China

In this briefing:

1. China A Share: Near-Term Momentum, but Time to Start Taking Profits
2. Sea Ltd (SE US): The Bear Case – A One-Hit Wonder?
3. Meituan Dianping (美团点评): Thoughts Before Lock-Up Expiry
4. Weibo (WB): Revenues Slowed Down Significantly in 4Q2018, Failed in Transition
5. Global Manufacturing PMI Slump at Odds with Equity and Commodity Price Rebound

1. China A Share: Near-Term Momentum, but Time to Start Taking Profits

Bottoming out (albeit marginal) of investor confidence drove the market rally YTD. News on 28th Feb that MSCI decides to quadruple China A-Shares inclusion in emerging market index is further boosting the market. Positive signals from Government Work Report might keep the market rally going for a while.

However, stake sale plans of listed companies’ major shareholders, who own 53% of A-share free-floating market cap, are on the way. This might be the catalyst for the rally to end as attracting new investors into the market is going to be tough. Institutional investors’ share positions are close to their historical high after keeping buying in the past few weeks and have limit cash for buying more. There are also no signal signs individual investors are increasing their capital allocation for stock investment.  In addition the aggressive stake reduction plans of major shareholders might be taken by other market participants to indicate negative expectations on their companies’ earnings this year. 

We think it’s time to turn cautious on A-shares: take profit and wait for the next buying opportunity for value investors.

2. Sea Ltd (SE US): The Bear Case – A One-Hit Wonder?

Despite burning through $700mn in cash in 2018, investors decided to give another $1.3bn to Sea Ltd (SE US) . We believe investors should treat Sea Ltd with caution for the following reasons:

A significant slowdown in e-commerce

Is the gaming division a one-hit wonder?

Expecting another 800mn cash burn into 2019

Consensus has priced in further upgrades while cash flow metrics worst in the sector

NB. Our team has taken both sides of the Sea Ltd investment case as we think this makes for better decision making and encourages unique thinking within our team. We strongly recommend that investors read my colleague Arun’s positive notes on the company listed below, if you have not already done so.

Sea Ltd (SE US): Placing Price Leaves Money on the Table

Sea Ltd (SE US): Placement a Good Opportunity to Enter an Attractive Story

3. Meituan Dianping (美团点评): Thoughts Before Lock-Up Expiry

Meituan Dianping, the largest O2O platform in China, was listed on September 20th last year and lock-up expiry will be on March 20th. The stock has returned -13% since listing. 

• As it heads into lock-up expiry on March 20th, we will examine Meituan Dianping shareholder structure and potential shares up for sale.
• Meituan was included by MSCI recently and will be eligible for the Hong Kong Connect soon thanks to rule amendment.
• The company delivered a decent topline growth in 3Q2018 but its profit fell short of expectation. We highlight potentials from the food supply chain solution. We also discuss implication from MoBike acquisition.
• We review our SOTP valuation of Meituan and believe there is an upside. 

4. Weibo (WB): Revenues Slowed Down Significantly in 4Q2018, Failed in Transition

• The advertising revenues slowed down significantly in 4Q2018.
• We believe the content transition from politics to entertainment was not as good as the management expected.
• We believe WB will not defeat Tencent’s WeChat.
• We believe the stock price has downside of 9%.

5. Global Manufacturing PMI Slump at Odds with Equity and Commodity Price Rebound

The slump in the global manufacturing PMIs that is broad-based in major economies and alarming in Japan, Korea and Taiwan, appears to reflect a disruption in global trade that may relate to US tariff policy. Services PMIs, on the other hand, are relatively stable and have recovered recently, and may help the global economy avoid a recession.  India’s PMIs have been relatively strong and may account for solid Indian currency and equity market performance.  The slump in the global manufacturing PMI is at odds with stronger global equities and commodity prices this year.  The market appears to be building confidence that the US-China trade dispute will be resolved, and the Chinese stimulus and a patient Fed will combine to revive manufacturing PMIs is coming months.

In this briefing:

1. Sea Ltd (SE US): The Bear Case – A One-Hit Wonder?
2. Meituan Dianping (美团点评): Thoughts Before Lock-Up Expiry
3. Weibo (WB): Revenues Slowed Down Significantly in 4Q2018, Failed in Transition
4. Global Manufacturing PMI Slump at Odds with Equity and Commodity Price Rebound
5. Ctrip (CTRP): Overcame Two Difficulties in Q4, But Market Over-Reacted to “Global No. 1”

1. Sea Ltd (SE US): The Bear Case – A One-Hit Wonder?

Despite burning through $700mn in cash in 2018, investors decided to give another $1.3bn to Sea Ltd (SE US) . We believe investors should treat Sea Ltd with caution for the following reasons:

A significant slowdown in e-commerce

Is the gaming division a one-hit wonder?

Expecting another 800mn cash burn into 2019

Consensus has priced in further upgrades while cash flow metrics worst in the sector

NB. Our team has taken both sides of the Sea Ltd investment case as we think this makes for better decision making and encourages unique thinking within our team. We strongly recommend that investors read my colleague Arun’s positive notes on the company listed below, if you have not already done so.

Sea Ltd (SE US): Placing Price Leaves Money on the Table

Sea Ltd (SE US): Placement a Good Opportunity to Enter an Attractive Story

2. Meituan Dianping (美团点评): Thoughts Before Lock-Up Expiry

Meituan Dianping, the largest O2O platform in China, was listed on September 20th last year and lock-up expiry will be on March 20th. The stock has returned -13% since listing. 

• As it heads into lock-up expiry on March 20th, we will examine Meituan Dianping shareholder structure and potential shares up for sale.
• Meituan was included by MSCI recently and will be eligible for the Hong Kong Connect soon thanks to rule amendment.
• The company delivered a decent topline growth in 3Q2018 but its profit fell short of expectation. We highlight potentials from the food supply chain solution. We also discuss implication from MoBike acquisition.
• We review our SOTP valuation of Meituan and believe there is an upside. 

3. Weibo (WB): Revenues Slowed Down Significantly in 4Q2018, Failed in Transition

• The advertising revenues slowed down significantly in 4Q2018.
• We believe the content transition from politics to entertainment was not as good as the management expected.
• We believe WB will not defeat Tencent’s WeChat.
• We believe the stock price has downside of 9%.

4. Global Manufacturing PMI Slump at Odds with Equity and Commodity Price Rebound

The slump in the global manufacturing PMIs that is broad-based in major economies and alarming in Japan, Korea and Taiwan, appears to reflect a disruption in global trade that may relate to US tariff policy. Services PMIs, on the other hand, are relatively stable and have recovered recently, and may help the global economy avoid a recession.  India’s PMIs have been relatively strong and may account for solid Indian currency and equity market performance.  The slump in the global manufacturing PMI is at odds with stronger global equities and commodity prices this year.  The market appears to be building confidence that the US-China trade dispute will be resolved, and the Chinese stimulus and a patient Fed will combine to revive manufacturing PMIs is coming months.

5. Ctrip (CTRP): Overcame Two Difficulties in Q4, But Market Over-Reacted to “Global No. 1”

* The recovery in 4Q2018 shows that CTRP has already survived the new law and the new competitor in 2018.
* We believe EPS will grow 12% in 2019.
* However, we believe the market has already over-reacted to the news last November that CTRP became the largest online travel agency.
* We set a target price of USD23.80, which is 32% below the market price.

In this briefing:

1. Meituan Dianping (美团点评): Thoughts Before Lock-Up Expiry
2. Weibo (WB): Revenues Slowed Down Significantly in 4Q2018, Failed in Transition
3. Global Manufacturing PMI Slump at Odds with Equity and Commodity Price Rebound
4. Ctrip (CTRP): Overcame Two Difficulties in Q4, But Market Over-Reacted to “Global No. 1”
5. Taiwan Investors Factor In China Recovery

1. Meituan Dianping (美团点评): Thoughts Before Lock-Up Expiry

Meituan Dianping, the largest O2O platform in China, was listed on September 20th last year and lock-up expiry will be on March 20th. The stock has returned -13% since listing. 

• As it heads into lock-up expiry on March 20th, we will examine Meituan Dianping shareholder structure and potential shares up for sale.
• Meituan was included by MSCI recently and will be eligible for the Hong Kong Connect soon thanks to rule amendment.
• The company delivered a decent topline growth in 3Q2018 but its profit fell short of expectation. We highlight potentials from the food supply chain solution. We also discuss implication from MoBike acquisition.
• We review our SOTP valuation of Meituan and believe there is an upside. 

2. Weibo (WB): Revenues Slowed Down Significantly in 4Q2018, Failed in Transition

• The advertising revenues slowed down significantly in 4Q2018.
• We believe the content transition from politics to entertainment was not as good as the management expected.
• We believe WB will not defeat Tencent’s WeChat.
• We believe the stock price has downside of 9%.

3. Global Manufacturing PMI Slump at Odds with Equity and Commodity Price Rebound

The slump in the global manufacturing PMIs that is broad-based in major economies and alarming in Japan, Korea and Taiwan, appears to reflect a disruption in global trade that may relate to US tariff policy. Services PMIs, on the other hand, are relatively stable and have recovered recently, and may help the global economy avoid a recession.  India’s PMIs have been relatively strong and may account for solid Indian currency and equity market performance.  The slump in the global manufacturing PMI is at odds with stronger global equities and commodity prices this year.  The market appears to be building confidence that the US-China trade dispute will be resolved, and the Chinese stimulus and a patient Fed will combine to revive manufacturing PMIs is coming months.

4. Ctrip (CTRP): Overcame Two Difficulties in Q4, But Market Over-Reacted to “Global No. 1”

* The recovery in 4Q2018 shows that CTRP has already survived the new law and the new competitor in 2018.
* We believe EPS will grow 12% in 2019.
* However, we believe the market has already over-reacted to the news last November that CTRP became the largest online travel agency.
* We set a target price of USD23.80, which is 32% below the market price.

5. Taiwan Investors Factor In China Recovery

It is time to go increase exposure to Taiwanese equities, if you haven’t already. Like bourses around the region, Taiwan’s stock market has rebounded from its January low and is up over 10% in two months. Underpinning our and investor optimism are expectations that Taiwan stands to benefit disproportionately from the fiscal and monetary policy easing underway in China,  that China and the US will get to some kind of trade deal and a positive reaction to TSMC’s 2019 dividend pay-out plan.

In this briefing:

1. Weibo (WB): Revenues Slowed Down Significantly in 4Q2018, Failed in Transition
2. Global Manufacturing PMI Slump at Odds with Equity and Commodity Price Rebound
3. Ctrip (CTRP): Overcame Two Difficulties in Q4, But Market Over-Reacted to “Global No. 1”
4. Taiwan Investors Factor In China Recovery
5. StubWorld: Matheson’s Strategic Buying of Strategic

1. Weibo (WB): Revenues Slowed Down Significantly in 4Q2018, Failed in Transition

• The advertising revenues slowed down significantly in 4Q2018.
• We believe the content transition from politics to entertainment was not as good as the management expected.
• We believe WB will not defeat Tencent’s WeChat.
• We believe the stock price has downside of 9%.

2. Global Manufacturing PMI Slump at Odds with Equity and Commodity Price Rebound

The slump in the global manufacturing PMIs that is broad-based in major economies and alarming in Japan, Korea and Taiwan, appears to reflect a disruption in global trade that may relate to US tariff policy. Services PMIs, on the other hand, are relatively stable and have recovered recently, and may help the global economy avoid a recession.  India’s PMIs have been relatively strong and may account for solid Indian currency and equity market performance.  The slump in the global manufacturing PMI is at odds with stronger global equities and commodity prices this year.  The market appears to be building confidence that the US-China trade dispute will be resolved, and the Chinese stimulus and a patient Fed will combine to revive manufacturing PMIs is coming months.

3. Ctrip (CTRP): Overcame Two Difficulties in Q4, But Market Over-Reacted to “Global No. 1”

* The recovery in 4Q2018 shows that CTRP has already survived the new law and the new competitor in 2018.
* We believe EPS will grow 12% in 2019.
* However, we believe the market has already over-reacted to the news last November that CTRP became the largest online travel agency.
* We set a target price of USD23.80, which is 32% below the market price.

4. Taiwan Investors Factor In China Recovery

It is time to go increase exposure to Taiwanese equities, if you haven’t already. Like bourses around the region, Taiwan’s stock market has rebounded from its January low and is up over 10% in two months. Underpinning our and investor optimism are expectations that Taiwan stands to benefit disproportionately from the fiscal and monetary policy easing underway in China,  that China and the US will get to some kind of trade deal and a positive reaction to TSMC’s 2019 dividend pay-out plan.

5. StubWorld: Matheson’s Strategic Buying of Strategic

This week in StubWorld …

• Jardine Matheson Hldgs (JM SP)‘s recent buying of Jardine Strategic Hldgs (JS SP) is nothing new and follows a long-term plan to fortify the cross-holding structure.

Preceding my comments on Jardine and other stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

In this briefing:

1. Global Manufacturing PMI Slump at Odds with Equity and Commodity Price Rebound
2. Ctrip (CTRP): Overcame Two Difficulties in Q4, But Market Over-Reacted to “Global No. 1”
3. Taiwan Investors Factor In China Recovery
4. StubWorld: Matheson’s Strategic Buying of Strategic
5. Nio (蔚来) Lock-Up Expiry – Scattered Pre-IPO Investors to Be the Sellers

1. Global Manufacturing PMI Slump at Odds with Equity and Commodity Price Rebound

The slump in the global manufacturing PMIs that is broad-based in major economies and alarming in Japan, Korea and Taiwan, appears to reflect a disruption in global trade that may relate to US tariff policy. Services PMIs, on the other hand, are relatively stable and have recovered recently, and may help the global economy avoid a recession.  India’s PMIs have been relatively strong and may account for solid Indian currency and equity market performance.  The slump in the global manufacturing PMI is at odds with stronger global equities and commodity prices this year.  The market appears to be building confidence that the US-China trade dispute will be resolved, and the Chinese stimulus and a patient Fed will combine to revive manufacturing PMIs is coming months.

2. Ctrip (CTRP): Overcame Two Difficulties in Q4, But Market Over-Reacted to “Global No. 1”

* The recovery in 4Q2018 shows that CTRP has already survived the new law and the new competitor in 2018.
* We believe EPS will grow 12% in 2019.
* However, we believe the market has already over-reacted to the news last November that CTRP became the largest online travel agency.
* We set a target price of USD23.80, which is 32% below the market price.

3. Taiwan Investors Factor In China Recovery

It is time to go increase exposure to Taiwanese equities, if you haven’t already. Like bourses around the region, Taiwan’s stock market has rebounded from its January low and is up over 10% in two months. Underpinning our and investor optimism are expectations that Taiwan stands to benefit disproportionately from the fiscal and monetary policy easing underway in China,  that China and the US will get to some kind of trade deal and a positive reaction to TSMC’s 2019 dividend pay-out plan.

4. StubWorld: Matheson’s Strategic Buying of Strategic

This week in StubWorld …

• Jardine Matheson Hldgs (JM SP)‘s recent buying of Jardine Strategic Hldgs (JS SP) is nothing new and follows a long-term plan to fortify the cross-holding structure.

Preceding my comments on Jardine and other stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

5. Nio (蔚来) Lock-Up Expiry – Scattered Pre-IPO Investors to Be the Sellers

NIO Inc (NIO US)‘s lock-up will expire next week on the 11th of March. Shareholding breakdown suggests that there will be overhang upon lock-up expiry due to the large number of scattered pre-IPO shareholders. 

In this insight, we will look at the principal and pre-IPO investors and analyze who and how many shares would likely be sold upon lock-up expiry.

In this briefing:

1. Ctrip (CTRP): Overcame Two Difficulties in Q4, But Market Over-Reacted to “Global No. 1”
2. Taiwan Investors Factor In China Recovery
3. StubWorld: Matheson’s Strategic Buying of Strategic
4. Nio (蔚来) Lock-Up Expiry – Scattered Pre-IPO Investors to Be the Sellers
5. LYFT Pre-IPO – Drivers and Shared Rides Hold the Key But the Numbers Are Missing

1. Ctrip (CTRP): Overcame Two Difficulties in Q4, But Market Over-Reacted to “Global No. 1”

* The recovery in 4Q2018 shows that CTRP has already survived the new law and the new competitor in 2018.
* We believe EPS will grow 12% in 2019.
* However, we believe the market has already over-reacted to the news last November that CTRP became the largest online travel agency.
* We set a target price of USD23.80, which is 32% below the market price.

2. Taiwan Investors Factor In China Recovery

It is time to go increase exposure to Taiwanese equities, if you haven’t already. Like bourses around the region, Taiwan’s stock market has rebounded from its January low and is up over 10% in two months. Underpinning our and investor optimism are expectations that Taiwan stands to benefit disproportionately from the fiscal and monetary policy easing underway in China,  that China and the US will get to some kind of trade deal and a positive reaction to TSMC’s 2019 dividend pay-out plan.

3. StubWorld: Matheson’s Strategic Buying of Strategic

This week in StubWorld …

• Jardine Matheson Hldgs (JM SP)‘s recent buying of Jardine Strategic Hldgs (JS SP) is nothing new and follows a long-term plan to fortify the cross-holding structure.

Preceding my comments on Jardine and other stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

4. Nio (蔚来) Lock-Up Expiry – Scattered Pre-IPO Investors to Be the Sellers

NIO Inc (NIO US)‘s lock-up will expire next week on the 11th of March. Shareholding breakdown suggests that there will be overhang upon lock-up expiry due to the large number of scattered pre-IPO shareholders. 

In this insight, we will look at the principal and pre-IPO investors and analyze who and how many shares would likely be sold upon lock-up expiry.

5. LYFT Pre-IPO – Drivers and Shared Rides Hold the Key But the Numbers Are Missing

Lyft Inc (0812823D US) plans to list in the US at a valuation of US$20-25bn, as per media reports. 

Overall growth numbers have been great but some of the numbers are missing like the quarterly driver numbers, the number of shared riders versus single riders, organic growth in major cities, and progress of Canada operations, to name a few.

In my view, without the quarterly active driver numbers and the full picture of the extent of shared rides, one can’t develop an accurate picture of the business.

In this briefing:

1. Taiwan Investors Factor In China Recovery
2. StubWorld: Matheson’s Strategic Buying of Strategic
3. Nio (蔚来) Lock-Up Expiry – Scattered Pre-IPO Investors to Be the Sellers
4. LYFT Pre-IPO – Drivers and Shared Rides Hold the Key But the Numbers Are Missing
5. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle

1. Taiwan Investors Factor In China Recovery

It is time to go increase exposure to Taiwanese equities, if you haven’t already. Like bourses around the region, Taiwan’s stock market has rebounded from its January low and is up over 10% in two months. Underpinning our and investor optimism are expectations that Taiwan stands to benefit disproportionately from the fiscal and monetary policy easing underway in China,  that China and the US will get to some kind of trade deal and a positive reaction to TSMC’s 2019 dividend pay-out plan.

2. StubWorld: Matheson’s Strategic Buying of Strategic

This week in StubWorld …

• Jardine Matheson Hldgs (JM SP)‘s recent buying of Jardine Strategic Hldgs (JS SP) is nothing new and follows a long-term plan to fortify the cross-holding structure.

Preceding my comments on Jardine and other stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

3. Nio (蔚来) Lock-Up Expiry – Scattered Pre-IPO Investors to Be the Sellers

NIO Inc (NIO US)‘s lock-up will expire next week on the 11th of March. Shareholding breakdown suggests that there will be overhang upon lock-up expiry due to the large number of scattered pre-IPO shareholders. 

In this insight, we will look at the principal and pre-IPO investors and analyze who and how many shares would likely be sold upon lock-up expiry.

4. LYFT Pre-IPO – Drivers and Shared Rides Hold the Key But the Numbers Are Missing

Lyft Inc (0812823D US) plans to list in the US at a valuation of US$20-25bn, as per media reports. 

Overall growth numbers have been great but some of the numbers are missing like the quarterly driver numbers, the number of shared riders versus single riders, organic growth in major cities, and progress of Canada operations, to name a few.

In my view, without the quarterly active driver numbers and the full picture of the extent of shared rides, one can’t develop an accurate picture of the business.

5. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle

Our positive view of the Asian region in 2018 was not reflected in stock market performance. But now is not the time to discard fundamentals and fundamental analysis. Unlike the US, the Asian region is in the early stages of a profit upcycle. As we have argued on many occasions, that is the building block required to kick start the investment cycle. But theoretical explanations of the growth process aside, is there any empirical support for the argument that profits and investment, and therefore growth, are related? We would answer in the affirmative and, in the following report, we try to show how the process works and where Asia stands on two of our Austrian Stress Indicators (ASIs). Market volatility aside, the conditions for good growth gains are firmly in place in most of the region.

In this briefing:

1. Sell Lenovo: Profit Is an Illusion, Liabilities Are Rising and There Is Little Real Equity Value
2. Shanghai/Shenzhen Connect – $8.4 Bn Inflows in February (Kweichow Moutai, Aier Eye, Luxshare)
3. China – Eurozone Negative Feedback Loop.
4. Non-Performing Loans in China
5. Sea Ltd Placement – Capitalizing on Momentum

1. Sell Lenovo: Profit Is an Illusion, Liabilities Are Rising and There Is Little Real Equity Value

In Q3, Lenovo (992 HK) reported revenue growth – well ahead of market expectations, improved margins and US$1.9bn of cashflow.  This was a considerable surprise to us – and the market.  However, having analysed the results, most of the reported revenue and profit growth comes from the Fujitsu Ltd (6702 JP) acquisition. The rise in cashflow largely came from working capital, but also benefitted from the structure of the Fujitsu deal. We think real full-year cashflow after investment, US$0.8bn, will yet again, fail to cover finance costs and dividends, and Lenovo will need to borrow another US$400m.

2. Shanghai/Shenzhen Connect – $8.4 Bn Inflows in February (Kweichow Moutai, Aier Eye, Luxshare)

In our Discover SZ/SH Connect series, we aim to help our investors understand the flow of northbound trades via the Shanghai Connect and Shenzhen Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by offshore investors in the past seven days.

We split the stocks eligible for the northbound trade into three groups: those with a market capitalization of above USD 5 billion, and those with a market capitalization between USD 1 billion and USD 5 billion.

We note that offshore investors were buying all GICS sectors, and had a strong preference for Industrials, Consumer Staples, Consumer Discretionary, and Financials names. We estimate that total inflow into the A-share market via northbound trade amounted to USD 8.4 bn in February.

3. China – Eurozone Negative Feedback Loop.

Historically, Germany and China have depended on exports to lead growth. With the US unwilling to play the role of consumer of last resort and being determined to limit its current account deficit,  this avenue is not available anymore. In the absence of a rethink by German policy makers as to how to make German growth more self -sustaining a deflationary feedback loop is developing between the EU and China. 

4. Non-Performing Loans in China

We have all seen the think-pieces in western media talking about China’s economic slowdown. Much of content that western audiences understandably focus on is the effect the trade war has on the downturn. However, we ran across a piece of data entirely driven by China that gives us pause. The amount of non-performing loans has only continued to increase. Yet, according to a trusted source 2 trillion RMB has been shifted off of the books in China. This tells us that China cannot do enough to get rid of NPLs.

5. Sea Ltd Placement – Capitalizing on Momentum

Sea Ltd (SE US) is looking to raise about US$1.2bn in its upcoming placement. It will be larger than its IPO in 2017, which raised about US$880m.

The deal scores well on our framework owing to decent valuation, strong price and earnings momentum but had little track record for comparison. The company announced a strong set of FY2018/Q4 2018 results which had beaten estimates. 

Even though, the deal size is large, representing 23.2 days of three-month ADV, there is enough time between the announcement to the end of the bookbuild to price in the impact of the placement. 

In this briefing:

1. StubWorld: Matheson’s Strategic Buying of Strategic
2. Nio (蔚来) Lock-Up Expiry – Scattered Pre-IPO Investors to Be the Sellers
3. LYFT Pre-IPO – Drivers and Shared Rides Hold the Key But the Numbers Are Missing
4. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle
5. Quick Read of 2019 Government Work Report – Bulls and Bears

1. StubWorld: Matheson’s Strategic Buying of Strategic

This week in StubWorld …

• Jardine Matheson Hldgs (JM SP)‘s recent buying of Jardine Strategic Hldgs (JS SP) is nothing new and follows a long-term plan to fortify the cross-holding structure.

Preceding my comments on Jardine and other stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

2. Nio (蔚来) Lock-Up Expiry – Scattered Pre-IPO Investors to Be the Sellers

NIO Inc (NIO US)‘s lock-up will expire next week on the 11th of March. Shareholding breakdown suggests that there will be overhang upon lock-up expiry due to the large number of scattered pre-IPO shareholders. 

In this insight, we will look at the principal and pre-IPO investors and analyze who and how many shares would likely be sold upon lock-up expiry.

3. LYFT Pre-IPO – Drivers and Shared Rides Hold the Key But the Numbers Are Missing

Lyft Inc (0812823D US) plans to list in the US at a valuation of US$20-25bn, as per media reports. 

Overall growth numbers have been great but some of the numbers are missing like the quarterly driver numbers, the number of shared riders versus single riders, organic growth in major cities, and progress of Canada operations, to name a few.

In my view, without the quarterly active driver numbers and the full picture of the extent of shared rides, one can’t develop an accurate picture of the business.

4. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle

Our positive view of the Asian region in 2018 was not reflected in stock market performance. But now is not the time to discard fundamentals and fundamental analysis. Unlike the US, the Asian region is in the early stages of a profit upcycle. As we have argued on many occasions, that is the building block required to kick start the investment cycle. But theoretical explanations of the growth process aside, is there any empirical support for the argument that profits and investment, and therefore growth, are related? We would answer in the affirmative and, in the following report, we try to show how the process works and where Asia stands on two of our Austrian Stress Indicators (ASIs). Market volatility aside, the conditions for good growth gains are firmly in place in most of the region.

5. Quick Read of 2019 Government Work Report – Bulls and Bears

The Premier Li Keqiang had just conducted an annual Government Work Report in the two session conference (两会) in Beijing this morning. In this insight, we will briefly walk through key points of his report and identify bulls and bears in the market.

While the theme of cost reduction benefits manufacturing companies, it will negative for some infrastructure service providers, such as telecom companies.

The full text in Chinese can be accessed here.

In this briefing:

1. Nio (蔚来) Lock-Up Expiry – Scattered Pre-IPO Investors to Be the Sellers
2. LYFT Pre-IPO – Drivers and Shared Rides Hold the Key But the Numbers Are Missing
3. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle
4. Quick Read of 2019 Government Work Report – Bulls and Bears
5. Sell Lenovo: Profit Is an Illusion, Liabilities Are Rising and There Is Little Real Equity Value

1. Nio (蔚来) Lock-Up Expiry – Scattered Pre-IPO Investors to Be the Sellers

NIO Inc (NIO US)‘s lock-up will expire next week on the 11th of March. Shareholding breakdown suggests that there will be overhang upon lock-up expiry due to the large number of scattered pre-IPO shareholders. 

In this insight, we will look at the principal and pre-IPO investors and analyze who and how many shares would likely be sold upon lock-up expiry.

2. LYFT Pre-IPO – Drivers and Shared Rides Hold the Key But the Numbers Are Missing

Lyft Inc (0812823D US) plans to list in the US at a valuation of US$20-25bn, as per media reports. 

Overall growth numbers have been great but some of the numbers are missing like the quarterly driver numbers, the number of shared riders versus single riders, organic growth in major cities, and progress of Canada operations, to name a few.

In my view, without the quarterly active driver numbers and the full picture of the extent of shared rides, one can’t develop an accurate picture of the business.

3. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle

Our positive view of the Asian region in 2018 was not reflected in stock market performance. But now is not the time to discard fundamentals and fundamental analysis. Unlike the US, the Asian region is in the early stages of a profit upcycle. As we have argued on many occasions, that is the building block required to kick start the investment cycle. But theoretical explanations of the growth process aside, is there any empirical support for the argument that profits and investment, and therefore growth, are related? We would answer in the affirmative and, in the following report, we try to show how the process works and where Asia stands on two of our Austrian Stress Indicators (ASIs). Market volatility aside, the conditions for good growth gains are firmly in place in most of the region.

4. Quick Read of 2019 Government Work Report – Bulls and Bears

The Premier Li Keqiang had just conducted an annual Government Work Report in the two session conference (两会) in Beijing this morning. In this insight, we will briefly walk through key points of his report and identify bulls and bears in the market.

While the theme of cost reduction benefits manufacturing companies, it will negative for some infrastructure service providers, such as telecom companies.

The full text in Chinese can be accessed here.

5. Sell Lenovo: Profit Is an Illusion, Liabilities Are Rising and There Is Little Real Equity Value

In Q3, Lenovo (992 HK) reported revenue growth – well ahead of market expectations, improved margins and US$1.9bn of cashflow.  This was a considerable surprise to us – and the market.  However, having analysed the results, most of the reported revenue and profit growth comes from the Fujitsu Ltd (6702 JP) acquisition. The rise in cashflow largely came from working capital, but also benefitted from the structure of the Fujitsu deal. We think real full-year cashflow after investment, US$0.8bn, will yet again, fail to cover finance costs and dividends, and Lenovo will need to borrow another US$400m.