Tag: Investing

The memory shock to investing

The explosive rise in memory prices has profound impact.

One is in investing and valuation framework – you now have several memory names (like SK Hynix, Micron, SanDisk) that is trading at single-digit or 10x current year P/E with expected high earning growth into the future.

And these companies are large enough to absorb tons of capital.

The indirect impact? Other companies’ valuation now looks absurd!

The previously dirty cheap companies lose investors. For 10x P/E, you can buy memory names with much stronger growth!

If the only reason to long is undervalued, then it becomes harder to justify the buy.

Additionally, those companies with reasonable moat, single digit growth, 20-30x p/e also lose – 2-3x PEG looks absurd now.

This hits many consumer or healthcare names.

No delta, no acceleration in growth = no interest.

Focus on OPEX

While the last few years AI investments are correlated with companies’ capex, I think the next stage is to focus on opex.

As customers of LLMs and agents, how many tokens are consumed and what is the cost of that? That will show up in operating expenses.

This will be supportive evidence of strong revenue growth for companies like Anthropic etc., just like looking at Meta’s capex comments for Nvidia’s revenue growth.

The 5-year cycle in China investing

Every five years, China will have a new Politburo Standing Committee.

There are 7 members now, which are considered the most politically powerful people in China.

Not all members are new, some can stay for 2-3 term.

But the fight for becoming a new standing committee member can be quite intense.

There can be ripple effects across other areas in China.

Stock market can be quite sensitive to unknowns and turbulence.

To avoid uncertainties, it’s wise to stay away from it.

To compensate for staying on the sideline for about one year, the previous year can be quite a good year.

That seems to the case for the last 2 terms – 2017 and 2022 were the year of new committee selection. The “fight” could start in 2016 and 2021. Thus the “good” years were 2015 and 2020.

The next term is 2027. The “fight” could start in 2026 and 2025 was the good year. That seems to be the case so far.

 

PE multiple

PE multiple is not only a reflection of earnings quality, earnings growth/cagr, etc.

It’s also an encouragement or discouragement for value creation.

If $1 of profit is worth 10x in HK and 50x in A-share, companies could be more encouraged to create more value for A-share shareholders.

The same rationale also applies to upstream or downstream players – PE multiple can influence whether revenue or profit should sit more or less in supplier or customer etc.

Two support for US stocks

What gives you comfort in keeping US equity?

Trump put is not something everyone can accept.

Fed put is less certain if war keeps inflation high.

What else?

Buffett put – Berkshire’s massive cash position to support any big dip.

SpaceX/OpenAI IPO put – world’s wealthiest people/investors won’t let market close for their pay day.

Labubu adjusted P/E

In a previous post, I said unpredictability is what Pop Mart investors must shoulder, but is there any number that can make investors slightly more comfortable?

Let’s try Labubu adjusted P/E and we need Labubu adjusted earnings.

Labubu (The Monsters IP from Pop Mart) revenue was over 14 billion rmb in 2025.

The other “good” IPs were about 3 billion rmb revenue.

We can assume there is 10 billion “extra” revenue that Labubu is earnings.

We can also assume Pop Mart’s marginal operating profit margin is 50%. Then the “extra” operating profit is ~5 billion rmb.

Subtract that from 2025 operating income will give you about 12bn rmb in Labubu adjusted operating profit.

With 25% tax rate, Labubu adjusted earnings is about 9bn rmb.

At 150 HKD per share, Pop Mart is at ~20x Labubu adjusted P/E.

Unpredictability is what Pop Mart investors must shoulder

Pop Mart stock plunged after earnings – down 23% on Wednesday and down 10% on Thursday.

Pop Mart’s forecast of 20% or so rev growth in 2026 is lower than what is expected and is a sharp decline after 185% growth in revenue in 2025.

Labubu is still one of the hottest fashion toy IP worldwide with no competitors I think.

However, investors can’t reliably forecast future rev and thus cash flows of Pop Mart as nobody knows whether Labubu can sustain its mojo / for how long and how far.

Unpredictability is usually a negative thing, but people disregarded it as a risk when Labubu was in rapid growth mode. The “upside” unpredictability blinds investors – they liked it actually.

Now if you really want to be an investor in Pop Mart, you need to be comfortable with this inherent unpredictability.

One way to think about this is that Pop Mart is ultimately a very good channel like Tencent. Whatever it incubates and sells, its stores will sell them well. Pop Mart stores are the product of Pop Mart, alongside the IPs like Labubu.

However, to say Pop Mart stores is like WeChat is too much a compliment for Pop Mart so far. Network effect that is so strong and unique that WeChat really doesn’t have a competitor.

Stopping disclosure is a sure pressure in near term

Tencent Music $TME will no longer report the operating metrics on a quarterly basis such as Monthly Active Users (MAU) for online music services and Number of Paying Users for online music, starting from next quarter.

The stock dropped 24.65% in a day, with other concerns like more competition from ByteDance’s Soda Music.

It’s almost a sure thing that stopping disclosure on key operating metrics will make stock price under pressure.

A very similar case is Netflix in 2024.

In April 2024, Netflix announced it would stop reporting quarterly membership numbers and Average Revenue per Member (ARM) starting in 2025.

Netflix shares fell ~8% the day after the Q1 2024 report.

Here is the last report on these operating metrics.

 

The company argued that subscriber count is no longer the best indicator of health due to new revenue streams like advertising and “extra member” fees.

Netflix still discusses those in shareholder letters and gives financial guidance, like this for 4q25 earnings.

While $TME gave similar explanations, it didn’t give investors 4 quarters to adapt.

As advertising and other IP related offerings scale, and as we offer multi-tiered membership for online music subscriptions, the business impact of each paid membership varies. As a result, we are increasingly focused on revenue and profit as our primary performance indicators.

Given this evolution, starting from next quarter, we will discontinue the disclosure of certain quarterly operating metrics, including online music MAU, paying users and ARPPU.

We will instead report the number of total paying users across our music services annually, as of year-end.

– 4q25 TME earnings release

 

Nongfu vs. PopMart

Nongfu is ~25x 2026 P/E with ~13% 2027 EPS growth

PopMart is ~15x 2026 P/E with 27% 2027 EPS growth

Nongfu enjoys almost 4 times PEG vs. PopMart.

PopMart sounds like fashion – however, I see no real competitor in its space.

Nongfu sounds like a staple that can only grow – however, I see more competition here than what investors may assume.

Nio finally looks to make some money, so what?

How much losses has Nio made over the past few years?

Over 80 billion rmb, from 2020 to 2025.

In the worst years, Nio lost over 20 billion rmb per year.

Meanwhile, investors are finally seeing the light at the end of the tunnel – Nio made 0.5bn rmb in operating profit in 4q25, thanks to rising sales of large premium SUVs, which carries higher gross profit margin.

You need to take it with a grain of salt though.

1/ Fourth quarter is usually a good quarter

Indeed, Nio only guided non-gaap breakeven for full-year 2026.

Well, at least it’s not accumulating more losses.

2/ Peers like Li Auto, which was profitable before, made losses again in 3q25 

It’s the nature of auto industry to be cyclical, due to product cycles etc.

3/ Leaders like Tesla is already making money other than selling cars

If selling EVs is such a good business, Tesla should do more, rather than “diversifying” into FSD, energy storage etc.