Brief Consumer: NIO’s (蔚来) Guidance Makes Selling upon Lock-Expiry More Compelling and more

In this briefing:

1. NIO’s (蔚来) Guidance Makes Selling upon Lock-Expiry More Compelling
2. Youngone Holdco/Sub Trade: Price Divergence Got Too Wide
3. Ctrip (CTRP): Overcame Two Difficulties in Q4, But Market Over-Reacted to “Global No. 1”
4. S&P 500 and S&P 600 Testing Resistance…Still

1. NIO’s (蔚来) Guidance Makes Selling upon Lock-Expiry More Compelling

NIO Inc (NIO US) fell 17% in its after-hour trading session post announcement of its Q4 results.  The company turned a gross profit in Q4 while the number of cars delivered in the full year 2018 was 11,348 has beaten their own 10,000 cars target. The company is currently trading 62% above its IPO price.

However, the worrying part lies in its guidance which could mean that pre-IPO investors have more compelling reasons to lock-in some profits upon lock-up expiry.

2. Youngone Holdco/Sub Trade: Price Divergence Got Too Wide

• Youngone Holdings (009970 KS) is another single-sub holdco. Youngone Corp (111770 KS) is the largest sub that accounts for 70% of Holdco NAV. Youngone is one of Korea’s two largest OEM apparel manufacturers. On a 20D MA, they are now at 312% of σ. Current price ratio is at a 120D high. Holdco discount is 27.5% to NAV.
• I am not seeing any substantial factor that can explain this much price divergence in the last two days. There is a growing concern over Sub’s labor cost. This may explain Sub’s price plunge. But this isn’t enough to explain the current huge price divergence.
• In the last 120 days, we’ve had a couple of radical divergences. All of these got quickly reverted to mean. I expect the same to happen this time. At this much divergence, there is a little chance of further widening. I’d go short Holdco and long Sub. Just, Holdco liquidity can be an issue here.

3. Ctrip (CTRP): Overcame Two Difficulties in Q4, But Market Over-Reacted to “Global No. 1”

* The recovery in 4Q2018 shows that CTRP has already survived the new law and the new competitor in 2018.
* We believe EPS will grow 12% in 2019.
* However, we believe the market has already over-reacted to the news last November that CTRP became the largest online travel agency.
* We set a target price of USD23.80, which is 32% below the market price.

4. S&P 500 and S&P 600 Testing Resistance…Still

The S&P 500 is beginning to come off of short-term overbought extremes, consolidating near the confluence of key overhead resistance and the 200-day moving average. This level is roughly 2,817 on the S&P 500 and roughly 1,000 on the S&P 600 Small Cap index. Some consolidation or a mild pullback is possible in the near-term, which we believe would help alleviate current overbought readings and allow for a more orderly and meaningful move higher.  In today’s report we highlight attractive Groups and stocks within the Consumer Discretionary, Health Care, and Services Sectors.