Daily TMT & Internet: Last Week in GER IPO Research: Leong Hup, China Tobacco, Futu and Weimob and more

In this briefing:

1. Last Week in GER IPO Research: Leong Hup, China Tobacco, Futu and Weimob
2. Apple (AAPL): Reduces Prices in Mainland China – Right Action, But Not Enough
3. NTT Buyback Almost Done
4. HK Connect Discovery Weekly: China Tower, Tencent, New China Life (2019-01-11)
5. NCsoft – A Strategy for Trading in 1H 2019

1. Last Week in GER IPO Research: Leong Hup, China Tobacco, Futu and Weimob

We slide into 2019 with GER’s recap of our latest IPO research. This week, we talk chicken as Arun initiates on the IPO Malaysian poultry producer Leong Hup International (LEHUP MK). Secondly, Venkat initiates on China Tobacco International (GHALPZ CH) with a cautious view. In addition, Arun initiates on online broker Futu Holdings Ltd (FHL US)  and we remind of Arun’s valuation piece on Weimob.com (2013 HK) . 

Quote of the week 

Are you insane?

-Sky news presenter to UK MP Boris Johnson ahead of the Brexit parliament vote planned for today

Best of luck for the week and new year- Rickin, Venkat and Arun

2. Apple (AAPL): Reduces Prices in Mainland China – Right Action, But Not Enough

• Tim Cook passed the buck to the weak sales in China. However, we believe China’s retailing is running well based on our visits to shopping malls with Apple stores.
• Luxury goods sold better in China than all other major markets in the world in 2018.
• We believe that the price reduction in Mainland China is just taking market share from Apple Stores in Hong Kong, but not from competitors.
• We also believe that the app review process is the fatal shortcoming for AAPL.

3. NTT Buyback Almost Done

On November 6th, NTT (Nippon Telegraph & Telephone) (9432 JP)announced a ¥150 billion buyback program, and NTT Docomo Inc (9437 JP)announced that its very large ¥600 billion buyback program presented days before would be done through a single below-market-price Tender Offer where NTT was expected to be the only seller.  That left NTT buying shares on market and NTT Docomo buying shares off-market in the immediate future. 

The Tender Offer went through as planned (though NTT sold a tiny trifle less than expected). 

On January 7th, NTT announced it had repurchased 8.4mm shares for ¥38.8 billion, leaving only ¥15.35 billion to repurchase in this program. That is worth about 7-8 trading days of buying. The buyback is therefore almost done. 

A hint as to the future came in a Nikkei article in December. It may be many months before we see more NTT on-market buybacks. 

4. HK Connect Discovery Weekly: China Tower, Tencent, New China Life (2019-01-11)

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: those with a market capitalization of above USD 5 billion, those with a market capitalization between USD 1 billion and USD 5 billion, and those with a market capitalization between USD 500 million and USD 1 billion.

We see the Financials sector led the outflow by mainland investors last week with 201 million USD of net selling. We also highlight a few companies this week: China Tower (788 HK), Tencent Holdings (700 HK), New China Life Insurance (1336 HK), and Ping An Good Doctor (1833 HK).

5. NCsoft – A Strategy for Trading in 1H 2019

In this report, we will explain our strategy for trading NCsoft Corp (036570 KS) shares in 2019. NCsoft is expected to launch five new mobile games in 2019 including “Lineage 2M”, “AION 2”, “Blade & Soul 2”, “Blade & Soul M”, and “Blade & Soul S”. These five new games are based on its existing MMORPG franchise games. The company is hoping to release all five of these new mobile games in 1H 2019. 

Lineage 2M, which is perhaps the most anticipated mobile game among these five games, is expected to be launched in 2Q19. Traders are starting to gear up for the launch of this important game in the coming months. Many investors are likely to take the “buy on rumor and sell on news” strategy, which in this case the news would refer to the launch of the Lineage 2M game. 

Nonetheless, in this case, we believe that because many investors may be getting ready to sell NCsoft near the launch date of Lineage 2M, many savvy investors are likely to sell their shares a few days/weeks earlier than the actual launch date. At this point, the most likely period as to when Lineage 2M may be launched is in May 2019. As a result, a good time to consider selling NCsoft may be sometime in March/April 2019.