Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Japanese and Asian equity long/short strategies

Uzabase

Specialising in Japanese and Asian equity long/short strategies with a focus on rigorous, but targeted quantitative analysis to temper evaluations of company strategy, potential and vision. At Uzabase, our team of analysts provides coverage of industry dynamics with a local Asian flavour on Speeda, our financial information platform. Going forward we are aiming to channel our focus toward thematic research on emerging industries and company research.

Thematic (Sector/Industry)

It's been a full week for coverage of North Asia on Smartkarma. 30-odd insights on Japan and a dozen on Korea.ToshibaThe big theme of the week, and undoubtedly one to watch going forward, is the trials and tribulations of Toshiba Corp (6502 JP) (Toshiba Insights are bolded in the table below). We have 7 Insights on Toshiba from 5 Insight Providers this week, with discussions on Toshiba's imminent earnings release issues then the aftermath, the possibility of delisting (not to mention the de facto inevitability of its TSE2 demotion), the issues of Western Digital Corp (WDC US) interjecting itself into the process, and for those interested in the subject, the several dozen comments attached were perhaps a record for a week on a single topic. Travis Lundy started off the week with Timeline for Toshiba Troubles - Two Days Til A Tempest?detailing the delisting threats facing Toshiba, noting the issues of the ongoing Internal Management System report examination by the TSE, and now the 9mo results without an auditor opinion. Mio Kato, CFA followed with Toshiba: Delisting Now Highly Probable in Our Opinion in particular noting acrimonious coverage by the domestic media and some of the odd issues plaguing the company, such as the CB&amp;I Stone &amp; Webster transaction "not passing the sniff test" (I agree). After the earnings were released I followed on with Toshiba Files - A Disclaimed Opinion Makes Delisting More Likely discussing the TSE's Listing Regulations and Enforcement Rules and how they may affect Toshiba's ongoing listing. Mio Kato, CFA, and later in the week Andrew Lu, discussed the issue of Western Digital Corp (WDC US) re-entering the scene as it became clear that a) the first round of of the "beauty contest" for Toshiba's memory chip business was hotly contested. WDC wants to keep its rights under the JVs it operates with Toshiba at Yokkaichi, the leading bidder Broadcom which appears to have the support of the three megabanks (which would be important to get the support of the 80-odd Japanese financial institutions who are lenders to Toshiba) is seen by them as an antagonistic party, and erstwhile spoiler Hon Hai Precision Industry (2317 TT) is trying hard to get funding so has enlisted the support of Softbank Group Corp (9984 JP) and possibly Apple Inc (AAPL US) to generate more financing options. At the moment, I expect it comes down to Broadcom and WDC though one could see an INCJ+JapanInc bid for the defense business to keep it Japanese - and perhaps that would be the funding for WDC to keep better control over its JV.  I would note that the news in the paper over the weekend is that Toshiba could delay its earnings release until the 22nd of May to get itself more time to get auditors' OK. The TSE rule is 45 days after the close of the fiscal year so this would be stretching the TSE's patience yet again.More below the fold after a really, really big table of Insights.All of the NorthAsia@Smartkarma Insights This Week.DateAuthorInsightJAPAN16 AprTravis LundyTsugami Listing Its Chinese Sub in Hong Kong15 AprTravis LundyKowa TOB To Take Out The Rest of Maruei Dept Store14 AprAndrew LuToshiba NAND Unit Sales - Apple Comes to Help but WD Comes to Sabotage14 AprTravis LundyNTT - One Market Buyback Complete. What Next? Expect Another.14 AprTravis LundyTasaki CEO Gives Nikkei Interview - Hmmm...14 AprMio Kato, CFASakata Seed: Overseas Sales Continue to Drive Growth as 9M OP Hits 96% of Full Year Consensus14 AprCustom Products GroupPotential Surpises?? Comparing Foreign and Domestic FY1 EPS Estimates in Japan14 AprPelham SmithersYahoo Japan - Delivery Service Primer13 AprBixmoorJapan’s Unprecedented Population Decline13 AprPelham SmithersRicoh Exits Cameras…Bigger Problems to Consider13 AprPelham SmithersSquare Enix Dragon Quest XI Release Date – 29th July13 AprPelham SmithersToshiba: The Surprising Lack of Read-Across to the Rest of Japan Inc.13 AprAthaporn Arayasantiparb, CFAIt’s Songkran. Let’s Fly to Japan!13 AprTravis LundyYamada Denki &amp; Best Denki Betrothed - Finally13 AprMio Kato, CFAWestern Digital Attempts to Block Toshiba Chip Business Sale to Outside Parties13 AprCustom Products GroupOversold Financial Sector Moving on Volume in Japan....12 AprPelham SmithersPC Depot – A Mini Masterclass in Crisis Management12 AprPelham SmithersChugai Pharma (4519) - ALEX Trials for Alecensa a Success12 AprTravis LundyToshiba Files - A Disclaimed Opinion Makes Delisting More Likely12 AprPelham SmithersPeptiDream: J&amp;J Latest Drug Major to Tie Up12 AprPelham SmithersSeagate CEO Bullish on HDDs – Consider the Source, but Still Interesting11 AprPelham SmithersKonami (9766): Readthrough from Its Casino Interview11 AprTravis LundyBrass (2424 JP) - TOPIX Wedding Bells But Send Best Wishes Instead11 AprMio Kato, CFAToshiba: Delisting Now Highly Probable in Our Opinion11 AprMio Kato, CFAYaskawa Electric’s VI Fund Makes Smart Acquisition in Energy Storage Startup Teraloop11 AprTravis LundyFuji Die - Smallcap Niche Player Moves to TOPIX with an Interesting Registry10 AprTravis LundySynchro Foods (3963) - Small Cap Aims for the Big Top, But Not Til Later.10 AprNowcast, Inc.Nowcast Review on Market Conditions: Nowcast Weekly Report10 AprPelham SmithersSosei &amp; Kyowa Hakko Kirin: Positive News on GPCR Drugs10 AprTravis LundyTimeline for Toshiba Troubles - Two Days Til A Tempest?8 AprPelham SmithersJSR &amp; Shin-Etsu Chemical – Implications from TSMC Ramping Up A11 OutputKOREA15 AprSanghyun ParkCoupang’s 2016 Results Are Disappointing - It Is Now in a Double Bind15 AprSanghyun ParkYMT IPO Summary - PCB Plating Chemical Company’s Solid Growth Story13 AprEuromonitor International Ltd.Leading Innovators: South Korea Becomes the Next Stop for Biotechnology13 AprDouglas KimVisit to Myeongdong - The Shopping Mecca of Seoul12 AprSanghyun ParkAP Systems Holdco Conversion - What Now?12 AprMorningstarNarrow-Moat Loen’s 2017 Earnings Will Benefit from Significant Price Hike, but Shares Fairly Valued11 AprDouglas KimRegulatory Risks Resurface to Lower Telecom Rates in Korea11 AprDouglas KimHyundai Electric &amp; Energy Systems Spin-Off: A Deeper Look at Its Valuations11 AprSanghyun ParkING Life Insurance Korea IPO Part 3 - Further Discussion on EV &amp; RoEV10 AprManu BhaskaranAsian Geo-Political Risks Edging up – Watch Korea10 AprDouglas KimIts All About Hyundai Robotics10 AprSanghyun ParkNetmarble Games IPO Part 3 - Valuation Discussion

The Week That Was in NorthAsia@Smartkarma: Toshiba, Peptidream, and Missiles

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<ul><li>We are bullish on Hyundai Electric &amp; Energy Systems (Hyundai E&amp;E). Hyundai Robotics has a 13.37% stake of Hyundai E&amp;E, which will start trading on May 10th. Our base case valuation is 1.0 trillion won for Hyundai E&amp;E, which is 63% higherthan the Hyundai E&amp;E's spin-off ratio value of 612 billion won (0.04882 x 12.54 trillion won - market cap of Hyundai Heavy Industries prior to the 4 way split-off).</li><li>If we assume a 1 trillion won equity value for Hyundai E&amp;E, this would represent 0.5x P/S and 11x P/E (using estimated net profit of 92 billion won in 2016). These valuation multiples look quite reasonable, given that LS Industrial Systems and Hyosung have an average P/S multiple of 0.5x and average P/E multple of 13.6x.</li><li>Using average estimated EBITDA of 278 billion won in 2015 and 2016 for Hyundai E&amp;E, the estimated 1 trillion won in implied market cap of Hyundai E&amp;E results in an EV of 1,487 billion won for the company and EV/EBITDA multiple of 5.3x. This is lower than the average EV/EBITDA multiple of 6.4x for its comps (using average EBITDA in 2015 and 2016). Hence, the EV/EBITDA valuation method also gives us comfort in the implied equity valuation of 1.0 trillion won for Hyundai E&amp;E.</li><li>Hyundai E&amp;E's key products including transformers, switchgear, and power electronics &amp; control systems are all important components of various machines and industrial equipment. Having high quality transformers helps to save electricity costs. With increased advancement in technology, artificial intelligence, autonomous machinery, the company's products will play important role in connecting various types of industrial machinery.</li></ul>

We are bullish on Hyundai Electric &amp; Energy Systems (Hyundai E&amp;E). Hyundai Robotics has a 13.37% stake of Hyundai E&amp;E, which will start trading on May 10th. Our base case valuation is 1.0 trillion won for Hyundai E&amp;E, which is 63% higherthan the Hyundai E&amp;E's spin-off ratio value of 612 billion won (0.04882 x 12.54 trillion won - market cap of Hyundai Heavy Industries prior to the 4 way split-off).If we assume a 1 trillion won equity value for Hyundai E&amp;E, this would represent 0.5x P/S and 11x P/E (using estimated net profit of 92 billion won in 2016). These valuation multiples look quite reasonable, given that LS Industrial Systems and Hyosung have an average P/S multiple of 0.5x and average P/E multple of 13.6x.Using average estimated EBITDA of 278 billion won in 2015 and 2016 for Hyundai E&amp;E, the estimated 1 trillion won in implied market cap of Hyundai E&amp;E results in an EV of 1,487 billion won for the company and EV/EBITDA multiple of 5.3x. This is lower than the average EV/EBITDA multiple of 6.4x for its comps (using average EBITDA in 2015 and 2016). Hence, the EV/EBITDA valuation method also gives us comfort in the implied equity valuation of 1.0 trillion won for Hyundai E&amp;E.Hyundai E&amp;E's key products including transformers, switchgear, and power electronics &amp; control systems are all important components of various machines and industrial equipment. Having high quality transformers helps to save electricity costs. With increased advancement in technology, artificial intelligence, autonomous machinery, the company's products will play important role in connecting various types of industrial machinery.

Hyundai Electric & Energy Systems Spin-Off: A Deeper Look at Its Valuations

South Korea

Hyundai Electric & Energy Systems (HE&E), which makes various electric equipment including transformers, switchgear, motors, low & medium voltage circuit breakers, power electronics, and power electronics & control systems.

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Hyundai Electric & Energy (267260 KS)

The Week That Was in NorthAsia@Smartkarma: Toshiba, Peptidream, and Missiles

It's been a full week for coverage of North Asia on Smartkarma. 30-odd insights on Japan and a dozen on Korea.ToshibaThe big theme of the week, and...

Mio Kato

Hyundai Electric & Energy Systems Spin-Off: A Deeper Look at Its Valuations

We are bullish on Hyundai Electric & Energy Systems (Hyundai E&E). Hyundai Robotics has a 13.37% stake of Hyundai E&E, which will...

Douglas Kim

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