Tag: Investing

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.

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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!

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Disclaimer: The above is for fun and should not be taken seriously. It is intended as sarcasm.

Before getting into financials, some may ask the question of “why bother”?

My thoughts below:

 

1/ These companies are customers of other global companies. 

e.g. gaming companies or PDD shall purchase ads on Meta & Google

e.g. internet companies shall purchase general server chips like Intel, AMD.

 

2/ These companies serve a market that US firms are not directly serving

Debatable. But the current reality is that Chinese internet space is mostly Chinese companies.

 

3/ Sanctions?

I view it less likely than before. US and China are trying to stablize ties.

It’s hard to have direct monetary impacts as they mostly serve the domestic market. What to gain from more sanctions?

Some companies are very careful overseas and do comply with local laws, e.g. Tencent’s subsidiary Supercell did pull out of Russia market.

 

4/ Domestic regulations?

Less likely in the near-term. Most previous restrictions are no longer there. Didi back to app stores, some after-school education is back, draft on more game regulation is stopped.

Weak macro protects these companies. Less disruption is good.

 

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Plus, they do have growth, have become leaner, and are not expensive.

To me, that’s “not buying a home in Shenzhen”.

How much did I gain? almost as much as $1mn.

Well, if I bought a 10-20mn rmb home in 2021, with 30-50% down payment, which was the plan, I would have invested 3-10mn rmb.

Over the past 3 years, I could have lost 3-6mn rmb or 60-100% of the equity value, assuming home prices dropped by 30%. In fact, I have seen examples of home price dropped by 66% in 2024 compared with 2021.

This doesn’t include the interest expenses, brokerage fees, and opportunity costs which can be at 2.5% deposit rate times 3 years for rmb.

What surprised me in 2021?

The low rental yield surprised me at first – easily 1%.

The place I got in 2021 shall cost 10mn rmb to purchase, but renting costs 11k rmb / month, which was 1.3% rental yield.

Then I realized housing price in SZ is comparable to some of the most expensive cities in the world. (ASP in certain part of SZ can be easily 150k+ rmb per sqm, which is equivalent to $2.1k  / sqft)

$2k / sqft is insane.

Even someone assumes (subtract) the savings on insurance, tax, etc., (say 2-3% a year) – the price is high ($1k / sqft).

The simplified math works like this – take a $1mn home as an example, assuming a 2.5% discount rate, and assuming the cost of owning is 2.5% per year, the savings on cost of owning is $1mn.

Therefore, you could cut the China’s listing price by half and compare. But still expensive. This also assumes that you don’t pay property tax in China – which is true is most cities and especially for your first home or smaller homes.

Note that if US raises interest rate, that value of this “saving” can be immediately cut – e.g. cut by 50% if discount rate increases to 5%. See below.

Home price to income level is also concerning. I am sure there are many rich business owners in SZ, but wages are not that high. High-paying jobs are not common, and SZ was not as resilient as other cities in earning wages.

Big companies like Tencent, Vanke shall face pressure in the coming years. [Gaming was called spiritual opium in 2021, and Vanke is a residential real estate developer] Cross-border e-commerce was hot, but competition quickly rose (especially from TEMU), plus global consumption dropped as Ukraine war broke out and Fed increased interest rate.

SZ also have strict requirement to purchase homes. You need to have 3 years of social insurance payment to purchase a “residential property”. You could purchase an “apartment”, which doesn’t need social insurance requirement but that can drop even more in prices due to oversupply.

[“residential property” and “apartment” are two different types of property that are treated differently in property rights, in taxes, in education resources, in electricity costs, etc.; rental price could be the similar, but “residential property” are more expensive to purchase]

There seems to be a more diverse purposes of stock prices theses days.

And trading prices are really interesting political/geopolitical storytellers.

Here are some recent examples:

1/ $DJT: This is obvious as the name of the company indicated. The financial obligation that Trump is facing also makes the market cap important.

 

2/ $META: This is partially an indicator of TikTok ban sentiment/probability I feel.

 

3/ $INTC: Bringing back high-end semi mfg to the US.

 

One could argue that the prices are moving based on narratives, rather than earnings; however, it’s true that different policies could change companies’ fundamentals in a big way.