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KGI Daily Trading Ideas – 25 January 2021

IPO Watch

HK: Kuaishou (1024 HK) – Last biggest HK IPO before the year of the Ox

Institutional subscription starts on Monday 25th January 2021

Public subscription starts on Tuesday 26th January 2021

Trading starts on Friday 5th February 2021

  • Kuaishou is Chinese video-sharing mobile app developed by Beijing Kuaishou Technology Co., Ltd, with a particularly strong user base among users outside of China’s Tier 1 cities. Outside Mainland China, it has also gained considerable popularity in other markets, topping the Google Play and Apple App Store’s “Most Downloaded” lists in eight countries. In India, this app is known as Snack Video. It is often referred to as “Kwai” in overseas markets. Its main competitor is Douyin, which is known as TikTok outside of China.
  • Initial IPO pricing is between HK$105 – 115, indicating a HK$433.7 – 475bn (US$55.6 – 60.9bn) initial market cap.
  • Cornerstone investors include Capital Group, The Canada Pension Plan Investment Board, Abu Dhabi Investment Authority, Temasek Holdings Limited, and six other institutions. 
  • It reported a 11M20 revenue of RMB52.5bn, and gross profit of RMB20.9bn while net loss increased to RMB9.4bn.
  • As of November 2020, daily active users dropped to 263mn, and monthly active users dropped to 481mn. Gross merchandise value was RMB332.6bn. The company expects a net loss in FY20 to be bigger than in FY19.

Qualtrics (XM US) – IPO price range raised to US$22-26

  • XM is an experience management platform known for its customer and employee surveys. XM was acquired by SAP in 2019 for US$8bn prior to its IPO, and is now being spun out of the company.
  • Initial IPO pricing was US$20-24. New IPO range indicates US$11.2 – 13.3bn initial market cap.
  • XM holds market leadership over other enterprise survey peers, with price multiples indicating a substantial premium. We expect 25x Price/Sales to be the peak (US$37.40/share) of first-day trading, while a 15-20x multiple (US$22.4-30) to be the early trading range.
  • XM is scheduled to price on Wednesday, 27th January, and to trade on the NYSE on Thursday, 28th January.
XM US PEERS (Source: Bloomberg)

Shoals Technologies Group (SHLS US) – US$1bn IPO with initial price range at US$19-21

  • SHLS is the market leader of electrical Balance of Systems (EBOS) products in US, one of the critical components in a solar cell set-up.
  • The solar energy sector has seen greater attention as of late; solar energy production is expected to double from 2019 to 2023, and US rejoining the Paris Climate Agreement should translate to an increased focus on going green. SHLS is expected to benefit with the largest network and exposure in US.
  • This IPO has a fairly strong bookrunner group and is priced at a premium of ~24x Price/Sales, indicating initial market cap of US$4.2bn at the mid point. We think a first-day pop to 30x Price/Sales is possible.
  • SHLS is scheduled to price on Tuesday, 26th January, and to trade on the NYSE on Wednesday, 27th January.
SHLS US PEERS (Source: Bloomberg)

IPO Performance Recap

Relx Technology (RLX US) –  Another massive IPO 

  • RLX opened trading at US$22.34 and closed at US$29.51, up 146% on its trading debut. RLX is now valued at ~US$46bn, larger than Juul’s US$38bn peak valuation.
  • Despite the strong first-day performance, we expect RLX to hold on to its share price gains, being the first China-focused pure-play e-cigarette company that is listed on a US exchange, thus facing less regulatory pressures. We expect the trading range to stay in US$24-38 range. Read our write-up here.

US Trading Ideas

Trip.com (TCOM US): The largest travel service for the largest domestic group 

  • BUY Entry – 33.3 Target – 38 Stop Loss – 30.5
  • TCOM is the largest Chinese online travel booking platform, operating Trip.com, Skyscanner, Qunar and Ctrip. It is listed on Nasdaq and is seeking a secondary listing in Hong Kong that could raise US$1bn in 1H 2021. 
  • From TCOM’s 3Q20 results, the domestic business is expected to fully recover in 4Q20 and exceed 2019 levels, while the international travel business at ~40% of 2019’s revenue is likely to remain depressed.
  • With China’s COVID-19 situation under control, we expect TCOM to be one of the first few players to recover in the travel and tourism industry on the back of domestic travel, ahead of internationally-focused travel booking peers like Booking.com (BKNG US) and Tripadvisor (TRIP US). We recommend accumulation nearer the lower end of the wedge, while a buy stop above the wedge is also feasible to profit from a bullish break out.
TCOM US (Source: Bloomberg)

DXC Technology (DXC US): A turnaround story in hand

  • BUY Entry – 29.0 Target – 34 Stop Loss – 26
  • DXC is an IT consulting and IT services firm that assists other businesses in their digital transformation plans, dealing largely with IT outsourcing.
  • The company’s share price reached its peak in September 2018 before falling substantially as the business was unable to retain customers, thus having revenue declines. A new CEO was appointed in September 2019 and has focused on its key customers, improving customer retention and bringing book-to-bill ratio back to 1x. Debt load has also been reduced with the sale of various businesses.
  • On 9th January 2021, DXC received a non-hostile take-over proposal by Atos SE (ATO FP) rumoured to be valued at US$10bn enterprise value, which translates to US$26.45/share. We expect the deal to be rejected as it is below the current share price, which is currently on an uptrend. A revised deal of US$12bn will mean a US$35/share target, which is more likely to be accepted by management and shareholders, according to Bloomberg Intelligence.
  • The merger news has sent DXC above a prior resistance level at ~US$26, and we recommend accumulation near its current resistance level of US$29-30.
DXC US (Source: Bloomberg)

HK Trading Ideas

Xinyi Glass Holdings Ltd. (0868 HK): glassy and upbeat outlook 

  • BUY Entry – 19.2  Target –25 Stop Loss – 17
  • Xinyi Glass Holdings Ltd engages in the manufacturing and sales of automobile, architectural, float, and other glass products for commercial and industrial applications. The Company is also involved in the manufacture and sales of rubber and plastic products and the provision of logistics services.
  • Float glass price in China is staying buoyant. The current average prices are close to RMB2,500/tonne in the southern part of China and more than RMB2,200/tonne in the other areas. The low was RMB1,340/tonne in April 2020. 
  • Because of the accelerating development of solar energy supported by the central government, domestic float glass capacities will be shifted to produce solar panels. Hence, float glass for construction is expected to be in short supply, keeping prices at 10 years highs. Market research estimates the average float glass prices will grow by 10% to 15% YoY in 2021.
  • We expect the company to benefit from the ongoing tailwinds, resulting in better margins and profits in FY21. 
868 HK (Source: Bloomberg)

BUY Xiaomi Corp (1810 HK): Buy-the-dip opportunity

  • RE-ITERATE BUY Entry – 28 Target – 35.9 Stop Loss – 25
  • The company is engaged in the research, development and sales of smartphones, Internet of things and lifestyle products, the provision of Internet services, and investment business.
  • The recent headwinds of being blacklisted by the US Defence Department is expected to be temporary. Foreign investors will comply to gradually liquidate their stakes in the company. However, the fundamentals are still sound, while Chinese investors will likely take stakes from foreign funds who will be selling.  
  • For investors who are at paper losses, we recommend to adopt an average down strategy to lower your entry costs. 
1810 HK (Source: Bloomberg)

SG Trading Ideas

AEM (AEM SP): Back in the game and hungry for growth

  • BUY Entry – 4.16 Target – 5.26 Stop Loss – 3.76
  • AEM will be acquiring Singapore-listed electronics manufacturer CEI Limited (CEI SP) for a total value of S$100mn. The acquisition is a refreshing breath of fresh air following market concerns over the challenges facing AEM’s biggest customer, Intel Corp (INTC US). 
  • While AEM’s share price has gained 23% over the past month, we expect the upcoming full year results, which will be announced in February 2021, to provide the market with better visibility over its orders for the year ahead. 
  • INTC recently announced an ex-senior executive and previous CEO of VMWare, Pat Geisinger, as its new CEO. The incoming CEO emphasized a renewed focus to maintain internal manufacturing of the majority of its products, based on the 7nm architecture. 
  • We have a fundamental OUTPERFORM rating and fair value of S$5.26. Read the full report here. 
AEM SP (Source: Bloomberg)

Avarga (AVARGA SP): Set to benefit from strong US housing demand and fiscal stimulus 

  • RE-ITERATE BUY Entry – 0.33 Target – 0.43 Stop Loss – 0.29
  • Avarga’s main business contributor, Taiga Building Products (TBL CN; 70.8%-owned by Avarga), runs a business of lumber and other building materials distribution in North America. 
  • TBL is benefiting from record high lumber prices driven by strong housing starts in the US, as well as expectations of increased infrastructure stimulus that would lead to higher demand for building materials. 
  • AVARGA is a compelling short-term trade as its Canadian-listed TBL makes new multi-year highs. We have a fundamental fair value of S$0.43 on AVARGA. Read our full report here. 
AVARGA SP (Source: Bloomberg)

Market Movers – What’s Hot

United States

  • Gamestop (GME US) +51.08% closing at US$65.01 as the short squeeze continued, with short seller Citron announcing their decision to abandon coverage on the stock.
  • Palantir (PLTR US) +25.40% closing at US$32.58 after the company announced additional details regarding its first Demo Day on 26th January. Palantir highlighted that Apollo, one of its infrastructure platforms, is managing 150,000+ upgrades a week in 4Q20 versus 40,000+ a week back in 2Q20, hinting at 4Q20 growth that might be stronger than expected.
  • Appian (PCAR US) +11.08% closing at US$204.85, reaching an all-time high. The low-code software company has scheduled their 4Q20 earnings call on 18 February, while Morgan Stanley raised Target Price to US$100 from US$80 on the basis of improving conditions and demand for low-code application development.  

Hong Kong

  • Yihai International Holding Ltd (1579) +15.35%, closing at a new high of HK$136. CICC group expects the company’s FY20 revenues to grow by 26% YoY to RMB5.4bn and net profit to grow by 32% YOY to RMB950mn, maintaining an OVERWEIGHT rating and upgrading TP to HK$115 from HK$105.
  • WuXi AppTec Co., Ltd. (2359 HK) +12.27%, closing at a new high of HK$204. Previously, the company announced a positive profit alert; FY20 net profit is estimated to increase by a range of between RMB927.3mn to RMB1.11bn with a 50% to 60% YoY growth.  
  • CRRC Corporation Limited (1766 HK) -7.61%, closing at HK$3.52. The sell-down could be due to profit taking after a 31.8% YTD return. 
  • China Pacific Insurance (Group) Co., Ltd. (2601HK) -7.7%, closing at HK$34.75. The domestic insurance sector was sold down after FY20 insurance premium data was released. Although the overall premium of the main five insurance companies grew by 3.65% to RMB2.49tn, financial and automobile premiums continued to drop. 

Singapore

  • Rotational interest among penny caps took the spotlight last week with many of them gaining between 30-100% week-on week. Some of the most actively traded counters were The Place Holding (EUCON SP) +100.0% WoW to S$0.102, ETC Singapore (ETC SP) +80.0% WoW to S$0.063 and Sarine Tech (SARINE SP) +41.4% WoW to S$0.615 and P5 Capital (SUNL SP) +36.7% WoW to S$0.041.
  • Technology-related stocks also outperformed the broader markets with gains from ISDN (ISDN SP) +16.7% WoW to S$0.735, UMS (UMSH SP) +12.4% WoW to S$1.36, iFAST (IFAST SP) +12.3% WoW to S$5.13 and Nanofilm (NANO SP) +9.1% WoW to S$5.21. 

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