Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

CJ CheilJedang Corp. manufactures processed food products.  The Company's products include refined sugar, monosodium glutamate (MSG), condiment, wheat powder, flour, cooking oil, processed meats, and animal feed.  CJ CheilJedang also manufactures pharmaceutical and household products.

<ul>
<li>Back in December 2019, we provided our top high conviction in 2020 in an insight called <a href="https://www.smartkarma.com/insights/2020-high-conviction-cj-cheiljedang-renewed-focus-on-profits" target="_blank" data-smartkarma-citation="insights:35284" rel="noopener">2020 High Conviction: CJ Cheiljedang - Renewed Focus on Profits</a>. In this report, we provide an updated analysis of <a href="https://www.smartkarma.com/entities/cj-cheiljedang-corp" target="_blank" data-smartkarma-citation="entities:1970:1" rel="noopener">CJ Cheiljedang (097950 KS)</a> which has been a big outperformer vs. KOSPI this year as CJ Cheiljedang's share price is up 55% YTD whereas KOSPI is up only 1% YTD.</li>
<li>
<a href="https://www.smartkarma.com/entities/cj-cheiljedang-corp" target="_blank" data-smartkarma-citation="entities:1970:1" rel="noopener">CJ Cheiljedang (097950 KS)</a> has been one of the biggest beneficiaries of the extended COVID-19 lockdown and social distancing measures as millions of people in Korea and the U.S. spend more time at home and also eat more food at home rather than dine out. </li>
<li>Today, the consensus expects the company to generate controlling interest equity of 6.1 trillion won at the end of 2021. If we use the same P/B multiple of 1.15x (as in December 2019) and apply this to the controlling interest equity of 6.1 trillion won, this suggests an implied market cap of 7.0 trillion won or 466,113 won (representing an upside of 19% over a one year period). Overall, we continue to have a positive view of CJ Cheiljedang and believe this stock is likely to continue to outperform KOSPI over the next 6-12 months. 
</li>
</ul>


Back in December 2019, we provided our top high conviction in 2020 in an insight called 2020 High Conviction: CJ Cheiljedang - Renewed Focus on Profits. In this report, we provide an updated analysis of CJ Cheiljedang (097950 KS) which has been a big outperformer vs. KOSPI this year as CJ Cheiljedang's share price is up 55% YTD whereas KOSPI is up only 1% YTD.

CJ Cheiljedang (097950 KS) has been one of the biggest beneficiaries of the extended COVID-19 lockdown and social distancing measures as millions of people in Korea and the U.S. spend more time at home and also eat more food at home rather than dine out. 
Today, the consensus expects the company to generate controlling interest equity of 6.1 trillion won at the end of 2021. If we use the same P/B multiple of 1.15x (as in December 2019) and apply this to the controlling interest equity of 6.1 trillion won, this suggests an implied market cap of 7.0 trillion won or 466,113 won (representing an upside of 19% over a one year period). Overall, we continue to have a positive view of CJ Cheiljedang and believe this stock is likely to continue to outperform KOSPI over the next 6-12 months. 



2020 High Conviction: CJ Cheiljedang Revisited

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Hoya Corp manufactures electro-optics products such as mask blanks for semiconductors, photomasks for LCD panels, optical glasses, glass memory disks for HDDs, medical flexible endoscopes, eyeglasses, and contact lenses. The Company also provides information system architecture.

We have been covering Hoya for close to a year and the company’s share price has rallied 71% over the last 12-months to JPY10,450 a share from JPY6,101 a share. While Hoya operates a solid business with good long-term growth potential, we believe, the company is presented with a strong opportunity to grow its earnings over the next 2-3 years driven by its Electronics business, EUV blanks and glass substrates in particular.Hoya is the largest supplier of mask blanks for EUV lithography which has just entered into mainstream production. In addition, we expect the process node migration to continue to drive demand for EUV mask blanks as further miniaturisation of semiconductor chips is not possible without EUV.Hoya has been the only supplier of glass substrates for HDDs and with growing data center capex and increased demand for large data storage, the HDD makers will switch to glass from aluminium and other materials which are currently being used. We expect this to offer growth in earnings for the segment. On the other hand, we expect Hoya’s Life Care business to remain solid and contribute to earnings.

We have been covering Hoya for close to a year and the company’s share price has rallied 71% over the last 12-months to JPY10,450 a share from JPY6,101 a share. While Hoya operates a solid business with good long-term growth potential, we believe, the company is presented with a strong opportunity to grow its earnings over the next 2-3 years driven by its Electronics business, EUV blanks and glass substrates in particular.Hoya is the largest supplier of mask blanks for EUV lithography which has just entered into mainstream production. In addition, we expect the process node migration to continue to drive demand for EUV mask blanks as further miniaturisation of semiconductor chips is not possible without EUV.Hoya has been the only supplier of glass substrates for HDDs and with growing data center capex and increased demand for large data storage, the HDD makers will switch to glass from aluminium and other materials which are currently being used. We expect this to offer growth in earnings for the segment. On the other hand, we expect Hoya’s Life Care business to remain solid and contribute to earnings.

2020 High Conviction: EUV Mask Blanks, Glass Substrates for HDDs Drive Next Phase of Growth for Hoya

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Suruga Bank Ltd. is a Shizuoka based regional bank mainly operating in the Kanto area (central eastern part of Japan) including Tokyo.  The Bank provides deposits, loans, and foreign exchange transactions.  The Suruga Bank also provides financial services such as leasing, letter of credit, and credit cards services.

We expect the stock price of <a href="https://www.smartkarma.com/entities/suruga-bank-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:6267:1">Suruga Bank Ltd (8358 JP)</a> to significantly outperform the rest of the Japanese banking sector in CY2020.  We calculate fair value for the shares as being around the ¥1,060 level, suggesting the potential for the stock to double from current levels during CY2020.  The shares have risen over 28% since late December last year: a performance only matched in the Japanese banking sector by <a href="https://www.smartkarma.com/entities/shinsei-bank-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:16897:1">Shinsei Bank (8303 JP)</a>.  Yet we see the potential for further price appreciation from current levels.  Recent events supporting this thesis include the resolution of the Okano Family shareholding issue, and an upward revision to full-year guidance.  With the stock now trading around the ¥500 level, the stock looks poised for a re-assessment by investors.  Future positive catalysts may include details of the business alliance with the bank’s largest shareholder, the possibility of further upward revisions to guidance as the fiscal year-end approaches, and the potential for management to reinstate a dividend payout by fiscal year-end.That said, significant investment risks remain.  The story of Suruga Bank is a sad saga of a once highly-profitable bank that fell victim to fraud and falsification, and to a systemic breakdown in its own internal controls. Foreign investors deserted the bank in droves in 2018 and 2019 as core earnings collapsed and bad loans soared to double-digits.  Even now, credit costs remain high, the loan book is still shrinking, customer deposit withdrawals continue (although the pace has clearly slowed), the dividend is still suspended, and the bank badly needs a long-term viable business model if it is to survive as an independent entity.  The bank remains a pariah to many investors.  But in adversity lies opportunity.  At current levels, the stock remains seriously mispriced in our opinion.

We expect the stock price of Suruga Bank Ltd (8358 JP) to significantly outperform the rest of the Japanese banking sector in CY2020.  We calculate fair value for the shares as being around the ¥1,060 level, suggesting the potential for the stock to double from current levels during CY2020.  The shares have risen over 28% since late December last year: a performance only matched in the Japanese banking sector by Shinsei Bank (8303 JP).  Yet we see the potential for further price appreciation from current levels.  Recent events supporting this thesis include the resolution of the Okano Family shareholding issue, and an upward revision to full-year guidance.  With the stock now trading around the ¥500 level, the stock looks poised for a re-assessment by investors.  Future positive catalysts may include details of the business alliance with the bank’s largest shareholder, the possibility of further upward revisions to guidance as the fiscal year-end approaches, and the potential for management to reinstate a dividend payout by fiscal year-end.That said, significant investment risks remain.  The story of Suruga Bank is a sad saga of a once highly-profitable bank that fell victim to fraud and falsification, and to a systemic breakdown in its own internal controls. Foreign investors deserted the bank in droves in 2018 and 2019 as core earnings collapsed and bad loans soared to double-digits.  Even now, credit costs remain high, the loan book is still shrinking, customer deposit withdrawals continue (although the pace has clearly slowed), the dividend is still suspended, and the bank badly needs a long-term viable business model if it is to survive as an independent entity.  The bank remains a pariah to many investors.  But in adversity lies opportunity.  At current levels, the stock remains seriously mispriced in our opinion.

2020 High Conviction:  Suruga Bank (8358 JP) - Fortune Favours the Brave

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Mercari, Inc. operates as an electronic commercial company. The Company offers electronic commercial software, operation management, marketing planning, and other marketplace services. Mercari serves customers worldwide.

As we look out to the new year, we review and update one of our very highest conviction calls for the long-term: Mercari. Having followed the name since its listing, and with our own experience within a Japanese tech startup attempting to venture overseas we believe we have an edge in analysing the company and while the company still has a few things to prove, we believe their approach will lead to eventual success. Something which is clearly not priced in yet.

As we look out to the new year, we review and update one of our very highest conviction calls for the long-term: Mercari. Having followed the name since its listing, and with our own experience within a Japanese tech startup attempting to venture overseas we believe we have an edge in analysing the company and while the company still has a few things to prove, we believe their approach will lead to eventual success. Something which is clearly not priced in yet.

2020 High Conviction - A Mercarific Holiday Season to All

Semiconductors, Memory and SSDs Specialist, Objective Analysis

Jim Handy

Semiconductors, Memory and SSDs Specialist

Objective Analysis

Objective Analysis offers third-party independent market research and data for the semiconductor industry and investors in the semiconductor industry.

Semiconductors, Memory and SSDs

Thematic (Sector/Industry)

2020 will experience a turnaround in semiconductor revenues, especially its most volatile (and largest) sector: memory chips.  This turnaround will change the  attitude of investors to this  market, leading to stock price gains well in advance to these companies' returns to profits.  Major companies to watch will be SK hynix, and Micron Technology, while privately-held Kioxia may schedule its IPO for 2020.  Samsung Electronics and WDC should experience more modest price increases because of the more  diverse nature of their businesses.

2020 will experience a turnaround in semiconductor revenues, especially its most volatile (and largest) sector: memory chips.  This turnaround will change the  attitude of investors to this  market, leading to stock price gains well in advance to these companies' returns to profits.  Major companies to watch will be SK hynix, and Micron Technology, while privately-held Kioxia may schedule its IPO for 2020.  Samsung Electronics and WDC should experience more modest price increases because of the more  diverse nature of their businesses.