Blog

Buildings On The Bund (Waitan), Shanghai (1)

A roundup of those historically unique buildings.

Block One

No. 1 – The McBain Building, Asia Building | 亚细亚大楼

Built in 1916.

Past: Asiatic Petroleum Company (oil & gas), a joint venture between the Shell and Royal Dutch oil companies founded in 1903 (Royal Dutch and Shell merged into The Royal Dutch Shell Group in April 1907)

Now: Japanese control, East China Petroleum Company, China Pacific Insurance Company (insurance)

No. 2 – The Shanghai Club | 上海总会大楼

Rebuilt in 1909.

Past: The Shanghai Club, the principal men’s club for British residents of Shanghai, founded in 1861. The club was originally named “The Correspondent’s Club”.

Now: leased by the Hilton group in 2009 and converted to become the Waldorf Astoria Shanghai on the Bund, a luxury hotel. The new hotel opened in 2011.

In between: Japanese Navy Base, International Seamen Club, Dongfeng Hotel, from 1990 to 1996 for hosting the first KFC restaurant in Shanghai.

Coffee Chains And Prices In China

While Starbucks is probably the No.1 coffee brand in China, its position has constantly been challenged. Luckin Coffee, (briefly covered in a previous post) is cutting into the mass market with lower pricing.

Many people are eyeing on China’s growing coffee market, which will be huge and many are betting on the growth in average coffee consumption.

On the global capital market, Starbucks’ China push and Blue Bottle’s exciting/interesting movements (Jun 2015 $70 million series C; Sep 2017 acquired by Nestle, $425 million for ~68%) may as well push Chinese counter-parties to think about aggressive expansion or building boutique brands.

Listed here are 3 shops I visited recently. Will add more during the summer.

Costa, from UK

Costa Coffee is eyeing 1,200 stores in China by 2022, a big increase from more than 400 at the end of 2017.

Costa stores | Source: Business Insider

Costa is in direct competition with Starbucks, pricing its coffee at exactly the same level – grande latte @ ¥32.

% arabica, from Japan

% arabica @ the bund, Shanghai | Source: arabica.coffee

Started in 2014 in Kyoto, Japan, % arabica is a young brand. It opened the first store in China in Shanghai in Feb 2018 in a trendy (网红) way. It already has opened 4 store in Shanghai alone, including a roastery at the Bund (7 in mainland China and 4 in Hong Kong as of May 2019).

% arabica is a premium brand with latte price starting @ ¥35 (but in short size), @ ¥45 for a tall size (or a little bigger than tall.. cant’ tell exactly), @ ¥40 for tall ice latte.

S.Engine, from Shanghai

A trendy (网红) brand, 鹰集 is a little pricer than Starbucks, with its flagship store opened in January 2017 at Xintiandi, Shanghai.

While its office website only lists 3 locations right now, its has 6 places listed on Meituan in Shanghai. Growing very fast.

S.Engine on Meituan | Source: meituan.com

Pricing is in line with (or a little lower than) boutique coffee shops. Americano @ ¥28 and latte @ ¥36 (¥38 for ice latte). There is only one size (tall); a fair amount of cups are served in reusable cups.

China’s “Dual Pricing” System

Just landed in China last week.

So “dual pricing” sounds a little bit bizarre.. It’s not something like two menus, but it does exist in some way.

One example is the prices in restaurants/dining rooms affiliated with state-owned-enterprises (SOEs) or established traditional corporations. The price in restaurants in the same/nearby block would be 4-10 times more expansive (food quality and others things adjusted).

This is actually similar to what US tech companies provide – free lunch. The difference is that US tech companies actually pay a lot for those food as an employee benefit, while the cost for established/connected Chinese companies are very low.

Essentially, there are some places in China that are not affected by as much inflation as other parts are. And throughout the pat 10-20 years, the “dual pricing” has become increasingly evident. (US tech companies’ free lunch is actually on par with the inflation I think)

Another example is “friendship-based” transactions. It is more like the world in the “exchange economy” so that goods/services are not priced in numbers. Due to the nature of exchange, there will be no/little markup in “prices”.

Say Service A costs $100 and is usually priced for $1,000; good B costs $50 and is usually priced for $500. Then exchange based transaction would probably involve one A and two B (the value of which depends on people’s perceptions, say $300 but no money exchanged), while money-based normal business would involve two $1,000 transactions.

Friendship-based economy exists everywhere I believe and is a very natural/common development in history. Since China’s friendship-based transactions are more pervasive and maybe represents a higher percentage of the “economy”, it does create another “dual pricing” in China.

 

 

 

 

NIO Feeling Similar Pain As Tesla – Lack of Demand

When Tesla said “Deliveries were approximately 63,000 vehicles, which was 110% more than the same quarter last year, but 31% less than last quarter”, NIO wanted to say something similar.

The 2019 Q1 deliveries number was approximately half of that in 2018 Q4. (Still a good job in ramping up production fast)

To compare in numbers:

    • Tesla deliveries is ~15.8x NIO’s in 2019 Q1, ~11.4x  in 2018 Q4
    • Tesla’s automotive revenue in 2018 Q4 was $6.3 billion vs. NIO $0.5 billion:  ~12.6x
    • Current valuation 8x ($40bn vs. $5bn)

NIO said ES6 (to start deliveries in June) should have more than 10,000 pre-orders before deliveries.

Hong Kong Biotech IPOs – How Are They Doing

Filing Date Prospectus Date
HKG:1672 Ascletis Pharma Inc 歌礼制药 05/07/2018 7/20/2018
HKG:2552 Hua Medicine 華領醫藥 06/06/2018 8/31/2018
HKG:1801 Innovent Biologics Inc 信達生物 06/28/2018 10/18/2018
HKG:6185 Cansino Biologics Inc 康希諾生物 7/17/2018 3/18/2019
HKG:6160 Beigene Ltd 百濟神州 7/24/2018 7/30/2018
HKG:1877 Shanghai Junshi Biosciences Co Ltd 君實生物 08/06/2018 12/11/2018
HKG:2616 CStone Pharmaceuticals 基石藥業 11/11/2018 2/14/2019

An Update on Tesla

In the previous post on Tesla’s productions & deliveries (2018 Q4), a not-so-good Q1 is somehow foreseeable, when Model 3 has little QoQ growth from Q3 to Q4 despite the holiday season and a fade in US tax credit at year-end.

Tesla has more concerning issues.

Depressed Margins

The mass production of Model 3 in 2018 H2 helped to improve the automotive sales gross margin in Q3 and Q4.

However, due to the price reduction in 2019 Q1, less absorption of fixed cost and more international deliveries, the automotive sales gross margin went back to the 18-19% region in 2019 Q1.

While production in China is expected to reach a rate of 2,000 vehicles a week by the end of 2019 (according to Elon Musk), the gross margin of automotive sales will remain <20% for 2019 I think (with model 3 basic)

Tesla said the capital spend (CapEx) per unit of capacity for Shanghai factory is expected to be less than half of that of the Model 3 line in Fremont. Not 50% COGS though.

Model S & X Halved

Number of produced is at ~56% of 2018 Q4.

Number of delivered is at ~44% of 2018 Q4.

Though, Tesla reaffirmed its prior guidance of 360,000 to 400,000 vehicle deliveries in 2019, thanks to the confidence in Model 3.

China Sales

Although China (China and Europe mainly) sales in 2018 decreased compared to 2017, Tesla’s March performance in China is exceptional, with 9,273 in total (Model 3: 7515; Model X: 1490; Model S: 268)

Tesla Vehicles Sold in China 2019 Q1 | Source: Che Jing She, sohu.com

Many attributed the jump in sales to the “one time” price adjustment in China, including a ¥341 drop in the most expansive Model X (P100D), which then corrected by a general 3% increase.

Source: sohu.com

But the ongoing sales numbers is still in question.

China’s EV market has been increasingly competitive. And in April, a video of a parked Model S emitting smoke and bursting into flames seconds later was spreading across China’s Weibo, which doesn’t do any help.

 

Who Is Using Financial Mobile Apps

Paypal released its Venmo active users – 40M

Its’s very impressive compared with comparables.

    • JPMorgan: 51M
    • Bank of America: 37M
    • Wells Fargo: 30M
    • Square Cash App: 15M

While there are different types of fee (revenue) in Venmo like instant transfer and merchant fees, I was wondering if Venmo could do ads as well – like Instagram.