Jimmy Lai's Next offers an investment lesson

Ben Kwok June 18, 2019 12:12

Jimmy Lai Chee-ying's Next Digital (00282.HK) has doubled in value since a million people marched against the extradition bill on June 9.

On Monday alone, a day after two million Hongkongers took to the streets to ask Chief Executive Carrie Lam Cheng Yuet-ngor to step down, the stock surged 27 percent to close at 38 HK cents, up 100 percent from 19 HK cents on June 6, the last trading day before the massive demonstrations against the hated legislation began.

Hong Kong probably will never be the same again after those outpourings of public anger.

Most of the 2,000 stocks listed in Hong Kong were battered during the period as investors fear the legislation would drive away capital in the city to seek other safe havens.

But Next Digital was one of the few stocks that benefited from the chaotic situation, with Lai, its owner, giving interviews to the Wall Street Journal and Bloomberg. (The other is MTR Corp., which saw a surge in patronage on its Island Line during those two Sundays.)

Lai had bought over 92 million shares of Next Digital at 19.9 to 26.7 HK cents each between July and October last year, and is now sitting on a 50 percent gain on those shares.

But, of course, his news media outfit continues to suffer from declining advertising revenue amid political pressure on corporates, which have been avoiding his publications like the plague.

Even Lai's nemesis, former chief executive Leung Chung-ying, who had launched a name-and-shame campaign against companies that buy full-page ads on Lai's Apple Daily, noted on his Facebook page that he was no longer seeing such ads in the paper.

CY Leung and Apple have never been on good terms, but CY, now a deputy chairman of China's biggest political advisory group, is right about one thing: the paper has been incurring big losses since 2014, the year of the Occupy Movement.

In fact, Lai's outfit has been losing about HK$40 million a month. In the six months to September 2018, Next Digital lost HK$287 million. The firm will announce its final results next Monday.

Investors would recall that the parent companies of two of the city's most popular dailies, Apple Daily and pro-establishment Oriental Daily, were both priced at HK$1 in 2014. But now Oriental Press's share price is double that of Next Digital, not to mention the fact that Oriental gives more dividends than Lai's flagship.

But Lai is not about to change course – politically, that is. While Oriental Daily is a firm supporter of the extradition legislation, Apple Daily has been urging people to take to the streets to oppose it.

In a bid to boost circulation – and advance the cause as well – Apple Daily and Next Magazine are offering a three-month subscription package for only HK$3, with the understanding that HK$1 from each subscription will be donated to the fight against the extradition bill.

It is hoped that the move will also enhance Next Digital's share price.

Anyway, here's the investment lesson: Next Digital is a natural hedge against political instability.

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CG

Ben Kwok

EJ Insight writer