Asia/Europe - 03/25/11

Bilibala Finance’s 7 Top Holding by Region: (with net present value in 1 year) Asia / Europe (46.4% of asset mix) 1. China Mobile (0941/CHL) HK$101.2 STRONG BUY 2. China Life (2628/LFC) HK$43.3 => HK$41.5 STRONG BUY 3. China Construction Bank (0939) HK$9.0 BUY 4. Total SA (TOT) US$61.6 HOLD 5. Siu On Land (0272) HK$6.7 STRONG BUY (pending to update) 6. HSBC Holding (0005/HBC) US$67.3 BUY (pending to update) 7. IFSE A50 China Fund (2823) HK$22.4 STRONG BUY · Mar 11 major transactions: add Honda Motor (HMC) US$36.93; add MTR (0066) HK$29.1; add China Resource Power (0836) HK$13.0 · China Life 2010 earnings up 2.3% to RM$1.19 meet expectation. However, as I kept mentioned, earnings is irrelevant to the valuation of an insurance co. Let’s read those meaningful data · Analysts concerns about loss ratio, let’s look at it 1st, it up 1.5% to 88.5% (mainly because of addition reserve on higher premium) to me, it looks reasonable. Combine ratio up 0.6% to 108.8% (which means every dollar of premium China Life received, it loss about 8.8 cents if excluding investment). Premium earned up 15.6% to RM$318B while value of business up 22.5%, looks great with strong growth. Sales to VNB up by 3.2% to 16.2 times, VNB up slightly slower than premium growth · Future sales growth continue looks great, as interest rate continue to go up while equity market is recovering and should back to peak in 10 years, China Life is in nice growing pace · Embedded value up 4.9% to RM$10.6 & based on all estimation & assumption, I will calculate China Life’s value at 4.05 times of its embedded value & discounted by 25.3% (instead of 21.6% previously) to come up with Bilibala’s new NPV of HK$41.5. · Japan Economy: Japan 1q11 GDP for sure will be hurt by the earthquake & the fall of the national electricity capacities, but most of the analysts think it will pick up in 3q & 4q (Bilibala think it will pick up even earlier than that) · Japan government estimate the damage will be US$0.3T and death may end up close to 30,000. · Bilibala believes in Keynesian Economic Theory, the damage may help Japan to have more meaningful & useful construction development. Given the following fact: 1. Japan’s debt will top 213% of total GDP (after counting the damage, the highest among G7), however, its net debt is only 120% (similar or bit lesser than the PIIGS), 94% of all debts are holding within Japan (means the government do not have interest rising pressure from foreign investors nor force to cut expenditures). 2. Also, Japan’s citizens are rich, having US$14T saving, while there are only US$7T government debt. Meaning Japan still have room to borrow from its nation to spend in order to boost up economy 3. In normal time, Japan can’t change much, where’s now, I hope the government will be able to try something “new”, instead of holding the money supply tie to control inflation, it should let inflation grow a bit to stimulate consumption and economic activities · Corporation like Automotive Toyota, Honda, Nissan etc, lol, you may think they are in big trouble cuz few of their plants have been damaged badly. Production line stopped till end of march, may affect global auto sales. But is it really bad for Japanese auto makers? Think again!! 1. insurance will compensate all the damage in the plants 2. parts can be produced in all other unaffected plants around the world 3. while lots of cars are total loss, people have to buy brand new cars in the coming 2-3 years, and they will most likely buy their own nation’s cars · I will talk about the impact to China economy later. # Bilibala personally uses fair value @ 2016 to do all investment, however, I think for most small investors, net present value @ 2011 (fair value multiply by discount factor), would be more relevant. · STRONG BUY with NPV over MV above 30% · BUY btw 15% to 30% · HOLD btw (15%) to 15% · RE-RE-RECONSIDER below (15%)

Top holding in Asia/Europe 11/01/10

1. China Mobile (0941/CHL)
2. China Life (2628/LFC)
3. China Construction Bank (0939)
4. Shiu On Land (0272)
5. HSBC (0005/HBC)

• China Life: premium up 23% vs 3q09, total assets up 4.0% vs 2q10 while equity up 7.7% vs 2q10, as Shang Hang A stock break through 3k pt & interest rate up 25 bps, I think China Life will continue to increase shareholders equity value in 4q10 and so on, regardless of how much the reported net income is. In terms of stock value, I think today’s price is quite reasonable, not in big sales.
• China Construction Bank: results look awesome!! I still haven’t completed the trend analysis, will let all u know. It rise 13% from the day I came back to Canada, price over book rise to 2.43 and estimate price over earning rise to 10.1. um…………..still look reasonable but not in big sales.
• Bilibala will sold BYD Ltd. (not a wise decision to invest at 1st place, not cuz it is not good, but cuz I am not that familiar about the company plus I am worry commodity & labour cost will rise at least 10% per year which will hurt BYD’s earning) & invest more Shiu On Land today.

Shares of Toyota fall on suspend

Shares of Toyota Motor Co., along with parts makers and retailers with exposure to the Japanese auto maker, dropped after the company suspended sales of eight models in the U.S. and Canada in response to growing concerns about sticky accelerator pedals.

=> Bilibala think this will only have short term impact to sales and profit and don't think it will harm the brand name too seriously, assume this only last for 1 week.

The halt—which includes the Camry and Corolla sedans, two of the biggest sellers in North America—follows two major safety recalls in the last five months over sudden unintended acceleration concerns. The first recall, the company's biggest ever, at 4.2 million vehicles, was caused by improperly installed floor mats, according to Toyota. It recalled an additional 2.3 million vehicles, though most of the vehicles in the second recall, about 1.7 million, were part of the earlier action.

Toyota shares were recently down 7.6%.
Toyota said it will stop producing the affected vehicles at several North American plants for one week starting Feb. 1.

The news weighed on American depositary shares of Toyota, which were recently down 7.6% to $80.19. Fellow Japanese auto maker Honda Motor Co. Ltd. slid 1.6% to $33.95, though analysts said the company could benefit from Toyota's problems.

Toyota, which last year surpassed General Motors Co. to become the world's largest auto maker by sales, has long been viewed as a leader in automotive quality, and the sales halt raises some concerns about whether the auto company has sacrificed quality in its quest to capture global market share.

"We believe the company's once pristine 'quality' reputation is tarnished and will likely result in market share loss over next one to two years," Buckingham Research analyst Joseph C. Amaturo said in a note. "Historically, quality issues have had a profound impact on sales, especially when incidents resulted in media-publicized personal fatality."

Wall Street Strategies analyst David Silver said the impact on Toyota depends on how long the sales are halted. The eight models represented 57% of Toyota's 2009 U.S. sales.
"If it's a week [halt], then we'll see muted impact for the whole year," Silver said. "But even if this lasts two days, January sales are going to be down dramatically."

He said that could be good news for Ford Motor Co. and other auto makers as consumers wanting to buy cars look at their offerings. Ford shares recently gained 1.9% to $11.40.
"If someone was going to buy a Corolla or a Camry, if they need the car now, they're not going to wait," Silver said. "If they're not set on a Camry, they might go look at the other auto makers. It brings in more competition."

Auto parts makers declined on the news, with Buckingham's Amaturo noting the companies will likely be hurt by near-term production halts, as well as longer-term market share loss.
CTS Corp., which supplies the part believed to have caused the problem for Toyotas, fell 7.2% to $8.01. Gentex Corp., which Amaturo said derives about 13% of its sales from Toyota, slipped 13 cents to $17.30, while BorgWarner Inc. declined 3.1% to $35.10. Autoliv Inc. slid 1.2% to $41.02.
Meanwhile, auto retailers with significant Toyota/Lexus exposure also dropped, includingGroup 1 Automotive Inc., which fell 7.6% to $29.07, and Penske Automotive Group Inc., which lost 4.4% to $14.18. AutoNation Inc. slipped 2.2% to $18.14.

Analysts said nearly 40% of Group 1's new units are from Toyota, while about 20% of Penske's cars are from the Japanese auto maker. Amaturo said the companies' service and parts businesses could benefit from the recall, though long-term negatives will likely outweigh short-term benefits.

Wells Fargo Securities analyst Matt Nemer estimates that each week of suspended sales leads to a loss of about $850,000 to $1.5 million in gross profit and a loss of 1 cent to 2 cents in earnings a week for the public dealers. He said new vehicle sales generate about 30% of gross profit.
"However, the impact of new vehicle sales to the bottom line is likely lower given the high expense of running the business including sales commissions, advertising and inventory financing," Mr. Nemer noted, adding that the sales stoppage also affects used vehicles for the models.

He said he would encourage long-term investors to add to positions on any severe weakness as checks indicate the issue could be resolved relatively quickly and service and parts revenue related to the recalls "creates a significant opportunity, which potentially overshadows a few weeks of lost unit sales."