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Hong Kong

Brief Hong Kong: EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions

1. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions

Image 22892592331579491277918

The highlights for December are as follows:

  • Panasonic:
    • The labour shortage at the Nevada plant is said to be under control. Thus, delays in supply do not seem to be a concern.
    • A partnership with Tropos should strengthen the software side of Panasonic’s business. Motors. Panasonic’s software platform, OneConnect, to be used in Tropos manufactured EVs designed for use in last-mile applications and emergency.
    • Efforts by the company to improve its battery business and adopt CASE related technologies (as highlighted in our previous monthlies) are likely to bring in growth only over the medium term. For the upcoming quarter, consensus and our estimates are for a decline in revenue and OP given the unfavourable market conditions and struggle in battery business through last year.
  • There will be no further cut in subsidy in China for NEVs. With the subsidy staying intact, demand for NEVs is likely to improve (or at least not decline further) suggesting better market conditions for battery players globally (who invested in China despite the country’s slowdown last year).
  • CATL was quiet last month, although there was news about the company being a possible buyer of the US luxury car brand-Aston Martin. This seems more likely to be merely a rumour and we feel that CATL does not seem to have strong synergies to do so.
  • South Korean players had no major battery highlights last month.
  • CATL’s share price continued to rise last month, followed by Panasonic, both outperforming the market. The Korean players and BYD continued to see relatively weak performance during the month.

Source: CapIQ

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Brief Hong Kong: Hang Seng Bank – Lean on Me and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. Hang Seng Bank – Lean on Me
  2. StubWorld: PCCW – The Good, The Bad …
  3. The Guerrilla War Against The PBOC
  4. The US and Developed Countries: Bump in the Road or Cliff Edge?
  5. HSBC Holdings Plc – D-Day on Tuesday

1. Hang Seng Bank – Lean on Me

  • Modest EPS Weakness Set to Continue: Hang Seng Bank (11.HK) [Hang Seng] reported 2H19 EPS results of HKD 5.79 per share – a decline of just 1% YOY – reflective of weaker overall revenues. NIMs disappointed despite the increase in HIBOR.  Additionally, credit costs and operating expenses were higher than expected.  The super normal profit cycle in Hong Kong now appears to have ended. 
  • HSBC Needs Capital:With an above average CET1 ratio at 16.9%, which increased 50 bp linked period, there is a very high likelihood that Hang Seng’s dividend will remain intact – and even continue its upward ascent. For 2019, Hang Seng’s dividend per share rose 9% against 2% profit growth as the payout rose from 60% to 64%.  

2. StubWorld: PCCW – The Good, The Bad …

Image?1581996976

This week in StubWorld …

A return to positive EBITDA for PCCW Ltd (8 HK)‘s media ops in the 2H19 is offset by a significant increase in elimination costs.

Preceding my comments on PCCW and GMO Internet (9449 JP) 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. The Guerrilla War Against The PBOC

In the wake of the news of the coronavirus infection, the Chinese leadership went into overdrive and made it a Draghi-like “whatever it takes” moment to prevent panic and stabilize markets. When the stock markets opened after the Lunar New Year break, the authorities prohibited short sales, directed large shareholders not to sell their holdings and the PBOC turned on their firehose of liquidity to support the stock market. Those steps largely succeeded. China’s stock markets stabilized and recovered, and so too did the markets of China’s Asian trading partners.

However, there were signs that the market is unimpressed by the steps taken by Beijing to control the outbreak and limit its economic impact. Market participants were conducting a guerrilla campaign against the PBOC.

While stock markets have been strong, commodity markets have been weak. Foreign exchange markets are also taking a definite risk-off tone, contrary to the PBOC’s efforts to support risk appetite. Even Chinese market internals are exhibiting skepticism, as financial stocks have lagged the market rally.

This argues for a contrarian position of long EM, commodities, and commodity producers and short U.S. equities. Aggressive traders could enter into a long and short pairs trade, while more risk-controlled accounts could just overweight and underweight.

If the bulls are right, and the coronavirus outbreak recedes and comes under control, U.S. equities should begin to underperform as the demand for safe havens, while cyclically sensitive EM and commodities would rally. On the other hand, if the outbreak were to spiral out of control and global growth collapses, U.S. equities would correct, but there is likely less downside risk in EM and commodity exposure because they have already fallen substantially.

4. The US and Developed Countries: Bump in the Road or Cliff Edge?

Image 81736776421581584801158

We are in the camp that believes the US economy will hit a recessionary speed-bump in 2020. This isn’t because of the coronavirus fallout but because of signals that emerged through 2019. Over the years we have relied on a series of indicators which have a good track record in forecasting US downturns, regardless of elections or public health.

5. HSBC Holdings Plc – D-Day on Tuesday

  • Weak Linked Quarter Results: HSBC Holdings Plc (5.HK) [HSBC] releases 4Q19 earnings results on Tuesday (400 am London time). HSBC 4Q19 consensus points to of a profit before tax of USD 3.9 bn. 
  • Restructuring:  We are hopeful to see management to chop some dead wood in the form of USD 100 bn in RWAs (10% of Group RWAs) likely from the non-ringfenced UK bank, GBM ex-Asia, and other wasteful areas such as the US and Mexico. 
  • Hong Kong Worries:In addition, we are hopeful of a reasonable update on credit and broader impact of economic situation in Hong Kong / China post-outbreak of the coronavirus. Given the massive subsidization of Group earnings by Hong Kong, no doubt earnings pressure (from both revenues and provisions) will be felt at the Group level. As such, HSBC will struggle to exhibit positive operating leverage and earnings growth and will be pressured to reduce the dividend payout ratio especially given the restructuring. 

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Brief Hong Kong: EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions
  2. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green

1. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions

Image 22892592331579491277918

The highlights for December are as follows:

  • Panasonic:
    • The labour shortage at the Nevada plant is said to be under control. Thus, delays in supply do not seem to be a concern.
    • A partnership with Tropos should strengthen the software side of Panasonic’s business. Motors. Panasonic’s software platform, OneConnect, to be used in Tropos manufactured EVs designed for use in last-mile applications and emergency.
    • Efforts by the company to improve its battery business and adopt CASE related technologies (as highlighted in our previous monthlies) are likely to bring in growth only over the medium term. For the upcoming quarter, consensus and our estimates are for a decline in revenue and OP given the unfavourable market conditions and struggle in battery business through last year.
  • There will be no further cut in subsidy in China for NEVs. With the subsidy staying intact, demand for NEVs is likely to improve (or at least not decline further) suggesting better market conditions for battery players globally (who invested in China despite the country’s slowdown last year).
  • CATL was quiet last month, although there was news about the company being a possible buyer of the US luxury car brand-Aston Martin. This seems more likely to be merely a rumour and we feel that CATL does not seem to have strong synergies to do so.
  • South Korean players had no major battery highlights last month.
  • CATL’s share price continued to rise last month, followed by Panasonic, both outperforming the market. The Korean players and BYD continued to see relatively weak performance during the month.

Source: CapIQ

2. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Hong Kong: Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green

1. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Hong Kong: StubWorld: PCCW – The Good, The Bad … and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. StubWorld: PCCW – The Good, The Bad …
  2. The Guerrilla War Against The PBOC
  3. The US and Developed Countries: Bump in the Road or Cliff Edge?
  4. HSBC Holdings Plc – D-Day on Tuesday
  5. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat

1. StubWorld: PCCW – The Good, The Bad …

Image 12550834341581994759772

This week in StubWorld …

A return to positive EBITDA for PCCW Ltd (8 HK)‘s media ops in the 2H19 is offset by a significant increase in elimination costs.

Preceding my comments on PCCW and GMO Internet (9449 JP) 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. The Guerrilla War Against The PBOC

In the wake of the news of the coronavirus infection, the Chinese leadership went into overdrive and made it a Draghi-like “whatever it takes” moment to prevent panic and stabilize markets. When the stock markets opened after the Lunar New Year break, the authorities prohibited short sales, directed large shareholders not to sell their holdings and the PBOC turned on their firehose of liquidity to support the stock market. Those steps largely succeeded. China’s stock markets stabilized and recovered, and so too did the markets of China’s Asian trading partners.

However, there were signs that the market is unimpressed by the steps taken by Beijing to control the outbreak and limit its economic impact. Market participants were conducting a guerrilla campaign against the PBOC.

While stock markets have been strong, commodity markets have been weak. Foreign exchange markets are also taking a definite risk-off tone, contrary to the PBOC’s efforts to support risk appetite. Even Chinese market internals are exhibiting skepticism, as financial stocks have lagged the market rally.

This argues for a contrarian position of long EM, commodities, and commodity producers and short U.S. equities. Aggressive traders could enter into a long and short pairs trade, while more risk-controlled accounts could just overweight and underweight.

If the bulls are right, and the coronavirus outbreak recedes and comes under control, U.S. equities should begin to underperform as the demand for safe havens, while cyclically sensitive EM and commodities would rally. On the other hand, if the outbreak were to spiral out of control and global growth collapses, U.S. equities would correct, but there is likely less downside risk in EM and commodity exposure because they have already fallen substantially.

3. The US and Developed Countries: Bump in the Road or Cliff Edge?

Image 81736776421581584801158

We are in the camp that believes the US economy will hit a recessionary speed-bump in 2020. This isn’t because of the coronavirus fallout but because of signals that emerged through 2019. Over the years we have relied on a series of indicators which have a good track record in forecasting US downturns, regardless of elections or public health.

4. HSBC Holdings Plc – D-Day on Tuesday

  • Weak Linked Quarter Results: HSBC Holdings Plc (5.HK) [HSBC] releases 4Q19 earnings results on Tuesday (400 am London time). HSBC 4Q19 consensus points to of a profit before tax of USD 3.9 bn. 
  • Restructuring:  We are hopeful to see management to chop some dead wood in the form of USD 100 bn in RWAs (10% of Group RWAs) likely from the non-ringfenced UK bank, GBM ex-Asia, and other wasteful areas such as the US and Mexico. 
  • Hong Kong Worries:In addition, we are hopeful of a reasonable update on credit and broader impact of economic situation in Hong Kong / China post-outbreak of the coronavirus. Given the massive subsidization of Group earnings by Hong Kong, no doubt earnings pressure (from both revenues and provisions) will be felt at the Group level. As such, HSBC will struggle to exhibit positive operating leverage and earnings growth and will be pressured to reduce the dividend payout ratio especially given the restructuring. 

5. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat

Image 86386088521581645599692

On the back of robust billings in the fourth quarter, the semiconductor Wafer Fab Equipment (WFE) segment closed out 2019 on a  comparatively high note with annual billings for the North American players down 12% YoY, far less than had been originally anticipated. Now, with  Applied Materials bringing to a close the latest reporting season earlier this week, the consensus is for strong double digit growth in 2020.  However, that growth number comes with health warning as AMAT lowers its first quarter guidance by $300 million, some 7% of revenues, as a result of the disruption to their business in China caused by the spread of the so-called Novel Coronavirus in Hubei province. 

You are currently reading Executive Summaries of Smartkarma Insights.

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Brief Hong Kong: The Guerrilla War Against The PBOC and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. The Guerrilla War Against The PBOC
  2. The US and Developed Countries: Bump in the Road or Cliff Edge?
  3. HSBC Holdings Plc – D-Day on Tuesday
  4. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat
  5. HK – Shorts Pile Into Tencent, CCB, Ping An, Sunny Optical, AIA; Cover Mobile, China Tower, BYD

1. The Guerrilla War Against The PBOC

In the wake of the news of the coronavirus infection, the Chinese leadership went into overdrive and made it a Draghi-like “whatever it takes” moment to prevent panic and stabilize markets. When the stock markets opened after the Lunar New Year break, the authorities prohibited short sales, directed large shareholders not to sell their holdings and the PBOC turned on their firehose of liquidity to support the stock market. Those steps largely succeeded. China’s stock markets stabilized and recovered, and so too did the markets of China’s Asian trading partners.

However, there were signs that the market is unimpressed by the steps taken by Beijing to control the outbreak and limit its economic impact. Market participants were conducting a guerrilla campaign against the PBOC.

While stock markets have been strong, commodity markets have been weak. Foreign exchange markets are also taking a definite risk-off tone, contrary to the PBOC’s efforts to support risk appetite. Even Chinese market internals are exhibiting skepticism, as financial stocks have lagged the market rally.

This argues for a contrarian position of long EM, commodities, and commodity producers and short U.S. equities. Aggressive traders could enter into a long and short pairs trade, while more risk-controlled accounts could just overweight and underweight.

If the bulls are right, and the coronavirus outbreak recedes and comes under control, U.S. equities should begin to underperform as the demand for safe havens, while cyclically sensitive EM and commodities would rally. On the other hand, if the outbreak were to spiral out of control and global growth collapses, U.S. equities would correct, but there is likely less downside risk in EM and commodity exposure because they have already fallen substantially.

2. The US and Developed Countries: Bump in the Road or Cliff Edge?

Image 81736776421581584801158

We are in the camp that believes the US economy will hit a recessionary speed-bump in 2020. This isn’t because of the coronavirus fallout but because of signals that emerged through 2019. Over the years we have relied on a series of indicators which have a good track record in forecasting US downturns, regardless of elections or public health.

3. HSBC Holdings Plc – D-Day on Tuesday

  • Weak Linked Quarter Results: HSBC Holdings Plc (5.HK) [HSBC] releases 4Q19 earnings results on Tuesday (400 am London time). HSBC 4Q19 consensus points to of a profit before tax of USD 3.9 bn. 
  • Restructuring:  We are hopeful to see management to chop some dead wood in the form of USD 100 bn in RWAs (10% of Group RWAs) likely from the non-ringfenced UK bank, GBM ex-Asia, and other wasteful areas such as the US and Mexico. 
  • Hong Kong Worries:In addition, we are hopeful of a reasonable update on credit and broader impact of economic situation in Hong Kong / China post-outbreak of the coronavirus. Given the massive subsidization of Group earnings by Hong Kong, no doubt earnings pressure (from both revenues and provisions) will be felt at the Group level. As such, HSBC will struggle to exhibit positive operating leverage and earnings growth and will be pressured to reduce the dividend payout ratio especially given the restructuring. 

4. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat

Image 86386088521581645599692

On the back of robust billings in the fourth quarter, the semiconductor Wafer Fab Equipment (WFE) segment closed out 2019 on a  comparatively high note with annual billings for the North American players down 12% YoY, far less than had been originally anticipated. Now, with  Applied Materials bringing to a close the latest reporting season earlier this week, the consensus is for strong double digit growth in 2020.  However, that growth number comes with health warning as AMAT lowers its first quarter guidance by $300 million, some 7% of revenues, as a result of the disruption to their business in China caused by the spread of the so-called Novel Coronavirus in Hubei province. 

5. HK – Shorts Pile Into Tencent, CCB, Ping An, Sunny Optical, AIA; Cover Mobile, China Tower, BYD

Image

We take a look at the latest SFC data released today evening on short position reporting in Hong Kong for the week ended 7 February 2020.

Total short notional in Hong Kong increased from HKD 427.18bn to HKD 462bn over the week mainly driven by higher stock prices.

Shorts increased in Financials (US$459m), Information Technology (US$270m) and Consumer Discretionary (US$221m) while shorts were covered in Materials (US$18m).

You are currently reading Executive Summaries of Smartkarma Insights.

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Brief Hong Kong: Cosco Shipping (517 HK): Option Program Announced for Senior Management; Rally to Continue? and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. Cosco Shipping (517 HK): Option Program Announced for Senior Management; Rally to Continue?
  2. China Outbreak Theme: Winners and Losers
  3. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions
  4. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green

1. Cosco Shipping (517 HK): Option Program Announced for Senior Management; Rally to Continue?

This will be a very short and concise write-up and a follow up to an earlier insight on Cosco Ship Intl-517 HK: Trading at Negative EV & 25% Discount to Net Cash; Deep Value or Value Trap? 

Cosco International Holdings (517 HK) has been a value trap since my initial insight in May 2018. Shares have continued to drop and negative EV has doubled from -1.25B HKD to -2.4B HKD. Classic HK value trap. Please recall, 517 HK has been consistently profitable and paying dividends. Its capital allocation has just been horrendous.

I had singled out Cosco International Holdings (517 HK) as one of my top picks for 2020 in Overview of My Winners and Losers in 2019… And 5 High Conviction Ideas Going into 2020

YTD shares are now up more than 16% on high volume. What’s going on?

Management announced it will institute a share option program yesterday. This has been because of shareholder activism at its latest AGM. We believe should these options be implemented the share price can rally extremely hard as it finally aligns management with shareholders. Management does not really have to perform any rocket science to have the stock re-rate from negative EV to just 0 EV. God forbid investors might actually value its earnings stream at one point!

The share price is currently around 2.4 HKD and NET CASH on the balance sheet alone is 4 HKD (66% upside). Returning this cash to shareholders via a 75-80% payout ratio and share buybacks should propel the stock significantly higher. Expect newsflow to pick up the coming 60 days with 1) an SGM announcement and 2) FY2019 in March.

Given the track record of management in returning cash (note: they actually lowered their interim dividend in 2019 despite the massive cash hoard!), and the fact that its an SOE many investors will pass on this idea despite the market cap being over 500M HKD and ADTV at 1M USD recently. If we are wrong, the downside is still protected by the cash.

2. China Outbreak Theme: Winners and Losers

Image%20result%20for%20wuhan%20train%20stations%20virus?1579582756

Not all stocks are losers for the China coronavirus contagion, Health And Happiness (H&H) (1112 HK) is a potential winner due to potential higher demand from its adult nutrition care. Surgical gloves producers such as Top Glove Corp (TOPG MK) and Hartalega Holdings (HART MK) will also benefit from higher turnover.

Tourism-related names such as Airports Of Thailand (AOT TB) , Beijing Capital International Airport (BCIA) (694 HK) , Air China Ltd (H) (753 HK) and Travelsky Technology Ltd H (696 HK) will suffer during this contagion period due to softer revenue growth. Hotel Shilla (008770 KS) is very popular with Chinese tourists hence a less number of Chinese going out to Korea due to potential travel ban may hurt their sales. 

3. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions

Image 22892592331579491277918

The highlights for December are as follows:

  • Panasonic:
    • The labour shortage at the Nevada plant is said to be under control. Thus, delays in supply do not seem to be a concern.
    • A partnership with Tropos should strengthen the software side of Panasonic’s business. Motors. Panasonic’s software platform, OneConnect, to be used in Tropos manufactured EVs designed for use in last-mile applications and emergency.
    • Efforts by the company to improve its battery business and adopt CASE related technologies (as highlighted in our previous monthlies) are likely to bring in growth only over the medium term. For the upcoming quarter, consensus and our estimates are for a decline in revenue and OP given the unfavourable market conditions and struggle in battery business through last year.
  • There will be no further cut in subsidy in China for NEVs. With the subsidy staying intact, demand for NEVs is likely to improve (or at least not decline further) suggesting better market conditions for battery players globally (who invested in China despite the country’s slowdown last year).
  • CATL was quiet last month, although there was news about the company being a possible buyer of the US luxury car brand-Aston Martin. This seems more likely to be merely a rumour and we feel that CATL does not seem to have strong synergies to do so.
  • South Korean players had no major battery highlights last month.
  • CATL’s share price continued to rise last month, followed by Panasonic, both outperforming the market. The Korean players and BYD continued to see relatively weak performance during the month.

Source: CapIQ

4. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Hong Kong: The US and Developed Countries: Bump in the Road or Cliff Edge? and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. The US and Developed Countries: Bump in the Road or Cliff Edge?
  2. HSBC Holdings Plc – D-Day on Tuesday
  3. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat
  4. HK – Shorts Pile Into Tencent, CCB, Ping An, Sunny Optical, AIA; Cover Mobile, China Tower, BYD
  5. China Agri: Done Deal As IFA Signs Off

1. The US and Developed Countries: Bump in the Road or Cliff Edge?

Image 81736776421581584801158

We are in the camp that believes the US economy will hit a recessionary speed-bump in 2020. This isn’t because of the coronavirus fallout but because of signals that emerged through 2019. Over the years we have relied on a series of indicators which have a good track record in forecasting US downturns, regardless of elections or public health.

2. HSBC Holdings Plc – D-Day on Tuesday

  • Weak Linked Quarter Results: HSBC Holdings Plc (5.HK) [HSBC] releases 4Q19 earnings results on Tuesday (400 am London time). HSBC 4Q19 consensus points to of a profit before tax of USD 3.9 bn. 
  • Restructuring:  We are hopeful to see management to chop some dead wood in the form of USD 100 bn in RWAs (10% of Group RWAs) likely from the non-ringfenced UK bank, GBM ex-Asia, and other wasteful areas such as the US and Mexico. 
  • Hong Kong Worries:In addition, we are hopeful of a reasonable update on credit and broader impact of economic situation in Hong Kong / China post-outbreak of the coronavirus. Given the massive subsidization of Group earnings by Hong Kong, no doubt earnings pressure (from both revenues and provisions) will be felt at the Group level. As such, HSBC will struggle to exhibit positive operating leverage and earnings growth and will be pressured to reduce the dividend payout ratio especially given the restructuring. 

3. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat

Image 86386088521581645599692

On the back of robust billings in the fourth quarter, the semiconductor Wafer Fab Equipment (WFE) segment closed out 2019 on a  comparatively high note with annual billings for the North American players down 12% YoY, far less than had been originally anticipated. Now, with  Applied Materials bringing to a close the latest reporting season earlier this week, the consensus is for strong double digit growth in 2020.  However, that growth number comes with health warning as AMAT lowers its first quarter guidance by $300 million, some 7% of revenues, as a result of the disruption to their business in China caused by the spread of the so-called Novel Coronavirus in Hubei province. 

4. HK – Shorts Pile Into Tencent, CCB, Ping An, Sunny Optical, AIA; Cover Mobile, China Tower, BYD

Image

We take a look at the latest SFC data released today evening on short position reporting in Hong Kong for the week ended 7 February 2020.

Total short notional in Hong Kong increased from HKD 427.18bn to HKD 462bn over the week mainly driven by higher stock prices.

Shorts increased in Financials (US$459m), Information Technology (US$270m) and Consumer Discretionary (US$221m) while shorts were covered in Materials (US$18m).

5. China Agri: Done Deal As IFA Signs Off

Image 23349730821581649198534

On the 28 November, state-owned COFCO, and major shareholder, proposed the privatisation of grain processor and trader China Agri Industries Hldgs (606 HK) at $4.25/share, a 34.07% premium to last close, by way of a Scheme. The price was final. 

With COFCO, together with concert parties, holding 60.75% of shares out, the blocking vote at the Scheme Meeting was 3.925%. No single shareholder has such a blocking stake. The headcount test does not apply as China Agri is Hong Kong-incorporated.

The Scheme Document is now out. The Court Meeting is scheduled to take place on the 6 March. The IFA considers the Offer to be fair and reasonable. Optically, this opinion was a given.

This is a pretty clean Scheme. I previously estimated payment the second week of March – however, the indicative payment will now occur on or before the 30 March, after the dispatch of the Scheme Document was delayed until the 14 February from the 18 December. 

A further interim dividend of HK$0.04, declared on the 4 February, will also be added to the Offer Price, after the Offeror “consented to the declaration and payment“. The record date for this dividend is the 17 March, the same day as the Scheme Record date. The payment is expected on the 17 April.

Trading at a gross spread of 1.6%, including the dividend, with payment in around 6 weeks, for those investors seeking a quick return.

You are currently reading Executive Summaries of Smartkarma Insights.

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Brief Hong Kong: China Outbreak Theme: Winners and Losers and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. China Outbreak Theme: Winners and Losers
  2. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions
  3. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green

1. China Outbreak Theme: Winners and Losers

Image%20result%20for%20wuhan%20train%20stations%20virus?1579582756

Not all stocks are losers for the China coronavirus contagion, Health And Happiness (H&H) (1112 HK) is a potential winner due to potential higher demand from its adult nutrition care. Surgical gloves producers such as Top Glove Corp (TOPG MK) and Hartalega Holdings (HART MK) will also benefit from higher turnover.

Tourism-related names such as Airports Of Thailand (AOT TB) , Beijing Capital International Airport (BCIA) (694 HK) , Air China Ltd (H) (753 HK) and Travelsky Technology Ltd H (696 HK) will suffer during this contagion period due to softer revenue growth. Hotel Shilla (008770 KS) is very popular with Chinese tourists hence a less number of Chinese going out to Korea due to potential travel ban may hurt their sales. 

2. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions

Image 22892592331579491277918

The highlights for December are as follows:

  • Panasonic:
    • The labour shortage at the Nevada plant is said to be under control. Thus, delays in supply do not seem to be a concern.
    • A partnership with Tropos should strengthen the software side of Panasonic’s business. Motors. Panasonic’s software platform, OneConnect, to be used in Tropos manufactured EVs designed for use in last-mile applications and emergency.
    • Efforts by the company to improve its battery business and adopt CASE related technologies (as highlighted in our previous monthlies) are likely to bring in growth only over the medium term. For the upcoming quarter, consensus and our estimates are for a decline in revenue and OP given the unfavourable market conditions and struggle in battery business through last year.
  • There will be no further cut in subsidy in China for NEVs. With the subsidy staying intact, demand for NEVs is likely to improve (or at least not decline further) suggesting better market conditions for battery players globally (who invested in China despite the country’s slowdown last year).
  • CATL was quiet last month, although there was news about the company being a possible buyer of the US luxury car brand-Aston Martin. This seems more likely to be merely a rumour and we feel that CATL does not seem to have strong synergies to do so.
  • South Korean players had no major battery highlights last month.
  • CATL’s share price continued to rise last month, followed by Panasonic, both outperforming the market. The Korean players and BYD continued to see relatively weak performance during the month.

Source: CapIQ

3. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

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Brief Hong Kong: China Outbreak Theme: Winners and Losers and more

By | Daily Briefs, Hong Kong

In this briefing:

  1. China Outbreak Theme: Winners and Losers
  2. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions
  3. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green
  4. The Race To The Top? Beijing Chases The Wall Street Bubble

1. China Outbreak Theme: Winners and Losers

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Not all stocks are losers for the China coronavirus contagion, Health And Happiness (H&H) (1112 HK) is a potential winner due to potential higher demand from its adult nutrition care. Surgical gloves producers such as Top Glove Corp (TOPG MK) and Hartalega Holdings (HART MK) will also benefit from higher turnover.

Tourism-related names such as Airports Of Thailand (AOT TB) , Beijing Capital International Airport (BCIA) (694 HK) , Air China Ltd (H) (753 HK) and Travelsky Technology Ltd H (696 HK) will suffer during this contagion period due to softer revenue growth. Hotel Shilla (008770 KS) is very popular with Chinese tourists hence a less number of Chinese going out to Korea due to potential travel ban may hurt their sales. 

2. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions

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The highlights for December are as follows:

  • Panasonic:
    • The labour shortage at the Nevada plant is said to be under control. Thus, delays in supply do not seem to be a concern.
    • A partnership with Tropos should strengthen the software side of Panasonic’s business. Motors. Panasonic’s software platform, OneConnect, to be used in Tropos manufactured EVs designed for use in last-mile applications and emergency.
    • Efforts by the company to improve its battery business and adopt CASE related technologies (as highlighted in our previous monthlies) are likely to bring in growth only over the medium term. For the upcoming quarter, consensus and our estimates are for a decline in revenue and OP given the unfavourable market conditions and struggle in battery business through last year.
  • There will be no further cut in subsidy in China for NEVs. With the subsidy staying intact, demand for NEVs is likely to improve (or at least not decline further) suggesting better market conditions for battery players globally (who invested in China despite the country’s slowdown last year).
  • CATL was quiet last month, although there was news about the company being a possible buyer of the US luxury car brand-Aston Martin. This seems more likely to be merely a rumour and we feel that CATL does not seem to have strong synergies to do so.
  • South Korean players had no major battery highlights last month.
  • CATL’s share price continued to rise last month, followed by Panasonic, both outperforming the market. The Korean players and BYD continued to see relatively weak performance during the month.

Source: CapIQ

3. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

4. The Race To The Top? Beijing Chases The Wall Street Bubble

Image 12467037221579281300716

  • Central Banks continue to fuel markets
  • China’s PBoC starting to add liquidity
  • Is this a Shanghai Accord 2 matching previous monetary deals like 1985 Plaza Accord?
  • Emerging Markets potentially key beneficiaries in 2020

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