GQ, just found your substack. Awesome writeup! I have a 1% position in LVJI, because the growth and valuation are too good to pass up, but it seems too good to be true (which makes it seem like it could just be a fraud).
Have you heard of IHuman (IH)? They seem like they are in a similar situation as LVJI. 200% growth, subscription revenue, insanely cheap valuation, looks too good to be true. Dont know what to make of these Chinese too good to be true stocks.
Yea I'm pretty bullish on China but their equities come with requisite risks. I've mentioned below in another comment that I run a very concentrated book so I don't really have the appetite for this type of risk, but it's not a knock on the company itself, which is of course why I even wrote this research in the first place. 1% is fair game.
Hi, thanks for the write-up. I hope you don't mind me asking - if the risk-reward is that compelling, is there any other reason why you do not have any position in LVJI?
A small position size of 2-3% makes sense even if you are really concerned with general fraud risk and the company's corporate governance in China. The HK market is extremely inefficient, the market left LVJI orphaned after the broken IPO during the peak of COVID last year in China - rather than due to a risk of fraud. I do expect them to handily beat the market's depressed expectations next earnings call due to last year's low base rate.
I find it highly unlikely (but of course, not impossible) that the founder-management would risk his substantial net worth for fraud. They also have government-backed funds as one of their substantial shareholders - not sure if this matters.
Hey thanks for the comment. The short answer is I run a very concentrated book, typically only 3-6 names, so I require extremely high conviction in each name. This was just a judgment call, I didn’t feel comfortable allocating as much as I had wanted.
GQ, just found your substack. Awesome writeup! I have a 1% position in LVJI, because the growth and valuation are too good to pass up, but it seems too good to be true (which makes it seem like it could just be a fraud).
Have you heard of IHuman (IH)? They seem like they are in a similar situation as LVJI. 200% growth, subscription revenue, insanely cheap valuation, looks too good to be true. Dont know what to make of these Chinese too good to be true stocks.
Yea I'm pretty bullish on China but their equities come with requisite risks. I've mentioned below in another comment that I run a very concentrated book so I don't really have the appetite for this type of risk, but it's not a knock on the company itself, which is of course why I even wrote this research in the first place. 1% is fair game.
Hi, thanks for the write-up. I hope you don't mind me asking - if the risk-reward is that compelling, is there any other reason why you do not have any position in LVJI?
A small position size of 2-3% makes sense even if you are really concerned with general fraud risk and the company's corporate governance in China. The HK market is extremely inefficient, the market left LVJI orphaned after the broken IPO during the peak of COVID last year in China - rather than due to a risk of fraud. I do expect them to handily beat the market's depressed expectations next earnings call due to last year's low base rate.
I find it highly unlikely (but of course, not impossible) that the founder-management would risk his substantial net worth for fraud. They also have government-backed funds as one of their substantial shareholders - not sure if this matters.
Thank you for the write-up!
Josh
Hey thanks for the comment. The short answer is I run a very concentrated book, typically only 3-6 names, so I require extremely high conviction in each name. This was just a judgment call, I didn’t feel comfortable allocating as much as I had wanted.
Thanks for the reply. That’s fair enough :).