KGI Daily Trading Ideas – 15 February 2021

China, Hong Kong and US equity markets are closed today for holidays.

• HK and US equity market re-opens on Tuesday, 16 February.
• China equity market re-opens on Thursday, 18 February.

IPO Performance Review

Bumble (BMBL US) – Happy Valentine’s pop

• BMBL repriced their IPO to US$43, opened trading at US$76, hitting a peak of US$79.6 before closing at US$70.31, up 63.5% for its first day of trading. Read our prior writeup here.
• Friday was another volatile day of trading for BMBL as the share price peaked at US$84.8 before closing at US$75.46, up 7% for the day.
• At current prices, BMBL is priced at a premium to Match Group (MTCH US) with 24.6x Price/Sales. We expect 18-26x P/S to be the trading range going forward (US$55-80), though 30x P/S (US$92) may not be inconceivable given current market dynamics.

US Trading Ideas

Meritage Homes (MTH US): Conservative guidance leads to buying opportunity

• BUY Entry – 90 Target – 109 Stop Loss – 82
• MTH is a mid-cap American homebuilder posting one of the highest growth rates across peer homebuilders, with 23% sales growth and 68% EPS growth year-on-year in 2020.
• Homebuilder stocks saw strong gains as housing demand remains strong, fueled by low mortgage rates. However, MTH, together with a few other high growth homebuilders such as Green Brick Partners (GRBK US) and LGI Homes (LGI US) saw share prices peak in October prior to 3Q20 earnings, on the back of lofty analyst expectations.
• On MTH’s 4Q20 earnings presentation, MTH management guided for US$10.5 – 11.50 EPS in 2021, 13% below average analyst estimates of US$12.70 and sending the stock down 14%. 
• However, MTH has a history of guiding conservatively since 1Q19. MTH’s 2021 midpoint EPS guidance of US$11 is also equal to its 2020 results, implying no earnings growth in the company. We find this unlikely as the company ends 4Q20 with the 2nd highest backlog in its history and 34% more lots than in 4Q19 to build new homes on.
• We expect interest rates to remain low for 2021 as recent inflation numbers show minimal pick-up, while unemployment remains relatively high in the US. We expect near-term catalysts to come from a valuation re-rating from ~8x to 10x P/E or continued bullish sentiment in the homebuilding sector as a whole, while medium-term catalysts would be improved earnings guidance from management.

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DraftKings (DKNG US): Double down on Woods

• BUY Entry – 58.06 Target – 64.62 Stop Loss – 54.68
• DKNG continues to ride on the same tailwinds as when we first wrote about it here.
• We saw ARK Invest’s purchase of DKNG catalysing a breakout in early February.
• As the share price pulls back into its trading upchannel, we recommend buying the dip prior to earnings, as DKNG is expected to fine-tune 2021’s outlook to the upside from further industry tailwinds.

HK Trading Ideas

ZhongAn Online P & C Insurance (6060 HK): The turnaround is just beginning

• BUY Entry – 54 Target –70  Stop Loss – 46
• ZhongAn Online P & C Insurance Co is a China-based online insurance company. The company provides insurance services including lifestyle consumption insurance, consumer finance insurance, health insurance, auto insurance and travel insurance. The company’s products include shipping return policy, online payment security insurance, account security insurance, phone accident policy, phone screen crack policy, Baobei Open Platform, Mashanghua, individual health insurance, group health insurance plans, flight accident and delay policy among others.
• Previously, the company announced that it will achieve net profit based on the preliminary review of its FY20 results, compared to net losses of RMB454mn in FY19. The improvement in the performance was primarily due to a substantial decrease in underwriting loss. This will mark the year that the company turns profitable since FY16.
• Currently, there are more than 400 enterprises and institutes partnering with the company. The aggregate gross written premiums (AGWP) in FY20 grew by 14% YoY to RMB16.7bn. The respective YoY growth of AGWP in FY21 and FY22 is estimated to be 30% and 29%. 
• The company’s valuation based on price-to-sales ratio (PSR) is still cheap. The current PSR is 4x, which compares favourably to the past five-year average of 5.7x. According to market consensus, net profit is expected to grow by 26.9% YoY and 55.2% YoY in FY21 and FY22, respectively.   

CNOOC Limited (883 HK): Dirt cheap among oil majors

• Re-iterate BUY Entry – 8.5 Target – 10.6 Stop Loss – 7.5
• CNOOC is one of the global oil majors, substantially underperforming its peers even though global oil prices have rallied recently. This was mainly due to the company being included on the US blacklist of military-related enterprises. The company is under selling pressures from foreign funds.
• The company is one of China’s most important state-owned enterprises. Furthermore, only 6% of its business is exposed to North America.
• Saudi Arabia announced to cut 1mn bbl/d of output unilaterally starting from February 2021. Brent crude oil price traded above US$60/bbl, and WTI crude oil price rose above US$58/bbl. Both benchmarks are now back to pre-COVID levels. 
• Updated market consensus of the estimated growth of net profit in FY21 and FY22 are 73% and 29% respectively, which translates to 7.7x and 6.0x forward PE. The current PE is 13.3x. The estimated respective dividend yield in FY21 and FY22 is 6.8% and 8.3% based on the share price of HK$8.8.

SG Trading Ideas

AEM (AEM SP): Make America Great Again in Semicon Manufacturing

• RE-ITERATE BUY Entry – 4.30 Target – 5.26 Stop Loss – 3.76
• US semicon stocks received a boost in the arm last week after US President Joe Biden signed an executive order authorizing a supply chain review of the semiconductor industry due to the ongoing chip shortages. 
• US chip manufacturers including Intel (INTC US), AMD (AMD US) and Qualcomm (QCOM US) are calling for the US government to fund incentives and investments in US semicon manufacturing and research. According to the Semiconductor Industry Association, the US share of global semiconductor manufacturing has fallen to 12% from 37% in 1990 due to domestic investments largely being flat while foreign governments have provided significant incentives to companies like TSMC in Taiwan. 
• We believe the potential increase in capex if the US were to increase domestic semicon production would benefit Singapore-listed semicon capital equipment suppliers such as AEM, Frencken (FRKN SP) and UMS (UMSH SP). 
• We have a fundamental OUTPERFORM rating and fair value of S$5.26. Read the full report here.

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Yangzijiang (YZJSGD SP): Keeps on winning

• RE-ITERATE BUY (SGD) Entry – 1.05 Target – 1.35 Stop Loss – 0.95
• Yangzijiang last week announced that it had won new orders worth around US$1.3 billion. The orders were for a total of 29 vessels, including 22 containerships that are expected to be delivered progressively from 3Q 2022. With the latest order win, it has basically met 65% of its annual target of US$2 billion. 
• The CEO, Ren Letian, is positive on the company’s outlook and highlighted that the current order book can keep its yards busy for the next two years. 
• The company’s valuations are attractive as it trades at only 8x forward P/E and offers a decent dividend yield of 4.0%. The company’s balance sheet is an envy among shipbuilders, with total cash and investments amounting to RMB 26 billion (as at end 30 Sep 2020). Yangzijiang stands to gain from the ongoing economic recovery due to its scale as one of China’s largest and most efficient shipbuilders. The company has progressively moved up the value chain over the last ten years and now produces mega containerships (up to 24,000 teu) and LNG vessels. 
• Yangzijiang will report its full-year results after market closes on Thursday, 25 February. 

Market Movers – What’s Hot

• Bitcoin (BTC) surged to a record high of almost US$50,000 buoyed by institutional interest. 
• The US 10-year yield touched 1.20% for the first time since March 2020 on optimism for an improving economy and expectations of higher inflation. The US Federal Reserve has said it will tolerate inflation above its 2.0% target. 

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United States

• Weed stocks end Friday seeing red, with most companies ending up barely changed for the week. Aphria (APHA US) opened on 8 February at US$17.07 and closed 12 February at US$16.94, while Tilray (TLRY US) opened at US$26.34 and closed at US$29 for the week.
• Churchill Capital Corp IV (CCIV US) +26.9% closing at US$39.98 as rumours of the acquisition of Lucid Motors, a luxury electric vehicle maker, continued fueling strong investor interest.
• Hubspot(HUBS US) +16.4% closing at US$502.40, after the customer relationship management software company posted 4Q20 results that blew out analyst expectations, with 2021 growth guidance that is higher than 2020. 
• Earnings watch: Mon 15 Feb – BHP; Tue 16 Feb – CVS/ZTS/PLTR/AIG/OXY/SEDG/BYD

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Hong Kong

• Ping An Healthcare and Technology Co Ltd (1833HK) +21.1%, closing at HK$128, and intraday trading touched the record high of HK$135. The sub-fund of Ark fund, Ark Fintech Innovation ETF (ARKF US) entered a new position with a purchase of 490,000 shares of the company. 
• HengTen Networks Group Ltd (136 HK)+12.04%, closing at a new high of HK$10.42. This is the tenth consecutive day of gains. Investors are still bullish on the Kuaishou related stocks, especially with people remaining at home this Chinese New Year that could further boost the viewership of online videos.   
• Weimob Inc (2013 HK) +12.04%, closing at a new high of HK$29.45. Previously, MSCI China All Shares Index announced to include the stock effectively on 26th February. The SaaS sector continues to attract fund flows as bullish sentiments on cloud services and software companies remain strong.
• Jiumaojiu International Holdings Ltd (9922 HK) +9.26%, closing at a new high of HK$ 37.15. Previously, MSCI China All Shares Index announced to include the stock effectively on 26th February. Most people staying home during this Chinese New Year are expected to keep up spending on F&B businesses in cities. 
• Pop Mart International Group Ltd (9992 HK) +8.72%, closing at HK$94.8. Previously, the company announced a cooperation with Lizhi Inc (LIZI US) to establish an individual branding podcast. Consumer discretionary stocks are running up as investors expect strong consumer spending during this Chinese New Year when most people stay home.

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Singapore

• Penny cap rotation has shifted to healthcare stocks such as AsiaMedic (AMAT SP; +9.5%; S$0.023), Healthway Medical (HMED SP; +8.3%; S$0.039) and Thomson Medical (TMG SP; +11.3%; S$0.079). 
• Thomson Medical (TMG SP) +11.3% to S$0.079 after the group posted a net profit of S$8.1mn in 1H FY2021, a reversal from the S$1.9mn loss in 1H FY2020. TMG was among Singapore’s best performing stock last week, surging 61% week-on-week. 
• Raffles Medical (RFMD SP) +3.7% to S$0.99 after Canadian-based Global Alpha Capital Management increased its stake to 7.057% from 6.998%, translating to an increase of S$1.1mn worth of RFMD shares. RFMD is due to report its full-year FY2020 results before the market opens on Monday, 22 February 2021. 
• Yangzijiang Shipbuilding (YZJSGD SP) +1.9% to S$1.07 as street consensus re-iterated their BUY recommendations and target prices ranging from S$1.17 to S$1.40. This comes after Yangzijiang announced orders worth S$1.3 billion for 29 vessels, making up 65% of its annual target of US$2 billion.
• Trading Dashboard: Remove ThaiBev (THBEV SP) due to S$0.78 stop loss. 

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Trading Dashboard