Three Opportunities Brought By Archegos Capital's Outburst

●  Tencent MusiciQIYI and Youdao have declined by 35%, 40% and 13% since March 23, respectively.

●  Archegos Capital is the main reason for these stocks' dramatic downfalls.

●  Affected companies still remain in leading positions, with solid fundamentals in each sector.

●  Potential high yield rewards and low risks come with precise timing to buy these stocks at low prices.

The recent market turmoil that saw slashed caps on media stocks such as Viacom (VIAC), Tencent Music (TME) and Baidu (BIDU) originated from Archegos Capital being forced to close positions in them. Among these names, Chinese concept stocks have suffered most, with TME down around 35% since March 23. We also saw iQIYI (IQ) down 40%, Youdao (DAO) down 13% and GSX Techedu (GSX) down 55%. Even though some of these companies didn't present a satisfactory growth trajectory in 4Q, most of them maintain solid fundamentals. We think that the valuations are dragged by the negative information and too dire. We also believe some of them are mispriced from various aspects of stocks. In this article, we will introduce some undervalued Chinese concept stocks.

Photo by C D-X on Unsplash

TME: Consumers are embracing the paying model

Backed by Tencent, Tencent Music Entertainment Group (TME) was incorporated through the consolidation of QQ Music and China Music Corporation in 2016. It currently runs five of the most prevalent music apps in China as the leader of China's online music market. The company has a similar – ­yet, in many aspects, better – business model to Spotify. Specifically, TME is more efficient in enhancing cash flows and margins while generating revenue through music membership subscriptions, monetization of music-based live streaming, and advertisement. According to its 4Q 2020 report, the core online music business showed continued momentum. TME's two key indicators are paying users and online music average revenue per paying user (ARPPU), which increased by 40%, 1% year-on-year, respectively. And the online music paying rate was up to 9% from 8% the previous quarter. Last but not least, the company has abundant and exclusive song rights, which create advantages over its major competitor NetEase Music, which shows a sliding market share.

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William K. 4 weeks ago Member's comment

I did like this article. It was both interesting and informative, and well written also.