China Golden Week – All That Glitters Is .com

Dear All,

I have shortlisted some China based online services company which are likely to benefit from the Chinese festive period (Golden Week in Oct , New Year in Jan and CNY in Feb, i.e. Q3 & Q4 2015 earnings.

CTRIP US

WUBA US

Background

· The massive e commerce is a boon for online services/retailers/logistics/payment solutions companies alike

· The increase internet penetration in China has resulted in strong and sustainable growth for online services website from 10.52% in 2006 to 45.8% in 2012*

· The increase in affluence and urbanization of China is also likely to increase the demand for outbound travel* and domestic travel

· China Outbound Tourism Research Institute estimated an increase from 24.95mil outbound in 2013 to 32.4mil in Jun 2015, a staggering 30% increase in 2 years.

· Top E commerce spending Nations i.e. Germany, UK, France and China are the top countries for cross borders e-commerce

· Historically, statistics have shown that Q3 & Q4 is typically the strongest quarter(revenue) of the year for these companies.

· Recent volatility may prove to be a good entry point for accumulation, in time for Q3 earnings for CTRIP (25 Nov) & WUBA (11 Nov).

Equity solutions

· From a technical perspective, they are bouncing off their medium term lower boundary channel which might prove to be good levels for accumulation ahead of the Q3 earnings .

· Technically though both seem to have found a bottom, slightly stronger conviction on WUBA purely based on technical observations.

· CTRIP is likely to consolidate between $68 – $73 and a bullish breakout above $74 might be key to a stronger rally. Consider Accumulation @ $67.50 – $68.50

· WUBA is staging a bullish breakout with minor resistance near $53.70 (200days EMA) followed by support turned resistance nearer $60 (25% upside from current price of $48.65) Consider Accumulation @ $47.20 – $48.50.

· Note: Liquidity might be a slight concern for WUBA as average 5 days trading volume is around 1.2mil shares (about 60mil USD worth). Therefore might be good to VWAP over a period or slice the intended trades up into several tranches.

 

Source: Original Posting 13th Oct SeekingAlpha