Author: Derek Higa

Derek Higa is a senior equity analyst and a lead for the APAC region and the Consumer Cyclical sector. He serves on the Global Focus List Committee, which approves all equity recommendations for developed, emerging, and frontier markets, and compiles Asia Watch, a weekly recap of regional investing news. Since joining William O’Neil + Company in 2005, he has lent his market expertise to alpha capture, product development, and historical studies on outperforming stocks. Derek graduated summa cum laude from California State University Los Angeles with a B.S. in Finance and Information Systems. He holds a Series 65 securities license.

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia Index is at multi-year highs. We remain bullish as it is trading above the 21-DMA. Follow a selective approach and gradually allocate capital to stocks breaking out of sound bases.
  • All 13 markets are in a Confirmed Uptrend. The average number of distribution days is 2.9 and remains in a declining trend as distribution days expire.
  • We are seeing rotation to value-oriented sectors like Financial, Consumer Cyclical, and Capital Equipment out of long-term leading sectors like Health Care, Retail, and Technology. Refer to page 4 for a Sector Rotation Chart.
  • The number of stocks breaking out has increased in these sectors, as shown in the chart on page 2. This is also backed by improving median RS and A/D Ratings for these sectors over the past four weeks. We believe it is still early in the reversion trade to value from growth and we are unsure how long this trend will last.

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia ex Japan rose to two-year highs this week following the conclusion of the U.S. elections. We recommend that investors gradually allocate capital while remaining selective of ideas breaking out of sound bases with rising relative strength.
  • All 13 markets are in a Confirmed Uptrend after we shifted 11 markets to a Confirmed Uptrend since last Wednesday. The average number of distribution days has also declined significantly to 3.1 from 4.1 last week.
  • Value stocks have rallied sharply following the COVID-19 vaccine development on Monday. We believe it is still early in a mean reversion play as outperformance in the growth index is still 26ppt above the value index. Leading growth stocks are under pressure but have yet to break support. Refer to page 7 for an index comparison.
  • Refer to pages 8 and 9 for stocks outperforming this week.
  • See our note on China’s regulation on big tech here.
  • Stocks in the Financial and Energy sectors are leading in the short term, while those in Health Care, Retail, and Technology are lagging. Refer to page 3 for stocks from these sectors.
  • Highlighted Focus List idea: Tokyo Electron (RG@N.JP). Refer to page 6 for an annotated chart.

China Internet Plays

Posted on by Derek Higa

Key points from the report:

 

  • Chinese internet plays have sold off aggressively this week. China’s antitrust regulator has drafted new guidelines around monopolistic practices.
  • We explore the potential impact on Chinese internet plays in this report. We also highlight the key technical levels to monitor for affected stocks.
  • Names discussed in the report include Alibaba, JD.com, Meituan Dianping, Tencent, and Xiaomi. Please contact the team if you would like to discuss in more detail.

The Trade Desk

Posted on by Derek Higa

Key points from this report:

 

  • Historically extended, expect consolidation near term. Shares are up +20% intraday and are ~40% above their 50-DMA. We recommend that investors hold positions and wait for shares to consolidate sideways in the near term. Intraday, the stock is trading more than 100% extended from its 40-WMA. This is the most extended since 2018. Look for consolidation to occur in the near term and wait for moving averages to catch up before adding to positions. We continue to believe the company has high-growth opportunities in programmatic driven by CTV viewership, market share gains, the biggest product upgrade scheduled in 2021, and international expansion.
  • Stellar fundamental profile: Composite Rating of 95, SMR Rating of A, and EPS Rank of 97. It has consistently beat EPS estimates since Q1 2017.
  • Solid technical ratings: RS line in an uptrend, RS Rating of 97, A/D Rating of B. Industry Group Rank improved to 11 from 25, eight weeks ago.
  • Funds holding shares increased 43% y/y to 842 as of September.

Match Group

Posted on by Derek Higa

Key points:

 

  • Add to positions here as the stock breaks out from a stage-one consolidation base. The company reported Q3 results yesterday after market close. Revenue and adjusted EBITDA were above estimates, driven by non-Tinder revenue growth. Tinder net subscriber addition was ~400K q/q, compared with consensus of ~300K q/q. Q4 guidance was above estimates.
  • Between FY17 and FY19, revenue and EPS had a CAGR of 24.2% and 36.6%, respectively.
  • MTCH has classified its IAC business as discontinued operations, but historical EPS includes IAC, leading to a mediocre EPS Rank of 66.
  • Good technical ratings: RS Rating of 92 and A/D Rating of B+.
  • Institutional sponsorship increased to 1,199 funds (+23% q/q; +94% y/y) in September.

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia ex-Japan index broke out to new 52-week highs and is 1% below January 2018 highs. We recommend a patient approach as we continue to expect markets to remain volatile given U.S. elections, emerging COVID lockdowns, and a Fed meeting this week.
  • Two of 13 markets are in a Confirmed Uptrend (India and New Zealand), eight are in an Uptrend Under Pressure, and Indonesia, Thailand, and Singapore are in a Rally Attempt. The average number of distribution days rose to 4.1, compared with 3.4 last week. Distribution is at elevated levels.
  • The year-to-date performance spread between the MSCI Asia Pacific growth and value indices has widened. Over the last six months, value stocks have underperformed, with RS Ratings deteriorating more in stocks with high EPS Rank.
  • From May to August, strength within growth stocks has broadened to stocks with low EPS Ranks. This strength has remained stable since then. Median EPS estimates suggest stronger growth is expected in FY21 for stocks with EPS Rank of less than 60. This improvement in FY21 EPS might explain the strong improvement in RS Rating. Refer to page 7 and 8 for stocks near pivot and extended growth stocks.
  • Highlighted idea: Chailease (CLI.TW; 5871 TT).
  • Refer to page 9 for actionable Focus List ideas.

CoStar Group

Posted on by Derek Higa
  • We are reiterating our buy call on CoStar Group as shares break out of a 10-week double bottom base on good volume. Large underpenetrated addressable market for Apartments.com and Loopnet, strong traction seen after Ten-X acquisition, and international expansion are the key growth drivers.
  • Q3 results were ahead of expectations: CoStar reported EPS of $2.26 (-13% y/y) and revenue of $426M (+21% y/y), 9% and 2% ahead of street estimates, respectively.
  • Fundamental ratings: Composite Rating of 92, SMR Rating of A, and EPS Rank of 86.
  • Technical ratings: RS line is trending up, with an RS Rating of 87 and A/D Rating of B.

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia index remains in a consolidation. We expect volatility to increase ahead of the U.S. elections and as COVID cases rise globally. However, we remain mostly positive if the index consolidates above the 50-DMA.
  • Five of 13 markets are in a Confirmed Uptrend, five are in an Uptrend Under Pressure, and three are in a Rally Attempt. The average number of distribution days decreased to 3.6 from 3.7 last week.
  • We are seeing rotation out of the Health Care and Consumer Staple sectors. Refer to page 8 for a Sector Rotation Graph.
  • The Retail and Consumer Cyclical sectors are leading in the short to mid-term. Refer to page 9 for stocks near pivot from these sectors.
  • Highlighted Focus List ideas: Zhongsheng (ZSG.HK) and Poya International (POY.TW). Refer to pages 5 and 7 for annotated charts, respectively.
  • Refer to page 10 for Actionable Focus List ideas

Digital Subscription

Posted on by Derek Higa

Key points from this report:

 

  • Popularized by Amazon Prime, digital subscription services are becoming a normal part of our daily lives.
  • Subscription currently amounts to 5% of average annual expenditure of U.S. households. There is a limit on how much household income could be spent on discretionary subscription categories. However, we believe more can be allocated to subscription from non-discretionary such as food and transportation.
  • ARPU declined across most subscription services in the last three years.
  • Broadband, dating, and video streaming apps are the exception to this. Much of this decline is attributed to price competition to acquire market share.
  • Subscribers are growing across all services except pay TV. Over the next three years, video and music streaming subscribers are expected to grow 33% and 66%, respectively.
  • Approximately 21% of households with broadband have only pay TV, compared with 20% with only OTT. We expect a significant increase in households with only OTT services in the coming years as cord-cutting accelerates.
  • We estimate the average customer bill for pay TV is approximately $77 per month while broadband and OTT subscription costs around $57 and $13, respectively. Therefore, we believe this leaves more room for OTT ARPU to rise.
  • We expect music streaming ARPU to remain low in the mid-term as companies try to acquire paid users through promotions. In the longer term, subscription revenue will be supplemented by ad revenue as companies try to monetize various content, including podcasts.
  • We expect more bundled services to be introduced in the future to keep subscribers engaged and to contribute to a rise in ARPU.
  • Update on Focus List ideas:
    • Netflix (NFLX), Chegg (CHGG) – Hold positions, both are consolidating after Q3 results.
    • Charter (CHTR) – Add to positions above $618. It reports Q3 results on October 30.
    • Match (MTCH) – Add to positions above $123 pivot. It reports Q3 results on November 4.

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia is consolidating as the moving averages catch up. Over recent weeks, we have shifted or upgraded four markets to a Confirmed Uptrend while distribution days have declined.
  • Five of 13 markets are in a Confirmed Uptrend, five are in an Uptrend Under Pressure, two are in a Rally Attempt, and one is in a Downtrend.
  • Australia and New Zealand are the leading developed markets over the trailing month. Refer to page 6 for a one-month price comparison chart of APAC markets. Refer to pages 7 and 8 for an annotated chart of the ASX All Ordinaries index and the NZX All Ordinaries index.
  • Retail and Technology stocks are leading in Australia. Refer to page 12 for stocks from these sectors with strong O’Neil Ratings and Rankings.
  • New Zealand is a relatively small market. Notable stocks include Fisher & Paykel Healthcare (FPHZ.NZ), Ebos Group (EBOZ.NZ), Mainfreight (MAIN.NZ), and Infratil (IFTZ.NZ).
  • Highlighted Focus List ideas: Afterpay (APT.AU), Kogan Com (KGN.AU), and Pushpay Holdings (PAYZ.NZ). Refer to pages 9-11 for annotated charts.