Equity Bottom-Up

In this briefing:

1. Harmonic Drive: Measuring the Potential Downside Risk
2. Sunpower: Excellent FY18 Results; Strong Outlook for FY19. Fair Value Remains 1 SGD (70% Upside)
3. QH: 2018 Earnings Grew 10% In-Line with Our Forecast

1. Harmonic Drive: Measuring the Potential Downside Risk

With Harmonic Drive Systems (6324 JP) having rebounded as much as 56% from its trough this year, risk-reward looks decidedly less attractive now. While we had been somewhat constructive on the name due to order looking like they have a hit bottom, a closer analysis of the breakdown of orders has us thinking that a potential rebound could underwhelm relative to the markets revenue expectations and that the stock’s premium multiple could leave it more vulnerable than more modestly priced peers.

2. Sunpower: Excellent FY18 Results; Strong Outlook for FY19. Fair Value Remains 1 SGD (70% Upside)

Sunpower Group (SPWG SP) has seen an incredible transformation over the past 24 months. Since the entry of two respected PE funds (DCP and CDH) the company has de-emphasized its historical M&S business and pushed full throttle on its GI (Green Investments) portfolio.

The efforts of this shift to GI are now bearing fruit with FY18 revenues increasing by 66% to 3.26 billion RMB, EBITDA rising by 113.5% to 496 million RMB (15.2% EBITDA margin) and underlying NPAT rising by 87% to 268 million RMB. Most importantly, the quality and visibility of its cash flows have improved.

It is rare to find companies that give you 3-year NPAT forecasts but Sunpower did this with the issuance of its second CB late 3Q18. Instead of using stale sell-side consensus forecasts we now focus on these public forecasts to guide investors what Sunpower’s fair value is depending on the PE multiple that investors apply.

My Fair Value estimate of 1 SGD remains unchanged (based on 15x FY21 EPS and company meeting its FY21 NPAT targets as communicated in CB2 prospectus).

3. QH: 2018 Earnings Grew 10% In-Line with Our Forecast

QH has 4Q18 net profit of Bt786m (-13%YoY, -40%QoQ). The 2018 result was in-line with our expectation.

• 4Q18 earnings from property development segment drop 36%YoY caused by one time charge of Bt150m from litigation and lead to higher SG&A-to-sales to 25.4% from 18.1% in 4Q17. Meanwhile, total sales grew 20%YoY.
• 4Q18 equity income grew 12%YoY at Bt493m driven by HMPRO contribution which derived from its branches expansion and HMPRO S.
• 2018 core earnings grew 83%YoY to Bt2.0bn backed by gross margin improvement and better SG&A controls. Meanwhile, sales drop 6% YoY due to lower new project launches.
• We maintain positive outlook in 19-20E driven by Q Sukhumvit transfer and foresee little impact from LTV implementation. QH’s portfolio are based on luxury segment and 50% of net profit come from equity income which mainly driven by HMPRO.
• Announced an interim dividend payment of Bt0.14 (XD on 24 Apr), which is equivalent to 4.3% upcoming dividend yield.

We maintain our BUY rating with a target price of Bt3.9 based on 10xPE’19E.

In this briefing:

1. Harmonic Drive: Measuring the Potential Downside Risk
2. Sunpower: Excellent FY18 Results; Strong Outlook for FY19. Fair Value Remains 1 SGD (70% Upside)
3. QH: 2018 Earnings Grew 10% In-Line with Our Forecast
4. Biosimilar Battlefield: Unpacking Celltrion

1. Harmonic Drive: Measuring the Potential Downside Risk

With Harmonic Drive Systems (6324 JP) having rebounded as much as 56% from its trough this year, risk-reward looks decidedly less attractive now. While we had been somewhat constructive on the name due to order looking like they have a hit bottom, a closer analysis of the breakdown of orders has us thinking that a potential rebound could underwhelm relative to the markets revenue expectations and that the stock’s premium multiple could leave it more vulnerable than more modestly priced peers.

2. Sunpower: Excellent FY18 Results; Strong Outlook for FY19. Fair Value Remains 1 SGD (70% Upside)

Sunpower Group (SPWG SP) has seen an incredible transformation over the past 24 months. Since the entry of two respected PE funds (DCP and CDH) the company has de-emphasized its historical M&S business and pushed full throttle on its GI (Green Investments) portfolio.

The efforts of this shift to GI are now bearing fruit with FY18 revenues increasing by 66% to 3.26 billion RMB, EBITDA rising by 113.5% to 496 million RMB (15.2% EBITDA margin) and underlying NPAT rising by 87% to 268 million RMB. Most importantly, the quality and visibility of its cash flows have improved.

It is rare to find companies that give you 3-year NPAT forecasts but Sunpower did this with the issuance of its second CB late 3Q18. Instead of using stale sell-side consensus forecasts we now focus on these public forecasts to guide investors what Sunpower’s fair value is depending on the PE multiple that investors apply.

My Fair Value estimate of 1 SGD remains unchanged (based on 15x FY21 EPS and company meeting its FY21 NPAT targets as communicated in CB2 prospectus).

3. QH: 2018 Earnings Grew 10% In-Line with Our Forecast

QH has 4Q18 net profit of Bt786m (-13%YoY, -40%QoQ). The 2018 result was in-line with our expectation.

• 4Q18 earnings from property development segment drop 36%YoY caused by one time charge of Bt150m from litigation and lead to higher SG&A-to-sales to 25.4% from 18.1% in 4Q17. Meanwhile, total sales grew 20%YoY.
• 4Q18 equity income grew 12%YoY at Bt493m driven by HMPRO contribution which derived from its branches expansion and HMPRO S.
• 2018 core earnings grew 83%YoY to Bt2.0bn backed by gross margin improvement and better SG&A controls. Meanwhile, sales drop 6% YoY due to lower new project launches.
• We maintain positive outlook in 19-20E driven by Q Sukhumvit transfer and foresee little impact from LTV implementation. QH’s portfolio are based on luxury segment and 50% of net profit come from equity income which mainly driven by HMPRO.
• Announced an interim dividend payment of Bt0.14 (XD on 24 Apr), which is equivalent to 4.3% upcoming dividend yield.

We maintain our BUY rating with a target price of Bt3.9 based on 10xPE’19E.

4. Biosimilar Battlefield: Unpacking Celltrion

Both Celltrion Inc (068270 KS) and Celltrion Healthcare (091990 KS) have reported preliminary 2018 results with some MD&A. As suspected, Q4’s results for both companies reflected factors beyond distributors’ destocking: retroactive price adjustments played a major role. This Insight includes updated end market sales forecasts by product. Remsima should grow in the US and decline moderately in the EU (the latter is a best-case scenario). Both Herzuma and Truxima will launch in the US this year with Truxima the largest contributor. Capacity expansion programs should keep margins under pressure near-term.

In this briefing:

1. Shaky Situations at DEMCO and Pranda
2. Billionaire Carl Icahn’s Run at Caesars Has yet to Move Stock. What Doesn’t the Market See?
3. Brazil Politics; The “Noise” On Pension Reform Is an Investor Opportunity
4. Japan Mobile: MVNO Data for Q3 Includes Slowest Growth Since 2014 but that Makes Sense for Rakuten
5. Havells India

1. Shaky Situations at DEMCO and Pranda

We visited two companies with very different trajectories. 

• Renewable power specialist DEMCO is struggling, despite doing really well in the past, while jeweler Pranda, once struggling, is on the recovery path.
• DEMCO reported gross profit and revenue decline of 8% and 7% respectively. Their earnings more than doubled, but that’s solely due to dividends from Wind Energy, an investment that cost them Bt800m and is embroiled in scandal.
• Pranda’s operating cash flows surged from Bt12m to Bt230m, as they restructured their store network.
• We’d still be caution on PDJ, as management doesn’t feel the restructuring is over. More stores could be closed down in the future.

2. Billionaire Carl Icahn’s Run at Caesars Has yet to Move Stock. What Doesn’t the Market See?

• Carl Icahn has built his position since February 7th to where he now controls over 28% of the stock of Caesars Entertainment Corporation.
• He has already put three members on the board and will get a fourth seat if management can’t name a new CEO by April 15th.
• Icahn’s track record in casino deals has made him over $2.5bn since 1998/ Investors who joined him have made solid returns, deal after deals.

3. Brazil Politics; The “Noise” On Pension Reform Is an Investor Opportunity

• Negative press “noise” on the pension reform process, with heightened friction between the Executive and the Legislature, has hit the currency and equity markets
• This reflects the Bolsonaro administration’s limited engagement with the Legislature so far on pension reform
• Finance Minister Paulo Guedes is spearheading the effort on pension reform, and has the support of Rodrigo Maia, the leader of the Chamber of Deputies
• The latest poll on pension reform voting intentions in the Chamber suggest it is heading in the right direction, but that the administration needs to accelerate support to get the legislation approved; we see 3Q19 more likely than 2Q19 for pension reform approval
• We see the equity market and currency corrections as an opportunity, and we highlight our positive view on Banco Do Brasil Sa (BBAS3 BZ)

4. Japan Mobile: MVNO Data for Q3 Includes Slowest Growth Since 2014 but that Makes Sense for Rakuten

The Ministry of Industry Affairs and Communications (MIC, the regulator) released Q3 (Dec 2018) data for industry mobile virtual network operator (MVNO) subs today (29 March) characterized by continued declines in growth YoY (+15% in Q3 v 18% in Q2) and the lowest absolute net adds (+480K) since Q2 2014.  Growth for the largest consumer-focused MVNO Rakuten Inc (4755 JP) also appears to be the lowest since data has become available but that is not necessarily a sign of strength for the existing network operators as it makes sense for Rakuten to slow MVNO growth before its October real network launch.  

5. Havells India

As the summer sets in, we visit distributor and retailers of air conditioners in our home town Vadodara, Gujarat where temperatures soar really high in summer and air conditioning is becoming a necessity.  Our checks are focused on Havells India (HAVL IN) and its’ consumer brand Llyod. Our takeaways from visits suggest celebrity endorsements unlikely to work, competition intensifying with the entry of Daikin in the mass premium segment, Ifb Industries (IFBI IN) joins the price war with its ACs, the season is off to a muted start due to prolonged winters.  At current price of INR 776, risk-reward offered is not in favour for Havells investors with a medium-term horizon. Using consensus estimates and average 3 year forward PE of 41x, target price works out to be INR 807. Investors will be better off waiting for an attractive entry point.

In this briefing:

1. Amarin Q4 2018 Conference Call–Strong Sales & High Confidence

1. Amarin Q4 2018 Conference Call–Strong Sales & High Confidence

Q4 2018 Revenues Stronger Than Pre-Announcement on January 4th: Amarin released its Q4 2018 results today and held a conference call. Results of $77m in sales (+44% YoY), were stronger than the January 4th pre-announced range of $72m and $76m.  2019 revenue guidance of 50% growth to $350m was left unchanged, but management sounded very confident on the conference call (see details below). 

Q1 2019 Revenue Growth Appears Stronger than Expected: On the conference call, Amarin was asked whether Q1 revenues were tracking the prescription data, which indicates +50% YoY growth so far. Management said that sales looked about the same, despite revenues tending not to track prescriptions that closely in Q1 normally.   

FDA May Fast-Track Vascepa Label Expansion: While Amarin’s CEO, John Thero, is usually very conservative with guidance, today he explored the possibilities of fast-track treatment by the FDA for Vascepa’s label expansion for the first time. Amarin is still on course to file for this with the FDA by March-end. Fast-track treatment by the FDA would speed up the approval process to 6 months, versus 10 months, and if favorable, could have significant upside impact on 2019 revenues. 

Approval for Vascepa in Europe to be Sought This Year: Amarin disclosed for the first time that it would seek approval for Vascepa in Europe this year. This is highly significant because the cardiovascular disease (CVD) patient population is 22% higher than the US. Amarin confirmed that FDA approval for label expansion would speed up the approval process in Europe. 

Next Catalyst is the ACC Conference on March 18th: Amarin will be announcing “late-breaking” data from the Reduce-It clinical trial at the American College of Cardiology on March 18th. Because the Reduce-It trial results themselves were so powerful, we expect the ACC event to be of high interest among CVD specialists and investors. 

Amarin Remains an Attractive Take-Over Candidate: Given the high efficacy of Vascepa in the treatment of CVD patients, Amarin continues to be one of the most highly attractive take-over candidates in the pharmaceutical world. Management’s confidence on today’s call appears to be linked to a stronger than expected response to Vascepa among doctors since its block-buster trial results were announced last September. For details about our outlook on Amarin, please refer to our deep-dive report published last month: Amarin–2019’s Biggest Buyout Target for Big Pharma

In this briefing:

1. Hargreaves Lansdown (HL/:LN) No Flow, No Go

1. Hargreaves Lansdown (HL/:LN) No Flow, No Go

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket.  A tough market background and Brexit concerns have reduced in-flows into Wealth and Investment Management companies. This growth hiatus could last for some time.  

Hargreaves Lansdown: What does it do ?

Hargreaves Lansdown is a wealth manager and private client stockbroker with a market value of  GBP8bn. It provides the UK’s largest direct to investor platform administering £86bn of investments for more than 1.1m active clients

Why is it in the Short portfolio ?

Interim figures for the 6 months to December 2018, (published 29th Jan)  mark a deterioration in operating performance brought about by adverse market conditions. Assets under administration declined and net new business was 25% down on the prior year. Earnings per share increased 4%. The share price declined 6% on the day of the results but has subsequently been stable leaving the group on a forward multiple of over 30x. Unless the retail investment market recovers quickly this premium rating may prove vulnerable. 

In this briefing:

1. Hargreaves Lansdown (HL/:LN) No Flow, No Go
2. Dhanlaxmi Bank- Free from the PCA Stranglehold

1. Hargreaves Lansdown (HL/:LN) No Flow, No Go

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket.  A tough market background and Brexit concerns have reduced in-flows into Wealth and Investment Management companies. This growth hiatus could last for some time.  

Hargreaves Lansdown: What does it do ?

Hargreaves Lansdown is a wealth manager and private client stockbroker with a market value of  GBP8bn. It provides the UK’s largest direct to investor platform administering £86bn of investments for more than 1.1m active clients

Why is it in the Short portfolio ?

Interim figures for the 6 months to December 2018, (published 29th Jan)  mark a deterioration in operating performance brought about by adverse market conditions. Assets under administration declined and net new business was 25% down on the prior year. Earnings per share increased 4%. The share price declined 6% on the day of the results but has subsequently been stable leaving the group on a forward multiple of over 30x. Unless the retail investment market recovers quickly this premium rating may prove vulnerable. 

2. Dhanlaxmi Bank- Free from the PCA Stranglehold

Dhanlaxmi Bank (DHLBK IN) share price has surged by 10% today on the back of RBI move to take it out of Prompt Corrective Action (PCA) following improvement in its financial ratios. We have mentioned in our earlier reports (please click here, here and here) about the helplessness of the bank as it couldn’t lend due to restrictions from RBI.

Now as the grip is loosened, Dhanlaxmi can resume lending activities and improve its financial ratios without adding any new capital in the near term.

We analyze the implications post PCA through this report.

In this briefing:

1. Billionaire Carl Icahn’s Run at Caesars Has yet to Move Stock. What Doesn’t the Market See?
2. Brazil Politics; The “Noise” On Pension Reform Is an Investor Opportunity
3. Japan Mobile: MVNO Data for Q3 Includes Slowest Growth Since 2014 but that Makes Sense for Rakuten
4. Havells India
5. Sony: Yoshida Tightens Discipline as Hirai Steps Away Completely

1. Billionaire Carl Icahn’s Run at Caesars Has yet to Move Stock. What Doesn’t the Market See?

• Carl Icahn has built his position since February 7th to where he now controls over 28% of the stock of Caesars Entertainment Corporation.
• He has already put three members on the board and will get a fourth seat if management can’t name a new CEO by April 15th.
• Icahn’s track record in casino deals has made him over $2.5bn since 1998/ Investors who joined him have made solid returns, deal after deals.

2. Brazil Politics; The “Noise” On Pension Reform Is an Investor Opportunity

• Negative press “noise” on the pension reform process, with heightened friction between the Executive and the Legislature, has hit the currency and equity markets
• This reflects the Bolsonaro administration’s limited engagement with the Legislature so far on pension reform
• Finance Minister Paulo Guedes is spearheading the effort on pension reform, and has the support of Rodrigo Maia, the leader of the Chamber of Deputies
• The latest poll on pension reform voting intentions in the Chamber suggest it is heading in the right direction, but that the administration needs to accelerate support to get the legislation approved; we see 3Q19 more likely than 2Q19 for pension reform approval
• We see the equity market and currency corrections as an opportunity, and we highlight our positive view on Banco Do Brasil Sa (BBAS3 BZ)

3. Japan Mobile: MVNO Data for Q3 Includes Slowest Growth Since 2014 but that Makes Sense for Rakuten

The Ministry of Industry Affairs and Communications (MIC, the regulator) released Q3 (Dec 2018) data for industry mobile virtual network operator (MVNO) subs today (29 March) characterized by continued declines in growth YoY (+15% in Q3 v 18% in Q2) and the lowest absolute net adds (+480K) since Q2 2014.  Growth for the largest consumer-focused MVNO Rakuten Inc (4755 JP) also appears to be the lowest since data has become available but that is not necessarily a sign of strength for the existing network operators as it makes sense for Rakuten to slow MVNO growth before its October real network launch.  

4. Havells India

As the summer sets in, we visit distributor and retailers of air conditioners in our home town Vadodara, Gujarat where temperatures soar really high in summer and air conditioning is becoming a necessity.  Our checks are focused on Havells India (HAVL IN) and its’ consumer brand Llyod. Our takeaways from visits suggest celebrity endorsements unlikely to work, competition intensifying with the entry of Daikin in the mass premium segment, Ifb Industries (IFBI IN) joins the price war with its ACs, the season is off to a muted start due to prolonged winters.  At current price of INR 776, risk-reward offered is not in favour for Havells investors with a medium-term horizon. Using consensus estimates and average 3 year forward PE of 41x, target price works out to be INR 807. Investors will be better off waiting for an attractive entry point.

5. Sony: Yoshida Tightens Discipline as Hirai Steps Away Completely

Kazuo Hirai, architest of Sony Corp (6758 JP)‘s remarkable recovery, announced today that he would be stepping down as Sony Chairman in Jun this year.  The transition in leadership to former CFO Kenichiro Yoshida has been completed and was accomplished smoothly so we do not see any negative impact.

Recent concerns about Sony’s loss making smartphone unit also appear to be being addressed as the Nikkei reports that Sony would look to cut costs and headcount in half by Mar 2020. The English article is here and the slightly more detailed Japanese version is here.

In this briefing:

1. Dhanlaxmi Bank- Free from the PCA Stranglehold

1. Dhanlaxmi Bank- Free from the PCA Stranglehold

Dhanlaxmi Bank (DHLBK IN) share price has surged by 10% today on the back of RBI move to take it out of Prompt Corrective Action (PCA) following improvement in its financial ratios. We have mentioned in our earlier reports (please click here, here and here) about the helplessness of the bank as it couldn’t lend due to restrictions from RBI.

Now as the grip is loosened, Dhanlaxmi can resume lending activities and improve its financial ratios without adding any new capital in the near term.

We analyze the implications post PCA through this report.

In this briefing:

1. Brazil Politics; The “Noise” On Pension Reform Is an Investor Opportunity
2. Japan Mobile: MVNO Data for Q3 Includes Slowest Growth Since 2014 but that Makes Sense for Rakuten
3. Havells India
4. Sony: Yoshida Tightens Discipline as Hirai Steps Away Completely
5. India Bulls Housing Finance- Can It Become Another HDFC? Signs Are Encouraging!!

1. Brazil Politics; The “Noise” On Pension Reform Is an Investor Opportunity

• Negative press “noise” on the pension reform process, with heightened friction between the Executive and the Legislature, has hit the currency and equity markets
• This reflects the Bolsonaro administration’s limited engagement with the Legislature so far on pension reform
• Finance Minister Paulo Guedes is spearheading the effort on pension reform, and has the support of Rodrigo Maia, the leader of the Chamber of Deputies
• The latest poll on pension reform voting intentions in the Chamber suggest it is heading in the right direction, but that the administration needs to accelerate support to get the legislation approved; we see 3Q19 more likely than 2Q19 for pension reform approval
• We see the equity market and currency corrections as an opportunity, and we highlight our positive view on Banco Do Brasil Sa (BBAS3 BZ)

2. Japan Mobile: MVNO Data for Q3 Includes Slowest Growth Since 2014 but that Makes Sense for Rakuten

The Ministry of Industry Affairs and Communications (MIC, the regulator) released Q3 (Dec 2018) data for industry mobile virtual network operator (MVNO) subs today (29 March) characterized by continued declines in growth YoY (+15% in Q3 v 18% in Q2) and the lowest absolute net adds (+480K) since Q2 2014.  Growth for the largest consumer-focused MVNO Rakuten Inc (4755 JP) also appears to be the lowest since data has become available but that is not necessarily a sign of strength for the existing network operators as it makes sense for Rakuten to slow MVNO growth before its October real network launch.  

3. Havells India

As the summer sets in, we visit distributor and retailers of air conditioners in our home town Vadodara, Gujarat where temperatures soar really high in summer and air conditioning is becoming a necessity.  Our checks are focused on Havells India (HAVL IN) and its’ consumer brand Llyod. Our takeaways from visits suggest celebrity endorsements unlikely to work, competition intensifying with the entry of Daikin in the mass premium segment, Ifb Industries (IFBI IN) joins the price war with its ACs, the season is off to a muted start due to prolonged winters.  At current price of INR 776, risk-reward offered is not in favour for Havells investors with a medium-term horizon. Using consensus estimates and average 3 year forward PE of 41x, target price works out to be INR 807. Investors will be better off waiting for an attractive entry point.

4. Sony: Yoshida Tightens Discipline as Hirai Steps Away Completely

Kazuo Hirai, architest of Sony Corp (6758 JP)‘s remarkable recovery, announced today that he would be stepping down as Sony Chairman in Jun this year.  The transition in leadership to former CFO Kenichiro Yoshida has been completed and was accomplished smoothly so we do not see any negative impact.

Recent concerns about Sony’s loss making smartphone unit also appear to be being addressed as the Nikkei reports that Sony would look to cut costs and headcount in half by Mar 2020. The English article is here and the slightly more detailed Japanese version is here.

5. India Bulls Housing Finance- Can It Become Another HDFC? Signs Are Encouraging!!

This is the concluding part of our Housing Finance Companies (HFC) series where we elaborated the outlook of the mortgage industry in India along with initiating coverage on the best HFCs who we believe may continue to be the key beneficiaries of a long term secular growth in the Indian mortgage industry. (please click here, here and here ).

In this report we cover  Indiabulls Housing Finance (IHFL IN) , the third largest HFC in the country. The company is among the fastest growing HFCs whose loan portfolio has grown at a CAGR of 29% in the last 5 years ending FY18. And in spite of robust growth, the asset quality has remained steady.

Due to a strong track record of high capital adequacy, high liquidity coverage, high asset quality, improving operational efficiency and high return ratios, the company was recently awarded AAA rating by ICRA and CRISIL, the top 2 credit rating agencies in India.

From the parameters that are analyzed in detail in this report, we believe that the company in the long term has the potential to be in the league of HDFC Ltd., a benchmark in terms of corporate governance, robust asset management and wealth creation for shareholders.

In this briefing:

1. Japan Mobile: MVNO Data for Q3 Includes Slowest Growth Since 2014 but that Makes Sense for Rakuten
2. Havells India
3. Sony: Yoshida Tightens Discipline as Hirai Steps Away Completely
4. India Bulls Housing Finance- Can It Become Another HDFC? Signs Are Encouraging!!
5. SBS (2384) A Great Third Party Logistics Company Seeing Good Organic Growth as Well as Via M&A.

1. Japan Mobile: MVNO Data for Q3 Includes Slowest Growth Since 2014 but that Makes Sense for Rakuten

The Ministry of Industry Affairs and Communications (MIC, the regulator) released Q3 (Dec 2018) data for industry mobile virtual network operator (MVNO) subs today (29 March) characterized by continued declines in growth YoY (+15% in Q3 v 18% in Q2) and the lowest absolute net adds (+480K) since Q2 2014.  Growth for the largest consumer-focused MVNO Rakuten Inc (4755 JP) also appears to be the lowest since data has become available but that is not necessarily a sign of strength for the existing network operators as it makes sense for Rakuten to slow MVNO growth before its October real network launch.  

2. Havells India

As the summer sets in, we visit distributor and retailers of air conditioners in our home town Vadodara, Gujarat where temperatures soar really high in summer and air conditioning is becoming a necessity.  Our checks are focused on Havells India (HAVL IN) and its’ consumer brand Llyod. Our takeaways from visits suggest celebrity endorsements unlikely to work, competition intensifying with the entry of Daikin in the mass premium segment, Ifb Industries (IFBI IN) joins the price war with its ACs, the season is off to a muted start due to prolonged winters.  At current price of INR 776, risk-reward offered is not in favour for Havells investors with a medium-term horizon. Using consensus estimates and average 3 year forward PE of 41x, target price works out to be INR 807. Investors will be better off waiting for an attractive entry point.

3. Sony: Yoshida Tightens Discipline as Hirai Steps Away Completely

Kazuo Hirai, architest of Sony Corp (6758 JP)‘s remarkable recovery, announced today that he would be stepping down as Sony Chairman in Jun this year.  The transition in leadership to former CFO Kenichiro Yoshida has been completed and was accomplished smoothly so we do not see any negative impact.

Recent concerns about Sony’s loss making smartphone unit also appear to be being addressed as the Nikkei reports that Sony would look to cut costs and headcount in half by Mar 2020. The English article is here and the slightly more detailed Japanese version is here.

4. India Bulls Housing Finance- Can It Become Another HDFC? Signs Are Encouraging!!

This is the concluding part of our Housing Finance Companies (HFC) series where we elaborated the outlook of the mortgage industry in India along with initiating coverage on the best HFCs who we believe may continue to be the key beneficiaries of a long term secular growth in the Indian mortgage industry. (please click here, here and here ).

In this report we cover  Indiabulls Housing Finance (IHFL IN) , the third largest HFC in the country. The company is among the fastest growing HFCs whose loan portfolio has grown at a CAGR of 29% in the last 5 years ending FY18. And in spite of robust growth, the asset quality has remained steady.

Due to a strong track record of high capital adequacy, high liquidity coverage, high asset quality, improving operational efficiency and high return ratios, the company was recently awarded AAA rating by ICRA and CRISIL, the top 2 credit rating agencies in India.

From the parameters that are analyzed in detail in this report, we believe that the company in the long term has the potential to be in the league of HDFC Ltd., a benchmark in terms of corporate governance, robust asset management and wealth creation for shareholders.

5. SBS (2384) A Great Third Party Logistics Company Seeing Good Organic Growth as Well as Via M&A.

It is seeing decent organic growth, led by a focus on third party logistics (3PL). This will carry on. The recently acquired Ricoh Logistics should eventually see margins improve as it is integrated into SBS. This year’s operating profit forecast of Y9bn (+10%) is conservative. An increase of Y1bn this year will come from Ricoh Logistics alone, and then we have organic growth. In our view operating profit will be at least Y10bn. There is the unrealised profit on land, which add some Y85bn to a company whose market cap is Y71bn. Despite the outperformance over the last 12 months, this remains a decent long-term domestic buy, and one in which foreigners still own only 12%. The shares trade on 13x 12/19 assuming an operating profit of Y10bn.