In today’s briefing:
- Gap Trades in Korean Prefs Vs Common Share Pairs in 2Q 2024
- China Consumption Weekly (1 Apr 2024): Tencent, Alibaba, Xiaomi, Midea
- Korean Holdcos Vs Opcos Gap Trading Opportunities in 2Q 2024
- Shenzhen Intl (152 HK): A Decent Rebound
- Portfolio Update: March 2024
- CSPC Pharmaceutical (1093 HK): Deep Value High Dividend Yield Idea; New Launches to Drive Growth
- Tencent Music Entertainment Group: Initiation Of Coverage – Core Business Strategy
- Polestar Automotive: Initiation Of Coverage – What Are The 3 Biggest Hindrances In Its Path For Profitable Growth? – Major Drivers
- Vanguard (5347.TT): A Consensus View to Build a New 12″ Fab in Singapore.
- Dongfang Electric (1072 HK): Good Profit, Record Orders
Gap Trades in Korean Prefs Vs Common Share Pairs in 2Q 2024
- In this insight, we discuss numerous gap trades involving Korean preferred and common shares in 2Q 2024.
- Although the discount on the preferred shares versus the common shares has been gradually narrowing in the past decade, this discount increased from end of 2021 to 1 April 2024.
- On a longer timeframe (3-4 years), we believe this discount could narrow further to the 20-25% range, which provides additional opportunities for the Korean preferred shares to further make gains.
China Consumption Weekly (1 Apr 2024): Tencent, Alibaba, Xiaomi, Midea
- There is a rumor in social media that Tencent will dismiss 10% – 30% of its employees.
- Alibaba withdrew the IPO application of its subsidiary Cainiao and all the other IPOs were halted as well.
- Xiaomi began to sell its first vehicle model SU7, but it is too late for the company to enter the market.
Korean Holdcos Vs Opcos Gap Trading Opportunities in 2Q 2024
- In this insight, we highlight the recent pricing gap divergences of the major Korean holdcos and opcos which could provide trading opportunities in 2Q 2024.
- Of the 38 pair trades, 26 of them involved holdcos outperforming opcos in the past six months, suggesting increased capital allocation to Korean holdcos relative to their opcos.
- These pairs could generate trading opportunities in terms of their pricing gaps closing reversal. [CJ Corp vs CJ Cheiljedang & Hanjin KAL Corp vs Korean Air Lines].
Shenzhen Intl (152 HK): A Decent Rebound
- Shenzhen International (152 HK) saw its FY23 earnings reaccelerated, supported by gains from the logistics park transformation business. Earnings even surged 169.1% YoY in 2H23.
- REIT issuance on two logistics assets, increase in areas of logistics projects, gains from South China Logistics Park transformation, and better Shenzhen Expressway (548 HK) will fuel FY24.
- A better debt structure will save finance costs. Its 0.45x P/B, or 1.5SD below the 5-year average, is cheap given its proven ability to realise underlying asset value.
Portfolio Update: March 2024
- I recently had a conversation with a close friend and fellow investor, during which he shared his current research interest in the dollar store concept.
- He emphasized that this business model aligns with criteria conducive to long-term shareholder returns.
- Given the scarce presence of dollar stores in Germany, primarily due to socioeconomic factors, I sought clarification on the underlying concept from him.
CSPC Pharmaceutical (1093 HK): Deep Value High Dividend Yield Idea; New Launches to Drive Growth
- CSPC Pharmaceutical Group (1093 HK) reported steady growth in finished drugs in 2023. New products including Mingfule, Yilouda, and Anfulike achieved rapid sales ramp-up due to inclusion in the NRDL.
- The company expects to launch 50 innovative drugs in the next five years, which will provide continuous momentum. The company further aims for 17 common generic launches during 2024–2025.
- CSPC Pharmaceutical shares are trading at a P/E of 11.3x, lowest level seen in last five years, and cheaper than peers. Dividend yield remains attractive at 4%+.
Tencent Music Entertainment Group: Initiation Of Coverage – Core Business Strategy
- Tencent Music Entertainment Group (TME) posted robust results in its fourth quarter and full year 2023 earnings call.
- Increasing subscribers and expedited revenue growth were notable positives, taking the total number of subscribers to the 100 million milestone due to the company’s focus on content leadership, platform value, and offering a high-quality user experience.
- Yet, the company also faced some headwinds, particularly in the social entertainment business.
Polestar Automotive: Initiation Of Coverage – What Are The 3 Biggest Hindrances In Its Path For Profitable Growth? – Major Drivers
- This is our first report on Polestar.
- The company saw their highest-ever delivery volume for the Q3 2023 period.
- The said period witnessed record deliveries of 13,976 vehicles, representing a growth of 51% compared to the same period in the previous year.
Vanguard (5347.TT): A Consensus View to Build a New 12″ Fab in Singapore.
- The utilization rate for Vanguard in 1Q24F is at a recent low of 50-53%, indicating that the utilization rate is expected to increase from 2Q24 onwards.
- Vanguard should consider building a new 12″ Fab in Singapore, aligning with our potential acquisition of Taiwan Semiconductor (TSMC) – ADR (TSM US)’s 40nm and above business.
- In conclusion, the future outlook appears promising for the coming 3~4 years.
Dongfang Electric (1072 HK): Good Profit, Record Orders
- Dongfang Electric (1072 HK) reached another record year with net profit surging 24.2% in FY23. Favourable product mix has benefited gross margin which expanded 0.8pp YoY.
- Record new orders of Rmb86.5bn (+31.9% YoY) have been signed and there is a recovery in momentum in 4Q23. Its end-FY23 backlog should be enough to cover 3.1x FY24F revenue.
- DEC is well-positioned to capture the demand for hydrogen energy and power storage. With 19.3% 3-year earnings CAGR, its 5.1x PER and 8.2% dividend yield are attractive.
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