Sunday, August 1, 2021

Portfolio Updates (July) & my position in Chinese companies!

To say that Chinese tech stocks have been hammered down upon over the past few days is an understatement. The Chinese crackdown saga became prominent a few days after Didi’s listing in NYSE, when Chinese government introduced the cybersecurity review of the ride hailing company and suspended its new user signup, sending shares tumbling. These resulted in a spillover effect on Chinese internet stocks, causing the shares to spiral down.

A few days later, the news circulating that China would be forcing tutoring companies to go non-profit was indeed the last straw that broke the camel’s back. Tech titans like Alibaba, Tencent, Meituan Dianping and BiliBili, just to name a few, got terribly hit. To give some perspective, Tencent has lost $170 billion of market value within a month, and Bloomberg calls it “the world’s worst stock bet”.

Most of the Chinese Internet companies are either listed in NYSE or HKEX. Even world-renowned investors like Cathie Wood rushed for exit by liquidating most of her positions in Chinese tech giants.

While all seems doom and gloom for China’s top tech players, I believe these stocks will rebound at some point in time. Other than the education tech companies, their fundamentals are still strong, and are trading at an attractive valuation. From an opportunistic standpoint, it is not in the interest of CCP to see their tech company fail and lose to their US counterparts. Historically, the Chinese government follows a socialist market economy system, whereby the government must ensure a good balance between pure capitalism and people’s welfare. Hence, one should always consider regulatory and political risks in analysing any Chinese company as CCP will step in when needed to ensure that businesses are moving in the direction that aligns with the long-term interest of the country.

Due to potential regulatory risk, this crackdown will indeed leave a bad taste in the mouth to retailers and institutional investors; nevertheless, the current prices are still attractive even after factoring in a generous margin of safety.

My portfolio is also significantly impacted as well, as I have a considerable proportion of Chinese stocks in my portfolio. Since sharing is caring, I will be disclosing the recent changes in my Chinese Tech stocks and my portfolio value in them.

1.Alibaba (HKSE: 9988) and NYSE: BABA)

I bought shares of Alibaba back in 2018 before the HK listing in 2020. When the stock rout began, I went ahead to buy the HKSE:9988, and planned to divest Baba to keep all the Alibaba shares on the Hong Kong Stock Exchange.

Similar to Amazon’s ecommerce, Alibaba may experience a similar slowdown in its online shopping sector, too, and the silver lining will be in its cloud computing, which is growing year after year. It only recently became profitable and will likely play a significant role in growing its top-line and bottom-line.

NYSE: BABA

Total no. of shares= 33

Average Price= USD 209.345

HKEX: 9988

Total no. of shares= 300

Average Price=HKD 206.031

Total Loss (NYSE: BABA & HKEX: 9988) = SGD 1,499.22

Current Price-to-Sales Ratio= 5

Current Price-to-Earnings Ratio=18

To put things into perspective, its average price-to-sales ratio is 10X.

2.Tencent Holdings (HKSE: 0700)

I started doing dollar cost averaging (DCA) in 2018 with MayBank Kim Eng’s Monthly Investment Plan (MIP) of $500/month and then went ahead with Stock Monthly Investment Plan (SMIP) with HSBC HK with HKD 6,000 a month, after a year when the former stopped its MIP. It was a big payoff this year when Tencent went up to HKD 700+, and it all changed in a dramatic turn of events. Currently, I am sitting in a meagre gain of 2.71%.

I am still bullish on Tencent in the long run, as it still holds a strong moat in the gaming industry not only in China, but in the world. It is a tech conglomerate which holds a significant stake in many global companies which are not impacted by the current regulatory risk.

Current Price-to-Sales Ratio= 7

Current Price-to-Earnings Ratio=21.74

Total no. of shares= 342

Average Price=HKD 469.035

Total Gain = SGD 740.25

3.JD.COM (NYSE: JD)

I got to know this company back in 2018 when the company was not profitable then, but I like its logistics business and believe it’s the Amazon of China. I did not have a smooth start with this one, as a few months after I bought the shares, news broke that the CEO was accused of rape and potentially faced a jail term. As he is the face of the company, the share price plunged 50%, and I took the courage to average down my position at USD 27.50. Today, this piece of news is long forgotten, and investors are focusing their attention on antitrust.

Current Price-to-Sales Ratio = 7

Current Price-to-Earnings Ratio = 14.79

Total no. of shares = 90

Average Price = USD 45.36

Total Gain = SGD 3,102.41

JD.com is still the largest listed retailer in China and it aims to be a supply chain-based technology and service provider. It owns 900 warehouses, with fulfilment centres in seven cities, which is more than Amazon’s 175 warehouses. As JD’s sales are still way behind Amazon, it means that there is plenty of opportunity for growth. When JD’s e-commerce sales grow, it will ramp up its logistics and warehouse footprint, reducing the delivery and fulfillment costs and benefitting from its economies of scale. It also owns many businesses in the health, property, and cloud sectors. Moving forward, I think its lower tier cities' users will fuel its future growth.

4.BiliBili (HKSE: 9626 and NYSE: BILI)

It’s known as the Youtube of China, and unlike Youku (formerly termed as YouTube of China before BiliBili rose to fame), it positioned itself as the video hosting and streaming platform for the Gen-Z. It started with a focus on Animation, Comics and Games (ACG), but it’s expanding to cover more content categories such as pop culture, lifestyle,and educational videos. The growth is still in its infancy if you consider its accelerating MAU’s numbers at 30% YoY growth. Similar to Peloton, it has a ‘sticky’ community; and despite having to go through the hassle to complete a test before becoming an official member to comment and post, the video platform is still growing at 38% YoY with 80% retention rate.

I will be shifting all my BiliBili shares to the HK market and continue to average down in the next six months.

NASDAQ: BILI

Total no. of shares= 10

Average Price= USD 105

HKEX: 9626

Total no. of shares= 20

Average Price=HKD 683

Total Loss (NASDAQ: BILI & HKEX: 9626) = SGD 344.27

5.Electric Vehicle (EV) Sector :Ganfeng Lithium (HKEX: 1772), Sunny Optical (HKEX: 2382) and BYD (HKEX: 1211)

If the tech sector was the detested stepchild of the CCP, the EV sector would be its darling child. This is evident from Chinese homegrown EV companies such as XPeng and Nio getting much funding from State-owned Enterprise (SoE) in the race to be the largest market for EVs.

Back in March 2021, I blogged about having some EV Plays: Ganfeng Lithium, BYD and Sunny Optical. Check it out here: http://whatsbehindthenumbers.blogspot.com/2021/03/portfolio-updates-march-2021.html

I divested Ganfeng Lithium (HKEX: 1211) last week at a price of HKD 163.10, a gain of $2,159.34 or 64.54% in percentage terms. Ganfeng Lithium is the third largest producer of lithium worldwide and they are the supplier of lithium hydroxide to Tesla. My entry price was HKD 98.91 and I decided to divest it as I didn’t have a strong conviction to hold it at the current price. I will allocate my proceeds to buy more Alibaba shares.

I am currently still holding on to Sunny Optical and BYD.

Sunny Optical (HKEX: 2382)

Total no. of shares= 90

Average Price= HKD 183.248

Total Gain = SGD 808.11

BYD (HKEX: 1211)

Total no. of shares = 162

Average Price = HKD 191.67

Total Gain = SGD 1,307

Growth Portfolio

My overall growth portfolio has been pretty muted, as the Chinese tech stock route has wiped out most of the gains I have made over the month on US stocks.

Pinterest

The biggest stock loser in my portfolio is Pinterest. The visual search company recently released earnings on Thursday which reported a drop in monthly active users (MAU). The sell down signifies that investors are worried that MAU has peaked. The MAU is indeed disappointing, but it’s worth noting that US MAU under the age of 25 grew double digits year over year with strong engagements with Idea Pins. Idea Pins was only launched in May of this year; thus, I will be watching closely on whether Idea Pins could reverse the dip in MAU.



Secondly, the management has highlighted that the decline in MAU are mainly users who surf Pinterest on the web.  These are the users who generate less revenue than Pinners who surf with mobile apps. The recent drop, in my opinion, is understandable as the Q2 last year was Covid 19 lockdown season, where many users were stuck at home, resulting in a spike in user engagements. Therefore, it is like comparing a previous year’s quarter profit with one-time earnings.

The revenue growth and earnings were impressive, suggesting that its monetization strategy is working well. The growth opportunity lies in its global average revenue per user (ARPU), which is a metric I will also be watching closely. Currently, Pinterest global ARPU grew 89% to $1.32, and when compared to the US ARPU of $5.08, it signals to me that its monetization strategy is still in its early days.

Activision Blizzard

I have closed off my position in Activision Blizzard when the video game giant was sued by employees over gender bias from paying female counterparts less than male counterparts and creating disparities in career advancement. Upon further reading into the news, I also found out that women in the company are being sexually harassed and discriminated against. The management was aware of these allegations but decided to turn a deaf ear. Discrimination and sexism is something that I cannot tolerate and it is strongly against my work values, so I sold all my shares at market order and made a return of 88.88%.

 Dividend Portfolio

Other than selling my HongKong Land shares at $4.72 to settle for a 9.42% loss, there has been no changes at all.



Total Portfolio value

Stock Portfolio: $514,530





Cash at Hand: $92,508

Total Portfolio Value: $607,037

Portfolio 1 Net Worth: $514,530

Portfolio 2 Net Worth: $196,993

Net Worth (Cash+Equity): $804,031 

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6 comments:

  1. Are you still holding on to Fiverr?

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    Replies
    1. Hi, yes I am holding on to Fiverr and just averaged down last night! I think company reported a good set of results, and I am not too concerned on the revenue slowdown next quarter. The rise of gig economy is imminent and freelance platform has a huge Total Addressable Market.

      Also ,Fiverr for business, in the likes of Upwork, now accounts for 5% of total Revenue and Fiverr Subscription for Sellers will take time to bring to fruition and drive its future growth.

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    2. Thanks for replying!

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  2. Actually how come the tencent PE is that low... if you adjusted for other income which is likely more volatile or one time... the pe is closer to 30 times isnt it?

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    Replies
    1. Hi Kyith, thanks for visiting my blog.

      I took the shortcut by checking out Tencent’s PE ratio here: https://ycharts.com/companies/TCEHY/pe_ratio

      Upon manual calculation, PE ratio is about 21X.

      Market Cap of Tencent Holdings= 4.355T HKD *0.83 = 3.7765T RMB

      1Q 2021 Earnings =49.008 B RMB
      4Q 2020 Earnings=59.369 B RMB
      3Q 2020 Earnings=38.899 B RMB
      2Q 202 Earnings= 32.454 B RMB

      Total Earnings= 179.73 B RMB

      Trailing PE ratio= 3776.5/ 179.73= 21X earnings

      At first, I was hesitant to exclude other income in earnings calculation. Tencent reports other income as ‘Other Gains’. It is derived mostly from Tencent corporate venture arm, and books a profit when Tencent’s investments go public, achieves capital gain or gains dividends. However, after some thought, it’s likely that it will pare down most of its gains this time round due to Chinese tech crackdown.

      You are right. After stripping out other gains, PE Ratio is approx. 35X. Even with 35X earnings, I think the stock is still cheap, considering that the tech giant growth is not slowing anytime soon, and it still has lots of room to grow in its gaming business, fintech and advertising. Historically, it has been trading at an average PE of 39X (including other gains). After this major tech crackdown, I believe the Other Gains sector will be profitable again.

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    2. Hi Kelvin, let me take a look at the figures more and think about it. Thanks for your explanation.

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