Equity Bottom-Up

Meituan is a leading “service e-commerce” platform in China, leveraging technology to connect consumers with merchants.
With the gradual re-opening in 2023, core local commerce will deliver better than expected result.
Tencent’s distribution of Meituan shares provides a good entry point.

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Nov 25

Daily Brief Equity Bottom-Up: Suzuki (7269 JT) | Ex-Maruti Valuation Now NEGATIVE and more

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

In today’s briefing:

Suzuki (7269 JT) | Ex-Maruti Valuation Now NEGATIVE
2023 High Conviction: China Tourism Duty Free – All Ready for the Next Travel Wave
Shiseido: International Cosmetics Brands Sent Packing by Chinese Rivals
2023 High Conviction: JD.com to Benefit from Discretionary Spend Recovery, Margin Progress on Track
China Ecommerce- Still Can Chase
Top Tencent Investor Naspers Considers Selling Meituan Shares
Iqiyi (IQ US): Compelling Asymmetrical Payoff
The Stocks to Own in Thailand – Vol. 39
2023 High Conviction: AviChina Industry (2357 HK) – The Sky Is the Limit
2023 High Conviction: Revolution Medicines – Cracking The KRAS In Cancer

Suzuki (7269 JT) | Ex-Maruti Valuation Now NEGATIVE

By Mark Chadwick

Suzuki is our top pick in the auto sector in Japan as a key beneficiary of strong demand for autos in India
Suzuki reported better-than-expected 2Q earnings – but the stock price has not reacted
Suzuki remains mispriced. Suzuki’s market cap is negative if we strip out the value of Maruti

2023 High Conviction: China Tourism Duty Free – All Ready for the Next Travel Wave

By Ethan Aw

China Tourism Duty Free (CDF) is the largest travel retail operator in the world primarily focusing on sales of high-quality duty-free and duty-paid merchandise to domestic and international travelers.
As per Frost & Sullivan (F&S), it had 86.0% market share by retail sales revenue in China duty-free merchandise sales in 2021.
With signs emerging of China finally looking to relax its COVID restrictions over the coming months, this will lead to a sales revival at its airports.

Shiseido: International Cosmetics Brands Sent Packing by Chinese Rivals

By Oshadhi Kumarasiri

The success of domestic brands in the low-cost cosmetics segment seems to be cascading into mid and high-price segments within the Chinese cosmetics market.
This could be bad news for Shiseido Company (4911 JP), whose investors are expecting the company to maintain its historical superiority in the Chinese cosmetics market.
We think that there’s a good chance for FY+2 EV/OP to return to the 12-20x range once the market price-in Shiseido’s weakening competitive position in the mainland China market.

2023 High Conviction: JD.com to Benefit from Discretionary Spend Recovery, Margin Progress on Track

By Wium Malan, CFA

JD.com should have an outsized benefit from a recovery in Chinese retail sales as further macro stimulus and a gradual easing of China’s covid-zero policy stimulates demand throughout 2023.
Following a return to margin expansion this year, due to economies of scale and curbing operating expenses during a challenging macro environment, the longer-term margin expansion trend remains on track.
JD.com Inc. (9618 HK) trades on extremely attractive valuation multiples (PE, PEG, FCF yield) with net cash on its balance sheet equal to 32% of its market cap.

China Ecommerce- Still Can Chase

Alibaba and JD stock prices have rallied around 20-30% in the past month, which was the low-hanging fruit for the investors.
With the full re-opening in 2023 in China, there is still upside for the sector.
Ecommerce players will enjoy GMV growth acceleration and margin improvement next year.

Top Tencent Investor Naspers Considers Selling Meituan Shares

By Caixin Global

Prosus NV, the Dutch unit of Tencent Holdings Ltd.’s largest shareholder Naspers Ltd., said it will consider selling the $4.6 billion of Meituan shares it will receive from Tencent as a special dividend.
South African media giant Naspers owns about 28% of the Chinese internet giant indirectly via Prosus.
On Nov. 16, Tencent announced a special distribution of 958 million Meituan shares to shareholders.

Iqiyi (IQ US): Compelling Asymmetrical Payoff

By Eric Chen

Iqiyi’s 3Q results released on Tuesday disappointed markets due to dim growth despite sustained profitability for the third quarter in a row.
“Iconic” turnaround actually put IQ on firmer footing almost on all counts compared to one year ago.
Stabilizing cost base, strong operating leverage potential and troughs in business and macro cycle spell for compelling asymmetrical payoff – limited downside VS. multi-fold upside.

The Stocks to Own in Thailand – Vol. 39

By Dr. Andrew Stotz, CFA

We highlight 14 stocks in Thailand that look interesting to us based on our FVMR Methodology
Portfolio changes: Nine stocks remain, and five new join the fray
Since inception, it has gained 105% versus the SET 100 Index’s return of 38%

2023 High Conviction: AviChina Industry (2357 HK) – The Sky Is the Limit

AviChina Industry & Technology H (2357 HK) offers unique exposure to China’s aerospace and defense sector and it will ride on China’s ambition to solidify its military strengths.
We think the key drivers are increase in civil and defense demand, commercialisation of C919 aircraft, localisation of helicopters and potential for corporate restructuring.
The stock is undervalued with its holdings in four listed A-shares amounted to Rmb70.6bn, against its own market cap of HK$25bn. Also, earnings multiples are cheap relative to global peers.

2023 High Conviction: Revolution Medicines – Cracking The KRAS In Cancer

By Andrei Zakharov

Revolution Medicines (RVMD US) is focused on therapies to inhibit frontier targets in RAS-addicted cancers. The company’s pipeline is among the strongest in small-cap biotech.
We expect Revolution Medicines shares to outperform the market over the next 12 months as solid performance from the RAS(ON) inhibitor pipeline and oral inhibitor of SHP2 continues.
Investors gain confidence in the rest of the RAS(ON) inhibitor pipeline, including RMC-6291, RMC-6236, and RMC-5552. Management will provide topline data from RMC-4630-03 in 2H 2023.

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Nov 24

Daily Brief Equity Bottom-Up: Add Meituan on Rumors of Social Benefit Payments and more

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

In today’s briefing:

Add Meituan on Rumors of Social Benefit Payments
Alibaba (BABA US): Fighting Back
Grab (GRAB US) – Shifting Down a Gear for A Steep Ascent
2023 High Conviction: Workman’s Cost Performance Will Beat the Competition
Kuaishou: Domestic Business Turns Profitable for the First Time
Geely – ’22 Target Miss Already in Expectations, Catalysts for ’23
China Dongxiang (3818 HK): Losses Narrowing Down, a Good Sign
PHC Holdings (6523 JP): Strong H1 Result; FY23 Revenue Guidance Raised; Mid-Term Plans Revised
JB Financial Group: Four Key Investment Merits
International Flavors & Fragrances Inc.: Initiation of Coverage – Business Strategy & Other Drivers

Add Meituan on Rumors of Social Benefit Payments

Meituan’s recent price decline was partly due to the rumors about the social benefit payments.
First, rumors are unverified statements. There was no such meeting at all.
Second, the social benefit payment impact is probably controllable. I think the recent price decline provides a chance of adding on the stock.

Alibaba (BABA US): Fighting Back

By Steven Holden

Ownership in Alibaba Group Holdings is on the rise among active Greater China managers.
Stock price below $100 a catalyst for active Greater China managers to buy back in, with Invesco, JP Morgan and E Fund among those opening positions
Alibaba remains well behind both TSMC and Tencent on an average weight basis and is the 2nd largest underweight in the Greater China region.

Grab (GRAB US) – Shifting Down a Gear for A Steep Ascent

By Angus Mackintosh

Grab‘s recent results reflect a change of pace in terms of moving along the path to profitability with a more disciplined approach to incentives and a focus on cost controls.
Deliveries segment adjusted EBITDA turned positive for the first time, 3Qs ahead of previous guidance, and food 2Qs ahead of guidance both of which are positives.
A continuing drag will likely continue to come from expenses related to the buildout of its three digibanks. Grab‘s headline EBITDA is not forecast to be positive until 2025.

2023 High Conviction: Workman’s Cost Performance Will Beat the Competition

By Michael Causton

Although spending on non-necessities withered from March 2020 onwards, some low-cost retailers of discretionary items continued to grow.
Workman’s mix of high cost performance and engagement with the ever more active outdoor market has, and will, support expansion, even if same-store sales growth has slowed.
Future category expansion will deliver higher same-store sales as well as top line growth. 1,500 stores (from 1,000) is certain but 2,000 is possible thanks to new categories like footwear.

Kuaishou: Domestic Business Turns Profitable for the First Time

Kuaishou Technology (1024 HK) reported 3Q2022 results. Revenue grew 12.9% YoY to RMB23.1bn (vs consensus RMB22.6bn) while reported operating losses declined to RMB2.6bn (vs consensus RMB3.1bn) from RMB3.1bn in 3Q2021.
The company’s domestic business made an operating profit for the first time while there has been significant reduction in operating losses from the overseas business
Kuaishou’s share price moved up 7% during today’s trade following its earnings announcement and we think there is further upside to the company’s current share price.

Geely – ’22 Target Miss Already in Expectations, Catalysts for ’23

By Victoria Li

Sector headwinds including supply chain shortage and business interruptions from Covid lockdown is easing.
More new models in pipeline to drive sales volumes and earnings in 2023E
Valuation re-rating would be triggered with earning recovery, consensus estimate upgrades, Zeekr ramping up and potentially Zeekr spin off.

China Dongxiang (3818 HK): Losses Narrowing Down, a Good Sign

Lower losses for investment business and sportswear retailing have contributed to a 48.4% reduction in losses for 1H FY23 at China Dongxiang Group Co (3818 HK).
The resumption of interim special dividend is a welcoming sign. Inventory clearance, store optimisation, cost reduction and growth at the PHENIX ski wear brands are positive drivers.
Its market capitalisation of HK$1.88bn represents a steep discount of 79% to its cash and investment portfolio of Rmb8.46bn, and this also means sportswear business is free.

PHC Holdings (6523 JP): Strong H1 Result; FY23 Revenue Guidance Raised; Mid-Term Plans Revised

PHC Holdings (6523 JP) has revised mid-term plan for FY23–26, targeting revenue of ¥420 billion in FY26, representing 5.4% CAGR. CGM will be one of the key growth engines.
During H1FY23, total revenue increased 3% y/y to ¥171 billion, mainly driven by a 3% growth in diabetes management business, which contributed 32% of total revenue.
In response to the recent depreciation of the Japanese yen, PHC has raised FY23 revenue guidance to ¥358 billion (+5% y/y) from ¥350 billion earlier.

JB Financial Group: Four Key Investment Merits

By Douglas Kim

There are four major reasons why we like JB Financial Group.
They include highest ROE among peers, highest dividend yield among peers, potential inclusion in KOSPI200 in 2023, and continued pressure by Align Partners to improve corporate governance.
One of the key risk factors of the company is that it is not a nationwide banking group but most of its operations are in the southwestern portion of Korea.

International Flavors & Fragrances Inc.: Initiation of Coverage – Business Strategy & Other Drivers

This is our first report on International Flavors and Fragrances (IFF), one of the global market leaders in the production of cosmetic active and natural health ingredients for use in consumer products.
The increase in sales in the quarter was driven primarily by double-digit growth in its pharma and nourish solutions divisions.
In spite of its volatile market environment, IFF continues to execute its operational priorities for achieving strong bottom and top-line results.

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Nov 23

Daily Brief Equity Bottom-Up: ITMG Q3 2022: 25% FY22 Dividend Yield 40% of Mkt Cap in Cash and more

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

In today’s briefing:

ITMG Q3 2022: 25% FY22 Dividend Yield 40% of Mkt Cap in Cash, Coal Stronger For Longer
China Funeral Industry – Investment Opportunity with Both Alpha and Beta Superposition
Keepers Holdings: Highlights From The Q3 2022 Call / A Multibagger In The Making
GoTo: Long-Term Profitability Is Worrying
Kuaishou (1024 HK): 3Q22, Promising Live Streaming, Better Margin, 39% Upside
ZTO Express (2057 HK/ZTO US): Solid Upward Momentum Stays Intact
Laser Photonics Inc. – Investment Thesis
Organicell Regenerative Medicine Inc. – Investment Thesis
Save Foods Inc. – Investment Thesis, Key Drivers, Financial & Price Forecasts, DCF Valuation 11/22
Sharps Technology – Investment Thesis, Key Drivers, Financial & Price Forecasts, DCF Valuation 11/22

ITMG Q3 2022: 25% FY22 Dividend Yield 40% of Mkt Cap in Cash, Coal Stronger For Longer

Coal stronger for longer is making Indo Tambangraya Megah (ITMG IJ) a significant value investment with 40% of the market cap in cash and 2.5x PE FY22 after going ex-dividend.
The company continues to churn out 6-7% of the market cap in cash every month, with coal prices at Newcastle over 300$/ton (current spot at 350$/ton).
Paying out >70% of its profits, the company trades at a 25% dividend yield at the very least, with a normalized yield of 10% at a 130-150$/ton coal price.

China Funeral Industry – Investment Opportunity with Both Alpha and Beta Superposition

By Xinyao (Criss) Wang

China funeral industry has large growth potential.The total market scale would be about RMB400 billion if based on annual death toll of 10 million and per capita expenditure of RMB40,000.
Information asymmetry weakens the bargaining power of buyers. Administrative barriers raise the threshold of market access and weaken competition. So, related companies usually have high profitability and return on capital.
Changes in population structure would have a negative impact on most consumer goods, but demand of funeral industry would continue to rise. Investors would have both alpha and beta superposition.

Keepers Holdings: Highlights From The Q3 2022 Call / A Multibagger In The Making

The Keepers Holdings, Inc. (KEEPR PM) trades at 7.1x/5.6x FY22e/FY23e on revised numbers (including earnings from the W&H acquisition) and has 10% of its market cap in net cash.
The outlook from the conference call was bullish, and the Q4 2022 revenue growth trend is expected to be similar to the 9M2022 (34% YoY) and future structural teens growth.
At a 300 mn USD market cap, you get a virtual monopoly (>70% marketshare by volume) of the imported spirits business with sole distributorship of the most recognizable brands.

GoTo: Long-Term Profitability Is Worrying

GoTo (GOTO IJ) reported 3Q2022 results on Monday. Gross revenue increased 30.4% YoY to IDR5.9trn while adjusted EBITDA (losses) dropped to 81.3% of net revenues vs 289% in 3Q2021.
There has been notable improvement in the company’s earnings (decline in losses in particular) driven by huge cost cuts on promotions which helped reduce losses.
However, cutting down promotions/marketing costs could lead to drop in top line growth and market share.

Kuaishou (1024 HK): 3Q22, Promising Live Streaming, Better Margin, 39% Upside

There are three positive signs in online marketing despite the business slowed down.
For living streaming, both active user base and time spent grew rapidly.
The operating margin improved significantly to -13% in 3Q22 from -37% in 3Q21.

ZTO Express (2057 HK/ZTO US): Solid Upward Momentum Stays Intact

ZTO Express Cayman Inc (2057 HK)‘s 63.1% surge in 3Q22 adjusted net profit demonstrated its ability to thrive even amid the challenging operating environment.
It is positive on FY23 outlook and believes industry volume can return to double-digit growth. ZTO is confident of market share gain, better cost management and stable pricing.
We think its premium valuations are highly justified by strong cash generating ability. The increase of US$500m and lengthening of one year in share repurchase are very welcomed.

Laser Photonics Inc. – Investment Thesis

This is our first report on Laser Photonics and we look to provide a detailed account of the various drivers that will be responsible for the company’s growth in the coming years.
The revenues of Laser Photonics have more than doubled in the last two years.
We believe that there is a good chance the company’s offering may become universally accepted in the years to come.

Organicell Regenerative Medicine Inc. – Investment Thesis

This is our first report on Organicell and we look to provide a detailed account of the various drivers that will be responsible for the company’s growth in the coming years.
Organicell’s drug candidates’ utilization of extracellular vesicles and perinatal-derived nanoparticles, represent the technological revolution of regenerative biologic drug treatments.
Overall, we believe that Organicell has phenomenal growth prospects and is an excellent investment prospect.

Save Foods Inc. – Investment Thesis, Key Drivers, Financial & Price Forecasts, DCF Valuation 11/22

This is our first report on Save Foods and we look to provide a detailed account of the various drivers that will be responsible for the company’s growth in the coming years.
Despite catering to a sizable addressable market, Save Foods is currently trading at valuation ratios far lower than its competitors.
Baptista Research looks to evaluate the different factors that could influence Save Foods’ price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology to determine a suitable price for the company’s stock.

Sharps Technology – Investment Thesis, Key Drivers, Financial & Price Forecasts, DCF Valuation 11/22

This is our first report on Sharps Technology and we look to provide a detailed account of the various drivers that will be responsible for the company’s growth in the coming years.
As the company starts reporting revenues in 2023, Sharps is expected to see its stock fly.
With the Nephron transaction and income generation from the Hungarian facility, this is anticipated to start reporting a positive top-line starting in Q1 2023.

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Nov 22

Daily Brief Equity Bottom-Up: Sumco (3436) | Bargain Basement and more

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

In today’s briefing:

Sumco (3436) | Bargain Basement
China Internet Weekly (21Nov2022): NetEase, Blizzard, Tencent, Meituan, Tencent Music, JD Logistics
Mandarin Oriental (MAND SP): Life Is Suite
Japan Post Bank – Unrealized Gains Down 95%
JD.com (9618 HK): 3Q22, Growth Recovered, Margin Reached Historical High
Disney: Could Iger Sell to Apple?
Honda Motor ADR: Initiation of Coverage – Recent JVs & Key Drivers
Arteria Networks (Buy) – Q2 22 Results Reaction: Core Business Growth Intact
Hon Hai & Yulon IPO: Media Reports of Electric Vehicle JV 1Q23 Listing, Stock Implications
Ascentage Pharma (6855.HK) – May Not Survive “This Winter”

Sumco (3436) | Bargain Basement

By Mark Chadwick

Sumco is a pure play wafer maker that is geared into demand for cutting edge 300mm wafers
Sumco is attractive given weak sentiment towards tech, attractive valuation, strong profitability and long-term earnings drivers
With the stock down 12% YTD, we believe the stocks is undervalued and see at least 20% upside from here

China Internet Weekly (21Nov2022): NetEase, Blizzard, Tencent, Meituan, Tencent Music, JD Logistics

The authorization contracts between Activision Blizzard and NetEase will terminate in January 2023.
Tencent plans to distribute 91% of its Meituan share as dividend.
JD Logistics revenue increased by 39% YoY and Net loss decreased to one tenth.

Mandarin Oriental (MAND SP): Life Is Suite

By David Blennerhassett

Hong Kong is – very gradually – rolling back Covid restrictions
That’s a welcome relief for tourists, and for hospitality companies dependent on tourism.
Mandarin Oriental International (MAND SP) is trading cheap at 0.7x P/B against 1.8x on average (five years) pre-Covid.

Japan Post Bank – Unrealized Gains Down 95%

By Daniel Tabbush

Japan Post Bank continues to see cratering net interest income
The company’s significant US CLO exposure is not supporting profit
Total unrealized gains on securities are down 95% in the past six months

JD.com (9618 HK): 3Q22, Growth Recovered, Margin Reached Historical High

The revenue growth rate bounced back to 11% YoY in 3Q22.
The operating margin improved to a historical high at 3.1%.
We believe the stock price has an upside of 27% for year end 2023.

Disney: Could Iger Sell to Apple?

By Aaron Gabin

The suprise return of Bob Iger as Disney CEO can fix certain Bob Chapek specific issues: relationships with investors, politicians, and creative types.
But Iger faces similar intractable issues: accelerating cord cutting, a transition to a less profitable form of media distribution, and a potential recession.
We think Iger will refocus investors on revenues/profits at Disney+ rather than subscribers, will more efficiently spend on content through decentralizing decision making… and potentially sell Disney to Apple.

Honda Motor ADR: Initiation of Coverage – Recent JVs & Key Drivers

This is our first report on global automobile behemoth, Honda Motors.
The Shanghai lockdown and semiconductor supply shortage resulted in a drop in unit sales and automobile production of Honda in the quarter, mainly in North America and China.
However, despite soaring raw material costs and a drop in automobile unit sales, the sales of motorcycle units were up which led to the revenue beat.

Arteria Networks (Buy) – Q2 22 Results Reaction: Core Business Growth Intact

By Kirk Boodry

Favorable industry trends like work from home and expanding mobile data usage are helping drive Arteria revenue growth
Headline profits are down but core OP is up when one-time gains last year are stripped out and quarterly results will start to look better in H2 when fully lapped
Management says macro concerns such as inflation and power costs are manageable and FY targets remain unchanged

Hon Hai & Yulon IPO: Media Reports of Electric Vehicle JV 1Q23 Listing, Stock Implications

Hon Hai Precision Industry (2317 TT) and Yulon Motor Company (2201 TT) plan to IPO their electric vehicles JV Foxtron Vehicle Technologies in 1Q23E, seeking NT$10bn.
The IPO’s valuation could be a major uplift for Yulon Motor Company (2201 TT)‘s valuation.
Hon Hai Precision Industry (2317 TT): Successful IPO would provide markets proof that its EV platform can create value uplifts again and again in the future. Accumulate.

Ascentage Pharma (6855.HK) – May Not Survive “This Winter”

By Xinyao (Criss) Wang

The R&D direction and field of Ascentage Pharma Group Corp (6855 HK) distinguish it from other domestic biotech companies. The Company has proved its R&D capability after the successful launch of olverembatinib.
The uncertainties of commercialization performance and R&D risks would make it difficult for Ascentage to achieve break-even. Due to increasing cash flow pressure, Ascentage must first solve the survival problem.
Considering the Risk return trade-off, we think Ascentage has short-term investment value only when it’s “extremely undervalued”.We suggest that it could be sold in a timely manner to secure gains.

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Nov 21

Daily Brief Equity Bottom-Up: Weimob (2013 HK): Strategic Patience Will Be Rewarded (Part 2) and more

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

In today’s briefing:

Weimob (2013 HK): Strategic Patience Will Be Rewarded (Part 2)
Selamat Sempurna (SMSM IJ) – Filters and Radiators Leading the Recovery
Galaxy Entertainment Group: Its 4.5% of Wynn Shares Key if the Stock Is in Play
Alfresa Holdings (2784 JP): H1FY23 Review- Better-Than-Expected Performance; Outlook Is Positive
Taiwan Tech Weekly: AMAT Results Buoy Market, But Nanya at Risk, Foreigners Massively Buy Taiwan
Zhangzhou Pientzehuang Pharmaceutical (600436.CH) – Disappointing Performance Is Just the Beginning
REIT Watch – Industrial S-Reits see resilience despite macro challenges

Weimob (2013 HK): Strategic Patience Will Be Rewarded (Part 2)

By Eric Chen

Weimob has emerged from the pandemic stronger and leaner, further consolidating its leadership in China’s e-commerce SaaS market.
Drawing insights into the supply side (merchants/brands) on Alibaba platform, our bottom-up analysis suggests that Weimob potentially has a US$600mn revenue opportunity by 2025.
We value Weimob at US$3bn assigning 5xPS on its US$600mn revenue by 2025, implying 25% CAGR over 3-year period. Patience needed to navigate high-inflation environment which pressures growth assets.

Selamat Sempurna (SMSM IJ) – Filters and Radiators Leading the Recovery

By Angus Mackintosh

Selamat Sempurna (SMSM IJ) remains one of the best quality Indonesian industrial companies, as the leading auto and heavy equipment filter producers for both OEM and the aftermarket.
The company booked a strong set of 9M2022 results, with sales up +21% YoY and net profit increasing +30% YoY, driven by both domestic and export markets.
Selamat Sempurna (SMSM IJ) maintains it FY2022 target for 15% sales and profits growth for FY2022, which looks conservative after the performance at 9M stage despite potential global headwinds.

Galaxy Entertainment Group: Its 4.5% of Wynn Shares Key if the Stock Is in Play

By Howard J Klein

In 2018, shortly after the departure of Wynn founder Steve Wynn, Galaxy bought 4.9% of his shares atUS$175. The shares have been under water. But a new player has entered.
Gaming, restaurant and sports entrepreneur Tillman Fertitta has just bought 6.1% of Wynn shares setting up a possible play on the shares, or a total takeover move.
There are three scenarios that could play bullish for Galaxy if Wynn is in play. All auger well for movement on the stock.

Alfresa Holdings (2784 JP): H1FY23 Review- Better-Than-Expected Performance; Outlook Is Positive

Alfresa Holdings (2784 JP) reported better-than-expected H1FY23 results, with sales growth of 3% to ¥1,332 billion, 2% ahead of guidance of ¥1,304 billion, mainly driven by pharmaceutical wholesaling business.
With a revenue growth of 4.3% y/y, pharmaceutical wholesaling business outpaced the broad market growth of 2.7% and improved its market share to 23.3% at the end of H1FY23.
The company has announced an interim dividend of ¥28 per share. Despite reporting encouraging H1FY23 performance, Alfresa has reiterated its FY23 guidance, implying accelerated growth in H2FY23.

Taiwan Tech Weekly: AMAT Results Buoy Market, But Nanya at Risk, Foreigners Massively Buy Taiwan

Applied Materials (AMAT US) guidance buoyed the overall industry, but negative Memory news from AMAT and Micron make Nanya Technology (2408 TT) shares look at risk of near-term pullback.
Foreigners massively net-bought Taiwan over the last two weeks, and United Microelectronics Corp (2303 TT) has been a major recipient of capital. ADR premium still has legs.
Hon Hai Precision Industry (2317 TT) received 100,000+ new worker applications but now has trouble finding space for them! We remain structurally bullish on the company.

Zhangzhou Pientzehuang Pharmaceutical (600436.CH) – Disappointing Performance Is Just the Beginning

By Xinyao (Criss) Wang

Zhangzhou Pientzehuang Pharmaceutical Co., Ltd. (600436 CH)’s 22Q3 performance was disappointing because its strategy of “stabilizing” performance growth by raising prices has been ineffective.
Endogenous growth problem would finally be reflected in the decline of company’s valuation. We recommend to think about long-term logic from a broader perspective,not simply tracking performance of individual companies.
Pien Tze Huang’s valuation still has a lot of downward space. When the bubble bursts or its valuation is lower than Kweichow Moutai, it’s time to go long again.

REIT Watch – Industrial S-Reits see resilience despite macro challenges

By Geoff Howie

REIT Watch – Hospitality S-Reits ride on pent-up travel demand and the return of events in Q3 2022 All hospitality trusts with Singapore assets observed significant improvements in occupancy and RevPAR (revenue per available room) in the last quarter, driven by the return of large-scale events and the Mice (meetings, incentives, conventions and exhibitions) industry, alongside pent-up demand for overseas travels.
Far East Hospitality Trust recorded that its Q3 2022 gross revenue increased 2.0 per cent yoy, led by growth from the hotel segment which increased 4.7 per cent.
Income available for distribution grew 12.0 per cent yoy from higher NPI and interest income.

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Nov 20

Daily Brief Equity Bottom-Up: Oriental Watch Mgmt Call: Big Dividend Yet Again and more

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

In today’s briefing:

Oriental Watch Mgmt Call: Big Dividend Yet Again, 50% of Mkt Cap in Cash with >15% Yield Post Rally
Light at the End of the Dark Tunnel for Korean Cosmetics?
Intel Vs. TSMC Monitor: TSMC Soars on Buffett Investment, Why INTC Could Now Revert
Travelsky (696): Beneficiary from Potential Reopening in China
Home Depot Inc: Managing Labor Shortages & Other Developments
Lowe’s Companies: Divestment Of Canadian Retail Operations & Other Drivers
Cisco Systems Inc: Major Drivers
Target Corporation: Partnership With Apple & Other Drivers

Oriental Watch Mgmt Call: Big Dividend Yet Again, 50% of Mkt Cap in Cash with >15% Yield Post Rally

Oriental Watch (398 HK) paid a 31-cent dividend in its H1FY23 result on the 16th, equating to an annualized dividend yield of 15% on the current share price.
The outlook for the rest of the year is much brighter, given the recovery in China and the inability of the Chinese to travel. October numbers were strong.
The stock trades at a 6.7x PE, with more than 50% of the market capitalization in cash. In slightly better market conditions, this could be a 6 HKD stock.

Light at the End of the Dark Tunnel for Korean Cosmetics?

By Douglas Kim

We believe that there is finally some light showing at the end of the dark tunnel for the two leading Korean cosmetics companies LG H&H and Amorepacific Corp.
These two stocks have underperformed the market in the past year but have started to outperform the market in the past three weeks.
There are credible signs that indoor mask wearing in Korea will be eliminated in Korea on/near March 2023 and that the inbound visitors to Korea will continue to increase significantly.

Intel Vs. TSMC Monitor: TSMC Soars on Buffett Investment, Why INTC Could Now Revert

TSMC has outperformed INTC by 23% in just two weeks, which is an extreme divergence in a short period of time by historical standards.
Foreseeable company-specific events or news flow over the next 30 days appears limited.
Valuation remains supportive for INTC and we believe it could recover part of its recent underperformance in the next month.

Travelsky (696): Beneficiary from Potential Reopening in China

By Henry Soediarko

Travelsky Technology Ltd H (696 HK) is a system provider for airports in China that benefit from the reopening plan.
The company is not sensitive to the oil price and it has low debt which makes it attractive compared to the airlines.
The stock is trading at a 40% PBR discount to Shanghai International Airport. Historically, the company is trading at a 50% discount to its 5-year high on PBR.

Home Depot Inc: Managing Labor Shortages & Other Developments

Home Depot delivered another good result and surpassed Wall Street expectations in terms of revenues as well as earnings.
The company continued to observe high demand for home renovation projects throughout the third quarter.
Sales growth for both Pro and DIY was good, with Pro surpassing DIY.

Lowe’s Companies: Divestment Of Canadian Retail Operations & Other Drivers

Lowe’s delivered an impressive set of results this quarter and managed to surpass Wall Street expectations in terms of revenues as well as earnings.
The company’s Pro business maintained its momentum, resulting from the success of its Pro efforts and the tenacity of the demand for home renovation.
Their ongoing focus on productivity and solid sales growth contributed to improved operating performance which ensured the earnings beat.

Cisco Systems Inc: Major Drivers

Cisco had a good start to fiscal 2023 and managed to deliver an all-around beat.
The management continued their shift to greater software and subscription-based recurring revenue, even as they proactively manage through a developing and complicated market environment.
Web-scale orders increased by double digits or more on a trailing 12-month basis for the ninth consecutive quarter.

Target Corporation: Partnership With Apple & Other Drivers

Target’s third quarter results were a mixed bag as the company’s revenues surpassed Wall Street expectations but it missed out on meeting earnings expectations.
Their top-line continues to profit from increases in guest visitation and unit share gains across all of their main categories.
While their performance in the third quarter compared favorably with the previous one, the period’s tendencies were very different.

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Nov 19

Daily Brief Equity Bottom-Up: 2023 High Conviction: Zomato – Home Delivering Laziness and more

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

In today’s briefing:

2023 High Conviction: Zomato – Home Delivering Laziness
Tencent/Netease: Breakthrough in November Batch of Game Approval
Alibaba – OP Beat Driven By Cost Cutting Masks Dissapointments Everywhere Else
Weimob (2013 HK): Strategic Patience Will Be Rewarded
Edelweiss: At An Inflection Point
Lotus Pharmaceutical (1795 TT): 3Q22 Review- Best-Ever Quarter, Aided by Oncology Drug Launch in US
RPSG Ventures: FMCG Business Is Scaling Up; VC Business Is Germinating to the Next-Level
Takeda Pharma ADR: Initiation of Coverage – Recent Drug Updates & Key Drivers
Tyson Foods: Major Drivers
Walmart Inc: The Walmart Creator Platform & Other Drivers

2023 High Conviction: Zomato – Home Delivering Laziness

By Sumeet Singh

Zomato is one of the largest food delivery platforms in India. It was listed in Jul 21 and after initially doubling, its shares are now trading below its IPO price.
It has grown its food delivery GOV by 3.5x over FY19-22 and growth remains strong, while profitablity has been improving.
Its recent venture into quick commerce should allow for better fleet utilisation and hence, better longer term growth and profitability.

Tencent/Netease: Breakthrough in November Batch of Game Approval

By Ke Yan, CFA, FRM

China just announced game approval for November batch after one month break. The number of games approved is inline with the previous three months.
Pace of China game approval stays flattish, at a much slower pace than pre-tightening.
Both Tencent and Netease received approval for one game. It is more symbolic than financially material. Sentiments are turning slightly but it is not out of the wood yet.

Alibaba – OP Beat Driven By Cost Cutting Masks Dissapointments Everywhere Else

By Oshadhi Kumarasiri

Alibaba Group (9988 HK) bounced 7.8% yesterday following an OP beat of 24.4% through cost-controls but overall results were quite disappointing with revenue falling a touch below consensus at RMB 207.2bn.
Alibaba’s cash cows are growing no more, Thus, the company is focusing on ways to improve its profitability.
Meanwhile, the other growth avenues that Alibaba was proudly speaking of have pretty much disappeared with the company forced to cut down investments in these growing businesses.

Weimob (2013 HK): Strategic Patience Will Be Rewarded

By Eric Chen

Weimob’s share price more than doubled in a month on encouraging 3Q preliminary data and improved sentiment towards China assets
We explore socio-economic factors resulting in the slow ramp up of China SaaS sector , size Weimob’s TAM by drawing insights from Alibaba and determine its valuation in two-piece report
In the first part, we argue that inadequate cost or efficiency competitiveness of SaaS solutions over existing labor-based or manual processes have been a key drag

Edelweiss: At An Inflection Point

Credit business has seen decent recovery with asset quality stabilization and down-sizing of the wholesale loan book. Retail book is growing via co-lending and other asset-light models.
Asset Management business is scaling up well and is poised to benefit significantly from operating leverage, particularly in the Alternatives business as the carry fee kicks in from FY24.
Insurance businesses continue to scale up well. Edelweiss is seeking strategic partners for both the insurance businesses to take advantage of the new IRDA regulations.

Lotus Pharmaceutical (1795 TT): 3Q22 Review- Best-Ever Quarter, Aided by Oncology Drug Launch in US

Lotus Pharmaceutical (1795 TT) reported record high quarterly revenue in 3Q22, majorly driven by the successful launch of oncology drug Lenalidomide in the US, which is its biggest ever launch.
Gross margin expanded to 67.9% in Q3 2022 from 45.3% in Q3 2021 and 47.4% Q2 2022, driven by increasing contribution from high-margin export business.
Exceeding the expectation, the company reported historic high third quarter EPS of NT$7.97 for Q3 2022, versus NT$1.34 in Q3 2021.

RPSG Ventures: FMCG Business Is Scaling Up; VC Business Is Germinating to the Next-Level

Key highlight of RPSG Ventures’ (RPSGV) Q2FY23 results was the FMCG business which reported revenues of INR 125cr, suggesting an annualized run-rate of INR 500cr vs INR 430cr QoQ.
RPSGV is doing all the right things to scale up its FMCG business. Its Sports venture also holds lot of promise.
RPSGV’s Venture Capital (VC) Fund that focuses on investing in D2C startups made a lucrative exit in one of its investments which generated 7x MOIC in just 4 years.

Takeda Pharma ADR: Initiation of Coverage – Recent Drug Updates & Key Drivers

This is our first report on Japanese pharma major, Takeda Pharma.
A significant pipeline milestone was achieved by the company when TAK-003, the dengue vaccine candidate of the company, received approval.
Dr.

Tyson Foods: Major Drivers

Tyson Foods’ stock has been on a downward trajectory for a while and the recent results did not help the situation.
Consumer demand for protein is largely stable in this difficult macroeconomic context with record-high inflation.
Volume performance increased in the fourth quarter because of their investments in brands and merchandising, which raised portfolio market share.

Walmart Inc: The Walmart Creator Platform & Other Drivers

Walmart’s stock has climbed to a new high after the company delivered strong results and surpassed Wall Street expectations in terms of revenues as well as earnings.
In Q3, strong sales were achieved in each of its segments and its U.S. comparable sales increased sequentially by 8.2% thanks to higher average ticket sizes and more transactions.
Walmart International experienced strong constant currency sales growth of 13.3%, driven primarily by Flipkart and Walmex, while Sam’s Club USA posted double-digit comps growth of 10.3%, excluding fuel and tobacco, for the 11th consecutive quarter.

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Nov 18

Daily Brief Equity Bottom-Up: Alibaba (9988 HK): 2Q23 and more

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

In today’s briefing:

Alibaba (9988 HK): 2Q23, Better Growth, Better Margin, 38% Upside
Taste Gourmet: Cash Generation Par Excellence
Grab: Almost No Price Reaction to a So-Called Strong Set of Results as There Is Much to Prove
Appier (4180) | Why Has the Stock Outperformed?
Taiwan Dual-Listings: TSMC Premium Reverts, Rare Hon Hai & UMC Discounts
Shimamura Set for Another Record
Anhui Conch Cement (914 HK): The Trough Looks to Be Behind Us
Buy Meituan on Tencent’s Distribution Announcement of Meituan Shares
Delta Taiwan Vs. Thailand Monitor: China Concerns Easing, EV in 2023 Favor Delta Taiwan
China’s Top Rare Earth Mining Company and Top Refiner Fight Over Prices

Alibaba (9988 HK): 2Q23, Better Growth, Better Margin, 38% Upside

Revenue began to grow in 2Q23 after the zero growth in 1Q23.
The operating margin improved to 12.1% in 2Q23 versus 7.5% in 2Q22.
We believe the stock has an upside of 38% and a price target of HK$108.

Taste Gourmet: Cash Generation Par Excellence

Taste Gourmet Group (8371 HK) reported its H1 2023 result with profit of 32 mn HKD up 28% YoY, backed by subsidies due to restrictions earlier in the year.
Net cash rose by 52 mn HKD (almost 12.4% of market capitalization) to 117 mn HKD HoH (28% of market cap). Nine mn HKD in subsidies are outstanding.
The company declared 4.8 cents of dividend (9.1% annualized yield), in addition to repurchasing and canceling >2% of the shares outstanding recently.

Grab: Almost No Price Reaction to a So-Called Strong Set of Results as There Is Much to Prove

Grab (GRAB US) reported 3Q2022 results yesterday. 3Q revenue increased 143% YoY to $382m (vs consensus $348m) while reported an adjusted EBITDA (negative) of $161m (vs consensus $202m).
The highlight of 3Q2022 earnings was the break-even of deliveries business as well as improvement in Mobilities financials driven by reduction in incentives (as % of GMV).
Though the company called it a strong set of results, Grab’s share price moved up by 0.64% could be an indication that the profitability may not be sustainable.

Appier (4180) | Why Has the Stock Outperformed?

By Mark Chadwick

Appier has been by far the best performing small-cap growth stock in Japan this year
The company is gaining market share overseas, massively augmenting the Total Addressable Market
It’s high growth, rising margins, and growing TAM makes this a top stock for SaaS investors

Taiwan Dual-Listings: TSMC Premium Reverts, Rare Hon Hai & UMC Discounts

TSMC ADR’s premium has reverted after going as high as 10.9%.
Hon Hai’s London-listed GDRs are trading at a historically rare discount.
UMC ADRs also look interesting relative to the Taiwan shares given their rare discount.

Shimamura Set for Another Record

By Michael Causton

Like Workman Co Ltd (7564 JP) and Honeys Holdings Co., Ltd. (2792 JP), Shimamura (8227 JP) has been a beneficiary of both household budget worries during Covid and inflation concerns since.
The apparel retailer has also worked hard to develop better cost performance ranges and more exciting marketing through collaborations with influencers, helping regain footfall levels.
Shimamura has clearly regained momentum and looks set to continue to benefit from consumer fears over inflation and ongoing shifts in spending towards low-price retailers.

Anhui Conch Cement (914 HK): The Trough Looks to Be Behind Us

3Q22 is probably the worst quarter for Anhui Conch Cement (914 HK) in this cycle. Demand has picked up sequentially, with 4Q22 average cement price up 7% QoQ.
It expects the spending of special purpose bond proceeds and possibly push forward of 2023 quotas to benefit infrastructure demand. The stabilisation of property market also helps.
Cost management efforts will soon pay off, providing room for recovery in margin. Solid financial position with net cash equals to 34.5% of share price is an added strength.

Buy Meituan on Tencent’s Distribution Announcement of Meituan Shares

Tencent announced to transfer 958 million shares of Meituan as a special dividend
This distribution is similar to the previous JD distribution in Dec 2021
The transfer of Meituan shares can provide potential two entry points of the stock.

Delta Taiwan Vs. Thailand Monitor: China Concerns Easing, EV in 2023 Favor Delta Taiwan

Delta Taiwan has outperformed Delta Thailand, but remains at a historically low relative valuation.
China concerns, which may have impacted Delta Taiwan on a relative basis, appear to be incrementally improving.
We continue to favor Delta Taiwan vs. Delta Thailand, historical data implies Delta Taiwan is more likely to outperform Delta Thailand than vice-versa.

China’s Top Rare Earth Mining Company and Top Refiner Fight Over Prices

By Caixin Global

Inner Mongolia Baotou Steel Union Co. Ltd., the world’s largest rare earth mining company, is still pressing for a significant price increase from its only customer even though the buyer’s shareholders rejected two previous proposals.
Higher prices for Baotou Steel Union’s output of the key materials for green technologies could lead to a broader price increase for the minerals.
China has the world’s largest deposits of the 17 closely related rare earth metals.

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Nov 17

Daily Brief Equity Bottom-Up: Sea Ltd 3Q22 Results – Set up Nicely To Make Big Gains On The Short Side and more

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

In today’s briefing:

Sea Ltd 3Q22 Results – Set up Nicely To Make Big Gains On The Short Side
Tencent 3Q: Shows Signs of Improvement
Tencent (700 HK): Rev Down by 1.6% in 3Q22, But Game Sees Positive Comment from Gov for First Time
TME: Online Music Biz Resumes Growth but Social Entertainment Further Drops
Indonesian Banks 3Q22 Screener; Negara Stands Out as the Value Pick
Buy Polygon For Big-Brand Crypto Scaling
Nesco: BEC Business Is Back to Pre-COVID Level
Kolte Patil: Temporary Blip in Q2FY23 Earnings; On Track for a Strong FY23
Kaken Pharmaceutical (4521 JP): H1FY23 Review- Key Drugs Continued to Fall; Guidance Reiterated
Breaking Growth Short Candidates: Plug Power, Nvidia, Palantir, Roblox

Sea Ltd 3Q22 Results – Set up Nicely To Make Big Gains On The Short Side

By Oshadhi Kumarasiri

Sea Ltd (SE US) shares were up 36% yesterday following a relatively small top-line beat of 4.8% and a narrower-than-expected operating loss of $495.6m (consensus: $581.9) through rigorous cost-cutting.
The share price move sets-up nicely to make gains on the short-side, as e-commerce and fintech remain unprofitable after cutting-down necessary expenses such as logistics and senior management cash compensation.
We estimate the fair value of Sea Ltd at around $10.0bn EV compared to the current EV of $33.1bn, which implies a downside of 66% to Sea’s post-3Q22 price.

Tencent 3Q: Shows Signs of Improvement

Tencent (700 HK) reported 3Q2022 results yesterday. Revenue decreased 1.6% YoY to RMB140.1bn (vs consensus RMB140.0bn) while adjusted OP declined 0.2% YoY to RMB28.4bn.
Revenue from both Internet VAS and Online Advertising declined YoY during the quarter. Social networks revenue declined YoY for the first time by 1.9%.
Tencent also announced that it will distribute majority of its shareholding on Meituan (3690 HK) to its shareholders in dividends similar to the special dividend of its stake in JD.com.

Tencent (700 HK): Rev Down by 1.6% in 3Q22, But Game Sees Positive Comment from Gov for First Time

Revenue decreased by 1.6% YoY in 3Q22, less than a decrease of 3.1% YoY in 2Q22.
A governmental media gave positive comment to game industry for first time.
We believe the stock has an upside of 52% for year end 2023.

TME: Online Music Biz Resumes Growth but Social Entertainment Further Drops

Tencent Music (TME US) reported 3Q2022 results yesterday. Revenue declined 5.6% YoY to RMB7.4bn (vs consensus RMB7.0bn) while adjusted OP for the quarter increased 14.0% YoY to RMB765m.
Revenue from social entertainment services decreased 20% YoY which was partially helped offset by 18.8% YoY increase in online music services revenues.
GPM and OPM improved due to huge spending cuts on content, revenue sharing and S&M and we are yet to see if TME can sustain this without compromising user growth.

Indonesian Banks 3Q22 Screener; Negara Stands Out as the Value Pick

By Victor Galliano

In this 3Q22 Indonesian banks screener, we rate Bank Negara as our key value pick with its very attractive valuations including PEG ratio and its improving cost of risk trends
We continue to also favour Bank Mandiri, but, in the wake of the share price re-rating, it is our secondary value pick to Negara
Bank Rakyat has delivered improved returns in 3Q22, and shows signs of “turn around” potential; we look for management to improve credit quality and especially the Special Mention Loans Ratio

Buy Polygon For Big-Brand Crypto Scaling

By Kevin George

Polygon added to Disney Accelerator program. Fashion and payments companies add to the recent partnerships.
Polygon also added to the recently partnerships with Instagram NFTs.
In a recent article, I advised buying Disney for eventual growth in the metaverse. Polygon (MATIC-USD) is a crypto project that has been making waves with a series of big-name corporate partnerships, including Disney.

Nesco: BEC Business Is Back to Pre-COVID Level

Bombay Exhibition Center (BEC) business has recovered sooner than expected and is now back to pre-COVID level with INR 50cr+ revenues in Q2FY23.
Demand for exhibitions could grow structurally post-COVID, suggesting that the BEC business is now likely to be even stronger than pre-COVID.
Office Leasing (IT Parks) business showed QoQ growth suggesting that the occupancy level showed marginal improvement.

Kolte Patil: Temporary Blip in Q2FY23 Earnings; On Track for a Strong FY23

Q2FY23 results were subdued due to delay in launch of a few new projects.
Lower proportion of sales from Mumbai led to decline in realization by 9% QoQ, however, this has quarterly variation and was also impacted by delay in new project launches.
The current quarter sales seem to be a temporary blip as most of the new projects are on track to launch in Q3FY23.

Kaken Pharmaceutical (4521 JP): H1FY23 Review- Key Drugs Continued to Fall; Guidance Reiterated