In today’s briefing:
- Meituan (3690 HK): Impact of Tencent’s In-Specie Dividend
- Tencent Distribution of Meituan Shares Official – Impact and Index Implications
- Tencent Meituan Dividend – The US$20bn Overhang – Impact, Placement, Index, Other Investees
- Sea Ltd 3Q22 Results – Set up Nicely To Make Big Gains On The Short Side
- KOSDAQ150 Index Rebalance: 11 Changes with a Couple of Surprises
- KOSPI 200 & KOSDAQ 150 Constituent Changes: Several Surprises
- Tencent 3Q: Shows Signs of Improvement
- Tencent (700 HK): Rev Down by 1.6% in 3Q22, But Game Sees Positive Comment from Gov for First Time
- Buy Polygon For Big-Brand Crypto Scaling
- Breaking Growth Short Candidates: Plug Power, Nvidia, Palantir, Roblox
Meituan (3690 HK): Impact of Tencent’s In-Specie Dividend
- Tencent (700 HK) has announced that it will pay an interim dividend via an in-specie distribution of the bulk of its holding in Meituan (3690 HK).
- Passive FTSE and MSCI trackers will receive shares in Meituan (3690 HK) from their Tencent (700 HK) holdings and they will not need to trade anything in the market.
- First it was JD.com Inc. (9618 HK), now it is Meituan (3690 HK). The market will be looking for other stocks held by Tencent (700 HK) that could be next.
Tencent Distribution of Meituan Shares Official – Impact and Index Implications
- In mid-August at mid-day, a Reuters article suggested Tencent (700 HK) would seek to divest its $24bn stake in Meituan (3690 HK) this year. The stock fell 9% that afternoon.
- The general underlying suggestion was that regulators wanted them to sell. Other articles suggested later both aspects were “untrue”
- With Q3 earnings, Tencent today announced a Jan23 distribution (Mar23 settlement) of 958,121,562 Meituan shares (1 for every 10 Tencent shares held). There are significant flow and index implications.
Tencent Meituan Dividend – The US$20bn Overhang – Impact, Placement, Index, Other Investees
- On 16th Nov 22, post-market close, along with its 3Q22 results Tencent also declared an interim dividend by way of distribution in specie of Class B Ordinary shares of Meituan.
- The share distribution follows the template of the US$16bn worth of JD.com shares that Tencent paid out after its dividend announcement at the end of 2021.
- In this note, we talk about the implications of the deal.
Sea Ltd 3Q22 Results – Set up Nicely To Make Big Gains On The Short Side
- Sea Ltd (SE US) shares were up 36% yesterday following a relatively small top-line beat of 4.8% and a narrower-than-expected operating loss of $495.6m (consensus: $581.9) through rigorous cost-cutting.
- The share price move sets-up nicely to make gains on the short-side, as e-commerce and fintech remain unprofitable after cutting-down necessary expenses such as logistics and senior management cash compensation.
- We estimate the fair value of Sea Ltd at around $10.0bn EV compared to the current EV of $33.1bn, which implies a downside of 66% to Sea’s post-3Q22 price.
KOSDAQ150 Index Rebalance: 11 Changes with a Couple of Surprises
- There are 11 inclusions and 11 exclusions for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance to be implemented at the close on 8 December.
- We had forecast most of the changes (10 adds and 9 deletes), so there are a few surprises. The inclusion of SillaJen Inc (215600 KS) is the biggest one.
- The adds to the index become short sell eligible from the open of trading on 9 December while the deletions will not be short sell eligible from the same time.
KOSPI 200 & KOSDAQ 150 Constituent Changes: Several Surprises
- For KOSDAQ 150, SillaJen and WCP made it to the index. As for deletions, Intron Biotechnology, Ebest I&S, and Devsisters are additional names to leave the index through regular review.
- Lotte Confectionery and Samyang Holdings do not have sizeable DTV. And they were fully expected. Nevertheless, the passive impact is so significant that the LONG/SHORT approach still seems valid.
- We should focus on KOSDAQ 150 inclusions whose return has been high due to the inflow to secure a borrow pool for short-selling on top of the preemptive rebalancing flow.
Tencent 3Q: Shows Signs of Improvement
- Tencent (700 HK) reported 3Q2022 results yesterday. Revenue decreased 1.6% YoY to RMB140.1bn (vs consensus RMB140.0bn) while adjusted OP declined 0.2% YoY to RMB28.4bn.
- Revenue from both Internet VAS and Online Advertising declined YoY during the quarter. Social networks revenue declined YoY for the first time by 1.9%.
- Tencent also announced that it will distribute majority of its shareholding on Meituan (3690 HK) to its shareholders in dividends similar to the special dividend of its stake in JD.com.
Tencent (700 HK): Rev Down by 1.6% in 3Q22, But Game Sees Positive Comment from Gov for First Time
- Revenue decreased by 1.6% YoY in 3Q22, less than a decrease of 3.1% YoY in 2Q22.
- A governmental media gave positive comment to game industry for first time.
- We believe the stock has an upside of 52% for year end 2023.
Buy Polygon For Big-Brand Crypto Scaling
- Polygon added to Disney Accelerator program. Fashion and payments companies add to the recent partnerships.
- Polygon also added to the recently partnerships with Instagram NFTs.
- In a recent article, I advised buying Disney for eventual growth in the metaverse. Polygon (MATIC-USD) is a crypto project that has been making waves with a series of big-name corporate partnerships, including Disney.
Breaking Growth Short Candidates: Plug Power, Nvidia, Palantir, Roblox
- This model looks for slowing growth, margin declines, sales and/or earnings disappointments, troubling working capital trends, poor estimate trends or lowered guidance, among other characteristics.
- The key judgement is whether a slowdown is temporary or the beginning of a trend. These shorts tend to have high valuations and betas. Multiple compression accelerates the stock’s decline.
- Today we are flagging Plug Power, Nvidia, Palantir, and Roblox
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