KGI DAILY TRADING IDEAS – 19 March 2021

IPO Watch

Bilibili (9626 HK): Leading video community for the young in China

• Bilibili’s IPO is open for subscription on Thursday, 18 March and closes on Tuesday, 23 March. Trading starts on Monday, 29 March. 
• Bilibili is a leading video community for young people in China, with over 86% of the company’s MAU below 35 years old, the highest among the major video-centric platforms in China. 
• Bilibili has a large and fast-growing user base. In 4Q20, the company had an average of 202mn MAU, an increase of 55% over the same period in 2019. Bilibili targets MAU to reach 400mn by 2023. The increase is expected to be driven by content genre expansion. Revenue upside will come from improvement in monetization capabilities of Bilibili going forward.
• Thanks to ads, mobile games and other value-added services revenue increase on growing number of members, total revenue posted 71% CAGR in 2018-20 and reached Rmb12bn in 2020. Revenue increase has also boosted gross margin, which rose from 20.7% in 2018 to 23.7% in 2020. However, marketing expenses surged 191% YoY in 2020, due to more brand promotion and marketing activities. Net loss has expanded to Rmb3.1bn in 2020.
• Strategic investors of Bilibili include Tencent (700 HK) and Alibaba (9988 HK), which will hold 11.6% and 6.3% stakes respectively upon completion of the IPO. Although near-term share performance depends on offer price discount to that of ADS, being one of the core entertainment video community in China, its rapidly-growing, sticky and active community users should propel long-term revenue growth for Bilibili. We therefore suggest subscribing.

Tuya (TUYA US): IPO price raised to US$21, up 19% on first trading day

• TUYA is a Platform-as-a-Service provider for smart devices, boasting over 5,000 customers and 204mn connected devices on their ecosystem.
• TUYA indicated an increased IPO price to US$21 for its ADS from its initial US$17-20 guidance. Shares traded to a peak of US$27.65 before setting down at US$25 for a 19% first day pop.
• At US$25, TUYA trades at 77.8x Price/Sales. Given the current weak market sentiment, we expect TUYA to stay range-bound between US$20 – 26.

US Trading Ideas

Warner Music Group (WMG US): Own the means of production

• BUY Entry – 32.8 Target – 38.5 Stop Loss – 31.25
• WMG is one of the largest music entertainment and record label conglomerates in the US, behind Universal Music Group and Sony Music Entertainment.
• The market has been rewarding video content creators whom have just introduced streaming as their distribution channel – Disney (DIS US) , Discovery Inc (DISCA US), ViacomCBS (VIAC US) and Comcast (CMCSA US) all trade near all-time highs. 
• We see WMG as one of the pure-play music content owners who can benefit from a similar sentiment shift. WMG’s business model has transitioned from one-time physical/digital sales to recurring song rights, with the recent Tiktok deal in December as a positive sign of untapped or under-tapped market opportunity.
• Shares of WMG have retraced recently to its pre-Tiktok deal prices. We see further enterprise deals as positive catalysts, with the overall expansion of the music streaming industry to benefit WMG.

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Construction Partners (ROAD US): Long road ahead

• BUY Entry – 35.1 (BUY STOP) Target – 42 Stop Loss – 32.2
• ROAD is a civil infrastructure construction company focusing on projects such as building highways, roads, bridges, airports etc. in Southeastern US.
• As the Biden administration changes its focus to the infrastructure package, we expect infrastructure plays to revisit new highs.  
• ROAD currently trades 8% below its all-time high established in mid January. We recommend buying the breakout rather than buying at its current price for confirmation of positive sentiment.

HK Trading Ideas

Hainan Meilan International Airport Company Limited (357 HK): Shop till you drop

• RE-ITERATE Buy Entry – 33 Target – 48 Stop Loss – 27
• The company operates through aeronautical businesses and non-aeronautical businesses. Its aeronautical businesses include the provision of terminal facilities, ground handling services and passenger services. Its non-aeronautical businesses include the leasing of commercial and retail spaces at Meilan Airport, airport-related businesses franchising, advertising spaces leasing, car parking businesses, cargo handling and the sales of consumable goods.
• Hainan had adopted the new offshore duty-free shopping policy since July 2020. In 2H20, the duty-free sales increased by 87.4% YoY. Duty-free sales per capita increased by 74.4% YoY in 2020.
• The operational data jumped substantially during Chinese New Year holiday in February. Passenger throughput, aircraft movement, and cargo throughput surged by  209% YoY to 1.2mn persons, 114% YoY to 9,809 units, and 107% YoY to 19,270 tonnes respectively. 
• The catalyst is the commencement of operations of Terminal 2, expected around mid-2021. Total duty-free shopping area will reach 24,000 square meters (current T1 shopping area: 15,000 sqm), making it China’s largest duty-free shop. 
• Market consensus of net profit growth in FY21 and FY22 are 67.35%YoY and 32.1% YoY, which implies forward PERs of 21.8x and 16.5x. Current PER is 35.3x.

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Li Ning Company Limited (2331 HK): An Olympic Games play 

• RE-ITERATE BUY Entry – 40  Target – 50 Stop Loss – 36
• Li Ning Company Limited is principally engaged in brand development, design, manufacture and sale of sport-related footwear, apparel, equipment and accessories in the People’s Republic of China (the PRC). The Company is also engaged in the manufacture, development, marketing, distribution and sales of sports products under several other brands, including Double Happiness (table tennis), AIGLE (outdoor sports) and Lotto (sports fashion). Through its subsidiaries, the Company is also engaged in the provision of information technology service.
• China’s sportswears consumption has been growing steadily. Due to COVID-19, most brick and mortar stores were forced to shut. However, the online sales, especially live-streaming sales helped sportswear companies to thrive during the pandemic period. Therefore, Li Ning 1H20 earnings dipped slightly YoY. But the recovery of consumption in 2H20 due to pent-up demand was expected to boost the sales. 
• The upcoming catalyst is the summer Olympic Games in July and August 2021. This is the first international sports event after COVID-19. We believe that this Olympic Games will indirectly stimulate sportswear sales, especially Chinese brands. Li Ning is one of the top domestic brands that sponsors Chinese athletes. 
• Market consensus of net profit growth in FY21 and FY22 are 38.5% YoY and 29.4% YoY, which implies forward PERs of 42.7x and 33.0x. Current PER is 59.1x. Bloomberg consensus average 12-month target price is HK$56.5.

SG Trading Ideas

OCBC (OCBC SP): Banking on higher interest rates and possibly new direction

• RE-ITERATE BUY Entry – 11.60 Target – 12.80 Stop Loss – 11.00
• Banks are the primary beneficiary of rising interest rates and stronger economic growth prospects. With Singapore’s economy forecasted to grow by 4-6% in 2021, as per Singapore’s Ministry of Trade and Industry (MTI), credit costs and non-performing loans (NPL) are expected to improve. 
• In this week’s all-important FOMC meeting, the Fed signalled that it will tolerate higher inflation, causing the benchmark 10-year Treasury yield to spike to a 14-month high and the yield curve to steepen to a 5-year record. All these developments are good for banks. 
• Fundamentally, OCBC has the highest CET-1 CAR among the three local banks. As at end-2020, its CET-1 CAR was at 15.2%, higher than its target range of 12.5-13.5% and that of the other local banks such as DBS (13.9%) and UOB (14.7%). Thus, OCBC in well-positioned to normalise dividends going forward and embark on M&A activities. 
• OCBC recently announced Helen Wong as its new group CEO, who will succeed Samuel Tsien on 15 April 2021. Her experience as HSBC’s Greater China Chief Executive since 2015 is likely to see OCBC expand faster in China, or possibly embark on M&A activities. 
• Current valuations are still attractive despite the runup in prices, with double-digit EPS growth in 2021 and 2022. Dividend yields are expected to recover to 4.0% in FY2021, 4.6% in FY2022 and 4.8% in FY2023, according to Bloomberg consensus forecasts. 

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UMS Holdings (UMSH SP): Market leader rallies the troops

• BUY Entry – 1.22 Target – 1.43 Stop Loss – 1.12
• Key customer Applied Materials (AMAT US) has continued providing forward forecasts that are above consensus estimates, leading to further consensus upgrades. Semi systems’ 2QFY21 forecast of US$3.85bn is now the highest ever in the company’s history, and AMAT’s CEO expects “to again grow faster than the market for the year as a whole”. 
• We are increasingly bullish on the semiconductor capital equipment industry as news on chip shortages continue to surface. UMS management’s decision to cut dividend is in line with the increasing possibility of a new customer win, which will lead to further Capex spend and improved revenue diversification. 
• We have a fundamental OUTPERFORM rating at target price of S$1.43, based on 15x forward P/E, slightly above +1 Standard Deviation of UMS’s 5-year trailing P/E. There is additional upside from better-than-expected associate contributions, improved margins and further clarity on the company’s expansion initiatives.

Market Movers – What’s Hot

United States

• Upstart Holding (UPST US) extended gains from yesterday, reaching an all-time high after an earnings beat and strong guidance. The artificial intelligence-based lending platform also announced the acquisition of Prodigy Software, a provider of cloud-based automotive retail software. The company highlighted the auto retail sector as among the largest buy-now-pay-later opportunity as it seeks to reduce the cost of auto financing. 
• ViacomCBS (VIAC US) closed at an all-time high after reaching an agreement with the National Football League (NFL) on an 11-year multiplatform deal that will see NFL feature across VIAC’s legacy cable sports channel CBS Sports, as well as their flagship streaming service Paramount+. 
• Bank of America (BAC US) led gains in major banks as the US 10 year yield hit the 1.7% mark, implying improving net interest margins in the future. 
• Energy stocks (XLE US) retreated as crude oil fell 7% behind news of a potential third wave of COVID in Europe and higher US domestic crude inventory.
• Wisekey (WKEY US) shares spiked as speculators pile in on the Non-Fungible Token (NFT) hype; WKEY announced the development of NFT capability on its WISeAuthentic Platform that secures, authenticates and proves ownership of digital and tangible assets.

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Hong Kong

• China Medical System Holdings Limited (867HK). CitiGroup upgraded TP to HK$26 from HK$11.1 and moved up its rating to OVERWEIGHT. Aesthetic medicine and healthcare are the two growth drivers. Management aims to acquire five new competitive medicines per annum. Earnings growth in FY21 and FY22 are estimated at 39% YoY and 57% YoY. 
• Shandong Chenming Paper Holdings Limited (1812 HK). The paper sector jumped as news reported paper prices will increase in the near term. 
• Meitu Inc (1357HK). The company announced that it bought another US$50mn worth of Etherum and Bitcoin on 17 March. 
• HengTen Networks Group Limited (136 HK). The film “Hi, Mom”, where the company’s subsidiary Ruyi Films acted as the main producers and the largest guaranteed distributor, will extend its release to 11 April. As of 17 March, box office reached RMB5.28bn. 
• Sunny Optical Technology (Group) Company Limited (2382HK). CitiGroup reiterated a TP of HK$230 and OVERWEIGHT recommendation. The earnings in FY20 exceeded the sector average by 3% and expectations by 13%. 

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Singapore

• Jardine Matheson (JM SP) gained on progress of its proposed delisting of Jardine Strategic (JS SP). The company issued a circular on Thursday to announce a shareholder meeting on 12 April to approve the proposal.
• Nanofilm Technologies (NANO SP) gained after DBS initiated coverage with a ‘Buy’ rating at a target price of S$6.22, citing potential for market share gains and prospects in new sectors with its proprietary vacuum-coating technologies.
• Venture Corporation (VMS SP) saw a 2nd day of gains on high volume, bringing the share price back above S$20 after JP Morgan raised their recommendation from ‘Underweight’ to ‘Neutral’ with a target price of S$18.
• Thomson Medical Group (TMG SP), with a strong double digit price gain and closing near its all-time high established at the beginning of the month. TMG’s share price has doubled since its earnings release, but have been trailing downwards in the prior two weeks.
• MM2 Asia’s (MM2 SP) new shares from a 1-for-1 rights issue was listed on Thursday, enabling the company to pay off its 7% fixed rate note due 27 April 2021 and stave off insolvency.

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