In this briefing:
- Uranium – About to Enter Its Own Nuclear Winter
- China East Education (中国东方教育) Pre-IPO – The Company Known for Its Culinary School
- Korea M&A Spotlight: Will the Nexon Group Sell the Korean or the Japanese Company?
- Asian Frontier Monitor: One Belt New Road – Here Comes America
- Futu Holdings Pre-IPO – Great Metrics but in a Commoditised Industry
1. Uranium – About to Enter Its Own Nuclear Winter
- Quantifying nuclear statistics with substantial discrepancies
- LT contracts & speculative hoarding driving recent 40% spot price increase
- Primary/secondary Uranium supplies currently 112% of 2017 demand
- Uranium supply deficits extremely unlikely before 2022
- Global Uranium demand to fall 25-40% by 2050
- Primary Uranium sector LT SELL
We have independently audited global nuclear construction statistics in order to determine future Uranium demand. Although near-term statistics match those in the public domain, long-term demand determined via construction pipeline illustrates substantial discrepancies. Compiling planned plant construction, operational extensions, nameplate upgrades, versus decommissioning announcements/events, and in many cases, public policy inertia; has led us to believe that despite historical primary supply shortages, global nuclear demand peaked in 2006.
Since plateauing and despite strong Chinese growth, nuclear power generation has fallen <2% over the past two decades, a decline that is predicted to accelerate as a number of developed and developing nations pursue other energy options.
The macro-trend not replacing existing nuclear infrastructure means (dependent on assumptions), according to our calculations, global uranium demand will decrease between 20 to 40% by 2050.
As opposed to signifying a fundamental change in underlying demand, we believe that recent Uranium price increases are the result of producers closing primary operations, and substituting production with purchases on the spot market to meet long-term contract obligations. In addition, hedge funds are buying physical uranium in order to realise profits on potential future commodity price increases. Critically, we determine that primary and secondary supplies are more than sufficient to meet forecast demand over the next four to five years; before taking into account substantial existing global uranium stocks, some of which are able to re-enter the spot market at short notice.
2. China East Education (中国东方教育) Pre-IPO – The Company Known for Its Culinary School
China Xinhua Education (2779 HK) listed in Q1 of 2018 and we wrote in our insight that the founder had vocational schools that have been separated from China Xinhua that seemed to be his prized asset. Fast forward to December 2018, the prized asset has finally filed its draft prospectus under the entity China East Education (CEE HK) and it is looking to raise US$400m in its IPO.
In this insight, we will analyze the company’s financial and operating performance, compare it to listed education companies, and provide some questions we have for management.
3. Korea M&A Spotlight: Will the Nexon Group Sell the Korean or the Japanese Company?
According to a local media outlet called Chosun Daily, it stated that one of the bankers in the deal (Deutsche Bank), already sent teaser letters of this deal to Tencent Holdings (700 HK) and KKR and in the teaser letter, it mentioned about potentially selling nearly 47% of Nexon Co Ltd (3659 JP) (Japan).
The question about whether or not Kim Jung-Joo decides to sell NXC Corp (Korea) or Nexon Co Ltd (3659 JP) (Japan) has important consequences not just for him and his family but also to the minority shareholders of Nexon Co Ltd (3659 JP). If Kim Jung-Joo decides to sell NXC Corp (Korea), there may not be much upside for the minority shareholders of Nexon Co Ltd (3659 JP) since current regulations do not require the buyers to pay potentially additional control premium to the minority shareholders as well.
However, if Kim Jung-Joo decides to sell Nexon Co Ltd (3659 JP) (Japan), there may be an opportunity for the minority shareholders to gain from an additional control premium. We think that this is one of the reasons why Nexon Co Ltd (3659 JP) shares are up 13% YTD as some of the investors may think that there could be a higher probability that Kim Jung-Joo ends up selling Nexon Co Ltd (3659 JP) (Japan), instead of NXC Corp (Korea).
4. Asian Frontier Monitor: One Belt New Road – Here Comes America
In our third report in the Belt and Road Initiative (BRI) or One Belt One Road (OBOR) series, we examine a brand-new US strategic initiative to finance emerging markets economies, including OBOR, African, and Latin American countries.
The on-going trade war between China and the US makes the issue very political. Rightfully so, we believe the creation of the International Development Finance Corporation (“IDFC”) could be politically-motivated, but IDFC is no competition to the BRI as the latter deploys much greater funding (about USD40bn a year).
However, we see the merits of IDFC and the positive effects on Emerging Asia. After all, more competition for influence and more fund flow will help fund projects, and, perhaps, help reduce poverty (if good governance is observed). We also expect IDFC’s USD60bn fund to create more investable projects for institutional investors and lower funding cost for countries that need large infrastructure funding and countries that have been suspicious of the BRI such as India, Indonesia, the Philippines, Vietnam, and Sri Lanka.
5. Futu Holdings Pre-IPO – Great Metrics but in a Commoditised Industry
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, who together own over 45% of the company.
The founding team comes mostly from Tencent, which might explain Tencent’s large stake in the company. Growth for the company has been stupendous despite the jittery markets, with margin financing adding to the top-line growth.
While its low costs will help it to steal clients from the more traditional brokers, other new low-cost brokers seem to be offering similar services at comparable rates. In addition, the company is not licensed or regulated by any entities in China, despite the majority of its client base being Chinese nationals. Furthermore, the company plans to expand into newer overseas market where it doesn’t seem to have much of a cost advantage.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.