Hedge Tencent, Sell JD.com and Other Ideas From Sohn H.K.
(Bloomberg) -- A hedged bet on tech giant Tencent Holdings Ltd., a bearish call on online retailer JD.com Inc. and an activist campaign on a Japanese company, were among ideas unveiled by hedge fund managers at the annual Sohn Hong Kong Investment Conference.
While the majority of the picks were stocks or markets benefiting from China’s growth, there were a few ideas that were off the beaten track. Flowering Tree Investment Management’s Rajesh Sachdeva, who made the top-performing investment call at last year’s conference, recommended a Vietnamese bank. Ben Melkman, a former Brevan Howard Asset Management partner who now runs hedge fund Light Sky Macro, suggested a rate trade in Japan that would benefit from faster inflation.
Benjamin Fuchs, founder of BFAM Partners (Hong Kong)
Fuchs pitched a Tencent Holdings Ltd. trade designed to profit whether the shares go up or down. It involves buying both Tencent shares and put options, which Fuchs said are mispricing the odds of a decline in the stock. The bet will pay off if Tencent swings more than 15 percent in either direction, and produce a major windfall if the shares lose more than 20 percent, he said. The position could deliver a 30 percent return on capital over the next six months, Fuchs added on the sidelines of the conference. Tencent’s shares have dropped 16 percent off a Jan. 23 peak as of Wednesday. It rebounded 0.8 percent as of 10:09 a.m. on Thursday.
Kok Hoi Wong, CIO of APS Asset Management Pte
Wong took down JD.com, accusing the company of making “regrettable and silly” investments, and warned about its inability to make a profit in a cut-throat Chinese arena. Wong drew laughs after saying the company’s billionaire founder Richard Liu hasn’t ever run a profitable company in his life, and said his own internal valuation for the $52 billion company was “a tiny figure.” JD.com shares fell 2 percent in U.S. trading.
Seth Fischer, CIO of Oasis Management
Fischer unveiled a new activist campaign in Japan, targeting a listed subsidiary of discount retailer Don Quijote Holdings Co. Its real-estate arm Japan Asset Marketing Co. should pay a dividend, install a “truly independent” board and introduce stock-based compensation for senior management, Fischer said. If the company doesn’t do that, it should privatize, Fischer said. Its shares have the potential to rise by about 50 percent, he said. Japan Asset Marketing surged as much as 15 percent in Japan before paring its gain to 6.5 percent.
Rajesh Sachdeva, CEO of Flowering Tree Investment Management
Sachdeva’s pick is Vietnam Prosperity JSC Bank, which offers investors “a Mercedes at the price of a Toyota.” VPB’s active customers account for a quarter of Vietnam’s urban workforce and, together with the nation’s solid economic fundamentals, VPB is Asia’s cheapest bank stock with the highest return on equity, he said. Sachdeva predicts the stock will rise four to five times over the next three years “if the world doesn’t come to an end.” The bank’s shares rose as much as 1.9 percent on Thursday.
Ben Melkman, founder of Light Sky Macro
Melkman, a macro specialist, said faster inflation in Japan will eventually lead to higher rates. One way to express this view is a spread trade to get a bearish exposure on the 10-year Japan Commodity Clearing House rate, he said. Alternatively, investors can buy shares of banks listed on the Topix index to benefit from rising rates, he said.
Avinash Abraham, CIO of Torq Capital Management
Abraham’s betting on minor dry bulk shipping, specifically Pacific Basin Shipping Ltd., which he calls “the Tencent of the space.” The $1.1 billion company returned to profitability last year and its stock has risen 15 percent in 2018. “We think the shares are very, very undervalued,” Abraham said, citing Pacific Basin’s diversified product exposure and his belief that minor dry bulk shipping’s 10-year-long bear market is coming to an end. Pacific Basin shares jumped 4.6 percent as of 10:49 a.m. in Hong Kong.
Eashwar Krishnan, managing partner of Tybourne Capital
Line Corp. shares may more than double in the next three years as Japan’s largest messaging service reaps more revenue from advertising, games and selling emoji-like stickers, according to Krishnan. Adding financial services and apps such as shopping and food delivery could generate a 60 percent internal rate of return in that time, he said. Line’s shares rose 1.9 percent.
Soren Aandahl, founder of Blue Orca Capital
Aandahl renewed his attack on branded luggage-maker Samsonite International SA that he unveiled last week. He reiterated concerns such as the company’s accounting and corporate governance, while calling into question the chief executive officer’s credibility after accusing him of fabricating his resume. He said CEO Ramesh Tainwala should leave the company, and that the valuation of Samsonite is not justified. Trading of Samsonite’s shares has been halted since May 28, a second suspension after Blue Orca’s allegations were made public.
Wesley Wong, CEO of Oxbow Capital
Shares of the owner of China’s third-largest airport, Guangzhou Baiyun International Airport Co., may climb 50 percent in the next 12-to-18 months as a new terminal increases passenger numbers and it makes more money from retail rents, Wong said. Wong predicts the airport will generate earnings before interest, tax, depreciation and amortization 20 percent higher than consensus estimates. The Shanghai-listed stock will also trade at a price-to-ebitda multiple of as much as 30 percent higher than now, he said. Guangzhou Baiyun rose 2.3 percent in Shanghai trading as of 10:30 a.m. on Thursday.
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