Equity Bottom-Up

“VTuber” (Virtual Youtuber) animated influencer company Anycolor (5032 JP) was listed on 8 June 2022 at ¥1530. The stock popped 214% on Day1.It is up another 60% since then.
Today Anycolor reported Q2 earnings (result, presentation) and revised its full-year forecast to 30 April. Revenues will be +7-18% vs forecast, OP +18-39%, NP +15-39%. Price is 43x forecast EPS.
The company also announced it is preparing a Section Transfer application, but gave little more info. So we dig into what THAT means.

Premier Anti-Aging Company: DUO Is Going Down

Premier Anti-Aging (4934 JP) shares rose 6.1% today following a massive earnings miss and a substantial downgrade to FY23 guidance.
This is perhaps due to low liquidity and depressed prices as the share price dropped more than 85% since July last year.
We think there’s more downside to the stock, especially with DUO about to hit the bottom of the barrel and CANADEL and Clayence struggling to maintain growth momentum.

Tokyo Electron (8035) | Huge Upside if Management Hit Targets

By Shifara Samsudeen, ACMA, CGMA

Tokyo Electron is a structural growth stock that has fallen by 31% YTD reflecting near term risks to growth and margins
We believe that the digitization of society has only just begun and that data volumes will grow exponentially
We analyse TEL’s core value drivers – revenue, margins, risk and reinvestment – and see 38% upside

Sa Sa Intl (178 HK): Is It Too Late to Buy Now?

By Osbert Tang, CFA

We think Sa Sa International Hldgs (178 HK)‘s risk-return payoff still look favourable even after the recent rally, which rides on the expectations of HK-mainland China border opening.
Assuming net profit returns to 70% of pre-pandemic level in FY25, and applying a peak PER of 25x over 2011-2018, its share price still has 63% upside.
Release of pent-up demand, stabilisation of gross margin trend, improved cost dynamics and manageable financial position are all positive factors for Sa Sa.

Fujifilm: An Inspiring Transformation Story

Established as a domestic photographic film manufacturing company, Fujifilm has successfully evolved into a healthcare company with majority revenue earned from medical and life science related businesses.
Fujifilm is now a leading player in Bio CDMO market through a combination of acquisitions and in-house developed capabilities. The company has gained recognition among leading pharmaceutical companies.
We think there is further upside to Fujifilm’s valuation multiples as the market still values the stock as an image/photography company and not in line with healthcare peers.

Kakao Corp: FTC Going After Chairman Kim Beom-Su’s K Cube Holdings

By Douglas Kim

On 15 December, it was announced that Korea’s FTC decided to refer K Cube Holdings (KCH) to the prosecution over alleged illegal execution of voting rights to Kakao companies.
This could signal that the financial regulators may become more forceful in enforcing numerous other regulatory pressures on Kakao Corp and its affiliated companies to reduce their monopolistic business practices
Our NAV valuation of Kakao Corp suggests NAV per share of 45,942 won, which is 17% lower than current price.

Taiwan Dual-Listings: Premiums Bounced… And Have Now Declined Again

By Vincent Fernando, CFA

TSMC — Small premium currently, recent trading range appears unaffected by Buffett investment
UMC — Bounced from discount to premium, now at a discount again
ChipMOS — Bounced from discount to premium, now back to a decent discount

Lotte Shopping: A Deep Value Stock Poised for a Turnaround

By Douglas Kim

Lotte Shopping is a deep value stock poised for a turnaround.
Lotte Shopping has clear turnaround catalysts, cheap valuations, and a solid technical setup.
Perhaps the most important catalysts for Lotte Shopping include getting rid of the most restrictions/social distancing measures related to COVID-19 which have been in place in the past three years.

Askul Q2 23 Results Reaction: B2B Growth and B2C Cost Savings Drive Solid Quarter

By Kirk Boodry

Results for Q2 were better than we expected as B2B sales growth remained robust whilst cost savings on the consumer side boosted margins
A rather robust decline in revenue for Lohaco is the only negative that stands out but this was partially anticipated whilst the corresponding cost savings are a boon
An 11% increase in operating profit for Q2 offsets weakness from the previous report and puts the company on track to meet guidance for full-year growth

Zydus Lifesciences (ZYDUSLIF IN): New Launches Aid US Business; India Business Continued to Progress

In Q2FY23, Zydus Lifesciences Ltd (ZYDUSLIF IN) recorded 16% y/y and 10% q/q growth in the U.S. formulation business, mainly driven by new launches including gRevlimid.
India formulation business continued to progress well, with market share gain in key therapies including cardiovascular, gynecology, respiratory, and gastro intestinal on a y/y basis.
Zydus remains confident to achieve 20% plus EBITDA margin for the current fiscal, backed by growth visibility across key businesses, coupled with various cost optimization initiatives.

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Dec 15

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

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

In today’s briefing:

Meituan Food Delivery 4Q Updates
Terumo Corp (4543 JP): H1FY23 Results Reflect Continued Recovery from the Pandemic
Shizuoka – Indigestion
Baidu: Initiation of Coverage – Market Position & Key Drivers
Alibaba Health Information Technology (241.HK) FY23H1 – Concerns Behind the Performance Turnaround
Wynn Resorts
Banorte and BanBajio – October Data Trends, a First Look at 4Q 2022; Returns Pressure Building?
Peloton Interactive Inc.: Initiation of Coverage – Challenging Macro Environment & Other Factors
Our Models Suggest National Retail Properties Could Surge
Western Digital Corporation: Initiation of Coverage – Recent Collaborations & Other Drivers

Meituan Food Delivery 4Q Updates

By Xin Yu, CFA

Meituan food delivery order growth slowed down in Oct and Nov due to covid restrictions.
Meituan Instashopping continued to grow fast in terms of its daily orders.
TikTok food delivery service so far hasn’t posed big threats to Meituan.

Terumo Corp (4543 JP): H1FY23 Results Reflect Continued Recovery from the Pandemic

Terumo Corp (4543 JP) recorded double-digit revenue growth in H1FY23, with record-high Q2 revenue exceeding ¥200 billion. All three businesses of Terumo reported growth during H1FY23.
Cardiac and vascular segment remained the key growth driver and grew 21%, driven by a 24% y/y growth in overseas revenue amid the recovery and growth of medical demand.
Inflation and normalization of sales and marketing activities impacted the profitability of the company. To improve profitability Terumo has taken further price increase in second half.

Shizuoka – Indigestion

By Daniel Tabbush

Credit costs in September quarter are showing steep delta YoY and QoQ
Accelerated credit growth in past six months may mean there is more to come
Funding cost surge is keeping net interest income growth near zero despite swelling loans

Baidu: Initiation of Coverage – Market Position & Key Drivers

This is our first report on Chinese internet behemoth, Baidu.
The company’s operating loss and margin year over year and quarter over quarter for AI Cloud improved.
Their new AI businesses, like AI Cloud and Intelligent Driving, are in line with China’s national ambitions and digital innovation.

Alibaba Health Information Technology (241.HK) FY23H1 – Concerns Behind the Performance Turnaround

Although Alibaba Health turned loss into profit in FY23H1, it was mainly benefited from the obvious effect of expenses control,which isn’t a long-term solution to achieve the goal of profit.
Alibaba Health has a more difficult problem. The logic of relying on multiple entrances to obtain customers to drive online drug sales has failed to bring higher revenue growth.
In other to keep sustainable growth, it’s important for Alibaba Health to further improve user conversion rate. It is also urgent to actively expand new business growth points.

Wynn Resorts

This is our first report on Wynn Resorts, a well-known operator of casinos and resorts across the globe.
The company observed strength throughout the casino, with record gross gaming revenue and record hotel revenue, driven by strength in both ADR and occupancy on the nongaming side.
In addition, Wynn is progressing with the planning for Wynn Marjan, their integrated resort in the United Arab Emirates.

Banorte and BanBajio – October Data Trends, a First Look at 4Q 2022; Returns Pressure Building?

We analyse key trends to October 2022 for Banorte and Banco del Bajio, two of the top three ROE generating banks in Mexico which also trade on premium PBV ratios
For both, the challenges are funding costs that rise faster than loan yields, crimping credit spreads, as well as the indications that cost of risk may have bottomed out
Although the operating expenses ratio is well controlled so far, it seems unlikely that it can improve much more; these data trends add weight to our cautious view on Banorte

Peloton Interactive Inc.: Initiation of Coverage – Challenging Macro Environment & Other Factors

By Pearl Gray Equity and Research

This is our first report on Peloton Interactive, one of the most popular interactive fitness platforms in the world.
The company delivered a disappointing set of results as it failed to meet Wall Street expectations with respect to revenues as well as earnings.
We initiate coverage on the stock of Peloton Interactive, Inc. with a ‘Hold’ rating.

Our Models Suggest National Retail Properties Could Surge

The Gordon’s Growth Model suggests National Retail Properties is severely undervalued.
In addition, a seasonal ARIMA model indicates the REIT’s dividend yield might be sustainable.
The REIT could be an outlier in 2023, according to the Gordon’s growth model.

Western Digital Corporation: Initiation of Coverage – Recent Collaborations & Other Drivers

This is our first report on Western Digital Corporation, one of the largest manufacturers and distributors of data storage devices and solutions in the world.
The HDD revenue of Western Digital during the quarter declined modestly.
Western Digital is deep into qualifying its most recent generation of hard drives, including its 26-terabyte UltraSMR hard drives, at numerous OEM and U.S. cloud customers.

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Dec 14

Daily Brief Equity Bottom-Up: 2021 & 2022 High Conviction Review: Time’s Up For Seven & I But Japan Tobacco Has More Room to Run and more

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

In today’s briefing:

2021 & 2022 High Conviction Review: Time’s Up For Seven & I But Japan Tobacco Has More Room to Run
Korean Pair Trades Review in 2022
Omron (6645) | Key Beneficiary of Industry 4.0
Long-Term Growth Intact: Xtep
Gujarat Ambuja Exports
Acotec Scientific Holdings (6669.HK) – Logic Behind Boston Scientific’s Partial Offer and the Impact
Oracle: Key Considerations For Long-Term Investors From Yet Another Strong Quarter
Intuitive Surgical Inc.: Initiation of Coverage – Recent Approvals & Other Drivers
Lumen Technologies Inc.: Initiation of Coverage – Expansion Of Quantum Fiber & Other Drivers
GlaxoSmithKline ADR: Initiation of Coverage – Business Strategy & Other Drivers

2021 & 2022 High Conviction Review: Time’s Up For Seven & I But Japan Tobacco Has More Room to Run

As the year draws to a close, we took time to assess the effectiveness of our high-conviction calls made during the past two years.
With further dividend hikes looking increasingly possible, our 2022 high-conviction call, Japan Tobacco (2914 JP) has more room to run this year.
However, it’s probably the right time to take profits from our 2021 high-conviction trade, Seven & I Holdings (3382 JP) as the US gas-stations profitability maxed-out in the last quarter.

Korean Pair Trades Review in 2022

By Douglas Kim

In this insight, we review all the 16 Korean pair trade ideas in 2022.
A few of the best performing pair trade ideas this year included long LG Chem/short LGES, long Doosan Corp/short Doosan Enerbility, and long KIH/short MFG.
Going forward in 2023, as the market continues to show higher volatility, there could be continued strong interest in pair trade ideas in Korea.

Omron (6645) | Key Beneficiary of Industry 4.0

Omron is a structural growth stock that has fallen by 39% YTD reflecting near term risks to growth and margins
We believe that Omron is a major beneficiary of continued investment in automation and the shift to Industry 4.0
We analyse Omron’s core value drivers – revenue, margins, risk and reinvestment – and see 35% upside

Long-Term Growth Intact: Xtep

By Xin Yu, CFA

4Q22 retail sales was negatively affected by the covid restrictions
Sales growth is expected to recover in 1Q23 with China’s nationwide loosening policy.
Long term growth is intact with continued upgrades of brands, products and channels

Gujarat Ambuja Exports

By Gauri Anand

Company holds pole position in corn starch processing in India with ~ 25% market share; but accounts for a significant share of industry’s profit pool.
Further expanded capacity by 40% (1200tpd) just last week and another 25% expansion is planned for Q4FY24E, the 60%+ capacity expansion will drive volume led growth forward.
Cost pressures (commodity, energy) to abate in FY24E. Formidable player, capital efficient business, cost leadership, net cash stature, low valuations(<10x PER, <1x EV/Sales), favors investment.

Acotec Scientific Holdings (6669.HK) – Logic Behind Boston Scientific’s Partial Offer and the Impact

Boston Scientific angles for majority stake with US$523 million for Acotec Scientific Holdings (6669HK), which is the largest acquisition of a Chinese medical device company by a MNC since 2014.
Completion of the Partial Offer would further strengthen Boston Scientific’s presence in China and create the potential for commercialization of Acotec products globally. It’s a win-win deal for both sides.
Companies listed in HKEX don’t have to seek valuation within HKEX system. If they can find “new anchor points”, they’ll have higher valuation.Chapter 18A companies’ future stock prices would diverge.

Oracle: Key Considerations For Long-Term Investors From Yet Another Strong Quarter

By Vladimir Dimitrov, CFA

Oracle continues to outperform its peers and the broader equity market after reporting yet another strong quarter.
The cloud application segment continues to deliver, the infrastructure side of the business deserves more attention, according to analysts and market commentators.
The early signs were plain to see a couple of years back, says analyst.

Intuitive Surgical Inc.: Initiation of Coverage – Recent Approvals & Other Drivers

This is our first report on Intuitive Surgical, one of the largest players in robotic surgery offerings across the globe.
Korean growth remained steady, while Japanese procedure growth quickened compared to Q2.
We initiate coverage on the stock of Intuitive Surgical with a ‘Hold’ rating.

Lumen Technologies Inc.: Initiation of Coverage – Expansion Of Quantum Fiber & Other Drivers

This is our first report on Lumen Technologies, one of the major facilities-based technology and communications companies in the world.
During the quarter, 31,000 Quantum Fiber customers were added.
Apart from that, Lumen Technologies has been expanding its premier residential as well as Quantum Fiber aggressively in over 30 cities and metro areas.

GlaxoSmithKline ADR: Initiation of Coverage – Business Strategy & Other Drivers

This is our first report on GlaxoSmithKline (GSK), one of the largest pharmaceutical companies in the world.
The company is making a significant performance in both operating performance and R&D productivity.
GSK continued disciplined cost control by prioritizing investments in the growth for supporting launches in Vaccines and Specialty Medicines, namely Shingrix.

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Dec 13

Daily Brief Equity Bottom-Up: BILIBILI (BILI US): Can Achieving Breakeven Justify US$10bn Market Cap? and more

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

In today’s briefing:

BILIBILI (BILI US): Can Achieving Breakeven Justify US$10bn Market Cap?
IHI (7013) | Boeing Orders Take Off
China Internet Weekly (12Dec2022): Bilibili, Tencent, JD.com
Akeso Biopharma (9926.HK) – Behind the Deal with Summit: A Snake Swallows an Elephant?
Humana Inc.: Initiation of Coverage – Expansion Of CenterWell & Other Drivers
AutoZone Inc.: Initiation of Coverage – Business Model & Key Drivers
Getaround This SPAC Deal
IDEX Corporation: Initiation of Coverage – & Other Drivers
Newmont Corporation: Initiation of Coverage – Macro For Gold Mining & Other Drivers
Sporting Crypto – Dec 12th: Starbucks Launch Web3 Loyalty Program; Odyssey

BILIBILI (BILI US): Can Achieving Breakeven Justify US$10bn Market Cap?

By Eric Chen

BILIBILI shares have rallied more than 200% since early November on prospects of China exiting zero-COVID, short covering, and accelerated breakeven timeline.
Yet simply achieving breakeven doesn’t justify its US$10 billion valuation. It has to be accompanied by decent profitable growth – an unlikely scenario given the aggressive downsizing needed for breakeven.
BILI’s businesses also entail structurally low margin. Stock could easily de-rate by 30% or more when growth euphoria recedes and disappointed profitability checks in during 2023.

IHI (7013) | Boeing Orders Take Off

Boeing’s stock price is recovering sharply as it benefits from recent multi-billion-dollar order wins
Japanese stocks (IHI, MHI, KHI & Subaru) are highly geared into the Boeing supply chain
We highlight IHI as a top pick on this thematic and believe aero-engine revenues will continue to recover, driving a stock re-rating

China Internet Weekly (12Dec2022): Bilibili, Tencent, JD.com

By Ming Lu

Bilibili is dismissing employees in live streaming, cartoon, and main station.
The Chinese mobile game market began to expand, but the global market is shrinking.
JD.com chairman reorganized its company, reducing the departments from eight to three.

Akeso Biopharma (9926.HK) – Behind the Deal with Summit: A Snake Swallows an Elephant?

Akeso Biopharma Inc (9926 HK) and Summit Therapeutics entered into a collaborative and licensing agreement for AK112, which has set a new record for China’s innovative drug license-out cooperation.
While the market remained positive about the transaction, there are also doubts. We deep dive the potential logic of the deal.
We recommended investors not to neglect “the nature of the deal” and “the real motivation” behind. It’s also important to see whether the subsequent operations can make some achievements overseas.

Humana Inc.: Initiation of Coverage – Expansion Of CenterWell & Other Drivers

This is our first report on Humana, a leading player in the medical insurance space in the U.S.
The company’s third quarter results were reasonably strong as it met Wall Street’s revenue expectations while managing an earnings beat.
In addition to improving plan offers for their larger membership, the management strengthened their consumer segment strategy.

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

This is our first report on AutoZone, one of the largest distributors of automotive replacement parts and accessories in the U.S.
The company had a strong fourth quarter, and managed an all-around beat.
However, its domestic, commercial sales made up 30% of its domestic auto parts sales.

Getaround This SPAC Deal

By subSPAC

This week, digital car-sharing platform Getaround made the headlines as the latest De-SPAC casualty to crash and burn on its stock market debut.
After initially announcing plans to go public through a merger with interPrivate II Acquisition Corp in a deal valuing the combined company at $1.2 billion in May 2022, the company saw a decline of 65% on its debut.
Essentially, at its current valuation, the market thinks that Getaround is worth a little more than the cash generated from its SPAC deal and less than half of the total cash it has raised to date.

IDEX Corporation: Initiation of Coverage – & Other Drivers

This is our first report on industrials major, IDEX Corporation.
The company is regularly in the news for its frequent acquisitions and generated good results in the third quarter, surpassing Wall Street expectations on all fronts.
We initiate coverage on the stock of IDEX Corporation with a ‘Hold’ rating.

Newmont Corporation: Initiation of Coverage – Macro For Gold Mining & Other Drivers

This is our first report on global gold mining giant, Newmont Corporation.
In Q3, they produced 1.5 million ounces of gold and nearly 300,000 gold equivalent ounces from copper, silver, lead, and zinc.
We initiate coverage on the stock of Newmont Corporation with a ‘Hold’ rating.

Sporting Crypto – Dec 12th: Starbucks Launch Web3 Loyalty Program; Odyssey

By Sporting Crypto

Starbucks have launched a Web3 loyalty program called Odyssey.
Members can engage in ‘journeys’, a series of activities, such as playing interactive games or taking on fun challenges to deepen their knowledge of coffee and Starbucks.
They will be rewarded with a digital collectable ‘journey stamp’ — and yep, you guessed it — they’re NFTs.

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Dec 12

Daily Brief Equity Bottom-Up: China Traditional Chinese Medicine (570.HK) – The Privatization Rumor and the Outlook and more

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

In today’s briefing:

China Traditional Chinese Medicine (570.HK) – The Privatization Rumor and the Outlook
Taiwan Tech Weekly: Broadcom Results Provide Some Signs of Strength, Hon Hai Facility Ends Lockdown
Yokogawa Electric (6841 JP): Carbon-Neutral Industrial Park & Green Hydrogen
REIT Watch – Healthcare S-Reits capture Japan opportunities with expanding footprint
Wilmar, Wee Hur and TCA chairmen add to their stakes

China Traditional Chinese Medicine (570.HK) – The Privatization Rumor and the Outlook

China TCM’s privatization rumor led to large fluctuation of its share price last week. Since there have been related rumors twice, this may not be completely over yet.
China TCM’s performance may not rebound quickly due to short-term challenges in concentrated TCM granules business.
However, the decline in the revenue side could be a temporary phenomenon. After a difficult period, if the Company’s business could recover as expected, share price would rebound.

Taiwan Tech Weekly: Broadcom Results Provide Some Signs of Strength, Hon Hai Facility Ends Lockdown

By Vincent Fernando, CFA

Broadcom FY22 results indicate strength in data centers, telco infrastructure, enterprise IT spending.
Hon Hai’s Zhengzhou facility ends closed-loop operations, returning to a more normal state.
U.S. asking Japan to have its firms comply with U.S. chip restrictions on China.

Yokogawa Electric (6841 JP): Carbon-Neutral Industrial Park & Green Hydrogen

By Scott Foster

Yokogawa is diversifying with integrated controls systems for green hydrogen plants in the Netherlands and Australia and a carbon neutral industrial park in Japan.
Holland Hydrogen I, the YURI hydrogen project and the Goi and Soga Complex take the company beyond oil, gas and petrochemicals.
Based on long-term energy and environmental priorities, these projects should be immune to recession.

REIT Watch – Healthcare S-Reits capture Japan opportunities with expanding footprint

By Geoff Howie

Healthcare S-REITs capture Japan opportunities with expanding footprint Both ParkwayLife Reit (37.1 per cent of its asset value) and First Reit (22.8 per cent of its assets under management) have significant exposure to Japan nursing homes and healthcare-related properties through recent acquisitions.
First Reit now has 14 out of its 32 Asian healthcare assets in Japan nursing homes which are operated by five independent and experienced nursing home operators.

Wilmar, Wee Hur and TCA chairmen add to their stakes

By Geoff Howie

FOR the five trading sessions that spanned Dec 2 to 8, the Straits Times Index (STI) declined 7 per cent, with the Hang Seng Index gaining 3.7 per cent and the FTSE Bursa Malaysia KLCI slipping 1.6 per cent.
Overall, institutions were net sellers of Singapore stocks for the five sessions ended Dec 8 with S$359 million of net outflow.
A married deal on Dec 5 saw Wee Hur Holdings executive chairman and managing director Goh Yeow Lian acquire one million shares at 20 cents per share, increasing his total interest from 44.41 per cent to 44.52 per cent.

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Dec 11

Daily Brief Equity Bottom-Up: Acotec Scientific Holdings (6669 HK): Base Business and more

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

In today’s briefing:

Acotec Scientific Holdings (6669 HK): Base Business, Geography Expansion, New Launch to Drive Growth
Hamamatsu Photonics (6965 JP): Earning Momentum Fading
Acotec Scientific Holdings (6669.HK) – A Game Changer with Solid Long-Term Logic
Asia Gaming: Raising Recent Guidance on Melco Resorts as Catalysts Begin to Move Market Sentiment

Acotec Scientific Holdings (6669 HK): Base Business, Geography Expansion, New Launch to Drive Growth

Acotec Scientific Holdings (6669 HK) is an early-mover in peripheral drug coated balloon market in China and holds a dominant 85%+ market share.
On November 7, Acotec received its first FDA approval for Vericor, a peripheral support catheter designed to enhance access to peripheral vessels.
Acotec started 2022 on a strong note, with revenue increasing 25% y/y in H1 2022 due to increasing adoption of the company’s product in Chinese hospitals.

Hamamatsu Photonics (6965 JP): Earning Momentum Fading

By Scott Foster

As expected, FY Sep-22 results were ahead of guidance. Management is forecasting further growth this fiscal year, but guiding for a YoY decline in operating profit in 2H.
In addition, the depreciation of the yen, which added 5% to sales at 17% to operating profit last fiscal year, has reversed, economies have weakened and interest rates are up.
We continue to recommend profit taking. We would like to buy the shares at ¥6,000 – 15% down from the Dec. 9 close.

Acotec Scientific Holdings (6669.HK) – A Game Changer with Solid Long-Term Logic

The peripheral vascular interventional device market in China is mainly dominated by foreign companies, but leading domestic company such as Acotec is the one to break the current market pattern.
With more products getting CE/FDA approval in the future, Acotec Scientific Holdings (6669 HK) is able to enter more overseas markets. Acotec’s globalization process will diversify the revenue stream.
Acotec has turned loss into profit by relying on product revenue. The Company has entered a new stage of innovation and harvest. We think Acotec has solid long term logic.

Asia Gaming: Raising Recent Guidance on Melco Resorts as Catalysts Begin to Move Market Sentiment

By Howard J Klein

In last month’s insight, we noted that Melco was poised for an upside as it was among the most seriously undervalued stock in the sector.
Despite continuing covid travel ban related losses in 3Q22 earnings release, we saw an upside coming in near term catalysts.
Improving performance by 1Q23 will turn sentiment even stronger as the bull case materializes due to positives now poised in place.

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Dec 10

Daily Brief Equity Bottom-Up: Yue Yuen (551 HK): Putting Their Best Feet Forward and more

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

In today’s briefing:

Yue Yuen (551 HK): Putting Their Best Feet Forward
Yue Yuen Industrial Holdings (551.HK) – Challenging Prospects Overshadow Undervaluation
2023 High Conviction: NTT (Buy) – Surging DoCoMo Underappreciated as Markets Step Back from Value
Softbank Group – China Rebound Has Helped After End-Of-Buyback Hangover
Quick Idea’s
Malaysian Banks September 2022 Results Screener; RHB Stands Out, and Stick with CIMB

Yue Yuen (551 HK): Putting Their Best Feet Forward

By David Blennerhassett

Despite a softening global demand backdrop, Yue Yuen Industrial (551 HK), a global leader in the manufacture of athletic/outdoor and casual footwear, recently recorded its best 9M results since 2017.
Yue Yuen’s shares have only just recovered from a 20-year low.
From both a historical perspective and relative to peers, Yue Yuen is undemanding here.

Yue Yuen Industrial Holdings (551.HK) – Challenging Prospects Overshadow Undervaluation

Yue Yuen is essentially a large traditional manufacturing company, which once benefitted from China’s cheap labor and has brilliant history. But challenges seem inevitable as labor costs gradually increase.
Despite 22Q1-Q3 solid performance, in the environment of high inventory of brand customers and downward pressure on global economy, the order visibility of Yue Yuen in 22Q4/23Q1 could be low.
Either domestic demand or external demand, the overall situation may not be optimistic. Yue Yuen’s valuation is basically lower than its peers. However, we still recommend investors to remain vigilant.

2023 High Conviction: NTT (Buy) – Surging DoCoMo Underappreciated as Markets Step Back from Value

By Kirk Boodry

We have tweaked our numbers after Q2 results and catching up with the company. In particular, we come away with more confidence in wireless / fintech growth
NTT looks cheap at 11x FY22e EPS v 12x for KDDI even as relative growth is expected to be better with ~9% EPS growth
Shares have outperformed TOPIX (+18% YTD v -3%) and this should continue in 2023 as solid financial performance and an attractive shareholder returns story provide support

Softbank Group – China Rebound Has Helped After End-Of-Buyback Hangover

By Kirk Boodry

Alibaba is up 20% QTD and the public Vision Fund portfolio is on track for its first positive quarter in almost two years thanks to China upside, mostly for Didi
That has kept the share price elevated even as the discount to fair value has expanded since buybacks ended at Q2 results
At 34% now, there is room for the discount to expand further as the range before the buyback surge was generally closer to 40%

Quick Idea’s

By Turtles all the way down

111, inc (YI) has run up to $3.25. For a spread of only about 11%.
Which is not all that attractive since there is no definitive agreement signed. So I am closing it with a quick 13% gain here.
These Chinese merger situations sometimes randomly spike up, and I think it is wise to trade around them when upside isn’t as juicy anymore.

Malaysian Banks September 2022 Results Screener; RHB Stands Out, and Stick with CIMB

Of the six Malaysian banks screened, we highlight RHB Bank and retain CIMB on the buy list; PB Bank and Maybank are quality but seem fairly valued
RHB Bank has, in the September quarter, meaningfully improved its pre-provision profitability versus its peers; RHB’s high CET1 ratio suppresses its ROE, and it is attractive on PE and PEG
CIMB once again improved its positive post-provision returns which is constructive for CIMB’s share price given its modest valuations versus its peers; its high NPL ratio is fully provisioned

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Dec 09

Daily Brief Equity Bottom-Up: Food & Life: Can’t Avoid Headlines For Too Long & Starting to Fall Back Towards The Rest of The Pack and more

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

In today’s briefing:

Food & Life: Can’t Avoid Headlines For Too Long & Starting to Fall Back Towards The Rest of The Pack
Buy Shenzhou on Margin Recovery
Asia Gaming: Wynn Macau Poised to Move up as Balance Sheet Is Bolstered and Headwinds Begin to Ease
Overearning Short Candidates: Builders FirstSource, IBM, Forward Air Co, Deere & Co.
BOC HK – Negative Lending Growth, As Credit Costs Ratchet Higher?
Credicorp (BAP US); Opportunity to Come from the Peruvian Political Crisis
Elastic NV: Improvements To The Elastic Search Platform & Other Drivers
Agnico Eagle Mines: The Real Money Printing Press
Okta Inc: Improvements In The Okta Workforce Identity Cloud & Other Developments
Snowflake Inc: Investment In OpenAP & Other Drivers

Food & Life: Can’t Avoid Headlines For Too Long & Starting to Fall Back Towards The Rest of The Pack

Food & Life (3563 JP), best known for its affordable conveyor belt Sushi restaurant chain Sushiro, is looking to break out after dropping more than 60% in the last year.
This breakout coincides with Sushiro’s overseas growth as the segment revenue and OP grew 27% and 108% QoQ respectively in the previous quarter.
Given its tendency hit the headlines, mostly for the wrong reasons, risks rewards aren’t that great. Multiples have downside potential with Sushiro’s profitability falling towards peers.

Buy Shenzhou on Margin Recovery

By Xin Yu, CFA

Gross margin is under pressure throughout 2022 but will recover in 2023
Brands have been focusing on destocking and the inventory levels trend down
Capacity is expected to grow by 10% to low teens y/y in 2023

Asia Gaming: Wynn Macau Poised to Move up as Balance Sheet Is Bolstered and Headwinds Begin to Ease

By Howard J Klein

Parent Wynn Resorts Ltd’s. REIT deal for its Boston property, proceeds of US$1.7b rings its balance sheet cash to US$4.4b.
3Q22 results earnings miss entirely due to China zero covid policy that could begin to ease earlier than anticipated by the market.
At a P/E (ttm) of 8.44 the stock is yet to reflect a more positive tone of its strengthened balance sheet, 6.1% stake in the parent bought by an activist.

Overearning Short Candidates: Builders FirstSource, IBM, Forward Air Co, Deere & Co.

By Eric Fernandez, CFA

This model seeks companies that are potentially “overearning”, defined as companies with unusually high margins relative to their own history or relative to the industry.
The reasons for the margin increases are sometimes unsustainable or fraudulent. The critical judgement involves to what extent unsustainable margins are embedded in a company’s forecasts and/or the stock’s valuation.
These shorts tend to have moderate to higher betas, higher valuations due to recent strong results and good short responses to subsequently disappointing earnings.

BOC HK – Negative Lending Growth, As Credit Costs Ratchet Higher?

By Daniel Tabbush

Credit costs at present are only 20bps of loans, these can move to 100bps or higher
Population data even before 2H22 shows contraction, with negative implications
Property prices are turning down even faster, which is banks’ loan collateral

Credicorp (BAP US); Opportunity to Come from the Peruvian Political Crisis

The ousting of Peruvian President Pedro Castillo follows his failed attempt to dissolve Congress; Vice-President Dina Boularte was sworn in yesterday as the new first female Peruvian President
Political instability is not uncommon in Peru, but an end to Castillo’s chaotic, market-unfriendly administration with its high turnover in ministerial posts should improve investor sentiment and encourage increased FDI
When we screen Peruvian bell-weather Credicorp against its LatAm peers, we conclude that, although it is not deep value, it is attractive versus its own history and selected peers

Elastic NV: Improvements To The Elastic Search Platform & Other Drivers

Elastic NV managed to deliver an all-around beat in the last result as it continues making progress across innovation.
The company has recently announced innovations over the Elastic Search platform, the prominent data analytics platform for search-powered solutions for transforming the way organizations observe, search, and protect their data.
This quarter, Elastic expanded business with RDD, the leading supply chain, print, packaging, and marketing solutions provider.

Agnico Eagle Mines: The Real Money Printing Press

By Vladimir Dimitrov, CFA

Agnico Eagle Mines has already delivered outstanding results in a period of less than 6 months.
The risk profile of Agnico remains low with an exceptionally high dividend yield.
The company appears very attractive in spite of the inflationary headwinds, according to the company’s chief executive.

Okta Inc: Improvements In The Okta Workforce Identity Cloud & Other Developments

Okta is delivered a decent set of third-quarter results beating revenue expectations of Wall Street and delivering narrower than expected losses.
Since the beginning of the year, Okta’s business with public sector businesses has grown by more than 65% thanks to outstanding successes in the worker and customer identity clouds.
The management also unveiled improvements to the Okta Workforce Identity Cloud, enhancing its one control plane for managing identities across all business users and resources.

Snowflake Inc: Investment In OpenAP & Other Drivers

Snowflake delivered yet another all-around beat as the company continues to achieve robust growth along with improved unit economics, operational profit, and free cash flow.
Despite the weakening global macro context, Snowflake’s data strategy for contemporary businesses and institutions has helped it survive.
Besides, the Snowflake Data Cloud continues to be well-received by major businesses and institutions.

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Dec 08

Daily Brief Equity Bottom-Up: Shimano (7309) | Value Drivers in an Age of Sobriety and more

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

In today’s briefing:

Shimano (7309) | Value Drivers in an Age of Sobriety
JD Logistics (2618 HK): 3Q22 High Growth, Not Just Acquired But Organic, 29% Upside
Anta Sports (2020 HK): Assessing the Impact of a Potential Amer Sports IPO
Bank Central Asia (BBCA IJ) – The Mother of Connection
Mexican Banks’ October Data and Trends – Credit Spread Erosion a Bigger Threat than Credit Quality?
Kroger Co: Merger With Albertsons & Other Drivers
Wentworth Resources Plc (AIM: WEN): Proposed Acquisition by Maurel & Prom
General Mills: Delivering High Returns During Market Downturns
Marvell Technologies: New Product Launch & Other Drivers
NetApp Inc: The BlueXP Launch & Other Drivers

Shimano (7309) | Value Drivers in an Age of Sobriety

Shimano’s stock has declined by 26% YTD reflecting concerns over an economic recession and sales normalization post pandemic
We believe that Shimano is a key beneficiary of government policy aimed at decarbonization
We analyse Shimano’s core value drivers and see at around 23% upside for the stock

JD Logistics (2618 HK): 3Q22 High Growth, Not Just Acquired But Organic, 29% Upside

By Ming Lu

The growth rate of total revenue accelerated in the third quarter of 2022.
We believe the organic growth was also strong besides the acquisition of Deppon.
We set an upside of 29% and a price target of HK$19.90.

Anta Sports (2020 HK): Assessing the Impact of a Potential Amer Sports IPO

By Osbert Tang, CFA

The potential IPO of Anta Sports Products (2020 HK)‘s 52.7% owned Amer Sports is positive in unlocking the latter’s underlying value, though the impact is quite limited.
Assuming a P/S of 1.8x (30% discount to peers) and 25% enlargement in share capital, we estimate the exercise may bring ~HK$6n of potential pre-tax deemed disposal gain.
Although Anta Sports may not receive any cash, it can still pay out special dividends given its Rmb12bn net cash, and this will raise FY23 dividend yield to 3.1%.

Bank Central Asia (BBCA IJ) – The Mother of Connection

By Angus Mackintosh

A conversation with Bank Central Asia post results revealed some interesting near term and longer-term trends and initiatives as the economy recovers and it takes the brakes off lending.
BIFAST for instant transfers 24-7 with lower fees will impact the bank’s fee income, although volume increases offset the impact plus BCA is gaining a share of transactions.
Bank Central Asia‘s strategy is to follow its customers and enable their financial journey through connecting to an ever broader ecosystem. Valuations look more reasonable rolling into 2023.

Mexican Banks’ October Data and Trends – Credit Spread Erosion a Bigger Threat than Credit Quality?

Bank sector trends to October continue to be sound, but return headwinds are emerging; further tightening credit spreads and initial signs of worsening in consumer credit quality
To October, funding costs are rising faster than loan yields, crimping credit spreads, and the rising credit card cost of risk indicates a worsening outlook for consumer credit quality
BBVA Mexico generates consistent premium ROE of 25%+, investors can gain exposure through BBVA equity; we continue to be cautious on Banorte, and we recommend taking profits on BanBajio

Kroger Co: Merger With Albertsons & Other Drivers

Kroger announced another quarter of quite strong results powered by its strategy of accelerating with digital and leading with fresh.
Kroger, along with Albertsons Companies, announces a definitive merger agreement whereby the companies will merge two complementary organizations with deep roots and iconic brands in their local communities.
It launched its foremost in-app flash sales and also enabled its customers to clip the digital offers from their cart directly.

Wentworth Resources Plc (AIM: WEN): Proposed Acquisition by Maurel & Prom

By Auctus Advisors

Maurel & Prom has made an offer to acquire Wentworth for 32.5 p per share in cash, valuing Wentworth at £61.7 mm.
Deducting the cash value from the offer price suggests an offer price of 19.6 p per share for Wentworth’s non cash assets.
This compares to a read through value of Wentworth’s non cash assets based on the share price of Wentworth on 2 December of p per share (25 p less12.9 p).

General Mills: Delivering High Returns During Market Downturns

By Vladimir Dimitrov, CFA

General Mills has significantly outperformed the broader equity market and the consumer staples industry as a whole.
The share price seems to be running ahead of fundamentals which reduces expected returns going forward.
The company would also need to dial-up investments in the coming year to secure its strong competitive positioning, according to the company.

Marvell Technologies: New Product Launch & Other Drivers

In the last quarter, Marvell delivered a disappointing result as its revenues and earnings failed to meet Wall Street expectations.
The company’s top-line continues to be driven by its auto, 5G, and cloud businesses.
On a sequential basis, the data center revenue of the company declined because of softness in its on-premise business.

NetApp Inc: The BlueXP Launch & Other Drivers

NetApp generated a mixed set of results for the last quarter as it failed to meet Wall Street expectations with respect to revenues and billings but managed an earnings beat.
It is evident that their cloud services’ growth has slowed down.
Besides, they have significantly adjusted their revenue projection for the remaining months of the fiscal year in light of impending economic headwinds.

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Dec 07

Daily Brief Equity Bottom-Up: Sunpower: 2023 China Re-Opening Stock and more

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

In today’s briefing:

Sunpower: 2023 China Re-Opening Stock, but CB Conversion Uncertainty Needs To Be Resolved
Fujitsu (6702) Buyback Just Getting Started
JAFCO (8595) Sells NRI Shares But VWAP Falling Short – Comes Down To Murakami-San
Negative EVs: JOYY & Sohu’s Steep Discount To Net Cash
Binjiang: Set up for a Good Move From Here
DeNA (2432) Buyback – Accretive on a Low Leverage Business Which Will Grow In Time
Pinduoduo (PDD): High-Performing Financials, But Low-Profile Management, 23% Downside
Shiseido: Outperforms With Relaxation Of China’s COVID Restrictions, Long Term We Are a Bit Cautious
CTG Duty Free (1880 HK): Near-Term Positive but It Is Not Cheap at All
Yuhan Corp (000100 KS): Progress of Anti-Cancer Drug Leclaza Is the Main Growth Engine

Sunpower: 2023 China Re-Opening Stock, but CB Conversion Uncertainty Needs To Be Resolved

By Nicolas Van Broekhoven

Sunpower has had a rough +/-18 months as input cost rises coincided with Force Majeure issues at some of its clients due to never-ending rolling Chinese lockdowns.
Mr. Market has pushed Sunpower back below 0.27 SGD/share (-43% YTD) despite revenue- and EBITDA growth continuing at its GI division. Profits have been compressed due to rising input costs.
As China re-opens in FY23 Sunpower should benefit from normalization and recovery in demand from its industrial base customers. However, CB conversion details are needed for re-rating to start.

Fujitsu (6702) Buyback Just Getting Started

On 28 April 2022, with full-year earnings, Fujitsu Ltd (6702 JP) announced a buyback programme to buy back up to 12mm shares (6.11% of shares out) for up to ¥150bn
That was when the shares were ¥18,540. The shares popped 10% in 2 days. Then fell 25% into end-September. Yesterday, they announced they’d bought back 1.9mm shares in November.
Those were the first shares bought back under the Programme. And that leaves 4 months and a lot of stock to buy.

JAFCO (8595) Sells NRI Shares But VWAP Falling Short – Comes Down To Murakami-San

Late last month, JAFCO (8595) Yields to Murakami Greenmail – Big Asset Sale, Big Buyback and set the large buyback from Murakami-san to occur through a Tender Offer.
The TOB price would be set at a 1% discount to the average 30 Nov – 7 Dec VWAP if VWAP was between ¥2,525 and ¥2,828/share. That’s not happening.
So now we read the fine print, look at waive-ability of conditions, and look at contingencies.

Negative EVs: JOYY & Sohu’s Steep Discount To Net Cash

By David Blennerhassett

Screening US-listed China plays with negative EV and positive tailing EBITDA generates eight names.
Of these companies, only two are expected to be EBITDA positive in FY22.
They are JOYY (YY US) and Sohu.com (SOHU US). This insight looks at both names.

Binjiang: Set up for a Good Move From Here

By Sameer Taneja

A recent rally in property management companies due to measures taken by the government has set Binjiang Service Group (3316 HK) for a big move upwards.
The stock is cheap and trades at 10.5x/8.1x FY22/23e PE with 37% of the market cap in cash and a 5.8%/7.4% FY22e/23e dividend yield.
Catalysts for the company are further loosening on the property by the government and a profit alert of 38-40% earnings growth for FY22.

DeNA (2432) Buyback – Accretive on a Low Leverage Business Which Will Grow In Time

DeNA (2432 JP) announced in June a buyback programme to buy up to ¥15bn of stock over the next nine months. They are two-thirds the way through.
At current pace, they should finish by end-Jan or early Feb, then cancel 8mm shares, leading to a small TOPIX selldown likely in March or April.
The company remains cash and securities rich (net cash, after-tax value of securities, and equity affiliates are 100% of market cap). And growth lines will slowly claw their way positive.

Pinduoduo (PDD): High-Performing Financials, But Low-Profile Management, 23% Downside

By Ming Lu

The revenue growth accelerated and the operating margin improved in 3Q22.
However, management said the performance may not continue and profit is not their target.
We believe the stock has a downside of 23% for year end 2023.

Shiseido: Outperforms With Relaxation Of China’s COVID Restrictions, Long Term We Are a Bit Cautious

The indication that China is prepared to scrap its strict Zero-COVID policy has gotten Shiseido Company (4911 JP) going again after an earnings beat in Q3 saw shares climb almost 20%.
Given that the shares have been range bound throughout the COVID crisis, we think Shiseido could reach near the upper limit of the COVID-range in the near-term to around ¥8,000.
Nevertheless, we would approach this trade with caution and only with a short time horizon as we see a lot of downside risks in the medium to long term.

CTG Duty Free (1880 HK): Near-Term Positive but It Is Not Cheap at All

By Osbert Tang, CFA

In the near-term, China’s relaxation of COVID-combating measures will boost consumption and demand for cross-province travel. China Tourism Group Duty Free Corp Ltd (1880 HK) is a beneficiary.
Hotel bookings in Sanya have surged over the last two days, reflecting positive demand reaction. However, China’s full border opening likely in 2023 is a challenge to CDFC.
Low base in FY22 will drive 45% earnings growth for FY23. However, valuations are not cheap at 33.8x PER for FY23, a significant premium to consumption sector and international peers.

Yuhan Corp (000100 KS): Progress of Anti-Cancer Drug Leclaza Is the Main Growth Engine