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Smartkarma Daily Briefs

Brief China: Hutchison-China Meditech (和黄医药) H-Share Listing: MNC Partnerships Endorsed Its R&D Capabilities and more

By | China, Daily Briefs

In this briefing:

  1. Hutchison-China Meditech (和黄医药) H-Share Listing: MNC Partnerships Endorsed Its R&D Capabilities
  2. Duiba (兑吧) IPO Review – Interactive Ad Leader
  3. China Tower: Onwards and Upwards (For Now).

1. Hutchison-China Meditech (和黄医药) H-Share Listing: MNC Partnerships Endorsed Its R&D Capabilities

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Hutchison-China Meditech, China-based AIM and NASDAQ dual listed pharmaceutical company, is seeking to raise up to USD 500 million via a Hong Kong listing. In this insight, we will discuss the following topics:

  • Company background
  • Progress of clinical trials of its three key drug candidates
  • Key licensing agreements
  • Key takeaways from its financials
  • Shareholders of the company

2. Duiba (兑吧) IPO Review – Interactive Ad Leader

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Duiba Group (1753 HK) is looking to raise up to US$115m in its upcoming IPO. We have covered the fundamentals of the company in Duiba (兑吧) Pre-IPO Review – A Case of Successful Pivot – Gamification of Ads

In this insight, we will look at the company’s valuation and how it compares to recently-listed advertising peers and the deal dynamics, and run the deal through our IPO framework.

3. China Tower: Onwards and Upwards (For Now).

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China Tower (788 HK) recently reported strong 1Q19 results, boosted by the adoption of IFRS16 (big positive impact to EBITDA). Revenue growth has accelerated as the company laps price cuts in 1Q18.  With the higher EBITDA, we look for China Tower’s strong rally to continue as measured EV:EBITDA is lower and the company looks very cheap vs global peers. We remain buyers of the stock with a target price of HK$2.30, but recognize conditions may be ripe for prices to move even higher as the stock re-rates. It is a long way from their post IPO experience, when poor IPO disclosures pushed the stock to HK$1.00.

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Brief China: Nexon: Continuing Question Marks and more

By | China, Daily Briefs

In this briefing:

  1. Nexon: Continuing Question Marks
  2. The Global Recovery Narrative Crumbles
  3. Bitcoin, Revisited
  4. Ctrip (CTRP): Highest Q1 Operating Margin Since 2014, Upgrade to HOLD
  5. Nexon Sale: Market Talkings Update, Incl. Bid Schedule Extension

1. Nexon: Continuing Question Marks

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The Nexon Co Ltd (3659 JP) control-change saga plods on. 

I continue to read all the news that’s fit to print in English, Japanese, and Korean if I can find some web service to translate the hangul. 

My continuing worry about the significant number of articles which get published is that the ‘updates’ provided are much more soap opera-esque than really significant news developments or even insightful commentary which could inform market observers and participants about the considerations which would influence a certain kind of pricing, or bidder strength, outcome, or even a decision by Mr Kim Jung-Ju to walk away from the current process and re-start it at some point in the future.

For this, I have a lower expectation of “certainty” on this situation than I expected I would have by now, and because of the passage of time, the NPV of the trade is slightly lower with a higher volatility of jump risk on eventual outcome than I expected it would have (I expected the components of the NPV to change – certainty would raise NPV while time-decay before announcement would drag on deal NPV, but the lack of certainty has added drag).

More comments about news evolution, content, and trading strategy are below.

2. The Global Recovery Narrative Crumbles

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The US equity market was running with an optimistic assessment that there is a Trump and Fed put, that a trade deal and Chinese policy stimulus would generate a recovery in the global economy and the US economy was largely immune to a slowdown in activity abroad. However, the tariffs have been increased, trade talks have stalled, and the US has rolled out bans on Chinese tech companies.  The evidence grows that there is a structural rift in US-China trade relations. The rebound in Chinese economic activity in March was not backed up by data in other Asian exporter nations or Europe through April.  Chinese activity data slumped again in April, and the latest PMI data in the Eurozone, Japan and the USA for May are weak. Oil and copper prices have turned lower, suggesting that industrial activity remains weak.  We continue to see downside risk for still elevated US equities.  The strength in the USD to date is contributing to downward pressure on US equities.  The gains in the USD may have become over-extended.  China may pursue a more stable CNY for a period and lower US yields should support safe haven currencies, JPY, CHF and gold.

3. Bitcoin, Revisited

Screenshot%202019 05 23%20at%2020.26.51

Bitcoin and the block chain were created just over ten years ago, as a means to create peer to peer transactions without the need to use financial institutions to process the payments. 

However, frequent hacks of Bitcoin exchanges, in addition to the significant past fluctuations of Bitcoin prices, have put mainstream usage off and slowed the adoption of the cryptocurrency.

Is this about to change now?

4. Ctrip (CTRP): Highest Q1 Operating Margin Since 2014, Upgrade to HOLD

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  • CTRP reached its highest Q1 operating margin in the past 6 years.
  • We believe the growth rate ceiling of “transportation ticketing” is the growth of “accommodation reservation”, i.e. 21% YOY.
  • The travelers increased 13.7% in China during in the Labor Day holidays in May 2019 versus May 2018.
  • Unsustainable “other income” of RMB4.6 billion in 1Q19 came from “fair value changes in equity securities investments”.
  • We believe CTRP is fairly valued, based on P/E comparison with Chinese Internet leaders and international online travel agencies. Upgrade to Hold.

5. Nexon Sale: Market Talkings Update, Incl. Bid Schedule Extension

This is the latest update on Nexon. We had two Nexon related news reports, put out by Seoul Economic Daily and Invest Chosun, in the past two days, especially in relation to the bid schedule. We also had some market speculations. This post is my summary of these report and market speculations.

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Brief Singapore: Market Response to S9bn Gaming Expansion Perplexes More than It Reveals and more

By | Daily Briefs, Singapore

In this briefing:

  1. Market Response to S9bn Gaming Expansion Perplexes More than It Reveals
  2. Singapore MAS – To Stay On Hold In 2019
  3. Suntec REIT Placement – Might Be Worth a Look at the Low-End

1. Market Response to S9bn Gaming Expansion Perplexes More than It Reveals

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  • Las Vegas Sands and Genting Singapore have both made good bets triggering different market responses.
  • Concerns about Genting shouldn’t be centered in Asia but questions persist about their growing global footprint.
  • Las Vegas Sands fundamental support our PT of US$70 and a runway to US$100 by 2Q20

2. Singapore MAS – To Stay On Hold In 2019

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We are underweight Singaporean equities. We would expect the MAS to maintain its current exchange rate policy stance through 2019 and would not be surprised to see a further loosening of property market austerity measures.

3. Suntec REIT Placement – Might Be Worth a Look at the Low-End

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Suntec REIT (SUN SP) plans to raise US$113m via an issuance of new shares. Proceeds will be used to finance potential acquisitions in Australia and for general corporate purposes. 

The compay also reported its 1Q19 results today which seem to be broadly inline with analysts’ estimates. Although, the outlook doesn’t appear inspiring with analysts projecting flat DPU for the next few years. Nonetheless, most of the past deals in the stock have done well and the stock should be aided by the upcoming distribution. 

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.



Brief USA: IKEA in India: Decoding the Case of the Curious Shopper & Slow Offtake for High-Value Items and more

By | Daily Briefs, United States

In this briefing:

  1. IKEA in India: Decoding the Case of the Curious Shopper & Slow Offtake for High-Value Items
  2. Special Briefing: Implications of US Ending Iran Oil Sanction Waivers
  3. SpinTalk:Spirit Realty Capital (SRC US)- A Rising Spirit

1. IKEA in India: Decoding the Case of the Curious Shopper & Slow Offtake for High-Value Items

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In a recently published interview, IKEA’s chief executive confirmed that offtake in furniture has been slow at its only store in India at Hyderabad and sales are mostly limited to low-value items and mattresses. Overwhelming crowds had thronged the store for weeks post its opening in August 2018 ( Consumption Diary: As IKEA Storms India, GSK Wants a Way Out; Actionable Insights from Smartkarma ), suggestive of India’s large pent up demand for quality affordable home products. However, during our ground check in the year-end holiday season, we were surprised to note that while visitors came in large numbers, shoppers were sparse in furniture segment and billing counter was nearly empty. Apart from the kitchen supplies area and a good turnout at the food section, shopping seemed lacklustre. Why isn’t IKEA’s attractive price-product proposition able to convert curious walk-in visitors to loyal customers?

In the detailed note below, we look into possible reasons why IKEA’s furniture sales arent commensurate with high footfalls, based on the store visit and our analysis of Indian shopper’s preferences/constraints with respect to home products purchase. We believe many shoppers are constrained by access to purchase than affordability, given lack of credit options. We also compare IKEA with existing large home products retailers in India and look at the scope of IKEA’s opportunity/challenges as it expands presence across geographies and formats in India.

2. Special Briefing: Implications of US Ending Iran Oil Sanction Waivers

President Donald Trump caught the oil market by surprise on Monday by declaring that the US will end all Iran sanction waivers after May 2.

The waivers, issued to eight countries for an initial period of 180 days when Washington imposed sanctions against Iran’s oil and shipping sectors starting November 5 last year, were widely expected to be renewed.

Benchmark Brent and WTI crude prices, which have been hitting successive new five-month highs since the start of April on deliberate as well as unavoidable tightening of supply from the OPEC/non-OPEC combine, closed at six-month peaks of $74.04/barrel and $65.70/barrel respectively on Monday.

In the two-page briefing note enclosed, we examine the immediate and short-term implications of the latest development around these 5 key questions:

  • How much higher can oil prices go?
  • Are Iranian oil exports set to drop to zero?
  • Could OPEC make up for the lost barrels?
  • Will Iran blockade the Strait of Hormuz?
  • What is the endgame?

3. SpinTalk:Spirit Realty Capital (SRC US)- A Rising Spirit

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On May 31, 2018,  Spirit Realty Capital (SRC US), a triple net lease REIT that is primarily focused on single tenant retail real estate in the US, completed the spin-off of its lower quality and debt encumbered assets into a vehicle named Spirit MTA REIT (SMTA US). But, as we approach the first anniversary of the spin-off event, we believe it is worthwhile revisiting the situation since we continue to identify Spirit Realty as an attractive misvaluation opportunity, particularly as it has entered the last phase of its transition into a more typical triple net lease REIT which we believe should catalyze a value re-rating in the coming quarters.

Our valuation thesis points to a shareholder return well in excess of 20% (including the dividend) that should be achievable within a year if the aforementioned last phase of its transition progresses as expected. 

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Brief China: Meten International Edu (美联国际教育) Early Thoughts – Unclear Strategies and more

By | China, Daily Briefs

In this briefing:

  1. Meten International Edu (美联国际教育) Early Thoughts – Unclear Strategies
  2. China Housing: Highlights From the ‘Baywatch’ Report On The Greater Bay Area (GBA)
  3. GEM Positioning Monthly:  Indonesian Financials, Food & Beverages, Lenovo Sentiment Reversal
  4. China Meidong Auto (1268): Low Inventory to Carry On?
  5. Trump Trade Means Lynas Capex Easier

1. Meten International Edu (美联国际教育) Early Thoughts – Unclear Strategies

Revenue broken down into segments adult eng overseas training online eng junior eng other eng related chartbuilder

Meten (MEDU US) recently filed for a US listing and is looking to raise US$100m.

Meten is a general English language training (ELT) service provider in China. It has grown its revenue at a decent 25.7% CAGR between FY2016 to FY2018 while margins made modest improvements.

However, its 1Q 2019 results signals near-term weakness across its major segments as the company seemed to be making strategic changes to its operations. The F-1 filing indicated that existing shareholders will sell in the IPO, suggesting their intention to exit or, at least, partially monetize their stake which could potentially affect sentiment going into the IPO.

2. China Housing: Highlights From the ‘Baywatch’ Report On The Greater Bay Area (GBA)

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Following on from our original note on the Guangdong – Hong Kong – Macau Greater Bay Area (GBA) from the day of the blueprint announcement on February 18, we are presenting the highlights from our inaugural ‘Baywatch’ report focused on the housing markets on the mainland of the GBA. For the essentials on the GBA, see Bondcritic’s China’s Greater Bay Area: The Essential

3. GEM Positioning Monthly:  Indonesian Financials, Food & Beverages, Lenovo Sentiment Reversal

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Copley Fund Research analyse the holdings of long-only equity funds.  This analysis is taken from our GEM research product, covering 189 global emerging market funds with a combined AUM of $350bn. 

In this month’s Positioning Monthly, we highlight an increasing exposure towards Indonesian Financial stocks, with Bank Rakyat Indonesia Perser (BBRI IJ) and Bank Central Asia (BBCA IJ) the key overweight positions.  We analyse holdings in the food and beverages industry groups as ownership reaches peak levels in both.  Finally, we explore the sharp reversal in Lenovo (992 HK) sentiment as more and more GEM funds buy into the stock.

4. China Meidong Auto (1268): Low Inventory to Carry On?

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Luxurious auto car distribution in China sounds like a great business to have, supported by the rising number of wealthy individuals springing up in various parts of the Middle Kingdom. However, the sector seems to be very fragmented where no single companies is able to have significant market share as none of them has exclusive distribution rights over a particular foreign brand including China Meidong Auto (1268 HK)

The recent share price surge powered by growth expansion from the single city single store initiative (in third and fourth tier cities) may not last long as there is nothing stopping any competitor to expand to these markets when demand still outstrip supply therefore margin is better compared to the first tier cities. However, it also brings the question whether the fresh demand from the new wealth in the third and fourth tier cities have enough depth to sustain China Meidong Auto’s sales growth.

5. Trump Trade Means Lynas Capex Easier

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The last two days have been pretty spectacular for the shares of Lynas Corp Ltd (LYC AU). While it is not clear what has changed OTHER than a heightening of tensions in the trade war, several factors may be to ‘blame.’

With the blocking of all US hardware and software sales to Huawei after a White House Executive Order on Information Security late last week (temporarily mitigated two days ago by a 90-day temporary general license aimed at easing the transition), the question on everyone’s lips was how China would respond. The first response was that China would cease doing business with anyone who ceased doing business with Huawei. That seemed a countermeasure designed to be reciprocal. 

While Huawei founder Ren Zhengei has made several public statements in Chinese social and state media (many of which appear to be abbreviated for maximum effect – read the details folks!) in recent days, the perception is that Chinese leaders have been quiet. One exception to that was a visit by China President Xi Jinping to rare earth company JL Mag Rare-Earth Co Ltd (300748 CH), in Jiangxi province on Monday. That led to rampant speculation on the share prices of Chinese rare earth companies, and the idea that it was symbolic of what China might do to the US (block rare earth exports). 

Monday the 20th May saw a pre-market release of a notification of an MOU of a JV between Lynas and US company Blue Line to create a rare earths separation facility in the US. The JV would be majority-owned by Lynas, and would initially concentrate on heavy rare earth (Dysprosium and Terbium) separation but could also include light rare earth (Neodymium, Praseodymium, Lanthanum) separation facilities at a facility on a site currently owned by Blue Line. This strikes me as an obvious thing for which a miner would issue a press release. The two companies already work together, and it promises nothing. It is, however, a project to work on working on a project, and is more designed to elicit interest from other parties to fund it.

The 21st May saw Investor Day in Sydney and the stock popped 14.4%, following that by a 7+% move on the 22nd (yesterday) temporarily clearing the highest 3mo moving average seen in the last five years.

data source: tradingview.com

The question is what has changed and was that change worth a 20+% move in two days?

Get Straight to the Source on Smartkarma

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Brief USA: Meten International Edu (美联国际教育) Early Thoughts – Unclear Strategies and more

By | Daily Briefs, United States

In this briefing:

  1. Meten International Edu (美联国际教育) Early Thoughts – Unclear Strategies
  2. Mallinckrodt – The Volatility Continues?
  3. Gap Inc: Unlocking Value Through Old Navy Spin-Off and Restructuring of Speciality Stores
  4. The Global Recovery Narrative Crumbles
  5. Bitcoin, Revisited

1. Meten International Edu (美联国际教育) Early Thoughts – Unclear Strategies

Revenue broken down into segments adult eng overseas training online eng junior eng other eng related chartbuilder

Meten (MEDU US) recently filed for a US listing and is looking to raise US$100m.

Meten is a general English language training (ELT) service provider in China. It has grown its revenue at a decent 25.7% CAGR between FY2016 to FY2018 while margins made modest improvements.

However, its 1Q 2019 results signals near-term weakness across its major segments as the company seemed to be making strategic changes to its operations. The F-1 filing indicated that existing shareholders will sell in the IPO, suggesting their intention to exit or, at least, partially monetize their stake which could potentially affect sentiment going into the IPO.

2. Mallinckrodt – The Volatility Continues?

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Although Mallinckrodt’s bonds are trading at a significant discount to par, we recommend investors remain side-lined given our assessment of the probability of further price volatility.

 Although we acknowledge the equity cushion given a conservative EV/EBITDA valuation of ~6x vs. total debt/EBITDA of ~ 5x, we expect continued price volatility.

Accordingly, we believe a more attractive entry point will present itself over the coming months at a lower price level. Despite this, we think that the business, or its individual segments, will remain a going concern with an eventual spin-off into separate entities as per management’s plan.

However, the issue is timing and we expect further volatility due to legal/regulatory risk which is difficult to quantify

3. Gap Inc: Unlocking Value Through Old Navy Spin-Off and Restructuring of Speciality Stores

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Earlier this year Gap Inc/The (GPS US) announced its plan to spin-off its underperforming brands. Under which the company intends to separate into two new companies. The original company, Gap Inc will keep ownership of their lower priced fast fashion brand Old Navy while the new company will focus on revitalizing the company’s mainstay brand Gap and other major brands such as Banana Republic, Athleta, Intermix and Hill City. However, the transaction is still pending final approvals by Gap Inc’s board of directors and SEC. But the company intends to complete the transaction by 2020.

Gap Inc’s share price rose more than 15% immediately after the news, but since then the price has fallen more than 24% despite a positive return from S&P 500 during that time.

Source: Cap IQ
Source: Cap IQ

4. The Global Recovery Narrative Crumbles

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The US equity market was running with an optimistic assessment that there is a Trump and Fed put, that a trade deal and Chinese policy stimulus would generate a recovery in the global economy and the US economy was largely immune to a slowdown in activity abroad. However, the tariffs have been increased, trade talks have stalled, and the US has rolled out bans on Chinese tech companies.  The evidence grows that there is a structural rift in US-China trade relations. The rebound in Chinese economic activity in March was not backed up by data in other Asian exporter nations or Europe through April.  Chinese activity data slumped again in April, and the latest PMI data in the Eurozone, Japan and the USA for May are weak. Oil and copper prices have turned lower, suggesting that industrial activity remains weak.  We continue to see downside risk for still elevated US equities.  The strength in the USD to date is contributing to downward pressure on US equities.  The gains in the USD may have become over-extended.  China may pursue a more stable CNY for a period and lower US yields should support safe haven currencies, JPY, CHF and gold.

5. Bitcoin, Revisited

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Bitcoin and the block chain were created just over ten years ago, as a means to create peer to peer transactions without the need to use financial institutions to process the payments. 

However, frequent hacks of Bitcoin exchanges, in addition to the significant past fluctuations of Bitcoin prices, have put mainstream usage off and slowed the adoption of the cryptocurrency.

Is this about to change now?

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.



Brief Multi-Strategy: Suntec REIT Placement – Might Be Worth a Look at the Low-End and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. Suntec REIT Placement – Might Be Worth a Look at the Low-End

1. Suntec REIT Placement – Might Be Worth a Look at the Low-End

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Suntec REIT (SUN SP) plans to raise US$113m via an issuance of new shares. Proceeds will be used to finance potential acquisitions in Australia and for general corporate purposes. 

The compay also reported its 1Q19 results today which seem to be broadly inline with analysts’ estimates. Although, the outlook doesn’t appear inspiring with analysts projecting flat DPU for the next few years. Nonetheless, most of the past deals in the stock have done well and the stock should be aided by the upcoming distribution. 

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.



Brief Multi-Strategy: UK: Consumers Keep Outspending Peers and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. UK: Consumers Keep Outspending Peers
  2. China Housing: Highlights From the ‘Baywatch’ Report On The Greater Bay Area (GBA)
  3. All’s Well That Ends Riotously / Paid Hoods Discredit Prabowo / Risks Subside / 11% Official Margin
  4. The Global Recovery Narrative Crumbles
  5. Bitcoin, Revisited

1. UK: Consumers Keep Outspending Peers

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  • UK retail sales remained elevated in Apr-19 after surging in recent months. Annual growth was several tenths above expectations again. Payback towards the brisk underlying trend is still likely, though, not least because real wages have stalled.
  • British consumers have matched their bullish expenditures abroad while visitors to the UK have maintained sterling spending levels, despite devaluation. Brexit uncertainty has not stopped UK households from outspending their global peers.

2. China Housing: Highlights From the ‘Baywatch’ Report On The Greater Bay Area (GBA)

Screen%20shot%202019 05 23%20at%2019.16.31

Following on from our original note on the Guangdong – Hong Kong – Macau Greater Bay Area (GBA) from the day of the blueprint announcement on February 18, we are presenting the highlights from our inaugural ‘Baywatch’ report focused on the housing markets on the mainland of the GBA. For the essentials on the GBA, see Bondcritic’s China’s Greater Bay Area: The Essential

3. All’s Well That Ends Riotously / Paid Hoods Discredit Prabowo / Risks Subside / 11% Official Margin

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Long-awaited demonstrations on behalf of Prabowo proved far smaller than the Gerindra chair needed — meanwhile, police exposed how some 2,000 paid thugs rioted on his behalf, which discredits his cause.   Tensions are likely to subside as the denouement of a court appeal unfolds through 28 June.  Despite some 8 deaths in the rioting, Widodo has maintained the all-important moral high ground.  Official election results show Widodo having won by an 11.0% margin.  A breakdown by province suggests that identity politics was indeed at the fore. 

Politics: As many as eight fatalities occurred in two nights of rioting on 21-23 May – but the bulk of those actively rioting were clearly professional thugs hired to attack police.  A different group consisted of peaceful and orderly demonstrators complaining of supposed election fraud – but these numbered no more than 10,000, which pales in comparison to the one million that Islamic groups mobilized in Jakarta last December.  Police claim that several pro‑Isis militants carried handguns.  Police used assertive public communications to expose the sordid characteristics of rioters, which has discredited Gerindra Chair Prabowo Subianto.  There were over 700 casualties and 257 arrests.  Events portray the Prabowo camp as having stooped to paying goons to run amok, tarnishing Indonesia’s democracy.  Consequently, motivating genuine supporters to publicly protest far‑fetched claims of fraud will be even more difficult for Prabowo.  But much still depends on explanations for the deaths of rioters: at least one reportedly died of a bullet wound, but police are adamant that none in their ranks used live rounds (Page 2).  Authorities arrested a pro‑Prabowo former Special Forces (Kopassus) commander, Maj Gen (ret) Soenarko, for having allegedly smuggled M4 carbines into Indonesia (p. 7).

Election Results: The General Election Commission (KPU) disclosed the official final vote count for both contests.  Widodo’s margin was 11.0 percent (p. 9).  Prabowo finally decided to lodge an electoral appeal with the Constitutional Court, which aims to issue a verdict on 28 June.  Justices are highly unlikely to overturn Widodo’s win (p. 14). 

Justice: The president formed a Selection Committee (Pansel) for nominees for the Anti-Corruption Commission (KPK).  The roster is strong overall and concern from critics may be overdone (p. 15).  State Sports Minister Imam Nahrowi faced court testimony from witnesses who say they made kickback payments to him totaling Rp11.5 billion (p. 15).

Produced since 2003, the Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news.  The writer is Kevin O’Rourke, author of the book Reformasi.  For subscription info please contact: <[email protected]>.

Economics: The rupiah has been sliding amid international uncertainties and the  persis­tent current account deficit, but pressure from domestic political tensions may lift (p. 16). 

Outlook: Despite deaths of eight rioters, Prabowo suffered disgrace from demonstra­tions in Jakarta.  Peaceful ralliers were few in number, while police produced compelling evidence that the Prabowo camp hired hoodlums to wreak havoc.  When Prabowo finally called on protesters to retire and rest, he was – in effect – finally acknowledging his election defeat.  Any additional demonstrations seem unlikely to be significant and Prabowo’s court appeal may be an uneventful dénouement (p. 18).

4. The Global Recovery Narrative Crumbles

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The US equity market was running with an optimistic assessment that there is a Trump and Fed put, that a trade deal and Chinese policy stimulus would generate a recovery in the global economy and the US economy was largely immune to a slowdown in activity abroad. However, the tariffs have been increased, trade talks have stalled, and the US has rolled out bans on Chinese tech companies.  The evidence grows that there is a structural rift in US-China trade relations. The rebound in Chinese economic activity in March was not backed up by data in other Asian exporter nations or Europe through April.  Chinese activity data slumped again in April, and the latest PMI data in the Eurozone, Japan and the USA for May are weak. Oil and copper prices have turned lower, suggesting that industrial activity remains weak.  We continue to see downside risk for still elevated US equities.  The strength in the USD to date is contributing to downward pressure on US equities.  The gains in the USD may have become over-extended.  China may pursue a more stable CNY for a period and lower US yields should support safe haven currencies, JPY, CHF and gold.

5. Bitcoin, Revisited

Screenshot%202019 05 23%20at%2020.26.51

Bitcoin and the block chain were created just over ten years ago, as a means to create peer to peer transactions without the need to use financial institutions to process the payments. 

However, frequent hacks of Bitcoin exchanges, in addition to the significant past fluctuations of Bitcoin prices, have put mainstream usage off and slowed the adoption of the cryptocurrency.

Is this about to change now?

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.



Brief Growth Ideas: Meten International Edu (美联国际教育) Early Thoughts – Unclear Strategies and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. Meten International Edu (美联国际教育) Early Thoughts – Unclear Strategies
  2. GEM Positioning Monthly:  Indonesian Financials, Food & Beverages, Lenovo Sentiment Reversal
  3. Rakuten: Update on the Mobile Business Generally Positive
  4. JKN: Little Impact from Digital TV Operators Returning Licenses to NBTC
  5. Trump Trade Means Lynas Capex Easier

1. Meten International Edu (美联国际教育) Early Thoughts – Unclear Strategies

Revenue broken down into segments adult eng overseas training online eng junior eng other eng related chartbuilder

Meten (MEDU US) recently filed for a US listing and is looking to raise US$100m.

Meten is a general English language training (ELT) service provider in China. It has grown its revenue at a decent 25.7% CAGR between FY2016 to FY2018 while margins made modest improvements.

However, its 1Q 2019 results signals near-term weakness across its major segments as the company seemed to be making strategic changes to its operations. The F-1 filing indicated that existing shareholders will sell in the IPO, suggesting their intention to exit or, at least, partially monetize their stake which could potentially affect sentiment going into the IPO.

2. GEM Positioning Monthly:  Indonesian Financials, Food & Beverages, Lenovo Sentiment Reversal

Highlights4

Copley Fund Research analyse the holdings of long-only equity funds.  This analysis is taken from our GEM research product, covering 189 global emerging market funds with a combined AUM of $350bn. 

In this month’s Positioning Monthly, we highlight an increasing exposure towards Indonesian Financial stocks, with Bank Rakyat Indonesia Perser (BBRI IJ) and Bank Central Asia (BBCA IJ) the key overweight positions.  We analyse holdings in the food and beverages industry groups as ownership reaches peak levels in both.  Finally, we explore the sharp reversal in Lenovo (992 HK) sentiment as more and more GEM funds buy into the stock.

3. Rakuten: Update on the Mobile Business Generally Positive

Rakuten Inc (4755 JP) hosted a call with CTO Tareq Amin to update analysts and investors on recent progress. The company says cell site acquisition is moving ahead quickly and it an end-October mobile launch remains the target. As discussed previously, the next major milestone is the start of 1 July beta-testing so there was little that could be added this week although management did again run through key success factors like cost and operational efficiency from its cloud-based integrated network architecture. Mr. Amin teased a possible game-changing announcement next week, which is likely to come from the vendor side and we suspect has to do with 5G turnkey solutions. Coming out of quarterly results for all companies, the outlook has not meaningfully changed with incumbents confident that pricing changes are sufficient even with Rakuten promising disruption from a unique network and installed base of eCommerce/fintech users. 

4. JKN: Little Impact from Digital TV Operators Returning Licenses to NBTC

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We maintain our BUY rating for JKN with a target price of Bt8.80 based on 14.8xPE’19E, average of Asia ex-Japan Consumer Discretionary sector. We foresee insignificant impact from seven of digital TV channel operators (out of 22) who intend to return broadcasting licenses to the NBTC. We expect new clients to cover such a loss from one key account (Bright TV no.20) within 3Q19.

The story:

  • New potential clients could buffer loss from one key client
  • Continuing recovery for domestic digital TV industry
  • Expect 24% CAGR of EPS growth in 2019-21E

Risks: Heavy reliance on a few major customers, probability it will have to set provisions for doubtful debts and potential inability to renew contracts with customers.

5. Trump Trade Means Lynas Capex Easier

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The last two days have been pretty spectacular for the shares of Lynas Corp Ltd (LYC AU). While it is not clear what has changed OTHER than a heightening of tensions in the trade war, several factors may be to ‘blame.’

With the blocking of all US hardware and software sales to Huawei after a White House Executive Order on Information Security late last week (temporarily mitigated two days ago by a 90-day temporary general license aimed at easing the transition), the question on everyone’s lips was how China would respond. The first response was that China would cease doing business with anyone who ceased doing business with Huawei. That seemed a countermeasure designed to be reciprocal. 

While Huawei founder Ren Zhengei has made several public statements in Chinese social and state media (many of which appear to be abbreviated for maximum effect – read the details folks!) in recent days, the perception is that Chinese leaders have been quiet. One exception to that was a visit by China President Xi Jinping to rare earth company JL Mag Rare-Earth Co Ltd (300748 CH), in Jiangxi province on Monday. That led to rampant speculation on the share prices of Chinese rare earth companies, and the idea that it was symbolic of what China might do to the US (block rare earth exports). 

Monday the 20th May saw a pre-market release of a notification of an MOU of a JV between Lynas and US company Blue Line to create a rare earths separation facility in the US. The JV would be majority-owned by Lynas, and would initially concentrate on heavy rare earth (Dysprosium and Terbium) separation but could also include light rare earth (Neodymium, Praseodymium, Lanthanum) separation facilities at a facility on a site currently owned by Blue Line. This strikes me as an obvious thing for which a miner would issue a press release. The two companies already work together, and it promises nothing. It is, however, a project to work on working on a project, and is more designed to elicit interest from other parties to fund it.

The 21st May saw Investor Day in Sydney and the stock popped 14.4%, following that by a 7+% move on the 22nd (yesterday) temporarily clearing the highest 3mo moving average seen in the last five years.

data source: tradingview.com

The question is what has changed and was that change worth a 20+% move in two days?

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Brief Growth Ideas: FANCL Corporation: What to Expect in FY03/19 Results and Beyond and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. FANCL Corporation: What to Expect in FY03/19 Results and Beyond
  2. Market Response to S9bn Gaming Expansion Perplexes More than It Reveals

1. FANCL Corporation: What to Expect in FY03/19 Results and Beyond

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FANCL Corporation’s share price gained more than 25% over the last 3 months on the back of the positivity surrounding the Japanese cosmetics industry. The stock may not look cheap at over 30x Forward PE, but considering its long-term growth prospects we are very optimistic about FANCL in the long run.

In our previous insight: FANCL: Playing the Long Game we, covered the stock on a traditional investment research angle. In that we expected the company to outperform the competition in the long run. Now we take a more novel approach using alternative data to analyse FANCL’s short to medium term prospects. The results are as good and therefore we maintain our positive view on FANCL prior to the release of their FY03/19 results which is due on the 25th of April 2019.

  • Consensus estimates reversions on the back of weak inbound sales and maturing Calolimit and Enkin

    • Calolimit – POS data analysis
    • Enkin – POS data analysis
  • Rest of supplements business and cosmetics steady growth- Doesn’t justify estimate reversions

    • Naishi Support – POS data analysis
    • Cosmetics expected to grow 8% YoY in 4QFY03/19
  • FANCL to beat FY03/19 guidance and consensus estimates
  • We expect even stronger performance in FY03/20

2. Market Response to S9bn Gaming Expansion Perplexes More than It Reveals

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  • Las Vegas Sands and Genting Singapore have both made good bets triggering different market responses.
  • Concerns about Genting shouldn’t be centered in Asia but questions persist about their growing global footprint.
  • Las Vegas Sands fundamental support our PT of US$70 and a runway to US$100 by 2Q20

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