Portfolio Review August 2020

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Bench marking myself against STI, HKSE and World Index:

For last month's portfolio review click here 

Year to date:

STI Index: -19.39%

HK Index: -6.89%

World Index: +1.85%

My Portfolio: -5.41%

Three years trailing:

STI Index: -18.04%

HK Index: -3.11%

World Index: +17.04%

My Portfolio: +11.89%

Year to date, I outperformed STI by 13.98% and HK by 1.48%, under performed the World Index by 7.26%%. Three years trailing, I outperformed STI by 29.93% and HK by 15%, under performed the World Index by 5.15%.

Portfolio composition:

Transactions:

Sold all of my Great Eastern(SGX:G07) at 19.42 for a small profit 

Bought Weimob(HK:2013) 4.83% weightage

Bought China Youzan(HK:8083) 3.69% weightage

Bought XD(HK:2400) 5.88% weightage

For more in depth detail refer to my portfolio tab here

Commentary:

Took some profit off the traditional insurance sector. Potential strain on the asset side of the balance sheet due to investment losses, low rates and market volatility is a possibility. Second, there might be direct claim costs tied to the pandemic - and that could come from heightened health insurance claims to cover hospitalizations for people who are infected by COVID-19, or life insurance claims for death. The non-life side for indirect losses such as from event cancellations, related to trade credit, business interruption, some for various liability exposures, among others. Long term moat might not be as strong as perceived, due to increased competition from fintech companies. I might be wrong, but just go with my intuition. GE is definitely still a value play worth revisiting.

Saas, mobile games and datacentres are holding up the market due to their accelerated adoption during the current pandemic. These sectors are quite unique as there is potential for continued growth post covid due to 5G global adoption and business cloudification initiative. 

XD(HK:2400) is a mobile gaming company in China that is trying to disrupt the cookie cutter ways of distributing games in china. They reject the way big companies promote their pay to win games by "bribing" the game review websites to push up their games.

They have a four years revenue CAGR of 38% and ebidta CAGR of 91.1%. Besides self developing and publishing highly rated mobile games(Ragnarok Mobile, Sausage Party), they have also developed TapTap which is considered the "Steam of China". TapTap embarked on the "zero share" approach with other game developers ie, the company does not receive any monetary gains from them. This equates to more demand from developers to use TapTap as a launch pad and more true reviews and traffic from gamers/users.

However, the monetization capability of the platform has not been manifested. So their profit driver from TapTap is currently still only from advertising.

Taking three advertising platforms as an example, in 2019, the current active user advertising value of TapTap was 25.67 yuan; a year-on-year increase of 30.6%; iQiyi was 13.56 yuan during the same period, a year-on-year decrease of 20.0%; station B was 6.28 yuan during the same period, a year-on-year increase 21.9%.

TapTap can achieve a relatively higher advertising value and growth rate for active users because of its relatively accurate user group positioning and high verticality. 

Weimob(HK:2013) and China Youzan(HK:8038) are retailing Saas/Paas companies within Tecent's WeChat ecosystem. Like Shopify, they are decentralized eCommerce meant to disrupt the likes of Amazon and Taobao(centralized eCommerce). A decentralized e shop gives a more direct relationship between business owners and their customers, the middle man is removed. Those who wish to build up their own brand and analytics would tend to choose a decentralized model ie a more even distribution of power. Would this kind of model ultimately be integrated with block chain technology? The potential is there, especially since Tecent has been pouring billions into blockchain tech recently link here.

Due to the underdeveloped nature of this sector we can use price/sales as a comparison to Shopify.

Youzan: 23.5x (4 years rev CAGR 101.71%)

Weimob: 16.5x (4 years rev CAGR 64.77%)

Shopify: 62.4x (4 years rev CAGR 32.6%)

Youzan is more similar to Shopify as its predominantly Saas subscription based(52%). Weimob uses precision advertising to keep themselves profitable while growing, so its Saas subscription percentage is much lower. 

Tecent has a 6.03% stake in Youzan and a 8.08% stake in Weimob. As both still rely heavily on WeChat ecosystem, there are risk involved. Shopify’s explosive Q2 results show how retailers have adapted to COVID-19 pandemic, by embracing cloudification and ecommerce. This might give us a hint on Youzan and Weimob performance.