In today’s briefing:
- BYD (1211 HK): Is Buffett Bailing?
- Tianqi Lithium H Share Listing: Trading Debut
- Topsports (6110 HK): Upsizing Undervalued Sporting Goods Play
- BYD’s Shares Tumble Awaiting Berkshire’s Next Move
- Topsports International Holdings – Is Cheap Enough to Counter Some of the Risks
- Tencent/Netease: Under Pressure with No Game Approval in July
- Tencent – Excluded Again from New Game Approvals
- Topsports International (6110.HK) – Has the Potential to Turn Things Around Despite the Headwinds
- Topsports International: CCP’s ZERO COVID Policy Has a Bigger Whopper Impact than Cheap Valuations
- Pre-IPO Huayiwang Technology – The Business Model Is Reasonable, but There Are Also Challenges
BYD (1211 HK): Is Buffett Bailing?
- Just days after BYD (1211 HK) surpassed Tesla Motors (TSLA US) as the world’s largest electric vehicle producer by sales, is Warren Buffet cashing in his chips?
- 225mn shares of BYD – 7.73% of the H shares – moved into CCASS yesterday. These are Berkshire Hathaway’s shares.
- For a shareholder who has kept his holding in share certificates for 13 years, this development suggests the possibility of a partial or full exit.
Tianqi Lithium H Share Listing: Trading Debut
- Tianqi Lithium (002466 CH) priced its H Share at HK$82.00 per share to raise net proceeds of HK$13,062 million (US$1.7 billion). The H Share will start trading tomorrow.
- The H Share listing (HK$82.00) and grey market price (HK$76.50) imply an AH discount of 45% and 49%, respectively. This compares to Ganfeng Lithium (1772 HK)’s current 35.3% AH discount.
- The relative valuation is attractive. At the H Share listing price, Tianqi Lithium (9696 HK)’s H Share trades at a -6% discount to the median peers’ CY2022 P/B multiple.
Topsports (6110 HK): Upsizing Undervalued Sporting Goods Play
- Topsports International (6110 HK) is trading cheap to peers Anta Sports Products (2020 HK) and Li Ning (2331 HK), and to partners Nike (NKE US) and Adidas AG (ADS GR).
- Like for so many companies in China, the combination of severe lockdown restrictions and global supply chain disruptions has impacted Topsports operations.
- Yet forward operational updates may surprise to the upside. Management appears confident of their “immersive shopping experience” strategy, and recently declared a special dividend for FY22 (Feb Y/E).
BYD’s Shares Tumble Awaiting Berkshire’s Next Move
- The increase of 225.2 million CCASS shares deposited with Citibank matches Berkshire Hathaway Inc Cl B (BRK/B US)’s stake. BYD (1211 HK) closed -12% down on speculation of a selldown.
- The H Share recently touched all-time highs and trades at a significant premium to historical multiples. BYD has a recent history of a selldown by a substantial shareholder (Himalaya Capital).
- Berkshire has made a 33x gain on its BYD investment, excluding dividends. Taking money off the table would align with Berkshire’s value investing mandate.
Topsports International Holdings – Is Cheap Enough to Counter Some of the Risks
- Topsports International Holdings (TIH) is now trading close to its all time lows, after the shares corrected by 50% over the past year.
- The company is one of the largest retailers for Nike (NKE US) and Adidas AG (ADS GR) in China.
- Given then on/off lockdowns the near term outlook isn’t great, but the stock appears cheap for those willing to take a longer view.
Tencent/Netease: Under Pressure with No Game Approval in July
- China just announced game approval for July batch. More games were approved in July compared to June and May.
- Pace of China game approval has picked up albeit at a much slower pace than pre-tightening.
- Tencent and Netease will be under pressure as they continue to score zero in July domestic game approval.
Tencent – Excluded Again from New Game Approvals
- China’s NPPA issued a list of 67 new games approved for July 2022, and once again, Tencent (700 HK) and its smaller rival NetEase were excluded from the list.
- The nine-month long freeze on new game approval was lifted in April, however, none of Tencent’s new games were included in the approved lists in April, June and July.
- This further affirms our view that the anti-monopoly crackdown on tech firms hasn’t slowed down, but regulators are probing on dominant players such as Tencent to level the playing field.
Topsports International (6110.HK) – Has the Potential to Turn Things Around Despite the Headwinds
- Topsports suffered the first decline in performance since FY2018. Besides pandemic outbreaks and inventory shortage due to global supply chain disruption, over-reliance on Nike and Adidas is also the reason.
- This is the best opportunity to reduce the number of stores based on “Select+Optimize” strategy. With resumption of sports events and good prospects of China’s sports industry, Topsports could rebound.
- Topsports is undervalued compared with its peers, but we are now in a complicated macro environment. Share prices may not rise as expected, which should be aware of by investors.
Topsports International: CCP’s ZERO COVID Policy Has a Bigger Whopper Impact than Cheap Valuations
- One of the key reasons why we are bearish on this stock (despite cheap valuations) is that the valuations may become even cheaper.
- The CCP remains intent on maintaining its ZERO COVID policy which means continued sporadic lockdowns and social distancing measures, which is negative for sports apparel products.
- All in all, we believe that a better time to get back into Topsports International is when the CCP becomes more vocal about finally relenting on its ZERO COVID policy.
Pre-IPO Huayiwang Technology – The Business Model Is Reasonable, but There Are Also Challenges
- Huayiwang Technology (1985554D HK) is strong in its digital medical education solutions, which is the cornerstone business for the continuous expansion of other solution offerings and ecosystem.
- HUAYIWANG charges service fees mainly from pharmaceutical companies, which could be a more sustainable profit model than charging from patients directly.
- However, the increasing competition and potential risk of losing medical professionals could shake the foundations of HUAYIWANG’s business.
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