All Posts By

Smartkarma Content

China Medtech Industry Deep Dive

By | Smartkarma Originals

The China Medical device industry has been growing at a 20% CAGR, surpassing the Pharma sector’s 7-10%  growth in the past few years. In this insight, we analyze China Medtech industry with major sub-sectors, including market size, growth prospects, growth drivers, competitive landscape as well as the comparison with global market. In addition, we illustrate the characteristics of China Medtech industry, demonstrate industry tailwinds as well as headwinds.  More importantly, we identify the leading players (from MSCI-List) with detailed analysis of business model, investment thesis/risk and valuation as well as financial/operational matrix comparison. 

In summary, we believe China Medtech industry, especially the two biggest sub-segment Medtech equipment, high end Medtech consumables will continue to grow at >15% CAGR in the next few years, driven by import substitutions, infrastructure and consumption upgrade. Although two invoice system, GPO on high end consumables may post short term price pressure but it will accelerate industry consolidation, which will benefit leading players with dominate market position and innovative product portfolio. 

In the order of preference, we prefer Medtech equipment over high-end Medtech consumables on less policies risks. Among Medtech equipment, we like Shenzhen Mindray Bio-Medical Electronics (300760 CH) with its dominated market position in Medtech equipment/strong growth momentum (>30% CAGR)

Among high-end consumables, as the largest vascular international implants player, Lepu Medical Technology A (300003 CH) is attractively valued with solid growth outlook, but we remain cautious on its weak drug position/high goodwill and leverage ratio.

Shandong Weigao Group Medical Polymer Co (1066 HK) is the largest low-end consumables and orthopedic implants supplier in China, we believe its orthopedic/recently acquired vascular business will continue to gain market share driven by import substitutions encouraged by government, yet we remain sidelined as its slow growth outlook/price pressure on low-end consumables (70% of revenue).  

What’s original ? 

Chinese Medtech sector have drawn many investors attention recently with outstanding stock performance in A/H share market, driven by surging demand from COVID19 outbreak. Yet, Medtech sector is very complex and comprise of more than 5 sub-sectors,  is less covered than Pharma sector by the street.  In addition, recent government policies for Medtech present both opportunities and risks, which international investors need to understand more. 

With the detailed analysis and comparison with global MNCs in term of market size, growth potential, competitive landscape and key growth drivers ahead, we hope to help investor to navigate the market dynamic in China Medtech sector. Especially, our detailed analysis of major sub-sector and the nuances between the segments the major companies operate in will provide further insight for investors. 

While companies like Shenzhen Mindray Bio-Medical Electronics (300760 CH) has increasing drawing investors attentions, especially amid COVID19 outbreak, we further analyzed its competitive edges vs. MNCs in each sub-sectors and reiterate our positive view.  Also, we highlight the key risks on some domestic popular names such as Lepu Medical Technology A (300003 CH) and Shandong Weigao Group Medical Polymer Co (1066 HK). 

Notably, in this report, we did not include Microport Scientific (853 HK) as the best innovative  driven high-end Medtech consumables in China (see Microport Scientific (853.HK): Innovation Driven Medtech with Long Term Value, for more detail, as it is excluded from MSCI). Also we did not include Jiangsu Yuyue Medical Equ A (002223 CH) as its focus on household Medtech equipment. 

• Asia-ex Japan, Senior Healthcare Analyst • (Opens in a new window) ⧉

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



The Time for the Virtual AGM Is Now. Here's Why Your Company Should Consider Taking It Online

The Time for the Virtual AGM Is Now. Here’s Why Your Company Should Consider Taking It Online

By | Corporates

What happens to meetings when you are literally not allowed to meet anyone? They get postponed, probably, or turned into emails. But when it comes to listed companies, there are some meetings you can’t simply put off. 

The Annual General Meeting (AGM) is a regulatory obligation as well as a necessary milestone, as shareholders are called upon to vote on important issues that require their approval, from the appointment of directors to key business decisions. With people turning to video-chatting solutions for both personal and business cases due to COVID-19 restrictions, the next logical step for issuers is to try to hold their AGM online. But this might be easier said than done.

AGMs in the Time of Coronavirus

Even as some companies are exploring the potential of virtual AGMs, the onset of the pandemic has caught several more of them flat-footed. Far from being ready to take the necessary steps to move their AGM online, many companies have no clear plans regarding their AGM at all.

To get an idea of how companies are responding to this challenge, Smartkarma put together a mini-study of over 200 companies, gathering publicly available data from official websites, exchange filings, and third-party aggregators.

Most of the companies we studied (34 percent) have rescheduled their AGM to a later date, while 26 percent have not changed their plans yet. Another 24 percent have yet to announce what they will do, and the remaining companies have either already held their AGM, held an extraordinary general meeting, or have provided no details.

Notably, from this sample, only 14 companies already held a virtual or a hybrid AGM (which offers the possibility of both in-person and remote attendance) – 11 and three, respectively.

Our sample covers three major markets (Singapore, Hong Kong, Indonesia) as well as companies from a range of other markets, including the US, Japan, India, Southeast Asia, and Australia.

The Singapore sample is especially important considering the Monetary Authority of Singapore (MAS), the local regulator, and SGX have announced that companies can have a 60-day extension to hold their AGM, if it was scheduled between 16 April 2020 and 31 July 2020.

Depending on when the company’s financial year ends, the deadline looks like this:

Company A

Company B

Financial year ends: December 31
Financial year ends: March 31
AGM must be held by: April 30
AGM must be held by: July 31
Extended to: June 30
Extended to: September 31

One of the reasons why so many companies are still holding back is that switching to an all-virtual AGM or a hybrid one can be tricky. Experts warn issuers to ensure they conduct their virtual AGM in a compliant way, according to guidance issued by regulators like the SEC in the US and MAS in Singapore. 

Issuers are also advised to consider moving quickly to hire a vendor to conduct their virtual AGM, since demand for such a service during the pandemic is sure to increase. SGX has even announced a S$5,000 (US$3,534) grant to assist companies listed on its Mainboard and Catalist boards with their virtual AGMs.

The grant is meant to cover expenses including, “amongst others, expenses incurred to book additional meeting rooms and additional teleconference lines, implement webcast or other virtual solutions, or rent additional equipment to manage healthcare screening entry and contact tracing.”

How Can Smartkarma Help?

So why should you consider Smartkarma as your go-to vendor for your virtual AGM? For one thing, our Corporate Solutions suite of services has helped issuers streamline their investor relations processes online. Corporate Solutions gives clients a host of tools to promote their company, target and connect with global institutional investors and leading analysts, view analytics, and facilitate contact with independent research providers.

Now we can apply that expertise on assisting with your virtual meeting. These are some of the key features we can offer your company in this regard:

The Time for the Virtual AGM Is Now. Here's Why Your Company Should Consider Taking It Online

Another reason is that, while the main push for virtual AGMs at the moment is the COVID-19 pandemic, there’s no reason to stop there. Shareholders often find it difficult to attend physical AGMs, whether because of distance and cost, time constraints, or other reasons. This can result in low turnout for many of them, and exclude several shareholders who are not able to participate.

The COVID-19 pandemic is challenging several preconceptions of how to conduct business, and the AGM may well be one of them. Even the likes of Vanguard have endorsed the virtual AGM as a potential necessity during this time, saying that they “welcome the use of virtual meetings or other options that ensure that shareholders’ voices are heard.”

In many ways, this is the perfect opportunity to take advantage of the expertise of a service provider like Smartkarma, to future-proof your key meetings.

Find more information here on how the Corporate Solutions team can help you hold your own virtual AGM. You can also sign up for a FREE Corporate Solutions account. Get in touch with the team directly at [email protected]

Sign Up Now

Choose your free plan. Upgrade any time.

Sign up for a free Preview Pass to read unlimited Executive Summaries and create custom platform and email reading lists.

Sign up for a free Starter Account to read unlimited Executive Summaries and begin connecting with investors and analysts.

BEGIN ONBOARDING PROCESS

Alternatively, sign up for a free Investor Preview Pass to see how institutional investors engage with the research produced by Insight Providers in the Smartkarma network.

Sign up for a free Press Pass to deep-dive into independent and differentiated analysis, discover new ideas, and stay in touch with analysts for original commentary.

Sign Up Now

Choose your free plan. Upgrade any time.

Sign up for a free Preview Pass to read unlimited Executive Summaries and create custom platform and email reading lists.

Sign up for a free Starter Account to read unlimited Executive Summaries and begin connecting with investors and analysts.

BEGIN ONBOARDING PROCESS

Alternatively, sign up for a free Investor Preview Pass to see how institutional investors engage with the research produced by Insight Providers in the Smartkarma network.

Sign up for a free Press Pass to deep-dive into independent and differentiated analysis, discover new ideas, and stay in touch with analysts for original commentary.

In-Depth Analysis: Google’s E-Conomy SEA Report Underestimates Southeast Asia’s Digital Potential

By | Smartkarma Originals

A Deep Dive into the e-Conomy SEA Report’s Assumptions

The e-Conomy SEA report is a widely cited annual study on the state of Southeast Asia’s internet economy. The resource, jointly produced by Google, Temasek, and Bain & Co, analyzes the growth of digital enablers such as internet penetration and smartphone penetration and its impact on the adoption of digital services.

Our report dives into the underlying assumptions used in the report and compares this against how other countries’ internet economies have developed to get a sense of how conservative or aggressive the forecasts are.

What’s Original in This Insight?

Despite the bullish outlook presented in the e-Conomy SEA report, we believe that Google and Temasek still underestimate the potential for Southeast Asia’s growth.

In particular, we find that if Southeast Asia even partially follows the trajectory of China’s mobile payments adoption several years ago, then the region’s digital economy can easily grow faster than currently expected. This is because e-wallets and mobile payments can serve as a gateway for consumers to more seamlessly enter into the digital economy and conveniently adopt different digital services such as e-commerce, online travel, and online media.

We argue that this scenario is more than likely given that:

  1. Big Tech in China is aggressively investing in the region. Companies like Alibaba and Tencent are leveraging their past successes scaling the adoption of digital services in China and applying their playbook to Southeast Asia. Chinese tech companies, having gained maturity and experience through years of growing in the space, can now apply their know-how to capitalize on untapped opportunities in Southeast Asia. We note that out of Southeast Asia’s 11 unicorns, 10 are backed by Chinese investors. These unicorns regularly receive guidance on how best to scale adoption and build ecosystems, and often send executives to their China investors’ headquarters to learn.
  2. Developing markets like Southeast Asia can more readily adopt digitalservices. Developing markets have an advantage over developed markets when it comes to digital adoption. This is because developing markets tend to have poorer infrastructure outside of capital cities creating gaps that digital services can then “plug in”. For example, e-commerce is more invaluable in tier 2 or 3 cities where brick & mortar outlets are relatively sparse given than it can take hours to reach the closest mall. 
  3. Southeast Asia benefits from favorable demographics and accelerating digital enablers. The region is still relatively young with median ages ranging from the late 20s to early 30s. This is supported by rapidly improving digital enablers such as access to the internet and increasing smartphone penetration.

Table of Contents

I. Southeast Asia’s Internet Benchmark: The e-Conomy SEA Report

II. Overly Conservative? The Report has Revised Forecasts Upwards Three Times Already

III. E-commerce, the Largest Driver for SE Asia’s Digital Economy, is Underestimated

IV. Southeast Asia E-commerce can Grow Much Faster Assuming it Even Partially Follows China’s Mobile Payments Trend

  1. Rising Internet and Smartphone Penetration
  2. Favorable & Younger Demographics

V. Developing Markets Have an Advantage Over Developed Markets When it Comes to Digital Adoption

VI. Chinese Investment is Influencing Southeast Asia’s Internet Economy to Evolve in Similar China-like Ways

  1. Grab and Gojek Adopt China’s Super-App Strategy
  2. Lazada and Shopee Take Notes from China E-commerce
  3. Alibaba and Tencent Fight Proxy Payment Wars in Southeast Asia
  4. Digital Banking Another Major Catalyst

VII. Conclusion: Southeast Asia’s Digital Economy Can Grow Much Faster than Expected

Appendix – Digitization Underway: Individual Country Snapshots

  1. Indonesia
  2. Singapore
  3. Philippines
  4. Thailand
  5. Vietnam
  6. Malaysia

Clearsight Systems • • (Opens in a new window) ⧉

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Tracking Traffic’s Travel Tracker Dashboard

By | Smartkarma Originals

We are launching a new monthly product designed to track regional tourism activity, with an emphasis on Chinese tourism. The objectives of this monthly product are three-fold: 

  1. To track the near-term recovery in regional tourism activity
  2. To track the medium-term trends in the Chinese tourism market
  3. To provide context by showing the scale cross-border regional tourism flows

The new product consists of weekly, monthly, and annual data we collect and display in eleven Google Data Studio reports; many of these reports are interactive. Each report is accompanied by brief commentary on the data, which we will update regularly.

We believe the report includes timely information that describes current conditions and even a look into the near future. It also provides needed context about which tourism markets are more or less likely to ‘move the needle’ for service providers like airlines and hotel chains. In short, we think this report can help investors identify signs of a recovery in tourism activity in China and the region, hopefully later in 2020. 

Based on data from the week ending April 24th, we highlight a few takeaways. It appears air travel to and from Chinese cities is recovering gradually, while departures at most of the regional airports we track remains weak. Hotel availability is mixed, but weighted average room rates for the cities we track remain under pressure. 

Tracking Traffic • Asian Equities Analyst, Logistics & Transport • (Opens in a new window) ⧉

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Bank Contingent Capital & Coronavirus Contagion

By | Smartkarma Originals

When you purchase bank contingent capital, you may marry it for the foreseeable future. Coronavirus contagion is challenging this contractual relationship.

With an on-going global economic and cash flow contraction, we undertake a deep dive within this Smartkarma Original report to understand which banks are better equipped to keep their vows regarding bond coupons and calls.

As such, we perform fundamental analysis, from an Additional Tier 1 (AT1) investor’s perspective, on 15 of the largest US, UK, and Asia-headquartered banks. We also assess this fundamental positioning relative to some of the largest banks in the European Union. We present our top picks and pans and provide single security recommendations based on relative value analysis wherein we consider the likelihood of continued coupon payments. The resulting handbook guides the investor through detailed analytical constructs to deliver actionable recommendations. 

The analysis is also driven by our view that a liquidity event is the Point of Non-Viability (PONV) for any financial institution. In the current operating environment of large forbearance activity, this coronavirus economy brings us closer to a liquidity event. We believe the market underappreciates this risk. As such, we go somewhat ‘mad scientist’ in considering the deposit franchise strength and cash flow composition of each banks’ liquidity towards assessing sensitivity to a payment flow contraction. This is original analysis.

With the recent passage of time and expectations of better days ahead, AT1 bond prices have recovered slightly. We are not convinced that this recovery is sustainable since much depends on the pathology of this disease. As such, we cannot rule out eventual vow renunciations via AT1 coupon suspensions, non-calls or a death do us part PONV event for certain institutions.

CreditContinuum • Financials Credit Analyst • (Opens in a new window) ⧉

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Smartkarma Presents INSIGHT 2020 - a New Type of Investment Conference, in Support of COVID-19 Relief Efforts

Smartkarma Presents INSIGHT 2020 – a New Type of Investment Conference, in Support of COVID-19 Relief Efforts

By | Press Release

INSIGHT 2020 will be a digital-first, Asia-focused investment conference, uniquely backed by four regional exchanges (SGX, JPX, SET, NZX) and key sponsors including global investment banks, VCs, and investment professionals. All proceeds will be donated to UNICEF’s COVID-19 relief efforts in East Asia and the Pacific – buy your ticket or donate to help us contribute towards this cause.

SINGAPORE, 30 APRIL 2020: COVID-19 has changed how we interact, do business, and share knowledge. Reiterating our conviction in the power and value of our online network, INSIGHT 2020 is Smartkarma’s response to this new challenge. INSIGHT 2020 is an all-digital event, available to everyone and streaming worldwide, enabling participants to create meaningful relationships and collaboration, and contribute in these trying times.

The investment industry is often portrayed as profit-driven, greedy, and self-serving – we want to challenge this picture as well, and use the opportunity to give back. That’s why proceeds from INSIGHT 2020 will be donated to UNICEF, to go towards their COVID-19 relief efforts in the East Asia and Pacific regions. This means that everyone can help this cause by either buying a ticket for INSIGHT 2020 or making a donation of their choice to UNICEF through our website.

In this endeavour, we are proud and privileged to have with us valuable partners and sponsors including regional exchanges (SGX, JPX, SET, NZX), global investment banks (Société Générale), leading VCs (Sequoia, Wavemaker, Jungle Ventures), tech disruptors (AWS, iSTOX), and top investment managers, advisors, and intelligence providers (Oasis, Dechert, Acuris). We are extremely grateful for their support and we look forward to welcoming more partners in this trailblazing effort.

Investment conferences traditionally tend to be one-note and overpriced, and place ego above value. INSIGHT 2020 distills the investment conference down to what really matters. It’s a multi-day digital event that puts profit to purpose and brings together investors, analysts, business heads, regional exchanges, industry thought leaders, and firms including McKinsey, DBS, Google, Ping An, China Renaissance, and more.

This unique 360-degree perspective means that attendees have the chance to hear from key incumbents, dominant disruptors, industry experts, financial intermediaries, and policymakers, all in one event. We put your interests front and centre, tackle the topics and questions that you care about, and bring some much-needed clarity in this time of insecurity and disarray.  

To further demonstrate our conviction in what can be achieved through our online network, we can help you launch your own all-digital, INSIGHT-style event. Investors can get in touch with us and find out how they can organise their own private INSIGHT, and benefit from the reinvented vision of investment conferences that Smartkarma is putting forward.

Our key thesis, the democratisation of connectivity and access, has never been more important: with markets in turmoil, businesses facing uncertainty, and general upheaval, we must ensure that the lines of communication don’t break down; that information and intelligence remain accessible; that connections and relationships can still be forged.

This is the time to be connected. This is the time for clear, independent insight. This is our Smartkarma.

— ENDS —

 

Media contact:

Smartkarma

Michael Tegos

Tel: +65 6715 1480

Email: [email protected], [email protected]

About Smartkarma

Smartkarma is an online investment research network that brings together independent Insight Providers, institutional investors, and corporate investor relations professionals and management. Smartkarma reinvents Equity and Credit Research by providing differentiated, independent analysis on companies, markets, and industries across the world. This includes areas under-reported by mainstream market coverage, including Event-Driven, IPOs & placements, and small/mid-cap equities. Smartkarma’s online platform enables corporate and buy-side clients to streamline their communication and data reporting, and allows them to set their own real-time alerts, customise their reading lists, directly contact Insight Providers, and remain MiFID II-compliant as unbundling regulations change the investment research industry. For more information, visit www.smartkarma.com.

China Infrastructure Deep Dive: Gas Utilities H & A Shares

By | Smartkarma Originals

China’s Gas Utilities sector will continue to present a high growth story for investors, despite their significant outperformance over the last few years, in our view. The government may accelerate the push for natural gas development in its next five-year plan as an added driver for economic growth, complementing the persistent quest for environmental improvement. Meanwhile, there are challenges from margin squeeze and rise in competition, particularly induced by the change in operating landscape following the formation of China Oil & Gas Pipeline Network Corporation (PipeChina).

The sector is highly fragmented and we analyse the individual companies by looking at the opportunities, risks, Environmental, Social and Governance (ESG), financial strength, profitability and valuation to find the winners of the game. We conclude our analysis with a ranking of our preference on the stocks in the following order: ENN Energy (2688 HK), China Resources Gas (1193 HK), China Gas Holdings (384 HK), Kunlun Energy (135 HK), Shenzhen Gas Corp Ltd A (601139 CH) and Bestsun Energy Co (600681 CH)

What’s Original?

This Smartkarma Original takes a deep look into the key revenue and margin drivers of the Chinese gas utilities companies and compares their respective strengths and weaknesses, in addition to the discussion of the key drivers and challenges of the sector’s outlook. We also analyse the impact of PipeChina on the sector and how individual companies will be affected. 

We attempt to assess the ESG performance of the gas utilities companies, given its rising importance in today’s investment decisions, and see how they are doing. Besides the Hong Kong-listed gas companies, we investigate the fundamentals and investment thesis of two A-shares, namely, Shenzhen Gas Corp Ltd A (601139 CH) and Bestsun Energy Co (600681 CH). We will also briefly discuss ENN Ecological Holdings (600803 CH), an A-share listed in Shanghai currently under a proposed transaction to acquire a controlling 32.83% stake in ENN Energy (2688 HK)

• China Analyst – Onshore Credit, Equity Long-Short • (Opens in a new window) ⧉

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



In-Depth Analysis: Digital Banking Strategies Across Asia

By | Smartkarma Originals

Overview of Digital Banking in Asia

Digital banking is at a tipping point in Asia as many countries are issuing or will in the future issue virtual banking licenses to promote innovation in the financial sector. Many incumbent traditional banks are also making significant strides to try and prevent being disrupted by technology.

In developed markets with established banking services, digital banks can offer hyper-personalized value propositions such as instant-approved loans and lifestyle products through intensive data collection and analysis of purchasing behaviors. Meanwhile, in developing markets, digital banks have the opportunity to introduce the unbanked to formal financial services as the dual catalysts of smartphone and internet penetration rise over time. In both markets, digital banking can not only deliver better products to customers but is also dramatically more efficient in terms of operational costs. 

What’s Original in this Insight?

In this report, we highlight major digital banking players across both developed and developing markets in  Asia and identify their strategies. Four of the major digital banking strategies across Asia are 1) banking the unbanked, 2) shifting traditional banking to digital, 3) banking-as-a-service, and 4) super-app strategies.

Beyond analyzing upcoming digital banking tech companies, we also look at the strategies of some incumbent banks adapting to the coming changes. Broadly speaking, we see more opportunities for partnerships and collaboration than outright competition. While traditional banks lack technology as a core competency, innovative tech players equally need the domain expertise, regulatory cover, and well-established customer footprints of traditional financial institutions.

We’ve included our table of contents below to guide you through this report.

Table of Contents

The Current Landscape of Digital Banking in Asia

  1. Digital banking in Asian developed markets
  2. Digital banking in Asian developing markets
  3. Incumbent banks digitization strategy
  4. Tech entering banking

Digital Banking Overview

  1. What is digital banking
  2. Benefits of digital banking
  3. Catalysts driving adoption

Individual Country Snapshots

  1. Singapore
  2. Hong Kong
  3. Taiwan
  4. South Korea
  5. Japan
  6. China
  7. India
  8. Vietnam
  9. Thailand
  10. Philippines
  11. Indonesia

Conclusion: Winners and Losers

Clearsight Systems • • (Opens in a new window) ⧉

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



China Auto Parts A Shares: Parts Of The Future

By | Smartkarma Originals

China has been the fastest growing auto market in the world. Over the last 2-3 years China’s auto component industry is going through a tumultuous period – not only due to the volatility in demand (due to the auto downturn last year and corona-related lockdowns this year), but also due to two mega-trends that are providing risks and opportunities to the industry – NEVs and autonomous driving. In addition, there are 3 other less-discussed drivers of change in the industry   (emerging localization requirements, junior JV partners becoming leaders in their own right, international expansion). We look at the key A-share (MSCI A-share) listed players in the industry through the lens of these five trends/drivers of change. 

We prefer Passenger vehicle(PV) part suppliers over commercial vehicle (CV)part suppliers.  Among PV parts suppliers, our top buy is Changzhou Xingyu (601799.CH), followed by Ningbo Joyson Electronic(600699.CH),Fuyao Glass (600660.CH/3606.HK) and Huayu Auto (600741.CH). Our main underweight Wanfeng Auto Wheel (002085.CH). In Commercial vehicle (CV) part segment, we prefer Wanxiang Qianchao (000559.CH) and Linglong Tyre (601966.CH). We suggest investors to avoid  Weifu High-Tech (000581.CH).

What’s Original?

The recent tumult in the auto sector creates significant opportunities and risks for the companies involved – however companies/equities that are driving these trends are largely listed in the A-share market.  Lack of market communication, limited financial and operational disclosure and low breadth of analyst coverage in these markets has meant that there are quite a few underappreciated companies in these markets which have been overlooked by international investors.

While companies like Ningbo Joyson and Fuyao Glass enjoy some international investor recognition, we believe under-appreciated stocks like Wanxiang Qianchao and Linglong tyres are not well-covered by the market and this report provides a rationale for investors to look further into those names. We also highlight the risks to (relatively) popular names like Weifu Hi-tech (due to structural issues in the industry) and Wanfeng Auto wheel (due to management pursuing non-core acquisitions).

Note that in this report, we do not include the possible impact from Coronavirus on the industry and companies. This is because 1) it’s difficult to quantify the impact at current moment; 2) even if coronavirus impact might last for months, it’s still a relative short period compared to the 5-year time horizon we focus on. In addition, once coronavirus is gone, market demand on autos and auto parts would rebound quickly. 

• China specialist, Auto and Industrial specialist • (Opens in a new window) ⧉

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



The Month the World Stood Still – A Novice Small Business Guide to Shutdown and Avoiding a Long Recession

The Month the World Stood Still – A Novice Small Business Guide to Avoiding a Long Recession

By | General

As COVID-19 spreads around the globe, several governments find themselves at a crossroads, having to weigh between public health and the economic costs of a total shutdown. In this guest post, Smartkarma Insight Provider Sumeet Singh shares his own suggestion of a shutdown that could reduce infection risk for people without crippling the global economy – in other words, some financial pain now to avoid financial agony later.


 

With COVID-19 and stimulus packages being in the news day in and day out, here are my two cents on what policy makers need to do to get over this relatively quickly and with as little pain to the common man as possible.

Whether it’s possible to do so or not is a different story.

Why It’s Not Like 08/09

Having been in Lehman Brothers in September 2008, in the London office’s Equity team, the only main location not totally taken over by some other bank (Barclays took over New York while Nomura took most of APAC), I got to see 08/09 first-hand, including six months of doing nothing in London, i.e. being unemployed!

I’m not going to rant about 08/09 as most of us who are old enough know that it was essentially a crisis cooked by wannabe finance wizards and it didn’t impact the common man outside of the US to such a large extent, apart from the overall slowdown from the drop in US consumption.

COVID-19 is the reverse, where finance is but a bystander and the common man bears the brunt of the pain. However, the common man’s pain has the scope of quickly becoming finance wizards’ pain, not because of the crashing market but more because of the much higher leverage around the world.

COVID-19 Shutdown and Impact

So far we have seen every country fend for itself, with all countries announcing their own lockdowns. This might work to limit the spread of the disease but it won’t work to get the economy up and running again if your neighbour and other trade partners are still in their own trade lockdowns.

The main businesses, apart from tourism and travel, that feel the brunt of a lockdown are the small businesses since they still need to pay salaries, rent, and interest costs, along with other expenses. While bigger businesses have various means of funding, smaller ones are limited to being self-funded or by friends and family or by the neighbourhood bank.

In other words, for most small businesses, funding options are limited. Quite a few can ride out one or two months. However, the longer the shutdown runs, the slower the demand for most goods and services (apart from essentials), and the sooner the businesses will start to cut costs, starting from the most easily expendable: employees. This goes on to create a vicious cycle which someone needs to step in to break.

If governments around the world keep taking a piecemeal, fend-for-yourself approach with non-overlapping shutdowns, then the virus, which has gone from an animal market in Wuhan to the upper echelons of power around the world in less than two months, will not stop.

What is needed is a coordinated global shutdown for at least 30 days. Why 30 and not 14? Because if the incubation period of the virus is 14 days for one individual, even a shutdown that keeps families locked up for 14 days might not work if the virus jumps from member A of the family to member B, say, on day 5 of the lockdown and neither shows any symptoms. Then, on day 14, member B will still be shedding the virus, without symptoms, and we will be back to square one!

So I’m using 30 days as a benchmark but it should probably be more like 45 to 60 days.

So How Will It Work?

If the revenue for all businesses goes to zero, so must the costs. How can this be done?

For the entire duration of the shutdown there will be no salary, no rents, no interest, no capital repayments. The banks won’t earn any interest and they won’t pay any interest either. The bonds won’t earn any interest and they won’t pay any interest either. The landlords won’t earn rent, but they won’t pay any interest and won’t pay for electricity or any other associated costs.

So no school fees, no Bloomberg payments (this can go on even after the shutdown, they make too much money!), no mortgage payments for the entire duration of the shutdown. Theoretically, the world’s GDP goes to zero for the period of the shutdown!

But what about lost income? Well if you aren’t doing much apart from sitting at home, the only income anyone needs is for groceries. Governments need to provide this for free, along with electricity, water, medicine, and the internet (beaming workout and cooking videos). The trick is to make sure they work out how to distribute essentials. Grocery stores, pharmacies, and any other services deemed to be essential are allowed to remain open.

The army and the police need to still be deployed to make sure people abide by the shutdown. All governments declare an emergency giving the police and army the right to arrest anyone who violates the law, i.e. the shutdown.

At times of war most countries ask their citizens to volunteer – the same can be done now. Quite a few people will gladly help rather than sit on their asses for a month. I know I would. Volunteers will be used to make deliveries of groceries to each household on a weekly basis. These volunteers will not be allowed to stay at their homes, just like most front-line medical staff aren’t doing so right now. These volunteers will go into self-isolation when the rest of the population comes out of it.

It sounds like an episode out of Black Mirror. However, with a vaccine more than a year away at the minimum, and the hopes of summer killing the virus fast eroding (look at the number of cases being reported in tropical countries), just one country going into shutdown won’t work until all the countries have been in one (and freed themselves of the virus). Borders won’t open, supply chains won’t work, and trade and commerce won’t get back to normal. Even if a country saves itself, it won’t save a lot of jobs if it has to keep shutting down due to imported cases.

As I am writing this Insight, I have been told by my wife that Bill Ackman has tweeted a similar idea but just for the US. He is wrong because just one country doing it won’t work. As long as the virus is raging in some corner of the world, there will still be a risk of it coming back, as is starting to happen in China and here in Singapore. Both countries now have more imported cases each day, with most of them imported.

As someone on Twitter put it aptly, our grandparents were called upon to fight the war, the least we can do is to sit at home for a month!

If the piecemeal approach keeps going on, the eventual cost in terms of human lives and employment will be a lot higher than foregone GDP for a month or two!

Read Sumeet Singh’s follow-up Insights on this topic:

Lead image by Anna Shvets on Pexel

Sign Up Now

Choose your free plan. Upgrade any time.

Sign up for a free Preview Pass to read unlimited Executive Summaries and create custom platform and email reading lists.

Sign up for a free Starter Account to read unlimited Executive Summaries and begin connecting with investors and analysts.

BEGIN ONBOARDING PROCESS

Alternatively, sign up for a free Investor Preview Pass to see how institutional investors engage with the research produced by Insight Providers in the Smartkarma network.

Sign up for a free Press Pass to deep-dive into independent and differentiated analysis, discover new ideas, and stay in touch with analysts for original commentary.

Sign Up Now

Choose your free plan. Upgrade any time.

Sign up for a free Preview Pass to read unlimited Executive Summaries and create custom platform and email reading lists.

Sign up for a free Starter Account to read unlimited Executive Summaries and begin connecting with investors and analysts.

BEGIN ONBOARDING PROCESS

Alternatively, sign up for a free Investor Preview Pass to see how institutional investors engage with the research produced by Insight Providers in the Smartkarma network.

Sign up for a free Press Pass to deep-dive into independent and differentiated analysis, discover new ideas, and stay in touch with analysts for original commentary.