Weekly Equity Review
Ucap Hong Kong Asset Management Limited
6th September 2016
Equity Strategy Highlights
� Global Markets Highlights
� Today is the first day after Labor Day and traditionally marks the beginning of the Fall season.
� The ECB meets this Thursday and the Fed and BOJ on September 21.
� The latest Payrolls came slightly below expectations, leaving implied probabilities for a rate hike in
September around 1/3.
� Important Events This Week
� Tuesday: EU GDP, ISM Services
� Wednesday: US Fed Beige Book
� Thursday: Japan GDP, ECB Meeting, US Jobless Claims
� Friday: US Wholesale Inventories
6 September, 2016
Equity Strategy Highlights
� Global Leaders – 2016
� The European portfolio is now in positive territory for the year and remains very strong compared to
indices.
� The US portfolio is still lagging despite a positive performance (and after a strong outperformance in
2015)
� The weakness of the Pharmaceuticals sector is weighting on both portfolios.
� Europe: +2.2% YTD vs Euro Stoxx at -2.5% YTD (4.7% alpha).
� US: 4% YTD vs S&P at 8.3% YTD (-4.2% alpha).
� Stock-Picking List – 2016
� The average performance of our Stock-Picking YTD is +0.47%. The average alpha is +238 bps.
� We have closed positions for the time being.
6 September, 2016
COMPANY PRIMER: AIRBUS
6 September, 2016
Airbus (AIR FP)
� Our View
� Airbus benefits from a strong backlog that ensures around 10 years of production. But that goes with
some potential execution risk and new demand is weakening as developed countries carriers tend to be
in overcapacity while emerging markets are slowing.
� For that reason, we do not see Airbus as a potential long-term, core investment but as a tactical play.
The stock price is positively correlated to the USD and to Oil prices and as such is a very good tool to
express macro views.
� Company Description
� Airbus is a diversified Aerospace company with:
� 70% of revenues from Civil Aircraft, where they share a duopoly with Boeing
� 20% from Defense and Space (Airbus, Astrium and Cassidian)
� and 10% from Helicopters (Eurocopter)
� The Civil Aircraft business is the main driver of the stock price.
� Airbus started as a consortium of European companies and remains 30% owned by the French, German
and Spanish governments.
6 September, 2016
Airbus (AIR FP)
6 September, 2016
Airbus (AIR FP)
� Industry
� Civil aircrafts Book-to-bill rates remain low and new orders falling due to a number of factors:
� Cheap Fuel tends to lengthen the replacement cycle.
� Emerging market growth is staling.
� Travel growth in developed markets is slowing and capacity is too high.
� Falling interest rate expectations have lowered the need for carriers to jump on low financing rates.
� The biggest customers now are Middle East and Asian carriers.
� Recent Developments
� Latest earnings showed a weakness in helicopter and defense sales that offset civil aircrafts gains.
� Airbus launched the A380, the world largest airliner in 2007. After some initial success, demand is
waning, and Airbus is mostly relying on Emirates for sales.
6 September, 2016
Airbus (AIR FP) - SWOT
6 September, 2016
Strengths Weaknesses
• Duopoly situation with Boeing.
• Strong barriers to entry
• Strong relationships with suppliers
• Maintenance revenues over the life of the aircrafts (10 to 30 years)
• Strong backlog (10 years of production)
• Heavy R&D and development costs
• High sensitivity to the USD (most costs and revenues are in USD by
earnings are reported in Euros)
• High competition in the narrow-body segment
• The industry remains in overcapacity
• Limited production slots for popular models
• Negative Free Cash Flow Yield in the current production phase
Opportunities Threats
• Dollar strength
• Higher oil prices
• Rising US rates that will push customers to refinance quickly
• Higher A320 and A350 deliveries as engine problems get fixed.
• Emerging markets growth
• Higher emerging market currencies giving local carriers more pricing
power.
• Execution risk, Production delays with in particular :
• The ramp-up of the A350
• Engine issues on the A320
• Super Puma Helicopter
• Lower oil prices lead that extend the replacement cycle of aircrafts
• Arrival of Chinese and Russian manufacturer on the commercial
aircraft market
• Lack of new commands or order cancellations
• Weak demand for the A380
• Emerging market currencies depreciation leading to cancellations by
local customers
• Dollar weakness
Airbus (AIR FP), September 5, 2016
6 September, 2016
On a long term perspective, the stock is in consolidation mode with a EUR 40 – EUR 70 range. Short term, the
stock is rebounding from an oversold level and could jump back to EUR 60 till the end of the year.
INVESTMENT IDEAS
6 September, 2016
Global Leaders
6 September, 2016
The Global Leaders are quality companies that we believe are fit for a long-term investment.
We launched this strategy in August 2011. Please read our special report for a full explanation of this strategy.
Benchmark: S&P 500Benchmark: Euro Stoxx 50
� European Portfolio � US Portfolio
*Since
August 2011
Portfolio Benchmark Delta Annualized Portfolio Benchmark Delta Annualized
Performance 99% 64% 34.8% 15% Performance 117% 99% 17.4% 17%
Performance YTD 2.2% -2.5% 4.7% Performance YTD 4.0% 8.3% -4.2%
Volatility 15.9% 22.1% -6.2% Volatility 13.5% 14.4% -0.8%
Max DrawDown -18.7% -27.8% 9.1% Max DrawDown -13.1% -13.0% -0.2%
-15
5
25
45
65
85
105
125Index Benchmark
-10
10
30
50
70
90
110
130Index Benchmark
Global Leaders – Current List
� European Portfolio � US Portfolio
6 September, 2016
Name Weight Mkt Cap ($bn) Sector
Apple 6.62% 568 Information Technology
Accenture 5.39% 73 Information Technology
Adobe 2.59% 49 Information Technology
Amazon 6.33% 365 Consumer Discretionary
Bristol Myers 5.70% 127 Health Care
Costco 5.39% 73 Consumer Staples
CVS 2.78% 100 Consumer Staples
Walt Disney 2.91% 155 Consumer Discretionary
Facebook 6.32% 357 Information Technology
Alphabet 6.59% 544 Information Technology
Goldman Sachs 2.68% 69 Financials
Honeywell 5.49% 88 Industrials
Johnson & Johnson 3.15% 344 Health Care
JP Morgan 6.06% 234 Financials
Mastercard 2.79% 104 Information Technology
Altria 1.89% 132 Consumer Staples
Merck & Co 5.84% 162 Health Care
Microsoft 6.45% 440 Information Technology
Nike 5.52% 93 Consumer Discretionary
Pepsico 5.82% 157 Consumer Staples
Philip Morris 1.92% 155 Consumer Staples
Reynolds 1.77% 71 Consumer Staples
Starbucks 2.74% 85 Consumer Discretionary
AT&T 3.07% 267 Telecommunication Services
Time Warner 2.64% 60 Consumer Discretionary
Visa 2.96% 184 Information Technology
Verizon 3.01% 224 Telecommunication Services
Walgreen 2.74% 86 Consumer Staples
Wells Fargo 3.04% 243 Financials
Exxon 3.16% 361 Energy
Name Weight Mkt Cap ($bn) Sector
Inditex 6.72% 109 Consumer Discretionary
Vinci 6.12% 45 Industrials
Fresenius 6.10% 41 Health Care
Essilor 5.91% 28 Health Care
Philips 5.79% 25 Industrials
Dassault Systemes 5.69% 21 Information Technology
Nestlé 5.48% 250 Consumer Staples
Unilever 5.19% 140 Consumer Staples
Novo Nordisk 5.18% 146 Health Care
BATS 5.10% 118 Consumer Staples
L'Oréal 5.06% 107 Consumer Staples
Sanofi 5.05% 110 Health Care
Reckitt Benckiser 4.84% 69 Consumer Staples
Roche 3.63% 221 Health Care
Novartis 3.61% 218 Health Care
ABInbev 3.60% 204 Consumer Staples
LVMH 3.27% 87 Consumer Discretionary
Allianz 3.20% 65 Financials
Heineken 3.14% 53 Consumer Staples
AXA 3.10% 49 Financials
Daimler 2.12% 72 Consumer Discretionary
BMW 2.06% 56 Consumer Discretionary
Stock-Picking List – Performance
� Hit Ratio 35%
� Hit Ratio Alpha 58%
� Average Perf. 0.47%
� Average Alpha 2.38%
� Nb. of Trades 31
� Open Trades 0
6 September, 2016
Average alpha of each stock strategy when compared to its
index (S&P or Euro Stoxx) over the same holding period.
Average performance of each stock strategy.
Please ask for more details.
Latest Equity Research
6 September, 2016
Date Document Strategy Stocks Covered
August 30, 2016 Weekly Report Company Primer Medtronic
August 23, 2016 Weekly Report Thematic View Costco, Kroger
August 12, 2016 Key Highlight Tech Leaders Alibaba
August 8, 2016 Key Highlight Global Leaders Bristol-Myers
August 4, 2016 Key Highlight Global Leaders Time Warner
July 29, 2016 Key Highlight Global Leaders Alphabet
July 29, 2016 Company Primer Global Leaders Apple, Microsoft, CVS, Walgreens, Disney, Time Warner
July 28, 2016 Key Highlight Global Leaders Facebook
July 27, 2016 Key Highlight Global Leaders Apple
July 22, 2016 Key Highlight Global Leaders Starbucks
July 20, 2016 Key Highlight Global Leaders Johnson & Johnson
July 19, 2016 Key Highlight Thematic View IBM
July 15, 2016 Key Highlight Global Leaders JPMorgan
July 12, 2016 Key Highlight Global Leaders Amazon
July 8, 2016 Key Highlight Global Leaders PepsiCo
July 7, 2016 Key Highlight Global Leaders Walgreens
July 4, 2016 Company Primer Thematic View Nike, Under Armour
June 30, 2016 Key Highlight Thematic View US Banks
June 29, 2016 Key Highlight Global Leaders Nike
June 28, 2016 Weekly Report Global Leaders Reckitt Benckiser, Unilever
June 20, 2016 Company Primer Global Leaders Heineken
June 16, 2016 Key Highlight Global Leaders Inditex
June 14, 2016 Company Primer Global Leaders Accenture
June 14, 2016 Key Highlight Global Leaders Apple
June 14, 2016 Weekly Report Tech Leaders Accenture
June 9, 2016 Company Primer Global Leaders Starbucks
June 9, 2016 Company Primer Global Leaders Facebook
June 9, 2016 Company Primer Global Leaders Amazon
June 9, 2016 Company Primer Global Leaders Alphabet
June 7, 2016 Company Primer Tech Leaders PayPal
June 7, 2016 Company Primer Tech Leaders Broadcom
June 7, 2016 Company Primer Tech Leaders Adobe Systems
June 7, 2016 Key Highlight Thematic View Bristol-Myers
June 7, 2016 Weekly Report Tech Leaders Adobe, Broadcom, PayPal
June 3, 2016 Key Highlight Global Leaders Johnson & Johnson
Date Document Strategy Stocks Covered
May 31, 2016 Weekly Report Global Leaders Alphabet, Amazon, Facebook
May 27, 2016 Key Highlight Global Leaders Costco
May 24, 2016 Weekly Report Thematic View Swisscom, Deutsche Tel., Vodafone, BT Group
May 17, 2016 Weekly Report Global Leaders Heineken
May 11, 2016 Key Highlight Global Leaders Amazon
May 5, 2016 Key Highlight Global Leaders Time Warner
May 4, 2016 Key Highlight Global Leaders CVS
April 29, 2016 Key Highlight Global Leaders Amazon
April 28, 2016 Key Highlight Global Leaders Facebook
April 27, 2016 Key Highlight Global Leaders Apple
April 22, 2016 Key Highlight Global Leaders Essilor
April 20, 2016 Key Highlight Global Leaders Johnson & Johnson
April 14, 2016 Key Highlight Global Leaders JPMorgan
April 13, 2016 Key Highlight Global Leaders Facebook
April 5, 2016 Weekly Report Thematic View Ctrip, Expedia, Priceline
April 1, 2016 Company Primer Thematic View Ctrip
April 1, 2016 Company Primer Thematic View Expedia
April 1, 2016 Company Primer Thematic View Priceline
March 31, 2016 Key Highlight M&A Hon Hai
March 16, 2016 Key Highlight Global Leaders Apple
March 10, 2016 Key Highlight Global Leaders Inditex
March 8, 2016 Weekly Report Thematic View 3M, GE, Honeywell, UTC
March 7, 2016 Key Highlight Global Leaders Novo Nordisk
March 4, 2016 Key Highlight Global Leaders Time Warner
February 23, 2016 Weekly Report Thematic View IBM
February 19, 2016 Key Highlight M&A IBM
February 2, 2016 Key Highlight Global Leaders Alphabet
January 29, 2016 Key Highlight Global Leaders Microsoft
January 28, 2016 Key Highlight Global Leaders Facebook
January 27, 2016 Key Highlight Global Leaders Apple
January 25, 2016 Key Highlight Earnings Eiffage
January 15, 2016 Key Highlight Global Leaders JPMorgan
January 13, 2016 Company Primer Global Leaders Accenture
January 13, 2016 Key Highlight Global Leaders Time Warner
January 8, 2016 Key Highlight Global Leaders Walgreens
January 7, 2016 Company Primer Thematic View Siemens
Disclaimer
6 September, 2016
Ucap Hong Kong Asset Management Ltd has issued this document for information purposes only. This document may not be distributed to the United States, Canada,
Australia or to any other jurisdiction in which its distribution is unlawful. If you require investment advice or wish to discuss the suitability of any investment decision,
you should contact your professional advisers for financial, legal or tax advice when appropriate. This document is not and should not be construed as an offer to sell or
a solicitation of an offer to purchase or subscribe for any investment or service.
Ucap Hong Kong Asset Management Ltd has based this document on information obtained from sources it believes to be reliable but which it has not independently
verified. Ucap Hong Kong Asset Management Ltd makes no guarantees, representations or warranties, and accepts no responsibility or liability as to its accuracy or
completeness. Expressions of opinion herein are subject to change without notice.
Members of the Ucap Hong Kong Asset Management Ltd and/or their officers, directors and employees may have positions in any securities mentioned in this
document (or any related investment) and may from time to time add to or dispose of any such securities (or investment).
In the case where this document is distributed in the United Kingdom by a person who is not authorized by the United Kingdom Financial Services Authority; it is only
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will be engaged in only with relevant persons.
Past performance is not necessarily a guide to future performance. The value of any investment or income may go down as well as up and you may not receive back
the full amount invested. When an investment is denominated in a currency other than your local or reporting currency, changes in exchange rates may have an
adverse effect on the value, price or income of that investment. In the case of investments for which there is no recognized market, it may be difficult for investors to
sell their investments or to obtain reliable information about their value or the extent of the risk to which they are exposed. Investment in any market may be
extremely volatile and subject to sudden fluctuations of varying magnitude due to a wide range of direct and indirect, influences. Such characteristics can lead to
considerable losses being incurred by those exposed to such markets.
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No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, whether electronic, mechanical, photocopying,
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