Month: March 2024

Money Machine by Weijian Shan (2)

Such an interesting book.

Some takeaways:

  • You don’t get a deal until the very last
  • Sometimes you just need to wait, which can be the best strategy
  • Back channels are very much needed
  • Working with the top is very much needed
  • Don’t assume the other side will adhere to “law” all the time

 

Shortcuts is the preliminary format of Apple’s OS AI?

Apple Shortcuts has many drawbacks I think.

  • it functions depend on apps
  • you need to engineer or “low-code” the functions
  • debugging can be problematic
  • password/access is a big issue, which limit the functionality
  • daily impact looks limited. so far I haven’t used many in daily life, although I tried to..

However, it seems to me that on future hardware, users should be able to use verbal communication to replicate human interactions, in a way that even the hardware can’t distinguish if it’s AI or human. Or to imagine that you have an assistant to do all the work on iPhone for you, and that assistant is AI.

 

Ukraine, NATO, Rolls-Royce

I haven’t posted anything on this issue.

One logic that was less discussed:

Back in 2014, NATO leaders agreed to increase spending towards 2% of their GDP on defense within a decade.

But this hasn’t been achieved.

Here is 2023 number

And previously, for example

2021

2018

US may feel it’s less willing to over-spend for the long run.

And it’s mostly a question for European countries. How much they should spend on defense?

Europe’s overall economy and finance situation doesn’t seem very strong, compared to the US.

Maybe the GFC created too large a problem that took years to truly recover.

Ukraine may be the catalyst that really makes EU leaders to rethink about defense.

Rolls-Royce stock has been more than tripled in 2023! And continue to rise in 2024.

Of course, the end of covid helped a lot.

But Rolls-Royce is indeed a very important defense company for EU.

Defense segment op. profit is 35% of the total, up 30% in 2023, with 14% op. margin.

2024 guidance: underlying operating profit between £1.7bn and £2.0b!

That’s 25% growth if hit the upper end.

2023 NOPAT £1.4bn -> 2024 of £1.7bn? or $2.1bn?

Then it’s at above ~20x NOPAT, not cheap but can still go up.

Manufacturing in the US

The goal for supply chain security is probably not the whole picture.

This sounds like ESG to me.

I think a better question to ask is how to create a new class of mfg businesses that can do well in the US.

Or how the US society embrace this type of business and jobs and their families.

Do people love this kind of mfg work?

Can they earn decent wages?

Are companies profitable? Does ROE and IRR make sense?

There are some differences between a chip maker and a toy maker, but the questions would be similar.

Nike China grew, DTC grew less

For the quarter ended Feb 2024, Nike brand sales in China grew 4.5% yoy (overall company sales grew 6% yoy) and Nike brand EBIT in China grew 2.8% yoy.

Not that impressive – as last year’s result should still be impacted by surging covid cases after reopen.

Meanwhile, Nike said it’s growing share, which I believe is true (holding some ground), but also indicates that the overall market is not strong (<6% growth).

Looking at channels, it’s wholesale that’s driving the growth. “Wholesale grew 12%” & “retail sales with our partners grew double digits in Q3 versus the prior year” & “seeing incredibly strong weekly sell-through on these franchises (wholesale partners)” from earnings call.

Another important observation – “physical retail channel in China is stronger than digital.”

Nike will be on Douyin. Not yet on Douyin. However, how should Nike balance gross margin? Live-streaming e-commerce is famous for heavy discounts.

Weijian Shan’s book & the SDB story – very interesting

I didn’t live that era so really appreciate the story.

Some key takeaway so far:

  • in early 2000s: “The market consensus was that China’s banking system was technically insolvent and badly in need of wholesale reforms. The main issue was nonperforming loans (NPLs).”
  • It’s easy to hide NPLs by offering bigger loans; the best practice of “forward looking” was not used in early 2000s
  • Gov will insist on a “good-looking” multiple
  • There was an jokingly bet for a tennis match between Zhou and Summers – “the winner would get to set the exchange rate between the dollar and the Chinese yuan”
  • Much more ups and downs than I imagined
  • “Fortress Besieged” is a really good metaphor..

Be exponential

To grow a number, in math there are addend, or multiplier, or exponent.

Similarly, in businesses, one could grow a company in different ways.

  • Adding a location for Walmart is likely a addend – the addition won’t help/affect other locations
  • Apple introducing Apple Pay is likely a multiplier – value created for all users and profits per users improved across the board
  • Exponential impact is more subtle. I think organization / cultural improvement is likely the case, where better talents are attracted, better outcomes are achieved, and a virtuous cycle is created

Is it possible to replicate this kind of growth for individuals? Or to categorize an individual’s effort into similar buckets?

Here is an example I think of:

  • Reading a book to learn a piece of knowledge is like an addend
  • Reading a book which has impact over a lifetime / all future decisions is like an multiplier
  • Reading a book to form a better map of knowledge is like an exponent, in the sense that future books can be “better” read – you get the point faster, you understand the author better, you connect more dots, etc.

Find the exponent, do the exponential function in life.

People are living far apart nowadays

This is a feeling / theory that I originally thought about during covid-19 – that if you divide people’s risk tolerance by 1-10, before covid it may be ok for people that are 3 ratings apart to mingle (say 5-8), but then only people that are 1 ratings apart are comfortable to be together (say 2-3).

The impact is obvious – if living with less diversified opinions and more like-minded people, people might grow more comfortable within a more similar but narrow circle, and then become less tolerant to different opinions, and might develop a bit biased impression of “mainstream”. It’s a bit like the echo chamber problem exacerbated by social media.

I do feel that even covid-19 is over, the situation is not getting better. Maybe because people are used to being less tolerant over the years. Maybe people just care less about things & people that they don’t see.

It’s not sure if deglobalization is the cause or the result of this.

One things is clear – I haven’t seen much sign of people realizing this subtle change and forces to reverse it.

 

Notes on CATL 2023

`1/ shareholder return is real

annual dividend of 22bn rmb, out of net income of ~44bn net income -> ~50% payout ratio.

this is also due to scaling back of capex (down 30% yoy in FY23)

 

2/ growth has slowed to almost zero

q4 gross profit is up only +2% yoy

q4 net income is -1% yoy

however, with utilization up, 2024H2 and beyond should return to growth

 

3/ barrier in internationalization

both EU and US want to localize the whole value chain, which seems to be a big investment, and involves upstream & downstream companies.

CATL doesn’t see good return and hasn’t done massive capital-heavy investments.

Licensing model is what clients are happy about, which is capital-light for CATL, but growth in net income would be less.