Equity Analyst, LightStream Research

Chacko Jacob

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.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/4130" target="_blank" data-smartkarma-citation="entities:4130:1">Ntn Corp (6472 JP)</a> is a leading manufacturer of precision mechanical parts and components, especially hub bearings for which the company is a global market leader. The company’s overseas business accounted for 72% of its total sales in FY2016.  This year marks the beginning of the company’s second century of existence. To remain relevant for the next 100 years, the company has forayed into four new businesses namely, green energy, EV, robotics and service and solutions. By shifting its focus to new areas, NTN aims to double its revenues by 2025 to about JPY 1.3tn while increasing its operating margin to 10-15% from the current 5.1%.In April 2018, NTN<a href="https://asia.nikkei.com/Business/Companies/Japan-s-NTN-to-supply-in-wheel-motor-tech-to-Chinese-startup" target="_blank"> concluded</a> a licensing contract with Chinese EV startup Changchun Fawsn Auto Tech (FSAT) to provide air cooled in-wheel motors and vehicle motion control systems. This partnership marks the first time that EVs with in-wheel motors will be mass produced. While the deal is still on paper, it is likely to serve as a significant growth trigger in the next 2-3 years. However, in the short to medium-term we are sceptical on the company's growth prospects, largely due to its exposure to business cycles in regions that it operates in:<ul><li>FY2017 could mark the growth peak of its latest cycle and we expect revenue to remain flat in the coming two years.</li><li>Bottlenecks in its industrial machinery segment have prevented the company from keeping up with demand.</li><li>Japanese PMI has hit its highest point in four years and FY2018 could see a period of cooling.</li><li>The stronger yen, which has already pared export growth in March-April, could make the company’s products more expensive to end-users, mainly in Asia.</li><li>Lastly, the company has blamed the shrinking market in Japan for its falling aftermarket revenue. The company’s plan to increase market share in other regions could take time to materialise.</li></ul>

Ntn Corp (6472 JP) is a leading manufacturer of precision mechanical parts and components, especially hub bearings for which the company is a global market leader. The company’s overseas business accounted for 72% of its total sales in FY2016.  This year marks the beginning of the company’s second century of existence. To remain relevant for the next 100 years, the company has forayed into four new businesses namely, green energy, EV, robotics and service and solutions. By shifting its focus to new areas, NTN aims to double its revenues by 2025 to about JPY 1.3tn while increasing its operating margin to 10-15% from the current 5.1%.In April 2018, NTN concluded a licensing contract with Chinese EV startup Changchun Fawsn Auto Tech (FSAT) to provide air cooled in-wheel motors and vehicle motion control systems. This partnership marks the first time that EVs with in-wheel motors will be mass produced. While the deal is still on paper, it is likely to serve as a significant growth trigger in the next 2-3 years. However, in the short to medium-term we are sceptical on the company's growth prospects, largely due to its exposure to business cycles in regions that it operates in:FY2017 could mark the growth peak of its latest cycle and we expect revenue to remain flat in the coming two years.Bottlenecks in its industrial machinery segment have prevented the company from keeping up with demand.Japanese PMI has hit its highest point in four years and FY2018 could see a period of cooling.The stronger yen, which has already pared export growth in March-April, could make the company’s products more expensive to end-users, mainly in Asia.Lastly, the company has blamed the shrinking market in Japan for its falling aftermarket revenue. The company’s plan to increase market share in other regions could take time to materialise.

NTN's FY2018 Forecast Likely to Be Muted; Plays First-Mover Card with In-Wheel Motors for EVs

Investment Advisors, JL Warren Capital

Junheng Li

Investment Advisors

JL Warren Capital

JL Warren Capital LLC is a leading independent equity research firm focused on Chinese companies and listed multinationals in China. We employ a bottom-up research approach that takes great care to avoid the acquisition of material non-public information. Through investigative due diligence including channel surveys and interviews, our research helps clients to pinpoint the dislocations in the market.

Thematic (Sector/Industry)

In 2M 2018 (January and February), retail, wholesale and production of Chinese auto market grew by 5%, 3% and -3% in unit volume, respectively.  <a href="https://www.smartkarma.com/entities/127" target="_blank" data-smartkarma-citation="entities:127:1">Geely Automobile Holdings Ltd (175 HK)</a>Geely, <a href="https://www.smartkarma.com/entities/6497" target="_blank" data-smartkarma-citation="entities:6497:1">Faw Car Company Limited A (000800 CH)</a> Audi and <a href="https://www.smartkarma.com/entities/20962" target="_blank" data-smartkarma-citation="entities:20962:1">BYD Co Ltd (H) (1211 HK)</a> grew 38%, 32% and 30% year-over-year respectively, representing the fastest growers among the major Chinese OEMs.  DF Kia, Changan Ford, and BAIC Hyundai were the market share losers, declining 16%, 29% and 32% year-over-year in unit sales respectively. Luxury JV brands <a href="https://www.smartkarma.com/entities/21738" target="_blank" data-smartkarma-citation="entities:21738:1">Volkswagen AG (VOW GR)</a> Audi, <a href="https://www.smartkarma.com/entities/21602" target="_blank" data-smartkarma-citation="entities:21602:1">Daimler AG (DAI GR)</a>Benz, <a href="https://www.smartkarma.com/entities/21591" target="_blank" data-smartkarma-citation="entities:21591:1">Bayerische Motoren Werke AG (BMW GR)</a> all outperformed the overall market by delivering strong double digits growth.An amended EV policy was announced on February 11 and it states that the subsidies for PHEV (plug-in hybrid electric vehicles) and low mileage pure EVs by central and local governments are to be abolished, while the subsidies to high mileage EVs are to be raised by 14%.  Consumers are pushing back the purchase of high quality EVs till June to benefit from the proposed subsidy increase and pushing forward the purchase of low quality EVs before the subsidy is cut/abolished.   That explains the soaring demand for BYD Song DM (PHEV) and Qin PHEV during 2M 2018.

In 2M 2018 (January and February), retail, wholesale and production of Chinese auto market grew by 5%, 3% and -3% in unit volume, respectively.  Geely Automobile Holdings Ltd (175 HK)Geely, Faw Car Company Limited A (000800 CH) Audi and BYD Co Ltd (H) (1211 HK) grew 38%, 32% and 30% year-over-year respectively, representing the fastest growers among the major Chinese OEMs.  DF Kia, Changan Ford, and BAIC Hyundai were the market share losers, declining 16%, 29% and 32% year-over-year in unit sales respectively. Luxury JV brands Volkswagen AG (VOW GR) Audi, Daimler AG (DAI GR)Benz, Bayerische Motoren Werke AG (BMW GR) all outperformed the overall market by delivering strong double digits growth.An amended EV policy was announced on February 11 and it states that the subsidies for PHEV (plug-in hybrid electric vehicles) and low mileage pure EVs by central and local governments are to be abolished, while the subsidies to high mileage EVs are to be raised by 14%.  Consumers are pushing back the purchase of high quality EVs till June to benefit from the proposed subsidy increase and pushing forward the purchase of low quality EVs before the subsidy is cut/abolished.   That explains the soaring demand for BYD Song DM (PHEV) and Qin PHEV during 2M 2018. 

China Auto 2M 2018: Amended EV Policy, Geely, Tesla, and Auto Tariff Reduction

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

With the coming of ADAS and autonomous driving as well as the Chinese government rule to reduce carbon footprint, <a href="https://www.smartkarma.com/entities/minth-group-ltd" target="_blank" data-smartkarma-citation="entities:9232:1">Minth Group Ltd (425 HK)</a> has made the necessary investment teaming up with Fujitsu for automotive camera module as well as a constant investment on aluminum's R&amp;D for a lighter car body part, which proves to be quite an effective way to increase fuel efficiency that will reduce carbon emission.  With international customers such as Daimler, BMW, VW, Fiat, Toyota, Peugeot, Ford, Suzuki and in China GAIC, Great Wall, Minth holds a steady position in the car manufacturing value chain and known as the trusted exterior body parts provider as well as an aluminum product that help to reduce car's body weight. As the world is moving towards an autonomous driving and a more eco-friendly car, Minth is well positioned to be the key beneficiary of this trend.Despite their position as market leader on the producer of exterior body parts, Minth is only trading at 20x earnings. Once their investment in automotive camera module starts producing a return, the stock should trade at a higher valuation than it is now.

With the coming of ADAS and autonomous driving as well as the Chinese government rule to reduce carbon footprint, Minth Group Ltd (425 HK) has made the necessary investment teaming up with Fujitsu for automotive camera module as well as a constant investment on aluminum's R&amp;D for a lighter car body part, which proves to be quite an effective way to increase fuel efficiency that will reduce carbon emission.  With international customers such as Daimler, BMW, VW, Fiat, Toyota, Peugeot, Ford, Suzuki and in China GAIC, Great Wall, Minth holds a steady position in the car manufacturing value chain and known as the trusted exterior body parts provider as well as an aluminum product that help to reduce car's body weight. As the world is moving towards an autonomous driving and a more eco-friendly car, Minth is well positioned to be the key beneficiary of this trend.Despite their position as market leader on the producer of exterior body parts, Minth is only trading at 20x earnings. Once their investment in automotive camera module starts producing a return, the stock should trade at a higher valuation than it is now. 

When Your Car Needs to Go on Diet - Call Minth

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

This week the Macau government proposed to the Second Standing Committee of Macau Legislative Assembly to allow smoking only in smoking lounges in casinos effective on Jan. 1, 2019, one year later than our existing expectation. Our current forecasts across our narrow moat coverage universe already factor in a negative mid-single-digit percentage point impact to VIP play in 2018, and postponing that one year is not expected to have any significant impact to our fair value estimates. Our current fair value estimates per share are HKD 17 for <a href="https://www.smartkarma.com/entities/472" target="_blank" data-smartkarma-citation="entities:472:1">MGM China Holdings Ltd (2282 HK)</a>, HKD 36 for <a href="https://www.smartkarma.com/entities/182" target="_blank" data-smartkarma-citation="entities:182:1">Sands China Ltd (1928 HK)</a>, HKD 14 for <a href="https://www.smartkarma.com/entities/473" target="_blank" data-smartkarma-citation="entities:473:1">Wynn Macau Ltd (1128 HK)</a>, USD 17 for <a href="https://www.smartkarma.com/entities/810" target="_blank" data-smartkarma-citation="entities:810:1">Melco Crown Entertainment ADR (MPEL US)</a>, HKD 36 for <a href="https://www.smartkarma.com/entities/806" target="_blank" data-smartkarma-citation="entities:806:1">Galaxy Entertainment Group Limited (27 HK)</a>, HKD 6.6 for <a href="https://www.smartkarma.com/entities/805" target="_blank" data-smartkarma-citation="entities:805:1">SJM Holdings Ltd (880 HK)</a>, $133 for <a href="https://www.smartkarma.com/entities/606" target="_blank" data-smartkarma-citation="entities:606:1">Wynn Resorts Ltd (WYNN US)</a>, $56 for <a href="https://www.smartkarma.com/entities/807" target="_blank" data-smartkarma-citation="entities:807:1">Las Vegas Sands Corp (LVS US)</a>, and $29.50 for <a href="https://www.smartkarma.com/entities/16227" target="_blank" data-smartkarma-citation="entities:16227:1">MGM Resorts International (MGM US)</a>. We continue to see Wynn trading at an attractive margin of safety.The revised bill creates a level playing field for casino operators. We have confirmed with a Macau legislative assembly member that the revised bill outlines that all VIP smoking gaming areas will be closed and that all casinos will be able to establish smoking lounges on both VIP and mass gaming floors. Therefore, under the proposed bill newer casinos will be able to establish smoking lounges in VIP gaming areas, while the older casinos will lose the smoking premium mass and VIP smoking area. As a result, Cotai casinos as a whole stand to gain market share at the expense of Macau peninsula casinos.Analyst: Chelsea Tam

This week the Macau government proposed to the Second Standing Committee of Macau Legislative Assembly to allow smoking only in smoking lounges in casinos effective on Jan. 1, 2019, one year later than our existing expectation. Our current forecasts across our narrow moat coverage universe already factor in a negative mid-single-digit percentage point impact to VIP play in 2018, and postponing that one year is not expected to have any significant impact to our fair value estimates. Our current fair value estimates per share are HKD 17 for MGM China Holdings Ltd (2282 HK), HKD 36 for Sands China Ltd (1928 HK), HKD 14 for Wynn Macau Ltd (1128 HK), USD 17 for Melco Crown Entertainment ADR (MPEL US), HKD 36 for Galaxy Entertainment Group Limited (27 HK), HKD 6.6 for SJM Holdings Ltd (880 HK), $133 for Wynn Resorts Ltd (WYNN US), $56 for Las Vegas Sands Corp (LVS US), and $29.50 for MGM Resorts International (MGM US). We continue to see Wynn trading at an attractive margin of safety.The revised bill creates a level playing field for casino operators. We have confirmed with a Macau legislative assembly member that the revised bill outlines that all VIP smoking gaming areas will be closed and that all casinos will be able to establish smoking lounges on both VIP and mass gaming floors. Therefore, under the proposed bill newer casinos will be able to establish smoking lounges in VIP gaming areas, while the older casinos will lose the smoking premium mass and VIP smoking area. As a result, Cotai casinos as a whole stand to gain market share at the expense of Macau peninsula casinos.Analyst: Chelsea Tam

Expected Macau Smoking Ban Creates a Level Playing Field for Operators

Investing in high growth Asian frontier economies., Asia Frontier Capital

Scott Osheroff

Investing in high growth Asian frontier economies.

Asia Frontier Capital

Asia Frontier Capital Ltd. is a pioneering fund management company based in Hong Kong that specializes in investing in high growth Asian frontier economies by managing the AFC Asia Frontier Fund , AFC Iraq Fund and the AFC Vietnam Fund.

The AFC Asia Frontier Fund invests in public equities of Asian frontier countries that are seeing increasing consumption due to favorable demographic trends, rising incomes and high GDP growth. The fund invests in listed equities of companies that have their principal business activities in Bangladesh, Bhutan, Cambodia, Iraq, Laos, Maldives, Mongolia, Myanmar (Burma), Nepal, Pakistan, Papua New Guinea, Sri Lanka and Vietnam. The AFC Asia Frontier Fund is positioned to take advantage of the continuing economic shifts in these countries and offers high returns combined with significant diversification opportunities. This fund is directed by the founder and CEO of Asia Frontier Capital, Thomas Hugger, who has been investing in frontier markets across Asia and Africa for more than 20 years.

The AFC Iraq Fund was launched on the 26th June 2015 and aims to achieve long-term capital appreciation for investors by capturing value and growth potential in the post conflict high-growth & resource rich Iraq market. The fund emphasises long term investment horizon to truly capture the opportunity in Iraq. The fund's investable universe consists of locally listed companies that have their principal business activities in Iraq as well as foreign listed companies that have the majority of the business in Iraq as a whole including the prosperous Kurdish Region of Iraq (KRI). The AFC Iraq Fund offers access to investments in post conflict recovery potential of Iraq, including the KRI, and/or stability in its territory. The AFC Iraq Fund is managed by Asia Frontier Capital (Iraq) Limited, Cayman Islands under the executive leadership team of Thomas Hugger (CEO & Fund Manager) and Ahmed Tabaqchali (CIO) who have more than 47 years of investment experience as well as an extensive background covering global, emerging, frontier and MENA markets.

The AFC Vietnam Fund invests exclusively in listed Vietnamese equities to capture value in growth companies with a focus on the small to medium size companies. This market segment offers a unique investment opportunity as the valuation gap between large- and small-cap stocks in Vietnam is presently much wider than in comparable neighboring markets and the valuations are significantly depressed versus their regional peers. The fund adopts a fundamental-quantitative approach and employs an in-house earnings model to identify attractive companies where we see high growth opportunities. In conjunction with targeting the maximum upside potential the portfolio has been structured to mitigate corporate government and liquidity risks. The fund invests in a diversified portfolio of 70-90 attractively valued companies to carefully control concentration risk.  This approach allows the fund to sell, or buy, positions without having a significant market impact. The fund is directed under the executive leadership of Thomas Hugger and Andreas Vogelsanger who have more than 50 years combined experience managing investments in frontier markets, Asia and around the world.

For more information about the fund, management team and investment strategy please contact us at info@asiafrontiercapital.com.

In line with our process of being on the ground in the countries we invest in, Scott Osheroff, Analyst at Asia Frontier Capital, traveled to Laos to visit portfolio companies and other companies on our shortlist. The photos in this article are all by AFC.

In line with our process of being on the ground in the countries we invest in, Scott Osheroff, Analyst at Asia Frontier Capital, traveled to Laos to visit portfolio companies and other companies on our shortlist. The photos in this article are all by AFC.

Asia Frontier Capital Travel Report: Laos

China

FAW Jiefang Group Co., Ltd, through joint ventures, manufactures and markets cars and auto parts.  The Company produces automobiles, transmission systems, and engines.  FAW Car also provides auto repair and customizing services.

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FAW Jiefang Group Co., Ltd A (000800 CH)

NTN's FY2018 Forecast Likely to Be Muted; Plays First-Mover Card with In-Wheel Motors for EVs

Ntn Corp (6472 JP) is a leading manufacturer of precision mechanical parts and components, especially hub bearings for which the company is a...

Chacko Jacob

China Auto 2M 2018: Amended EV Policy, Geely, Tesla, and Auto Tariff Reduction

In 2M 2018 (January and February), retail, wholesale and production of Chinese auto market grew by 5%, 3% and -3% in unit volume, respectively. ...

JL Warren Capital

When Your Car Needs to Go on Diet - Call Minth

With the coming of ADAS and autonomous driving as well as the Chinese government rule to reduce carbon footprint, Minth Group Ltd (425 HK) has made...

Henry Soediarko

Expected Macau Smoking Ban Creates a Level Playing Field for Operators

This week the Macau government proposed to the Second Standing Committee of Macau Legislative Assembly to allow smoking only in smoking lounges in...

Morningstar, Inc.

Asia Frontier Capital Travel Report: Laos

In line with our process of being on the ground in the countries we invest in, Scott Osheroff, Analyst at Asia Frontier Capital, traveled to Laos...

Asia Frontier Capital

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