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Consumer Discretionary / Industrials

Henry Kwon

Equity Bottom-Up

Since June 25, CPNG has outperformed NASDAQ by 16.90%, rising by 19.1%. The stock closed above its 10-day EMA for the third consecutive session today, and it seem that there is now an ascending channel that may have formed. From a valuation perspective, Risk-Free Rate as defined by the 10-year Treasury yield, has come down to 1.42% from 1.65% and consensus forecasts have been revised upwards since we last addressed CPNG's valuation issues (see <a href="https://www.smartkarma.com/insights/cpng-dead-cat-bounce-or-a-more-sustainable-price-recovery-in-the-cards" target="_blank" data-smartkarma-citation="insights:51427" rel="noopener">CPNG: Dead Cat Bounce or a More Sustainable Price Recovery in the Cards?</a>).There were two news items we are aware of that have had a major impact on CPNG's recent rally:<ul>
<li>News that CPNG would be able to refinance its 5.5%, 5-year loan from Goldman Sachs to finance its warehouse burned down by fire, at a more favorable rate of around 2% (see <a href="https://www.koreatimes.co.kr/www/tech/2021/07/129_311390.html" target="_blank" rel="noopener">https://www.koreatimes.co.kr/www/tech/2021/07/129_311390.html</a>), should have been a non-event since CPNG is insured against fire damage. However, the shares reacted positively to the news on June 29, which is June 30 in Korea when media focused on the debt refinancing issue.</li>
<li>News that CPNG has just registered its "Coupang Biz" trademark for its planned B2B business for small-medium size businesses shopping for office equipment and other MRO items (see <a href="https://www.edaily.co.kr/news/read?newsId=03972086629113864&amp;mediaCodeNo=257" target="_blank" rel="noopener">https://www.edaily.co.kr/news/read?newsId=03972086629113864&amp;mediaCodeNo=257</a>) should also have been a non-starter from a fundamental standpoint, since anecdotal evidence seems to envision Coupang Biz to add about KRW 1.0trn to its top line at an as of yet unannounced timeline in the future. In other words, the news should be taken at face value, but no sane analyst should run out and immediately add what amounts to about 5% upgrade in FY21 consensus revenue forecasts based on what is in media reports. However, the news seems to have been at least responsible for today's 3.39% jump in share price.</li>
</ul>CPNG's shares closed above its 10-Day EMA for the third consecutive day at close today, with what looks like an ascending channel that may be forming. MACD is positively postured but RSI sits a little on the high side now at 67.28 albeit with further room for strength. The trading volumes reached 6.92m shares, from the 2.5-3.7m share range seen since the beginning of July. As for share price implications for the rest of the week:<ul>
<li>
Short Term Bullish Scenario: Following the third consecutive day's close above its 10-Day EMA today, the shares could try to break above the 61.8% Fibonacci retracement level at $45.30. If sufficient momentum builds the shares may attempt to break above the 50% retracement level at $49.83, but can face resistance in the 46.00-47.00 zone, which looks like the upper bounds of the ascending channel formation we referred to above.</li>
<li>
Short Term Bearish Scenario: The surge in trading volume seen today could also indicate a topping move, so in case of a pullback, investors should see the $41-42 price range along the 10-Day EMA as the first level of support, with the 21-Day EMA as the next level of support. Below these levels, we would expect shares to test the 78.6% Fibonacci retracement level at $38.86.</li>
</ul>In the short run, we believe from experience that fundamentals could take a long time to get priced into the share price of any stock, so investors should carefully weigh whether they will invest in CPNG or just trade the shares, because the choice could imply two very different courses of action. Having said that, it never hurts to buy low whether investing or trading. CPNG's next fundamental catalyst should come from the company's 2Q earnings release, which we anticipate is likely to take place in mid-August (see <a href="https://www.nasdaq.com/market-activity/stocks/cpng/earnings" target="_blank" rel="noopener">https://www.nasdaq.com/market-activity/stocks/cpng/earnings</a>).

Since June 25, CPNG has outperformed NASDAQ by 16.90%, rising by 19.1%. The stock closed above its 10-day EMA for the third consecutive session today, and it seem that there is now an ascending channel that may have formed. From a valuation perspective, Risk-Free Rate as defined by the 10-year Treasury yield, has come down to 1.42% from 1.65% and consensus forecasts have been revised upwards since we last addressed CPNG's valuation issues (see CPNG: Dead Cat Bounce or a More Sustainable Price Recovery in the Cards?).There were two news items we are aware of that have had a major impact on CPNG's recent rally:
News that CPNG would be able to refinance its 5.5%, 5-year loan from Goldman Sachs to finance its warehouse burned down by fire, at a more favorable rate of around 2% (see https://www.koreatimes.co.kr/www/tech/2021/07/129_311390.html), should have been a non-event since CPNG is insured against fire damage. However, the shares reacted positively to the news on June 29, which is June 30 in Korea when media focused on the debt refinancing issue.
News that CPNG has just registered its "Coupang Biz" trademark for its planned B2B business for small-medium size businesses shopping for office equipment and other MRO items (see https://www.edaily.co.kr/news/read?newsId=03972086629113864&amp;mediaCodeNo=257) should also have been a non-starter from a fundamental standpoint, since anecdotal evidence seems to envision Coupang Biz to add about KRW 1.0trn to its top line at an as of yet unannounced timeline in the future. In other words, the news should be taken at face value, but no sane analyst should run out and immediately add what amounts to about 5% upgrade in FY21 consensus revenue forecasts based on what is in media reports. However, the news seems to have been at least responsible for today's 3.39% jump in share price.
CPNG's shares closed above its 10-Day EMA for the third consecutive day at close today, with what looks like an ascending channel that may be forming. MACD is positively postured but RSI sits a little on the high side now at 67.28 albeit with further room for strength. The trading volumes reached 6.92m shares, from the 2.5-3.7m share range seen since the beginning of July. As for share price implications for the rest of the week:

Short Term Bullish Scenario: Following the third consecutive day's close above its 10-Day EMA today, the shares could try to break above the 61.8% Fibonacci retracement level at $45.30. If sufficient momentum builds the shares may attempt to break above the 50% retracement level at $49.83, but can face resistance in the 46.00-47.00 zone, which looks like the upper bounds of the ascending channel formation we referred to above.

Short Term Bearish Scenario: The surge in trading volume seen today could also indicate a topping move, so in case of a pullback, investors should see the $41-42 price range along the 10-Day EMA as the first level of support, with the 21-Day EMA as the next level of support. Below these levels, we would expect shares to test the 78.6% Fibonacci retracement level at $38.86.
In the short run, we believe from experience that fundamentals could take a long time to get priced into the share price of any stock, so investors should carefully weigh whether they will invest in CPNG or just trade the shares, because the choice could imply two very different courses of action. Having said that, it never hurts to buy low whether investing or trading. CPNG's next fundamental catalyst should come from the company's 2Q earnings release, which we anticipate is likely to take place in mid-August (see https://www.nasdaq.com/market-activity/stocks/cpng/earnings).

Coupang

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