Equity Bottom-Up

Hisamitsu Pharmaceutical Co (4530 JP) has announced solid Q3FY23 results, with double-digit revenue growth and triple-digit operating and net profit growth, mainly driven by the OTC business of the company.
With the resumption of sporting/outdoor events globally and increasing unwillingness to use opioid for pain relief especially in the U.S., Salonpas is expected to continue its growth trajectory.
Hisamitsu has reiterated FY23 guidance. However, considering the current progress rate of all the parameters versus guidance, we think actual performance of Hisamitsu will exceed guidance.

China Healthcare Weekly (Jan.13)- Tigermed, HBM, Brii, Jacobio, Dental Implant, Successful Investors

The centralized procurement of interprovincial dental implants results were released. In our view, most of the profits from the midstream circulation and terminal sales of dental implants will be cleared.
We analyzed some key points of Hangzhou Tigermed Consulting (H) (3347 HK), HBM Holdings Limited (2142 HK), Brii Biosciences (2137 HK) and Jacobio Pharmaceuticals (1167 HK).
Many “successful investors” may not realize that their huge returns in the past are mainly due to unexpected capital market exit channel dividends, which is hard to be copied.

Align Technology – Very Well Positioned when Demand Returns

By Pyari Menon

Economic slowdown, China lockdown and more competition has hit Align Technology (ALGN US) share performance. Quantity and quality of innovations suggests a solid moat that should help a comeback.
ALGN has dominant leadership in digital design and mass custom manufacture of clear aligner orthodontics. A return of demand should lead to strong upside.
Dentistry has seen significant new technologies we list the top fifteen innovators in the sector. Align is primarily in the narrow business of straightening teeth, but dominates the space.

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Jan 14

Daily Brief Equity Bottom-Up: Seven & I’s Valuation Nears Breaking Point and more

By Smartkarma Daily Briefs | Daily Briefs, Equity Bottom-Up

In today’s briefing:

Seven & I’s Valuation Nears Breaking Point
PPG Industries Inc.: Initiation of Coverage – Business Model & Key Drivers
Ecolab Inc.: Initiation of Coverage – Business Model & Key Drivers
BlackRock’s Q4 Earnings Beat Conveys An Inflection Point
Progressive Corp: Initiation of Coverage – Technological Superiority & Other Drivers
DoorDash Inc.: Initiation of Coverage – Recent Collaborations & Other Drivers
United Rentals Inc.: Initiation of Coverage – Acquisition-Led Growth & Other Drivers

Seven & I’s Valuation Nears Breaking Point

Seven & I Holdings (3382 JP)‘s Q3 OP of ¥160.1bn was a significant surprise to the upside with consensus OP at ¥130.2bn and us expecting around ¥125-130bn.
This was mostly driven by an unexpected upside to the retail fuel margin while gasoline prices have come down by more than 34%.
Nevertheless, we would expect this temporary misalignment in retail fuel margin to correct over the next few quarters, resulting in around 35-40% downside to the company’s valuation multiples.

PPG Industries Inc.: Initiation of Coverage – Business Model & Key Drivers

This is our first report on PPG, a well-known manufacturer of paints, coatings and specialty materials.
The company performed well in several of its companies, notably PPG Comex.
They also began collaborating with the HD Supply team to find new paint clients, particularly in the commercial maintenance sector.

Ecolab Inc.: Initiation of Coverage – Business Model & Key Drivers

By Pearl Gray Equity and Research

This is our first report on Ecolab, a major provider of water, hygiene and infection prevention solutions and services.
The company delivered a below-par result with revenues just about meeting Wall Street expectations on account of the price increases.
The company saw overall pricing increasing from 9% to 12% and consistent double-digit organic sales growth of 13%.

BlackRock’s Q4 Earnings Beat Conveys An Inflection Point

BlackRock’s Q4 earnings report suggests an inflection point might be near.
The company managed to mitigate systemic risks during its latest quarter, preserving its base rate rate-centric business model.
In addition, aggressive investment in technology prompted a rise in product launch costs, according to the report.

Progressive Corp: Initiation of Coverage – Technological Superiority & Other Drivers

This is our first report on auto insurance major, Progressive Corp.
The company had a disappointing quarter and failed to meet Wall Street expectations in terms of revenues as well as earnings.
This quarter, the company increased personal auto rates in 20 states at an average of around 5% each day for an overall countrywide premium impact of +2%.

DoorDash Inc.: Initiation of Coverage – Recent Collaborations & Other Drivers

This is our first report on DoorDash, the largest online food aggregator in the U.S.
The company is a market leader in its domain and has demonstrated incredible resilience.
Even in the last quarter, its market revenues have increased significantly despite the oil crisis, relatively persistent inflation, and the European war.

United Rentals Inc.: Initiation of Coverage – Acquisition-Led Growth & Other Drivers

This is our first report on United Rentals, one of the largest equipment rental companies in the world, known for renting out construction, aerial and industrial equipment, general tools and light equipment.
The company’s fleet productivity increased by roughly 9%, while rental revenue increased by 20% year over year in the last quarter.
The demand for its equipment rental services is relatively high, even though some parts of the economy are slowing down.

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Jan 13

Daily Brief Equity Bottom-Up: Taiwan Tech Weekly: Global Optimism for Semi Stocks and more

By Smartkarma Daily Briefs | Daily Briefs, Equity Bottom-Up

In today’s briefing:

Taiwan Tech Weekly: Global Optimism for Semi Stocks, Taiwan’s New Subsidies, TSMC CEO Buying Stock
Fast Retailing (9983) | Q1 Miss
Perfect Medical: Reopening in China to Provide a Boost, Rally to Sustain
Alibaba Signs Cooperation Agreement With Hangzhou Government
China Education Group (839 HK): Solidifying Investment Thesis After Placement
2023 High Conviction Shift: Margins Begin to Recover as Unprofitable Projects Coming to an End
What Is Tesla’s Outlook After It Drops Out Of Top 10 Largest U.S. Public Companies?
Lepu Medical Technology (300003.CH) – New Development Mode Changes the Valuation Logic
Holcim: Transformation Is Underway
National Vision Holdings, Inc. (EYE) Recommendation: Sell Short

Taiwan Tech Weekly: Global Optimism for Semi Stocks, Taiwan’s New Subsidies, TSMC CEO Buying Stock

By Vincent Fernando, CFA

Taiwan’s government has passed new major tax subsidies to support semiconductor firms’ R&D and capex spending.
TSMC results will be out this afternoon; Interestingly, TSMC’s CEO has been buying shares during October, November, and December.
Hon Hai has begun iPhone 15 trial production, and Zhengzhou is back to 100%.

Fast Retailing (9983) | Q1 Miss

By Mark Chadwick

We remain bearish on Fast Retailing given its valuation premium versus global peers
Q1 sales were resilient despite global cost of living issues. Profits missed on rising costs and China’s Covid hangover
Cost pressures on the wage bill could be a multi-year issue as Uniqlo seeks to align with global pay standards

Perfect Medical: Reopening in China to Provide a Boost, Rally to Sustain

By Shifara Samsudeen, ACMA, CGMA

China ( >20% of revenue ) changing its stance on COVID provides Perfect Medical Health (1830 HK) with an opportunity to crystallize its expansion plans there.
The border reopening between HK/China will provide a boost to its HK operations (>70% of revenue). The second half of H1 2023 results reflect an improving revenue trend for HK.
The stock trades at 16x/11x FY23e/24e with ~15% of the market cap in cash and a dividend yield of 6.5%/9.5% FY23e/24e (based on ~100% payout ratio).

Alibaba Signs Cooperation Agreement With Hangzhou Government

By Caixin Global

Chinese e-commerce giant Alibaba Group Holding Ltd. signed a strategic cooperation agreement with the government of Hangzhou, the eastern China city where the company is headquartered
Alibaba and its finance affiliate Ant Group Co. Ltd. have been at the center of the Chinese government’s multi-year crackdown on the internet sector since October 2020.
In 2021, Alibaba was fined a record 18.2 billion yuan ($2.6 billion) for monopolistic behavior.

China Education Group (839 HK): Solidifying Investment Thesis After Placement

By Osbert Tang, CFA

Positive response of China Education Group (839 HK)‘s placement indicated a good return of investor appetite to the sector. Its premium multiples stay well justified even after recent rally.
The HK$1.6bn proceeds will reduce gearing to 29.2% (including contract liabilities) from 41.7% with minimal dilution. Narrowing in valuation gap against asking price of targets means more M&A potential.
More funding for expansion of existing campuses, increase in accommodation and the set up of COVID-19 related curriculum will allow CEG to realise higher revenue per student.

2023 High Conviction Shift: Margins Begin to Recover as Unprofitable Projects Coming to an End

Shift Inc (3697 JP) reported 1QFY08/2023 results today. Revenue increased 35.6% YoY to JPY19.3bn (vs consensus JPY19.8bn) while OP decreased 7.4% YoY to JPY1.8bn (vs consensus JPY2.2bn).
Both GPM and OPM have dropped compared to 1QFY08/2022 but shows significant improvement over last two quarters suggesting unprofitable development projects are coming to an end.
Though 1Q earnings fell a touch below consensus, we would not be too concerned as the company’s new services and being the market leader should drive long-term growth.

What Is Tesla’s Outlook After It Drops Out Of Top 10 Largest U.S. Public Companies?

By Vladimir Dimitrov, CFA

Tesla’s disastrous performance has resulted in the company no longer being among the Top 10 largest U.S. public companies.
Market commentators remain laser-focused on business fundamentals, while outside factors are still in the driver’s seat.
Back in April of last year (less than a year ago) the optimism on Wall Street was running high.

Lepu Medical Technology (300003.CH) – New Development Mode Changes the Valuation Logic

After China reopens and demand for COVID-19 testing drops sharply, Lepu has lost the big driving force of performance growth. The 2022 full year performance may not be optimistic.
Lepu Medical Technology A (300003 CH) has begun to focus more on capital operation. As a holding platform, the valuable assets are spun off, which changes the valuation logic.
Even if Lepu could finally digest the negative impact of centralized procurement, such development mode would still put pressure/uncertainties on its future performance, leading to lower-than-expected financial results.

Holcim: Transformation Is Underway

By Alexis Dwek

Holcim is reinventing itself. Recent acquisitions such as Elevate (formerly Firestone Building Products), Malarkey, and PRB Group are supporting the Company’s move towards becoming a global ‘green’ leader in building.
New 2025 Strategy ‘Accelerating Green Growth’ in full force. Transformation in the making.
Strong balance sheet, strong cash flow generation. Holcim’s profile has evolved for the best, including improved ESG standings, and therefore, we expect a re-rating of the Company. Over 25% upside

National Vision Holdings, Inc. (EYE) Recommendation: Sell Short

By Eric Fernandez, CFA

Sales have fallen for four quarters. Comp store sales growth fell -8% last quarter due to customer weakness, the declining macro environment and constraints on exam capacity (optometrists).
Optometrists are supply constrained, which pressure margins from rising compensation. Investor-owned optometry service providers are at a disadvantage competing with professional practices that don’t share fees with investors.
National Vision is neither large and vertically integrated like Essilor Luxottica, nor niche focused like Warby Parker is on ecommerce. Their low-price strategy is easily replicable by competitors.

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Jan 12

Daily Brief Equity Bottom-Up: Smartkarma Corporate Webinar | Taste Gourmet: Management Call on HK/China Reopening Impact and more

By Smartkarma Daily Briefs | Daily Briefs, Equity Bottom-Up

In today’s briefing:

Smartkarma Corporate Webinar | Taste Gourmet: Management Call on HK/China Reopening Impact
Binjiang 3316 HK: More Room to Go, Results in March 2023 The Next Catalyst
China Dongxiang (3818 HK): Extremely Deep Discount to Cash and Investments
India Channel Insight #48 | SKF, Schaeffler, Schneider
Alibaba(Baba.US/9988.HK) 4Q22 Preview: Raise TP for Margin Beat and Topline Recovery
EVA Precision: Updates, Poised For a Rally
Lawson: Underappreciated China Expansion & Expanding Domestic Profitability Warrants an Upside
FUTU(FUTU.US) 4Q22 Preview: Solid Fundamentals Drive Long Term Growth
JD(JD.US/9618.HK) 4Q22 Preview: Topline Reacceleration Could Happen in C2Q23
Zai LAB (ZLAB.US/9688.HK)：TTF Is Not a Done Deal, Both China and Globally

Smartkarma Corporate Webinar | Taste Gourmet: Management Call on HK/China Reopening Impact

By Smartkarma Research

For our next Corporate Webinar we are glad to welcome Executive Chairman and Co-Founder, Kent Wong and CFO and Company Secretary, Gerald Yu. They will share a short company presentation after which, they will engage in a fireside chat with Smartkarma Insight Provider, Sameer Taneja. The Corporate Webinar will include a live Q&A session.

The Corporate Webinar will be hosted on Friday, 13 January 2023, 14:00 SGT.

Register for the Webinar here

About Taste Gourmet

Taste Gourmet Group Limited (8371 HK) is a Hong Kong based restaurant group offering a variety of cuisines under a portfolio of brands to a diversified customer base. Since the opening of its first restaurant in 2007, the group owned and operated a total of 34 restaurants offering Vietnamese, Japanese, Chinese, Western and Drink under 14 brands, comprising 11 self-owned brands such as La’taste Vietnamese Cuisine, Dab-Pa Peking & Szechuan Cuisine, Dab-Pa Peking & Szechuan Bistro, Dab-pa Modern Chinese Cuisine, Urawa Japanese Restaurant, Nabe Urawa, Rakuraku Ramen, Wasyohuya Yamaichi, Moments Together, Yakiniku Guu, San-Kinn; 3 licensed brands known as Parkview, Takano Ramen and Tirpse; and 1 joint venture brand known as Xianghui.

Corporate Webinars by Smartkarma Corporate Solutions feature discussions with IROs and Executives, discussing their companies, the challenges they face, and the opportunities in their sectors and markets.

Binjiang 3316 HK: More Room to Go, Results in March 2023 The Next Catalyst

Binjiang Service Group (3316 HK) trades at 12.2x/9.5x FY22/23e with 32% of the market cap in net cash and a dividend yield of 5%/6.4% FY22e/23e (assuming a 60% payout).
The company has asserted it will maintain its payout ratio at 60% and conserve cash for M&A. Its approach will be conservative and involve lengthy due diligence.
With an improving market environment and good results around the corner in March, we believe a rally to 30 HKD/share is within the realm of possibility.

China Dongxiang (3818 HK): Extremely Deep Discount to Cash and Investments

By Osbert Tang, CFA

With the recent rally in the equity markets in Hong Kong and China, we think the asset play investment thesis for China Dongxiang Group Co (3818 HK) has revived.
We estimate its investment portfolio value may have increased by HK$2bn since end-Sep, yet market capitalisation only rose HK$500m, suggesting still significant 77% discount.
Encouraging recent developments at Alibaba Group (9988 HK) and Ant Financial, which both are its holdings, are positive. The reduction is losses for sportswear business is an added driver.

India Channel Insight #48 | SKF, Schaeffler, Schneider

By Pranav Bhavsar

We interacted with channels associated with SKF India Ltd (SKF IN) , Schaeffler India (SCHFL IN) & Schneider Electric Infrastructure (SCHN IN).
Sector tailwinds, market share gain ability and changing consumer preferences are all working in place for growth ahead.
SCHFL stands out in terms of growth and margins, SCHN’s channel feedback and recent performance in encouraging.

Alibaba(Baba.US/9988.HK) 4Q22 Preview: Raise TP for Margin Beat and Topline Recovery

We expect BABA’s revenue in C4Q22 to be in line with cons., non-GAAP net income to beat cons. by 6%, supported by cost reduction in Freshippo, Taocaicai and Taobao Deal.
Affected by logistics disruption and rising infections, we estimate BABA’s GMV and local consumer service in C4Q22 to decelerate compared to C3Q22. Both segments are to recover in C1Q23.
We raise TP from US$110 to US$130 to reflect upsides from rebound of discretionary demand, slowing Douyin eCommerce growth, and easing regulatory environment. Our TP implies 13x PE in FY2024.

EVA Precision: Updates, Poised For a Rally

Eva Precision Industrial Holdings (838 HK) has come off its lows but still trades at an attractive 7.8x/5x PE FY22e/23e and a dividend yield of 3.8%/5.9% FY22e/23e (assuming 30% payout).
The auto business should be propelled forward by orders from EV stalwarts, BYD, Nio, Tesla, etc. We expect the auto business (30% of revenue) to grow 50% in 2023.
Another two catalysts we look forward to are the split of the auto business to unlock value and the completion of the buyback announced by the company in 2022.

Lawson: Underappreciated China Expansion & Expanding Domestic Profitability Warrants an Upside

Lawson’s Q3 OP of ¥16.2bn was around 20% above consensus suggesting that the company’s profitability is starting to outperform after being held back by upfront investments on store renovations.
Although this is the 3rd beat in a row, Lawson Inc (2651 JP)’s guidance has remained unchanged and the consensus OP only saw a marginal improvement.
After ignoring for so long, we think investors could soon start noticing Lawson’s growth prospects in China as the business there is starting to turn profitable.

FUTU(FUTU.US) 4Q22 Preview: Solid Fundamentals Drive Long Term Growth

We expect FUTU to post C4Q22 revenue and non-GAAP net income 6.4% and 16.0% above consensus, driven by the improved turnover rate in HKEX and the rising interest rate.
We believe the recent regulation measures has little impact on FUTU’s adjusted expectations now widely held by investors. We expect revenue growth to reaccelerate at 37%/31% YoY in 4Q22/2023.
Maintain BUY to FUTU and raise TP by US$1 to US$51.

JD(JD.US/9618.HK) 4Q22 Preview: Topline Reacceleration Could Happen in C2Q23

In C4Q22, we expect JD’s total revenue to grow 8% YoY, largely in line with cons. Non-GAAP net margin is expected to reach 2.0%, up 0.7ppt YoY.
We estimate JD’s GMV growth in C4Q22 to be ~7% YoY, slightly slower than C3Q22 due to logistics disruption in October and November.
Maintain BUY rating and raise TP to US$70.0 due to for acceleration in top line as well as margin improvement. Our TP implies 23x P/2023E.

Zai LAB (ZLAB.US/9688.HK)：TTF Is Not a Done Deal, Both China and Globally

ZaiLab and NovoCure (NVCR US, NR) surged on positive readout of Optune’s Phase III on Non-Small-Cell-Lung Cancer (NSCLC), a major indication win after the smaller ones in Glioblastoma and Mesothelioma.
We, however, caution that the readout is largely expected and Optune faces uncertainty in commercialization both globally and in China;
We raise TP to US$35 to reflect possible readouts in other cancer types

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Jan 11

Daily Brief Equity Bottom-Up: Fast Retailing: Another Beat Would Suggest That FR’s North America & Europe Expansion Is Viable and more

By Smartkarma Daily Briefs | Daily Briefs, Equity Bottom-Up

In today’s briefing:

Fast Retailing: Another Beat Would Suggest That FR’s North America & Europe Expansion Is Viable
Rex: Diversification or Deworsification?
Xiabuxiabu (520 HK): GA Clean-Up Trade Not a Concern
China Education Group (CEG) Completed the Placement for Potential M&As
HRTech Sector Series: Hybrid Work Models and Metaverse to See More Prominence in 2023
Darktrace: Undervalued Cyber Defense Unicorn. A Steep Discount Is Unjustified
WDFC: The Floodgates of Inventory
Creative Technology: After the Passing of Founder, Is the Company’s Independence at Stake?

Fast Retailing: Another Beat Would Suggest That FR’s North America & Europe Expansion Is Viable

By Shifara Samsudeen, ACMA, CGMA

Although it looks quite challenging, we think Fast Retailing (9983 JP) should beat consensus when it reports 1QFY23 results on 12th Jan 2023.
We think shares could briefly touch 2021 highs on a relatively strong beat as it would suggest that the company’s aggressive expansion plans in North America and Europe are viable.
Thus, we would look to buy Fast Retailing with a short investment horizon. We see considerable downside risks over a full-year period.

Rex: Diversification or Deworsification?

By Nicolas Van Broekhoven

Rex International Holding (REXI SP) has announced further investments outside of its core oil&gas portfolio both related to its major shareholder. A major red flag.
It is unclear whether these investments will bring real value to Rex as minority investors generally hate related party transactions without clear justification.
The latest drilling campaign in Oman again encountered operational issues giving fuel to the bears that Rex is not capable of successfully operating its own fields.

Xiabuxiabu (520 HK): GA Clean-Up Trade Not a Concern

By Eric Chen

Company’s second largest shareholder General Atlantic sold out entire holdings at 5.9% to 6.4% discount to Monday close.
The placement reflected mainly General Atlantic’s attempt to time market to recoup a 10-year investment instead of any negative read of company fundamentals, in our view.
Recent newsflow continues pointing to steady recovery in all business lines of Xiabu group. Its valuation discount relative to peers has not captured strong turnaround prospects. Sector top pick.

China Education Group (CEG) Completed the Placement for Potential M&As

By Xin Yu, CFA

China Education Group (CEG) completed the placement of HKD1.61bn on Jan 9.
CEG used to do 2-3 M&As per year and had a decent track record.
CEG also has chances to acquire public companies or their assets.

HRTech Sector Series: Hybrid Work Models and Metaverse to See More Prominence in 2023

This is the Third of HRTech sector series and the four companies that we have covered under this series have since reported earnings.
HRTech market has undergone rapid changes and 2023 will bring in more value to the recent transformation such as Hybrid work models and metaverse that the industry has witnessed.
Of the four companies, except for Recruit, other three continues to perform positively with Visional recording the highest growth among the four.

Darktrace: Undervalued Cyber Defense Unicorn. A Steep Discount Is Unjustified

By Andrei Zakharov

Darktrace is a cyber security and AI unicorn backed by leading VC firms. The company was founded in Cambridge, UK, in 2013 and crossed the $500M ARR mark in 2022.
Darktrace (DARK LN) currently trades at ~4x EV/CY22E revenues, a steep discount relative to other US-based cybersecurity peers that trade at an average of ~9x EV/CY22E revenues.
The cyber defense company achieved GAAP Op Margin and FCF Margin break-even in FY21 and FY22, with an opportunity to deliver profitable stellar growth in the coming years.

WDFC: The Floodgates of Inventory

By Hamed Khorsand

WDFC reported fiscal first quarter (November 2022) results where sales declined more than expected while past price increases helped gross margin rebound from the August quarter
WDFC’s inventory maintained its incline reaching a new record and is now $119.1 million. We believe WDFC’s inventory hides the true cost of the business
The lack of demand remains a headwind that is leading to higher inventory levels. The scale of increase in inventory should continue to play a factor on WDFC’s earnings quality

Creative Technology: After the Passing of Founder, Is the Company’s Independence at Stake?

By Nicolas Van Broekhoven

Sim Wong Hoo, founder, and CEO of Creative Technology (CREAF SP), passed away last week.
Sim Wong Hoo controls 33% of Creative. He has two children but they are not involved in the company. What will happen to his stake is a big unknown.
The IP portfolio of Creative Technology (CREAF SP) could be appealing to other technology companies. Given its large cash position, the Enterprise Value is only 34M USD.

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Jan 10

Daily Brief Equity Bottom-Up: Meilan Airport (357 HK): A Strategic Asset to Ride on Hainan DFS Investment Theme and more

By Smartkarma Daily Briefs | Daily Briefs, Equity Bottom-Up

In today’s briefing:

Meilan Airport (357 HK): A Strategic Asset to Ride on Hainan DFS Investment Theme
Ant Group – Headlines Overwhelmingly Positive & Hides Micro Loans Business’ Value
Eisai Co (4523 JP): Alzheimer’s Drug Gets FDA Approval; Focus Is Now on the Path Forward
Alibaba (9988 HK): Still Significant Upside After Surging
Align Partners’ Corporate Activism on Korean Banks: A Media Presentation and Q&A Session
Giftee: Digital Gifting Surges for Consumer Businesses
Modern Dental Group (3600.HK)- 2023 Harsh Reality Is Hard to Avoid, but Short-Term Rally Is Possible
XPER: CES and a New Catalyst
Tractor Supply Company: Initiation of Coverage – Business Strategy & Key Drivers
Sporting Crypto – Top 3 Web3 Trends for the Sports Industry in 2023

Meilan Airport (357 HK): A Strategic Asset to Ride on Hainan DFS Investment Theme

By Eric Chen

Meilan Airport is both a strategic asset and a key beneficiary in China’s blueprint for Hainan. The hub holds an indispensable yet underappreciated position in Hainan’s DFS market.
While jump in depreciation and plunging passenger traffic in 2022 dealt heavy blow to the company, they also pave the way for a strong turnaround as re-opening revives travel demand.
We expect the company’s net profit to reach RMB600 million in 2023 and further double to RMB1.2 billion by 2025, driving share price to double in three years.

Ant Group – Headlines Overwhelmingly Positive & Hides Micro Loans Business’ Value

News headlines on Ant Group are overwhelmingly positive these days and they try to hide the fact that the consumer finance business is worth just 1/2 of last year’s value.
We think the main reason why markets are so optimistic these days is that they seem to think that regulatory crackdowns on the platform economy are finally over.
With Jack Ma surrendering control of Ant Financial Services Group (6688 HK) just a few days ago, could anybody say that regulatory pressure is really over?

Eisai Co (4523 JP): Alzheimer’s Drug Gets FDA Approval; Focus Is Now on the Path Forward

Eisai Co Ltd (4523 JP) received speedy regulatory nod for Alzheimer’s drug LEQEMBI. Treatment with LEQEMBI should be initiated in patients with mild cognitive impairment or dementia stage of disease.
LEQEMBI will be available during or before the week of January 23, 2023. Eisai decided to price LEQEMBI at WAC of $26,500 per year to promote broader patient access.
Eisai has submitted a supplemental Biologics License Application to the FDA supporting the conversion of the Accelerated Approval of LEQEMBI to a traditional approval.

Alibaba (9988 HK): Still Significant Upside After Surging

By Ming Lu

A state-owned company invested in Ant Group which was also founded by Jack Ma.
We believe both the revenue growth rate and the operating margin will rise in following quarters.
We believe the stock price still has significant upside even after the surge in past four trading days.

Align Partners’ Corporate Activism on Korean Banks: A Media Presentation and Q&A Session

By Douglas Kim

Align Partners Capital Management (APCM) held a media presentation and a Q&A session with both the investors community and the media today.
Align Partners’ corporate activism of the Korean banks has been one of the biggest stories in the Korean stock market this year.
The Korean banks are likely to outperform the market in 1H23. Nonetheless, if there are further signs of housing price declines in Korea, this outperformance may not continue in 2H23.

Giftee: Digital Gifting Surges for Consumer Businesses

By Michael Causton

The gift market has contracted in recent years as corporate and formal gift giving has declined, but companies and individuals are enthusiastic adopters of digital gifting thanks to the convenience.
Businesses, in particular, are using eGifts as marketing and promotion tools and Giftee is one of the biggest beneficiaries of this trend.
The convenience and low cost of these services suggests considerable potential for expansion going forward, even if the consumer online gift market will increasingly be owned by LINE.

Modern Dental Group (3600.HK)- 2023 Harsh Reality Is Hard to Avoid, but Short-Term Rally Is Possible

Modern Dental Group (MDG) disclosed selected unaudited operational data for 22Q1-Q3. The negative trend on performance would continue to 22Q4. The overall 2022 performance of MDG would show a negative growth.
We may face a situation where both domestic and external demand would weaken in 2023. MDG’s overseas revenue is expected to see a bigger YoY decline than domestic revenue.
There would be strong expectations but weak realities in 2023Q1-Q2, during which MDG’s share price could rally in short term, but it’s not based on the improvement of its fundamentals.

XPER: CES and a New Catalyst

By Hamed Khorsand

XPER used the CES event this year to make several news announcements, but the biggest news for XPER was the one released by Roku Inc. (ROKU).
The ROKU announcement causes TiVo being the only independent TV operating system. We believe this could result in XPER establishing greater market share for its TVOS than originally expected
During CES Verstel introduced a series of TVs under multiple brands that would use TiVo TVOS. Additionally, XPER revealed more automakers that are releasing car models with AutoSense and AutoStage

Tractor Supply Company: Initiation of Coverage – Business Strategy & Key Drivers

This is our first report on Tractor Supply Company, a major rural lifestyle retailer in the U.S. catering to recreational farmers and ranchers.
It delivered a mixed quarter, missing out on the revenue expectations of analysts but managing an earnings beat.
We initiate coverage on the stock of Tractor Supply Company with a ‘Hold’ rating.

Sporting Crypto – Top 3 Web3 Trends for the Sports Industry in 2023

By Sporting Crypto

What better way to start the year than to make a fool of myself by predicting some trends for 2023?
Forecasting or predicting anything is extremely difficult and the further out you go, the less accurate you can be.
That’s even the case with weather with ~ 90% accuracy on 5-day forecasts and 50% on 10-day forecasts.

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Jan 09

Daily Brief Equity Bottom-Up: Taiwan Dual-Listings: TSMC Premium Hitting High Territory and more

By Smartkarma Daily Briefs | Daily Briefs, Equity Bottom-Up

In today’s briefing:

Taiwan Dual-Listings: TSMC Premium Hitting High Territory, ASE Shoots to 6.1%
Nidec (6594 JP): New Valuation Benchmark
Keyence (6861) | Better Risk/Reward at Peers
Meta Platforms: A Value Opportunity In The Tech Environment
China Internet Weekly (9Jan2023): Ant Group, Alibaba, Tencent, ByteDance, China Literature
Ant Group Completed Equity Structure Adjustment
Perfectly Imperfect
Shanghai Junshi Bioscience (1877.HK/688180.CH)- Junshi Has Changed Its Story from Tumor to COVID-19?

Taiwan Dual-Listings: TSMC Premium Hitting High Territory, ASE Shoots to 6.1%

By Vincent Fernando, CFA

TSMC’s ADR premium is entering the higher end of its range since early 2022. Earnings coming this week.
UMC’s ADR has flipped from a discount to a moderate premium. Earnings are ahead as well.
ASE Technology’s ADR premium has reached 6.1%, high even for this usually higher-premium trading pair.

Nidec (6594 JP): New Valuation Benchmark

By Scott Foster

Nidec has become an auto parts and factory automation company and should be valued as such. At 24x EPS guidance for FY Mar-23, the shares do not look particularly cheap.
1H results were good, but heavy up-front investment in e-axle traction motor systems for electric vehicles points to deferred gratification for shareholders.
Recession is starting to bite, the Yen is up and Japanese interest rates have only started to rise. Be careful when buying for long-term growth.

Keyence (6861) | Better Risk/Reward at Peers

By Mark Chadwick

Keyence is a structural growth stock that has fallen by 31% over the past year reflecting near term risks to growth
Although Keyence is a major beneficiary of continued investment in industrial automation, the company would need to grow significantly quicker than the industry to justify the current valuation
We analyse Keyence’s core value drivers – revenue, margins, risk and reinvestment – but see better risk/reward in other growth stocks

Meta Platforms: A Value Opportunity In The Tech Environment

By Moat Investing

META’s sustainable earnings come up with at least 30% to 35% upside potential.
There is a huge margin of safety at the current price, and multiple should expand from now forward.
Meta Platforms, Inc. (NASDAQ:META) is one of the most beaten-up stories among the FAANG, the storytelling around the Metaverse has failed to be understood by the market, and a great deal of pessimism and future catastrophic scenarios have been priced into the stock.

China Internet Weekly (9Jan2023): Ant Group, Alibaba, Tencent, ByteDance, China Literature

By Ming Lu

A state-owned company invested in Ant Group, which boosted Alibaba’s stock price.
Tencent obtained five new game licenses in December, three of which are imported games.
China Literature’s daily active users increased by 80% in 2022 and reached the historical high.

Ant Group Completed Equity Structure Adjustment

By Xin Yu, CFA

CBIRC approved the capital replenishment plan of RMB10.5bn of Ant CFC on Dec 30, 2022
Under the regulatory guidance, Ant Group needs to complete a multifaceted rectification plan
After the fund raising, Ant Group’s next step is to obtain FHC license and credit bureau license

Perfectly Imperfect

By subSPAC

Artificial Intelligence (AI) and Deep Learning Applications are all the rage, primarily thanks to the likes of OpenAI’s ChatGPT being used for text and Dall-E being used to generate digital images.
ChatGPT’s popularity has soared, reaching a user base of 1 million users in 5 days, and OpenAI itself is benefiting from the surge in users, now valued at $29 Billion.
Investors are already looking for the next wave of AI products that can make a big splash and potentially disrupt legacy industries.

Shanghai Junshi Bioscience (1877.HK/688180.CH)- Junshi Has Changed Its Story from Tumor to COVID-19?

Junshi once generated sales and profits in scale, but lost money again. Its story suddenly changed from cancer drugs to COVID-19. We have lost sight of its development direction.
Junshi’s commercialization history has lost its reference value for confirming the outlook. The calculation of peak sales doesn’t make much sense, because they cannot help Junshi turn losses into profits.
The current market value still has too much “bubble”, and COVID-19 drug is a major “interference” to the valuation. We analyzed our thoughts on future valuation by excluding COVID-19 projects.

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Jan 08

Daily Brief Equity Bottom-Up: Meituan 4Q Food Delivery Updates and more

By Smartkarma Daily Briefs | Daily Briefs, Equity Bottom-Up

In today’s briefing:

Meituan 4Q Food Delivery Updates
LG Electronics: A SELL Candidate Amid Difficult Business Condition for Consumer Electronics in 2023
Pinduoduo(PDD.US) 4Q22 Preview: Expect Moderate Margin Beat
Samsung Biologics (207940 KS): Near-Term Key Positive Catalysts
Long Apple Vs. Short Quanta & Pegatron: Trade Ahead of Apple’s Upcoming Earnings

Meituan 4Q Food Delivery Updates

By Xin Yu, CFA

Food delivery daily order growth gradually recovered in late Dec
Instashopping continued its growth momentum. Community group purchase has transformed into Next Day Delivery
With the recovery of restaurants and travel post re-opening, Meituan is expected to be one of the biggest beneficiaries.

LG Electronics: A SELL Candidate Amid Difficult Business Condition for Consumer Electronics in 2023

By Douglas Kim

After a disappointing earnings results in 4Q 2022, we believe LG Electronics (066570 KS) is a SELL candidate.
The decline in housing prices in major countries such as the US and South Korea have negatively impacted consumers’ purchases of consumer appliances.
With the consensus that is likely to cut their operating profit estimates significantly in 2023, we think that LG Electronics’ shares could fall another 20-25% over the next year.

Pinduoduo(PDD.US) 4Q22 Preview: Expect Moderate Margin Beat

We expect PDD’s total revenue in C4Q22 to be in line with cons., and non-GAAP net income to beat cons. by 9%.
Faster-Than-Peers user growth, increase in brand product contribution and newly launched marketing program support PDD’s strong GMV trend and high take rate in the near term.
Temu is moving to increase order volume and ASP to improve scale and save logistics cost.

Samsung Biologics (207940 KS): Near-Term Key Positive Catalysts

Samsung Biologics (207940 KS) is expected to report strong Q4 results, with double-digit revenue growth. Partial operation of Plant 4 will impact profitability, which will be continued through H12023.
The Chairman of the company has been selling shares, causing recent pullback in the stock, which should be considered as an attractive entry point.
The long-term growth story remains intact, with all eyes being on upcoming conference where the company may unfold its capex plan amid stellar order book and industry demand.

Long Apple Vs. Short Quanta & Pegatron: Trade Ahead of Apple’s Upcoming Earnings

By Vincent Fernando, CFA

Apple shares have fallen significantly on a weakening outloook; Yet manufacturers Quanta and Pegatron’s shares still haven’t reacted negatively.
Inventory levels appear too high across Apple’s key contract manufacturers based on our analysis.
We see Quanta & Pegatron at risk of margin pressure in 2023E with negative operating leverage potentially causing significant profit declines.

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Jan 07

Daily Brief Equity Bottom-Up: Adoption of Digital Textbooks (Korea in 2025 & Japan in 2024) and more

By Smartkarma Daily Briefs | Daily Briefs, Equity Bottom-Up

In today’s briefing:

Adoption of Digital Textbooks (Korea in 2025 & Japan in 2024)
STMicroelectronics: Building Positions Ahead of the Next Upcycle
IQIYI (IQ US): Taking a Break
KTC – The Quiet
NetEase(NTES.US) 4Q22 Preview: Enter a Period of Lukewarm Performance
Carnival: Its Recovery Program Is Already Priced In
Where Is TLT ETF Headed In 2023 And Why Inflation Won’t Be An Issue
MasterCraft: Significantly Undervalued With Secular Growth Prospects

Adoption of Digital Textbooks (Korea in 2025 & Japan in 2024)

By Douglas Kim

The Korean Department of Education announced on 5 January that Korea will start to adopt customized digital school textbooks starting 2025.
These 11 Korean stocks that are well positioned to capitalize on the digital textbooks are up on average 5.3% YTD, strongly outperforming KOSPI which is up 2.4% YTD.
Japan is implementing the adoption of digital textbooks in elementary, junior, and high schools starting in 2024, ahead of Korea.

STMicroelectronics: Building Positions Ahead of the Next Upcycle

By Alexis Dwek

New technologies such as 5G, 3D, Time of Flight and new materials such as silicon carbide and gallium nitride have paved the way for the Company’s long-term growth
The semis market should reach trough in H1 2023; the low point in share prices is generally a few months before the semis market itself reaches the bottom
Valuation is appealing at these levels. Discount to peers. Upside potential is over 50%

IQIYI (IQ US): Taking a Break

By Eric Chen

Since we highlighted the compelling asymmetrical risk-return payoff of IQ last November, the stock has surged 200%, compared to 45% gain for KWEB which tracks China ADRs.
We believe the outperformance was driven by more concrete progress in fundamental turnaround including multiple blockbuster drama released, increase in subscription fee and removal of debt overhang.
With $7 billion market cap (on diluted basis), IQ already trades at 35 times 2023 earnings, pricing in fair degree of positive prospects. We advise investors to lock in profits.

KTC – The Quiet

By Daniel Tabbush

Quietly KTC has seen its bad loans and credit costs rise
During last year it saw a final surge in credit costs in the last quarter
Market share losses and regulatory risk may continue to pressure its 5x PB

NetEase(NTES.US) 4Q22 Preview: Enter a Period of Lukewarm Performance

By Pearl Gray Equity and Research

We estimate that NetEase’s 4Q22 revenue/non-GAAP net income will be in line/12% vs cons. Our 2023’s revenue/non-GAAP net income are in line/12% vs cons.
In 4Q22, several of NetEase’s mid-tier games saw declines in ranking. We expect that NetEase will have a period of single digit growth in revenue.
We still rate NetEase BUY and raise TP to US$ 87. But NetEase is not our top pick within China internet space.

Carnival: Its Recovery Program Is Already Priced In

The company’s year-over-year revenue has surged by more than 1.98x.
Carnival remains far adrift from its midpoint profit margins and has a sizeable corporate bond to service.
A residual income valuation model places a fair value of $9.91 on the stock, placing it in fair value territory.

Where Is TLT ETF Headed In 2023 And Why Inflation Won’t Be An Issue

By Vladimir Dimitrov, CFA

The one-sided downward movement in both equity and bond prices in 2022 was both unusual and expected.
The set-up for the next 12 to 18 months is favourable for bonds, both on the short and the long-end of the curve.
The one- sided downward movement was both unexpected and expected.

MasterCraft: Significantly Undervalued With Secular Growth Prospects

By Pearl Gray Equity and Research

Are you interested in consumer cyclical and industrial stocks while being worried about the macroeconomic outlook? Well, if you are, then MasterCraft (NASDAQ:MCFT) should be on your watchlist.
MasterCraft could part itself from the rest of the consumer cyclical segment during a trying macroeconomic environment.
The company’s Veblen good status and low debt burden could protect one’s portfolio against macro headwinds.

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Jan 06

Daily Brief Equity Bottom-Up: Tencent(700.HK) 4Q22 Preview:Turning Points Are Emerging and more

By Smartkarma Daily Briefs | Daily Briefs, Equity Bottom-Up

In today’s briefing:

Tencent(700.HK) 4Q22 Preview:Turning Points Are Emerging
Taste Gourmet: Growth <6x PE with 10% Div Yield and China Reopening Boost
Meidong: Capital Raise, There’s Never a Right Time
Bajaj Finance: Key Q3FY23 Updates
CSRC Sanction Is Likely Darkness Before Dawn
Ant Group’s Lending Unit Gets Approval for $1.5 Billion Capital Boost
Universal Vision Biotechnology (3218 TT): Not Suffering from Myopia; Clear Long-Term Growth Prospect
Chinese Intel Alternative Makes Consumer Play With Retail Store
ATEN: Shifting to a Second Half Event

Tencent(700.HK) 4Q22 Preview:Turning Points Are Emerging

Our Tencent 4Q22’s rev. is in line, while non-IFRS net income would beat cons. by 5.2%. We estimate that top and bottom line will grow 13%/14% YoY in 2023.
We suggest major business lines see turning points in 4Q22, supported by rebound of Peacekeeper Elite’s gross billings, approval of new game codes, monetization of Wechat Video Account, etc.
Tencent is one of our top picks. Video Account, global game publishing, and margin beat are three major catalysts. Our TP HK$ 407 implies 26.1X PE in 2023.

Taste Gourmet: Growth <6x PE with 10% Div Yield and China Reopening Boost

Taste Gourmet Group (8371 HK) is an excellent play on China/HK reopening with a 5.7x/4.2x FY23/24 PE and 10+% dividend yield, with 25% of the mkt cap in net cash.
Reopening of China and HK borders after Jan 8th will provide a boost to the revenue and margins. The company will also resume its expansions in China (3 restaurants).
Channel checks suggest a solid Q3 2023, with the company expanding to 38 restaurants in HK (34 in Q2 2023), with a surge in revenue likely due to seasonality.

Meidong: Capital Raise, There’s Never a Right Time

China MeiDong Auto (1268 HK) raised 800mn HKD in a top placement (px~15 HKD/share), resulting in a ~4% dilution, citing an opportunistic raise for M&A.
While the company asserts there is a well-defined pipeline, it was not very specific on the size and scope of its targets which was not taken well by the market.
We continue to like the company, trading at a 15x/9x PE FY22e/23e, with a 5.2%/8.8% dividend yield (assuming an 80% payout ratio), with the optionality of M&A potential.

Bajaj Finance: Key Q3FY23 Updates

By Ankit Agrawal, CFA

Bajaj Finance Ltd (BAF IN) reported key performance metrics for Q3FY23. AUM growth came in weak with incremental AUM addition at just 12,500cr vs 14,700cr YoY.
QoQ, the AUM growth looks decent at 5.5%+, however, given that the Q3FY23 was a festive season quarter, QoQ comparison is not as relevant.
However, BAF did a good job on customer acquisition. It acquired 3.1mm new customers (highest ever quarterly increase) vs 2.56mm YoY, a growth of 21%+.

CSRC Sanction Is Likely Darkness Before Dawn

CSRC’s rectification on FUTU to suspend new user registration from mainland China while allow service continuation to existing user is well expected. We believe the market over-reacted;
FUTU caters to overseas Chinese and populations falling outside of major currency zones. This market supports a paying user growth of 12% and revenue growth of 19% CAGR to 2025.
We maintain BUY and cut TP from US$58.5 to US$50 due to moderate decline in mainland China users.

Ant Group’s Lending Unit Gets Approval for $1.5 Billion Capital Boost

By Caixin Global

Ant Group Co. Ltd.’s online lending subsidiary has been given the go-ahead from regulators to boost its registered capital by 10.5 billion yuan ($1.5 billion), marking a key step forward in the fintech giant’s government-driven, year-long revamp
The approval was granted a month and a half after some of the unit’s shareholders disclosed the plan, underscoring the recent pledge by authorities to promote healthy development
Ant Group, backed by billionaire Jack Ma’s e-commerce giant Alibaba Group Holding Ltd., has been conducting a rectification required by the government since a regulatory storm saw its planned blockbuster IPO suspended in November 2020

Universal Vision Biotechnology (3218 TT): Not Suffering from Myopia; Clear Long-Term Growth Prospect