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Under the Banyan Tree - Samsung's billions and a long hands-free drive
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Herald returns to the studio alongside Prerna Garg to talk through our latest collection of quirky facts and surprising stats from the world of Asian equities.
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Transcript
Introduction to 'Under the Banyan Tree'
00:00:09
Speaker
Hello and welcome to Under the Banyan Tree. I'm your host Harold van der Linde, back from summer and in the Hong Kong studio. Now, I know what you're thinking. It's been far too long since we last brought you one of our Quacky Facts and Stats episodes. Well, if that's the case, the good news is the wait is over.
00:00:25
Speaker
We're here to bring you our latest selection of curious facts, notable nuggets and unexpected insights from the world of Asian equities.
Pran Agar Joins the Episode
00:00:34
Speaker
Fred loves these episodes, so it's a shame he's missing this one.
00:00:37
Speaker
But I'm joined today by my friend and fellow equity strategist, Pran Agar.
Is Samsung Electronics Leading Asia's Tech Profits?
00:00:43
Speaker
Samsung staggering profits. China strides into autonomous driving and a major money spinner in the farmersphere.
00:00:50
Speaker
All that and more coming up right here under the banyan tree.
00:00:58
Speaker
Well, Prana, as ah regular listeners will know, every three months or so, every quarter or so, we write a quarterly. That makes sense because it's otherwise it wouldn't be called a quarterly. But that's not the point. The point is that we accompany that with a report whereby we look at 10 interesting surprising and statistics that we've come across.
00:01:16
Speaker
to be honest, mostly you, ah but that we've come across as a team in the course of yeah reading reports or doing our own sort of research. And um well, we got 10 really interesting ones. I think really good ones. Yeah, exactly. So which one is your favorite? Harold, the first one here on Samsung Electronics. This year, we are seeing some really amazing numbers come out of Korea. So Samsung Electronics is on track to generate net profit of 200 billion US dollars in 2026. 200 billion, yes. 200 billion, it's a massive number.
00:01:49
Speaker
But what is even more amazing, this is roughly the same as the combined earnings of all the listed companies in India. Yeah, because 200 billion dollars, we sometimes think in market cap, but in terms of profits, that is actually a lot. It's a lot. And Samsung Electronics is said to be the second most profitable company in the world with these 200 billion. Second in line to just Nvidia and where I think the numbers are projected to hit around 220 billion. So not much higherre not very higher. yet So basically at about the same sort of ballpark number. It's quite odd because sometimes you get these strange comparisons. In this case, Samsung, one company in Korea, makes profits as much as all the companies. And how many companies are listed India? 5,000 plus. Exactly. 5,000 companies together in India, which is a massive economy. Put it another way, the biggest company in India, Reliance Industries, generates profit of around 8 to 9 billion US dollars. So we're comparing companies. This company is like 25 times bigger in terms of profits. And you have these sort of strange comparisons with markets. So I remember in 1997, the market cap of Microsoft was about two times the size of the total economy of Indonesia. It was during the Asian crisis. and That's still the case. Is that still the case That's still the case. So Indonesia is 1.4, 1.5. And Microsoft is almost $3 trillion, u dollar almost there.
00:03:13
Speaker
So again, you have this sort of strange comparison. The problem is, of course, you're comparing apples with oranges here. It's flow versus cash. Exactly, because GDP is something that a country generates. And the market cap is the value of a company. So that is the value that the market attached to not only this year's profits that they make, production, but also all the future. Lifetime, probably lifetime of it. But again, we're talking about some really massive players in the world. Like, you know, the whole world consumes the softwares that come from Microsoft or iPhones on now the memory chips that are being built by Samsung Electronics or Hynix.
China's Shift: Pharma Over EV Exports
00:03:49
Speaker
Yeah, that's right. Like, you know, I came across this number that U.S. hyperscalers are making massive investments into AI, but 70% of that money just goes into building infrastructure, that is to buy all these chips that are built by... And that goes back into Koreans. The funny thing is we've seen also unprecedented sort of volatility that market. It's one of the statistics that we've got here, right?
00:04:10
Speaker
Hynix, so the the largest memory maker in the world, listed in Korea, its share prices within the day move at least 5%. Or more. Yeah, that's a lot, right? That's a lot. Pretty much every two trading days. Yeah, less than two trading days. We're talking about out of 131 trading days, 92 days, Hynix stocks move by more than 5% intraday. And that is incredible because if you run an Asian portfolio, let's say you're a pension fund or something like that, let's assume most of them own stocks like Samsung, Hynix and TSMC. They are so big now that they account for sometimes like a quarter of their portfolio. and if
00:04:50
Speaker
That part of the portfolio is so volatile. You remember looking at these numbers. Korea this year has been five times more volatile than India and China. So, like you know you see this volatility in Hynix, you see this volatility in Samsung Electronics. And as we just ah touched upon, these companies are making really comfortable earnings. But despite that, these swings have been really wild. Incredible, yeah. And that's got to do with expectations. It's got to do simply with the market dynamics. But also there's a lot of leverage in system. People are borrowing um to make money. So if it goes down a bit, they… Any negative news tends to have quite outsized impact on the movement. Exactly. Now, we also have some EV stats. The EV industry is always good for stats. But what really surprised me here is that although we always think about electric vehicles as being a major export product from China, actually there's something else that's much bigger that I didn't really think about. And that's pharma out licensing, pharma. Pharma out-licensing is basically twice as much. It's twice as much. and like What is pharma out-licensing very quickly? ah So, like, you know, Chinese companies in the past were known for developing drugs on behalf of global peers because, like, you know, it was cheaper for them to do. Let's say somebody needs ah aspirin or Panadol and the Chinese says we can that much cheaper than it. Indians do that, Koreans do that, even Chinese do that. But now, like, you know, China is developing its own cures, drugs for certain diseases, say certain type of cancers or some type of really high-end antibodies. And now they get these cures patented. And now they offer these patents to global pharma companies.
00:06:25
Speaker
To make them themselves. To make it themselves. So they say, we got the recipe, you can cook it up yourself. And give us money. Like, you know, this is a very, very stable cash flow for Chinese companies. So China exporting goods is something well known. But now China is becoming massive even in services export. I think this is what this stat shows. Yeah, exactly. So this is a service that they provide. It's not the product. That's why I was asking. Because they tell you, you can get my recipe and you can cook it yourself. So we're moving away from just products being exported, but services, but also brands. We have some of these um bubble tea and... Lababoos is my favorite. Lababoos, of course, maybe was an early one. So you got some of these products that are starting to to come out of China. and That's a major contributor. And it's just not EVs like, you know, even in self-driven cars. And we can touch upon the next stats here that in the latest top tier Chinese self-driving car, if you're driving from New York to Boston and halfway back, you need to go onto the steering just once. yeah So there's something called MPI, miles per intervention. yes That is one of the metrics these self-driving the efficiency of these cars. It basically means like, you know, how much miles can a self-driving car drive by itself before a human has to intervene, either to avoid an accident or to avoid a system glitch. And in case of China, certain self-driving models give you an MPI of up to 500 miles. So these products are getting better.
00:07:55
Speaker
That's the message here. But it's not that products are being exported out of China. It's the services, the ideas, the brands, and these sort of things that are actually following now.
HSBC CIB YouTube Channel Announcement
00:08:07
Speaker
A quick message from us here under the banjo tree. If you're one of our listeners on YouTube, we will soon be moving. To make sure you never miss an episode, be sure to head to HSBC CIB on YouTube and hit the subscribe button.
00:08:22
Speaker
Now, back to today's episode.
Impact of Hong Kong's IPO Lockup Expirations
00:08:27
Speaker
The next set of stats I wanted to focus on is more based on Hong Kong and what happens in the market here. Lockups expire in Hong Kong. Now lockups, let me quickly explain what that is for everybody that doesn't necessarily know. If there's a comp that listed for the first time its shares, say in any market, let's say Hong Kong market, what very often happens, these shares are offered to everybody who wants to subscribe and then they say on Monday you can trade and if you got some shares, you can trade. But what they very often do is for some people that really want to come in a bit earlier at a better price, they say, okay, you want to have a lot of shares and you want to have a decent price. Okay, we sell that to you prior to that under the condition that you will not trade that for the next three or six months. Depending on a market to market and regulations to regulations. So very often that means that three or six months after that IPO, that initial public offering of these shares, then these people or these funds can start to sell those shares for the first time. right and And this is where Hong Kong comes into picture. We know since last year, Hong Kong was the biggest IPO market in the world. Around 30-35 billion US dollar they raised last year. But these shares unparalleled.
00:09:38
Speaker
under lockups. Basically, the early investors could not sell their shares. But now eventually, as the three and six months period, lockup period expires, we will see more equity supply coming into market. And as per our numbers, around 150 billion US dollar of new equity is set to hit the market. So the problem then is, OK, it's very nice to say I want to sell 150 billion dollars of shares.
00:10:03
Speaker
Who's going to buy? Who's going to buy? Yeah. And we in the in the past, we spoke about this cash in China. what What's the situation on that? um So, yeah. So 23 trillion US dollar of cash, the mainland Chinese household sit on. And you remember discussing that a lot of that money was logged up in terms of term deposits. So we have another interest. Term deposit means I put my money away ah for, let's say, three or six months and the bank says you can't touch it, but we'll give you a slightly better high interest rate. But now eventually after three, six months, the money becomes available again. And now as well around 10 trillion U.S. dollar of that cash pile is expected to mature this year. So we're talking about new equity supply via the IPO lockups, but we're also talking about 10 billion US dollar of household savings that will mature from time deposits and households will have it in form of cash. Yeah.
00:10:52
Speaker
So there is potentially a buyer, there is potentially a seller, and we just have to see by the end of this year when these lockups expire if they want to trade and deal,
Key Market Trends and Dynamics
00:11:02
Speaker
right? Right. So broadly speaking, I would say there's three lessons that come out of this. The first one is there are sometimes periods whereby a particular sector, a particular market, a particular group of companies just make extraordinary profits for whatever reason. could be new technology, new consumer trend, and these sort of things. We've seen this in Asia before when the banks were listed and they were booming. And there was, for example, 2006, telecom was a real big thing. And then China, internet. And and now it is semi semiconductors. um And then the third, the second one is really that China is now not just exporting products, but also ideas, brands and services. services and um And lastly, those are two sort of. long-term trends. But lastly, it's more of a tactical consideration that by the end of this the year, there's a lot of people that will come to the markets and may be selling their shares. And there's a lot of people that can buy shares because they get a lot of cash. And the question is, are they willing to trade with each other? I think this will keep us busy for the next six months.
00:12:02
Speaker
Pruna, fantastic. Thanks for coming into the studio and enlighten us with these interesting statistics. Thanks, Harold. It's always lovely to be
00:12:13
Speaker
Well, that was a very enjoyable episode at Under the Banyan Tree. Thank you for joining us. And please do check out the new YouTube page we mentioned in the break. It's HSBC underscore CIB.
00:12:26
Speaker
Under the Banyan Tree is an HSBC Global Investment Research production produced by Graham Mackay, who's sitting right here next to me. Take care and we'll talk to you again next week.