Monthly Archives: February 2016

Shanghai Plunges While Hang Seng Slides

shanghai hang seng

Various explanations were presented for the Shanghai drop – lower liquidity, yuan fragility, a buying ban on an unlisted insurance company from buying equities and fears over upcoming data in early March but nothing specific could be blamed. Despite the drop, the Shanghai composite is still 3.9% above its recent low. For the Hang Seng, losses were widespread over all sectors with 49 of its 50 components declining.

On a lighter note, Li-Ka Shing’s CKI Holdings returns to the Hang Seng Index after an absence of 8 years.  CKI – Cheung Kong Infrastructure Holdings, LTD, HK 01038, replaces China Beer Resources, HK 00291, MC 30.8b HKD;  last price: 12.74 HKD, (2.75%) vs. Hang Seng’s (1.58%) decline;1 YR change: +50.9%.  China Beer had been significantly reduced after selling all but its beer assets.  CKI managed the return despite being thwarted in the full takeover of Power Assets Holding, PAH, HK 6, last price: 73.5 HKD, down (1.34%), MC 159 Billion hkd, another Li-Ka Shing holding and member of the Hang Seng index.  Despite a Hong Kong listing, the bulk of CKI’s revenue and assets come from international investments, primarily the U.K. with others in Canada, Australia, New Zealand and the Netherlands.  As such, it isn’t as heavily impacted by weakness in China and Hong Kong but has felt the pain of the decline in the British Pound, Australian Dollar and Canadian Dollar against the US dollar-linked Hong Kong Dollar.

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Noodle King Tingyi Expects 35-40% Net Profit Drop

Master Kong noodle king and Pepsi, PEP  partner Tingyi Cayman Islands Holdings,  322 HKG, warned today that net profit would be down 35-40% for the year ended 12/15. 3 reasons were given as an explanation:

  • Noodle sales volume was down due to price increases for quality upgrades.  Sales channel adopting a “wait and see” attitude in short-term. (Read consumers rejected price increase.)
  • Beverage business making pro-active provisions for “diminution in value.” (Read asset impairment due to declining future sales). Despite two ground-breaking deals with Pepsi: 2011 shares for bottling ops; 2014 exclusive pact with Shanghai Disney.  (Shanghai Disney faced numerous delays, now projected to open in June, 2016. )
  • Fluctuating exchange rates

This announcement was especially shocking given the last earnings report, which showed declines far less than now currently projected. (In millions of $US, except eps.  Despite Hong Kong listing, shows numbers in $US millions.)

tingyi 3 months 9 months

Although revenue and profits had been dropping, both for the quarter and for the year, there is nothing comparable to a 35-40% drop.  While there is obvious concern that the noodle price increase hit a major speed bump, even more concerning is the apparent markdown of the beverage business.  Although Disney, DIS US, hasn’t opened as scheduled, it’s a delay not a cancellation.  Why take a markdown four months before the opening?  Rationally there could be something going on from either Pepsi or Disney that’s not being stated.  (Shanghai Disney Resort is a jv with 57% held by the PRC group, Shanghai Shendi Group.)

The need to markdown the beverage unit reinforces a trend seen in the 3rd quarter where revenues and profits showing a significant decline in this segment. ($US Millions)

Tingyi beverage decline major

The much larger decline in the beverage profit versus the noodles profit had a significant hit on the beverage sector’s impact on total profit compared to 2014.

Tingyi Revenue Profit Segm

In the last quarterly report,  dried noodles in the overall Chinese market were noted to be in a downward recessionary spiral, reflecting a market yoy decline of 2.8% volume, with a slight .4% increase in sales dollars. Beverage sales volume and dollars had increased by 0.3% and 2.5% yoy respectively in the third quarter of 2015.

Despite the myriad of reports over the transition to a consumer economy in China, this report throws a spanner into that thesis.

Stock facts: HK 322, Tingyi Caymen Islands Holding

 

Tingyi Stock

 

Shanghai Hang Seng Update

New regulator equals new hope.  Both Shanghai and HangSeng indexes rose, with Shanghai showing the most optimism as Liu Shiyu, Chairman of Agricultural Bank of China, HK   1288,  replaces now infamous Xiao Gang, overseer of the brief Shanghai circuit- breaker. 

shanghai hang seng

The Hang Seng was less ebullient on the news, although only 7 of its 50 components dropped.  The most notable was HSBC, HK 5, which dropped 2.19% in Hong Kong after  missing revenue and profit expectations blamed on Asian weakness and loan impairments from oil and gas companies.  Revenue from Asia, where it relies the most for profits, as shown below, dropped by 5.7%

HSBC annual

Hong Kong Airlines Soar

Buoyed by a hopefully stronger yuan as well as positive reports from the Singapore Airshow on Chinese airline strength, Hong Kong Listed Airlines soared.  Short-term gains look impressive until it’s noted how far they’ve fallen from their 52-week highs.  Cathay Pacific, with the highest p/e thanks to some of the best traffic growth, had less of a spurt thanks to its Hong Kong location and currency which has felt downdrafts from currencies in Australia, S. Africa,  Canada, Europe, New Zealand, and the UK.

Airlines Hong Kong

Whether these gains are warranted remains to be seen.  All four have felt the economic softness in their cargo business.  All four have committed to airline purchases in dollars, which makes a strong, stable yuan critical for China Southern, China Eastern and Air China. These four airlines are highly leveraged, relying heavily on short-term debt with CA/CL’S well below 1. Their saving grace has been low fuel costs along with government support.

 

Airlines Current Ratios

Shanghai Hong Kong Daily Update

Shanghai re-opens after a week of partying with a small decline. Compared to the FXI, which showed a decline of 2.22% during the closed week, this was better than expected.  Hong Kong closed a whopping 3.26% over Friday with all members up except international retail supplier Li & Fung, HK 494, down 1.08%. Notable high flyers were financials, most likely buoyed by Zhou’s assurances for a strong, stable yuan. Casino operator Galaxy Entertainment, HK 27 shot up 8.17% over Sands, HK 1928 4.44% gain.  Energy shares of China Shenhua, HK 1088 +4.72%; Petro China, HK 857, +3.78% also showed outsize gains thanks to oil prices.

shanghai hang seng

Hong Kong H-Shares Premium to ADR’S Descends

After being closed for 3 days, H share premiums to New York Stock Exchange ADR’S predictably dropped.  While Hong Kong partied, ADR’S for those stocks with a moderate to high average volume increased from a low premium of .91% to a low of 3.2% based on the last close on 2/10 before Hong Kong started trading again.  Not surprisingly, Hong Kong shares dropped to a premium over ADR shares closer to the last close on 2/5 when both exchanges were active.  Source: AA stocks

HK ADR PREM