Highlights of the week of October 23, 2017

Dear PGM Capital blog readers,

In this weekend blog edition, we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money, in the week of October 23, 2017:

  • USA Big Cap Technology Companies reported Blockbuster Q3-2017 earnings
  • Ping An Q3-2017 earnings Increased with 17.4 percent.

BIG CAP TECH COMPANIES REPORTED TOP Q3-2017 EARNINGS:

Four USA tech giants; Amazon, Alphabet, Microsoft, and Intel, reported earnings after the bell on Thursday, October 26, and all of them beat expectations and saw their stocks shoot up.

ALPHABET:

Alphabet (GOOG)the Google parent reported third-quarter earnings of US$9.57 per share, a 16% increase over the previous year on revenue that increased 24%, to US$27.77 billion, sending the stock, on Friday, October 27, to an all time high of US$ 1,019.27 per share as can be seen from below chart.

The company saw notable growth in the Asia-Pacific region as well as from mobile search.

AMAZON:

Amazon.com (AMZN), the online retail juggernaut, reported net income of 84 cents per share on revenue of US$24.54 billion, sending the stock, on Friday, October 27, to an all time high of US$ 1,100.95 per share as can be seen from below chart.

Analysts expected the company to report earnings of 52 cents per share on revenue of US$42 billion.

INTEL:

Despite a weak PC business, the chip giant Intel (INTC) reported third-quarter earnings of US$1.01 per share on revenue of US$16.15 billion.

Analysts on average were expecting the company to report earnings of 80 cents per share on revenue of $15.72 billion. The company raised its full-year earnings outlook to US$ 3.25 per share on revenue of US$ 62 billion, ahead of Wall Street’s expectations of US$ 3.01 per share on revenue of US$ 61.39 billion.

MICROSOFT:

The company reported net income of 84 cents per share on revenue of $24.54 billion.

Like Intel, Microsoft’s (MSFT) strong earnings came despite the weak PC business. Its cloud computing efforts are again the big story here, as the company has now reached its goal of a $20 billion annual run rate for its business cloud efforts.

PING AN REPORTED 17.4 INCREASE IN Q3-2017 PROFIT:

Ping An Insurance (Group) Company of China, Ltd. (HKEx: 2318; SSE: 601318) on Friday, October 27, announced its 2017 interim results for the nine months ended September 30 2017.

Highlights:

  • Net profit attributable to shareholders of the parent company rose by 17.4% year on year
    • (up 41.1% year on year if the RMB 9,497 million profit from Puhui’s restructuring for the first half of 2016 is excluded).
  • Number of individual customers increased 22.5% year on year to 153 million, and the number of internet users increased 27.4% year on year to 430 million.
    • Ping An’s internet users are 2.81x its customer base.
  • Life and health new business value rose 35.5% year on year, exceeding the new business value generated in 2016.
  • Property & Casualty’s premium rose 23.6% year on year, while maintaining a better-than-industry combined ratio of 96.1%.
  • Ping An Bank’s retail business revenue accounted for 42.1% of revenue (9M2016: 29.7%) and 65.3% of profit (9M2016: 34.4%).
    • The assets of retail consumers exceeded RMB1 trillion.
  • For the first nine months of 2017, Ping An’s portfolio of insurance funds reached RMB2.30 trillion, up 16.9% from the beginning of the year.
    • In the first three quarters of 2017, the portfolio of insurance funds achieved an annualized net investment yield of 5.5% and an annualized total investment yield of 5.4%.

Based on these blockbuster earnings, the shares of PING AN increased with HKD 1.500 on Friday October 27, in Hong Kong, to close at an all time High of HKD 68.75, as can be seen from below chart.

PGM CAPITAL ANALYSIS & COMMENTS:

BIG CAP TECH COMPANIES EARNINGS:

Analyzing the valuations of these big cap USA, companies provide us with the following information:

Amazon.com:

  • P/E ratio of 280, a P/B ratio of 22.76 and NO dividend payment.

Google:

  • P/E ratio of 36.94, a P/B ratio of 4.76  and NO dividend payment.

Microsoft:

P/E ratio of 30.95, a P/B ratio of 8.92 and a dividend yield 2.13 percent.

Intel:

  • P/E ratio of 16.95, a P/B ratio of 3.04 and a dividend yield of 2.64 percent.

Based on their above mentioned valuations. we can conclude that with the exception of Intel Corporation, the other above mentioned big cap technology stocks can be considered overvalued, for which the valuation of Amazon.com remind us on the tech bubble of 1998-1999.

NASDAQ At All-Time High:

Based mainly on the earnings report fo some of its largest components – including; Alphabet, Amazon.com, Microsoft, and Intel – the Nasdaq closed on Friday, October 27, with a gain of 2.2% at an all-high of 6,701.26 points, as can be seen from below chart.

PING AN:

During the presentation of the company’s Q3-2017 financial results, Dr. Peter Ma, Chairman and Chief Executive Officer of Ping An, said;

China’s economy will be on an upward trajectory in 2017.

The 19th National Congress of the Communist Party of China has ushered a new era for China’s socialism with Chinese characteristics, indicating that the financial industry’s directions and goals to serve the real economy and preventing risks.

Ping An will strive to build a new growth engine driven by ‘finance + technology’.

Ping An is fully committed to serving the real economy, contributing to the rejuvenation of the country, and to give back to the society and investors who showed us their support over the years.

Based on the business model, fundamentals and grow potential of PING An, we maintain our BUY rating on the shares of the company.

Last but not least keep in mind below quote of John Maynard Keynes:

When bush comes to shove, it will be the fundamentals of a company that will count, and its never different, at the end prices of a security will reflect its underlying valuation.

Yours sincerely,

Eric Panneflek

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