Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: Apple Inc, Pinduoduo, NetEase Inc, Airports of Thailand, Sinotruk Hong Kong, Kakao Corp, METRO AG, China Construction Bank H, InnoCare Pharma Ltd, Howard Hughes Corp and more

In today’s briefing:

  • Not an Epic Ruling Against Apple
  • Pinduoduo (PDD): Made Profit After Giving up Direct Sales and User Accumulation
  • Epic Apple Esque Duel in China? or Nah?
  • AOT: Thailand Reopening
  • Sinotruk (3808.HK): Sluggish Sector Demand Ahead
  • Why Is the Korean FTC Investigating K-Cube Holdings? (Owned by Kakao Group Chairman Kim Beom-Soo)
  • Metro Cash and Carry to Exit Japan
  • CCB: Familiar Results – Do You Follow the Dividend Yield or the PH Score™?
  • InnoCare Pharma Ltd (9969.HK) – Risk of Becoming Mediocre
  • HHC: Multi Layers of a Growth Story

Not an Epic Ruling Against Apple

By Mio Kato

While the battle for payment systems between Epic and Apple will continue with Epic filing an appeal, the rather mild ruling against Apple has some interesting implications, as do the responses of both companies to the ruling. In the context of regulatory upheaval in the key gaming space in China and a slew of regulatory moves in other Asian countries such as Japan and South Korea, there is plenty worth mulling as new winners and losers could emerge.

Pinduoduo (PDD): Made Profit After Giving up Direct Sales and User Accumulation

By Ming Lu

  • PDD made profit for the first time after IPO.
  • PDD shrank its direct sales.
  • PDD stopped actively accumulating users.
  • We believe total revenue will grow by 45% in 2022.
  • We believe PDD’s operating margin will turn positive in 2022.
  • We also believe PDD’s stock price has a downside of 15%.

Epic Apple Esque Duel in China? or Nah?

By Jason Yap, CFA

The Epic Apple duel has recently concluded its first inning. The latest US ruling disrupts Apple’s stranglehold over the App Store and consequently its cut of developer revenues but fell short of confirming that Apple operated as an illegal monopoly.  An Epic appeal is underway.  While a certain segment of the US population gushed with anger over Apple’s 30% cut of revenue charged to developers, elsewhere in China the situation is starkly different.

China app developers typically aim to secure all available distribution channels at all costs, which means simultaneous pre-launch conversations with multiple app store vendors.  The most popular apps often gain the most traction through push adverts on these app stores, or so the developers rationalise to themselves as they fork up to 50% commission fees to app stores and mobile carriers. By this measure, Apple seems almost benevolent!  But, why?

This article explores the App Store dynamic in China, which is dominated by Android smartphone manufacturers, and discusses whether an Epic Apple esque duel might unravel in China. 

AOT: Thailand Reopening

By Henry Soediarko

Thailand has found out an interesting mix of vaccines that is so far safe with a number of Thai as clinical trials that led the government to regain its confidence in the country’s reopening. The company’s share price has lagged the Thai Index by around 12% and it is currently trading at 7% PBR to its 5 years historical PBR. The downside may come from the slow down in the vaccination drive and also from the potential of further virus mutataion. Nonetheless, Thailand is recovering from the COVID-19 as herd immunity in China is expected to be achieved by end of this year thus a potential for a revenue increment in the next year. 

Sinotruk (3808.HK): Sluggish Sector Demand Ahead

By Victoria Li

China’s HDT (heavy duty truck) sales accelerated declining in the past two months. The reasons behind include largely brought forward demand in earlier months of this year, weak demand from commodity transportation, infrastructures and property, etc. We believe HDT demand would remain weak in 2021-2022E until the market fully digest the over-purchased trucks.

Although Sinotruk kept gaining market share YTD, its monthly sales growth turned negative in July due to poor market demand. We estimate Sinostruk’s market share gain could not offset the decline of sector demand. Its earnings would turn weak in 2H2021. 

Sinotruk’s share performance was nearly halved from this year’s peak. Currently it trades at 5.4x P/E 2021E on Bloomberg consensus. However, if Sinotruk’s earnings down 50% yoy in 2022E in bear case, current share price might still have some downside potential.

Why Is the Korean FTC Investigating K-Cube Holdings? (Owned by Kakao Group Chairman Kim Beom-Soo)

By Douglas Kim

In this insight, we analyze why the Korean FTC is investigating K-Cube Holdings, which is 100% owned by the Kakao Group Chairman Kim Beom-Soo (born in 1966). It was reported on 13 September that the Korean Fair Trade Commission (FTC) may be taking sanctions against the Kakao Group Chairman Kim Beom-Soo, which comes after the Financial Services Commission (FSC) announced measures last week that unless Kakao Pay changes the way it currently provides its financial services, there could be further sanctions on the company.

Following this news, Kakao Corp (035720 KS)‘s share price fell another 4.2% today. Since the recent peak share price of 173,000 won on 24 June, Kakao Corp’s share price has declined 28%. 

In our view, the two biggest issues potentially facing K-Cube Holdings is the ‘separation of the industrial and financial capital’ (금산분리) as well as concerns about K-Cube Holdings that could be used to benefit the children of Kakao Group’s Chairman at the expense of the minority shareholders of Kakao Cop. 

Metro Cash and Carry to Exit Japan

By Michael Causton

METRO AG (MEO GR) will close its Japan operations at the end of October. It follows Carrefour SA (CA FP), Tesco PLC (TSCO LN) and Walmart (WMT US) as the latest major international player to try and fail in the Japanese market and leaves Costco as the only international chain retailer – but a clearly successful one at least. 

CCB: Familiar Results – Do You Follow the Dividend Yield or the PH Score™?

By Paul Hollingworth

PH Score™   8.9

According to our model PH Score™CCB seems headed in the right direction.  The valuation variable within the model helps the Score but other variables are benign. Adding technical factors and the low valuation, CCB ranks in the top quartile globally of our VFM (Valuation, Fundamentals, Momentum) universe. As with ICBC, the PH Score™ has not been as elevated as this for years. In contrast to say Turkey, where scores can be high, the System does not seem to be grappling with solvency challenges.

Elsewhere in China, recent bank results show mixed or subpar fundamental momentum and trends. This is not the case though with the SOEs or Globally Systemic entities, in particular CCB or at ICBC though we recognise NCOs are high and LLPs are arguably too low. It would be strange if this most systemic of banks did not reflect trends elsewhere. And it is with Asset Quality that the bank shows stress with aforementioned NCOs and continuing bad asset migration.

Elsewhere, on a LTM basis, the bank’s PH Score™ of 8.9 reflects progression in Profitability, in Efficiency, in Capital Adequacy, in Provisioning as well as the positive valuation variable though NIM/Spread compressed, Asset Quality deteriorated somewhat, and Liquidity eroded. Having said that, the LDR is at a “sweet spot” level. Profitability though may be flattered by low Asset Writedowns.

A FV of 5% and a PBV of 0.51x are not unattractive. These are below thresholds of 10% and 1x, respectively. An Earnings Yield of 23.4% and a Dividend Yield of 6.7% underpin the valuation thesis.  

Results continue to unsurprise and have a very familiar look. Disclosure is sufficient for such a globally systemic entity. For those who want to lend money to China, the Dividend Yield alone may provide sufficient compensation for systemic risks. As with ICBC, the picture seems to be solid though FX needs to be hedged. But high Dividend Yields (and these are very high) do not normally equate to higher stock price appreciation. They equate to higher risk: we see this in Asset Quality data. A high PH Score™ though can equate to stock price appreciation. That’s the dilemma. Maybe they just neutralise each other.

InnoCare Pharma Ltd (9969.HK) – Risk of Becoming Mediocre

By Xinyao (Criss) Wang

Recently, InnoCare Pharma Ltd (9969 HK) released 2021/1H financial results. The revenue was RMB102 million, up 13490.51% YoY, which was mainly due to the sales growth of orelabrutinib. Net loss was narrowed from RMB337 in 2020/1H to RMB213 million in 2021/1H, indicating improvement. Meanwhile, InnoCare is also going to be listed on the SSE STAR market, which is expected to be another biopharmaceutical company with “A+H” shares listing. This insight mainly analyzed the core product, pipeline and the concerns of the Company.

HHC: Multi Layers of a Growth Story

By Hamed Khorsand

  • Howard Hughes Corp. (HHC) accelerated expansion of its master planned communities (“MPC”), which should generate greater level of funds from operation (“FFO”) over the next few quarters.


  • The popularity of the MPCs has gone unabated with families moving away from urban centers. The accelerated growth in the MPCs causes HHC to invest in commercial real estate to support the larger population. The cash flow from these properties should begin to benefit the top and bottom lines over the next twelve months.


  • A SEC filing on September 8, 2021, disclosed additional share purchase of HHC by the Company’s Chairman, Bill Ackman, and his firm Pershing Square Capital Management; raising its stake to approximately 25 percent.


  • The Street is pricing in more risk than we believe is inherently warranted given the performance of the properties HHC has built. Additionally, we do not believe the current valuation gives HHC any of the revenue and earnings credit the Company is expected to realize when it begins recognizing unit sales at Ward Village later this year.

Related tickers: Apple Inc (AAPL.O), Pinduoduo (PDD.O), NetEase Inc (NTES.O), Airports of Thailand (AOT.BK), Sinotruk Hong Kong (3808.HK), Kakao Corp (035720.KS), METRO AG (MEOG.DE), China Construction Bank H (0939.HK), Howard Hughes Corp (HHC.N)

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