Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<p>In this insight, we provide an updated valuation of <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a>. We believe now is the time to go Underweight on Naver Corp, which is up 51% YTD versus KOSPI which is up 16% in the same period.</p><p>There are three major reasons why we believe investors should Underweight Naver Corp now.</p><ul>
<li>
<strong>First,</strong> our valuation analysis suggests that Naver Corp shares are overvalued.</li>
<li>
<strong>Second</strong>, we believe there could be a major shift in capital allocations away from some of the biggest beneficiaries of COVID-19 this year.</li>
<li>
<strong>Third,</strong> we believe the new partnership between Amazon &amp; 11st could pose a greater competitive threat to the entire e-commerce industry, negatively impacting Naver's e-commerce business.</li>
</ul>

In this insight, we provide an updated valuation of Naver Corp (035420 KS). We believe now is the time to go Underweight on Naver Corp, which is up 51% YTD versus KOSPI which is up 16% in the same period.There are three major reasons why we believe investors should Underweight Naver Corp now.

First, our valuation analysis suggests that Naver Corp shares are overvalued.

Second, we believe there could be a major shift in capital allocations away from some of the biggest beneficiaries of COVID-19 this year.

Third, we believe the new partnership between Amazon &amp; 11st could pose a greater competitive threat to the entire e-commerce industry, negatively impacting Naver's e-commerce business.


Naver - Time to Go Underweight (Covid Recovery + Amazon)

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Event-Driven

<div>
<p><a href="https://www.smartkarma.com/entities/wal-mart-stores-inc" target="_blank" data-smartkarma-citation="entities:11134:1" rel="noopener">Wal Mart Stores (WMT US)</a> will sell 85% of its stake in Seiyu, the Japanese general merchandise store (GMS) chain to <a href="https://www.smartkarma.com/entities/kkr-co-inc" target="_blank" data-smartkarma-citation="entities:27333:1" rel="noopener">KKR &amp; Co Inc (KKR US)</a> and <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten Inc (4755 JP). </a></p>
<p>This ends Walmart's original plans to relist its Japanese business and confirming widespread speculation that it has been trying to sell off its 330-store Japanese operation after 17 years of trying to turn the business around. The purchase price is a reported ¥172.5 billion, considerably less than the ¥441 billion Walmart paid for the business in 2007.</p>
<p>The deal is a win for KKR of course, but much more interestingly, is a huge win for Rakuten. <strong>We previously suggested <a href="https://www.smartkarma.com/insights/walmart-will-relist-japan-unit-soon-and-at-last-has-potential-to-grow-but-only-online" target="_blank" rel="noopener">in this Insight</a> that should the Walmart/Rakuten deal not grow fast enough, Rakuten would be a natural acquirer of the Seiyu business and this has turned out to be true – and for good strategic reasons.</strong></p>
</div><div>
<p>As described before <a href="https://www.smartkarma.com/insights/online-food-demand-brings-new-ideas-and-innovations" target="_blank" rel="noopener">here</a> and <a href="https://www.smartkarma.com/insights/online-food-boom-rakuten-walmart-alliance-goes-live" target="_blank" rel="noopener">here</a>, the Japanese online food market is only just beginning to boom (penetration of food retail by online is still less than 3%) and many of the key players are jockeying for position, led by <a href="https://www.smartkarma.com/entities/amazon-com-inc" target="_blank" data-smartkarma-citation="entities:409:1" rel="noopener">Amazon.com Inc (AMZN US)</a> in a joint venture with <a href="https://www.smartkarma.com/entities/life-corp" target="_blank" data-smartkarma-citation="entities:1743:1" rel="noopener">Life Corp (8194 JP).</a> </p>
<p>If Rakuten can begin to properly exploit Seiyu's physical store presence to quickly build out a nationwide online food delivery business, it should rapidly become one of the leaders in this fast-expanding market. And given how important the food/FMCG category is, leadership in food e-commerce equals leadership in BtoC e-commerce overall.</p>
</div>


Wal Mart Stores (WMT US) will sell 85% of its stake in Seiyu, the Japanese general merchandise store (GMS) chain to KKR &amp; Co Inc (KKR US) and Rakuten Inc (4755 JP). 
This ends Walmart's original plans to relist its Japanese business and confirming widespread speculation that it has been trying to sell off its 330-store Japanese operation after 17 years of trying to turn the business around. The purchase price is a reported ¥172.5 billion, considerably less than the ¥441 billion Walmart paid for the business in 2007.
The deal is a win for KKR of course, but much more interestingly, is a huge win for Rakuten. We previously suggested in this Insight that should the Walmart/Rakuten deal not grow fast enough, Rakuten would be a natural acquirer of the Seiyu business and this has turned out to be true – and for good strategic reasons.

As described before here and here, the Japanese online food market is only just beginning to boom (penetration of food retail by online is still less than 3%) and many of the key players are jockeying for position, led by Amazon.com Inc (AMZN US) in a joint venture with Life Corp (8194 JP). 
If Rakuten can begin to properly exploit Seiyu's physical store presence to quickly build out a nationwide online food delivery business, it should rapidly become one of the leaders in this fast-expanding market. And given how important the food/FMCG category is, leadership in food e-commerce equals leadership in BtoC e-commerce overall.


The Walmart Japan Sell Off: A Huge Gain for Rakuten

<p>It was <a href="https://finance.naver.com/news/news_read.nhn?article_id=0004449439&amp;office_id=015&amp;mode=LSS2D&amp;type=0&amp;section_id=101&amp;section_id2=258&amp;section_id3=&amp;date=20201113&amp;page=1" target="_blank" rel="noopener">announced</a> after the market close today that <a href="https://www.smartkarma.com/entities/amazon-com-inc" target="_blank" data-smartkarma-citation="entities:409:1" rel="noopener">Amazon.com Inc (AMZN US)</a> is close to completing a strategic partnership with <a href="https://www.smartkarma.com/entities/sk-telecom-co-ltd-bbccd86c-474d-4a4d-946d-10e911a225a2" target="_blank" data-smartkarma-citation="entities:395:1" rel="noopener">SK Telecom (017670 KS)</a>'s 11st e-commerce business (SK Telecom has an 80.3% stake in 11st). This strategic partnership is likely to include both Amazon taking an investment stake in 11st (potentially) as well as other business partnerships.</p><p>However, the exact investment amount has not yet been announced. However, the local <a href="https://www.sedaily.com/NewsView/1ZAE5G9L9S" target="_blank" rel="noopener">media</a> have mentioned that the investment amount could total about 50 billion won to 300 billion won. <strong>One of the key benefits of a strategic partnership between SK Telecom's 11st and Amazon is that it could accelerate the IPO of 11st. </strong></p><p>We believe a potential strategic partnership between SK Telecom and Amazon would be positive for SK Telecom. On a relative basis, SK Telecom probably has a lot more to gain from this partnership rather than Amazon.</p>

It was announced after the market close today that Amazon.com Inc (AMZN US) is close to completing a strategic partnership with SK Telecom (017670 KS)'s 11st e-commerce business (SK Telecom has an 80.3% stake in 11st). This strategic partnership is likely to include both Amazon taking an investment stake in 11st (potentially) as well as other business partnerships.However, the exact investment amount has not yet been announced. However, the local media have mentioned that the investment amount could total about 50 billion won to 300 billion won. One of the key benefits of a strategic partnership between SK Telecom's 11st and Amazon is that it could accelerate the IPO of 11st. We believe a potential strategic partnership between SK Telecom and Amazon would be positive for SK Telecom. On a relative basis, SK Telecom probably has a lot more to gain from this partnership rather than Amazon.

Amazon and SK Telecom's 11st Close to Forming a Strategic Partnership

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Thematic (Sector/Industry)

<div>
<div>During COVID-19, tech stocks have led the markets supported by demand expansion, strong balance sheets filled with cash, and innovative products. At the end of the cycle, there should be a rotation towards cyclical and value stocks but this time around is policy-induced recovery and during the COVID-19 crisis, tech stocks have led the recovery ahead of the cyclical. The question is whether this will carry on and large tech names to continue leading market recovery while cyclical drag their feet?</div>
</div>
<div></div>
<div>The regulator in China has given dominant tech names a slap in the wrist with the anti-trust law that proposes to democratize the payment systems that will inevitably break up the monopolies and these companies will lose their customers' stickiness. </div>
<div>
<div></div>
</div>
<div>In light of the <strong>antitrust</strong> law and the real economic recovery in China, investors should start to underweight technology stocks in China such as Tencent, Alibaba, Meituan, and start to overweight travel and tourism stocks such as <a href="https://www.smartkarma.com/entities/air-china-ltd-a" target="_blank" data-smartkarma-citation="entities:1080:1" rel="noopener">Air China Ltd (A) (601111 CH)</a> , <a href="https://www.smartkarma.com/entities/travelsky-technology-ltd-h" target="_blank" data-smartkarma-citation="entities:19829:1" rel="noopener">Travelsky Technology Ltd H (696 HK)</a> , <a href="https://www.smartkarma.com/entities/cathay-pacific-airways-ltd" target="_blank" data-smartkarma-citation="entities:243:1" rel="noopener">Cathay Pacific Airways (293 HK)</a> and also Industrials such as <a href="https://www.smartkarma.com/entities/zoomlion-heavy-industry-h" target="_blank" data-smartkarma-citation="entities:7817:1" rel="noopener">Zoomlion Heavy Industry H (1157 HK)</a> and <a href="https://www.smartkarma.com/entities/sany-heavy-equipment-intl" target="_blank" data-smartkarma-citation="entities:11104:1" rel="noopener">Sany Heavy Equipment Intl (631 HK)</a>expecting that construction works can resume at full capacity anytime soon. </div>
<div></div>
<div>Globally, dominant tech stocks (FANGS) such as <a href="https://www.smartkarma.com/entities/facebook-inc-a" target="_blank" data-smartkarma-citation="entities:665:1" rel="noopener">Facebook Inc A (FB US)</a> , <a href="https://www.smartkarma.com/entities/apple-inc" target="_blank" data-smartkarma-citation="entities:666:1" rel="noopener">Apple Inc (AAPL US)</a> , <a href="https://www.smartkarma.com/entities/netflix-inc" target="_blank" data-smartkarma-citation="entities:20451:1" rel="noopener">Netflix Inc (NFLX US)</a> and <a href="https://www.smartkarma.com/entities/alphabet-inc-cl-c" target="_blank" data-smartkarma-citation="entities:11369:1" rel="noopener">Alphabet Inc Cl C (GOOG US)</a> should start to be underweight due to the potential punitive measures from the House if Democrats win. Investors should start to overweight industrial stocks such as <a href="https://www.smartkarma.com/entities/caterpillar-inc" target="_blank" data-smartkarma-citation="entities:697:1" rel="noopener">Caterpillar Inc (CAT US)</a> and staples such as <a href="https://www.smartkarma.com/entities/procter-gamble-co" target="_blank" data-smartkarma-citation="entities:978:1" rel="noopener">Procter &amp; Gamble Co (PG US)</a> and <a href="https://www.smartkarma.com/entities/nestle-sa-020546b9-e58a-465b-a5ac-98e84143bf4c" target="_blank" data-smartkarma-citation="entities:27908:1" rel="noopener">Nestle SA (NESN SW)</a> . </div>
<div></div>
<div>Investors should also consider start building positions in blue-chip with moat names such as <a href="https://www.smartkarma.com/entities/visa-inc-class-a-shares" target="_blank" data-smartkarma-citation="entities:8707:1" rel="noopener">Visa Inc Class A Shares (V US)</a> and <a href="https://www.smartkarma.com/entities/travelers-cos-inc" target="_blank" data-smartkarma-citation="entities:10300:1" rel="noopener">Travelers Cos (TRV US)</a> as they provide stability and proxy to America's economic recovery. </div>


During COVID-19, tech stocks have led the markets supported by demand expansion, strong balance sheets filled with cash, and innovative products. At the end of the cycle, there should be a rotation towards cyclical and value stocks but this time around is policy-induced recovery and during the COVID-19 crisis, tech stocks have led the recovery ahead of the cyclical. The question is whether this will carry on and large tech names to continue leading market recovery while cyclical drag their feet?


The regulator in China has given dominant tech names a slap in the wrist with the anti-trust law that proposes to democratize the payment systems that will inevitably break up the monopolies and these companies will lose their customers' stickiness. 



In light of the antitrust law and the real economic recovery in China, investors should start to underweight technology stocks in China such as Tencent, Alibaba, Meituan, and start to overweight travel and tourism stocks such as Air China Ltd (A) (601111 CH) , Travelsky Technology Ltd H (696 HK) , Cathay Pacific Airways (293 HK) and also Industrials such as Zoomlion Heavy Industry H (1157 HK) and Sany Heavy Equipment Intl (631 HK)expecting that construction works can resume at full capacity anytime soon. 

Globally, dominant tech stocks (FANGS) such as Facebook Inc A (FB US) , Apple Inc (AAPL US) , Netflix Inc (NFLX US) and Alphabet Inc Cl C (GOOG US) should start to be underweight due to the potential punitive measures from the House if Democrats win. Investors should start to overweight industrial stocks such as Caterpillar Inc (CAT US) and staples such as Procter &amp; Gamble Co (PG US) and Nestle SA (NESN SW) . 

Investors should also consider start building positions in blue-chip with moat names such as Visa Inc Class A Shares (V US) and Travelers Cos (TRV US) as they provide stability and proxy to America's economic recovery. 

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

<ul>
<li>
<a href="https://www.smartkarma.com/entities/mercadolibre-inc" target="_blank" data-smartkarma-citation="entities:27954:1" rel="noopener">MercadoLibre Inc (MELI US)</a> shares have continued to re-rate, supported by positive 3Q20 results</li>
<li>E-commerce and payments growth rates are accelerating, as MELI is a key LatAm beneficiary of the pandemic shift to e-commerce and digital payments</li>
<li>Consensus estimate revisions are positive, as shown in the chart, and this has powered share price momentum</li>
<li>On valuations, however, we believe that these are stretched; the 2021 revenue multiple is double that of <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> </li>
<li>Even on our generous assumptions for a simple SOTP valuation, MELI valuations look stretched</li>
<li>In the light of the positive vaccine news, we believe that tech pandemic beneficiaries, including MELI, are exposed to sentiment-driven investor rotation out of high valuation tech names and into value stocks</li>
<li>Risks to our cautious view on MELI include a continued fast pace of e-commerce and digital payments activity in LatAm driving revenue, EBITDA and net profit higher</li>
</ul>



MercadoLibre Inc (MELI US) shares have continued to re-rate, supported by positive 3Q20 results
E-commerce and payments growth rates are accelerating, as MELI is a key LatAm beneficiary of the pandemic shift to e-commerce and digital payments
Consensus estimate revisions are positive, as shown in the chart, and this has powered share price momentum
On valuations, however, we believe that these are stretched; the 2021 revenue multiple is double that of Alibaba Group (BABA US) 
Even on our generous assumptions for a simple SOTP valuation, MELI valuations look stretched
In the light of the positive vaccine news, we believe that tech pandemic beneficiaries, including MELI, are exposed to sentiment-driven investor rotation out of high valuation tech names and into value stocks
Risks to our cautious view on MELI include a continued fast pace of e-commerce and digital payments activity in LatAm driving revenue, EBITDA and net profit higher


Mercado Libre (MELI US): Share Momentum Driven by Fundamentals, but Exposed to Stretched Valuations

United States

Amazon.com, Inc. is an online retailer that offers a wide range of products. The Company's products include books, music, videotapes, computers, electronics, home and garden, and numerous other products.  Amazon offers personalized shopping services, Web-based credit card payment, and direct shipping to customers.

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Amazon.com Inc (AMZN US)

Naver - Time to Go Underweight (Covid Recovery + Amazon)

In this insight, we provide an updated valuation of Naver Corp (035420 KS). We believe now is the time to go Underweight on Naver Corp, which is up...

Douglas Kim

The Walmart Japan Sell Off: A Huge Gain for Rakuten

We predicted the sale of Seiyu by Walmart to Rakuten and this is now happening (with KKR funding). It is a huge step for Rakuten in the war for...

Michael Causton

Amazon and SK Telecom's 11st Close to Forming a Strategic Partnership

It was announced after the market close today that Amazon.com Inc (AMZN US) is close to completing a strategic partnership with SK Telecom (017670...

Douglas Kim

Tech Sell-Off: Stop or Carry On?

In light of the anti-trust law in China, real economic recovery, higher corporate tax rates in the US, and breakup of dominant tech firms,...

Henry Soediarko

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Naver - Time to Go Underweight (Covid Recovery + Amazon)

In this insight, we provide an updated valuation of Naver Corp (035420 KS). We believe now is the time to go Underweight on Naver Corp, which is up...

Douglas Kim

The Walmart Japan Sell Off: A Huge Gain for Rakuten

We predicted the sale of Seiyu by Walmart to Rakuten and this is now happening (with KKR funding). It is a huge step for Rakuten in the war for...

Michael Causton

Amazon and SK Telecom's 11st Close to Forming a Strategic Partnership

It was announced after the market close today that Amazon.com Inc (AMZN US) is close to completing a strategic partnership with SK Telecom (017670...

Douglas Kim

Tech Sell-Off: Stop or Carry On?

In light of the anti-trust law in China, real economic recovery, higher corporate tax rates in the US, and breakup of dominant tech firms,...

Henry Soediarko

Mercado Libre (MELI US): Share Momentum Driven by Fundamentals, but Exposed to Stretched Valuations

Mercado Libre is a beneficiary of the pandemic-driven shift to e-commerce and e-payments, but its valuation is stretched, EPS revisions are fading...

Victor Galliano