Brief Consumer: Youngone Holdco/Sub Trade: Price Divergence Got Too Wide and more

In this briefing:

1. Youngone Holdco/Sub Trade: Price Divergence Got Too Wide
2. Ctrip (CTRP): Overcame Two Difficulties in Q4, But Market Over-Reacted to “Global No. 1”
3. S&P 500 and S&P 600 Testing Resistance…Still
4. Tesla (TSLA): Model Y to Be Unveiled in L.A. On March 14 – What We Know So Far

1. 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.

2. 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.

3. 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.

4. Tesla (TSLA): Model Y to Be Unveiled in L.A. On March 14 – What We Know So Far

Other than CEO Elon Musk’s tweets, there is not a whole lot that has been announced about the Model Y other than that it will be unveiled at the company’s L.A. Design Studio on March 14.  Here is a brief list of what we know so far about the Model Y:

• Musk indicated during the 4Q earnings analyst call that Models 3&Y will have a 78% shared content ratio (see Tesla (TSLA): 4Q Earnings and First Impressions on the Company’s Strategy ), with media reports quoting Musk also referring to a 75% shared content ratio in other forums (see, e.g., https://electrek.co/2019/02/07/tesla-casting-lines-gigafactory-model-y-production/).
• Musk also had stated during the 4Q earnings call that the Model Y will begin production at the Shanghai Gigafactory 3 which is projected to be completed at the end of 2019.  The company has not confirmed that commercial production of the Y will begin in the U.S. simultaneously.
• There are no changes or additions in Musk’s tweets to previously announced commercialization target dates for the Model Y.  

Tesla’s new product launches historically have been mired in delays.  Assuming management does not repeat its assembly line prototyping mistakes prior to the Model 3 launch there should not be an issue currently with meeting its production target timeline of 1H20.  However, we also believe any such concerns would be legitimate given Tesla’s history.

A Tesla Model Y Teaser Shot