Category

Daily Briefs

Financials: USD and more

By | Daily Briefs, Financials

In today’s briefing:

  • Dollar, Euro & Sterling in Focus, Asian Currencies Under the Radar Screen

Dollar, Euro & Sterling in Focus, Asian Currencies Under the Radar Screen

By Olivier Desbarres

Much of the market focus in recent months has been on major reserve currencies, namely:

  • The US Dollar which, contrary to bearish expectations and in line with our benign Dollar view, has treaded water in the past six weeks and since the Fed’s tweak on 27th August to its dual inflation and employment mandate;
  • The Euro’s rapid appreciation in July, its more prosaic performance in August and the first half of September and speculation that the European Central Bank would try to jawbone the currency weaker. Instead the ECB as its policy meeting on 10th September resorted to verbal intervention “light”, in line with our core scenario that Brazen ECB verbal intervention against Euro was unwarranted and unlikely (9th September 2020).
  • Sterling’s collapse last week and only partial recovery in the past four trading sessions. We are sticking to our view that the UK economy and Sterling face four potential headwinds in coming months, including i) fiscal stimulus measures being unwound, ii) a no-deal Brexit, iii) higher taxes and iv) a further re-tightening of lockdown measures in coming months (see UK & Sterling facing potential quadruple whammy, 4th September 2020).

Conversely, Asian currencies have seemingly fallen under the radar screen, for good reason. They have exhibited little directionality within very narrow ranges in the past month, particularly relative to high-yielding emerging market currencies.

We think this is the result of Asian central banks’ ability and willingness to keep their currencies on a tight leash, in order to minimise their disinflationary impact and maintain export competitiveness while at the same time capping the cost to governments, corporates and households of servicing sizeable foreign-currency denominated debt.

The Renminbi Nominal Effective Exchange Rate’s 2% appreciation in the past month, while unspectacular, is noteworthy and will be the topic of a forthcoming report.


Before it’s here, it’s on Smartkarma

Health Care: Genor Biopharma and more

By | Daily Briefs, Healthcare

In today’s briefing:

  • Genor Biopharma IPO: Strong Clinical Pipeline with Some Potential Blockbusters

Genor Biopharma IPO: Strong Clinical Pipeline with Some Potential Blockbusters

By Shifara Samsudeen, ACMA, CGMA

  • JHBP (CY) Holdings Ltd also known as Genor Biopharma has filed for an IPO on the Hong Kong Stock Exchange to raise about HK$2.48bn (US$320m). The biopharmaceutical company focuses on developing and commercialising oncology and autoimmune drugs.
  • Genor plans to utilise a majority of its IPO proceeds on clinical trials, prepare registration filings, fund planned clinical trials and potential commercialisation of its core products. The company also plans to use part of its IPO proceeds on funding other drug candidates in its pipeline and on expanding its drug pipeline respectively.
  • The company currently does not have any products approved for commercial sale; hence the company does not generate any revenues from product sales. However, the company owns four late stage drug assets and of which the company expects to launch 2-3 drug assets in the second half of 2021, subject to NMPA approval.
  • Two of the company’s key drug candidates, GB491 (potentially best-in-class oral CDK4/6 for HR+/HER2-breast cancer) and GB242 (a biosimilar candidate to infliximab (developed by J&J) for autoimmune diseases) are most likely to have competitive advantage over its competitors and these drugs cater to growing markets with significant growth potential.

Before it’s here, it’s on Smartkarma

Equity Capital Markets: Baozun Inc., Genor Biopharma, Sumo Logic Inc, Mitsui Fudosan Logistics Park Inc, Palantir Technologies Inc, ZTO Express and more

By | Daily Briefs, IPOs and Placements

In today’s briefing:

  • Baozun HK Secondary Listing – Large Dilution Needs a Large Correction
  • Genor Biopharma IPO: Strong Clinical Pipeline with Some Potential Blockbusters
  • Sumo Logic IPO. Attractive Valuations For Fast-Growing SaaS Unicorn
  • Mitsui Fudosan Logistics Park Placement – Large Deal but Minimal Accretion
  • Palantir DPL Valuation Analysis
  • ZTO Express Secondary Listing: HK-ADS Premium/​(Discount) Views

Baozun HK Secondary Listing – Large Dilution Needs a Large Correction

By Sumeet Singh

Baozun Inc. (BZUN US) plans to raise around US$490m in its secondary listing in Hong Kong.

The company was said to have won approval for listing last week along with ZTO Express (ZTO US) and Zai Lab Ltd (ZLAB US) however, it filed its PHIP only yesterday and launched its deal today.

In this insight, I’ll talk about the deal dynamics and what to do with the ADR during the book build.

Links to my previous notes on the topic on Secondary listings:


Genor Biopharma IPO: Strong Clinical Pipeline with Some Potential Blockbusters

By Shifara Samsudeen, ACMA, CGMA

  • JHBP (CY) Holdings Ltd also known as Genor Biopharma has filed for an IPO on the Hong Kong Stock Exchange to raise about HK$2.48bn (US$320m). The biopharmaceutical company focuses on developing and commercialising oncology and autoimmune drugs.
  • Genor plans to utilise a majority of its IPO proceeds on clinical trials, prepare registration filings, fund planned clinical trials and potential commercialisation of its core products. The company also plans to use part of its IPO proceeds on funding other drug candidates in its pipeline and on expanding its drug pipeline respectively.
  • The company currently does not have any products approved for commercial sale; hence the company does not generate any revenues from product sales. However, the company owns four late stage drug assets and of which the company expects to launch 2-3 drug assets in the second half of 2021, subject to NMPA approval.
  • Two of the company’s key drug candidates, GB491 (potentially best-in-class oral CDK4/6 for HR+/HER2-breast cancer) and GB242 (a biosimilar candidate to infliximab (developed by J&J) for autoimmune diseases) are most likely to have competitive advantage over its competitors and these drugs cater to growing markets with significant growth potential.

Sumo Logic IPO. Attractive Valuations For Fast-Growing SaaS Unicorn

By Andrei Zakharov

Sumo Logic provides best-in-class cloud monitoring, log management, cloud SIEM tools and real-time insights for web and SaaS based apps. Company is looking for innovative ways to reduce costs, exposure to security vulnerabilities and helps organizations at every stage of digital transformation. Sumo Logic has 2,100+ customers, including Airbnb, Anheuser-Busch, Samsung, Fastly, Okta, Sharp, One Medical, Teladoc, Fidelity, Medallia. We have positive view on Sumo Logic despite COVID-19 pandemic and intense competition from Elastic, Splunk and Datadog. Sumo Logic stock currently trades at 10x our FY 2021 revenue estimate of ~$200 million and our Sep 2021 price target of $39 a share implies ~56% upside potential keeping in mind $400 million of cash and cash equivalents after successful IPO.

Sumo Logic offered ~15 million shares at $22 a share (above the range) and we estimate net proceeds from the offering to reach $300 million. Tiger Global Management has indicated an interest in purchasing up to 10% of the shares in this offering at IPO price. Lead underwriters are Morgan Stanley, J.P. Morgan, RBC Capital Markets and Jefferies.


Mitsui Fudosan Logistics Park Placement – Large Deal but Minimal Accretion

By Sumeet Singh

Mitsui Fudosan Logistics Park Inc (3471 JP) (MFLP) is looking to raise about US$450m to partially fund the acquisition of two new assets. 

This will be the second fund raising by the company this year. We covered the earlier deal in Jan 2020 in Mitsui Fudosan Logistics Park Placement – Less Dilutive and More Accretive than the Previous Deal. We also covered the prior Jan 2019 raising in, Mitsui Fudosan Logistics Park Placement – Accretive and Well-Flagged.


Palantir DPL Valuation Analysis

By Douglas Kim

Palantir is ready to complete its Direct Public Listing on September 23rd. 

Our valuation analysis suggests an implied market cap of $29.7 billion and a target price of $13.7 per share for Palantir (49% higher than the base price of $9.2 per share). The IPO price range is from $11.1 (low) to $16.6 per share (high). Assuming Direct Public Listing (DPL) market cap of $20 billion and diluted shares of 2.17 billion, this suggests $9.2 per share. Given the solid upside, we have a positive view of this DPL.

There are three key positives with Palantir which we believe are likely to outweigh its negatives, leading many investors to value this company at nearly $30 billion.

  • First, we believe the company’s accelerating sales growth since the launch of its Foundry product in 2017 is likely to be valued highly. The company’s sales growth is clearly much higher than its peers in 2020. 
  • Second, Palantir has picked a great time to complete its public offering with great investors demand high-quality software-related stocks this year.
  • Third, Palantir has been enjoying a noticeable improvement in its operating margins and the company possesses a strong balance sheet. 

ZTO Express Secondary Listing: HK-ADS Premium/​(Discount) Views

By Arun George

ZTO Express (ZTO US) has launched a $1.6 billion secondary listing in Hong Kong. We previously outlined our views on ZTO Express’ fundamentals and valuation. The H shares will be priced on 22 September (Tuesday) and are scheduled for listing on 29 September.  

In this note, we will look at ZTO Express’ potential HK-ADS premium/(discount). ZTO Express will price its H-shares at a discount to its ADSs to entice investors to participate in the secondary listing. Overall, we think that ZTO Express pricing its H-shares around a 3% discount to its ADSs will be reasonable.


Before it’s here, it’s on Smartkarma

TMT: Baozun Inc., BYD Electronics, Money Forward, Sumo Logic Inc, Palantir Technologies Inc and more

By | Daily Briefs, TMT/Internet

In today’s briefing:

  • Baozun HK Secondary Listing – Large Dilution Needs a Large Correction
  • BYD Electronics (285): Time to Take Profit?
  • Small Cap Growth: Money Forward (3994) – Be Audit You Can Be
  • Sumo Logic IPO. Attractive Valuations For Fast-Growing SaaS Unicorn
  • Palantir DPL Valuation Analysis

Baozun HK Secondary Listing – Large Dilution Needs a Large Correction

By Sumeet Singh

Baozun Inc. (BZUN US) plans to raise around US$490m in its secondary listing in Hong Kong.

The company was said to have won approval for listing last week along with ZTO Express (ZTO US) and Zai Lab Ltd (ZLAB US) however, it filed its PHIP only yesterday and launched its deal today.

In this insight, I’ll talk about the deal dynamics and what to do with the ADR during the book build.

Links to my previous notes on the topic on Secondary listings:


BYD Electronics (285): Time to Take Profit?

By Henry Soediarko

Apple has come out with an announcement yesterday that they will launch a new iPad and no iPhone.  The good news is that BYD Electronics (285 HK)is included in Apple’s supplier list to manufacture around 20-30% of iPad, and investors have been expecting this – causing the ultra optimism reflected in the share price YTD performance, beating the peers and even Apple Inc (AAPL US)

Unless the new iPad is selling like hotcakes and the domestic wearables and 5G migration really helps to increase demand, it is hard to see why BYD Electronics’ share price run-up is justifiable. 

For long-only investors – it is time to book profit. 

For long-short investors – it is time to start shorting the stock. 


Small Cap Growth: Money Forward (3994) – Be Audit You Can Be

By Mark Chadwick

  • Money Forward (3994 JP) provides online accounting software for Japan’s SMEs, providing all of the time-saving tools that small business owners need to grow. It is the Japanese version of Xero Ltd (XRO AU) or Quickbooks by Intuit Inc (INTU US) 
  • Money Forward (MF) and its domestic peer freee (4478 JP) dominate the Japanese online market, which is growing in the region of 60-70% YoY.
  • There is a huge addressable market with low online penetration. MF has the potential to build a strong competitive moat, in the absence of the global majors.
  • Today, MF looks similar to Xero in 2013. If MF follows the same growth trajectory, investors could be looking at a 9-bagger.  

Sumo Logic IPO. Attractive Valuations For Fast-Growing SaaS Unicorn

By Andrei Zakharov

Sumo Logic provides best-in-class cloud monitoring, log management, cloud SIEM tools and real-time insights for web and SaaS based apps. Company is looking for innovative ways to reduce costs, exposure to security vulnerabilities and helps organizations at every stage of digital transformation. Sumo Logic has 2,100+ customers, including Airbnb, Anheuser-Busch, Samsung, Fastly, Okta, Sharp, One Medical, Teladoc, Fidelity, Medallia. We have positive view on Sumo Logic despite COVID-19 pandemic and intense competition from Elastic, Splunk and Datadog. Sumo Logic stock currently trades at 10x our FY 2021 revenue estimate of ~$200 million and our Sep 2021 price target of $39 a share implies ~56% upside potential keeping in mind $400 million of cash and cash equivalents after successful IPO.

Sumo Logic offered ~15 million shares at $22 a share (above the range) and we estimate net proceeds from the offering to reach $300 million. Tiger Global Management has indicated an interest in purchasing up to 10% of the shares in this offering at IPO price. Lead underwriters are Morgan Stanley, J.P. Morgan, RBC Capital Markets and Jefferies.


Palantir DPL Valuation Analysis

By Douglas Kim

Palantir is ready to complete its Direct Public Listing on September 23rd. 

Our valuation analysis suggests an implied market cap of $29.7 billion and a target price of $13.7 per share for Palantir (49% higher than the base price of $9.2 per share). The IPO price range is from $11.1 (low) to $16.6 per share (high). Assuming Direct Public Listing (DPL) market cap of $20 billion and diluted shares of 2.17 billion, this suggests $9.2 per share. Given the solid upside, we have a positive view of this DPL.

There are three key positives with Palantir which we believe are likely to outweigh its negatives, leading many investors to value this company at nearly $30 billion.

  • First, we believe the company’s accelerating sales growth since the launch of its Foundry product in 2017 is likely to be valued highly. The company’s sales growth is clearly much higher than its peers in 2020. 
  • Second, Palantir has picked a great time to complete its public offering with great investors demand high-quality software-related stocks this year.
  • Third, Palantir has been enjoying a noticeable improvement in its operating margins and the company possesses a strong balance sheet. 

Before it’s here, it’s on Smartkarma

Japan: Sony Corp, FamilyMart Co Ltd, Toshiba Corp, Money Forward, Mitsui Fudosan Logistics Park Inc and more

By | Daily Briefs, Japan

In today’s briefing:

  • Sony – What the PS5 Showcase Says About Gaming Ecosystems
  • Familymart: What’s Next? And Will Mitsubishi React?
  • Toshiba Is A Range Trade. Still.
  • Small Cap Growth: Money Forward (3994) – Be Audit You Can Be
  • Mitsui Fudosan Logistics Park Placement – Large Deal but Minimal Accretion

Sony – What the PS5 Showcase Says About Gaming Ecosystems

By Mio Kato

Sony’s just concluded PS5 showcase finally revealed pricing at $500, with the digital version coming in at $400. These prices have been speculated on for some time and are not a real surprise though we did believe there was a possibility Sony would have tried to undercut Microsoft slightly. There were some small surprises in terms of exclusivity and the new PlayStation Plus Collection, however, and we discuss these below.


Familymart: What’s Next? And Will Mitsubishi React?

By Michael Causton

Itochu Corp (8001 JP) has completed its buyout of Familymart (see Travis Lundy’s insights here, here, here and here). Itochu has clearly taken full advantage of a depressed Familymart share price and an opportunity for the trading house to begin more adventurous diversification of the convenience store business.

This will include moving into more types of food format, including its nascent hybrid store collaborations with supermarkets and drugstores and an upcoming push into e-commerce, but will also mean more integration with Itochu’s food wholesale business – which when combined is bigger than that of its arch rival, Mitsubishi Corp (8058 JP).

Mitsubishi and Itochu have been playing catch-up with each other for the last two decades in a race to build Japan’s first integrated food wholesale-retail businesses.

Now that Itochu has succeeded in its bid, the question remains whether Mitsubishi will now look to consolidate its own food retail assets like Lawson Inc (2651 JP) and Life Corp (8194 JP).


Toshiba Is A Range Trade. Still.

By Travis Lundy

In my initial first piece on the Kioxia (6600 JP) IPO on 28 August 2020 called Kioxia IPO – The Flow Dynamics I talked about the nature of who was going to be buying (and who was going to be sold to).

I also noted my initial reaction that the price might be too high at ¥3,960/share and an EV of close to ¥3.5trln.

My initial reaction is that the price may be too high and it could be revised downward. Given the fact that 65% of the offering goes to international investors, who are more inclined to provide their pricing input in a negative way, I think it eminently possible that the offering could be priced lower. I would not be surprised to see an offering price 10-25% lower than the ¥3960 proffered.

A New IPO Price Range

On Thursday 17 September it was reported that the Kioxia Holdings IPO Price Range would be set at ¥2800-3500/share making the new offering size top out at ¥334.3bn and the market cap at IPO price be ¥1.88trln – both top figures year-to-date in 2020. 

That is a drop of 11.6-29.3%, which is a bit more aggressive than I had expected. It means the immediate uplift to Toshiba is considerably smaller compared to their in-price. 

Since I wrote bearishly on Toshiba Corp (6502 JP) exactly a month ago in Toshiba TOPIX Inclusion – Jack Be Nimble, Jack Be Quick… the shares are down 13.9%, but only down about 3% since Toshiba: Kioxia IPO Impact & Activist Positioning on 30 August.

If the market reacts not badly to the news of a possibly sharply reduced Kioxia IPO price and the corollary that lower price means lower proceeds (now and in future on a mark-to-market basis) will reduce the payout to Toshiba shareholders in terms of buying back stock could have a negative effect on Toshiba shares. 

That is worth watching for. It might be worth buying to cover the short. 

A bit lower down it is worth going long again. 

More below the fold. 


Small Cap Growth: Money Forward (3994) – Be Audit You Can Be

By Mark Chadwick

  • Money Forward (3994 JP) provides online accounting software for Japan’s SMEs, providing all of the time-saving tools that small business owners need to grow. It is the Japanese version of Xero Ltd (XRO AU) or Quickbooks by Intuit Inc (INTU US) 
  • Money Forward (MF) and its domestic peer freee (4478 JP) dominate the Japanese online market, which is growing in the region of 60-70% YoY.
  • There is a huge addressable market with low online penetration. MF has the potential to build a strong competitive moat, in the absence of the global majors.
  • Today, MF looks similar to Xero in 2013. If MF follows the same growth trajectory, investors could be looking at a 9-bagger.  

Mitsui Fudosan Logistics Park Placement – Large Deal but Minimal Accretion

By Sumeet Singh

Mitsui Fudosan Logistics Park Inc (3471 JP) (MFLP) is looking to raise about US$450m to partially fund the acquisition of two new assets. 

This will be the second fund raising by the company this year. We covered the earlier deal in Jan 2020 in Mitsui Fudosan Logistics Park Placement – Less Dilutive and More Accretive than the Previous Deal. We also covered the prior Jan 2019 raising in, Mitsui Fudosan Logistics Park Placement – Accretive and Well-Flagged.


Before it’s here, it’s on Smartkarma

Consumer: Haidilao, Sony Corp, FamilyMart Co Ltd, Wilmar International, COL PCL, Las Vegas Sands, Bloomberry Resorts, Berli Jucker, Dohome PCL, Health And Happiness (H&H) and more

By | Consumer, Daily Briefs

In today’s briefing:

  • HSCEI Index Rebalance Preview – December 2020: HUGE Number of Changes and Turnover Expected
  • Sony – What the PS5 Showcase Says About Gaming Ecosystems
  • Familymart: What’s Next? And Will Mitsubishi React?
  • Wilmar: China Ops IPO One Step Closer
  • COL-Central Retail Corp: Thailand Delisting Offer Trading Tight
  • Asia Gaming Outlook 2021: Las Vegas Sands at Current Price Looks like a Smart Entry Pre-Golden Week
  • Bloomberry Resorts: Stronger EBITDA Recovery than Macau?
  • Berli Jucker (BJC TB) – SE Asia’s Consumer Recovery Proxy
  • DOHOME: Expect SSSG Stronger than Peers in 2H20 and 2021
  • H&H International – Tear Sheet – Lucror Analytics

HSCEI Index Rebalance Preview – December 2020: HUGE Number of Changes and Turnover Expected

By Brian Freitas

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the 2020 Q3 review of the Hang Seng Family of Indexes on 6 November. The constituent changes will be effective after the close of trading on 4 December.

With only 3 changes permitted in the September Hang Seng China Enterprises Index (HSCEI INDEX) review post the methodology change that included WVR securities and Secondary Listings in the eligible Universe, there could be as many as 9 changes in the December review.

We see a high probability of China Overseas Land & Investment Ltd (688 HK), JD.com (HK) (9618 HK), Alibaba Health Information Technology (241 HK), Haidilao (6862 HK), China Feihe (6186 HK), Semiconductor Manufacturing (981 HK) and Evergrande Real Estate Group (3333 HK) being included in the Hang Seng China Enterprises Index (HSCEI INDEX), and of China Taiping Insurance Hldgs (966 HK), China Telecom Corp Ltd (H) (728 HK), China Minsheng Banking H (1988 HK), China Vanke Co Ltd (H) (2202 HK), Fosun International (656 HK), China Citic Bank Corp Ltd H (998 HK) and China Shenhua Energy Co H (1088 HK) being deleted from the index.

Depending on price movements between now and 30 September, NetEase (9999 HK) and Hansoh Pharmaceutical (3692 HK) could be included in the index, which would see Want Want (151 HK) and PICC Property & Casualty H (2328 HK) being deleted.

Estimated one-way turnover for the rebalance is 9.63% which is lower than the turnover at the September rebalance, but significant nonetheless.

The expected review changes will alter the sectoral composition of the index with an increase in the weight of the Consumer Discretionary, Information Technology and Health Care sectors at the expense of Financials and Energy. There will also be an impact on the HSCEI 2021 dividend futures, a large part of which has already been discounted by the market.


Sony – What the PS5 Showcase Says About Gaming Ecosystems

By Mio Kato

Sony’s just concluded PS5 showcase finally revealed pricing at $500, with the digital version coming in at $400. These prices have been speculated on for some time and are not a real surprise though we did believe there was a possibility Sony would have tried to undercut Microsoft slightly. There were some small surprises in terms of exclusivity and the new PlayStation Plus Collection, however, and we discuss these below.


Familymart: What’s Next? And Will Mitsubishi React?

By Michael Causton

Itochu Corp (8001 JP) has completed its buyout of Familymart (see Travis Lundy’s insights here, here, here and here). Itochu has clearly taken full advantage of a depressed Familymart share price and an opportunity for the trading house to begin more adventurous diversification of the convenience store business.

This will include moving into more types of food format, including its nascent hybrid store collaborations with supermarkets and drugstores and an upcoming push into e-commerce, but will also mean more integration with Itochu’s food wholesale business – which when combined is bigger than that of its arch rival, Mitsubishi Corp (8058 JP).

Mitsubishi and Itochu have been playing catch-up with each other for the last two decades in a race to build Japan’s first integrated food wholesale-retail businesses.

Now that Itochu has succeeded in its bid, the question remains whether Mitsubishi will now look to consolidate its own food retail assets like Lawson Inc (2651 JP) and Life Corp (8194 JP).


Wilmar: China Ops IPO One Step Closer

By David Blennerhassett

Major agribusiness outfit Wilmar International (WIL SP) announced on the 12 July 2019 that the China Securities Regulatory Commission (CSRC) had accepted Yihai Kerry Arawana Holdings (YKA) application for its proposed listing on the Shenzhen Stock Exchange (ChiNext Board).

YKA is one of the largest agribusiness and food processing companies in China. Its business activities span the processing and sales of kitchen food, feed ingredients, and oleochemicals in China. YKA is currently 99.99% held by Wilmar.

Should the listing take place, Wilmar envisages that there will be an IPO of new YKA shares of approximately 10.0% of the total pro-forma share capital of YKA on a post-money basis (immediately after the proposed IPO, Wilmar is anticipated to hold 89.99% of YKA).

After various updates, including a financial update on the 10 August, Wilmar announced yesterday it had received final registration approval from the CSRC. It is expected that the listing will take place by mid-October 2020, subject to market conditions.

Strategic investors, including mainly State-owned funds, sovereign wealth funds, and insurance companies, have been identified to subscribe for ~30% of the IPO Shares.

The key questions now are: where will YKA trade; and where should the non-YKA ops trade?

As always, more below the fold.


COL-Central Retail Corp: Thailand Delisting Offer Trading Tight

By Janaghan Jeyakumar, CFA

On 14th September 2020, Stationery and Office equipment retailer COL PCL (COL TB) announced they agreed to be acquired by Central Retail (CRC TB) in a Deal that valued the company at a market cap of ~US$390mn. 

CRC intends to delist the shares of COL following the completion of the Deal and this will require approvals from COL shareholders and the Stock Exchange of Thailand. 

Once approvals have been granted, a tender offer will be launched for 100% of the shares in COL. The transaction is expected to close in 1Q 2021. 

The Offer price will be THB19.00 per share in cash. At the time of writing, COL is trading just below Terms. 

As always, there is more below the fold.

For more about the rules and practices in Thai M&A, please refer to the Quiddity Thailand M&A Guide 2019


Asia Gaming Outlook 2021: Las Vegas Sands at Current Price Looks like a Smart Entry Pre-Golden Week

By Howard J Klein

  • As we near Q4, we look for superior prospects for a speedier ramp for Las Vegas Sands/
  • LVS will report 3Q20 results October 21-26. Numbers could reveal early late September upticks in revenue and occupancy that could move shares.
  • Our Asia panel of associates likes LVS best among peers for earlier ramp up beginning with strong Golden Week results on average win per gaming position and hotel REVPAR.

Bloomberry Resorts: Stronger EBITDA Recovery than Macau?

By Michael Ting

Despite the significant slowdown in gaming revenues from the lack of tourism arrivals, we forecast Bloomberry to achieve EBITDA break-even by 4Q20 due to cost rationalization measures coupled with a gradual increase in local play. Bloomberry’s EBITDA recovery could outpace that of its Macau peers assuming COVID-19 is contained within the Philippines.


Berli Jucker (BJC TB) – SE Asia’s Consumer Recovery Proxy

By Angus Mackintosh

Berli Jucker (BJC TB) was hit quite hard in 2Q2020 in both its core retail and packaging businesses after a reasonable performance in 1Q2020 before the lockdown in Thailand and Vietnam took hold and during a period when consumers began stocking up. 

The real impact on the company’s packaging business came in mid-April when the Thai government put an alcohol ban in place, which was lifted in mid-May but led breweries to close operations for 4-6 weeks. 

The ban was gradually lifted for retail stores initially followed by restaurants and bars and as a result, June saw recovery and July beer sales almost back to pre-COVID-19 levels. 

Berli Jucker (BJC TB) non-alcohol bottling saw positive momentum from strong growth in sales of Vitamin C drinks. It also saw a strong response to its new 500ml cans, which are popular for home beer consumption. 

The aluminium can division has also seen the benefits of new customers coming on stream and replacing the gap left by reduced demand from Carabao. It is also seeing some scale benefits as a result of this for its slim cans.

Berli Jucker (BJC TB)’s core retail business under Big C saw a serious impact from COVID-19 in 2Q2020 with total sales down by -11.4%, with SSSG -17% but excluding its B-to-B business, SSSG fell an even greater -21.1% in 2Q2020.

Berli Jucker (BJC TB) remains a well-rounded South East Asia recovery story through its packaging, with exposure to Thailand, Vietnam and Malaysia, as well as retail, with its number two position in Thailand in the hypermarket and supermarket space.

Valuations look attractive versus history and with the prospect of a rapid recovery next year with the company trading in 22.0x FY21E PER versus its 5-year average forward PER of 29x, especially given a strong forecast recovery in earnings over the next two years. It also trades at a discount to Thai retail peers, despite a more positive earnings outlook. 


DOHOME: Expect SSSG Stronger than Peers in 2H20 and 2021

By Research Group at Country Group Securities

We upgrade from HOLD to BUY rating with a new target price of Bt16.5 based on 33xPE’21E (Previous TP is Bt12.5), which is close to the biggest home-improvement player in Thailand.

  • We expect 3Q20 earnings to grow to Bt189m (+41%YoY, 29%QoQ) driven by a strong SSSG at 9%, turning profit of Surin branch after one month operation, and improving margin from higher retail sales contribution.
  • We foresee SSSG at 9%YoY in 3Q20 mainly driven improving contribution from Ubon Ratchathani branch due to low base in 3Q19.
  • We revised up our sales and net profit forecast by 5% and 12% in 2020E to factor in strong SSSG than our expectation.

We still like DOHOME for its 1) cheapest valuation with high growth compared to peers; 2) the positioning of all its stores in locations of high potential demand; 3) plan to expand its store network by 60% within the next two years; and 4) the ample room to grow its margin.


H&H International – Tear Sheet – Lucror Analytics

By Chuanyi Zhou

We view H&H International as “Medium Risk” on the LARA scale. The company has a sound business profile, with stable branded products in the Baby Nutrition & Care and Adult Nutrition & Care markets. H&H’s strong distribution channels support cross-border and e-commerce sales strategies. Balancing these positive factors are risks associated with the penetration of new markets and products, along with the fragmented and competitive Chinese market.

USD bondholders suffer material structural subordination. The issuing entity is a Cayman Islands company with no operating assets. The PRC operating subsidiaries do not guarantee the USD Notes. The level of priority creditors is high at the Australian subsidiary, including providers of the USD 450 mn senior credit facility. Bondholders would have very limited access to assets in a liquidation scenario.

Our fundamental Credit Bias on H&H is “Stable”, as the company has weathered the challenges of H1/20 well, despite the soft revenue growth and weaker margins. During the period, H&H developed its online sales channels following the disruption of offline channels, and built up a safety stock of inventory. Positively, there appears to have been no major disruptions to the supply chain and production. The company could see a market recovery and stronger demand in China in H2, but we are not optimistic on the Australia & New Zealand market. We like H&H’s solid business fundamentals, strong market positions and healthy financial profile. In particular, we view positively the sound liquidity profile and steady cash flow from operations.

We view H&H as “Moderate” on the LAGA scale. We note positively the structure of the Board of Directors, especially after the separation of the chairman and CEO roles in March 2019. The NEDs and INEDs have a decent mix of company and industry experience. The INEDs include Ngai Wai Fung, a professional consultant in corporate governance. We also note the solid spread of shareholders, with no two individuals’ holdings adding up to more than a 50% interest.


Before it’s here, it’s on Smartkarma

Industrials: Yangzijiang Shipbuilding, Toshiba Corp, ZTO Express and more

By | Daily Briefs, Industrials

In today’s briefing:

  • The “Softbank LNG Whale” – Big Game Changer For Yangzijiang Shipbuilding
  • Toshiba Is A Range Trade. Still.
  • ZTO Express Secondary Listing: HK-ADS Premium/​(Discount) Views

The “Softbank LNG Whale” – Big Game Changer For Yangzijiang Shipbuilding

By Patrick Eng

What happens when major events or actions are either overlooked or misunderstood? In today’s enlightening geo-political news coverage, one may not have time to contemplate or meditate on big transactions that can alter an industry which may lead to a transformation or secular change.  

For example, what happened when Softbank announced their $100Billion Vision Fund? They became the Whale in the venture capital world. The domino effect for many investors and valuations for many companies in their universe skyrocketed. But how many investors realized and profited from this unprecedented event. This phenomenon was quite unreal.  What if this phenomenon occurred in another industry?

Due to the COVID pandemic and various projections from experts, we believe many misunderstood a “Whale”  phenomenon that recently occurred in LNG vessels.

Furthermore, is it crazy to think that the future of infrastructure and industrial policies pulls forward?


Toshiba Is A Range Trade. Still.

By Travis Lundy

In my initial first piece on the Kioxia (6600 JP) IPO on 28 August 2020 called Kioxia IPO – The Flow Dynamics I talked about the nature of who was going to be buying (and who was going to be sold to).

I also noted my initial reaction that the price might be too high at ¥3,960/share and an EV of close to ¥3.5trln.

My initial reaction is that the price may be too high and it could be revised downward. Given the fact that 65% of the offering goes to international investors, who are more inclined to provide their pricing input in a negative way, I think it eminently possible that the offering could be priced lower. I would not be surprised to see an offering price 10-25% lower than the ¥3960 proffered.

A New IPO Price Range

On Thursday 17 September it was reported that the Kioxia Holdings IPO Price Range would be set at ¥2800-3500/share making the new offering size top out at ¥334.3bn and the market cap at IPO price be ¥1.88trln – both top figures year-to-date in 2020. 

That is a drop of 11.6-29.3%, which is a bit more aggressive than I had expected. It means the immediate uplift to Toshiba is considerably smaller compared to their in-price. 

Since I wrote bearishly on Toshiba Corp (6502 JP) exactly a month ago in Toshiba TOPIX Inclusion – Jack Be Nimble, Jack Be Quick… the shares are down 13.9%, but only down about 3% since Toshiba: Kioxia IPO Impact & Activist Positioning on 30 August.

If the market reacts not badly to the news of a possibly sharply reduced Kioxia IPO price and the corollary that lower price means lower proceeds (now and in future on a mark-to-market basis) will reduce the payout to Toshiba shareholders in terms of buying back stock could have a negative effect on Toshiba shares. 

That is worth watching for. It might be worth buying to cover the short. 

A bit lower down it is worth going long again. 

More below the fold. 


ZTO Express Secondary Listing: HK-ADS Premium/​(Discount) Views

By Arun George

ZTO Express (ZTO US) has launched a $1.6 billion secondary listing in Hong Kong. We previously outlined our views on ZTO Express’ fundamentals and valuation. The H shares will be priced on 22 September (Tuesday) and are scheduled for listing on 29 September.  

In this note, we will look at ZTO Express’ potential HK-ADS premium/(discount). ZTO Express will price its H-shares at a discount to its ADSs to entice investors to participate in the secondary listing. Overall, we think that ZTO Express pricing its H-shares around a 3% discount to its ADSs will be reasonable.


Before it’s here, it’s on Smartkarma

Thailand: COL PCL, Berli Jucker, Dohome PCL and more

By | Daily Briefs, Thailand

In today’s briefing:

  • COL-Central Retail Corp: Thailand Delisting Offer Trading Tight
  • Berli Jucker (BJC TB) – SE Asia’s Consumer Recovery Proxy
  • DOHOME: Expect SSSG Stronger than Peers in 2H20 and 2021

COL-Central Retail Corp: Thailand Delisting Offer Trading Tight

By Janaghan Jeyakumar, CFA

On 14th September 2020, Stationery and Office equipment retailer COL PCL (COL TB) announced they agreed to be acquired by Central Retail (CRC TB) in a Deal that valued the company at a market cap of ~US$390mn. 

CRC intends to delist the shares of COL following the completion of the Deal and this will require approvals from COL shareholders and the Stock Exchange of Thailand. 

Once approvals have been granted, a tender offer will be launched for 100% of the shares in COL. The transaction is expected to close in 1Q 2021. 

The Offer price will be THB19.00 per share in cash. At the time of writing, COL is trading just below Terms. 

As always, there is more below the fold.

For more about the rules and practices in Thai M&A, please refer to the Quiddity Thailand M&A Guide 2019


Berli Jucker (BJC TB) – SE Asia’s Consumer Recovery Proxy

By Angus Mackintosh

Berli Jucker (BJC TB) was hit quite hard in 2Q2020 in both its core retail and packaging businesses after a reasonable performance in 1Q2020 before the lockdown in Thailand and Vietnam took hold and during a period when consumers began stocking up. 

The real impact on the company’s packaging business came in mid-April when the Thai government put an alcohol ban in place, which was lifted in mid-May but led breweries to close operations for 4-6 weeks. 

The ban was gradually lifted for retail stores initially followed by restaurants and bars and as a result, June saw recovery and July beer sales almost back to pre-COVID-19 levels. 

Berli Jucker (BJC TB) non-alcohol bottling saw positive momentum from strong growth in sales of Vitamin C drinks. It also saw a strong response to its new 500ml cans, which are popular for home beer consumption. 

The aluminium can division has also seen the benefits of new customers coming on stream and replacing the gap left by reduced demand from Carabao. It is also seeing some scale benefits as a result of this for its slim cans.

Berli Jucker (BJC TB)’s core retail business under Big C saw a serious impact from COVID-19 in 2Q2020 with total sales down by -11.4%, with SSSG -17% but excluding its B-to-B business, SSSG fell an even greater -21.1% in 2Q2020.

Berli Jucker (BJC TB) remains a well-rounded South East Asia recovery story through its packaging, with exposure to Thailand, Vietnam and Malaysia, as well as retail, with its number two position in Thailand in the hypermarket and supermarket space.

Valuations look attractive versus history and with the prospect of a rapid recovery next year with the company trading in 22.0x FY21E PER versus its 5-year average forward PER of 29x, especially given a strong forecast recovery in earnings over the next two years. It also trades at a discount to Thai retail peers, despite a more positive earnings outlook. 


DOHOME: Expect SSSG Stronger than Peers in 2H20 and 2021

By Research Group at Country Group Securities

We upgrade from HOLD to BUY rating with a new target price of Bt16.5 based on 33xPE’21E (Previous TP is Bt12.5), which is close to the biggest home-improvement player in Thailand.

  • We expect 3Q20 earnings to grow to Bt189m (+41%YoY, 29%QoQ) driven by a strong SSSG at 9%, turning profit of Surin branch after one month operation, and improving margin from higher retail sales contribution.
  • We foresee SSSG at 9%YoY in 3Q20 mainly driven improving contribution from Ubon Ratchathani branch due to low base in 3Q19.
  • We revised up our sales and net profit forecast by 5% and 12% in 2020E to factor in strong SSSG than our expectation.

We still like DOHOME for its 1) cheapest valuation with high growth compared to peers; 2) the positioning of all its stores in locations of high potential demand; 3) plan to expand its store network by 60% within the next two years; and 4) the ample room to grow its margin.


Before it’s here, it’s on Smartkarma

Equity Bottom-Up: Sony Corp, Yangzijiang Shipbuilding, BYD Electronics, Wilmar International, Money Forward, Las Vegas Sands, Bloomberry Resorts, Berli Jucker, Dohome PCL and more

By | Bottom-Up Equities, Daily Briefs

In today’s briefing:

  • Sony – What the PS5 Showcase Says About Gaming Ecosystems
  • The “Softbank LNG Whale” – Big Game Changer For Yangzijiang Shipbuilding
  • BYD Electronics (285): Time to Take Profit?
  • Wilmar: China Ops IPO One Step Closer
  • Small Cap Growth: Money Forward (3994) – Be Audit You Can Be
  • Asia Gaming Outlook 2021: Las Vegas Sands at Current Price Looks like a Smart Entry Pre-Golden Week
  • Bloomberry Resorts: Stronger EBITDA Recovery than Macau?
  • Berli Jucker (BJC TB) – SE Asia’s Consumer Recovery Proxy
  • DOHOME: Expect SSSG Stronger than Peers in 2H20 and 2021

Sony – What the PS5 Showcase Says About Gaming Ecosystems

By Mio Kato

Sony’s just concluded PS5 showcase finally revealed pricing at $500, with the digital version coming in at $400. These prices have been speculated on for some time and are not a real surprise though we did believe there was a possibility Sony would have tried to undercut Microsoft slightly. There were some small surprises in terms of exclusivity and the new PlayStation Plus Collection, however, and we discuss these below.


The “Softbank LNG Whale” – Big Game Changer For Yangzijiang Shipbuilding

By Patrick Eng

What happens when major events or actions are either overlooked or misunderstood? In today’s enlightening geo-political news coverage, one may not have time to contemplate or meditate on big transactions that can alter an industry which may lead to a transformation or secular change.  

For example, what happened when Softbank announced their $100Billion Vision Fund? They became the Whale in the venture capital world. The domino effect for many investors and valuations for many companies in their universe skyrocketed. But how many investors realized and profited from this unprecedented event. This phenomenon was quite unreal.  What if this phenomenon occurred in another industry?

Due to the COVID pandemic and various projections from experts, we believe many misunderstood a “Whale”  phenomenon that recently occurred in LNG vessels.

Furthermore, is it crazy to think that the future of infrastructure and industrial policies pulls forward?


BYD Electronics (285): Time to Take Profit?

By Henry Soediarko

Apple has come out with an announcement yesterday that they will launch a new iPad and no iPhone.  The good news is that BYD Electronics (285 HK)is included in Apple’s supplier list to manufacture around 20-30% of iPad, and investors have been expecting this – causing the ultra optimism reflected in the share price YTD performance, beating the peers and even Apple Inc (AAPL US)

Unless the new iPad is selling like hotcakes and the domestic wearables and 5G migration really helps to increase demand, it is hard to see why BYD Electronics’ share price run-up is justifiable. 

For long-only investors – it is time to book profit. 

For long-short investors – it is time to start shorting the stock. 


Wilmar: China Ops IPO One Step Closer

By David Blennerhassett

Major agribusiness outfit Wilmar International (WIL SP) announced on the 12 July 2019 that the China Securities Regulatory Commission (CSRC) had accepted Yihai Kerry Arawana Holdings (YKA) application for its proposed listing on the Shenzhen Stock Exchange (ChiNext Board).

YKA is one of the largest agribusiness and food processing companies in China. Its business activities span the processing and sales of kitchen food, feed ingredients, and oleochemicals in China. YKA is currently 99.99% held by Wilmar.

Should the listing take place, Wilmar envisages that there will be an IPO of new YKA shares of approximately 10.0% of the total pro-forma share capital of YKA on a post-money basis (immediately after the proposed IPO, Wilmar is anticipated to hold 89.99% of YKA).

After various updates, including a financial update on the 10 August, Wilmar announced yesterday it had received final registration approval from the CSRC. It is expected that the listing will take place by mid-October 2020, subject to market conditions.

Strategic investors, including mainly State-owned funds, sovereign wealth funds, and insurance companies, have been identified to subscribe for ~30% of the IPO Shares.

The key questions now are: where will YKA trade; and where should the non-YKA ops trade?

As always, more below the fold.


Small Cap Growth: Money Forward (3994) – Be Audit You Can Be

By Mark Chadwick

  • Money Forward (3994 JP) provides online accounting software for Japan’s SMEs, providing all of the time-saving tools that small business owners need to grow. It is the Japanese version of Xero Ltd (XRO AU) or Quickbooks by Intuit Inc (INTU US) 
  • Money Forward (MF) and its domestic peer freee (4478 JP) dominate the Japanese online market, which is growing in the region of 60-70% YoY.
  • There is a huge addressable market with low online penetration. MF has the potential to build a strong competitive moat, in the absence of the global majors.
  • Today, MF looks similar to Xero in 2013. If MF follows the same growth trajectory, investors could be looking at a 9-bagger.  

Asia Gaming Outlook 2021: Las Vegas Sands at Current Price Looks like a Smart Entry Pre-Golden Week

By Howard J Klein

  • As we near Q4, we look for superior prospects for a speedier ramp for Las Vegas Sands/
  • LVS will report 3Q20 results October 21-26. Numbers could reveal early late September upticks in revenue and occupancy that could move shares.
  • Our Asia panel of associates likes LVS best among peers for earlier ramp up beginning with strong Golden Week results on average win per gaming position and hotel REVPAR.

Bloomberry Resorts: Stronger EBITDA Recovery than Macau?

By Michael Ting

Despite the significant slowdown in gaming revenues from the lack of tourism arrivals, we forecast Bloomberry to achieve EBITDA break-even by 4Q20 due to cost rationalization measures coupled with a gradual increase in local play. Bloomberry’s EBITDA recovery could outpace that of its Macau peers assuming COVID-19 is contained within the Philippines.


Berli Jucker (BJC TB) – SE Asia’s Consumer Recovery Proxy

By Angus Mackintosh

Berli Jucker (BJC TB) was hit quite hard in 2Q2020 in both its core retail and packaging businesses after a reasonable performance in 1Q2020 before the lockdown in Thailand and Vietnam took hold and during a period when consumers began stocking up. 

The real impact on the company’s packaging business came in mid-April when the Thai government put an alcohol ban in place, which was lifted in mid-May but led breweries to close operations for 4-6 weeks. 

The ban was gradually lifted for retail stores initially followed by restaurants and bars and as a result, June saw recovery and July beer sales almost back to pre-COVID-19 levels. 

Berli Jucker (BJC TB) non-alcohol bottling saw positive momentum from strong growth in sales of Vitamin C drinks. It also saw a strong response to its new 500ml cans, which are popular for home beer consumption. 

The aluminium can division has also seen the benefits of new customers coming on stream and replacing the gap left by reduced demand from Carabao. It is also seeing some scale benefits as a result of this for its slim cans.

Berli Jucker (BJC TB)’s core retail business under Big C saw a serious impact from COVID-19 in 2Q2020 with total sales down by -11.4%, with SSSG -17% but excluding its B-to-B business, SSSG fell an even greater -21.1% in 2Q2020.

Berli Jucker (BJC TB) remains a well-rounded South East Asia recovery story through its packaging, with exposure to Thailand, Vietnam and Malaysia, as well as retail, with its number two position in Thailand in the hypermarket and supermarket space.

Valuations look attractive versus history and with the prospect of a rapid recovery next year with the company trading in 22.0x FY21E PER versus its 5-year average forward PER of 29x, especially given a strong forecast recovery in earnings over the next two years. It also trades at a discount to Thai retail peers, despite a more positive earnings outlook. 


DOHOME: Expect SSSG Stronger than Peers in 2H20 and 2021

By Research Group at Country Group Securities

We upgrade from HOLD to BUY rating with a new target price of Bt16.5 based on 33xPE’21E (Previous TP is Bt12.5), which is close to the biggest home-improvement player in Thailand.

  • We expect 3Q20 earnings to grow to Bt189m (+41%YoY, 29%QoQ) driven by a strong SSSG at 9%, turning profit of Surin branch after one month operation, and improving margin from higher retail sales contribution.
  • We foresee SSSG at 9%YoY in 3Q20 mainly driven improving contribution from Ubon Ratchathani branch due to low base in 3Q19.
  • We revised up our sales and net profit forecast by 5% and 12% in 2020E to factor in strong SSSG than our expectation.

We still like DOHOME for its 1) cheapest valuation with high growth compared to peers; 2) the positioning of all its stores in locations of high potential demand; 3) plan to expand its store network by 60% within the next two years; and 4) the ample room to grow its margin.


Before it’s here, it’s on Smartkarma

United States: Sumo Logic Inc, Las Vegas Sands, Palantir Technologies Inc, USD, Gold and more

By | Daily Briefs, United States

In today’s briefing:

  • Sumo Logic IPO. Attractive Valuations For Fast-Growing SaaS Unicorn
  • Asia Gaming Outlook 2021: Las Vegas Sands at Current Price Looks like a Smart Entry Pre-Golden Week
  • Palantir DPL Valuation Analysis
  • Dollar, Euro & Sterling in Focus, Asian Currencies Under the Radar Screen
  • TMI Indicators: Gold Sentiment Seeking Catalysts Following Latest Leg Up On US Benefit Expiration

Sumo Logic IPO. Attractive Valuations For Fast-Growing SaaS Unicorn

By Andrei Zakharov

Sumo Logic provides best-in-class cloud monitoring, log management, cloud SIEM tools and real-time insights for web and SaaS based apps. Company is looking for innovative ways to reduce costs, exposure to security vulnerabilities and helps organizations at every stage of digital transformation. Sumo Logic has 2,100+ customers, including Airbnb, Anheuser-Busch, Samsung, Fastly, Okta, Sharp, One Medical, Teladoc, Fidelity, Medallia. We have positive view on Sumo Logic despite COVID-19 pandemic and intense competition from Elastic, Splunk and Datadog. Sumo Logic stock currently trades at 10x our FY 2021 revenue estimate of ~$200 million and our Sep 2021 price target of $39 a share implies ~56% upside potential keeping in mind $400 million of cash and cash equivalents after successful IPO.

Sumo Logic offered ~15 million shares at $22 a share (above the range) and we estimate net proceeds from the offering to reach $300 million. Tiger Global Management has indicated an interest in purchasing up to 10% of the shares in this offering at IPO price. Lead underwriters are Morgan Stanley, J.P. Morgan, RBC Capital Markets and Jefferies.


Asia Gaming Outlook 2021: Las Vegas Sands at Current Price Looks like a Smart Entry Pre-Golden Week

By Howard J Klein

  • As we near Q4, we look for superior prospects for a speedier ramp for Las Vegas Sands/
  • LVS will report 3Q20 results October 21-26. Numbers could reveal early late September upticks in revenue and occupancy that could move shares.
  • Our Asia panel of associates likes LVS best among peers for earlier ramp up beginning with strong Golden Week results on average win per gaming position and hotel REVPAR.

Palantir DPL Valuation Analysis

By Douglas Kim

Palantir is ready to complete its Direct Public Listing on September 23rd. 

Our valuation analysis suggests an implied market cap of $29.7 billion and a target price of $13.7 per share for Palantir (49% higher than the base price of $9.2 per share). The IPO price range is from $11.1 (low) to $16.6 per share (high). Assuming Direct Public Listing (DPL) market cap of $20 billion and diluted shares of 2.17 billion, this suggests $9.2 per share. Given the solid upside, we have a positive view of this DPL.

There are three key positives with Palantir which we believe are likely to outweigh its negatives, leading many investors to value this company at nearly $30 billion.

  • First, we believe the company’s accelerating sales growth since the launch of its Foundry product in 2017 is likely to be valued highly. The company’s sales growth is clearly much higher than its peers in 2020. 
  • Second, Palantir has picked a great time to complete its public offering with great investors demand high-quality software-related stocks this year.
  • Third, Palantir has been enjoying a noticeable improvement in its operating margins and the company possesses a strong balance sheet. 

Dollar, Euro & Sterling in Focus, Asian Currencies Under the Radar Screen

By Olivier Desbarres

Much of the market focus in recent months has been on major reserve currencies, namely:

  • The US Dollar which, contrary to bearish expectations and in line with our benign Dollar view, has treaded water in the past six weeks and since the Fed’s tweak on 27th August to its dual inflation and employment mandate;
  • The Euro’s rapid appreciation in July, its more prosaic performance in August and the first half of September and speculation that the European Central Bank would try to jawbone the currency weaker. Instead the ECB as its policy meeting on 10th September resorted to verbal intervention “light”, in line with our core scenario that Brazen ECB verbal intervention against Euro was unwarranted and unlikely (9th September 2020).
  • Sterling’s collapse last week and only partial recovery in the past four trading sessions. We are sticking to our view that the UK economy and Sterling face four potential headwinds in coming months, including i) fiscal stimulus measures being unwound, ii) a no-deal Brexit, iii) higher taxes and iv) a further re-tightening of lockdown measures in coming months (see UK & Sterling facing potential quadruple whammy, 4th September 2020).

Conversely, Asian currencies have seemingly fallen under the radar screen, for good reason. They have exhibited little directionality within very narrow ranges in the past month, particularly relative to high-yielding emerging market currencies.

We think this is the result of Asian central banks’ ability and willingness to keep their currencies on a tight leash, in order to minimise their disinflationary impact and maintain export competitiveness while at the same time capping the cost to governments, corporates and households of servicing sizeable foreign-currency denominated debt.

The Renminbi Nominal Effective Exchange Rate’s 2% appreciation in the past month, while unspectacular, is noteworthy and will be the topic of a forthcoming report.


TMI Indicators: Gold Sentiment Seeking Catalysts Following Latest Leg Up On US Benefit Expiration

By Elan Gore

Parsing through our thematic database we find that the most recent leg up in gold, a +$200/oz move to >$2000/oz in July-August, has been largely associated with the “fiscal cliff” of US benefit expiration and its potential impact on growth.  Thus, gold had been eagerly anticipating a macro-driven risk-off phase which did not materialize throughout the summer.  Unprecedented central bank balance sheet expansion drove great conviction in a secular bull market for gold on the premise that a multi-year inflationary phase has begun, but the increasing popularity of the trade may lead to conflation of short-term with long-term inflation; and as we highlighted earlier this week, we expect a downshift in short-term inflation expectations (TMI Snapshot:  Cross-Currents In The US Rental Market Hint At Pausing Inflation Expectations , 9/15.) 

Our text-mined indicators suggest sentiment on gold has been trending lower recently, both directly and indirectly via gold’s macro drivers.  Ironically, softer short-term inflation expectations and shrinking estimates of the next phase of US stimulus are both USD-friendly, and thus potentially gold-unfriendly at this stage.


Before it’s here, it’s on Smartkarma