In this briefing:
- DeNA (2432): Undervalued Internet Stock
- US Treasury Market Switches Its Message to the Fed and Raises the Ante on Policy Conduct
- CMGE Tech (中手游) Pre-IPO Review – Unfortunate Timing
1. DeNA (2432): Undervalued Internet Stock
Dena Co Ltd (2432 JP) used to be the GO-GO internet stock for both retail and institutional investors in Japan during the previous bull run before 2008 and trading at 40-50x PER. The multiples have since then collapsed to 10-20x PER although the business prospect remains solid if not better. Benefiting from the increasing regulation in China, DeNA signed an agreement with Tencent Holdings (700 HK) to distribute Arena of Valor in Japan which will boost revenue and improve margin. At 14x PER and 1.2x PBR, DeNA looks attractive.
2. US Treasury Market Switches Its Message to the Fed and Raises the Ante on Policy Conduct
Bond investors have recently joined their equity counterparts and raised the ante on the Federal Open Market Committee (FOMC) to pause further increases in the federal funds rate.
Despite the lack of sufficient evidence that economic growth has reverted to a more sustainable footing, bond investors have reverted to playing the long-standing game of chicken with the FOMC about the economy’s ability to withstand members’ estimate of the neutral federal funds rate.
Concerns about yield curve inversion have recently returned, but investors are struggling to adjust to a more normal environment where short-term interest rate volatility is no longer being artificially suppressed by Fed policy.
The persistently low term premium demanded by bond investors has boosted financial accommodation at any given policy rate level, thereby raising the risks that the FOMC may still increase the federal funds rate even after the yield curve has become inverted in order to achieve sustainable growth.
East Asian economies have imparted a downward bias on US inflation and bond yields over the past 25 years and have consequently pushed the Fed into adopting more accommodative policy settings over the aforementioned period.
The FOMC needs unambiguous evidence of slowing jobs growth towards levels that alleviate downward pressure on the unemployment rate before contemplating a pause in hiking the federal funds rate at the March FOMC meeting.
3. CMGE Tech (中手游) Pre-IPO Review – Unfortunate Timing
China Mobile Games Adr (CMGE US) plans to raise US$300m in its upcoming Hong Kong IPO.
CMGE is an intellectual-property (IP) oriented mobile game operator. The company delisted from Nasdaq in 2015 and tried to do a backdoor listing on Shenzhen Exchange in late 2015 but it was canceled due to unfavorable market condition. It is now trying to list on the Hong Kong Exchange when the sentiment is poor due to the game approval suspension.
In this insight, we will take a look at the financial performance, key operating metrics, and analyze its games pipeline.
