In this briefing:
- U.S. Equity Strategy: Has “the Pullback” Begun?
- New Oriental (EDU): Do Not Fear Q2 Record Losses, 27% Upside
- Meet, Beat or Miss Q4 Estimates, Both Las Vegas Sands and Sands China Are Solid Bets
- Maoyan Entertainment IPO Valuation: Press the Skip Button
- Korean Stubs Spotlight: A Pair Trade Between Amorepacific Group & Shiseido
1. U.S. Equity Strategy: Has “the Pullback” Begun?
The weight of the evidence suggests that the pullback has begun. This belief is supported by overbought conditions combined with the S&P 500, MSCI ACWI, and nearly all Sectors hitting logical resistance. Assuming the pullback continues, the next question is how deep or damaging will it be? In this report we highlight various market/technical indicators we are monitoring, as well as pointing out attractive set ups within Consumer Discretionary and Health Care Sectors.
2. New Oriental (EDU): Do Not Fear Q2 Record Losses, 27% Upside
- The record net losses were mainly due to a seasonally weak quarter and recognition of the impairment in a subsidiary.
- Q2 revenues did not slow down and management does not believe Q3 revenues will slow down.
- EDU will not be negatively impacted by the new law from the Ministry of Education.
- The P/E band suggests an upside of 27% and a price target of USD90.
3. Meet, Beat or Miss Q4 Estimates, Both Las Vegas Sands and Sands China Are Solid Bets
- LVS shot at Japan license enhanced by his role in lobbying US Justice Department’s reverse opinion on online gambling published last week. Read why in this insight.
- Owning Sands China makes a strong case based on an ROCE analysis vs. the hospitality sector.
- Owning both at current trade is one of the screaming bargains in the entire sector
4. Maoyan Entertainment IPO Valuation: Press the Skip Button
Maoyan Entertainment (EPLUS HK) is the largest online movie ticketing service provider in China. The mid-point of Maoyan’s IPO price range of HK$14.8-20.4 per share implies a market value of $2.5 billion (HK$19.8 billion). Five cornerstone investors have agreed to buy $30 million or 10% of the offering at the IPO mid-point. The cornerstone investors are Imax China Holding (1970 HK), Hylink Digital Solutions, Prestige of The Sun, Welight Capital and Xiaomi Corp (1810 HK).
Our analysis suggests Maoyan is being offered at a material premium to a peer group of major Chinese internet companies. Due to challenging prospects faced by Maoyan as outlined in our previous research, we believe a premium rating is unwarranted. Consequently, we are inclined to sit out this IPO.
5. Korean Stubs Spotlight: A Pair Trade Between Amorepacific Group & Shiseido
In this report, we provide an analysis of our pair trade idea between Amorepacific Group (002790 KS) and Shiseido Co Ltd (4911 JP). Our strategy will be to long Amorepacific Group (APG) and short Shiseido. As mentioned in our report, Korean Stubs Biweekly Sigma σ (#1): The Inaugural Edition, our base case strategy is to achieve gains of 8-10% on this pair trade. Our risk control is to close the trade if it generates 4-5% in combined losses. Cost of commissions are not included in the calculations and closing prices as of January 23rd are used in our pair trade. [Long APG – $0.5 million; Short Shiseido – $0.5 million for total of $1.0 million].
The following are the major catalysts that could boost APG shares higher than Shiseido shares within the next six to twelve months:
- Amorepacific Group shares are extremely oversold and forming a base
- THAAD is no longer an issue
- Amorepacific Group’s NAV discount
- Attractive relative valuations
- Amorepacific’s new headquarters building distraction out of the way
- Chinese tourists are coming back to Korea & slower growth rate of visitors to Japan
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