Sometimes, it does seem that even SOEs in China doesn’t have monopoly. For example, there are 3 telecom companies, and multiple banks.
However, there are also no real market competitions. E.g. you don’t see China telecom operators competing for customers by offering differentiating product offerings.
Consumers didn’t get a wider range of choices via these seemingly “competing” businesses.
How these businesses “split” profits looks more like a “political” question, rather than a economical one.
A common fallacy, especially in the past, is to find a US asset in the similar industry and use it as a reference for valuation.
Why this is less useful, especially in rmb assets?
To put it simply,
asset value = earnings power (e.g. EPS) x multiple (e.g. P/E)
Then we look at these two components:
1/ Industry dynamics can be vastly different.
Demand side can be very different – e.g. work from home has never been a thing in China vs. only ~24% of workers don’t WFH in 2022 in the US.
Supply sides can also be very different in terms of entry barriers, the level of competition etc.
There are just too many different things, thus the projection based on a US company’s past is usually not a good reference.
2/ valuation can be vastly different.
Partially, difference in multiple is reflecting terminal growth, etc., therefore it’s similar to the first point, which is about fundamentals.
Additionally, If you think about bond prices – US treasury yield vs. China gov bond yield, they are on two diverging roads.
What’s good though? Assets in China can produce less correlated return vs. US assets, therefore providing additional benefits to a portfolio.
One thing that might happen after additional US tariff is a weaker RMB, which can make Chinese export more appealing.
This may diver export from US to other counties, which gives pressure to producers globally.
What to do if you have rmb?
– buy houses in China
especially given that rmb borrowing rate is low, and housing prices have declined for 3 years, if you have confidence in chinese macro, buying a property in good locations is not a bad choice.
– buy overseas companies that are making money overseas
then the earnings power is not priced in rmb, and the value of the company should be rather uncorrelated to rmb.
Fossil fuels is old-school but Trump shall support it.
Electric vehicles are new, but Trump might remove the EV subsidy.
Solar & wind likely will not be seen as good as they were.
Carbon emission will probably not be strictly watched.
Buildings and construction sites shall boom.
And interestingly, the company, Caterpillar, was helped by Trump during his last term.
If people still remember what happened 4 years ago..
For the past 5 years,
Regeneron has outperformed its $IBB peers (except for Moderna, which is an outlier) by a wide margin.
Eli Lilly has outperformed its $PPH peers by a wide margin.
The two companies are now ranked the No.1 weight in $IBB and $PPH respectively.
Trump won’t be banning Tiktok in the US, if there is a divestment or other sorts of legal structure change, as he indicated earlier this year. And he has set up an official account on TikTok.
Trump’s main argument is to create competition for Meta, which could be bad for the company (people’s time spent, ads dollar, and tech talents).
Back in 2021, Trump accounts were banned on Facebook and Instagram; the ban was later lifted in 2023 after 2 years, but with “new guardrails”.
Meta said to removed those restriction last week.
On the other side, besides the support for TikTok US, Republican is trying to acquire the stake in TikTok US. Steven Mnuchin is leading a potential buyer group. He served as US Treasury Secretary from 2017 to 2021 for Trump.
Liberty Strategic Capital, is led by Steven Mnuchin, and is invested by SoftBank, which holds a stake in ByteDance.
In short, Meta could be getting a permanent and potent/aggressive competitor in the US.
Earlier this year, Biden has signed a law that would ban Chinese-owned TikTok unless it is sold within a year. The deadline would be January 19, 2025, 1 day before the next US presidential term.
Plus, read this..
Politics matters I guess.
Uber Mobility had ~$70bn gross booking in 2023, and recorded $20bn revenue.
Drivers should earn ~70%, or $49bn, as Uber Mobility’s revenue margin is ~29%.
Based on drivers’ feedbacks, it seems that net earnings after expenses are roughly 2/3.
Then what self-driving can replace is 2/3 of that $49bn, or $32bn per year.
This doesn’t include UberEats (Delivery).
Uber had about $3.6bn operating cash flow in 2023; it made ~$2bn adj. EBITDA after SBC.
That $32bn net “savings” can lift Uber’s profitability by 10-fold.
What’s missing?
The additional insurance needed for self-driving as software can make mistakes?
The job losses around the world?
If can solve self-driving at night, it would be great! We human beings need to sleep.
I believe in good people.
Where is alpha = where are the good people? + Can they achieve their best with the right culture?
The second the part is equivalently important. Can companies keep their talents? And when two companies both have top talents, one may do better over the other in the long run.
Culture includes many things, like process, organizational structure, physical environment, incentives etc.
Overtime, a company with the best talents can decay.
Overtime, even a company didn’t start with the best people, it can develop their people, and attract the best people over time, if the culture is right.
Over the weekend, Mideo Real Estate announced a spin-off for its property developer business (PD&S) as a private enterprise; minority shareholders can receive HKD 5.9 per share in cash for each share of HK.3990.
The listed co traded at HKD 3.75 per share last Friday. So the cash payout is 57% more than the share price. The remaining listed co will focus on property management etc.
Is this applicable to many other developers and thus putting a floor?
I doubt it.
3990 is relatively small and controlling shareholder has over 80%. The max cash payout needed is ~1.6bn HKD, or $205mn – this is a small amount and can bed easily handled
Midea Group (a major electrical appliance manufacturer in China) itself is strong and cash-generating, with 33.7 billion rmb profit in 2023. The founder, He Xiangjian, has ~29.6% ownership of Midea Group.
Midea Group is paying over 20bn rmb in cash dividend in 2023. He Xiangjian can get ~6bn rmb, more than enough for the 1.6bn HKD payment calculated in above.
Even there is a price, that’s around 0.33x p/b.
And when 3990 stock was trading at HKD 3.75 per share, it’s at around 0.2x p/b,
This is hilarious.
Yes.. we hate biotech this much.
Anyone who bought biotech during covid is just speculative lol.
As 5-year return is 24%, annualized return is just 4.4%!
Buy US treasury instead!
Disclaimer: The above is for fun and should not be taken seriously. It is intended as sarcasm.