In this briefing:
- Sea Ltd (SE US): Placement a Good Opportunity to Enter an Attractive Story
- Sea Ltd Placement – Capitalizing on Momentum
- Bharti Airtel Buy on Short Lived Breach Below Support
- HK Connect Discovery – February Snapshot (Tencent, COFCO Meat)
- 58.com (WUBA): Weak Membership Growth Suggests More Volatile Performance, 17% Downside
1. Sea Ltd (SE US): Placement a Good Opportunity to Enter an Attractive Story
Last Friday, Sea Ltd (SE US) unveiled plans to raise around $1 billion (based on the closing price on 28 February) through an underwritten public offering of 50 million ADS. The fundraising was inevitable due to the high cash burn and net cash position.
We are positive on Sea as digital entertainment (Garena), the cash cow, remains in rude health and its newer e-commerce business (Shopee) is a market leader, rapidly growing and reducing its losses. Overall, we would participate in the public offering at or below the last close price of $23.
2. Sea Ltd Placement – Capitalizing on Momentum
Sea Ltd (SE US) is looking to raise about US$1.2bn in its upcoming placement. It will be larger than its IPO in 2017, which raised about US$880m.
The deal scores well on our framework owing to decent valuation, strong price and earnings momentum but had little track record for comparison. The company announced a strong set of FY2018/Q4 2018 results which had beaten estimates.
Even though, the deal size is large, representing 23.2 days of three-month ADV, there is enough time between the announcement to the end of the bookbuild to price in the impact of the placement.
3. Bharti Airtel Buy on Short Lived Breach Below Support
Bharti Airtel (BHARTI IN) corrective cycle does not appear complete with risk of a final spike lower below key pivot support. It is this crack lower that we want to take advantage of.
Sell volume spike implies the flat range will break lower.
Daily cycle triangulation sides with a press below pivot support. An upside break of this triangle would trigger a tactical long but would lack needed gas for a sustainable drive.
Weekly MACD is seeking a bottoming/basing cycle that will turn the cycle higher once we see a final capitulation spike below pivot support as we did back in 2008, 2010 and 2012.
4. HK Connect Discovery – February Snapshot (Tencent, COFCO Meat)
This is a monthly version of our HK Connect Weekly note, in which I highlight Hong Kong-listed companies leading the southbound flow weekly. Over the past month, we have seen the outflow continue from January. In February, we have seen Chinese investors were selling Tencent in February after buying Tencent in January. Chinese investors were also buying domestic automotive manufacturers and Macau gaming sectors.
Our February Coverage of Hong Kong Connect southbound flow
- HK Connect Discovery Weekly: China Tower, Geely, COFCO Meat (2019-02-15)
- HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)
5. 58.com (WUBA): Weak Membership Growth Suggests More Volatile Performance, 17% Downside
* We believe that the stagnancy in membership was due to the new competitor Ke.com and will make total revenues more volatile in the future.
* We assume total revenues will slow down, but the operating margin will be stable in 2019.
* We compare WUBA’s expected P/E for 2019 with other vertical platforms in China and conclude 17% downside.
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