KGI Daily Trading Ideas – 8 January 2021

Trading Dashboard

Market Movers – What’s hot

Macro

• US 10-year Treasury yield rises above 1.08%, the highest since March 2020, signalling rising expectations of additional fiscal stimulus and higher inflation in the US. Global banking stocks are the biggest beneficiaries of higher interest rates.

US

• Plug Power (PLUG US) +35.11% after South Korean conglomerate SK Group reached a deal to take US$ 1.5bn stake in the company at US$ 29.29 per share.
• Tesla (TSLA US) +7.94%, its 10th consecutive day of gain, bringing the share price above US$ 800 and propelling founder-CEO Elon Musk to become the world’s richest person.
• Micron (MU US) +2.5% during market hours and continuing climbing after market hours due to strong fiscal first-quarter results with 0.71 EPS, in line with analyst estimates. Mgmt was positive on DRAM market trends in 2021 and provided fiscal second-quarter forecasts above analyst estimates.
• IPO WATCH: Roblox reverses course on traditional IPO, now plans for direct listing after raising US$ 520mn of funding at US$29.5bn valuations.

Hong Kong

• China Longyuan Power Group (916 HK) +14.51%, closing at HK$11.5 and reaching another record high. The company expected power generation to arrive at 53mn MWh with a YoY growth of 4.59%, out of which, wind power output grew by 7.25% YoY, coal-fired power output declined by 5.21% YoY, and other renewable power output dropped by 26.3% YoY.
• Standard Chartered PLC (2888 HK) +6.93%, closing at HK$54.Banking sector (+0.71%) outperformed the main market (HSI: -0.52%) due to confirmation of Biden being the president-elect. US 10-year yield broke above 1%, a high since March 2020, reinforcing the expectation of rising interest rate.
• China Mobile Ltd (941 HK) -7.18%, closing at HK$43.3. NYSE will reverse the previous decision and proceed with delisting the China telecoms.  

Singapore

• ISDN (ISDN SP) +23% as consensus estimates are upgraded on better revenue prospects and possible monetisation of its Indonesian hydropower business in 2021.  
• iFAST (IFAST SP) +6% on the strong growth of assets under administration (AUA), which surged 45% YoY from S$10 bn to S$14.5 bn. Singapore accounted for the bulk of the growth, making up 70% of the group’s overall AUA. 
• All three local banks (DBS SP, UOB SP, OCBC SP) rose 2-3.5% on the back of higher interest rates. While Sibor has yet to reflect the higher

US Trading Ideas

IPO Watch – Affirm (AFRM US): Buy Now, Pop or Flop Later? 

• Affirm (AFRM US) will go public on 13 January at US$ 33-38 range, implying US$ 8.1-9.4bn valuation.
• Affirm’s “Buy Now Pay Later” (BNPL) service aims to disrupt the credit card business model, offering interest-free instalment payments and no late fee charges.
• With low BNPL adoption in North America and an upcoming US fiscal stimulus, Affirm has strong growth prospects, posting 77% Gross Merchandise Volume growth from June ‘19 to June ‘20.
• Affirm’s price range indicates 15 – 17x Price/Sales valuation, while Australian peer multiples vary from 3x to 162x. A blue sky scenario would be Afterpay’s (APT AU) 55x P/S multiple (300% potential upside if AFRM is to be valued similarly to APT) while Zip’s (Z1P AU) 12-13x multiple (20% potential downside) could be a safer entry point.

IPO Watch – Playtika (PLTK US): King of e-Casino Gaming

• Playtika (PLTK US) is expected to go public on 15 January at US$ 22-24 range, implying US$ 9.2-10.1bn valuation.
• Playtika (PLTK US) is a top 10 mobile game publisher with roots from the casino scene as it was owned by Caesars Entertainment (CZR US) before being bought over by a Chinese consortium (including Jack Ma’s Yunfeng Capital) in 2016.
• In its current portfolio of 15 games, the top 5 games are all casino-related (slots, bingo, poker), and Playtika is the market leader in mobile casino gaming.
• Zynga (ZNGA US) is its closest competitor, which is showing better growth profile as of late, but Playtika has higher and more consistent profitability.
• Based on comparables we think Playtika will trade at 16-18x EV/FY21F adjusted EBITDA (Consensus forecast), around US$ 11-13bn (10-30% upside). Bearish scenario is if sales fall due to casinos reopening, where Bloomberg Intelligence estimates US$ 8.2-9.4bn valuation (6-18% downside).

HK Trading Ideas

China National Building Material Co Ltd (3323 HK): Building up a bullish path  

• BUY China National Building Material Entry – 9.6 Target – 11.5 Stop Loss – 8.7
• China National Building Material Company Limited manufactures cement products. The Company produces silica cement, commodity concrete, cement clinkers, and other products. China National Building Material also produces glass fibres, composite materials, and other products.
• Sector rotation continues with the sell-down in the tech sector and accumulation of cyclical sector stocks. The stock has been under selling pressure since mid-November 2020. However, it has recently reversed the downtrend and is on an upward momentum. 

Meituan (3690 HK): To deliver short-term outperformance  

• BUY Meituan Entry – 300 Target – 350 Stop Loss – 275
• Meituan operates as a web-based shopping platform for locally sourced consumer products and retail services. The Company offers deals of the day by selling vouchers on local services and entertainment, dining, delivery, and other services. Meituan provides its services throughout China.
• The company announced that it is taking a 20% stake in Dossen International Group which runs more than 3,000 hotels in China and has 35mn registered paid members. The move marks Meituan’s entry into the hotel business. 
• Among all the tech giants, Meituan has the least exposure to trade tensions and external geopolitical risks. With COVID infection cases rising in China, the market sentiment has gradually shifted preference back to some of the COVID plays.
• RSI shows positive upward momentum.

SG Trading Ideas

First Resources (FR SP): Palm oil play waiting for its day

• BUY FIRST RESOURCES Entry – 1.51 Target – 1.73 Stop Loss – 1.40
• Upcoming 4Q20 earnings may be a catalyst for its share price given how well palm oil prices have performed. The company normally reports its full-year results on the last week of February. 
• FR was among the top 20 SGX-listed companies with the highest buyback consideration in CY2020, which we believe reflects managements’ view of the chronic undervaluation of its shares since March 2020. 
• Even with the recent surge in its share price, FR still trades at the low end of its pre-covid levels of S$1.50. Hence, we think its current share price offers an attractive risk-reward 

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

• Reiterate BUY AVARGA Entry – 0.29 Target – 0.32 Stop Loss – 0.275
• 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.