What’s Truewealth’s “Project H” from Kim Iskyan?

Where does this new newsletter see 100% six month gains?

By Travis Johnson, Stock Gumshoe, December 19, 2016

Today we’re looking at a pitch from Kim Iskyan, who for a brief while was at the helm of an emerging markets newsletter for Stansberry and is now starting his own publishing business focused on Asia. Iskyan is an interesting and thoughtful guy, judging from the free articles and interviews I’ve read of his over the years, but I have no idea what his investment record might be. He is based in Asia and focused, he says, on bringing better investment research to Asian investors, but he’s also selling a newsletter to us “western world” folks.

The newsletter he’s pitching today is called Asia Alpha Advisory, and it’s priced as an “entry level” newsletter at $59 (the same price as our Stock Gumshoe Irregulars membership, coincidentally enough). Which means, I imagine, that Iskyan will probably be bringing out a “bigger and better” letter fairly soon that he can use as an upsell — it seems as though most sector-specific newsletters don’t start making money until they either build a huge audience for the “cheap” letter (which is hard, especially for sector or niche letters) or build a solid “upgrade” letter at $999 or $2,500 or $5,000 or whatever that can appeal to maybe 5-10% of their readers. Building that initial audience is tough for narrowly focused letters on a specific industry or, in this case, region or country, made even tougher by the fact that when that sector or region hits a soft patch you may lose a huge number of subscribers — during the China boom in 2007 and 2008 there were maybe a half-dozen “emerging markets” China-focused newsletters from big publishers, and all but one of those are gone now, presumably because the China crash(es) crushed their subscriber lists after a couple years of lousy results.

It’s fairly expensive to build that initial audience, even if you’ve got an “in” with the Agora folks and other large publishers to get you access to some large mailing lists of potential investment newsletter subscribers, so we’ll see how it goes and whether Asia Alpha Advisory survives to get covered more in the future.

What’s catching the eye of a few readers now is this first teaser pitch — what stocks does Asia Alpha Advisory pick are compelling enough that they’re hinted at in the first promo for the newsletter? Let’s see what we’ve got… here’s a bit from the intro to the ad:

“‘Project H’… big, fast gains in Asia’s most dynamic market

“What is ‘Project H’? And why should you care?

“Well, right now I’m focusing on a specific class of stocks, in a specific corner of one Asian economy.

“This is what I’ve been doing my entire career — finding exceptional opportunities, hidden from most investors, and which most investors are too ignorant (or scared) to touch…

“And finding smart, safe ways for investors like you to make money from them.

“In the past two years alone, the approach behind my ‘Project H’ strategy has delivered people just like you some incredible profits….

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“Project H isn’t some exclusive, tricky investment strategy.

“You don’t need to worry about options, FOREX or anything remotely complex.

“All you need to do is understand how to take advantage of the right stocks, on the right market, at the right time… “

The general pitch is not unfamiliar — that the emerging leaders of Asia will be the growth engine of the world for the foreseeable future, largely because of the demographics outside of China and Japan, and because of the massive population in general when you combine all the countries of greater Asia.

So what is “Project H?” More from the ad…

“The stocks I’m targeting for Project H trade on a market that most investors don’t even know exists.

“It’s a ‘hidden in plain sight’ Asian market that few investors — wherever in the world you are — know about….

“My Project H approach gives you access to some of the best stocks in Asia at about a 25% DISCOUNT to what you would pay if you bought them the “conventional” way. That’s because Project H shares trade at a lower price than the exact same shares that are traded on different market. It sounds strange… but it’s true.”

So that sounds like Iskyan is largely pitching the Hong Kong-listed shares of Chinese companies — and yes, partly because of capital controls and the relative difficulty mainland Chinese citizens have when trying to invest outside their borders, the “blue chip” companies of China are often priced significantly higher in Shenzhen or Shanghai than they are in Hong Kong. Whether that means the Hong Kong shares are cheap or the Shanghai shares are expensive is a matter of perspective, I suppose. You’ll often see these described as “H Shares” in Hong Kong, versus the “A Shares” on the domestic Chinese exchanges.

And what are the specific stocks? Let’s see the clues:

“‘Project H’ Pick #1:

“A potential 102% gain in the next six months from this ‘hidden’ airline

“Asia’s middle class is expanding rapidly.

“These people are now free to travel abroad… see the world… AND spend billions on flights…

“My research indicates this stock is next in line to skyrocket as a result of Asia’s travel renaissance.

“This isn’t some small-cap ‘punt’ we’re talking about here.

“This is a HUGE, established company with everything in place to profit from the unstoppable trend driving its business.

“To me, this is one of the most exciting companies in Asia right now….

“Jim Rogers is firmly putting his money into Asian airlines. And I agree with him.

“And as the growing middle class spends more on international travel…

“This airline is perfectly positioned to take advantage of this surge.

“My research results suggest that if you invest today, you could see returns of 102% in JUST the next six months.”

Much of that, then, is built on the argument that the wave of Japanese tourism that we saw in the 1980s is going to repeat itself, only with Chinese tourism now that more Chinese middle class folks are more free to travel than they have been in the past.

But there are quite a few Chinese airlines… do we get any more clues about this specific one? Ask, and ye shall receive…

“… this airline is one of the few in its market that’s part of the Star Alliance: a coalition of 28 of the world’s most popular airlines….

“In the summer of 2015, its shares peaked at HK$10, but it has since tumbled to as low as HK$5… about 11% below book value.”

And we get a couple charts about the performance of this stock during past big bull runs for Chinese airlines — back in 2009 and 2010, and again in 2014-2015… so we can confirm with some certainty exactly which company this is… Iskyan is teasing us with Air China (753 in Hong Kong, AIRYY for the 1:20 ADR or AICAF for the 1:1 OTC shares in the US), the leading Chinese international airline.

Air China is indeed in the Star Alliance (Shenzhen Air is too, if you’re curious — that’s owned by Shenzhen International Holdings, which also owns toll roads and logistics businesses, but Air China is much larger and has more international outbound exposure), and the other clues all match precisely.

Air China is priced at about HK$5 right now, and has topped out around HK$10 a couple times. I haven’t looked in detail at the Chinese airlines, but others agree that Air China is one of the more compelling investments, here’s a little snippet from a Barron’s article a few months ago:

“Hong Kong-listed shares in Air China (753.HK), China Eastern Airlines (670.HK) and China Southern Airlines (1055.HK) have plummeted by 40% on average since their highs last summer and there could be more headwinds on the horizon. For one, they don’t hedge fuel exposure, meaning their fuel costs rise in lockstep with oil prices – and crude is up about 25% this year. Also, Chinese airline shares have sagged under the weight of U.S. dollar debts, which have cost more to service as China’s currency, the yuan, has weakened.

“Among the big three, Air China looks best equipped to avoid major turbulence. Its half-year profit rose by roughly 10% year-on-year if you excluded one-offs like a big currency write-down. Include those line items and profits were down 17%. But Air China’s made good progress in paying down U.S. dollar debts, which means its balance sheet is less exposed to any further wobbles in the Chinese yuan. JPMorgan analyst Corinne Png likes the stock because Air China is the airline most exposed to growth in Chinese outbound travelers. In important air traffic metrics like load factor – or how full its planes are – and available seat miles – a measure of flying capacity – Air China generally scores higher on international routes. Png says the number of Chinese flying overseas is still low – about 60 million in the first half of the year – and has tons of room to grow. Air China’s also a member of Star Alliance, which gives it preferential access to transit passengers. It’s less threatened by domestic rail networks, which could derail growth in Chinese domestic air traffic. JPMorgan’s Png is very bullish on Air China, with a share price target of HKD10, or about 70% upside.”

Makes sense to me, though airlines are often volatile, particularly with big shifts in economic activity (that’s codeword for “recessions” — airlines are typically very cyclical) and in oil prices, and Chinese airlines are no exception. But they’re also pretty cheap, with a trailing PE of about 9 and a dividend yield of 2.5% (those numbers are pulled from Bloomberg, I haven’t double checked them — sometimes reporting of this kind of stuff gets a bit hinky after it’s been translated back and forth across a couple currencies).

And if you’re interested you don’t necessarily have to buy the “H” shares — that’s the main listing in Hong Kong where most of the trading volume is, and it’s always best to buy direct on the home listing if you can… but Air China is a large cap stock, with a market cap of US$10 billion or so, and it’s relatively fairly priced for trading in the US ADR and OTC markets as well, though it’s worth remembering that it can be difficult to sell those shares in a hurry if you hold them in the US instead of on the HK exchange because there isn’t nearly as much liquidity. AIRYY is the ADR, which is organized by a bank and counts for 20 shares on the HK exchange, AICAF is the 1:1 share listing OTC in the US. The shares closed at HK$5.03 in Hong Kong, which would be equal to US$0.65 at the current exchange rate (1US$ today equals 7.77 HK$, and that exchange rate stays pretty tight because Hong Kong pegs their currency to the US$), the AICAF shares last changed hands at 66 cents, which is pretty close to fair and not unusual for a US OTC share versus its home “fair” price, and the last trade of AIRYY at $12.88 is likewise pretty fair but off slightly in the other direction (it should be $13 based on the HK closing price).

So… sound like a good idea to you? Have any experience with Iskyan’s past advisories or with Chinese airlines? Let us know with a comment below…. and I’ll try to get to the other ideas he pitched in tomorrow’s piece. Thanks for reading!


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dealerdeb1
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dealerdeb1

I’ll wait and see what happens to Trump’s “China” LOL

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Scott
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Scott

I like the idea of investing in a Chinese airlines as the country becomes more mature industrialized and there is an emerging middle class; people will fly more. What scares me is that the average volume on both stocks you mention (AIRYY and AICAF) both trade less than 7500 shares per day…how can 1.5 BILLION Chinese people not drive this companies revenue?

pjwa
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pjwa

While it is true that Air China’s yield is about 2.5%, that doubled last year. It has not consistently risen, even dropped sharply 3 years’ ago. The central theme of rising middle class and overseas travellers is correct; but airlines are volatile and do not deserve a high rating in my view. Obviously the oil price has been tending the wrong way, and China’s currency is not helping either: earnings are in Chinese Yuan, even if the stock is quoted in HK dollars. And I suspect the Chinese will tease the new administration with further weakness in the currency. At… Read more »

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harpswell
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harpswell

Air China is a respected carrier, and quite pleasant to fly. The service has improved a great deal over the years. I am confident that most Chinese tourists will want to fly a Chinese airline. Trump’s strange approach to China may well push other Asian countries closer to China, which should benefit China. Despite Mr Xi’s Trumpian aspects, I continue to see a bright future for China, though as you point out the airline business may not be the one to pick.

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yclin6
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The air in China is generally terrible. LOL.

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