The Show Must Go On

Tian Xuan Zhou (Oliver)
Bachelors Student, New European College – Munich

Cutting off the Japan stuff, mainly because I feel like there is more opportunity in HK/CN at this point in time due to the large amount of attention already shifted towards Japan. I sense that there is a rotation into HK/CN names that are going under the radar. Southbound in a lot of the big names on the HSI currently are net sellers the past couple of days although the market is holding up quite well, perhaps suggesting that it is retail that are selling and institutions buying up.

Expecting that there will be a lot more attention towards China this following week, mainly due to the much anticipated meeting between President Trump and President Xi, no doubt the talks will heavily involve trade and tariffs, the usual. Followed up by a heap of earning reports from Chinese companies. However the playbook this time is a little different, whereas the last few quarters saw a huge run up into earnings followed by a profit take, a lot of names have instead been weak and underperformed as of recently. I think that instead of buying into the earnings speculation, institutions are acting on earnings release, on forward guidance, I am expecting these earnings to have volatile moves.

Not to say that Japan is not going to be an outperformer in the next couple of months, I still believe that the current market environment is very strongly supported and the risk appetite is still there, especially for Japanese tech names and financials, Sumitomo on my watchlist last week with a 17% upwards move followed up by an 8% upwards move, probably still a good idea to hold a lot of these names. However, I am offloading most of the Japanese names that I am holding to buy into names in HK/CN.

HK/CN market

Netease 9999HK, on earnings potential later this month. Netease is starting to become a bigger and more recognisable name internationally, mainly driven by the huge success of Marvel Rivals followed up by another successful release globally of triple A game Where Winds Meet. Furthermore, growth is accelerated by commission cuts by application platform operators will improve the margin of Netease. In terms of valuation compared to peers, it is more attractive both in book value and sales value when compared to international peers such as Nintendo and Roblox. The only concern being Netease only having gaming sector exposure and will be highly affected by regulations, however the gaming restrictions that were imposed in 2021 has been highly ineffective, doubt that gaming is on the current agenda of the central committee.

Alibaba 9988HK. Although trying to trade as a Chinese based AI hyperscaler, this is the long term approach, their e-commerce sector will still largely drive current earnings and growth, with Taobao and Tmall still remaining as Alibaba’s main cashflow driver, however intensifying competition in this sector will continue to squeeze the their market share. As mentioned before this current set of results will be focused on margin improvements and EBITDA, instead of earnings and revenue growth.

Popmart 9992HK, still on the rebound, now almost up to +20%. As mentioned before, the slowdown in growth I think is already priced into the current share price. There is almost no world where Popmart will be able to match the growth that was experienced last year. However, one key catalyst later this year being the launch of two new series of their best selling Labubu line that are set to be released in the second half of this year.

TCL Electronics 1070HK. Further reinforcements at this price range however volume has die down a little. Up around 35% since the first coverage. This is one that I would expect to be crowded into the next set of results. Mainly due to the fact that there is continuous operational pressure within the South Korean TV manufactures, the street has reacted very positively to TCL’s joint venture with Sony, which will help overseas recognition and growth and premiumisation, especially with the Chinese market starting to shrink. Annual report was inline, but that was not the focus here, management guided upwards of 125% to 150% on net profit this year.

US Market

Heaps of valuation opportunities. Coming to the end of this set of earnings, a lot of big tumbles across the board which created some good valuation opportunities, considering the volatility that we had a few weeks ago, I think it is a good opportunity to pick up on some names that earnings were not received well on results day.

Rogers communications. Picked this name up on pre market on the 23rd purely on earnings release. Stock price has been tanking into this set of earnings, however, earnings release saw weird premarket swing to -3% which I thought was strange when bottom line beat estimates by almost +20%. Furthermore trading at 3.5x P/E is laughably low for Canada’s largest network provider. This caught +13% during intraday trading session. Price has been relatively stable since, still holding at this price range.

Netflix. Currently on watchlist, probably buying this week. This is mainly due to the available cash flow for increased potential CapEx after the failed attempt to acquire Warner Bros. Discovery, which as we have seen, CapEx increase is much liked by the street. Furthermore, a new $25 billion share repurchase program was announced after the set of results which I think will support the share price at this level, so downside risk is limited.

UBER Technologies. Shares have pulled back a considerable amount heading into their earnings, however justified, missing both top and bottom line estimates. No substantial movement on results day means that this may be already priced into the current price considerations. The acceleration of autonomous vehicles makes UBER the perfect partner for those looking to scale into the autonomous taxi service. Looking to buy some time soon.

Novo Nordisk. Share price has more or less stabilised, profit forecasts has been positive after Wegovy pill sales boosts. The continuous progression of GLP 1 will obviously still be the main catalyst but also the depreciated valuation at the current price levels makes it a valuable buy, volume remains weak which may mean lack of attention as of now.

GlaxoSmithKine. Similar to Rogers Communications, this is also on unusual premarket movement on results day, -8% on premarket, which I thought was a little too extreme. This was due to the weakening of the general medicines arm, management also wrote in a very cautious tone. Despite that GSK did beat both top and bottom line estimates for this set of results, combined with an acceleration in specialty medicines growth which I think can cover the slowdown in general medicines, presented a good opportunity on the day of results. Shares were gaining back the losses on intraday trading. I also felt like this is a very key price point for both psychological orders and quants to have orders at $50 per share, so price point is supported at this level which is shown through volume.

NIke. Very weak, probably due to not being anything mainstream right now such as ai, is not helping names in consumer discretionary. However, I still think there is value here and target longer term, when the global sportswear market continues to expand, especially in Asia, as mentioned previously, China I think could become a huge catalyst again.

Intel. Just unbelievable, but cannot dwell on the opportunities missed. Now looking for an opportunity to short. Seems like everyone has looked past this set of results. I think the main catalyst for this price movement is due to speculations of Apple choosing Intel to become its chip foundry. However this is too sudden and dramatic of a price action that I think a correction should be healthy.