Cachet's Insight 20/04/2020

Highlight

Kingsoft Cloud, a subsidiary of Kingsoft (3888.HK), submitted a listing application in the United States and sought to be listed on the Nasdaq Stock Exchange under the stock code "KC", raise up to 100 million US dollars. JPMorgan Chase, UBS, Credit Suisse and CICC are responsible for the listing of Kingsoft Cloud in the United States.


According to listing documents, major shareholder Lei Jun holds approximately 414 million shares, accounting for 15.8% of the total share capital, and Kingsoft holds 1.4 billion shares, holding 53.8%. The company's total revenue in 2019 was 3.96 billion yuan, with a net loss of 1.11 billion yuan for the year. Kingsoft Cloud said that half of the proceeds from the listing will be used for upgrading and expanding infrastructure, 25% for technology and product development, and 15% for expanding the ecosystem and overseas markets. At the same time, mainland media reported that Zhang Jianfeng, president of Alibaba Cloud Intelligence, revealed in an interview that Alibaba will invest 200 billion yuan in the next three years for the development of major core technologies such as cloud operating systems, servers, chips, networks, and plans to deploy cloud data on a large scale Center construction.


Hong Kong listed cloud computing companies include Kingsoft (3888.HK), Kingdee (0268.HK), Alibaba (9988.HK), Tencent Holdings (0700.HK) and chips companies include SMIC(0981.HK), Hua Hong SEMI(1347.HK), etc.


Market Outlook

As of 16 April, JACI Total return index delivered +1.85% last week. More new issuance activity, in particular IG, was seen last week, in a further pick up of primary activity.


China 1Q GDP dropped more than expected at 6.8% yoy, marking the first contraction in decades. China's trade data came in better than expected, with exports falling -6.6% yoy and imports falling 0.9% yoy in March.


US retail sales and manufacturing output posted historic declines of 8.7% and 6.3% respectively in March from the prior month. This data may only capture part of the impact since the lockdown was implemented gradually over the month, suggesting COVID-19's massive hit to the economy. Another 5.25m Americans filed for unemployment this week, bringing the 4-week total to 22m.


Investor sentiment was lifted by a potential partial reopening of the US economy and further fiscal stimulus from the government. While there are some signs of easing in the COVID-19 outbreak, the situation continues to worsen as the number of cases reported worldwide now exceed 2.1million and many economies remain in lockdown. 10Y UST yields tightened 14bps this week to 0.63% as of 16 April close. Investors should keep a close watch on developments of the coronavirus spread and oil price collapse, and their impact on market liquidity and issuer fundamentals. Invest may look for attractive opportunities upon recent spread widening and may selectively add risk, with preference for the IG segment and shorter dated names.


Despite world's biggest producers reaching an agreement to cut output, oil prices fall this Monday over concerns of demand destruction from COVID-19. The International Energy Agency forecasted oil demand for 2020 to drop to a 25-year low due to lockdowns across multiple countries. Investors should closely monitor of geopolitical events especially Saudi-Russia oil price war, US-China trade progress and Middle east tensions as global geopolitics remain volatile. Investors may participate selectively as new issuance begins to pick up in the IG space. this week over concerns of demand destruction from COVID-19. The International Energy Agency forecasted oil demand for 2020 to drop to a 25-year low due to lockdowns across multiple countries. Investors should closely monitor of geopolitical events especially Saudi-Russia oil price war, US-China trade progress and Middle east tensions as global geopolitics remain volatile. Investors may participate selectively as new issuance begins to pick up in the IG space.

Hot Topic

The world's second largest economy shrank 6.8% in the first quarter of 2020 compared to a year earlier, according to government statistics released last Friday. That's slightly worse than analysts, and amounts to about 693 billion yuan ($98 billion) in lost output.


While a contraction was expected, it's still a historic moment for China. The plunge is the worst for a single quarter that China has recorded since it started publishing those figures in 1992. It's also the first time China has reported an economic contraction

since 1976.


China's three major engines for growth - consumer spending, exports and fixed asset investment - all sputtered as large swaths of the country were placed on lockdown in late January and early February to contain the spread of the virus. Retail spending dropped 19% last quarter, while exports plunged more than 13%. Fixed asset investment declined 16%.

Hot Stocks

Tencent (0700.HK) will release the first quarter financial report on May 13:

Credit Suisse expects total revenue to be 102.6 billion yuan, up 20% year-on-year, and net profit to be 25.6 billion yuan, up 22% year-on-year.


  • Mobile games and social advertising will remain the main growth drivers. Benefiting from increased player traffic and increased player participation, we look forward to the promotion of two flagship games, Peace Elite and King, with mobile game revenue increasing by 46% year-on-year in 1Q


  • Social advertising should also be able to maintain a good momentum. Although the epidemic has some impact, we expect the 1Q year-on-year growth to slow slightly to 28%. PC games and media advertising may remain weak in the first quarter. Due to the decline in offline payment volume and delays in cloud projects, the growth of fintech and other businesses is expected to slow to 22%


  • Performance recommendations focus on the business outlook after the epidemic (especially advertising and payment business), margin guidance and future game pipeline; Credit Suisse will fine-tune 2020 / 21E earnings by 3% -4%, raise the target price to HK$500, and give buy rating.


Morgan Stanley have long been optimistic about Tencent's ability to monetize and unlock hidden value, given its status as a global online entertainment/social champion. MS turn more bullish now, raise 2021-22 revenue estimates by 3% and 5%, and lift the price target from HK$430 to HK$500, as "stay-at-home" has brought forward some decade-long structural tailwinds by 1-2 years.

Investment Ideas

Product: Fixed Coupon Note (FCN)

These products are characterized by one or several guaranteed Coupons, as well as by a – albeit only conditional –redemption at the Nominal Value. If the Underlying closes at or above the Auto-call level on a Monitoring date, the Nominal Value together with a Coupon is repaid early. If no Early Redemption has been made, the following settlement conditions shall apply upon maturity: If at Final Fixing the Underlying is higher than or equal to the Strike Price, the Nominal Value is repaid. If at Final Fixing the Underlying is lower than the Strike Price, the investor receives the delivery of the Underlying or a cash compensation, corresponding to the closing price of the Underlying.


SPDR S&P Oil & Gas Exploration & Production ETF (XOP.US)

Asset Allocation


Asia Bond Market

A Malaysian oil giant’s jumbo bond deal that was Asia’s biggest in a year drove the region’s dollar note issuance this week to $7.1b from $5.5b last week. Petronas attracted a combined $37b of orders for a three-part $6b bond offering that was “one of the largest order books by an Asian issuer ever,” according to the Malaysian oil company. State-owned China National Travel Service Group drew more than $6.8b of orders for its dual-trance bond.


Spreads on the new dollar bonds narrowed in the secondary market Friday morning, according to credit traders. Credit markets are finishing their best week in years, with policy support encouraging investors to take more risks as they again hunt for yield. Elsewhere in China’s domestic market, firms have been rushing to sell short-dated bonds in the domestic market as the coronavirus outbreak crimps profits and intensifies funding pressure.

China National Travel Service Group

  • USD 5Y/10Y Bond, +280bp/+295bp Area

  • Expected issue ratings: A3 by Moody’s

  • Format: Reg S

  • JGCs/JLMs/JBRs: Bank of China (Hong Kong), DBS Bank Ltd. (B&D) and HSBC

Updated bond run on Chinese Property Developers

Newly Listed

  • 8620.HK Asia-express Logistics Holdings Limited (2020/04/20)

  • 8616.HK Sunray Engineering Group Limited (2020/04/23)

Result Announcement

2020/04/20

  • Quarter: 0081.HK China Overseas Grand Oceans Group Ltd

  • Quarter: 2500.HK Venus MedTech Hangzhou Inc

  • Quarter: 601865.CH Flat Glass Group Co Ltd

  • Quarter: IBM.US International Business Machines Corp

  • Quarter: PHG.US Koninklijke Philips NV

2020/04/21

  • Quarter: 0522.HK ASM Pacific Technology Ltd

  • Annual: 1211.HK BYD Co Ltd

  • Quarter: 000001.CH Ping An Bank Co Ltd

  • Quarter: EDU.US New Oriental Education & Technology Group Inc

  • Quarter: NFLX.US Netflix Inc

2020/04/22

  • Quarter: 0762.HK China Unicom Hong Kong Ltd

  • Interim: 1310.HK HKBN Ltd

  • Quarter: 600660.CH Fuyao Glass Industry Group Co Ltd

  • Quarter: LMT.US Lockheed Martin Corp

  • Quarter: LVS.US Las Vegas Sands Corp

2020/04/23

  • Quarter: 0688.HK China Overseas Land & Investment Ltd

  • Quarter: 2318.HK Ping An Insurance Group Co of China Ltd

  • Quarter: DPZ.US Domino's Pizza Inc

  • Quarter: NDAQ.US Nasdaq Inc

  • Quarter: AXP.US American Express Co

2020/04/24

  • Quarter: 0763.HK ZTE Corp

  • Quarter: 603606.CH Ningbo Orient Wires & Cables Co Ltd

  • Quarter: HSY.US Hershey Co/The

  • Quarter: LUV.US Southwest Airlines Co

  • Quarter: LLY.US Eli Lilly & Co

Analyst Recommendation

  • Goldman Sachs gave its price target on China Overseas Land & Investment Ltd (0688.HK) to HK$32.90 a share and gave the buy rating.

  • Nomura gave its price target on ASM Pacific Technology Ltd (0522.HK) to HK$125.00 a share and gave the buy rating.

  • China Renaissance gave its price target on New Oriental Education & Technology Group Inc (EDU.US) to US$151.00 a share and gave the buy rating.

  • MorningStar gave its price target on Southwest Airlines Co (LUV.US) to US$46.00 a share and gave the buy rating.

  • Sinolink Securities gave its price target on Ningbo Orient Wires & Cables Co Ltd (603606.CH) to RMB$18.90 a share and gave the buy rating.

  • CMB International gave its price target on Ping An Bank Co Ltd (000001.CH) to RMB$19.80 a share and gave the buy rating.

Global Indices

  • SSE Composite Index was up 1.50% last week.

  • Hang Seng Index was up 0.33% last week.

  • Dow Jones Industrial Average index was up 2.21% last week.

  • NASDAQ Composite Index was up 6.09% last week.

  • S&P 500 Index was up 3.04% last week.

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