappointing. And crude remains firmly in the grip of the economic sentiment, maintaining a very strong correlation with the equity markets since last October.

5. HK Connect Discovery Weekly: China Tower, Tencent, New China Life (2019-01-11)

In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.

We split the stocks eligible for the Hong Kong Connect trade into three groups: those with a market capitalization of above USD 5 billion, those with a market capitalization between USD 1 billion and USD 5 billion, and those with a market capitalization between USD 500 million and USD 1 billion.

We see the Financials sector led the outflow by mainland investors last week with 201 million USD of net selling. We also highlight a few companies this week: China Tower (788 HK), Tencent Holdings (700 HK), New China Life Insurance (1336 HK), and Ping An Good Doctor (1833 HK).