KGI Daily Trading Ideas – 7 January 2021

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With Democrats in potential control of the Senate after winning both contested seats, Democrat-related thematics (positive on clean energy, infrastructure. Negative on tech) saw movements in respective directions. Dow +1.44%, S&P500 +0.57%, Nasdaq -0.61% for the day.
Chinese ADRs fell after NYSE continues plan to delist the 3 Chinese telcos. Top 20 Chinese ADRs averaged -1.66% on Wednesday. Trump administration mentioned adding both Alibaba and Tencent to the blacklist; Alibaba ADR (BABA) -5.32% while Tencent ADR (TME) +2.39%.
EARNINGS: Micron reports earnings after market close on Thursday. Management forecasted for 0.69 – 0.73 EPS while analyst estimates are 0.71 EPS, down from 0.75 earlier in the quarter.

CRRC Corp. Ltd. (1766 HK) +19.54%, closing at HK$3.35. Morgan Stanley projected FY20 earnings to outperform expectations, maintaining its TP of HK$6.00 and Overweight rating. CRRC is reported to secure new contracts worth of RMB22.2bn in November and December 2020.
Jiangxi Copper (358 HK) +7.34%, closing at HK$13.74. LME copper price closed at US$8,002/tonne (+1.8%), reaching an 8-year high.
Xiaomi Corp (1810 HK) -3.94%, closing at HK$33.9. Honor, an independent mobile phone brand spun off from Huawei, is reported to reach an agreement where Qualcomm will supply chips for its upcoming smartphones. Xiaomi’s path on taking up more market shares faces headwinds.

First Resources (+15%) as a laggard play to Wilmar International, driven by higher palm oil prices. Palm oil prices continued to be buoyed by forecasts for lower production in 1Q2021, and by the Indonesian government’s announcement that the B30 biodiesel mandate would be maintained.
Sembcorp Marine (+8%) and Rex International (+4%) both gained on rising oil prices. Brent Crude is now trading at US$54 while WTI prices are hovering at US$50.7, driven primarily by Saudi Arabia’s production cuts and a stronger demand for oil in Asia.
CreditBureauAsia (+9%). The credit and risk information company is starting the year on a strong footing, prompting a query from SGX. Its shares have surged 60% since its IPO on 3rd December 2020 as the company continues to expand its presence in other ASEAN countries.

BUY AMD (AMD US) Entry – 89.15 Target – 93.50 Stop Loss – 87.15

BUY Nvidia (NVDA US) Entry – 493.10 Target – 521.00 Stop Loss – 483.10

While tech companies are expected to face the greatest pressure from proposed corporate tax rate increases under the Biden administration, semiconductor companies have remained off radar.
Both AMD and Nvidia continue to benefit from red hot demand for new consoles and graphic cards. We expect near-term earnings estimates to be revised upwards and further positive re-ratings from analysts.
Wednesday’s pullback could be a good opportunity to accumulate on momentary weakness.

AMD US (Source: Bloomberg)

BUY China Resources Cement (1313 HK) Entry – 9.1 Target – 11 Stop Loss – 8.2

The company engages in the production and sale of cement, concrete and related products and services. The stock price reversed the downtrend recently.
China cement price pulled back from 155.4 in mid-December 2020 to current 153.79. Since December 2020, China has adopted staggering peak production and tightened environmental protection control. Together with the cold climate, the construction projects were stalled. Hence, the demand for cement and concrete weakened.
However, we believe the demand will resume before Chinese New Year due to the purpose of restocking at lower costs. The infrastructure expansion will resume quickly in March.
RSI shows positive upward momentum.

BUY Weichai Power Co. Ltd. (2338 HK) Entry – 15.6 Target – 17.5 Stop Loss – 14.2

Weichai Power Co. Ltd. engages in the research and development, manufacture, and sale of diesel engines. The company produces engines, heavy vehicles, light vehicles, construction machinery, hydraulic products, automotive electronics, and related parts. Weichai Power markets its products across worldwide.
The company completed the strategic restructuring in Lovol Heavy Industry, the largest agricultural engineering and equipment manufacturer in China. Weichai will be the largest shareholder in Lovol with a 60% ownership. Going forward, Weichai will extend the business to agricultural engineering and equipment manufacturing.
Recently the company also plans to raise no more than RMB13bn to develop fuel cell battery and other high-end engines projects.
RSI shows the price regained an upward momentum over the past two weeks.

BUY Avarga (AVARGA SP) Entry – 0.29 Target – 0.32 Stop Loss – 0.275

Riding on strong housing demand and increased infrastructure spending in the US
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 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.

Re-iterate Wilmar International (WIL SP) Entry – 4.89 Target – 5.36 Stop Loss – 4.68

Wilmar’s share price is breaking previous highs that was set in early August 2020.
Crude palm oil price broke the 8-year high of RM3,628/tonne, now trading at RM3,670/tonne.
Yihai Kerry (300999), that subsidiary that was spun-off last year and listed in China, is now trading at record highs with a market cap of RMB657bn (equivalent to S$134bn). Wilmar owns 89.99% of Yihai Kerry. Wilmar’s market cap is S$29.5bn.
Technically, RSI shows positive upward momentum.
We will also be looking at other potential palm oil plays that have been lagging, such as First Resources (FR SP).

WIL SP (Source: Bloomberg)