CONS Archives | Page 23 of 68 | Smartkarma

In this briefing:

1. LG Electronics Resistance Rejection
2. Tesla. SEC Contempt Filing & Ludicrous Autopilot Claims Engulf Delusional Musk
3. Indonesia Property – In Search of the End of the Rainbow – Part 2 –  Bumi Serpong Damai (BSDE IJ)

1. LG Electronics Resistance Rejection

Lg Electronics (066570 KS) is seeing a rejection from 74.5k resistance that acts as an important intermediate if not macro inflection level. Weakness below 74k implies a test on lower pattern support.

Daily MACD rising wedge accompanied by a flat or triangle corrective range, typically is a bear set-up for a break lower. Making the 74k level pivotal and a short level with a stop above 75k. Very often indicators gyrating higher to relieve oversold conditions with a  failure for price to make headway labels the sideways range as corrective in a stair case sequence.

Shorts need to focus on the 75k pivot as the stop and risk level. Longer term investors will need to remeasure lower entry points barring a break above pivot resistance which would initiate upside bull targets.

2. Tesla. SEC Contempt Filing & Ludicrous Autopilot Claims Engulf Delusional Musk

The US Securities and Exchange Commission (SEC) requested a federal judge to hold Tesla CEO Elon Musk in contempt of court yesterday regarding recent misleading tweets about the company’s unit production volumes for 2019. This latest move comes not long after Musk bragged that he does not respect the SEC and that his tweets were not being censored by the Board according to the terms of the agreement reached with the SEC following his controversial “Am considering taking Tesla private at $420. Funding secured” tweet on August 8’th last.  

Separately, Musk has been talking up the capabilities of the company’s Autopilot technology, claiming that it will deliver “Full Self Driving” by the end of the year, that its in-house developed hardware is 2000% better than NVIDIA’s and that by the end of next year, it would be safe for somebody to fall asleep with Autopilot in control. We find these claims to be ludicrous and Elon Musk delusional in thinking that the SEC would stand idly by while he publicly admits to ignoring the terms of his settlement with them barely four months ago. 

3. Indonesia Property – In Search of the End of the Rainbow – Part 2 –  Bumi Serpong Damai (BSDE IJ)

In this series under Smartkarma Originals, CrossASEAN Research insight providers Angus Mackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks. 

The second company we explore is leading township developer Bumi Serpong Damai (BSDE IJ), with exposure ranging from landed housing, shophouses, condominiums, as well as the defensive and growing buffer of nearly 20% of revenues coming from recurrent rental income.

Bumi Serpong Damai (BSDE IJ) has one of the largest land banks of any developer, with a land bank of over 4,000 ha, more than half of which is in its flagship township of BSD City in Serpong.

Given its breadth of exposure to the property segment, the company has the flexibility to switch its exposure between different segments depending on the health of the overall market. 

Its projects are well connected by toll-roads and railway but it is well positioned to benefit from new infrastructure such as the new MRT, LRT, as well as new toll road extensions, which will enhance the attractiveness of its developments.  

Management suggests that they will take a cautious start to the year ahead of the election but see a window for a pick-up in marketing sales in May, with the potential for a much better 2H19. 

Despite a run-up in the share price since the start of the year, valuations do not look challenging from a historical basis especially looking at its PBV. It also trades at a significant discount to NAV of 67%, as well as being below its 5 yr historical mean on a forward PER basis.

Catalysts ahead include a post-election pick-up in activity leading to more project launches, completion of infrastructure projects, aggressive mortgage lending by the banks, and a more dovish interest rate outlook. Valuations are already attractive but a rise in property market activity should also lead to earnings upgrades, which if sustained, may lead to property prices moving upwards.

In this briefing:

1. Nissan: Atrocious Governance Should Be Rectified Before Even Thinking of a Merger
2. Cupid Ltd: Attractive Valuation Post Significant Correction
3. TRADE IDEA – PCCW (8 HK) Stub: The Li Legacy Lives On
4. Dali Foods (3799:HK) FY18 Results: Revenue Growth Collapses in H2, But Margins Hold Up So Far
5. U.S. Equity Strategy: Bullish Outlook Intact

1. Nissan: Atrocious Governance Should Be Rectified Before Even Thinking of a Merger

Today Nissan Motor (7201 JP) released its report from the Special Committee for Improving Governance. The FT also reported that Renault SA (RNO FP) (i.e. the French government) was keen to restart merger talks within twelve months with an eye towards then acquiring Fiat Chrysler Automobiles Nv (FCAU US).

The details of the former are unsurprising but disappointing, while Renault’s M&A ambitions just seem delusional at this point.

2. Cupid Ltd: Attractive Valuation Post Significant Correction

Cupid Ltd one of the largest manufacturers of condoms in India 9MFY19 revenue was largely as per our expectations, as there was some order slippages. As forecasted in our initiation report Cupid Ltd: Protecting the Needy, the company reported a 20% decline in revenue at Rs 505mn, which also resulted in lower profitability both at the operating as well as net level. EBITDA stood at INR 161.6 mn declining by 32.53% with EBITDA margin at 31.95%. PAT was INR 108.5 mn declining by 24.58% with PAT margin at 21.46%.

Despite this below-par performance in the 9MFY19, we are fairly positive on the future growth prospects of the company. As of March 2019, it has a healthy order book of INR 1300 m with Book to Bill ratio of  1.99 times on its TTM sales. We expect revenues to grow at 15% over FY18-19 and margins to improve in medium to long term horizon.

Having corrected by 67% from its peak, the stock currently trades at 10.20x its FY19 EPS and 8.34x its FY20 EPS; we believe that this provides a good entry point for this niche high margin healthcare company with attractive long term growth possibilities.

3. TRADE IDEA – PCCW (8 HK) Stub: The Li Legacy Lives On

Have you ever wondered how a company secures the Chinese lucky number “8” as their ticker in Hong Kong? I’ll explain later on, but let’s just say that being the son of Li Ka Shing helps. 

Li Ka Shing is a name that hardly needs introduction in Hong Kong and Richard Li, Li Ka Shing’s youngest son and Chairman of PCCW Ltd (8 HK), follows suit. After being born into Hong Kong’s richest family, Richard Li was educated in the US where he worked various odd jobs at McDonald’s and as a caddy at a local golf course before enrolling at Menlo College and eventually withdrawing without a degree. As fate would have it, Mr. Li went on to set up STAR TV, Asia’s satellite-delivered cable TV service, at the tender age of 24. Three years after starting STAR TV, Richard Li sold the venture, which had amassed a viewer base of 45 million people, to Rupert Murdoch’s News Corp (NWS AU) for USD 1 billion in 1993. During the same year, Mr. Li founded the Pacific Century Group and began a streak of noteworthy acquisitions. 

You may be starting to wonder what all of this has to do with a trade on PCCW Ltd (8 HK) and I don’t blame you. In the rest of this insight I will:

• finish the historical overview of the Li family and PCCW
• present my trade idea and rationale
• give a detailed overview of the business units of PCCW and the associated performance of each
• recap ALL of my stub trades on Smartkarma and the performance of each  

4. Dali Foods (3799:HK) FY18 Results: Revenue Growth Collapses in H2, But Margins Hold Up So Far

We launched coverage of Dali Foods Group (3799 HK) in February with a Sell rating and a HK$4.18 target price. FY18 financial results, which were released late Tuesday March 26th, appear to confirm at least half of our negative thesis (slowing revenue growth), though the other half (margin compression) has failed to materialize so far.

Dali Foods appears to have met — just — the FY18 consensus EPS target of HK$0.307 per share. The company cut its Final dividend from HK$0.10 to HK$0.075 per share. 

However, the pace of revenue growth plummeted in H218. From solid growth of +11.4% YoY in H118, H218 revenues actually declined by -0.6% YoY in the latter half of the year. This result was beyond even our pessimistic view and we believe bulls on the company will be forced to revisit their overly optimistic assumptions about double-digit revenue growth in 2019e.

Besides assuming slower revenue growth going forward, the other leg of our negative thesis on Dali Foods was the expectation of margin compression due to rising raw materials costs, specifically for paper and key food and beverage ingredients. Although H218 gross margin declined versus H217 (to 37.7% from 37.8%), it did so only marginally, and probably due to a change in product mix (ie, a decline in high-margin beverage sales). 

After reviewing FY and H218 results, we see no reasons to change our negative view of Dali Foods, and our HK$4.18 price target (-26% potential downside) and Sell rating remain unchanged.

5. U.S. Equity Strategy: Bullish Outlook Intact

Market activity, both bonds and stocks, has been all about realigning expectations. Wednesday’s Fed announcement was more dovish than expected, and the market is now pricing in roughly 25bps of cuts by the end of 2019. Stocks reacted positively on Thursday, but then reversed (and then some) on Friday as global growth concerns became a little more serious. We continue to maintain our positive outlook. In today’s report we recap our bullish investment thesis and highlight attractive Groups and stocks within Consumer Staples, Materials, and Services.

In this briefing:

1. Tesla. SEC Contempt Filing & Ludicrous Autopilot Claims Engulf Delusional Musk
2. Indonesia Property – In Search of the End of the Rainbow – Part 2 –  Bumi Serpong Damai (BSDE IJ)

1. Tesla. SEC Contempt Filing & Ludicrous Autopilot Claims Engulf Delusional Musk

The US Securities and Exchange Commission (SEC) requested a federal judge to hold Tesla CEO Elon Musk in contempt of court yesterday regarding recent misleading tweets about the company’s unit production volumes for 2019. This latest move comes not long after Musk bragged that he does not respect the SEC and that his tweets were not being censored by the Board according to the terms of the agreement reached with the SEC following his controversial “Am considering taking Tesla private at $420. Funding secured” tweet on August 8’th last.  

Separately, Musk has been talking up the capabilities of the company’s Autopilot technology, claiming that it will deliver “Full Self Driving” by the end of the year, that its in-house developed hardware is 2000% better than NVIDIA’s and that by the end of next year, it would be safe for somebody to fall asleep with Autopilot in control. We find these claims to be ludicrous and Elon Musk delusional in thinking that the SEC would stand idly by while he publicly admits to ignoring the terms of his settlement with them barely four months ago. 

2. Indonesia Property – In Search of the End of the Rainbow – Part 2 –  Bumi Serpong Damai (BSDE IJ)

In this series under Smartkarma Originals, CrossASEAN Research insight providers Angus Mackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks. 

The second company we explore is leading township developer Bumi Serpong Damai (BSDE IJ), with exposure ranging from landed housing, shophouses, condominiums, as well as the defensive and growing buffer of nearly 20% of revenues coming from recurrent rental income.

Bumi Serpong Damai (BSDE IJ) has one of the largest land banks of any developer, with a land bank of over 4,000 ha, more than half of which is in its flagship township of BSD City in Serpong.

Given its breadth of exposure to the property segment, the company has the flexibility to switch its exposure between different segments depending on the health of the overall market. 

Its projects are well connected by toll-roads and railway but it is well positioned to benefit from new infrastructure such as the new MRT, LRT, as well as new toll road extensions, which will enhance the attractiveness of its developments.  

Management suggests that they will take a cautious start to the year ahead of the election but see a window for a pick-up in marketing sales in May, with the potential for a much better 2H19. 

Despite a run-up in the share price since the start of the year, valuations do not look challenging from a historical basis especially looking at its PBV. It also trades at a significant discount to NAV of 67%, as well as being below its 5 yr historical mean on a forward PER basis.

Catalysts ahead include a post-election pick-up in activity leading to more project launches, completion of infrastructure projects, aggressive mortgage lending by the banks, and a more dovish interest rate outlook. Valuations are already attractive but a rise in property market activity should also lead to earnings upgrades, which if sustained, may lead to property prices moving upwards.

In this briefing:

1. Cupid Ltd: Attractive Valuation Post Significant Correction
2. TRADE IDEA – PCCW (8 HK) Stub: The Li Legacy Lives On
3. Dali Foods (3799:HK) FY18 Results: Revenue Growth Collapses in H2, But Margins Hold Up So Far
4. U.S. Equity Strategy: Bullish Outlook Intact
5. StubWorld: Naspers Embeds Another Layer Into Tencent

1. Cupid Ltd: Attractive Valuation Post Significant Correction

Cupid Ltd one of the largest manufacturers of condoms in India 9MFY19 revenue was largely as per our expectations, as there was some order slippages. As forecasted in our initiation report Cupid Ltd: Protecting the Needy, the company reported a 20% decline in revenue at Rs 505mn, which also resulted in lower profitability both at the operating as well as net level. EBITDA stood at INR 161.6 mn declining by 32.53% with EBITDA margin at 31.95%. PAT was INR 108.5 mn declining by 24.58% with PAT margin at 21.46%.

Despite this below-par performance in the 9MFY19, we are fairly positive on the future growth prospects of the company. As of March 2019, it has a healthy order book of INR 1300 m with Book to Bill ratio of  1.99 times on its TTM sales. We expect revenues to grow at 15% over FY18-19 and margins to improve in medium to long term horizon.

Having corrected by 67% from its peak, the stock currently trades at 10.20x its FY19 EPS and 8.34x its FY20 EPS; we believe that this provides a good entry point for this niche high margin healthcare company with attractive long term growth possibilities.

2. TRADE IDEA – PCCW (8 HK) Stub: The Li Legacy Lives On

Have you ever wondered how a company secures the Chinese lucky number “8” as their ticker in Hong Kong? I’ll explain later on, but let’s just say that being the son of Li Ka Shing helps. 

Li Ka Shing is a name that hardly needs introduction in Hong Kong and Richard Li, Li Ka Shing’s youngest son and Chairman of PCCW Ltd (8 HK), follows suit. After being born into Hong Kong’s richest family, Richard Li was educated in the US where he worked various odd jobs at McDonald’s and as a caddy at a local golf course before enrolling at Menlo College and eventually withdrawing without a degree. As fate would have it, Mr. Li went on to set up STAR TV, Asia’s satellite-delivered cable TV service, at the tender age of 24. Three years after starting STAR TV, Richard Li sold the venture, which had amassed a viewer base of 45 million people, to Rupert Murdoch’s News Corp (NWS AU) for USD 1 billion in 1993. During the same year, Mr. Li founded the Pacific Century Group and began a streak of noteworthy acquisitions. 

You may be starting to wonder what all of this has to do with a trade on PCCW Ltd (8 HK) and I don’t blame you. In the rest of this insight I will:

• finish the historical overview of the Li family and PCCW
• present my trade idea and rationale
• give a detailed overview of the business units of PCCW and the associated performance of each
• recap ALL of my stub trades on Smartkarma and the performance of each  

3. Dali Foods (3799:HK) FY18 Results: Revenue Growth Collapses in H2, But Margins Hold Up So Far

We launched coverage of Dali Foods Group (3799 HK) in February with a Sell rating and a HK$4.18 target price. FY18 financial results, which were released late Tuesday March 26th, appear to confirm at least half of our negative thesis (slowing revenue growth), though the other half (margin compression) has failed to materialize so far.

Dali Foods appears to have met — just — the FY18 consensus EPS target of HK$0.307 per share. The company cut its Final dividend from HK$0.10 to HK$0.075 per share. 

However, the pace of revenue growth plummeted in H218. From solid growth of +11.4% YoY in H118, H218 revenues actually declined by -0.6% YoY in the latter half of the year. This result was beyond even our pessimistic view and we believe bulls on the company will be forced to revisit their overly optimistic assumptions about double-digit revenue growth in 2019e.

Besides assuming slower revenue growth going forward, the other leg of our negative thesis on Dali Foods was the expectation of margin compression due to rising raw materials costs, specifically for paper and key food and beverage ingredients. Although H218 gross margin declined versus H217 (to 37.7% from 37.8%), it did so only marginally, and probably due to a change in product mix (ie, a decline in high-margin beverage sales). 

After reviewing FY and H218 results, we see no reasons to change our negative view of Dali Foods, and our HK$4.18 price target (-26% potential downside) and Sell rating remain unchanged.

4. U.S. Equity Strategy: Bullish Outlook Intact

Market activity, both bonds and stocks, has been all about realigning expectations. Wednesday’s Fed announcement was more dovish than expected, and the market is now pricing in roughly 25bps of cuts by the end of 2019. Stocks reacted positively on Thursday, but then reversed (and then some) on Friday as global growth concerns became a little more serious. We continue to maintain our positive outlook. In today’s report we recap our bullish investment thesis and highlight attractive Groups and stocks within Consumer Staples, Materials, and Services.

5. StubWorld: Naspers Embeds Another Layer Into Tencent

This week in StubWorld …

• There is no apparent value enhancement to Naspers Ltd (NPN SJ)‘s spinning-off and separately listing Tencent Holdings (700 HK), while there is no change in governance and no monetisation at the parent level.

Preceding my comments on Naspers are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

In this briefing:

1. Indonesia Property – In Search of the End of the Rainbow – Part 2 –  Bumi Serpong Damai (BSDE IJ)

1. Indonesia Property – In Search of the End of the Rainbow – Part 2 –  Bumi Serpong Damai (BSDE IJ)

In this series under Smartkarma Originals, CrossASEAN Research insight providers Angus Mackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks. 

The second company we explore is leading township developer Bumi Serpong Damai (BSDE IJ), with exposure ranging from landed housing, shophouses, condominiums, as well as the defensive and growing buffer of nearly 20% of revenues coming from recurrent rental income.

Bumi Serpong Damai (BSDE IJ) has one of the largest land banks of any developer, with a land bank of over 4,000 ha, more than half of which is in its flagship township of BSD City in Serpong.

Given its breadth of exposure to the property segment, the company has the flexibility to switch its exposure between different segments depending on the health of the overall market. 

Its projects are well connected by toll-roads and railway but it is well positioned to benefit from new infrastructure such as the new MRT, LRT, as well as new toll road extensions, which will enhance the attractiveness of its developments.  

Management suggests that they will take a cautious start to the year ahead of the election but see a window for a pick-up in marketing sales in May, with the potential for a much better 2H19. 

Despite a run-up in the share price since the start of the year, valuations do not look challenging from a historical basis especially looking at its PBV. It also trades at a significant discount to NAV of 67%, as well as being below its 5 yr historical mean on a forward PER basis.

Catalysts ahead include a post-election pick-up in activity leading to more project launches, completion of infrastructure projects, aggressive mortgage lending by the banks, and a more dovish interest rate outlook. Valuations are already attractive but a rise in property market activity should also lead to earnings upgrades, which if sustained, may lead to property prices moving upwards.

In this briefing:

1. Indonesia Property – In Search of the End of the Rainbow – Part 2 –  Bumi Serpong Damai (BSDE IJ)
2. Jcontentree (2nd Largest Korean Drama Production Firm): Three Key Catalysts

1. Indonesia Property – In Search of the End of the Rainbow – Part 2 –  Bumi Serpong Damai (BSDE IJ)

In this series under Smartkarma Originals, CrossASEAN Research insight providers Angus Mackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks. 

The second company we explore is leading township developer Bumi Serpong Damai (BSDE IJ), with exposure ranging from landed housing, shophouses, condominiums, as well as the defensive and growing buffer of nearly 20% of revenues coming from recurrent rental income.

Bumi Serpong Damai (BSDE IJ) has one of the largest land banks of any developer, with a land bank of over 4,000 ha, more than half of which is in its flagship township of BSD City in Serpong.

Given its breadth of exposure to the property segment, the company has the flexibility to switch its exposure between different segments depending on the health of the overall market. 

Its projects are well connected by toll-roads and railway but it is well positioned to benefit from new infrastructure such as the new MRT, LRT, as well as new toll road extensions, which will enhance the attractiveness of its developments.  

Management suggests that they will take a cautious start to the year ahead of the election but see a window for a pick-up in marketing sales in May, with the potential for a much better 2H19. 

Despite a run-up in the share price since the start of the year, valuations do not look challenging from a historical basis especially looking at its PBV. It also trades at a significant discount to NAV of 67%, as well as being below its 5 yr historical mean on a forward PER basis.

Catalysts ahead include a post-election pick-up in activity leading to more project launches, completion of infrastructure projects, aggressive mortgage lending by the banks, and a more dovish interest rate outlook. Valuations are already attractive but a rise in property market activity should also lead to earnings upgrades, which if sustained, may lead to property prices moving upwards.

2. Jcontentree (2nd Largest Korean Drama Production Firm): Three Key Catalysts

Jcontentree Corp (036420 KS) is the second largest drama production firm in Korea after Studio Dragon (253450 KS). The company has three key catalysts that could positively impact its share price in the next 6-12 months:

• Expansion of OTT Service by the Global Giants – One of the most favorable investment themes in the next several years is the tremendous growth of the global OTT services by global giants such as Netflix, Disney, and Amazon. These giants want to provide the very best contents that could be popular on a global basis and the Korean dramas have been becoming increasingly popular all over the world and Jcontentree should also be one of the key beneficiaries of this trend. 
• IPO of Megabox – The company also has a controlling stake in Megabox Joongang, which is the third largest movie theater chain in Korea. On February 19th, 2019, Jcontentree sent a RFP to eight securities firms for the IPO of Megabox. The company will soon finalize the securities firms for the IPO and plans to complete the IPO in 1H 2021. Various media have estimated the value of Megabox to be around 700 billion won or more. 
• Korean dramas may be re-aired in China in 2019 – The Korean dramas were blocked in China in the past two years but there are some cautious optimism that the Chinese regulators will allow some of the Korean dramas to air in 2019.

In this briefing:

1. Indonesia Property – In Search of the End of the Rainbow – Part 2 –  Bumi Serpong Damai (BSDE IJ)
2. Jcontentree (2nd Largest Korean Drama Production Firm): Three Key Catalysts
3. HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)

1. Indonesia Property – In Search of the End of the Rainbow – Part 2 –  Bumi Serpong Damai (BSDE IJ)

In this series under Smartkarma Originals, CrossASEAN Research insight providers Angus Mackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks. 

The second company we explore is leading township developer Bumi Serpong Damai (BSDE IJ), with exposure ranging from landed housing, shophouses, condominiums, as well as the defensive and growing buffer of nearly 20% of revenues coming from recurrent rental income.

Bumi Serpong Damai (BSDE IJ) has one of the largest land banks of any developer, with a land bank of over 4,000 ha, more than half of which is in its flagship township of BSD City in Serpong.

Given its breadth of exposure to the property segment, the company has the flexibility to switch its exposure between different segments depending on the health of the overall market. 

Its projects are well connected by toll-roads and railway but it is well positioned to benefit from new infrastructure such as the new MRT, LRT, as well as new toll road extensions, which will enhance the attractiveness of its developments.  

Management suggests that they will take a cautious start to the year ahead of the election but see a window for a pick-up in marketing sales in May, with the potential for a much better 2H19. 

Despite a run-up in the share price since the start of the year, valuations do not look challenging from a historical basis especially looking at its PBV. It also trades at a significant discount to NAV of 67%, as well as being below its 5 yr historical mean on a forward PER basis.

Catalysts ahead include a post-election pick-up in activity leading to more project launches, completion of infrastructure projects, aggressive mortgage lending by the banks, and a more dovish interest rate outlook. Valuations are already attractive but a rise in property market activity should also lead to earnings upgrades, which if sustained, may lead to property prices moving upwards.

2. Jcontentree (2nd Largest Korean Drama Production Firm): Three Key Catalysts

Jcontentree Corp (036420 KS) is the second largest drama production firm in Korea after Studio Dragon (253450 KS). The company has three key catalysts that could positively impact its share price in the next 6-12 months:

• Expansion of OTT Service by the Global Giants – One of the most favorable investment themes in the next several years is the tremendous growth of the global OTT services by global giants such as Netflix, Disney, and Amazon. These giants want to provide the very best contents that could be popular on a global basis and the Korean dramas have been becoming increasingly popular all over the world and Jcontentree should also be one of the key beneficiaries of this trend. 
• IPO of Megabox – The company also has a controlling stake in Megabox Joongang, which is the third largest movie theater chain in Korea. On February 19th, 2019, Jcontentree sent a RFP to eight securities firms for the IPO of Megabox. The company will soon finalize the securities firms for the IPO and plans to complete the IPO in 1H 2021. Various media have estimated the value of Megabox to be around 700 billion won or more. 
• Korean dramas may be re-aired in China in 2019 – The Korean dramas were blocked in China in the past two years but there are some cautious optimism that the Chinese regulators will allow some of the Korean dramas to air in 2019.

3. HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)

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 mainland investors in the past seven days.

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

In this week’s HK Connect Discovery, we highlight the strong inflow to automobile stocks and Sands China. 

In this briefing:

1. TRADE IDEA – PCCW (8 HK) Stub: The Li Legacy Lives On
2. Dali Foods (3799:HK) FY18 Results: Revenue Growth Collapses in H2, But Margins Hold Up So Far
3. U.S. Equity Strategy: Bullish Outlook Intact
4. StubWorld: Naspers Embeds Another Layer Into Tencent
5. Ruhnn (如涵) IPO Review – Expensive Influence

1. TRADE IDEA – PCCW (8 HK) Stub: The Li Legacy Lives On

Have you ever wondered how a company secures the Chinese lucky number “8” as their ticker in Hong Kong? I’ll explain later on, but let’s just say that being the son of Li Ka Shing helps. 

Li Ka Shing is a name that hardly needs introduction in Hong Kong and Richard Li, Li Ka Shing’s youngest son and Chairman of PCCW Ltd (8 HK), follows suit. After being born into Hong Kong’s richest family, Richard Li was educated in the US where he worked various odd jobs at McDonald’s and as a caddy at a local golf course before enrolling at Menlo College and eventually withdrawing without a degree. As fate would have it, Mr. Li went on to set up STAR TV, Asia’s satellite-delivered cable TV service, at the tender age of 24. Three years after starting STAR TV, Richard Li sold the venture, which had amassed a viewer base of 45 million people, to Rupert Murdoch’s News Corp (NWS AU) for USD 1 billion in 1993. During the same year, Mr. Li founded the Pacific Century Group and began a streak of noteworthy acquisitions. 

You may be starting to wonder what all of this has to do with a trade on PCCW Ltd (8 HK) and I don’t blame you. In the rest of this insight I will:

• finish the historical overview of the Li family and PCCW
• present my trade idea and rationale
• give a detailed overview of the business units of PCCW and the associated performance of each
• recap ALL of my stub trades on Smartkarma and the performance of each  

2. Dali Foods (3799:HK) FY18 Results: Revenue Growth Collapses in H2, But Margins Hold Up So Far

We launched coverage of Dali Foods Group (3799 HK) in February with a Sell rating and a HK$4.18 target price. FY18 financial results, which were released late Tuesday March 26th, appear to confirm at least half of our negative thesis (slowing revenue growth), though the other half (margin compression) has failed to materialize so far.

Dali Foods appears to have met — just — the FY18 consensus EPS target of HK$0.307 per share. The company cut its Final dividend from HK$0.10 to HK$0.075 per share. 

However, the pace of revenue growth plummeted in H218. From solid growth of +11.4% YoY in H118, H218 revenues actually declined by -0.6% YoY in the latter half of the year. This result was beyond even our pessimistic view and we believe bulls on the company will be forced to revisit their overly optimistic assumptions about double-digit revenue growth in 2019e.

Besides assuming slower revenue growth going forward, the other leg of our negative thesis on Dali Foods was the expectation of margin compression due to rising raw materials costs, specifically for paper and key food and beverage ingredients. Although H218 gross margin declined versus H217 (to 37.7% from 37.8%), it did so only marginally, and probably due to a change in product mix (ie, a decline in high-margin beverage sales). 

After reviewing FY and H218 results, we see no reasons to change our negative view of Dali Foods, and our HK$4.18 price target (-26% potential downside) and Sell rating remain unchanged.

3. U.S. Equity Strategy: Bullish Outlook Intact

Market activity, both bonds and stocks, has been all about realigning expectations. Wednesday’s Fed announcement was more dovish than expected, and the market is now pricing in roughly 25bps of cuts by the end of 2019. Stocks reacted positively on Thursday, but then reversed (and then some) on Friday as global growth concerns became a little more serious. We continue to maintain our positive outlook. In today’s report we recap our bullish investment thesis and highlight attractive Groups and stocks within Consumer Staples, Materials, and Services.

4. StubWorld: Naspers Embeds Another Layer Into Tencent

This week in StubWorld …

• There is no apparent value enhancement to Naspers Ltd (NPN SJ)‘s spinning-off and separately listing Tencent Holdings (700 HK), while there is no change in governance and no monetisation at the parent level.

Preceding my comments on Naspers are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

5. Ruhnn (如涵) IPO Review – Expensive Influence

Ruhnn Holding Ltd (RUHN US) is looking to raise up to US$155m in its upcoming IPO. We have previously covered the company’s fundamentals in: Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk.

In this insight, we will value the company business segments by parts, look at the deal dynamics, and run the deal through our IPO framework.

In this briefing:

1. Jcontentree (2nd Largest Korean Drama Production Firm): Three Key Catalysts
2. HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)

1. Jcontentree (2nd Largest Korean Drama Production Firm): Three Key Catalysts

Jcontentree Corp (036420 KS) is the second largest drama production firm in Korea after Studio Dragon (253450 KS). The company has three key catalysts that could positively impact its share price in the next 6-12 months:

• Expansion of OTT Service by the Global Giants – One of the most favorable investment themes in the next several years is the tremendous growth of the global OTT services by global giants such as Netflix, Disney, and Amazon. These giants want to provide the very best contents that could be popular on a global basis and the Korean dramas have been becoming increasingly popular all over the world and Jcontentree should also be one of the key beneficiaries of this trend. 
• IPO of Megabox – The company also has a controlling stake in Megabox Joongang, which is the third largest movie theater chain in Korea. On February 19th, 2019, Jcontentree sent a RFP to eight securities firms for the IPO of Megabox. The company will soon finalize the securities firms for the IPO and plans to complete the IPO in 1H 2021. Various media have estimated the value of Megabox to be around 700 billion won or more. 
• Korean dramas may be re-aired in China in 2019 – The Korean dramas were blocked in China in the past two years but there are some cautious optimism that the Chinese regulators will allow some of the Korean dramas to air in 2019.

2. HK Connect Discovery Weekly: Geely, Great Wall Motor and Sands China (2019-02-22)

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 mainland investors in the past seven days.

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

In this week’s HK Connect Discovery, we highlight the strong inflow to automobile stocks and Sands China. 

In this briefing:

1. Dali Foods (3799:HK) FY18 Results: Revenue Growth Collapses in H2, But Margins Hold Up So Far
2. U.S. Equity Strategy: Bullish Outlook Intact
3. StubWorld: Naspers Embeds Another Layer Into Tencent
4. Ruhnn (如涵) IPO Review – Expensive Influence
5. Golden Agri Bull Pivots to Get Involved

1. Dali Foods (3799:HK) FY18 Results: Revenue Growth Collapses in H2, But Margins Hold Up So Far

We launched coverage of Dali Foods Group (3799 HK) in February with a Sell rating and a HK$4.18 target price. FY18 financial results, which were released late Tuesday March 26th, appear to confirm at least half of our negative thesis (slowing revenue growth), though the other half (margin compression) has failed to materialize so far.

Dali Foods appears to have met — just — the FY18 consensus EPS target of HK$0.307 per share. The company cut its Final dividend from HK$0.10 to HK$0.075 per share. 

However, the pace of revenue growth plummeted in H218. From solid growth of +11.4% YoY in H118, H218 revenues actually declined by -0.6% YoY in the latter half of the year. This result was beyond even our pessimistic view and we believe bulls on the company will be forced to revisit their overly optimistic assumptions about double-digit revenue growth in 2019e.

Besides assuming slower revenue growth going forward, the other leg of our negative thesis on Dali Foods was the expectation of margin compression due to rising raw materials costs, specifically for paper and key food and beverage ingredients. Although H218 gross margin declined versus H217 (to 37.7% from 37.8%), it did so only marginally, and probably due to a change in product mix (ie, a decline in high-margin beverage sales). 

After reviewing FY and H218 results, we see no reasons to change our negative view of Dali Foods, and our HK$4.18 price target (-26% potential downside) and Sell rating remain unchanged.

2. U.S. Equity Strategy: Bullish Outlook Intact

Market activity, both bonds and stocks, has been all about realigning expectations. Wednesday’s Fed announcement was more dovish than expected, and the market is now pricing in roughly 25bps of cuts by the end of 2019. Stocks reacted positively on Thursday, but then reversed (and then some) on Friday as global growth concerns became a little more serious. We continue to maintain our positive outlook. In today’s report we recap our bullish investment thesis and highlight attractive Groups and stocks within Consumer Staples, Materials, and Services.

3. StubWorld: Naspers Embeds Another Layer Into Tencent

This week in StubWorld …

• There is no apparent value enhancement to Naspers Ltd (NPN SJ)‘s spinning-off and separately listing Tencent Holdings (700 HK), while there is no change in governance and no monetisation at the parent level.

Preceding my comments on Naspers are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

4. Ruhnn (如涵) IPO Review – Expensive Influence

Ruhnn Holding Ltd (RUHN US) is looking to raise up to US$155m in its upcoming IPO. We have previously covered the company’s fundamentals in: Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk.

In this insight, we will value the company business segments by parts, look at the deal dynamics, and run the deal through our IPO framework.

5. Golden Agri Bull Pivots to Get Involved

Golden Agri Resources (GGR SP) has started a basing process below pivot support at 0.30 as the daily MACD cycle has not been confirming recent lows for a case of underlying supportive bull divergence (sell pressure dwindling as downside momentum tapers off).

Bull divergence outlined in the MACD is supportive on a macro basis, however there is downside risk stemming from the micro rising wedge. A fresh diverging low is expected to market a price low to work into.

Immediate inflection levels at 0.30 and 0.26 will dictate near term direction out of the micro rising wedge. Ideal downside projections are noted along with a bullish resistance threshold.