In this briefing:
- TRACKING TRAFFIC/Chinese Express & Logistics: Parcel Pricing Weak, Again
- Overview of My Winners and Losers in 2018…and 5 High Conviction Ideas Going into 2019
- Universal, SegaSammy & Dynam Sit Best Positioned Among Japan Companies in Race for IR Partnerships
- Manias, Booms & Bears: BDI & Shipping Vs Bitcoin… Lessons for Stock Markets
- Time-Out Not Time up for Trade War
1. TRACKING TRAFFIC/Chinese Express & Logistics: Parcel Pricing Weak, Again
Tracking Traffic/Chinese Express & Logistics is the hub for our research on China’s express parcels and logistics sectors. Tracking Traffic/Chinese Express & Logistics features analysis of monthly Chinese express and logistics data, notes from our conversations with industry players, and links to company and thematic notes.
This month’s issue covers the following topics:
- November express parcel pricing remained weak. Average pricing per express parcel fell by 7.8% Y/Y to just 11.06 RMB per piece. November’s average price represents a new all-time low for the industry, and November’s Y/Y decline was the steepest monthly decline in over two years (excluding Lunar New Year months, which tend to be distorted by the timing of the holiday).
- Express parcel revenue growth dipped below 15% last month. Weak per-parcel pricing pulled express sector Y/Y revenue growth down to just 14.6% in November, the worst on record (again excluding distorted Lunar New Year comparisons). Chinese e-commerce demand has slowed and we suspect ‘O2O’ initiatives, under which online purchases are fulfilled via local stores, are also undermining express demand growth.
- Intra-city pricing (ie, local delivery) remains firm relative to inter-city. Relative to weak inter-city express pricing (where ZTO Express (ZTO US) and the other listed express companies compete), pricing for local, intra-city express deliveries remained firm. In the first 11 months of 2018, express pricing rose 1.7% Y/Y versus a -2.9% decline in inter-city shipments (international pricing fell sharply, -14.5% Y/Y). Relatively firm pricing on local shipments may make it hard for local food delivery companies like Meituan Dianping (3690 HK) and Alibaba Group Holding (BABA US) ‘s ele.me to beat down unit operating costs.
- Underlying domestic transport demand held up well again in November. Although demand for speedy, relatively expensive express service (and air freight) appears to be moderating, demand for rail and highway freight transport has held up well. The relative strength of rail and water transport (slow, cheap, industry-facing) versus express and air freight (fast, expensive, consumer-oriented) suggests a couple of things: a) upstream industrial activity is stronger than downstream retail activity and b) the people in charge of paying freight are shifting to cheaper modes of transport when possible.
We retain a negative view of China’s express industry’s fundamentals: demand growth is slowing and pricing appears to be falling faster than costs can be cut. Overall domestic transportation demand, however, remains solid and shows no signs of slowing.
2. Overview of My Winners and Losers in 2018…and 5 High Conviction Ideas Going into 2019
In a follow up to my note from last year Overview of My Winners and Losers in 2017…and 5 High Conviction Ideas Going into 2018 I again look at my stock ideas that have worked out in 2018, those that have not and those where the verdict is still pending.
Last year I provided 5 high conviction ideas and here is their performance in a brutal year for Asian Stock Markets:
Company | Share Price 27 Dec 2017 | Share Price 20 December 2018 | Dividends | % Total Return |
0.70 HKD | 0.88 HKD | 0.01 HKD | +27% | |
0.20 SGD | 0.27 SGD | 0.0 SGD | +35% | |
2.39 HKD | 2.82 HKD | 0.147 HKD | +24% | |
0.84 SGD | 0.85 SGD | 0.02 SGD | +3.5% | |
1.44 MYR | 0.32 MYR | 0.0 MYR | -79% |
4 out of 5 had a positive performance.
Below I will make a new attempt to provide five high conviction ideas going into 2019.
3. Universal, SegaSammy & Dynam Sit Best Positioned Among Japan Companies in Race for IR Partnerships
- We’ve reviewed 10 companies in the sector. Of those, three are the consensus favorites of our Tokyo based panel of industry, financial and economics observers of the IR initiative over many years.
- Based on pachinko alone, the stocks of these companies are fully valued. Based on potential tailwind from a license award within 6 months, they could be vastly undervalued.
- Each of the three noted here brings strength to a bid less based on financials than corporate focus, outlook and experience in the field.
4. Manias, Booms & Bears: BDI & Shipping Vs Bitcoin… Lessons for Stock Markets
Most of us are following the relatively deep correction in stocks, which has been sparked by a change in psychology reacting to small rises in interest rates coupled to the US – China Trade War, some economic data rolling over, and some growing concerns over Trump thrown in for good measure. The market overall should be able to learn some lessons from the 10+ year bear market in shipping (our contention has always been to expect only a slow rebound in shipping, but the recent risk off has brought these names right back down along with many deep cyclical stocks).
First, we consider the current trajectory of stock market corrections, learning from some behavioral excesses in shipping in the run up to 2008 – and what made the correction so deep for so long.
Second, we look back at the 2006-07 Baltic (BDI) Shipping Index Boom and 2008 crash and contrast a few parallels and differences we see with the Bitcoin Madness of 2017. Maybe we should consider adding a quick comparison of Marijuana stocks, but we don’t yet have the same distance.
In all cases, including Marijuana stocks recent rallies, the big boom came as supply was squeezed as demand went beyond physical, and developed a life of their own. With small market caps gaining a world audience, the game is easy to play initially, with those having the greatest foolhardiness or courage possibly getting to time exits or partial exits toward tops. Analytically, we usually see the madness way ahead, and the first tricks are to make up stories on why we should continue to buy. And then comes the brick wall.
5. Time-Out Not Time up for Trade War
- Xi and Trump walk away from Buenos Aires with something to sell at home
- But trade negotiations will be dominated by fraught disagreements
- After 90-day negotiations, further delays to tariff escalation are likely
