Technology

China Internet Report 2019

taovalue Business, China, Technology , , ,

I want to share a great overview study of China tech industry landscape of 2019 by South China Morning Post & Abacus. I think the advanced AI usage by Chinese tech companies are highly under-appreciated by the outside world.

This study has many live evidences of what Kai-Fu Lee wrote/predicted in his latest book “AI Superpowers: China, Silicon Valley, and the New World Order” which I recently just finished. Highly recommended and will try to do a review later.

Another interesting trend particularly interests me is the integration of live streaming and shopping. I think this model (temporarily dubbed it as “QVC on steroid” for the sake of western world readers’ familiarity) has huge potential and I plan to study it more.

PDF can be downloaded:Download

YY – an Under-Followed Chinese TMT Play with Margin of Safety

taovalue China, Investing, Technology , , , , , , , ,

YY is a Chinese video live streaming + social networking business with two main operational segments, YY Live (the general entertainment content streaming, a loose equivalent of Periscope) and Huya (Gaming content streaming, an equivalent of Twitch). Its share has risen 135% YTD and valuation moved from a dirt cheap 11 trailing P/E by 2016 to a less cheap trailing 16 P/E (still cheap compared to other Chinese Tech peers), so why I am still interested in this name?

In short, a debt-free cash-gushing main business poised to take more market share as the general entertainment streaming market start to mature and consolidate, plus a fast growing gaming/e-sports streaming platform close to turn profitable and filing IPO in a favorable secular tailwind should warrant a market average valuation.  In addition, I noticed both platforms achieved market leading positions without promotion and successfully fended off competitors who tried to copy their business model. Add to it, YY has a deep-thinking founder-CEO with some track records of continuous innovation in fast changing market environment. All in all, this is something I think should be priced at a premium to market. My neutral assumption based valuation shows there still could be 29% upside, and a conservative assumption based valuation shows 0% downside. (optimistic assumption indicates 90% upside, but I don’t have to count on it)

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Thoughts on Echelon Corp. [ELON]

taovalue Investing, Technology, Turnaround Theme , , , , , , , , , , , , ,

Company Overview and History

Echelon was founded in 1988 by Clifford “Mike” Markkula Jr., who also has served as CEO of Apple in its early days. For years, the company operated in two divisions: Internet of Thing (IoT) and Grid. Both sides suffered operational difficulties and wasn’t able to turn to profit. New CEO Ron Sege was brought in October 2010 to try to turn the ship. In August 2014, Echelon agreed to sell the whole grid business to a European company S&T AG. Around the same time, it also made an acquisition of Lumeware, a smart lighting startup. It was essentially an asset swap, so that the new company can get rid of non-core business and focus on smart lighting – the area management thinks has the most potential.

The troubled operation was reflected by the stock price as it lost almost 95% value since 2007. Also noted, that the firm had a 10 for 1 reverse split in December 2015, so you are basically looking at a penny stock to some extent ($0.6 if adjusted for the reverse split).

ELON_1

After the changes, the business operates in two segments: 1) embedded systems and 2) smart lighting. Embedded systems include the legacy IoT division’s products which are the networking products (chips, routers, gateways & software etc.) for Industrial IoT devices (smart meters, refrigerators, etc.), however this side of business kept deteriorating on a continued basis. Smart lighting, on the other hand, consist the acquired Lumeware products plus the existing lighting control IoT products (wired & wireless controllers, gateways, servers & software etc.) In the most recent investor presentation, management indicated the lighting business has seen 4 straight quarters increase (however, without further details). Clearly, the management has identified the lighting business as the future of company and allocated resources accordingly to pursue this opportunity (e.g. hiring lighting controlling sales veteran Rick Schuett on April 2016)

Basically, it is an unloved business by Wall Street as the legacy businesses are doomed and the turnaround seems to take much longer than expected, if not impossible. When a stock looks like a road kill, it may be a great opportunity for investor who can see through what appears at the surface. Next thing is to examine whether the price is attractive enough to make this crappy business (suppose it is for now) an attractive investment.

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Changyou.com (CYOU) – A value buy with potential near term earning catalyst

taovalue China, Investing, Technology , , , , , , , , , ,

So here is how I came across this name. As I mentioned in my old post “A Part Time Investor’s Investment Process”, I didn’t have a systematic way of sourcing idea, thus usually leaving the portfolio under-invested. More recently, I started playing around with some quantitative funds’ strategy selection criteria, and found LSV’s fit my style pretty well. It goes by two parts: 1) identify value opportunities, by looking at some traditional ratios including EPS, current P/B, current P/CF and current P/S, if any of the ratios is lower than industry median, keep them for step 2; and 2) eliminate “value traps” by examining the recent momentum (e.g. Relative Price Strength over past 26 weeks >=0 & Relative Price Strength over past 13 week is larger than that of past 26 weeks. What is does is basically to look for cheap stocks in a turnaround story, the idea being if the market recently recognize a name, it usually is not a value trap. For further information about LSV, you could visit http://lsvasset.com/research/ for further research done by them.

CYOU came out from these filters and happened to be a Chinese ADR, which I thought I may be able to gain some informational edge by researching in its local language. First, still need to give credits to following posts provided me some directions. By the way, their timings are much better as the stock price already went up 40% from the price level they posted their ideas. However, without the recent price surge, it possibly won’t go through the step 2 of momentum checking, meaning I wouldn’t be able to see it until the name started to rebound anyway.

https://www.valueinvestorsclub.com/idea/CHANGYOU.COM_LTD/137906

http://seekingalpha.com/article/3962034-changyou-extremely-undervalued-possible-privatization-candidate

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