Portfolio Manager/Head of Equity Investment, Tandem Investors Limited

Jason Oh

Portfolio Manager/Head of Equity Investment

Tandem Investors Limited

Equity Bottom-Up

Increase the weight in Asia Pacific model portfolio from 1.0% to 3.7% We increased the weight of <a href="https://www.smartkarma.com/entities/15064" target="_blank" data-smartkarma-citation="entities:15064:1">Toyo Tire &amp; Rubber Co Ltd (5105 JP)</a> in our Asia Pacific long-short model portfolio from 1.0% to 3.7% due to the followings; 1) The company's TFS(Tandem Fundamental Score) is 1.06, which means the current price level is attractive compared to the company's fundamental, according to our quant model, 2) The company's monthly TTS(Tandem Technical Score) is 2.14, implying the share price is highly likely to rise in the long-term, 3) Weak JPY is likely to boost the revenue and margin,  especially in North America, the biggest revenue source by region, 4) rubber price rebound is likely to be positive for branded, high-end tire manufacturer, due to the pass-through of the raw material hike, while low-end Chinese makers may not compete with the price cut anymore.Strong presence in North America SUV segment  The company's strategic focus has been on North America SUV market, especially with All-Weather type tire, which is regarded as revolutionary approach according to the local media. Backed by the growth of the market and favorable responses from the customers, the company had been successfully increasing its market share and margin during 2013~2015. To follow up the results, the company has been investing in production facilities in the US, which now accounts for over 40% of its production capacity. If the new US administration is supporting on-shoring companies, as promised, the company might be benefited by the policy.Valuation looks attractive as the time for harvest is coming  Due to the strong JPY until 3Q16 and one-off loss provision of non-tire business, the company's share price has been under pressure, even when JPY was sharply getting weaker in 4Q16. As a result, the company's valuation multiples are now the lowest among global peers, and we believe it's providing a good bargain opportunity, given that 1) the company's aggressive CAPEX in the US production facilities peaked in 2015, 2) free cash flow is expected to turn positive from 2016, 3) tire business is still growing in 2016 in local currency, while JPY-denominated revenue decreased due to strong JPY until 3Q16.

Increase the weight in Asia Pacific model portfolio from 1.0% to 3.7% We increased the weight of Toyo Tire &amp; Rubber Co Ltd (5105 JP) in our Asia Pacific long-short model portfolio from 1.0% to 3.7% due to the followings; 1) The company's TFS(Tandem Fundamental Score) is 1.06, which means the current price level is attractive compared to the company's fundamental, according to our quant model, 2) The company's monthly TTS(Tandem Technical Score) is 2.14, implying the share price is highly likely to rise in the long-term, 3) Weak JPY is likely to boost the revenue and margin,  especially in North America, the biggest revenue source by region, 4) rubber price rebound is likely to be positive for branded, high-end tire manufacturer, due to the pass-through of the raw material hike, while low-end Chinese makers may not compete with the price cut anymore.Strong presence in North America SUV segment  The company's strategic focus has been on North America SUV market, especially with All-Weather type tire, which is regarded as revolutionary approach according to the local media. Backed by the growth of the market and favorable responses from the customers, the company had been successfully increasing its market share and margin during 2013~2015. To follow up the results, the company has been investing in production facilities in the US, which now accounts for over 40% of its production capacity. If the new US administration is supporting on-shoring companies, as promised, the company might be benefited by the policy.Valuation looks attractive as the time for harvest is coming  Due to the strong JPY until 3Q16 and one-off loss provision of non-tire business, the company's share price has been under pressure, even when JPY was sharply getting weaker in 4Q16. As a result, the company's valuation multiples are now the lowest among global peers, and we believe it's providing a good bargain opportunity, given that 1) the company's aggressive CAPEX in the US production facilities peaked in 2015, 2) free cash flow is expected to turn positive from 2016, 3) tire business is still growing in 2016 in local currency, while JPY-denominated revenue decreased due to strong JPY until 3Q16.

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Founder

Independent equity research on GEM Markets

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Thematic (Sector/Industry)

<ul class="ul1"><li class="li1">In this month’s analysis of the RRG Global Consumer Sentiment Index (GCSI) we review the current dynamics behind the global economy and highlight a number of key positive developments that have greatly eased our concerns over the near term trajectory of the global economy. </li></ul><ul class="ul1"><li class="li1">The near term trajectory of the GCSI (and therefore global economy) is dependent on two factors: </li></ul><ol class="ol1"><li class="li1">Whether or not the turmoil surrounding the Brexit is able to derail the ongoing ‘global process of runaway exuberance’ </li><li class="li1">A further stabilization in China’s economy</li></ol><ul class="ul1"><li class="li1">Preliminary European Union Consumer Confidence data for July (reflecting the impact of the Brexit) provides an indication that the Brexit has not derailed the ‘global process of runaway exuberance’.</li></ul><ul class="ul1"><li class="li1">As indicated by our China Drag/Pull Indicator China’s economy is stabilizing, acting as less and less of a drag on the global economy. (In June the indicator increased to a level of -.44). As China’s economy continues to stabilize, the global process of runaway exuberance can be expected to continue.</li></ul><ul class="ul1"><li class="li1">As the global process of runaway exuberance continues the GCSI can be expected to reach very elevated levels near 1 by late 2016/early 2017 (indicating the global economy is in the process of overheating). </li></ul><ul class="ul1"><li class="li1">Despite the growing risks associated with an overheating global economy, global equity markets are expected to continue higher as we approach the late stages of runaway exuberance. </li></ul><ul class="ul1"><li class="li1">As this dynamic continues to play out we recommend investors maintain overweight positions in Emerging Markets most exposed to a set of ‘key risk factors’ including Russia, Brazil, Chile, Malaysia, Peru and Turkey. </li></ul><ul class="ul1"><li class="li1">As it has become increasingly apparent that the turmoil surrounding the Brexit has not derailed the global process of runaway exuberance we recommend restoring exposure to risk. </li></ul>

In this month’s analysis of the RRG Global Consumer Sentiment Index (GCSI) we review the current dynamics behind the global economy and highlight a number of key positive developments that have greatly eased our concerns over the near term trajectory of the global economy. The near term trajectory of the GCSI (and therefore global economy) is dependent on two factors: Whether or not the turmoil surrounding the Brexit is able to derail the ongoing ‘global process of runaway exuberance’ A further stabilization in China’s economyPreliminary European Union Consumer Confidence data for July (reflecting the impact of the Brexit) provides an indication that the Brexit has not derailed the ‘global process of runaway exuberance’.As indicated by our China Drag/Pull Indicator China’s economy is stabilizing, acting as less and less of a drag on the global economy. (In June the indicator increased to a level of -.44). As China’s economy continues to stabilize, the global process of runaway exuberance can be expected to continue.As the global process of runaway exuberance continues the GCSI can be expected to reach very elevated levels near 1 by late 2016/early 2017 (indicating the global economy is in the process of overheating). Despite the growing risks associated with an overheating global economy, global equity markets are expected to continue higher as we approach the late stages of runaway exuberance. As this dynamic continues to play out we recommend investors maintain overweight positions in Emerging Markets most exposed to a set of ‘key risk factors’ including Russia, Brazil, Chile, Malaysia, Peru and Turkey. As it has become increasingly apparent that the turmoil surrounding the Brexit has not derailed the global process of runaway exuberance we recommend restoring exposure to risk. 

Outlook For Global Economy and Markets Through Late 2016

Taiwan

Cheng Shin Rubber Industry Co., Ltd. manufactures tires.  The Company produces bicycle, radial, bias, motorcycle, agricultural, and industrial tires.  Cheng Shin markets its tires and tubes in Taiwan as well as exports to North America and Europe.

Cheng Shin Rubber Ind Co., Ltd. (2105 TT)

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Cheng Shin Rubber Ind Co., Ltd. (2105 TT)

Toyo Tire & Rubber: Time for Harvest

Increase the weight in Asia Pacific model portfolio from 1.0% to 3.7% We increased the weight of Toyo Tire & Rubber Co Ltd (5105 JP) in our...

Jason Oh

Outlook For Global Economy and Markets Through Late 2016

In this month’s analysis of the RRG Global Consumer Sentiment Index (GCSI) we review the current dynamics behind the global economy and highlight a...

David Riedel

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)