Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: Xiaomi Corp, Fortescue Metals, Postal Savings Bank of China, China Conch Venture Holdings, Mercari Inc and more

In today’s briefing:

  • Xiaomi (1810 HK): No Longer Concerned About High Prices of New Smartphones, A Store Visit
  • Fortescue Short-Term Better Risk Reward Emerging
  • Postal Savings Bank of China – Growing Into Recovery
  • Conch Venture (586 HK): Still Very Well Placed
  • Mercari – Expecting an Acceleration in US GMV Growth

Xiaomi (1810 HK): No Longer Concerned About High Prices of New Smartphones, A Store Visit

By Ming Lu

  • Most Xiaomi new smartphones are priced high.
  • At a Xiaomi store, we found customers were very interested in the highly-priced products.
  • The risk is the competition from Apple, Oppo, and Vivo.

Our previous coverage on Xiaomi:

Xiaomi (1810 HK): Market Was Wrong After 4Q20 Result, Upgrade to Buy 

Xiaomi (1810 HK): Terminate Contracts with Small Authorized Stores 

Xiaomi (1810 HK): Taking Advantage of Huawei’s Sale of Smartphone Brand, But Overvalued 


Fortescue Short-Term Better Risk Reward Emerging

By Sameer Taneja

With the recent correction in iron ore stocks due to the Tangshan steel production cuts negative sentiment, we believe better risk-reward has emerged in the name. Iron ore prices have retraced, and we believe that an attractive risk-reward is beginning to emerge for Fortescue Metals (FMG AU) once again. 

Source: SGX, Bloomberg

Key thesis for investment in the company 

  • Attractive FCF yields and dividend yields at current spot prices: At the current spot price of 160$/ton, the FCF yield is close to 18%, and the dividend yield is 14%.  If prices were to decline to 120$/ton,  we would still see FCF yields of 10% and dividend yields of 9%.
  • Chinese steel production growth continues to be strong despite Tangshan cuts. We forecast 10% steel production growth in March. The economy also reported strong numbers with a manufacturing PMI of 51.9 (Vs. Consensus estimates of 51.2). 
  • Risks on the supply of iron ore from Brazil could emerge as the Covid impact worsens.

Key Risks

  •  China Tightening: A scenario could arise where China tightens the economy. This will be visible in the credit-balance growth slowing and the TSF coming down given last year was a high base in March. Consensus expectations for TSF are 3.8 trillion RMB for March ( Vs. 5.2 trillion RMB in March 2020). A lower number than 3.8 trillion could impact the market sentiment and send the iron ore price lower.
  • Production cuts like the ones in Tangshan extending into other regions.

Postal Savings Bank of China – Growing Into Recovery

By Daniel Tabbush

If one presumes the backdrop is improving, than de-risking would not be the best path during FY20. This large China bank not only shows some of the most robust credit growth, but also robust growth in loan loss reserves. 


Conch Venture (586 HK): Still Very Well Placed

By Osbert Tang, CFA

We take the FY21 guidances for China Conch Venture Holdings (586 HK) positively and believe they are more important than the FY20 result. In fact, despite a slowdown from 40-50% YoY growth in the previous two years, Conch Venture’s 24.6% growth in its core environmental business in FY20 is still a very decent show under a COVID-19 impacted situation.

Conch Venture is expecting 76% growth in solid waste treatment volume and a 65% growth in municipal waste treated in its waste incineration business in FY21, on the back of capacity completion. We believe such volume growth should easily support over 80% surge in core environment profit in this year. Its solid project pipeline will further ensure growth beyond FY21. Adding low gearing and undemanding valuation multiples, Conch Venture is well placed in China’s environment sector. 


Mercari – Expecting an Acceleration in US GMV Growth

By Mio Kato

Mercari stock looks attractive ahead of earnings on Apr 30 as data suggests that US GMV growth has accelerated again. In addition, we believe consensus forecasts could be materially underestimating profitability and that an upside surprise at 3Q is a distinct possibility.


Related tickers: Xiaomi Corp (1810.HK), Fortescue Metals (FMG.AX), Postal Savings Bank of China (1658.HK), China Conch Venture Holdings (0586.HK), Mercari Inc (4385.T)

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