Brief Consumer: Last Week in GER Research: Lyft, Rakuten, Lynas, Yunji IPO, Xinyi IPO and Ruhnn IPO and more

In this briefing:

1. Last Week in GER Research: Lyft, Rakuten, Lynas, Yunji IPO, Xinyi IPO and Ruhnn IPO
2. Notes from the Silk Road: Xtep Int’l Holdings (1368 HK): Time to Run (Away) For Now
3. Weekly Oil Views: Crude’s Cursory Nod to US-China Deal Optimism Is Par for the Course
4. Sony Trading Low Just Above Higher Conviction Intermediate Buy Support
5. Tesla’s Weak QTD Deliveries Signal March Expectation Madness

1. Last Week in GER Research: Lyft, Rakuten, Lynas, Yunji IPO, Xinyi IPO and Ruhnn IPO

Below is a recap of the key analysis produced by the Global Equity Research team. This week, we update on Lyft Inc (LYFT US) now that it is below its IPO price and remind of the potentially muted impact for strategic holder Rakuten Inc (4755 JP). On the M&A front, Arun digs into the conditional deal for Lynas Corp Ltd (LYC AU) from Wesfarmers Ltd (WES AU). With regards to IPO research, we initiate on e-commerce player Yunji Inc. (YJ US) and solar company Xinyi Energy Holdings Ltd (1671746D HK) while we update on the IPO valuation of Ruhnn Holding Ltd (RUHN US). 

In addition, we have provided an updated calendar of upcoming catalysts for EVENT driven names below. 

Best of luck for the new week – Arun, Venkat and Rickin

2. Notes from the Silk Road: Xtep Int’l Holdings (1368 HK): Time to Run (Away) For Now

Xtep International (1368 HK) has announced a placing and top-up subscription of new shares event, creating a capital base which is 9% larger. 

XTEP states that they have considered various ways of raising funds and consider that it would be in their best interests to raise equity funding through the placing and the subscription. 

With the share price down 16% since the placement, we examine what this means for the company’s fundamentals and shareholders. We believe the results will prove to be mixed for management and shareholders alike. We highlight how we expect the stock ranking to react, given we the placement was only a few days back and this is yet to reflect. This special situation analysis may surprise you with the conclusions.

3. Weekly Oil Views: Crude’s Cursory Nod to US-China Deal Optimism Is Par for the Course

After a lacklustre week of range-bound trading, crude ended higher on Friday, though well off its session highs. 

Crude was buoyed by strong investor cheer, which prompted an across-the-globe rally in the stock markets. The burst of euphoria was prompted by promising signs from the just-concluded high-level trade negotiations between the US and China in Beijing, though arguably throwing caution to the winds.

The American president fired his second tweet of the year at OPEC on Thursday. It was “very important that OPEC increase the flow of oil,” he said, because the price of oil was “getting too high.” The producers as well as market participants decided not to heed this time.

However, the pressure from Donald Trump is bound to intensify if Brent sustains a rally above $70, and OPEC and its Saudi leadership will not be able to continue ignoring it.

Aramco agreeing with the Public Investment Fund to buy 70% of petrochemicals giant Saudi Basic Industries Corp (SABIC AB) for $69.1 billion marks a new era for the companies. However, it does not mean that the Aramco IPO would be shelved, and directly or indirectly, we don’t expect it to derail Saudi Arabia’s strategy of actively managing oil supply through OPEC.

Our chart of the week shows that speculative bets on a price rally continue to return to Brent and WTI futures, but cautiously.

4. Sony Trading Low Just Above Higher Conviction Intermediate Buy Support

Sony Corp (6758 JP) is forming a bullish descending wedge/channel that once mature will chisel out an intermediate low with scope to clear medium term breakout resistance. The tactical low near 4,400 lies just above more strategic support.

Clear pivot points will help manage positioning within the bull wedge that is in the final innings.

The tactical buy level is not that far from strategic support with a more bullish macro lean.

MACD bull divergence is not only supportive into near term weakness but also points to a breakout above medium resistance. Risk lies with Sony not looking back after hitting our tactical low target.

5. Tesla’s Weak QTD Deliveries Signal March Expectation Madness

EV-Sales’s report of global electric vehicle sales for February confirmed that Tesla Motors (TSLA US) total deliveries at just over 14,000 were the weakest for any month since May 2018, the first month of the full ramp-up of the flagship Model 3. 

So for the disastrous January and February combined, Tesla delivered about 24,900 cars, only a third of the cars it projected for the entire first quarter. 

This explains the chaos and drama which dominated March as Tesla hurried through additional price cuts and layoffs, bungled the launch of a harried new online-sales strategy, and threw together a reveal of the disappointing and far-from-ready Model Y (see my reports Tesla’s Plan B 2.0; Y Not and Tesla: Now We Know the Y, But Not the How and Tesla Bonds Go Boom). 

Less convincing were Tesla’s conveniently “leaked” teases over the past couple of weeks about a “massive increase in delivery volume” and “Vehicle Delivery Help Needed!” to get a remarkable 30,000 cars to customers the last 15 days of March. Especially since several price cuts already this year have yet to reignite fading demand even for Model 3, much less the aging Models S and X amid accelerating competition from stronger rivals and Tesla’s alarming quality and service troubles which are driving away customers.

We’ve seen this quarter-end movie too many times, and investors responded last week by selling off Tesla stock and bonds to six-month lows.

Thankfully, we are just days away from finding out Tesla’s deliveries for the quarter, which the company will likely report on or before Tuesday. I’m guessing it won’t be pretty.

Market concensus estimates have been falling like meteors the past couple of weeks, and still seem far too ambitious versus my estimates.

Bond Angle analysis continues below.