Brief TMT & Internet: Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation and more

In this briefing:

1. Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation
2. Baidu (BIDU): Stagnant in 4Q18, Wrong Change Feeds a 24% User Increase to Google
3. IQiyi (IQ): In 4Q18, Baidu’s Growth Engine Lost Control Over Content Cost
4. HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)
5. CSE Global: Gaining Momentum

1. Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation

Futu Holdings Ltd (FHL US) plans to raise around US$300m in its US IPO. The company is backed by Tencent Holdings (700 HK) , Matrix Partners and Sequoia.

In my earlier insight, Futu Holdings Pre-IPO – Great Metrics but in a Commoditised Industry, I looked at the company’s background and past financial performance along with some of the other firms that are competing in the same space. 

This insight covers the positive and negative takeaways from the FY18 updated filing and also includes our thoughts on valuation.

2. Baidu (BIDU): Stagnant in 4Q18, Wrong Change Feeds a 24% User Increase to Google

• Baidu posted a weak result for 4Q2018.
• We believe it is a wrong decision to change Baidu into an in-house search engine.
• Alphabet Inc Cl C (GOOG US) ’s monthly active users in mainland China increased 24% QoQ in January 2019.
• We believe Baidu’s stock price has been fairly impacted.

3. IQiyi (IQ): In 4Q18, Baidu’s Growth Engine Lost Control Over Content Cost

• We notice that the growth rate of cost of revenues exceeded the growth rate of membership revenues.
• We believe that the margins will continue to decline even if the advertising business recovers.
• IQ has the largest monthly active users in the video market, but it does not have an obvious advantage over Tencent Holdings (700 HK) .

4. HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)

In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.

We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.

In this week’s HK Connect Discovery, we highlight the strong inflow to automobile stocks and Sands China. 

5. CSE Global: Gaining Momentum

• Investors who have bought CSE Global on dips since my last note would have profited ~18%.
• The upbeat guidance by management and supply-demand environment should give some legs to the recent rebound.
• While risks of slower global growth may weigh on the stock, the stock is trading below its five-year average PE despite significantly improved cash flow from operations and a healthy order intake (three-year high).