Hong Kong

In this briefing:

1. Weimob IPO Valuation: Optically Cheap
2. Weimob IPO Quick Take – Less SaaS, More Ads -> Lower Valuation
3. Jardine C&C (JCNC SP): Close the Stub Trade
4. StubWorld: A 2018 Review In Charts
5. Maoyan Entertainment IPO: The Trouble with Blockbusters

1. Weimob IPO Valuation: Optically Cheap

Weimob.com (1260480D CH) is a combination of a SaaS software and an adtech (targeted marketing) business which has started book building to raise gross proceeds of $108-135 million. According to press reports, Weimob is being viewed favourably by investors as it is being offered at a “cheap” valuation of 18-23x 2019 P/E.

2. Weimob IPO Quick Take – Less SaaS, More Ads -> Lower Valuation

Weimob.com (1260480D CH),  a Tencent Holdings (700 HK) and GIC investee company, plans to raise up to US$135m in its Hong Kong IPO.

I’ve covered most aspects of the deal in my earlier insight, Weimob Pre-IPO – Can Be Steamrolled by Tencent, Anytime, where I spoke about the over-reliance on Tencent, high attrition rates and acquisition costs for SMBs, and the increasing contribution of its ads business.

In this insight, I’ll provide an update from the latest filings, comment on valuations and run the deal through our IPO framework.

3. Jardine C&C (JCNC SP): Close the Stub Trade

In my original insight on October 17, 2018 TRADE IDEA – Jardine Cycle & Carriage (JCNC SP) Stub , I proposed setting up a stub trade to profit from volatility in the markets that caused the Jardine Cycle & Carriage (JCNC SP) stub to trade at a historically low discount to NAV. During the 78 calendar days that followed, Jardine Cycle & Carriage (JCNC SP) has gained 23% and the trade has made 5.03% on the gross notional. I now recommend closing the trade.

In this insight I will discuss:

• Performance of ALL my recommended stub trades
• a post-mortem trade analysis on the JCNC stub

4. StubWorld: A 2018 Review In Charts

This week in StubWorld …

• The average NAV discount of a basket of 40 Holdcos steadily, and not altogether unsurprisingly, widened throughout the year.
• Passive, tech-related and illiquid Holdcos widened most; while cross-border and property Holdcos were the best of the worst.  
• Illiquid, property, and passive Holdcos’ underperformance (or widening) was more pronounced in the first half. Tech Holdcos primarily widened in the second half.
• Worst performers (discount widening): In absolute % terms, United Co Rusal Plc (486 HK) and Asm International Nv (ASM NA) roughly shared the largest moves; while Dah Sing Financial (440 HK), First Pacific Co (142 HK), Genting Bhd (GENT MK) and Pasona Group (2168 JP) are trading at or near their 52-week wides and 52-week low prices.
• Best performers (discount narrowing): China Conch Venture Holdings Ltd (586 HK) is the only Holdco in positive territory; while Japan Post Holdings (6178 JP) is trading closest to its narrowest level in the last 12 months.

Below the various NAV discount chart summaries of various baskets are my weekly setup/unwind tables.

This, and other relationships discussed below, trade with: 1) a minimum liquidity threshold of US$1mn on a 90-day moving average; and 2) a minimum 20% ‘market capitalisation’ threshold, whereby the value of the holding/Opco held must be at least 20% of the parent’s market cap.

Comments on Jardine Matheson Hldgs (JM SP) / Jardine Strategic Hldgs (JS SP) also follow the setup/unwind tables.

5. Maoyan Entertainment IPO: The Trouble with Blockbusters

Maoyan Entertainment, formerly Entertainment Plus (EPLUS HK), is the largest online movie ticketing service provider in China. According to press reports, Maoyan has started pre-marketing to raise $0.3 billion (down from earlier indication of $0.5-1.0 billion) through a Hong Kong IPO. Maoyan is backed by Beijing Enlight Media (300251 CH) (20.0% shareholder), Tencent Holdings (700 HK) (16.3% shareholder) and Meituan Dianping (3690 HK) (8.6% shareholder).

In this briefing:

1. Global Semiconductor Sales Fall In November 2018. This Is Not A Good Sign.
2. Discover HK Connect: Mainlanders Were Buying Pharma and Property Managers in December
3. FutureBright (703 HK): Typhoon Dampens 3Q Results

1. Global Semiconductor Sales Fall In November 2018. This Is Not A Good Sign.

The Semiconductor Industry Association (SIA) just announced that worldwide sales of semiconductors reached $41.4 billion for the month of November 2018, an increase of 9.8% YoY, but down 1.1% MoM, the first such decline since February 2018. While the decline is modest and total 2018 total semiconductor sales are on track to reach ~$470 billion for a YoY increase of 15.7%, any decline in what should be peak holiday season is not a good sign. 

Semiconductor sales historically track Wafer Fab Equipment (WFE) sales with a roughly six month time lag. North American WFE sales have been declining each month for the past six months meaning that this latest semiconductor MoM sales decline is right on schedule.  

Leveraging a decade’s worth of historical data, we analyse two key questions that are likely on every investors mind. Firstly,for how long should we expect semiconductor sales to continue their decline. Secondly, how steep should we expect that decline to be?    

2. Discover HK Connect: Mainlanders Were Buying Pharma and Property Managers in December

In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainlanders in the past seven days.

We split the stocks eligible for the Hong Kong Connect trade into three groups: those with a market capitalization of above USD 5 billion, those with a market capitalization between USD 1 billion and USD 5 billion, and those with a market capitalization between USD 500 million and USD 1 billion.

3. FutureBright (703 HK): Typhoon Dampens 3Q Results

We recently met with management to discuss the company’s 3Q results and outlook for the coming year.

There was clear disappointment that goals for 2018 had not been achieved: rising opex dampened the recovery in EBITDA, despite solid SSSg, the Hengqin Land sale is racked with yet further delays, and the key rental property is still untenanted. That said, we feel much of the frustration is due to positive outcomes on all front being just around the corner.

This note aims to give a brief update on the key pillars forming our thesis.

In this briefing:

1. Asian Credit Monitor: 2019 Portfolio Strategy, US Rate Trajectory, China Reform Pause
2. TRACKING TRAFFIC/Chinese Tourism: Visits to Macau & HK Surge
3. Forecasting the Semiconductor Market
4. Chengdu Expressway (成都高速) IPO Review – Well-Managed but Unexciting
5. Weimob IPO Valuation: Optically Cheap

1. Asian Credit Monitor: 2019 Portfolio Strategy, US Rate Trajectory, China Reform Pause

If we had to make a base observation for Asia credit markets over 2018, it was certainly caught “wrong-footed” like most of its other risky asset counterparts. The combination of a more hawkish Fed in 2018, global quantitative tightening, late-cycle economic conditions, volatility and a strong USD have all served to impact almost all the asset classes negatively. According to some asset allocators, the only asset class which returned positive in 2018 was cash, every other traditional asset class saw losses.

USD direction will further dictate the impact on overall Asian risk, in our view, with many undervalued Asian currencies following their sharp declines in 2018. One of our scenarios includes a range-bound USD in 1H19, followed by a possible reversal in 2H19 on any dovish Fed policy/US economic weakness. In this case, it has the potential to attract incremental portfolio inflows back into Asian risk. We expect a slightly tighter bias in monetary policy in most Asia ex-Japan nations which is supportive for their respective currencies.

In 2019, risk-reward dynamics have improved particularly for Asian investment grade (“IG”) where we see more limited MTM pressure. We expect a more defensive market at least in 1H19 which supports our heavier IG bias. We suspect larger investors would continue to reallocate depending on the outcomes of the China-US trade dispute and their view on US risk (arguably near its last late-cycle expansion legs). We continue to be extremely selective in Asian high yield (“HY”) which have been impacted by idiosyncratic situations including credit deterioration and rising defaults. Exogenous factors such as the potential for “fallen angel” risk (i.e. a migration from issuers on the cusp of IG, “BBB-”  into HY) as well as net portfolio outflows from HY, EM and leveraged loan funds are ongoing concerns. Despite cheaper valuations in Asian HY, we still see skewed risk-reward (with larger potential risks).

In the US, our base case expects the Fed to hike 1-2 times (quarter point each) for 2019, premised on still below-trend inflation and external factors. We think it is near the tail-end of its current tightening cycle, but we would continue to monitor the US supply-side (labour markets, employment gaps, prices) for further clues. A sustained upshot to the previous factors may have the potential to prolong the Fed’s tightening cycle.

On China’s side, we have seen a critical reversal in policy towards selective expansion/accommodation again as economic reforms instituted 3 years ago have been reprioritized. China’s difficult task to balance growth targets and restructure its economy is a perennial issue. We would also expect defaults to remain elevated domestically/internationally as a new paradigm of credit investing takes root in China.

Finally, we would like to wish our readers luck in investing and trading in the year ahead.

2. TRACKING TRAFFIC/Chinese Tourism: Visits to Macau & HK Surge

A year ago we began publishing Tracking Traffic/Chinese Tourism as the hub for all of our research on China’s tourism sector. This monthly report features analysis of Chinese tourism data, notes from our conversations with industry participants, and links to recent company news and thematic pieces. Our aim is to highlight important trends in China’s tourism sector (and changes to those trends).

In this issue readers can find:

Although we remain positive on the long-term growth of Chinese tourism, it’s clear that near-term demand has weakened substantially. We continue to take a negative view of travel intermediaries like Ctrip, which face intensifying competition from many sources. We are more positive on the prospects of actual owners of Chinese travel and tourism assets, like hotel chain Huazhu Group (HTHT US) and Air China Ltd (H) (753 HK). 

3. Forecasting the Semiconductor Market

This is the time of year that Objective Analysis releases its semiconductor forecast.  This post is based upon a video posted on the WeSRCH website that explains the Objective Analysis 2019 semiconductor forecast.

Although accurate semiconductor forecasts are straightforward to produce, the consistently-accurate methodology spelled out in this Insight is rarely used.

The forecast predicts that the downturn that the industry is currently entering will be longer than most, with profits eluding chip companies until 2022.

4. Chengdu Expressway (成都高速) IPO Review – Well-Managed but Unexciting

Chengdu Expressway Company Limited (1785 HK) is looking to raise US$112m in its upcoming IPO. 

The expressways that CEC operate are integral in Chengdu’s transport network. The expressways have been upgraded and expanded consistently over the past three years which has led to an increase in traffic and toll revenue. However, in terms of valuation, CEC will likely trade at a valuation closer to small expressway peers which implies a 10% downside.

In this insight, we will look at the company’s financial and operational performance, toll payment model, and compare its valuation to Hong Kong-listed expressway peers. We will also run the deal through our IPO framework.

5. Weimob IPO Valuation: Optically Cheap

Weimob.com (1260480D CH) is a combination of a SaaS software and an adtech (targeted marketing) business which has started book building to raise gross proceeds of $108-135 million. According to press reports, Weimob is being viewed favourably by investors as it is being offered at a “cheap” valuation of 18-23x 2019 P/E.

In this briefing:

1. Weimob IPO Quick Take – Less SaaS, More Ads -> Lower Valuation
2. Jardine C&C (JCNC SP): Close the Stub Trade
3. StubWorld: A 2018 Review In Charts
4. Maoyan Entertainment IPO: The Trouble with Blockbusters
5. Global Semiconductor Sales Fall In November 2018. This Is Not A Good Sign.

1. Weimob IPO Quick Take – Less SaaS, More Ads -> Lower Valuation

Weimob.com (1260480D CH),  a Tencent Holdings (700 HK) and GIC investee company, plans to raise up to US$135m in its Hong Kong IPO.

I’ve covered most aspects of the deal in my earlier insight, Weimob Pre-IPO – Can Be Steamrolled by Tencent, Anytime, where I spoke about the over-reliance on Tencent, high attrition rates and acquisition costs for SMBs, and the increasing contribution of its ads business.

In this insight, I’ll provide an update from the latest filings, comment on valuations and run the deal through our IPO framework.

2. Jardine C&C (JCNC SP): Close the Stub Trade

In my original insight on October 17, 2018 TRADE IDEA – Jardine Cycle & Carriage (JCNC SP) Stub , I proposed setting up a stub trade to profit from volatility in the markets that caused the Jardine Cycle & Carriage (JCNC SP) stub to trade at a historically low discount to NAV. During the 78 calendar days that followed, Jardine Cycle & Carriage (JCNC SP) has gained 23% and the trade has made 5.03% on the gross notional. I now recommend closing the trade.

In this insight I will discuss:

• Performance of ALL my recommended stub trades
• a post-mortem trade analysis on the JCNC stub

3. StubWorld: A 2018 Review In Charts

This week in StubWorld …

• The average NAV discount of a basket of 40 Holdcos steadily, and not altogether unsurprisingly, widened throughout the year.
• Passive, tech-related and illiquid Holdcos widened most; while cross-border and property Holdcos were the best of the worst.  
• Illiquid, property, and passive Holdcos’ underperformance (or widening) was more pronounced in the first half. Tech Holdcos primarily widened in the second half.
• Worst performers (discount widening): In absolute % terms, United Co Rusal Plc (486 HK) and Asm International Nv (ASM NA) roughly shared the largest moves; while Dah Sing Financial (440 HK), First Pacific Co (142 HK), Genting Bhd (GENT MK) and Pasona Group (2168 JP) are trading at or near their 52-week wides and 52-week low prices.
• Best performers (discount narrowing): China Conch Venture Holdings Ltd (586 HK) is the only Holdco in positive territory; while Japan Post Holdings (6178 JP) is trading closest to its narrowest level in the last 12 months.

Below the various NAV discount chart summaries of various baskets are my weekly setup/unwind tables.

This, and other relationships discussed below, trade with: 1) a minimum liquidity threshold of US$1mn on a 90-day moving average; and 2) a minimum 20% ‘market capitalisation’ threshold, whereby the value of the holding/Opco held must be at least 20% of the parent’s market cap.

Comments on Jardine Matheson Hldgs (JM SP) / Jardine Strategic Hldgs (JS SP) also follow the setup/unwind tables.

4. Maoyan Entertainment IPO: The Trouble with Blockbusters

Maoyan Entertainment, formerly Entertainment Plus (EPLUS HK), is the largest online movie ticketing service provider in China. According to press reports, Maoyan has started pre-marketing to raise $0.3 billion (down from earlier indication of $0.5-1.0 billion) through a Hong Kong IPO. Maoyan is backed by Beijing Enlight Media (300251 CH) (20.0% shareholder), Tencent Holdings (700 HK) (16.3% shareholder) and Meituan Dianping (3690 HK) (8.6% shareholder).

5. Global Semiconductor Sales Fall In November 2018. This Is Not A Good Sign.

The Semiconductor Industry Association (SIA) just announced that worldwide sales of semiconductors reached $41.4 billion for the month of November 2018, an increase of 9.8% YoY, but down 1.1% MoM, the first such decline since February 2018. While the decline is modest and total 2018 total semiconductor sales are on track to reach ~$470 billion for a YoY increase of 15.7%, any decline in what should be peak holiday season is not a good sign. 

Semiconductor sales historically track Wafer Fab Equipment (WFE) sales with a roughly six month time lag. North American WFE sales have been declining each month for the past six months meaning that this latest semiconductor MoM sales decline is right on schedule.  

Leveraging a decade’s worth of historical data, we analyse two key questions that are likely on every investors mind. Firstly,for how long should we expect semiconductor sales to continue their decline. Secondly, how steep should we expect that decline to be?    

In this briefing:

1. Discover HK Connect: Mainlanders Were Buying Pharma and Property Managers in December
2. FutureBright (703 HK): Typhoon Dampens 3Q Results
3. Are US Stocks A Buy Yet?
4. Monthly Geopolitical Comment: Redrafting of Global Map of Political Alliances to Continue in 2019
5. Hotel Properties Ltd– Dissolution of Wheelock-OBS Partnership Could Pave Way for Privatization Offer

1. Discover HK Connect: Mainlanders Were Buying Pharma and Property Managers in December

In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainlanders in the past seven days.

We split the stocks eligible for the Hong Kong Connect trade into three groups: those with a market capitalization of above USD 5 billion, those with a market capitalization between USD 1 billion and USD 5 billion, and those with a market capitalization between USD 500 million and USD 1 billion.

2. FutureBright (703 HK): Typhoon Dampens 3Q Results

We recently met with management to discuss the company’s 3Q results and outlook for the coming year.

There was clear disappointment that goals for 2018 had not been achieved: rising opex dampened the recovery in EBITDA, despite solid SSSg, the Hengqin Land sale is racked with yet further delays, and the key rental property is still untenanted. That said, we feel much of the frustration is due to positive outcomes on all front being just around the corner.

This note aims to give a brief update on the key pillars forming our thesis.

3. Are US Stocks A Buy Yet?

• 5%-like rallies on Wall Street are signs of a bear market not a bull market
• Bull markets require strong liquidity and low risk appetite, neither yet apply
• Risk appetite readings at minus 12.6 are still above the minus 40 criterion for an upturn
• Recent large fall in risk appetite consistent with upcoming economic recession

4. Monthly Geopolitical Comment: Redrafting of Global Map of Political Alliances to Continue in 2019

5. Hotel Properties Ltd– Dissolution of Wheelock-OBS Partnership Could Pave Way for Privatization Offer

Hotel Properties (HPL SP)  (“HPL”) announced on Friday evening a significant change in its shareholdings relating to the HPL shares owned by 68 Holdings Pte Ltd. 

The restructuring of shareholding did not come as a surprise and was within expectations. 

Now, Wheelock holds only a significant minority interest of 22.53% and without a board seat in HPL. Wheelock’s influence in HPL has been reduced significantly. Without control, Wheelock’s investment in HPL is as good as any other non-strategic investment in quoted securities.

In the event that Wheelock Properties decides to sell its HPL shares, Mr Ong will be a likely buyer of the HPL shares. This will present a very good opportunity for Mr Ong to successfully privatise and delist HPL.

In this briefing:

1. Are US Stocks A Buy Yet?
2. Monthly Geopolitical Comment: Redrafting of Global Map of Political Alliances to Continue in 2019
3. Hotel Properties Ltd– Dissolution of Wheelock-OBS Partnership Could Pave Way for Privatization Offer
4. Autonomous Driving. Waymo Leading The Charge With Ten Million Miles Driven And Counting

1. Are US Stocks A Buy Yet?

• 5%-like rallies on Wall Street are signs of a bear market not a bull market
• Bull markets require strong liquidity and low risk appetite, neither yet apply
• Risk appetite readings at minus 12.6 are still above the minus 40 criterion for an upturn
• Recent large fall in risk appetite consistent with upcoming economic recession

2. Monthly Geopolitical Comment: Redrafting of Global Map of Political Alliances to Continue in 2019

3. Hotel Properties Ltd– Dissolution of Wheelock-OBS Partnership Could Pave Way for Privatization Offer

Hotel Properties (HPL SP)  (“HPL”) announced on Friday evening a significant change in its shareholdings relating to the HPL shares owned by 68 Holdings Pte Ltd. 

The restructuring of shareholding did not come as a surprise and was within expectations. 

Now, Wheelock holds only a significant minority interest of 22.53% and without a board seat in HPL. Wheelock’s influence in HPL has been reduced significantly. Without control, Wheelock’s investment in HPL is as good as any other non-strategic investment in quoted securities.

In the event that Wheelock Properties decides to sell its HPL shares, Mr Ong will be a likely buyer of the HPL shares. This will present a very good opportunity for Mr Ong to successfully privatise and delist HPL.

4. Autonomous Driving. Waymo Leading The Charge With Ten Million Miles Driven And Counting

Waymo CEO John Krafcik made some bold decisions after taking the helm at Alphabet‘s self-driving project in September 2015. Chief among them was the fact that the company abandon its plans for Level 3 automated driving and focus exclusively on levels 4 & 5. Furthermore, he decreed that Waymo would no longer manufacture its own vehicles but would instead integrate their technology into those of other automakers. Three years later, those decisions would appear to be finally paying off.

On October 10 2018, Waymo reached a significant milestone having completed 10 million self-driving miles across 25 cities in the US. While their first million self-driving miles took 18 months to complete, Waymo now clocks up over a million self-driving miles per month.  The company also recently announced the launch of its robo taxi service in Phoenix, Arizona and looks set to quickly follow suit in California. Plans to extend its self-driving technology beyond robotaxis, most notably for trucks and last-mile transportation solutions are also in the works. Furthermore, the company has begun laying down a framework of innovative B2B revenue models which should help accelerate the speed with which they can eventually monetize their technology.

It hasn’t been smooth sailing all the way for Waymo however. Earlier this year, the company was derided for the driving style of its autonomous vehicles and faced the criticism that its driverless cars continue to have safety drivers. There was also an embarrassing incident where one of those very safety drivers caused the self-driving car he was monitoring to hit a motorcyclist when he attempted to take control of the vehicle. According to Waymo’s own analysis of the vehicle log files, the accident would not have happened had he not intervened. 

With ten million self-driving miles under their belt and a thoughtful, strategic approach to monetizing their technology beginning to emerge, Waymo remains firmly ahead of their peers in leading the autonomous driving charge.  

In this briefing:

1. StubWorld: A 2018 Review In Charts
2. Maoyan Entertainment IPO: The Trouble with Blockbusters
3. Global Semiconductor Sales Fall In November 2018. This Is Not A Good Sign.
4. Discover HK Connect: Mainlanders Were Buying Pharma and Property Managers in December
5. FutureBright (703 HK): Typhoon Dampens 3Q Results

1. StubWorld: A 2018 Review In Charts

This week in StubWorld …

• The average NAV discount of a basket of 40 Holdcos steadily, and not altogether unsurprisingly, widened throughout the year.
• Passive, tech-related and illiquid Holdcos widened most; while cross-border and property Holdcos were the best of the worst.  
• Illiquid, property, and passive Holdcos’ underperformance (or widening) was more pronounced in the first half. Tech Holdcos primarily widened in the second half.
• Worst performers (discount widening): In absolute % terms, United Co Rusal Plc (486 HK) and Asm International Nv (ASM NA) roughly shared the largest moves; while Dah Sing Financial (440 HK), First Pacific Co (142 HK), Genting Bhd (GENT MK) and Pasona Group (2168 JP) are trading at or near their 52-week wides and 52-week low prices.
• Best performers (discount narrowing): China Conch Venture Holdings Ltd (586 HK) is the only Holdco in positive territory; while Japan Post Holdings (6178 JP) is trading closest to its narrowest level in the last 12 months.

Below the various NAV discount chart summaries of various baskets are my weekly setup/unwind tables.

This, and other relationships discussed below, trade with: 1) a minimum liquidity threshold of US$1mn on a 90-day moving average; and 2) a minimum 20% ‘market capitalisation’ threshold, whereby the value of the holding/Opco held must be at least 20% of the parent’s market cap.

Comments on Jardine Matheson Hldgs (JM SP) / Jardine Strategic Hldgs (JS SP) also follow the setup/unwind tables.

2. Maoyan Entertainment IPO: The Trouble with Blockbusters

Maoyan Entertainment, formerly Entertainment Plus (EPLUS HK), is the largest online movie ticketing service provider in China. According to press reports, Maoyan has started pre-marketing to raise $0.3 billion (down from earlier indication of $0.5-1.0 billion) through a Hong Kong IPO. Maoyan is backed by Beijing Enlight Media (300251 CH) (20.0% shareholder), Tencent Holdings (700 HK) (16.3% shareholder) and Meituan Dianping (3690 HK) (8.6% shareholder).

3. Global Semiconductor Sales Fall In November 2018. This Is Not A Good Sign.

The Semiconductor Industry Association (SIA) just announced that worldwide sales of semiconductors reached $41.4 billion for the month of November 2018, an increase of 9.8% YoY, but down 1.1% MoM, the first such decline since February 2018. While the decline is modest and total 2018 total semiconductor sales are on track to reach ~$470 billion for a YoY increase of 15.7%, any decline in what should be peak holiday season is not a good sign. 

Semiconductor sales historically track Wafer Fab Equipment (WFE) sales with a roughly six month time lag. North American WFE sales have been declining each month for the past six months meaning that this latest semiconductor MoM sales decline is right on schedule.  

Leveraging a decade’s worth of historical data, we analyse two key questions that are likely on every investors mind. Firstly,for how long should we expect semiconductor sales to continue their decline. Secondly, how steep should we expect that decline to be?    

4. Discover HK Connect: Mainlanders Were Buying Pharma and Property Managers in December

In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainlanders in the past seven days.

We split the stocks eligible for the Hong Kong Connect trade into three groups: those with a market capitalization of above USD 5 billion, those with a market capitalization between USD 1 billion and USD 5 billion, and those with a market capitalization between USD 500 million and USD 1 billion.

5. FutureBright (703 HK): Typhoon Dampens 3Q Results

We recently met with management to discuss the company’s 3Q results and outlook for the coming year.

There was clear disappointment that goals for 2018 had not been achieved: rising opex dampened the recovery in EBITDA, despite solid SSSg, the Hengqin Land sale is racked with yet further delays, and the key rental property is still untenanted. That said, we feel much of the frustration is due to positive outcomes on all front being just around the corner.

This note aims to give a brief update on the key pillars forming our thesis.

In this briefing:

1. Forecasting the Semiconductor Market
2. Chengdu Expressway (成都高速) IPO Review – Well-Managed but Unexciting
3. Weimob IPO Valuation: Optically Cheap
4. Weimob IPO Quick Take – Less SaaS, More Ads -> Lower Valuation
5. Jardine C&C (JCNC SP): Close the Stub Trade

1. Forecasting the Semiconductor Market

This is the time of year that Objective Analysis releases its semiconductor forecast.  This post is based upon a video posted on the WeSRCH website that explains the Objective Analysis 2019 semiconductor forecast.

Although accurate semiconductor forecasts are straightforward to produce, the consistently-accurate methodology spelled out in this Insight is rarely used.

The forecast predicts that the downturn that the industry is currently entering will be longer than most, with profits eluding chip companies until 2022.

2. Chengdu Expressway (成都高速) IPO Review – Well-Managed but Unexciting

Chengdu Expressway Company Limited (1785 HK) is looking to raise US$112m in its upcoming IPO. 

The expressways that CEC operate are integral in Chengdu’s transport network. The expressways have been upgraded and expanded consistently over the past three years which has led to an increase in traffic and toll revenue. However, in terms of valuation, CEC will likely trade at a valuation closer to small expressway peers which implies a 10% downside.

In this insight, we will look at the company’s financial and operational performance, toll payment model, and compare its valuation to Hong Kong-listed expressway peers. We will also run the deal through our IPO framework.

3. Weimob IPO Valuation: Optically Cheap

Weimob.com (1260480D CH) is a combination of a SaaS software and an adtech (targeted marketing) business which has started book building to raise gross proceeds of $108-135 million. According to press reports, Weimob is being viewed favourably by investors as it is being offered at a “cheap” valuation of 18-23x 2019 P/E.

4. Weimob IPO Quick Take – Less SaaS, More Ads -> Lower Valuation

Weimob.com (1260480D CH),  a Tencent Holdings (700 HK) and GIC investee company, plans to raise up to US$135m in its Hong Kong IPO.

I’ve covered most aspects of the deal in my earlier insight, Weimob Pre-IPO – Can Be Steamrolled by Tencent, Anytime, where I spoke about the over-reliance on Tencent, high attrition rates and acquisition costs for SMBs, and the increasing contribution of its ads business.

In this insight, I’ll provide an update from the latest filings, comment on valuations and run the deal through our IPO framework.

5. Jardine C&C (JCNC SP): Close the Stub Trade

In my original insight on October 17, 2018 TRADE IDEA – Jardine Cycle & Carriage (JCNC SP) Stub , I proposed setting up a stub trade to profit from volatility in the markets that caused the Jardine Cycle & Carriage (JCNC SP) stub to trade at a historically low discount to NAV. During the 78 calendar days that followed, Jardine Cycle & Carriage (JCNC SP) has gained 23% and the trade has made 5.03% on the gross notional. I now recommend closing the trade.

In this insight I will discuss:

• Performance of ALL my recommended stub trades
• a post-mortem trade analysis on the JCNC stub

In this briefing:

1. Are US Stocks A Buy Yet?
2. Monthly Geopolitical Comment: Redrafting of Global Map of Political Alliances to Continue in 2019
3. Hotel Properties Ltd– Dissolution of Wheelock-OBS Partnership Could Pave Way for Privatization Offer
4. Autonomous Driving. Waymo Leading The Charge With Ten Million Miles Driven And Counting
5. 2019 Asia Selected Gaming Stock Outlook: Headwinds, Tailwinds and Our Top Picks for Entry Levels Now

1. Are US Stocks A Buy Yet?

• 5%-like rallies on Wall Street are signs of a bear market not a bull market
• Bull markets require strong liquidity and low risk appetite, neither yet apply
• Risk appetite readings at minus 12.6 are still above the minus 40 criterion for an upturn
• Recent large fall in risk appetite consistent with upcoming economic recession

2. Monthly Geopolitical Comment: Redrafting of Global Map of Political Alliances to Continue in 2019

3. Hotel Properties Ltd– Dissolution of Wheelock-OBS Partnership Could Pave Way for Privatization Offer

Hotel Properties (HPL SP)  (“HPL”) announced on Friday evening a significant change in its shareholdings relating to the HPL shares owned by 68 Holdings Pte Ltd. 

The restructuring of shareholding did not come as a surprise and was within expectations. 

Now, Wheelock holds only a significant minority interest of 22.53% and without a board seat in HPL. Wheelock’s influence in HPL has been reduced significantly. Without control, Wheelock’s investment in HPL is as good as any other non-strategic investment in quoted securities.

In the event that Wheelock Properties decides to sell its HPL shares, Mr Ong will be a likely buyer of the HPL shares. This will present a very good opportunity for Mr Ong to successfully privatise and delist HPL.

4. Autonomous Driving. Waymo Leading The Charge With Ten Million Miles Driven And Counting

Waymo CEO John Krafcik made some bold decisions after taking the helm at Alphabet‘s self-driving project in September 2015. Chief among them was the fact that the company abandon its plans for Level 3 automated driving and focus exclusively on levels 4 & 5. Furthermore, he decreed that Waymo would no longer manufacture its own vehicles but would instead integrate their technology into those of other automakers. Three years later, those decisions would appear to be finally paying off.

On October 10 2018, Waymo reached a significant milestone having completed 10 million self-driving miles across 25 cities in the US. While their first million self-driving miles took 18 months to complete, Waymo now clocks up over a million self-driving miles per month.  The company also recently announced the launch of its robo taxi service in Phoenix, Arizona and looks set to quickly follow suit in California. Plans to extend its self-driving technology beyond robotaxis, most notably for trucks and last-mile transportation solutions are also in the works. Furthermore, the company has begun laying down a framework of innovative B2B revenue models which should help accelerate the speed with which they can eventually monetize their technology.

It hasn’t been smooth sailing all the way for Waymo however. Earlier this year, the company was derided for the driving style of its autonomous vehicles and faced the criticism that its driverless cars continue to have safety drivers. There was also an embarrassing incident where one of those very safety drivers caused the self-driving car he was monitoring to hit a motorcyclist when he attempted to take control of the vehicle. According to Waymo’s own analysis of the vehicle log files, the accident would not have happened had he not intervened. 

With ten million self-driving miles under their belt and a thoughtful, strategic approach to monetizing their technology beginning to emerge, Waymo remains firmly ahead of their peers in leading the autonomous driving charge.  

5. 2019 Asia Selected Gaming Stock Outlook: Headwinds, Tailwinds and Our Top Picks for Entry Levels Now

Our review of ten Asian gaming companies forward prospects for 2019 yielded our top five picks. Two of those comprise this insight. Three more will follow in Part Two. There is, in our opinion, some disconnect between continuing macro headwinds in both the VIP and mass sectors and a more bullish tone based on a recent upside trend in Macau, strong results in the Philippines and Cambodia. Given the battering of the market in general, the already 8 month old bearish tone to the sector and the current pricing of the two stocks noted here, we see significant upside opportunity as we near the beginning of 2019.

In this briefing:

1. Chengdu Expressway (成都高速) IPO Review – Well-Managed but Unexciting
2. Weimob IPO Valuation: Optically Cheap
3. Weimob IPO Quick Take – Less SaaS, More Ads -> Lower Valuation
4. Jardine C&C (JCNC SP): Close the Stub Trade
5. StubWorld: A 2018 Review In Charts

1. Chengdu Expressway (成都高速) IPO Review – Well-Managed but Unexciting

Chengdu Expressway Company Limited (1785 HK) is looking to raise US$112m in its upcoming IPO. 

The expressways that CEC operate are integral in Chengdu’s transport network. The expressways have been upgraded and expanded consistently over the past three years which has led to an increase in traffic and toll revenue. However, in terms of valuation, CEC will likely trade at a valuation closer to small expressway peers which implies a 10% downside.

In this insight, we will look at the company’s financial and operational performance, toll payment model, and compare its valuation to Hong Kong-listed expressway peers. We will also run the deal through our IPO framework.

2. Weimob IPO Valuation: Optically Cheap

Weimob.com (1260480D CH) is a combination of a SaaS software and an adtech (targeted marketing) business which has started book building to raise gross proceeds of $108-135 million. According to press reports, Weimob is being viewed favourably by investors as it is being offered at a “cheap” valuation of 18-23x 2019 P/E.

3. Weimob IPO Quick Take – Less SaaS, More Ads -> Lower Valuation

Weimob.com (1260480D CH),  a Tencent Holdings (700 HK) and GIC investee company, plans to raise up to US$135m in its Hong Kong IPO.

I’ve covered most aspects of the deal in my earlier insight, Weimob Pre-IPO – Can Be Steamrolled by Tencent, Anytime, where I spoke about the over-reliance on Tencent, high attrition rates and acquisition costs for SMBs, and the increasing contribution of its ads business.

In this insight, I’ll provide an update from the latest filings, comment on valuations and run the deal through our IPO framework.

4. Jardine C&C (JCNC SP): Close the Stub Trade

In my original insight on October 17, 2018 TRADE IDEA – Jardine Cycle & Carriage (JCNC SP) Stub , I proposed setting up a stub trade to profit from volatility in the markets that caused the Jardine Cycle & Carriage (JCNC SP) stub to trade at a historically low discount to NAV. During the 78 calendar days that followed, Jardine Cycle & Carriage (JCNC SP) has gained 23% and the trade has made 5.03% on the gross notional. I now recommend closing the trade.

In this insight I will discuss:

• Performance of ALL my recommended stub trades
• a post-mortem trade analysis on the JCNC stub

5. StubWorld: A 2018 Review In Charts

This week in StubWorld …

• The average NAV discount of a basket of 40 Holdcos steadily, and not altogether unsurprisingly, widened throughout the year.
• Passive, tech-related and illiquid Holdcos widened most; while cross-border and property Holdcos were the best of the worst.  
• Illiquid, property, and passive Holdcos’ underperformance (or widening) was more pronounced in the first half. Tech Holdcos primarily widened in the second half.
• Worst performers (discount widening): In absolute % terms, United Co Rusal Plc (486 HK) and Asm International Nv (ASM NA) roughly shared the largest moves; while Dah Sing Financial (440 HK), First Pacific Co (142 HK), Genting Bhd (GENT MK) and Pasona Group (2168 JP) are trading at or near their 52-week wides and 52-week low prices.
• Best performers (discount narrowing): China Conch Venture Holdings Ltd (586 HK) is the only Holdco in positive territory; while Japan Post Holdings (6178 JP) is trading closest to its narrowest level in the last 12 months.

Below the various NAV discount chart summaries of various baskets are my weekly setup/unwind tables.

This, and other relationships discussed below, trade with: 1) a minimum liquidity threshold of US$1mn on a 90-day moving average; and 2) a minimum 20% ‘market capitalisation’ threshold, whereby the value of the holding/Opco held must be at least 20% of the parent’s market cap.

Comments on Jardine Matheson Hldgs (JM SP) / Jardine Strategic Hldgs (JS SP) also follow the setup/unwind tables.