2024 Week 24
China - a deflating balloon or a bursting balloon?
My last trip to Hong Kong help to solidify the thoughts that HK is most likely not dying?
My recent trip to Hong Kong - Shenzhen - Beijing only solidifies my thoughts that there may be something fundamentally broken in China?
It starts with large huge uncollectible receivables.
Receivable days in China for b2b are usually very long. If you deal with the big boys like Huawei and Xiaomi, expect a receivable days of > a year. But if you deal with the government or SOE, it may be > 6 months.
During this trip, I have heard of horror stories where the provincial government have basically stopped paying their suppliers while continuing to demand services from these very companies. The negotiation tactics are like, we are not going to pay you for your past services but if you continue to service us we may just pay you - for your future services...
For those dealing with “reputable” state owned enterprise (SOE), expect receivable days to balloon from 6 months to a year or more.
As for the banking system, I know of one software vendor who need to write off their receivables as they cannot get their “reputable” bank customers to pay them. The software vendor I talked to provide core banking services…
I wonder what will happen if the software vendor pulled the plugs on these banks. The ensuing chaos would be unimaginable. My guess is that the software vendor is in as much of a bind as the banks as they cannot be seen as creating chaos - disrupting the banking system.
The whole economy is suffocating under a lack of cash. Everyone seems to be owed money and every source ultimately point towards the provincial government. The biggest spender has simply stopped spending.
The only answer is that everyone expects the central government to step in and provide some help.
My question is what if the central government chooses not to step in or if the help came in too late or came in too little?
YesAsia - More luck than smart
I spoke about YesAsia and the potential arbitrage of HK companies who speak Cantonese in week 16.
I would not have guessed that YesAsia would have become a 3.8 bagger (from HKD 0.75 to HKD 2.85) in a span of 3 months. From its trough (HKD 0.44) to its peak (HKD 4.86), it is a 10 bagger in a year.
I am not so smart to have bought it at its trough and not so smart to have sold it at its peak, but it has been a profitable exercise.
So what has transpired these moves?
My guess is that someone is trying to make a play for the company and it is likely a big Korean cosmetic brand who wants YesAsia’s digital channel distribution in the US and Europe.
No matter the reasons, it is always wise to get out when the valuation is far removed from the current realities of the business.
FAR Limited - Still far from a complete sale?
I wrote about Far Limited on week 22.
Now, they have further announced that that the contingent payments are coming and the share price has barely budged.
If the situation is conducive, we should be expecting FAR to be marketing the block out for early monetisation.
Expect to get some money back soon!
Aerovate Therapeutics Inc - Aero-elevate to Aero-depreciate
I have been dwelling into therapeutic medicine for some time.
I am not medically trained and could hardly read and understand any medical finding with any speed and precision. But this space is intellectually stimulating and fun to research on.
Looking at the chart, it seems that fun and profitability usually do not mix. The binary nature of drugs development meant that a single announcement could decimate a company’s prospects.
Looks like it is best to stick with the HK market where stocks are less well researched and there could be an clear edge.