Weekly Equity Revie · 2016-04-11 · Weekly Equity Review Ucap Hong Kong Asset Management Limited...

Weekly Equity Review

Ucap Hong Kong Asset Management Limited

5th April 2016

Equity Strategy Highlights

� Global Markets Highlights

� Most indicators published in the past days pointed again to a better global growth outlook.

� Stocks and sectors with the strongest fundamentals are outperforming again and our portfolios relative

performance is recovering.

� The US earnings season is kicking off next week with JP Morgan earnings on Wednesday.

� Important Events This Week

� Tuesday: ISM Services, Markit PMIs

� Wednesday : FOMC Minutes

� Thursday: US Jobless claims

5 April, 2016

Equity Strategy Highlights

� Global Leaders - 2016

� Both portfolios have initially lagged in the rebound as the latest has been driven by short covering and a

recovery of “lower quality” stocks that strongly underperformed in 2015. Now quality stocks are

recovering and relative performance is improving.

� According to surveys, most mutual funds and hedge funds experienced the same problem and we believe

that better quality companies will eventually outperform again.

� Europe : -5.6% YTD vs EuroStoxx at -9.3% YTD (3.7% alpha)

� US : +0.8% YTD vs S&P at +2 YTD (-1.2% alpha)

� Stock-Picking List - 2016

� The average performance of our Stock-Picking YTD is +0.91%. The average alpha is +369 bps thanks to the

strong performance of stocks such as Accenture, IBM and Adobe.

� We continue to ride the trend and to raise stop losses.

5 April, 2016

GLOBAL PHARMAS

5 April, 2016

Global Pharmas - US Healthcare

5 April, 2016

Global Pharmaceuticals stocks have lagged the market since last summer. The following graph shows the

relative performance of the US Healthcare Sector versus the S&P over the past 30 years. The relative

performance has peaked in July 2015 and has been continuously declining since then.

The question is whether it is a technical correction or the beginning of a multi-year downtrend as what

occurred in the previous decade.

Global Pharmas

� The following factors explain the underperformance

� The strong overweight of the sector in most portfolios;

� US lawmakers and presidential candidates calling for drug price reforms (the US remains the largest and

most profitable market);

� The Valeant scandal;

� The arrival of Biosimilars (the equivalent of generics for Biotech drugs).

� Positives:

� Big Pharmas are slimming down and are focusing on innovation, Biotech drugs and specialty drugs;

� The industry continues to restructure with M&A, divestitures and spinoffs;

� New groundbreaking therapies coming, especially in cancer (immuno-oncology) and diabetes;

� An aging and richer population in Emerging markets boosting demand (and as they eat more meat and

sugars and smoke more cigarettes);

� Faster FDA approvals for new therapies;

� Valuation has decreased a lot and the sector now trades in the mid-teens.

� We believe that the pharmaceutical industry still offers long-term growth prospects at a

reasonable valuation. While it may remain under pressure during the US election year, it will

ultimately return to its long-term uptrend.

5 April, 2016

ONLINE TRAVEL AGENCIES

5 April, 2016

Online Travel Agencies – Overview

� The traveling industry is a $1.4 trillion annual sector led by the Asia-Pacific region and closely

followed by the US and Europe.

� Online travel agencies (OTAs) serve as a marketing tool for travel related companies, advertising

their services and thus making a small percentage fee per booking.

� Fees round about 3% for airline, 15-20% for hotel and 9-10% for car rental, cruises and others.

� As the sector consolidates, smaller players are being acquired by large companies seeking to

reduce competition and gain market share to expand their geographic reach and attract new

customers by broadening their offerings.

� Growth in recent years has been driven by low oil prices that led to record high travellers, as well

as the penetration of smart devices that facilitate the booking of trips.

5 April, 2016

Online Travel Agencies – Industry Players

� Focus is centred around three major companies in the sector each occupying a leading position

within their operating geographic region.

� Priceline (PCLN) is the global OTA leader, with primary focus in Europe but also present in the

American and Asian markets.

� Through strategic investments in well-known leading companies in the industry (booking.com, Kayak,

Ctrip), Priceline is positioned for strong growth in the future.

� Its healthy balance sheet is likely to lead to cheap credit if needed for further investments.

� Expedia (EXPE) is the leading American travel agency with 79% market share, where it generates

55% of its revenues.

� Its strong portfolio of brands (Travelocity, HomeAway and Orbitz) makes it the go-to site for Americans.

� Counts with more than 450M monthly visitors with access to 269k hotels, 1.2M vacation rentals and

475+ airlines to choose from.

� Ctrip (CTRP) is the leading Chinese travel agency with roughly 80% market share.

� Serves 141M members, offering 300k hotels and 2.5k flight routes in China and 600k hotels and 1.3M air

routes internationally.

� Holds a unique leading position in the Chinese market which could be compared to that of Alibaba or

Baidu in the e-commerce and search engine sectors.

5 April, 2016

Online Travel Agencies – Industry Players

� Being the world’s largest OTA, Priceline is the clear industry leader in terms of revenue and most

attractive in terms of valuation.

� As the euro strengthens and more European travellers travel abroad, Priceline will benefit as

roughly 70% of its revenues are generated in the region.

� Expedia has a very interesting future ahead relying heavily on HomeAway, Airbnb’s competitor.

This could challenge its business as it interferes with its hotel clients.

� Expect higher growth from Ctrip as the Asian region continues to grow and disposable income

increases.

� Growth in the travel industry in Europe and the US is expected to be 5-7% in the next few years vs.

Chinas > 25%.

5 April, 2016

Priceline 63.9bn 9,224$ 9.3% 18.1 x 15.1 x 29.4% 35.4

Expedia 16.2bn 6,672$ 15.8% 19.1 x 10.1 x 23.0% 20.6

Ctrip 12.5bn 1,725$ 45.7% 65.1 x 73.1 x 9.4% 26.1

RevenueMarket Cap.Revenue

Growth P/E Debt/AssetsROEEV/EBITDA

Revenues, EBIT Margins and Growth

5 April, 2016

0%

5%

10%

15%

20%

0

2,000

4,000

6,000

8,000

10,000

12,000

2011 2012 2013 2014 2015 2016E 2017E

Expedia

Revenues Margin

0%

10%

20%

30%

40%

50%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2011 2012 2013 2014 2015 2016E 2017E

Priceline

Revenues Margin

-5%

5%

15%

25%

35%

0

1,000

2,000

3,000

4,000

5,000

2011 2012 2013 2014 2015 2016E 2017E

Ctrip

Revenues Margin

Stock Performance

� Expedia and Ctrip have led the way over the past two years, with Priceline lagging as a result of

economic and geopolitical fears that have risen in the European region.

5 April, 2016

0

50

100

150

200

250

03/2014 06/2014 09/2014 12/2014 03/2015 06/2015 09/2015 12/2015 03/2016

Stock Growth Comparison

CTRP US Equity PCLN US Equity EXPE US Equity

The Case – Ctrip

� Ctrip is the top go-to site for Chinese travellers and favourably positioned in the online travel

agency market as the middle class continues to grow and the economy shifts to a consumer-

based economy.

� By 2020, China is expected to become the top worldwide destination with 137M visitors. On the

other hand, 200M Chinese people are expected to travel abroad by the same time.

� The opening of Disney in Shanghai by mid 2016 is expected to be pivotal to the contribution.

� With roughly 700M internet users in China, the industry continues to benefit from more mobile

bookings, which are expected to reach 50% by 2020.

� Take advantage of Ctrip’s unique position (70-80% market share) as it continues to monopolize

the sector and benefits from strategic alliances with other major OTAs.

� For more information please refer to our SWOT analysis and Factsheets for the tree companies

mentioned.� http://www.ucapgroup.com/download/MS_Research/SWOT/HOME_PAGE/UCAP%20MS_SWOTs_Homepage.htm

5 April, 2016

INVESTMENT IDEAS

5 April, 2016

Global Leaders

5 April, 2016

The Global Leaders are quality companies that we believe are fit for a long-term investment.

We launched this strategy in August 2011. Please read our special report for a full explanation of this strategy.

Benchmark: S&P 500Benchmark: EuroStoxx 50

� European Portfolio � US Portfolio

Portfolio Benchmark Delta Annualized Portfolio Benchmark Delta Annualized

Performance 84% 53% 31.0% 14% Performance 110% 88% 22.2% 17%

Performance 5D 0.0% -1.1% 1.1% Performance 5D 2.6% 1.8% 0.8%

Performance YTD -5.6% -9.3% 3.7% Performance YTD 0.8% 2.0% -1.2%

Volatility 16% 22% -6% Volatility 14% 15% -1%

Max DrawDown -19% -28% 9% Max DrawDown -13% -13% 0%

-15

5

25

45

65

85

105

Index Benchmark

-11

9

29

49

69

89

109

Index Benchmark

Global Leaders - Current List

� European Portfolio � US Portfolio

Name Mkt Cap ($bn) Sector

Apple 537 Information Technology

Alphabet 487 Information Technology

Microsoft 406 Information Technology

Johnson & Johnson 265 Health Care

Wells Fargo 245 Financials

Walt Disney 152 Consumer Discretionary

Merck & Co 141 Health Care

Pepsico 137 Consumer Staples

Bristol Myers 106 Health Care

Nike 101 Consumer Discretionary

Starbucks 85 Consumer Discretionary

Goldman Sachs 68 Financials

Costco 65 Consumer Staples

Time Warner 55 Consumer Discretionary

Amazon 268 Consumer Discretionary

AT&T 209 Telecommunication Services

Verizon 181 Telecommunication Services

Visa 156 Information Technology

Altria 112 Consumer Staples

CVS 104 Consumer Staples

Mastercard 96 Information Technology

Walgreen 86 Consumer Staples

Reynolds 65 Consumer Staples

Tiffany 8 Consumer Discretionary

Name Mkt Cap ($bn) Sector

Novo Nordisk 135 Health Care

Sanofi 104 Health Care

Inditex 97 Consumer Discretionary

Nestlé 222 Consumer Staples

ABInbev 187 Consumer Staples

Vinci 37 Industrials

Fresenius 35 Health Care

Unilever 122 Consumer Staples

Essilor 26 Health Care

BATS 94 Consumer Staples

Philips 23 Industrials

L'Oréal 89 Consumer Staples

Dassault Systemes 18 Information Technology

Reckitt Benckiser 60 Consumer Staples

Roche 218 Health Care

Novartis 213 Health Care

Allianz 72 Financials

LVMH 75 Consumer Discretionary

AXA 58 Financials

Daimler 75 Consumer Discretionary

BMW 54 Consumer Discretionary

5 April, 2016

Stock Picking

� Within those Global Leaders, we identify a number of stocks that benefit from an attractive

technical pattern or from a near term catalyst.

� Tactical Stock Picking

� Apart from those long term investment stocks, we also have a number of stocks we like as a tactical

investment:

5 April, 2016

Way Name Ticker Exch Code Date Last Price Next Target Stop Level

Long Bristol-Myers BMY US 31-Dec -3.6% 65.94 75.00 63.50

Long Apple AAPL US 31-Dec 6.0% 111.10 130.00 105.00

Long Johnson & Johnson JNJ US 31-Dec 6.2% 108.29 110.00 105.00

Long Time Warner TWX US 31-Dec 14.4% 73.61 78.00 71.26

Long Vinci DG FP 31-Dec 10.7% 65.45 65.00 63.30

Long Facebook FB US 18-Feb 8.5% 112.27 120.00 110.00

Long Philips PHIA NA 18-Feb 9.3% 24.30 26.00 23.50

Long Inditex ITX SM 9-Mar -1.4% 29.30 34.00 28.80

Long Novo Nordisk NOVOB DC 4-Mar -1.8% 366.30 400.00 358.00

Ref. Perf.

Way Name Ticker Exch Code Date Last Price Next Target Stop Level

Long Syngenta SYNN VX 18-Feb -0.7% 400.30 480.00 390.00

Long IBM IBM US 18-Feb 14.8% 152.10 148.00 150.00

Long Accenture ACN US 18-Feb 17.1% 115.37 110.00 113.00

Long PayPal PYPL US 18-Feb 6.4% 38.63 42.00 37.50

Ref. Perf.

Stock-Picking List - Performance

� Hit Ratio 39%

� Average Perf. 0.91%

� Number of Trades 28

� Open Trades 13

� Average Alpha 3.69%

� Hit Ratio Alpha 71%

5 April, 2016

Average alpha of each stock strategy when compared to its

index (S&P or EuroStoxx) over the same holding period.

Average performance of each stock strategy.

Please ask for more details.

SECTOR VIEWS

5 April, 2016

Our Strategic Views - Sectors

5 April, 2016

GICS

SectorUS EUROPE

Information

Technology

US Technology remains the most attractive investment space in

terms of:

� Growth potential,

� Reasonable valuation,

� Potential cash return,

� Stock picking opportunities.

Stay long but the Tech sector is tiny in

Europe.

Financials

US Banks will ultimately benefit from the US economic recovery and

rising interest rates. This scenario has been pushed back in time as

interest rate hike anticipations for 2016 have lowered following last

weeks Fed announcement.

Stay long insurers for their dividends and as

Solvency 2 should actually benefit a well

prepared industry.

Healthcare

Pharma are on multi-years upcycle:

� Earnings, M&A activity and positive drug developments continue to support the sector.

� Prices and valuations have risen, but the sector has lagged on Q4 2015, offering investors an opportunity to

accumulate positions.


5 April, 2016

GICS

SectorUS EUROPE

Consumer

Discretionary

Continue to play the exposure to the US growth with Consumer

Discretionary stocks.

Those three sectors are heavily tilted

towards exporters. Their relative

performance will be mostly driven by FX

rates.Consumer

Staples

Consumer Staples are expensive and have little pricing power in face

of the strong Dollar. Stay long high dividend plays as US long rate are

under pressure.

IndustrialsOverweight as 2015 headwinds are abating. Stay long defense stocks

as geopolitical factors will keep the pressure on defense spending.

EnergyDespite a recent rise in oil prices, stay neutral as crude oil is under pressure due to excess supply. US oil rigs count

are rebounding and the OPEC countries continue to fight for market share.

MaterialsCommodities remain under pressure due to declining emerging markets demand, overcapacity and a strong dollar.

-> Be careful with miners. Stay neutral chemicals.

Utilities Stay Neutral as long rates are rising.Avoid the sector as it is plagued by political

intervention in France and Germany.

Telecom

ServicesGo neutral the sector as the price wars in mobile continues. Stay neutral


5 April, 2016

The Following charts are a recap of our sector view as well as the relative size of each sector.

How to Invest

5 April, 2016

GICS Sector US EUROPE

Information

Technology

Best Investment proxy:

• Technology SPDR ETF (XLK)

Favorite Stocks : Visa, MasterCard, Accenture,

Microsoft, Facebook, Alphabet, Adobe, Apple

Best Investment proxy: No liquid tracker

Favorite Stocks : Dassault Systèmes

Financials


• Financials SPDR ETF (XLF)

• Banks only : Banks SPDR ETF (KBE)

Favorite Stocks : Wells Fargo, Goldman Sachs


• Eurozone Banks : iShares Estoxx Banks ETF (SX7EEX

GY Index)

• Pan-European Banks : Lyxor Stoxx 600 Banks (BNK

FP)

Favorite Stocks : Allianz, AXA

Healthcare


• Healthcare SPDR ETF (XLV)

• Pharmas only : Pharmaceuticals SPDR ETF (XPH)

Favorite Stocks : Bristol-Myers, J&J


• Lyxor Stoxx 600 Healthcare (HLT FP)

Favorite Stocks : Novo Nordisk, Sanofi, Fresenius,

Essilor, Roche

How to Invest

5 April, 2016


Consumer

Discretionary


• Cons. Disc. SPDR ETF (XLY)

Favorite Stocks : Disney, Time Warner, Amazon,

Starbucks, Nike


• No liquid tracker

Favorite Stocks : Inditex, LVMH, BMW, Daimler

Consumer Staples


• Cons. Staples SPDR ETF (XLP)

Favorite Stocks : Altria, Reynolds, CVS, Walgreen, Pepsi



Favorite Stocks : BAT, Nestlé, Unilever, Reckitt, L'Oréal,

AB Inbev

Industrials


• Industrials SPDR ETF (XLI)

Favorite Stocks : GE, Honeywell, 3M, United Tech.


• No liquid Tracker

Favorite Stocks : Vinci, Philips

How to Invest

5 April, 2016


Energy


• Energy : Energy SPDR ETF (XLE)

• Oil services : Market Vectors Oil services ETF (OIH)

Favorite Stocks : Exxon


• No liquid Tracker

Favorite Stocks : Total

Materials


• Materials : Materials SPDR ETF (XLB)

• Gold Miners : Market Vectors Gold Miners ETF

(GDX)

Favorite Stocks : Newmont, Goldcorp, Barrick Gold


• No Liquid Tracker

Favorite Stocks : na

Utilities


• Utilities SPDR ETF (XLU)





Telecom Services



Favorite Stocks : Verizon, AT&T




Disclaimer

5 April, 2016

Ucap Hong Kong Asset Management Ltd has issued this document for information purposes only. This document may not be distributed to the United States, Canada,

Australia or to any other jurisdiction in which its distribution is unlawful. If you require investment advice or wish to discuss the suitability of any investment decision,

you should contact your professional advisers for financial, legal or tax advice when appropriate. This document is not and should not be construed as an offer to sell or

a solicitation of an offer to purchase or subscribe for any investment or service.

Ucap Hong Kong Asset Management Ltd has based this document on information obtained from sources it believes to be reliable but which it has not independently

verified. Ucap Hong Kong Asset Management Ltd makes no guarantees, representations or warranties, and accepts no responsibility or liability as to its accuracy or

completeness. Expressions of opinion herein are subject to change without notice.

Members of the Ucap Hong Kong Asset Management Ltd and/or their officers, directors and employees may have positions in any securities mentioned in this

document (or any related investment) and may from time to time add to or dispose of any such securities (or investment).

In the case where this document is distributed in the United Kingdom by a person who is not authorized by the United Kingdom Financial Services Authority; it is only

intended for persons who (i) have professional experience in matters related to investments or (ii) are persons falling within Article 49(2)(a) to (d) ("high net worth

companies, unincorporated associations, etc") of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (as amended) or to whom it may

otherwise lawfully be communicated by such an unauthorized person (all such persons together being "relevant persons"). This communication must not be acted on

or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and

will be engaged in only with relevant persons.

Past performance is not necessarily a guide to future performance. The value of any investment or income may go down as well as up and you may not receive back

the full amount invested. When an investment is denominated in a currency other than your local or reporting currency, changes in exchange rates may have an

adverse effect on the value, price or income of that investment. In the case of investments for which there is no recognized market, it may be difficult for investors to

sell their investments or to obtain reliable information about their value or the extent of the risk to which they are exposed. Investment in any market may be

extremely volatile and subject to sudden fluctuations of varying magnitude due to a wide range of direct and indirect, influences. Such characteristics can lead to

considerable losses being incurred by those exposed to such markets.

© Copyright. Ucap Hong Kong Asset Management Ltd 2015 ALL RIGHTS RESERVED

No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, whether electronic, mechanical, photocopying,

recording or otherwise, without the prior written permission of Ucap Hong Kong Asset Management Ltd.

Weekly Equity Revie · 2016-04-11 · Weekly Equity Review Ucap Hong Kong Asset Management Limited...

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Transcript of Weekly Equity Revie · 2016-04-11 · Weekly Equity Review Ucap Hong Kong Asset Management Limited...