Equity Bottom-Up

Just eight months into Russia’s Ukraine invasion, Japan Tobacco (2914 JP)’s share price has moved back above the pre-Ukraine invasion level suggesting that investors are over with Russia exposure fears.
Based on the company’s guidance upgrade trend historically and YTD financial performance, we are expecting around ¥70bn upside to 2022 OP guidance in 3Q22.
With earnings back on a growth trajectory, we are expecting a reversal of the 2017-21 share price to earnings trend to take Japan Tobacco shares over ¥3,500 in the short-term.

Meituan – What to Look for in 3Q22 Result?

By Xin Yu, CFA

Key areas to pay attention in 3Q22: 1) Meituan Instashopping’s growth rate, 2) Meituan Select’s unit economics,
3) 4Q guidance for food delivery and in-store, hotel and travel recovery.
Valuation is entering an attractive territory with recent stock price correction.

Snap 3Q22: Tik Tik Tik (Tok) …BOOM

How long until SNAP gets back to Zuck’s original $3B buyout offer?!
Key negative point: US engagement dropped 5% despite user growth +4%…we think its BeReal as much as TikTok.
Uninvestable or Long Time Horizon? Least visibility of any major public company we’ve ever followed. Don’t know the answer!

Textron Inc: New Product Launches & Other Developments

Textron has its results just around the corner and there is a good chance that the company may deliver an all-around beat.
It had a solid previous quarter with strong execution and higher revenues that resulted in segment profit margin.
On the innovation front, Textron delivered the foremost Cessna SkyCourier to its launch customer FedEx and the foremost XLS Gen2 aircraft.

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Oct 20

Daily Brief Equity Bottom-Up: Shimano (7309) | Six Reasons to Stay Bullish and more

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

In today’s briefing:

Shimano (7309) | Six Reasons to Stay Bullish
Lasertec (6920) | ASML Shrugs off the Tech Recession
Shiseido: China Exposure, Potential Earnings Misses and Write-Offs Create Additional Downside Risk
EVA Precision: Catalysts Galore, Lots to Look Forward to in FY23
Tesla Q3 Earnings Preview–Beat Widely Expected Due to Musk’s Twitter Deal
Shift: Strong Earnings with Compelling Valuation
Tokyo Electron (8035 JP): Downturn Discounted but Maybe Not Its Duration
India Channel Insight #45 | TTK Prestige, Symphony, Bajaj Electricals
Netflix 3Q22: Coast Is Clear?
S&P Hasn’t Priced a Recession In

Shimano (7309) | Six Reasons to Stay Bullish

Shimano’s stock price declined by 5.8% today on a broker downgrade, citing a slowdown in Europe
Shimano has zero debt, tons of cash, low capital investment requirements and pricing power = defensive business model
We can think of six reasons to remain bullish on the stock

Lasertec (6920) | ASML Shrugs off the Tech Recession

ASML, a key supplier of EUV semicon equipment, reported better-than-expected third-quarter sales and profit along with record new bookings
CEO Peter Wennink said customers were focusing on plans to expand their long-term capacity, rather than the current economic slowdown and weakness in end-markets
That should be music to the ears of Lasertec shareholders. The stock has plummeted 49% so far this year. Valuations are attractive

Shiseido: China Exposure, Potential Earnings Misses and Write-Offs Create Additional Downside Risk

Shiseido Company (4911 JP)’s valuation multiples have come down a lot over the last year. However, they don’t seem genuinely cheap with FY+2 consensus EV/OP at 25.4x.
Meanwhile, Shiseido’s position in the Chinese market is weakening and there are also risks such as earnings misses and write-offs.
Thus, we think there’s more downside to Shiseido, whose share price may seem cheap after declining by more than 35% during the past 10 months of this year.

EVA Precision: Catalysts Galore, Lots to Look Forward to in FY23

Post a 40% correction, Eva Precision Industrial Holdings (838 HK) is now at a PE of 9x/5.8x FY22/23e with a dividend yield of 3.0/5.1% FY22/23e (assuming a 30% payout ratio).
The company has resumed buybacks since the 13th of October, purchasing 1.43 mn shares (0.08% of outstanding shares) over four trading sessions. We see this trend continue for two weeks.
Catalysts here would come from solid earnings releases, strong order book-related announcements, and a potential to unlock value from the business.

Tesla Q3 Earnings Preview–Beat Widely Expected Due to Musk’s Twitter Deal

By SC Capital

Tesla will announce Q3 2022 earnings results after the US market close on October 19th.
Given that CEO Elon Musk needs to sell more of his Tesla shares to fund his Twitter buyout by month end, the Street widely expects a huge earnings beat.
Q3 fundamentals were weak for Tesla and orders in Q4 point to another delivery miss versus consensus. We recommend selling into any spike on a positive Q3 print.

Shift: Strong Earnings with Compelling Valuation

Shift Inc (3697 JP) reported 4Q and full-year FY08/2022 results last week. Revenue increased 36.2% YoY to JPY17.9bn while OP increased 17.7% YoY to JPY 1.6bn during 4Q.
Full-Year revenue and OP grew 41% YoY (JPY64.9bn) and 73% YoY (JPY6.9bn) beating its own guidance while both revenue and OP fell slightly below consensus estimates.
Shift’s shares are down 14% YTD as the market excessively reacted to decline in margins which we think is unwarranted.

Tokyo Electron (8035 JP): Downturn Discounted but Maybe Not Its Duration

By Scott Foster

Share price down 50% from its peak, discounting a downturn of historical magnitude.
But history also suggests that the downturn might last two years, in which case it would be too early to buy.
Impact of COVID lockdown fading. No impact from U.S. sanctions yet. Weaker guidance ahead, in our estimation.

India Channel Insight #45 | TTK Prestige, Symphony, Bajaj Electricals

By Pranav Bhavsar

We speak to channels associated with TTK Prestige (TTKPT IN), Symphony Ltd (SYML IN) and Bajaj Electricals (BJE IN) with the objective to understand the current demand environment.
Consumer sentiment is mixed, and channel restocking levels are similar to last year.
Online giants like Amazon.com Inc (AMZN US) & Flipkart Online Services (1398508D IN) are at a risk with channel dynamics turning in favour of offline retail over the longer term.

Netflix 3Q22: Coast Is Clear?

Netflix’s stock has outperformed the market by 25% over the past quarter on faith that the new advertising tier will unlock the next leg of the growth narrative.
3Q22 had two of its biggest hits ever – Stranger Things and Dahmer, Netflix beat its own guidance of 1M by only 1.4M…APAC added 1.4M, most from low ARPU India
Pulling subscriber guidance is a yellow flag, as is the lack of details on how AVOD will be “neutral to positive” over time.

S&P Hasn’t Priced a Recession In

By BluSuit

Emotions run high in bear markets. Often times, it’s very difficult to post analysis because it doesn’t always follow consensus.
But, the purpose of this newsletter is to be 100% transparent in my thinking which may not always be 100% popular.
In this case, we are going to take a look at a historically accurate bottom indicator and run specific price targets on the S&P on a valuation perspective.

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Oct 19

Daily Brief Equity Bottom-Up: Perfect Medical: Correction Provides An Opportunity For Entry and more

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

In today’s briefing:

Perfect Medical: Correction Provides An Opportunity For Entry
A Pair Trade Between LG Corp & LG Electronics
Recruit Buyback – A Temporary Support to Falling Share Price
Softbank Group – The Most Important Number in Q2 Results May Be ARM Royalty Revenue
CanSino Biologics Inc (688185.CH/6185.HK) – Some Positive Progress in Business
Energy China (3996 HK): Positive Developments in All Fronts
Oil India (OINL IN): Value Trap, Avoid
Sumitomo Dainippon Pharma Co (4506 JP): Myovant Is Crucial for Post-Latuda Growth Momentum
Viavi Solutions Inc.: The Jackson Labs Acquisition & Other Drivers
ARLO: Disconnected to Ongoing Growth

Perfect Medical: Correction Provides An Opportunity For Entry

Post the massive correction in the China market, Perfect Medical Health (1830 HK) trades at 9.6x/6.9x PE FY23e/24e with a 10.4%/14.6% dividend yield assuming a 100% payout ratio.
From interactions with the management, HK’s operations are in good health, with Q2 revenues normalizing to precovid levels. China has yet to recover as intermittent lockdowns plague its operations.
With cash and financial investments over 550 mn HKD ( 16% of market capitalization ), the company has the opportunity to make accretive acquisitions to grow its business.

A Pair Trade Between LG Corp & LG Electronics

In this insight, we discuss a pair trade between LG Corp (003550 KS) (go long) and LG Electronics (066570 KS) (go short).
LG Electronics is likely to have continued weakening results, due to rising interest rates on the household disposable income in major countries.
Our base case valuation analysis of LG Corp suggests an implied price of 93,905 won per share, representing 19% upside from current levels.

Recruit Buyback – A Temporary Support to Falling Share Price

Recruit Holdings (6098 JP) announced a buyback yesterday for a maximum of 42m (2.55% of total shares outstanding) shares for an aggregate of JPY150bn from the market.
Recruit’s shares closed at JPY4,257 per share at the end of yesterday’s trading, and shares have moved up almost 5% during today’s trade following the buyback announcement.
This is Recruit’s second buyback in 2022 where some of its shareholders reduced their stakes during the previous buyback (tender offer agreements) in January this year.

Softbank Group – The Most Important Number in Q2 Results May Be ARM Royalty Revenue

By Kirk Boodry

We’ve been pessimistic on prospects for ARM and recent news flow and share price performance hasn’t helped but a decent report from TSMC eases some of our concerns
Softbank needs high teens royalty revenue growth for ARM and TSMC as a bellwether (+30% for Q3 and Q4 guidance) is better than AMD or Nvidia
We remain more conservative on valuation ($37bn) than Softbank assuming high single-digit growth and c. 43% EBITDA margins

CanSino Biologics Inc (688185.CH/6185.HK) – Some Positive Progress in Business

By Xinyao (Criss) Wang

CanSino Biologics Inc (688185 CH)’s business has made some positive progress recently, including the launch of COVID-19 Vaccine for Inhalation, commercialization and development progress of MCV4/PCV13i, etc.
CanSino’s technology platforms are very valuable and are above average level. Currently, there’re little potential domestic competitors, because CanSino’s products are newer, better and safer than domestic homogenized products.
Even based on conservative forecast, CanSino’s valuation in HKEX is “ridiculously low”. Considering the downside risk in HKEX, CanSino A-share could be better option before valuation in HKEX becomes reasonable.

Energy China (3996 HK): Positive Developments in All Fronts

By Osbert Tang, CFA

China Energy Engineering (3996 HK) witnessed a good acceleration in quarterly new contracts in this year. We estimate current backlog equals to 6.4x its FY21 revenue.
It is well geared towards China’s new energy development, as reflected by a 108.3% YoY surge in new energy contracts. Its pumped storage new contract value leaped 144x in 1H22.
The spin-off of Gezhouba Explosive in the A-share market is progressing well with approval from shareholders in Sep. The stock’s 4.1x PER and 0.33x P/B look undemanding.

Oil India (OINL IN): Value Trap, Avoid

By Gauri Anand

Low valuations (3x Earnings, 8% cash yield) and an under supplied Oil market, nice value concoction
However, large part of value hinges on growth beyond FY25E, execution challenges and regulatory intervention may necessitate additional debt to fund ongoing capex
Thus deleveraging unlikely, narrowing TV for traditional fuels – risks both earnings and valuations

Sumitomo Dainippon Pharma Co (4506 JP): Myovant Is Crucial for Post-Latuda Growth Momentum

Sumitomo Dainippon Pharma Co (4506 JP) offered to acquire Myovant Sciences (MYOV US), which was rejected due to low valuation. The company is unlikely to revise its offer for Myovant.
As Sumitomo’s in-house drug candidates are still in clinical stages, the company needs Myovant’s already marketed products to maintain its growth momentum post Latuda patent expiry.
Sumitomo is not expected to sell its existing 52% stake in Myovant. This will ensure that Myovant’s marketed products Orgovyx and Myfembree should continue to remain as Sumitomo’s growth drivers.

Viavi Solutions Inc.: The Jackson Labs Acquisition & Other Drivers

Viavi had a strong performance in the final quarter of its fiscal year 2022 and the company delivered an all-around beat.
For fiscal Q4 2022, the SE business’s revenue was constant from year to year.
Strong NE bookings during the fiscal fourth quarter led to a seasonally stronger Q1 backlog and demand visibility.

ARLO: Disconnected to Ongoing Growth

By Hamed Khorsand

ARLO has the help of a product purchase agreement to smooth out lumpiness in consumer spending in the current macroenvironment
While ARLO is targeting a higher income consumer with products that are priced higher than competition, there is still a risk that could have played out in September.
Number of paid subscribers should continue to rise in the third quarter with possibility it could be materially higher than our forecast

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Oct 18

Daily Brief Equity Bottom-Up: HYBE: Korean Govt Mandates BTS Members to Enlist in Military – 50% Further Downside Risk Ahead and more

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

In today’s briefing:

HYBE: Korean Govt Mandates BTS Members to Enlist in Military – 50% Further Downside Risk Ahead
Money Forward – Q3 22 Results Reaction: Revenue Is Growing but so Are EBITDA Losses
Money Forward (3994) | Major Improvement in Corporate Client Acquisition
Money Forward: Top Line Beats Consensus but Losses Widen Further
Fast Retailing – The New Medium-Term Plan For Europe Is As Ambitious As The North America Plan
Why Roblox’s September Metrics Are Even Better Than They Appear
Bank Rakyat Indonesia (BBRI IJ) – Solid MSME Dominator with a Digital Edge
Taiwan Tech Weekly: Hon Hai Tech Day Today, Apple Drops China Supplier; Shows Severity of New Rules

HYBE: Korean Govt Mandates BTS Members to Enlist in Military – 50% Further Downside Risk Ahead

On 17 October, the Korean government made a final official decision to have the BTS members serve in the mandatory military service.
We believe this will have a major negative impact on the sales and profits of HYBE in the next several years.
As a result of the Korean government formalizing the BTS members to enlist in the military, we believe that HYBE’s share price could fall more than 50% from current levels.

Money Forward – Q3 22 Results Reaction: Revenue Is Growing but so Are EBITDA Losses

By Kirk Boodry

Revenue growth rebounded in Q4 and was the best in six quarters as corporate sales accelerated, particularly in the medium business segment
But EBITDA losses accelerated and whilst management says this is the peak quarter, this is the first time since 2019 that EBITDA excluding advertising costs was negative
Guidance for Q4 is mixed with a conservative revenue target and a only a modest reduction in EBITDA losses

Money Forward (3994) | Major Improvement in Corporate Client Acquisition

Money Forward Q3 sales rose +42% YoY to Y5.5bn driven by corporate ARR (+54% YoY)
Net sales, ARR, and EBITDA loss of -Y1.9bn all in line with company guidance
Growth investment starting to pay off as Corporate Client acquisition rate DOUBLES

Money Forward: Top Line Beats Consensus but Losses Widen Further

Money Forward reported 3QFY11/2022 results. Revenue increased 42.2% YoY to JPY5.45bn (vs consensus JPY5.40bn) while adjusted op.losses further widened to JPY2.5bn vs JPY449m in the same period a year ago.
Though top line growth has resumed following a slowdown in 2QFY11/2022, MF’s margins have further worsened with increased investment in advertising, staff and subsidies.
MF’s share price fell almost 8% following earnings announcement as investors are concerned over deteriorating profitability.

Fast Retailing – The New Medium-Term Plan For Europe Is As Ambitious As The North America Plan

Fast Retailing (9983 JP)’s 4QFY22 was yet again a surprise to the upside as revenue grew 23.2% YoY to ¥536.0bn while OP grew 24.3% YoY to ¥26.2bn.
Having rallied close to 60% following an earnings beat in 3QFY22, we were bearish on the company expecting weak guidance for FY23, but the company surprised with optimistic FY23 guidance.
With China struggling to maintain the historical growth momentum and North-America falling short of its medium-term plan, we anticipate downside to Fast Retailing’s FY23 guidance over the next 12 months.

Why Roblox’s September Metrics Are Even Better Than They Appear

Roblox is proving out management’s assertion that bookings growth would reaccelerate in the back half of the year.
The company extended its average user life from 25 to 28 months. Signal of falling churn.
Roblox usage continues to dwarf all other social media; DAUs spend 2.5x more time per day than TikTok or Instagram users.

Bank Rakyat Indonesia (BBRI IJ) – Solid MSME Dominator with a Digital Edge

By Angus Mackintosh

Bank Rakyat Indonesia (BBRI IJ) remains the best proxy for Indonesia’s huge and underbanked MSME sector, which accounts for around 60% of the country’s economy.
The bank now has over 83% of loans exposed to the micro segment and has a long-track record operating in the micro space, with a sound record of managing risk.
Bank Rakyat continues to increasingly utilise digital channels utilise digital channels to expand its network and reduce costs. Valuations remain attractive and a an ongoing recovery in place.

Taiwan Tech Weekly: Hon Hai Tech Day Today, Apple Drops China Supplier; Shows Severity of New Rules

By Vincent Fernando, CFA

Major milestones for Hon Hai’s EV platform could be unveiled at today’s Hon Hai Tech Day.
Apple’s dropping of a key China supplier shows how international players may want to just avoid even non-restricted products from China.
Senior semiconductor executives across the industry are halting work for China-based firms, including some leading Chinese execs.

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Oct 17

Daily Brief Equity Bottom-Up: BayCurrent (6532) | Riding the Wave of Digitization and more

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

In today’s briefing:

BayCurrent (6532) | Riding the Wave of Digitization
Federal Bank – Power of LDR
China Internet Weekly (17Oct2022): Alibaba, JD, Tencent, 37, S.F., YTO
SD Biosensor (137310 KS): Aggressively Investing Windfall Gain From COVID; Adding New Growth Engines
Bloomage Biotechnology (688363.CH) – Positioning and Strategic Layout Imply Strong Upside Potential
Xinhua Winshare (811 HK): Revisiting a Solid Yield Play Fully Backed by Net Cash
Bearish Sentiment

BayCurrent (6532) | Riding the Wave of Digitization

BayCurrent remains the key beneficiary of the trend towards digital transformation (DX) and Japan’s efforts to catch-up with global competitors
Q2 sales growth of 33% highlights continued structural opportunity that should remain in place for at least a decade
We believe that the share price can double over the next few years as the stock prices in the secular growth story

Federal Bank – Power of LDR

By Daniel Tabbush

Net interest income growth is exceptional, driven by major LDR expansion
One must not only focus on NIM, although with this bank, there is also expansion
Credit cost reductions are not a feature here, rather non-interest income supported ROA

China Internet Weekly (17Oct2022): Alibaba, JD, Tencent, 37, S.F., YTO

By Ming Lu

Two logistics companies expected that their net profits to rise significantly in 3Q22.
Alibaba’s Freshippo closed its community group purchase business after many small companies did.
Tencent gave up on acquiring Black Shark, a mobile game handset producer.

SD Biosensor (137310 KS): Aggressively Investing Windfall Gain From COVID; Adding New Growth Engines

In July 2022, SD Biosensor (137310 KS) in partnership with SJL Partners signed a definitive merger agreement to acquire Meridian Bioscience (VIVO US) for approximately KRW800 billion (~$1.5 billion).
The acquisition will strengthen SD Biosensos’s IVD platform to navigate the decline in COVID-19 testing demand and accelerate its U.S. market entry.
In September 2021, SD Biosensor acquired ~22% stake in UXN, which aims to launch mini continuous blood glucose meter in domestic market in 2024.

Bloomage Biotechnology (688363.CH) – Positioning and Strategic Layout Imply Strong Upside Potential

By Xinyao (Criss) Wang

Many interpretations of Bloomage are just looking at the surface of the Company. It is actually a biotechnology and biomaterial company, with business layout covering the whole industrial chain.
The biggest advantage is the innovation of raw materials.Based on synthetic biology, Bloomage is more comfortable in the richness of raw materials (hyaluronic acid/collagen etc.) and flexibility of product matrix expansion.
The synergy/complementarity of multiple businesses improve the resilience to market/policy changes. If investors cannot have a deep understanding of Bloomage’s positioning/real strategic intentions, they won’t seize the alpha in the future.

Xinhua Winshare (811 HK): Revisiting a Solid Yield Play Fully Backed by Net Cash

By Osbert Tang, CFA

Including dividends, Xinhua Winshare (811 HK) has returned 26.8% since end-2019, significantly outperformed the market. We expect it to maintain a secured 7% dividend yield in next two years.
Without any outstanding borrowings, it has net cash of HK$5.23 at end-1H22. This equals to 103.5% of share price. Such a strong financial position means dividend stream can be sustained.
Its businesses of textbook and supplementary materials publication and distribution are well insulated from economic slowdown. It does not face the same regulatory risks given its ownership by local SASAC.

Bearish Sentiment

By subSPAC

The Retail Investing Landscape has changed significantly over the last few years. Pandemic-era stimulus, lockdown restrictions, and the gamification of trading spurred many to enter the markets.
This, coupled with the growing distrust in institutional investment advisors, has led many to switch away from traditional research reports from Wall Street to independent research and newsletter-focused content, especially for new investment ideas.
Marketwise, which primarily targets individual investors through its research and analytical tools, has seen a meteoric rise over the last few years due to this phenomenon.

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Oct 16

Daily Brief Equity Bottom-Up: Nanya Tech: Another Example of Capex Reduction and more

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

In today’s briefing:

Nanya Tech: Another Example of Capex Reduction, Major Share Price Divergence
Korean Holdcos Vs Opcos Gap Spreads Opportunities Amid Market Carnage
Diageo ADR: Initiation of Coverage – Portfolio Split
Unilever ADR: Initiation of Coverage – Recent Strategic Shift

Nanya Tech: Another Example of Capex Reduction, Major Share Price Divergence

By Vincent Fernando, CFA

Nanya Technology recently reported 3Q22 results and its gross margin fell substantially, but this appears mostly digested into consensus estimates.
The company also announced a major reduction in capex, which highlights the latest industry trend whereby supply/demand imbalances are being addressed by reduced capacity expansion.
Nanya Technology has outperformed the TAIEX Semi Index by ~27% in less than three weeks.

Korean Holdcos Vs Opcos Gap Spreads Opportunities Amid Market Carnage

In this insight, we highlight the pricing gap divergence of the major Korean holdcos and opcos amid market carnage.
In general, more holdcos/quasi-holdcos have been outperforming the opcos in the past year, as compared to the previous years as more investors seek value-oriented, deep NAV discount stocks.
We highlight 26 pair trades that involve Korean holdcos and opcos.

Diageo ADR: Initiation of Coverage – Portfolio Split

This is our first report on global alcoholic beverage major, Diageo.
Volume increased by 10%, while price/mix growth increased by 11 points, with pricing contributing to the balanced growth of the mid-single digits.
Overall, they are well positioned for the spirits category’s sustained premiumization and market share increases within the overall beverage alcohol market.

Unilever ADR: Initiation of Coverage – Recent Strategic Shift

This is our first report on global consumer goods giant, Unilever.
The company had a decent performance in 2021 and its growth continues to build in its first-half performance.
Unilever also uses its extensive market experience to deal with inflation.

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Oct 15

Daily Brief Equity Bottom-Up: Intel Vs. TSMC/UMC Long/Short Monitor: Mgmt Call Takeaways and more

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

In today’s briefing:

Intel Vs. TSMC/UMC Long/Short Monitor: Mgmt Call Takeaways, Calculating a Normalized Valuation
Ashok Leyland (AL IN) | Some Pricing Discipline, Inventory Levels Remain High
Meta Health: Forging a Digital Future for Healthcare
Liquidity Risk Short Candidates: Blink Charging, Natera, Axonics, Enviva
Seegene (096530 KS): Recovery of Non-COVID Sales to Drive Future Growth
What Are the Prospects for a Meta Rebound?
GTX: The Macro Adjustment
SS&C Technologies Holdings Inc.: Initiation of Coverage – Competitive Positioning

Intel Vs. TSMC/UMC Long/Short Monitor: Mgmt Call Takeaways, Calculating a Normalized Valuation

By Vincent Fernando, CFA

TSMC says limited impact from U.S. China restrictions — We crosscheck the comments.
TSMC guidance was strong and gives hope for 1H23 industry improvement. Looks cheap on a cycle-adjusted PE.
Intel has outperformed TSMC shares despite the recent TSMC rebound.

Ashok Leyland (AL IN) | Some Pricing Discipline, Inventory Levels Remain High

By Pranav Bhavsar

Ashok Leyland (AL IN) ‘s expectation of a more rational pricing environment may not materialise. While there has been a moderation in discounts, it may not last long.
Wholesales have been high in anticipation of a good festive season, however, the gap between Wholesale and Retail is showing signs of widening.
Macros are not conducive. Sept PMI hit a 3M low, and August IIP at an 18M low can build a case for cooling volumes ahead.

Meta Health: Forging a Digital Future for Healthcare

By Geoff Howie

Meta Health: Forging a Digital Future for Healthcare As a result, my leadership style is one of servant leadership,” said the Chairman and Chief Executive Officer of SGX-listed Meta Health Ltd.
With more than two decades of professional experience in the pharmaceutical and consumer health industries, Ng is well-positioned to oversee Meta Health’s pivot to the digital healthcare space.

Liquidity Risk Short Candidates: Blink Charging, Natera, Axonics, Enviva

By Eric Fernandez, CFA

Liquidity shorts can be great short candidates. The key characteristic is that the company may not be viable, economically, given their cash flows and cash requirements.
Liquidity shorts have built-in catalysts, have moderate to higher betas, and can have strong down moves if a crisis develops. They can go bankrupt, pushing the stock price near zero.
Today we are flagging Blink Charging., Natera, Axonics, and Enviva.

Seegene (096530 KS): Recovery of Non-COVID Sales to Drive Future Growth

Seegene Inc (096530 KS) reported a 30% y/y growth in revenue from non-COVID products to KRW69.5 billion in H1 2022. Q2 non-COVID product revenue was up 21% compared to Q1.
The company expects strong demand for respiratory virus testing in fall and winter as the flu season starts in its key markets of Europe and North America.
Seegene stock is trading near its lows, mainly due to muted financial performance. Seegene can be a value pick and long-term play on the non-COVID product recovery.

What Are the Prospects for a Meta Rebound?

Meta now trades at 14x P/E and 6x fwd EV/EBITDA…valuation inline with Paramount and Warner Brothers Discovery. This is nuts!
While the drumbeat of competitive concerns and self inflicted wounds has piled up in the past month, even core Facebook is not in a death spiral of engagement.
META is investing in new ad tech and ad formats, and has the ability to cut significant opex from its budget that could yield 10-20% upside to current 2023 consensus.

GTX: The Macro Adjustment

By Hamed Khorsand

Continued improvement in automobile inventory levels should benefit Garrett Motion (GTX)
GTX has experienced a decline in turbochargers sold over the past year due to supply chain issues causing carmakers to have lumpy ordering rates.
Ahead of the second quarter results, we had highlighted the foreign exchange headwind the weaker Euro could play. The Euro continued to depreciate versus the US Dollar in the third quarter

SS&C Technologies Holdings Inc.: Initiation of Coverage – Competitive Positioning

This is our first report on SS&C Technologies, a well-known software solutions provider to the financial and healthcare industries.
Even while new fund launches and inflows influenced the Alternatives industry, it nevertheless developed well.
We initiate coverage on the stock of SS&C Technologies with a ‘Buy’ rating.

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Oct 14

Daily Brief Equity Bottom-Up: Fast Retailing (9983) | Fantastic Execution at Fantastical Valuation and more

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

In today’s briefing:

Fast Retailing (9983) | Fantastic Execution at Fantastical Valuation
Sea Ltd – No Bringing Back to Life For Free Fire, Shopee’s Top Line Growth Could Disappear
Suzuki (7269) | Small Cars at Tiny Valuations
Keepers Holdings: Global Market Weakness Creates Opportunity
TikTok Dives Into Southeast Asia With E-Commerce Push
Ship Healthcare Holdings (3360 JP): Continues to Be a Strong Beneficiary of Japan Reopening
IRay Technology (688301.CH) – Overvalued; Performance Deceleration Will Lead to Valuation Correction
Korea Consumer Discretionary: A Pair Trade (Long CJ ENM and Short HYBE)
PetroTal Corp (AIM: PTAL): Barge constraints should be alleviated in 4Q22
Mahindra EPC – A Proxy Play on MIS Opportunity

Fast Retailing (9983) | Fantastic Execution at Fantastical Valuation

We were Bearish on Fast Retailing, mainly due to valuation concerns against global peers. That view still stands.
We expected cautious guidance reflecting a harsh macro environment. Fast surprised with bullish guidance. That could be a risk.
We highlight the key slides from the results presentation and re-iterate our view that Fast should not trade at such a premium to its global peers

Sea Ltd – No Bringing Back to Life For Free Fire, Shopee’s Top Line Growth Could Disappear

Garena has introduced nine major updates to “Free Fire” since June last-year but none of them has managed to turn around the game’s declining trend and regain the lost users.
With Sea Ltd (SE US) no longer capable of funding Shopee’s growth, we are expecting e-commerce to start losing its top-line growth potential from 4Q22.
Even though we are predicting a lot of downside to Sea Ltd over the medium term, an okayish Q3 could see shares bouncing back from the bottom.

Suzuki (7269) | Small Cars at Tiny Valuations

We are bullish on the share price of Suzuki given its exposure to secular growth in India
The ex-Maruti business is recovering as supply chain constraints ease.
We see at least 25% upside to the share price and believe the non-Maruti business is significantly undervalued

Keepers Holdings: Global Market Weakness Creates Opportunity

The Keepers Holdings, Inc. (KEEPR PM) correction in share price by 23% from the peak provides an opportunity with the stock trading at 7.4x/6.1x PE FY22e/23e (excluding Bodegas W&H earnings).
The company will release its Q3 2022 earnings in early November, and we expect revenue and earnings growth to be >25% YoY.
We also eagerly await more color on accretion to earnings from a 50% stake in Bodegas W&H post which we expect the stock to be even cheaper.

TikTok Dives Into Southeast Asia With E-Commerce Push

By Caixin Global

ByteDance’s TikTok is cranking up its e-commerce foray into Southeast Asia as the Chinese tech giant pushes to commercialize the popular short video app to create a new revenue stream.
During the first half, TikTok launched e-commerce businesses in Thailand, Vietnam, Malaysia, the Philippines and Singapore, expanding its presence to all major markets in the region.
TikTok has been operating online shopping services in Indonesia, Southeast Asia’s largest economy, since early 2021.

Ship Healthcare Holdings (3360 JP): Continues to Be a Strong Beneficiary of Japan Reopening

Ship Healthcare Holdings (3360 JP), being a leading supplier of hospital consumables in Japan reported stellar Q1 results, with 7% y/y revenue growth in its medical supply business.
The impact of COVID-19 is easing in Japan and economic activities are gradually returning to normal. The number of surgeries is recovering due to increasing number of medical consultations.
Ship Healthcare is expected to report high-single-digit revenue growth in FY23, accelerated from low-single-digit revenue growth reported in FY21 and FY22.

IRay Technology (688301.CH) – Overvalued; Performance Deceleration Will Lead to Valuation Correction

By Xinyao (Criss) Wang

IRay Masters all the major core technologies. It has a complete technical system of TFT SENSOR design and invention patents in the field of scintillators,setting it apart from domestic peers.
The market where iRay is located has slow growth rate and obvious growth ceiling. The higher the short-term performance growth of iRay, the faster it would encounter a growth bottleneck.
IRay is overvalued. The valuation has already overdrawn the performance of the next few years. Any deceleration in revenue/profit in any given year would lead to a significant valuation correction.

Korea Consumer Discretionary: A Pair Trade (Long CJ ENM and Short HYBE)

In this insight, we discuss a pair trade of going long on CJ ENM and going short on HYBE.
CJ ENM’s valuations are much more attractive and offer higher value as compared to HYBE. CJ ENM shares are trading at EV/EBITDA of 2.7x versus 10.9x for HYBE in 2023.
The Korean government is likely to require BTS members to conscript for military service which is likely to lead to sharp decline in earnings estimates for HYBE.

PetroTal Corp (AIM: PTAL): Barge constraints should be alleviated in 4Q22

By Auctus Advisors

3Q22 production was ~12,229 bbl/d. This is below the guidance of 14.25 mbbl/d due to a continuing shortage of barges caused by the low level of the Amazon river during the dry season.
With the upcoming end of the dry season, the shortage of barges is expected to disappear in 4Q22. The eventual goal is to send 600,000 bbl per month (~20 mbbl/d) eastbound to Brazil and Iquitos.
No firm date for the restart of the ONP pipeline has been provided yet and the company is now excluding any contributions from sales through the ONP in its new guidance of 16.5 mbbl/d for 4Q22 (19.5 mbbl/d previously).

Mahindra EPC – A Proxy Play on MIS Opportunity

By Gauri Anand

Micro Irrigation firms > reeling under commodity stress > cut in Govt budgets > long wcap cycle
Long term outlook, however is robust > revival in spends likely
Negative sentiments > low earnings visibility > low valuation offers entry opportunity

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Oct 13

Daily Brief Equity Bottom-Up: Bic Camera (3048) | Cash-Strapped Consumers and more

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

In today’s briefing:

Bic Camera (3048) | Cash-Strapped Consumers
Oriental Land: Consensus Is Tangled in a Fantasy
BYD (1211): Respectable Result
Yahoo Mart’s Q-Conbini Stores: A Potential Competitor to the Big 3 CVS?
Rainbow Children’s Hospital (RAINBOW IN): Flying High Backed by Niche Focus and Business Recovery
TCS: Resilient Outlook but Fairly Valued
CDW Corporation: Initiation of Coverage – Acquisition Of Sirius Computer Solutions & Other Drivers
MEX: “A Recession is an Ideal Time for Expansion”
OMI update
Guidewire Software Inc.: Initiation of Coverage – Strong Market Position & Other Drivers

Bic Camera (3048) | Cash-Strapped Consumers

Bic Camera is trading close to its 52-week high after rallying on expectations for the reopening of Japanese borders and increased sales from inbound tourists.
We think the market has gotten way ahead itself due to (a) falling real household spending and (b) less than expected impact from inbound
Bic’s high valuation is likely to derate due to rising interest rates. We see around 30% downside for the stock based on peer multiples

Oriental Land: Consensus Is Tangled in a Fantasy

It seems like Oriental Land (4661 JP) has yet again failed to land the number of visitors that consensus expected it to attract during the second quarter of FY23.
Even though we don’t see much downside risk to the 2QFY23 consensus OP due to price hikes, we believe that there is plenty of downside to its medium-term estimates.
There is also room for valuation multiple contraction with Oriental Land currently trading at an inflated 28.2x consensus FY27 OP multiple.

BYD (1211): Respectable Result

By Henry Soediarko

BYD (1211 HK) has recorded a more respectable result this year compared to the peers such as Tesla, Nio, and Xpeng.
Overseas sales could be the next growth engine if the domestic market sales may stall.
The price increase early this year to the customers did not deter the company’s growth rate which indicates its pricing power.

Yahoo Mart’s Q-Conbini Stores: A Potential Competitor to the Big 3 CVS?

By Michael Causton

Quick (Q)-commerce continues to grow, with rapid home delivery providing a new level of convenience to meet demand from busy, urban consumers.
Z Holdings’ team of Yahoo, Askul and Demae-can have run what is now called Yahoo Mart since 2020 which has opened its first three retail stores, a new omnichannel model.
Given the data analysis and supply chain power of its backers, these stores could quickly become a thorn in the side of the big convenience store chains.

Rainbow Children’s Hospital (RAINBOW IN): Flying High Backed by Niche Focus and Business Recovery

Rainbow Children’s Hospital (RAINBOW IN) is India’s largest pediatric multi-specialty healthcare chain, operating 15 hospitals and 3 clinics in 6 cities, with a total bed capacity of 1,550+.
Due to its presence in the affluent cities of India, the company has superior ARPOB. With the normalization of business occupancy and outpatient volume improved significantly.
The company plans to add 100 beds by the end of FY23. Higher occupancy and greater scale of operation are the biggest margin driver for the company.

TCS: Resilient Outlook but Fairly Valued

By Ankit Agrawal, CFA

Demand environment remains robust despite recessionary fears in US and Europe. Demand is being driven by structural factors like shift in the business model towards enterprise-wide digital transformation.
One of the biggest headwinds – attrition – has now peaked and is trending downwards. Job market has cooled off and salaries of new hires have become reasonable.
While the demand outlook and margin guidance is resilient, we estimate that the current valuations are fairly pricing the optimism. Projected IRRs are likely to be subdued from here on.

CDW Corporation: Initiation of Coverage – Acquisition Of Sirius Computer Solutions & Other Drivers

This is our first report on CDW Corporation, a leading IT solutions provider to companies across the U.S., Canada, and U.K.
The second quarterly result was strictly mediocre for CDW as the company failed to meet Wall Street expectations on the revenue front but managed an earnings beat.
With a continued emphasis on hybrid work and the return to the office driving collaboration, networking, and endpoint solutions, digital transformation, agility, and security remain major considerations.

MEX: “A Recession is an Ideal Time for Expansion”

By Investment Talk

Tortilla is a clear market leader, boasting 5x more units than the nearest competitor, operating a superior supply chain, and is highly cash-generative with a track record of savvy capital allocation.
The founder and CEO have reasonable equity stakes in the business.
As peers went into administration during the pandemic, they expanded aggressively and acquired a competitor for a reasonable price.

OMI update

By Newmoon Capital

It looks to me that the company is now run-rating to $500M of EBITDA, but it is possible that it is much lower depending on how Q3 turn out.
It was very possible that things were fine for the first 2 months of Q3 and then got really bad thereafter and so the run-rate EBITDA is actually much lower…but let’s just use $500M as our base case
Capex in this business is really closer to Opex. Apria is really a leasing/distribution business and so Capex is needed to keep the business running.

Guidewire Software Inc.: Initiation of Coverage – Strong Market Position & Other Drivers

This is our first report on Guidewire, a leading provider of software solutions for property and casualty (P&C) insurers worldwide.
The company reported an excellent finish to its fiscal year and beat Wall Street expectations on all counts.
Guidewire also introduced 13 new solution partners to the Guidewire Marketplace, bringing the total number of solution partners on its platform to over 160.

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Oct 12

Daily Brief Equity Bottom-Up: Does Meituan Have the Appetite to Serve HK Food Delivery Market and Take On Foodpanda and Deliveroo? and more

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

In today’s briefing:

Does Meituan Have the Appetite to Serve HK Food Delivery Market and Take On Foodpanda and Deliveroo?
Taste Gourmet: Buybacks And Recovery Into Q2 2023
Asia Casino Sector: We Are Raising Guidance on Nagacorp to Strong Buy and Overweight
Anhui Conch Cement (914 HK): Well Geared Towards the Long-Term Drivers
J Front Retailing (3086) | Still in the Bargain Basement
Adastria Signs Forever 21, New Growth Through Licensing?
BEM : Expect 3Q22 Earnings to Hit 12 Quarter High
Zebra Technologies Corporation: Initiation of Coverage – Wide Footprint
Adyen ($ADYEY, $ADYYF, $ADYEN)
Fortive Corporation: Initiation of Coverage – The Provation Acquisition & Other Drivers

Does Meituan Have the Appetite to Serve HK Food Delivery Market and Take On Foodpanda and Deliveroo?

Several news media outlets reported that food delivery giant Meituan (3690 HK) is preparing to enter the food delivery market in Hong Kong as domestic market is slowing down.
Slowdown in Chinese economy coupled with regulatory hurdles have made it impossible for Meituan and other domestic tech players to expand locally.
Online food delivery market in HK is dominated by Foodpanda and Deliveroo, and we think Meituan will have to offer deep discounts to grab market share from these two dominants.

Taste Gourmet: Buybacks And Recovery Into Q2 2023

Taste Gourmet Group (8371 HK) is a play on the HK recovery with a promising outlook in the long-term at 5.7x/4.3x FY23/24e PE (10.5%/14.1% dividend yield assuming 60% payout).
The company recently initiated a buyback mandate on the 20th of September for (10% of outstanding shares) and has repurchased 2.2% of outstanding shares so far.
We believe the company will report strong earnings for its quarterly release on November 11th and payout a good dividend which will be a further catalyst for rerating.

Asia Casino Sector: We Are Raising Guidance on Nagacorp to Strong Buy and Overweight

By Howard J Klein

A recent dip in the shares against an accelerating revenue recovery trend signals a stronger buy signal not yet broadly recognized by the market.
Performance to date augers well for a considerable upside by 4Q22 to 1Q23.
Gains achieved in all customer segments: main floor mass, premium mass as well as VIP.

Anhui Conch Cement (914 HK): Well Geared Towards the Long-Term Drivers

By Osbert Tang, CFA

We see improvements in the underlying drivers of Anhui Conch Cement (914 HK) over the last two months, and we believe value has emerged for long-term investors.
There is a slight recovery in cement price in Sep, and the proceeds from local governments’ special purpose bonds issuance will make incremental stimulus to demand.
Net cash now amounts to 37.5% of share price, providing support to its over 9% prospective dividend yield as well as potential value-enhancing M&As.

J Front Retailing (3086) | Still in the Bargain Basement

J. Front is a key beneficiary of improving consumption post-pandemic and a return of inbound tourism.
Q2 sales rose 4.8% on the year. 2H sales guidance +2% YoY looks too conservative given full resumption of inbound tourism.
We believe the stock still represents good value at 0.9x book value.

Adastria Signs Forever 21, New Growth Through Licensing?

By Michael Causton

Adastria’s growth has been sporadic in recent years as it adjusts to maturity and saturation in core apparel markets.It has diversification projects but these will take time to develop.
It thinks it can find faster growth by franchising and licensing with already well-known brands, starting with Forever 21.
It also has a new business providing apparel collections to General Merchandise Retailers, starting with Izumi.

BEM : Expect 3Q22 Earnings to Hit 12 Quarter High

By Pi Research

Maintain BUY recommendation for BEM with a new target price of Bt11.40 (Previous TP: Bt9.90) after we incorporate value from orange line project into our valuation. We expect the company
Expect solid profit recovery in 3Q22 and onwards Expect BEM’ revenue in 3Q22 to touch Bt3.6bn (+69%YoY +12%QoQ) supported by solid rebound in daily average MRT ridership to 313k trips
Gross profit margin is assumed to expand to three-quarter high at 42% thanks to benefit from high operating leverage,which should help absorb the impact from an increase in MRT revenue

Zebra Technologies Corporation: Initiation of Coverage – Wide Footprint

This is our first report on one of the leading players in the Automatic Identification Data Capture (AIDC) market, Zebra Technologies Corporation.
For the solutions which automate and digitize workflows, customer demand remains strong for Zebra and it saw good growth in the e-commerce, retail, manufacturing, and healthcare end markets.
We initiate coverage on the stock of Zebra Technologies Corporation with a ‘Buy’ rating.

Adyen ($ADYEY, $ADYYF, $ADYEN)

By MT Capital

When I think about the world of tech, there is no shortage of products, developments, or innovations that deserve attention.
Some pieces of technology, when broken down, are extraordinarily complex and exist out in the open.
Others hide in plain sight, functioning in the shadows, but are still responsible for certain components of indispensable processes that allow our world to operate as we know it today.

Fortive Corporation: Initiation of Coverage – The Provation Acquisition & Other Drivers