Nov Global Investment Ideas (combined)...Source: Tencent, Analysys c/o Mary Meeker’s 2017 Internet...
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Transcript of Nov Global Investment Ideas (combined)...Source: Tencent, Analysys c/o Mary Meeker’s 2017 Internet...
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Portfolio performance review• Since the inception of our portfolio in September 2017, it has an
average return of 9.8%. The best performing stock within our portfolio is Universal Medical Financial & Technical Advisory Services (+18.3%), followed by Visa (+8.2%).
US & HK Portfolio Performance
Company Name Ticker Cost Price Per Share (lcy)
Current Price as at 13 Nov 17 (lcy)
Gains / (Loss)
Ulta Beauty Inc ULTA US 190.2 198.03 4.1%Universal Medical F&T Advsry Srvcs Co Ltd 2666 HK 6.6 7.84 18.8%Home Deport Inc HD US 152.9 165.35 8.1%Visa Inc V US 103 111.4 8.2%Average Return 9.8%Source: Bloomberg, UOB Kay Hian
Monthly Global Investment Idea
Tencent Holdings(700 HK/BUY/Target: HK$392.03)
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China’s Digital Economy• China's digital economy surged 18.9% in 2016 to 22.6 trillion yuan
($3.35 trillion), according to a white paper issued by China Academy of Information and Communications Technology (CAICT), Ministry of Industry and Information Technology (MIIT).
• Digital economy accounted for 30.3% of China's total gross domestic product (GDP) over the year, said the white paper. Taking its spillover effect into account, digital economy contributed 69.9% to the GDP in 2016, it added.
• CAICT expects China's digital economy to be valued at 32 trillion yuan and account for 35% of the whole GDP by 2020, before taking up over half of the country's GDP by 2030, according to the white paper.
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Tencent, the digital economy giant
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Growth Driver - Community
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• Largest online community in China
• Active monthly users on WeChat/微信 alone hits close to 1b
Growth Driver - Content
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Growth Driver – Finance
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Source: Tencent, Analysys c/o Mary Meeker’s 2017 Internet Trends Report
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Growth Driver - AI
4 Application Areas
Peer Comparison - Internet Companies with Games
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Peer Comparison - Internet/E-commerce Companies with Online Ads
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Peer Comparison - Social Media Companies
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UOBKH’s Tencent SOTP Table
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Tencent Holdings(700 HK/BUY/Target: HK$392.03/Market Cap: HK$3,703bn*)
Ongoing migration of advertising dollars fromtraditional media to digital advertising
China’s largest online community spellsimmense monetisation potential
Crafting an online ecosystem that defineslifestyle for everyone
Internet finance moved beyond payment
AI-in-All lead us to the future
A stock which you must own
Target price of HK$392.03. (BloombergConsensus)
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*Based on last closing price as at 08/11//2017*Share Price at HK$386.86
Key Financials
Source: Bloomberg
Year to 31 Dec (Rmb’m) 2015 2016 2017F 2018F 2019FNet turnover 102,863.0 151,938.0 232,361.2 314,444.7 401,201.3EBITDA 44,702.0 65,676.0 90,291.8 114,856.8 144,272.5Operating profit 38,028.0 52,935.0 78,784.0 99,185.5 123,050.1Net profit (rep./act.) 28,806.0 41,095.0 63,675.0 81,272.2 102,816.5Net profit (adj.) 28,806.0 41,095.0 63,675.0 81,272.2 102,816.5EPS (Fen) 309.7 438.3 673.1 863.2 1,079.9PE (x) 105.7 74.7 48.6 37.9 30.3P/B (x) 25.7 17.8 13.1 9.9 7.6EV/EBITDA (x) 70.7 48.1 35.0 27.5 21.9Dividend yield (%) 0.1 0.2 0.2 0.3 0.4Net margin (%) 28.0 27.0 27.4 25.8 25.6Net debt/(cash) to equity (%) 18.2 21.5 36.1 44.2 58.8Interest cover (x) 29.6 30.3 29.9 27.1 26.1ROE (%) 28.8 27.9 29.7 29.0 28.0
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Famous CEO: Jamie Dimon
• Operates in 70 Countries
• US$ 2.6 trillion in assets
Company Overview
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• Conditions are favorable for US banks• JP Morgan is well run relative to competition • Valuations are reasonable
Investment Thesis
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Loan Growth
• Good economic growth: US GDP is forecast to grow 2.8% in2018 (IMF)
• Loan growth is a function of GDP growth• Banks (generally) make most of their money revenue from
loans• For JP Morgan, the percentage is 50%
Favorable Conditions
• Banks borrow shortand lend long
• A steepening yieldcurve helps their NIM
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But the yield curve has been flattening!Source: Bloomberg
Favorable Conditions
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Banks’ reaction to flattening yield curve
Source: Bloomberg
Favorable Conditions
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Low unemployment will drive inflation (and interest rates) higher
Favorable Conditions
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Relaxing regulations
Jerome PowellDaniel Turullo
• New Trump appointees will be grading Fed stress tests• Allowing greater leverage increases return on capital
Favorable Conditions
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More Trump Appointments
As OCC Chief (office of comptroller of the currency) Joseph Otting is expected to play a key role in rolling back regulations.
Favorable Conditions
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• JP Morgan is the only large US bank to make a profit in 2008.
• Investors now want to see JP Morgan controlling costs and increasing operating leverage.
Well Run
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Operating costs
• 2017 $58 billion • 2016 $56 billion• 2015 $59 billion• 2014 $61 billion
Well Run
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Price to book could still expand
• Lighter regulation will allow JP Morgan to increase leverage• Control of costs will allow JP Morgan to increase operating leverage• Strong economy will keep bad loans down, and allow loan book to grow
2016 2017F 2018F
P/E P/B P/E P/B P/E P/B
JP Morgan 14.2 1.4 14.2 1.5 12.7 1.4
S&P 500 Banks Industry Group GICS Index 14.7 1.2 14.3 1.3 12.7 1.2
Valuations
Global Investment IdeaTheme: MSCI Europe ex-UKTheme: MSCI Europe ex-UK
Terence [email protected]
+65 6590 6222
ETF NAME ETF TICKER COST NAV (LCY)
CURRENT NAV (LCY)
UNREALIZED P/L (%)
VanEck Vectors Semiconductor ETF SMH US 87.87 103.29 17.5
iShares MSCI China ETF 2801 HK 26.6 28.45 7.0
Source: Bloomberg, UOB Kay Hian
ETF performance review
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Feb 2017
German presidential
election
Mar 2017
Netherlands election
UK Article 50 deadline
Apr 2017
French presidential election (round 1)
May 2017
French presidential election (round 2)
Sep 2017
German parliamentary election
European 2017 Political alendar
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Healthy economic indicators:• Purchasing Managers’ Index (PMI)• Consumer Confidence• Business Climate Indicator• Investors Confidence
Continued accommodative monetary policy:• Ensures flush of liquidity in the financial markets
Macro – How’s The Eurozone Doing?
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Source: Bloomberg
Macro – How’s The Eurozone Doing?
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2017 a strong year for European corporate earnings• 1Q2017:
Earnings beat: (best in 7 years)
Earnings growth: (best in 2 years)
• 2Q2017:Earnings beat: Earnings growth:
• BlackRock: profitability estimates still about 50% below pre-crisis peaks
70%
65%
54%
66%
Corporate Development - Earnings
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Yoy capex growth: ~3% (one of the strongest in the world)• European companies sitting on cash over the past few years, but increasingly
willing to spend after the dark clouds passed. • Moody’s:
EMEA companies’ cash pile:€974b (as of end-2016)
Top 5 cash holders in Germany, France and
UK: €514b
• Some companies may plan to act soon to lock-in the low financing costs, especiallywhen the ECB looks set to tighten monetary policy in the coming quarters.
Corporate Development - CAPEX
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Deal-making volumes in 1H2017:• Globally: +2% yoy• US companies: -17% yoy
• European companies: +33% yoy
• Improving economic climate, conclusion of major elections,- European companies’ large cash hoards reasons for European deal
making volumes to rise.
• Buyout firms have been active in European deal-making- They are the acquirers of half of the ten biggest pending and completed
European domestic deals in Q3.
Corporate Development – Deal - making
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INDEXES 2017F PE (x) 2018F PE (x)
MSCI Europe Index 16 15
MSCI Eurozone Index 16 14
EURO Stoxx 600 Index 16 15
S & P 500 Index 19 18
MSCI All-Country World Index 17 16
Risks:
1) Any miscalculation of a transition away from loose ECB monetary policy couldbe a shock to markets.
2) An excessively strong euro would affect companies that make a significantproportion of earnings in US dollars.
Corporate Development - Valuations
Recommendation
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iShares MSCI Europe ex UK UCITS ETF (IEUX LN)
The iShares MSCI Europe ex-UK UCITS ETF aims to track the performance of the MSCI Europe ex UK Index. The MSCI Europe ex UK Index offers exposure to stocks from developed European countries excluding UK.
Source: Bloomberg, iShares
TOP 10 HOLDINGS (%) TOP COUNTRIES (%) SECTOR BREAKDOWN (%)
Nestle SA 3.9 France 22.9 Financials 21.1
Novartis AG 2.8 Germany 20.8 Industrials 15.1
Roche Holding 2.7 Switzerland 17.5 Health Care 13.9
Total SA 1.8 Netherlands 7.9 Consumer Staples 12.0
Sanofi SA 1.7 Spain 7.2 Consumer Discretionary 11.4
Bayer AG 1.7 Sweden 6.2 Materials 7.7
Banco Santander SA 1.6 Italy 5.3 IT 6.0
Siemens N AG 1.6 Denmark 4.0 Energy 3.9
SAP 1.6 Belgium 2.5 Utilities 3.7
Allianz 1.5 Finland 2.1 Telco 3.7
Others 3.6 Real Estate 1.3
Recommendation
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Source: Bloomberg
Issuer BlackRock
Benchmark MSCI Europe ex UK
Expense ratio 0.40%
AUM €2.65b
30D avg vol 274.1k
Indicated yield 2.17%
Inception date 05-Jun-06
Ticker IEUX
Exchange LSE
TOTAL RETURNS (%) 1M 3M 6M YTD 1Y 3Y 5Y
IEUX LN ETF -0.77 0.80 6.30 18.15 21.89 50.00 96.45
MSCI Europe ex-UK -0.68 0.83 6.14 17.63 21.69 49.00 94.86
Fund Comparison
At constant currency (USD) termsName Ticker YTD TR 1Y TR
iShares MSCI Europe ex-UK IEUX 24.5 29.8
iShares MSCI Europe IEUR 23.1 27.9
SPDR S&P 500 SPY 17.1 21.7
Source: Bloomberg
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Q & A
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