Notes From Sohn Hong Kong Investment Conference 2018

The 2018 Sohn Hong Kong Investment Conference recently took place benefiting the Karen Leung Foundation for gynecological cancer education, prevention, and support.  Fund managers presented investment ideas in a gathering that benefited charity.  Here's a quick summary with notes from the event.


Notes From Sohn Hong Kong Conference 2018

Eashwar Krishnan (Tybourne Capital):  Long: Line (LN).  Dominant messaging platform in Japan and several other countries.  Based on enterprise value (EV) to monthly active users (MAU), Line is the cheapest and most undervalued messaging app in the world.  On this metric, LN trades at $39 while Tencent trades at $207, Naver at $199, Facebook at $180, and Yahoo Japan at $101.  Median number (including others like Kakao, Weibo, Twitter etc) is $67. Sees potential to double your money in three years.  Company can try to take more 'time spent' from other apps and rollout revenue from more advertising, games, financial services and food delivery. Prior to founding Tybourne, he worked at Lone Pine Capital.


Rajesh Sachdeva (Flowering Tree Investment Management): Long: VP Bank (Vietnam Prosperity JSC Bank).  The country has a solid base for an economy and VP Bank is the cheapest bank in Asia yet has the highest returns on equity (ROE).  Largest consumer bank in Vietnam.  5 million customers, around 10% of the labor force of the country.  Has strong underwriting standards.  Thinks the stock can go up 4-5x over the next 3 years as long as there aren't huge economic hiccups.


Avinash Abraham (Torq Capital Management):  Long: Pacific Basin (2343.HK).  Dry shipping company in Hong Kong.  Minor bulks shipping and is "very undervalued."  Company recently became profitable again last year.  Thinks the 10 year bear market in dry bulk shipping is coming to a close.  Company has diversified exposure to products.


Kok Hoi Wong (APS Asset Management):  Short: JD.com (JD).  This has been a consensus long among many managers but argues that it's already priced for perfection.  Thinks impairment losses coming.  Company made bad investments (PaiPai and QQ Wanggou, Bitauto, Tuniu, Yihaodian).  Thinks a big impairment is possible from Yihaodian.  Management is "investing recklessly."  Says to be weary as company can't make a profit in highly competitive Chinese e-commerce market.  Business model is misunderstood. 


Benjamin Fuchs (BFAM Partners):  Long Tencent (700.HK) & Tencent Put Options.  Hedged trade that bets on one of the dominant companies in Asia but allows you to profit from a swing in the stock either direction.  Buy Spring 2019 puts to complement the long equity position. Profitable if shares go more than 15% in either direction


Soren Aandahl (Blue Orca Capital):  Short: Samsonite (1910.HK).  Has previously attacked the company with a recent short report and did so again at the event.  Shares have been halted.  CEO Ramesh Tainwala has been lying about resume & misrepresenting himself as a doctor, calls for his firing.  Company has audit red flags: third auditor in three years.  Pointed out accounting practices and corporate governance.  If you recognize the investor's name he was previously running Glaucus Research which put out a lot of short reports and recently launched an activist fund.


Seth Fischer (Oasis Management): Long Don Quijote Holdings Subsidiary Japan Asset Marketing (8922.JP).  Don Quijote is a retail chain based in Japan that's open 24 hours and sells all kinds of various goods from food to personal care to you name it.  Subsidiary JAM is its real estate segment.  Thinks the company is able to survive "Amazonification of the world" but has been mismanaged.  They've launched an activist campaign, have owned stock since 2017.  Proposed corporate restructuring   Sees 50% upside. Details on their proposal here.


Wesley Wong (Oxbow Capital Management): Long Guangzhou Baiyun Airport (SHA:600004).  Third largest airport in China and 14th largest in the world.  Sees 50% upside in the next year to year-and-a-half.  New terminal coming online will lead to increased number of passenger and rent from retail tenants.  Sees EBTIDA coming in around 20% higher than consensus.


Carl Huttenlocher (Myriad Asset Management): Long MSCI China 2025 Index.  Simple trade, thinks China will be the best global equity market for the next few years.  Chinese A-Shares being included in indexes now will be a catalyst.


Hermes Li (Aspex Management):  Long SJM Holdings (0880.HK).  Likes the casino company as it's poised to benefit from opening the new Lisboa Palace in the back-end of 2019.


Ben Melkman (Light Sky Macro): Thinks inflation in Japan is coming faster than people realize and will yield higher rates.  To bet on this there's two plays: spread trade for bearish exposure on 10-year Japan Commodity Clear House rate or buy banks that will benefit from increased interest rates.


For more investment conference coverage, we've previously posted notes from the Sohn New York Conference and also this week we just posted up notes from the London Value Investor Conference.

The China Hustle: Trailer & Documentary

The China Hustle is a recently released documentary from Academy Award winner Alex Gibney and Academy Award nominees Frank Marshall and Jed Rothstein and the producers of Enron: The Smartest Guys in the Room.  The China Hustle features the story of the wave of Chinese reverse mergers that swept the market a few years ago.

It details a play by play of the various frauds that took place and the short sellers involved in discovering and drawing attention to them.  Featured in the documentary are the likes of Jim Chanos of Kynikos Associates, Carson Block of Muddy Waters Research, Soren Aandahl of Glaucus Research and more.

The trailer is embedded below with a preview. 

The China Hustle Documentary Trailer



The documentary is out now.  You don't even have to go to a movie theater to watch it.  It's on demand via various platforms and you can get it on Amazon Video here for only $6.99.

Soren Aandahl Short ERSO: Invest For Kids Chicago Presentation

We're posting up notes from the Invest For Kids Chicago conference 2015.  Next up is Soren Aandahl of Glaucus Research who pitched short EROS.


Soren Aandahl's Invest For Kids Chicago Presentation

•    “Activist” short sellers.
•    Emerging markets focus.
•    Short EROS. The Company is a distributor of Bollywood movies.
•    Price has come down significantly (from $30), but thinks no one addressed core short thesis.
•    $0 price target for equity and debt.
•    Bull case/growth thesis is that they will leverage content library to be Netflix of India. 2015 – Said they could sell EROS Now at a $800MM valuation (10% stake). 
•    “30MM” new registered users supposedly. Higher than Savan and Hotstar, as well as YuppTV and Spuul with a couple million subs.
•    Think EROS actually has lower subs around a couple mm versus 30mm or higher. App annie, GT data, etc. point to smaller traffic as well as Google play. App activity is 90% lower than Savan and Hotstar.
•    Hotstar added 10MM users first 40 days and 43.7 app reviews. Erros claimed 13MM new subs in same time with only 203 app annie reviews.
•    Tried to back out and say the company has never claimed to be Netflix. Chairman says opposite in a CNBC review. Clip has been taken down.
•    Primary biz is to acquire and distribute Bollywood movies – and then amortized.
•    80% - 90% of Bollywood movie earned in the first few months, more aggressive than Hollywood. Only in theaters for 2/3 weeks, and then have already monetized other items due to piracy concerns.
•    Amortize movies year 1 at 40%-50% and then years 2-9 at 5%-7% versus via/other film operations at 80%-90% in year 1. Fails the matching principal.
•    Hides the cost of acquiring over later periods. Overstates operating profits.
•    EBIT margins for FY15 would go from 28% to -4% and gross margins from 45% to 16%.
•    Not a profitable biz. EROS cash flow consistently negative. Spends more money buying film rights versus FCF. Neg ev biz.
•    Will never be FCF positive.
•    Fabricating revenues, particularly overseas. Only 7% in India film industry rev generated outside of India. EROS says 39% is generated by India, 61% overseas, mainly from Dubai/UAE (37%).
•    80% of EROS gross box office movies are earning in India and 5% from Gulf States, yet this doesn’t match its revenues/UAE (37%).
•    Pulled statutory filings in Singapore/UK etc. Overseas subs not profitable.
•    You can back out India and other financials. In order for US financials to be true the biz ex India needs to have 77% gross margins and 56% EBIT margins.
•    Receivables have ballooned, DSOs global from 139 to 277, while India 95 to 135.
•    Suspicious payments to chairman’s family. 93.5MM in film rights from Netgen films owned by chairman’s sister. Only made 8 movies, combined budget 39MM and loss money. Distributor share gross (EROS) 16MM.
•    Chairman’s family are all executives.
•    2 CFO’s resigned last months, low quality auditor and off balance sheet liabilities.
•    Debt is trading at 50 cents, from par over the past 3 weeks. Only assets of value are the rights to some of the content library. Located in India, junior in Indian secured/unsecured creditors.
•    Worth $300 to $360MM.


Check out the rest of the presentations from Invest For Kids Chicago 2015.