Brief Consumer: China Tobacco Intl (HK) IPO: Proxy For the Chinese Cigarette Consumption and more

In this briefing:

1. China Tobacco Intl (HK) IPO: Proxy For the Chinese Cigarette Consumption
2. New Century Hotel (浙江開元酒店) IPO Review – Higher ADR and RevPAR than Peers but Margins Fall Short
3. IPO Stalker: SISB’s Growth Plans
4. LG Electronics Resistance Rejection
5. Tesla. SEC Contempt Filing & Ludicrous Autopilot Claims Engulf Delusional Musk

1. China Tobacco Intl (HK) IPO: Proxy For the Chinese Cigarette Consumption

China Tobacco International (Hong Kong), a subsidiary of the China Tobacco International, is seeking a listing in Hong Kong. Per media reports, the company plans to raise USD 100 million. In this insight, we will discuss the following topics: 

• What does China Tobacco International do?
• What is its relationship with China Tobacco?
• How did its different segments perform?
• The industrial backdrop

2. New Century Hotel (浙江開元酒店) IPO Review – Higher ADR and RevPAR than Peers but Margins Fall Short

Zhejiang New Century Hotel Management Group (1158 HK) (NCH) is looking to raise up to US$179m in its upcoming IPO.

NCH is riddled with related party transactions, from the sales of consumer goods, carpets and wine to having 24% of its hotel management revenue come from related parties. There had been a handful of small acquisitions and disposals but it all seemed to be just reshuffling of assets between NCH and the controlling shareholder with no clear strategy. 

Key metrics show that even though NCH is operating at higher ADR and RevPAR compared to peers, it ultimately falls short in terms of EBITDA and net margins. It also has the lowest occupancy rate.

In this insight, we will focus on corporate governance issues, peer metric comparison, and relative valuation with listed hotel operators. 

3. IPO Stalker: SISB’s Growth Plans

SISB has been one of the best investments in our portfolio, rising 26% since we jumped in shortly after the IPO. Founder Kelvin Koh reiterated the strengths in his prospectus (English-Chinese language, affordability, own brand) and backs it up with:

• positive stats and trends. 7.8% CAGR in international students, growth in high net worth Thais (11.4% CAGR) and expat population (6.9% CAGR) all of which are supportive of the business.
• expansion plans both abroad and domestic. A Bt70m investment in the Thonburi site as well as talks to potentially set up new campuses in China and/or CLMV region.
• Financials. An almost sixfold jump in earnings from Bt18m in 2017 to Bt103.5m in 2018 primarily due to its high operating leverage and now debt-free status after the IPO.
• favorable operating environment. High availability of Caucasian teachers in Thailand and growing Chinese expat community due to China’s increasing environment.

4. LG Electronics Resistance Rejection

Lg Electronics (066570 KS) is seeing a rejection from 74.5k resistance that acts as an important intermediate if not macro inflection level. Weakness below 74k implies a test on lower pattern support.

Daily MACD rising wedge accompanied by a flat or triangle corrective range, typically is a bear set-up for a break lower. Making the 74k level pivotal and a short level with a stop above 75k. Very often indicators gyrating higher to relieve oversold conditions with a  failure for price to make headway labels the sideways range as corrective in a stair case sequence.

Shorts need to focus on the 75k pivot as the stop and risk level. Longer term investors will need to remeasure lower entry points barring a break above pivot resistance which would initiate upside bull targets.

5. Tesla. SEC Contempt Filing & Ludicrous Autopilot Claims Engulf Delusional Musk

The US Securities and Exchange Commission (SEC) requested a federal judge to hold Tesla CEO Elon Musk in contempt of court yesterday regarding recent misleading tweets about the company’s unit production volumes for 2019. This latest move comes not long after Musk bragged that he does not respect the SEC and that his tweets were not being censored by the Board according to the terms of the agreement reached with the SEC following his controversial “Am considering taking Tesla private at $420. Funding secured” tweet on August 8’th last.  

Separately, Musk has been talking up the capabilities of the company’s Autopilot technology, claiming that it will deliver “Full Self Driving” by the end of the year, that its in-house developed hardware is 2000% better than NVIDIA’s and that by the end of next year, it would be safe for somebody to fall asleep with Autopilot in control. We find these claims to be ludicrous and Elon Musk delusional in thinking that the SEC would stand idly by while he publicly admits to ignoring the terms of his settlement with them barely four months ago.