Equity Bottom-Up

Times Neighborhood (9928 HK) has been a disastrous call since we first highlighted it. In this insight, we reflect upon the red flags we could have done well to spot.
We cover red flags ranging from the level of precise guidance, pivot in strategy, and the parent’s poor financial health, to the effect on receivables sucking cash from the company.
Everyone makes mistakes (we are human, after all). We would like to share our experience to educate readers to become better investors and sidestep investments in such names.

Genting’s Suprise Bid for Macau Casino Not Resonating with Investors Seeing Uncertainties Ahead

By Howard J Klein

During the current rebidding process for the six Macau concessions, a seventh “surprise guest”filed a bid. Opinion of their chances are mixed at best.
Genting has tended to overreach over time in other markets.
Macau operators already face daunting recovery odds ahead that will impose strains on cash and debt refis at higher rates.

Roblox Analyst Day Observations

By Aaron Gabin

Roblox Analyst Day featured some interesting new initiatives around advertising and marketplace dynamics.
The company will launch a self serve advertising platform in 2023 that has the potential to be worth an incremental 20% of revenues and margin supportive.
The company is also allowing developers to start introducing scare items, and begin participating in the on-platform resale market.

China Internet Weekly (19Sep2022): Tencent, NetEase, Meituan, Trip.com

Tencent and NetEase received new licenses from the authorities more than a year.
Meituan’s car-hailing service joined Tencent WeChat’s traffic platform, Tencent Passenger Traffic.
Express parcels and their revenue continued to recover in August.

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Sep 18

Daily Brief Equity Bottom-Up: Keda Industrial (600499 CH): Lithium Play Backed by Multi-Pronged Growth Strategies and more

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

In today’s briefing:

Keda Industrial (600499 CH): Lithium Play Backed by Multi-Pronged Growth Strategies
Keda Industrial Group: Concerns About Downturn in Ceramics Machinery Market & Uncompelling Valuation
Rakuten’s Netsuper Expands with New Partners
Itochu Grabs Eddie Bauer and Barbour

Keda Industrial (600499 CH): Lithium Play Backed by Multi-Pronged Growth Strategies

By Osbert Tang, CFA

Through its 43.58% ownership in lithium carbonate producer Lanke Lithium Industry, Keda Industrial Group (600499 CH) is well placed to benefit from the increase in lithium demand.
Lanke’s capacity has recently been upgraded to 30,000 tonnes. Also, Keda is adding capacity to its own integrated anode materials factory in Fujian to capture the ever-rising demand.
Overseas ceramic business will see solid growth from key markets in Africa as Keda raises capacity by 65% by FY23. The stock’s valuations are inexpensive relative to peers.

Keda Industrial Group: Concerns About Downturn in Ceramics Machinery Market & Uncompelling Valuation

By Douglas Kim

We are Negative on Keda Industrial over the next year due to a potential downturn in the ceramics machinery market, uncompelling valuations, and concerns about expansion into lithium battery materials.
Keda Industrial Group is one of the world’s leading suppliers of building ceramic machinery and equipment.
Its A-Shares listed on Shanghai Stock Exchange and it completed a private placement of GDRs listing the shares in SIX Swiss Exchange in July 2022.

Rakuten’s Netsuper Expands with New Partners

By Michael Causton

The battle for online food sales continues to heat up, with Rakuten and Amazon squaring up to challenge for supremacy.
Although Amazon has signed two of the largest names, Life and Valor, Rakuten is quickly catching up, last month adding Comodi-Iida to existing members, Seiyu, Beisia and Inageya.
Other supermarket chains are already preparing to sign-up with Rakuten.

Itochu Grabs Eddie Bauer and Barbour

By Michael Causton

A few years back, Itochu Corp (8001 JP) announced its intention to aggressively grow its consumer brand business.
It has just confirmed deals with Eddie Bauer and Barbour after a year in which it also signed Reebok and Under Armour.
Although a small part of the Itochu empire, the consumer brand business, alongside retail interests such as Familymart, are key to the trading firm’s longer term profits.

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Sep 17

Daily Brief Equity Bottom-Up: Ajanta Pharma (AJP IN): Branded Generics Focus Ensures Consistent Growth and more

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

In today’s briefing:

Ajanta Pharma (AJP IN): Branded Generics Focus Ensures Consistent Growth
HHC: Tower Opening Affirms FFO Outlook
83: Initial Thoughts On Sherwin-Williams (SHW)

Ajanta Pharma (AJP IN): Branded Generics Focus Ensures Consistent Growth

Ajanta Pharma (AJP IN) has a well-diversified business model in terms of markets and therapies. The company’s largest revenue contributing segment, branded generics is seeing healthy double-digit revenue growth.
Ajanta focuses on limited competition product in US. Going forward, the US business will see accelerated growth, driven by new launches. Ajanta plans to file 10–12 ANDAs during FY23.
Ajanta has taken 1% price increase across all its market, which should drive margin improvement in coming quarters. The company has guided for EBITDA margin of 26–27% for FY23.

HHC: Tower Opening Affirms FFO Outlook

By Hamed Khorsand

HHC. announced the opening of 565-unit Ward Village development, Ko’ula. HHC had been forecasting the opening of the new tower at Ward Village since last year
The opening results in HHC recognizing revenue from the sale of each unit within the tower. The opening of Ko’ula affirms our outlook for the year
The opening of Ko’ula puts HHC on pace to meet 2022 condo sales guidance of $650 million to $700 million

83: Initial Thoughts On Sherwin-Williams (SHW)

By Watchlist Investing

I’m currently working on the September issue of Watchlist Deep Dives, which features Sherwin-Williams.
My research process is primary-sources focused and that means reading lots of 10K’s, which include a report from the company’s auditors.
I was surprised to see that Ernst & Young had served as SHW’s auditor since 1908.

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Sep 16

Daily Brief Equity Bottom-Up: Jubilant Foodworks (JUBI IN) | Discount Is Attractive and more

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

In today’s briefing:

Jubilant Foodworks (JUBI IN) | Discount Is Attractive
Softbank Group – An Acceleration in Investment Does Not Require a Third Vision Fund
Premier Anti-Aging: DUO’s Time Is Done, But CANADEL & Clayence Is Taking the Company Forward
Malaysian Banks June 2022 Screener; CIMB Is Our New Value Pick
Loeb Backed Down Quickly…But Is Disney Really in Good Shape?
Starbucks to Make China Its Biggest Market by 2025, Surpassing U.S.
Askul Q1 23 Results Reaction: Solid Revenue but OP Down on Front-Loaded Investments
Earnings Quality Short Candidates: ZoomInfo, Gogo, Elanco Animal Hlth, Sonos, Energizer

Jubilant Foodworks (JUBI IN) | Discount Is Attractive

By Pranav Bhavsar

Jubilant Foodworks (JUBI IN) is India’s largest food service company. In hindsight, CEO’s exit in March 2022 under a high inflationary environment was just “NOISE”.
Industry drivers are favourable, JUBI’s renewed focus on growth, additional brands and a new CEO, all put JUBI back on track to deliver robust growth.
Currently trading at 68.5x NTM, JUBI is available at a 22% discount compared to it’s 3Y mean, considering the growth prospects discussed below, this discount is attractive.

Softbank Group – An Acceleration in Investment Does Not Require a Third Vision Fund

By Kirk Boodry

Press reports indicate Softbank Group (9984 JP) is considering a third Vision Fund which seems to conflict with its more defensive posture at Q1 results last month
Softbank can re-accelerate investment at any time without VF3 so talk of a new fund is not a signal change. Perceptions of private equity value are more important
And a key message over the last six months is founders are too optimistic and that seems unlikely to shift suddenly. We have updated our SB performance tables below

Premier Anti-Aging: DUO’s Time Is Done, But CANADEL & Clayence Is Taking the Company Forward

Japan’s number one skin cleansing balm, DUO seems to be in big trouble with monthly sales volume falling by almost 40% over the last 12 months.
However, Premier Anti-Aging (4934 JP) is making progress with the development of other brands to reduce its dependence on DUO.
Despite the depressed margins in the near-term, we are quite positive about Premier Anti-Aging’s medium-long term outlook with new brands like CANADEL and clayance showing promising signs for the future.

Malaysian Banks June 2022 Screener; CIMB Is Our New Value Pick

By Victor Galliano

The six Malaysian banks screen favourably on balance sheet and returns metrics to June 2022; we add CIMB to the buy list, keep RHB and we remove Maybank
We add CIMB with its positive post-provision return trends and further potential which combine constructively with CIMB’s undemanding valuations versus the peer group; its high NPL ratio is fully provisioned
We stick with RHB, with its attractive post-provision profitability and positive cost of risk trends, whilst also trading on attractive multiples versus peers and on a relatively low PEG

Loeb Backed Down Quickly…But Is Disney Really in Good Shape?

By Aaron Gabin

Activist Dan Loeb recently backed down from his request that Disney spin out ESPN…something we thought was foolish, and glad is off the table.
Disney is still trapped by the “rock and the hard place” choice of trading higher margin cable subscribers for lower margin (higher churning) streaming subs.
Bob Chapek is a poor choice for Disney CEO…not alot of good options. This company is strategically boxed in. Parks’s overearning will dissipate, will be a good short next year.

Starbucks to Make China Its Biggest Market by 2025, Surpassing U.S.

By Caixin Global

Starbucks Corp. plans to open 3,000 stores in China in the next three years, bringing the total to 9,000 locations and pushing China past the U.S. as the coffee giant’s biggest market by 2025.
China is currently Starbucks’ second-largest market, with 16% of global stores and accounting for 7% of total revenue in the 2022 second quarter.
The company aims to double its China revenue by 2025.

Askul Q1 23 Results Reaction: Solid Revenue but OP Down on Front-Loaded Investments

By Kirk Boodry

Askul Corp (2678 JP) posted the best revenue growth in six quarters as both B2B and consumer product sales accelerated
The corresponding operating income decline of 10% is less welcome but that includes a front-loading of planned growth investments and full year guidance of 1% growth is unchanged
We are tagging this insight as bearish as headlines of a 10% OP decline might not be as well received as the top-line story

Earnings Quality Short Candidates: ZoomInfo, Gogo, Elanco Animal Hlth, Sonos, Energizer

By Eric Fernandez, CFA

This model seeks short-sale candidates among companies that use aggressive accounting and/or exhibit deteriorating quality of earnings.
They are typically highly idiosyncratic shorts and require thoughtful analyses of upcoming catalysts. When the company’s issues become well-known, there is often multiple compression as well as a rerating.
These shorts can have high or low betas, valuations based on artificial earnings and exhibit good short responses to subsequently disappointing earnings.

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Sep 15

Daily Brief Equity Bottom-Up: EVA Precision: Poor Mans Tesla/ EV Play/ Onwards and Upwards from H1 2022 and more

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

In today’s briefing:

EVA Precision: Poor Mans Tesla/ EV Play/ Onwards and Upwards from H1 2022
CALB IPO: Solid PHIP Results Offset by Further Market Downturn
Biocon Ltd (BIOS IN): Stake Sale in Subsidiary Is a Step in Right Direction
GULF : Expansion in the US Plant
Modern Dental Group (3600.HK) 22H1- Share Price May Remain Tepid Due to Lack of Core Competitiveness
Conch Venture (586 HK): An Overlooked Value Play
Giant Biogene (巨子生物) Pre-IPO: Visits to Beauty Stores and Online Apps
ARLO: Penalized for Growth

EVA Precision: Poor Mans Tesla/ EV Play/ Onwards and Upwards from H1 2022

Eva Precision Industrial Holdings (838 HK) is a beneficiary of EV penetration globally and in China, trading at 9.4x /5.6x FY22/23e and 3.2%/5.3% dividend yield (30% payout ratio).
H1 2022 was groundbreaking for the company as it commenced strategic cooperation with BYD (1211 HK) on products and bagged orders from Huwaei and Tesla, with more coming in H2.
There is additional room for buybacks as the stock price is < 2HKD and the company only completed 3-4% of its 200 mn HKD buyback.

CALB IPO: Solid PHIP Results Offset by Further Market Downturn

By Douglas Kim

CALB’s revenue surged by 266% YoY to reach 3.9 billion RMB in 1Q 2022. Its operating profit also increased by 43.5% YoY in 1Q 2022, respectively.
CALB also had the highest sales growth rate of 266.5% YoY in 1Q 2022 versus 154% growth YoY for CATL and 63% growth YoY for BYD in 1Q 2022.
CALB is one of the most interesting large cap IPOs globally in 2022. Despite horrible market conditions, the company is trying to complete its IPO in the next several weeks.

Biocon Ltd (BIOS IN): Stake Sale in Subsidiary Is a Step in Right Direction

Biocon Ltd (BIOS IN) divested 5.4% stake in Syngene International Ltd (SYNG IN) and raised INR12.2B. The proceed will be used to finance Biocon’s acquisition of biologics business of Viatris.
Biocon is still working on the equity-debt split of Viatris deal, and a final decision on the same will be announced soon.
The strategic deal with Viatris will transform Biocon Biologics into a leading vertically integrated global biologics company, with one of the broadest and deepest commercialized biosimilars portfolio in the industry.

GULF : Expansion in the US Plant

By Pi Research

We maintain the BUY call while raising the TP by 7%to Bt62.0 on the back of SOTP adjustment to factor in acquisition of new 588MWe Jackson Generation power project (US)
49% holding in the US project will add Bt4 in SOTP The company informs the SET about acquiring 49% stake in 1,200 MW (588MWe) Gas power plant “Jackson Generation”
The company supplies electricity to the PJM (Pennsylvania, New Jersey, and Maryland) which is a regional transmission organization (RTO) that coordinates the movement of wholesale electricity in the US

Modern Dental Group (3600.HK) 22H1- Share Price May Remain Tepid Due to Lack of Core Competitiveness

By Xinyao (Criss) Wang

Due to better-than-expected VBP results, we saw a decent rally of MDG’s share price last Friday. However, all the medical products that are covered by VBP begin to lose logic.
Backwardness in R&D is a bottleneck restricting MDG’s future growth. MDG is more like a manufacturing/processing plant relying on labor dividends than a technology company with high product added value.
Multiple risks (e.g.pandemic, depreciation of exchange rate against US dollar, economic downturn, etc.) will add more uncertainties to MDG’s 2022 performance. MDG’s share price could remain tepid after temporary rally.

Conch Venture (586 HK): An Overlooked Value Play

By Osbert Tang, CFA

China Conch Venture Holdings (586 HK) is now at negative stub value, the low-end since 2020. This is despite a 16.4% growth in 1H22 core earnings to Rmb542m.
The company’s waste-to-energy (WTE) capacity will increase by 25% in FY23 and its internal target calls for an earnings CAGR of 33% between FY21 and FY25 for WTE segment.
We should not underestimate the potential from new business initiatives including cathode and anode materials and lithium battery recycling. They have good medium-to-long term exposure to China’s new energy industry.

Giant Biogene (巨子生物) Pre-IPO: Visits to Beauty Stores and Online Apps

Giant Biogene (GB) has a large sales network of physical distributors.
We believe GB’s large capacity packages have price advantage over domestic competitors.
But we also believe GB should strengthen or outsource its studio for live broadcasting sales.

ARLO: Penalized for Growth

By Hamed Khorsand

ARLO deciding to spend more on brand awareness this year has given reason for some investors to move to the sidelines
ARLO’s second quarter results were better than expected and we believe the third quarter has trended better than expected as well
The timing of switching CFOs was a surprise since five months prior ARLO had established its ad spending strategy.

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Sep 14

Daily Brief Equity Bottom-Up: Shiseido: Drunk Elephant Seems an $845m Write-Off and more

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

In today’s briefing:

Shiseido: Drunk Elephant Seems an $845m Write-Off
NEC (6701) | Even Higher Conviction
Netdragon Websoft – Ms Tang Yu Becomes World’s First Virtual Humanoid Robot CEO
Taiwan Dual-Listings – TSMC Premium Almost Wiped Out, UMC & ChipMOS ADRs Trading at Discounts
Intel Vs. TSMC/UMC Long/Short Monitor: Upcoming Intel Conference Catalyst
Tencent: Excluded Again from New Game Approvals as NetEase Makes into the Approved List
Genscript Biotech (1548.HK) 22H1 – The Outlook and the Risks Behind
Citigroup: Cautious Buy Rating Assigned
Manolete Partners: When A Profit Warning Is A Good Thing

Shiseido: Drunk Elephant Seems an $845m Write-Off

By Shifara Samsudeen, ACMA, CGMA

Shiseido’s acquisition of Drunk Elephant for a valuation of $845m was perceived positively, hoping that Shiseido could use Drunk Elephant’s digital marketing expertise to restructure its North America business.
Rather than emulating Drunk Elephant like digital marketing to the company’s other brands, Shiseido has been trying to accommodate all its brands including Drunk Elephant into a hybrid marketing strategy.
This seems to have killed Drunk Elephant’s appeal to its customers. Thus, Shiseido Company (4911 JP) could be facing a massive $845m write-off over the next few years.

NEC (6701) | Even Higher Conviction

By Mark Chadwick

NEC’s buyback announcement sends a clear message that the MTP is on track and management feel the stock is undervalued
The recent IR DAY increased our conviction in the financial model. We were impressed with the improving pipeline of Open RAN customers
The stock is significantly undervalued, trading below book value, with improving ROE

Netdragon Websoft – Ms Tang Yu Becomes World’s First Virtual Humanoid Robot CEO

By Douglas Kim

NetDragon Websoft announced that it has appointed Ms. Tang Wu (a virtual humanoid robot powered by AI) as its new CEO which would be the first ever in the world.
The company’s education revenue increased by 71.2% YoY to reach 2.4 billion RMB in 1H 2022. Profitability of the edtech business is also improving.
Despite the company’s lower valuation multiples than its peers combined with catalysts including improving edtech business, we are cautious on its shares mainly due to the overall market related risks.

Taiwan Dual-Listings – TSMC Premium Almost Wiped Out, UMC & ChipMOS ADRs Trading at Discounts

By Vincent Fernando, CFA

Taiwan ADR premiums vs. their local shares have generally decreased across the board.
Is TSMC’s high ADR premium a thing of the past?
UMC and ChipMOS ADRs are both trading at historically rare discounts to their Taiwan shares.

Intel Vs. TSMC/UMC Long/Short Monitor: Upcoming Intel Conference Catalyst

By Vincent Fernando, CFA

Intel Corp (INTC US)’s upcoming Innovation conference is a potential catalyst for the stock, given we believe there is likelihood of positive product announcements.
Taiwan Semiconductor (TSMC) (2330 TT) and United Microelectronics Corp (2303 TT) have already released their August sales figures at the start of September, with next release not until early October.
Newsflow thus could be in Intel’s favor through the end of the month. The stock is trading at an all-time low PBV.

Tencent: Excluded Again from New Game Approvals as NetEase Makes into the Approved List

China’s gaming regulator granted publishing licenses to 73 online games on Tuesday, including one for NetEase Inc (NTES US) . However, Tencent (700 HK) was excluded for the fifth time.
Though the 9-month long new game approval freeze was lifted in April, it has been more than a year since Tencent received approval for a new title.
Tencent’s online game revenue declined YoY for two consecutive quarters and we expect online game revenue to decline further in 3Q2022E.

Genscript Biotech (1548.HK) 22H1 – The Outlook and the Risks Behind

By Xinyao (Criss) Wang

Genscript’s four business segments are the horizontal and vertical extension based on gene synthesis technology. There is also synergy between Genscript and its subsidiaries, which can promote each other’s development.
If only from the business level, GenScript is a worthy target for investment. It has the exponential growth potential in valuation and could reach a new high in the future.
However, our biggest worry lies in the “black swans events” . We don’t know what “new surprises” GenScript will bring us in the future.

Citigroup: Cautious Buy Rating Assigned

By Pearl Gray Equity and Research

Citi’s Basel III framework is safe as houses, we urge investors to remain coy as systemic risk remains high due to volatile economic and geopolitical features.
The firm’s operating cash flow is robust and covers an attractive 4.03% dividend yield soundly, we urged investors to stay coy.

Manolete Partners: When A Profit Warning Is A Good Thing

By James Emanuel

Manolete Partners issued a profit warning on Friday 9th September 2022.
Share price dipped over 15% after a market over-reaction that resulted in the share price dipping over 15%.
This is a wonderful buying opportunity, according to the article.

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Sep 12

Daily Brief Equity Bottom-Up: Nikon (7731) | Snapping up a 3D Printing World Leader and more

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

In today’s briefing:

Nikon (7731) | Snapping up a 3D Printing World Leader
Incannex Healthcare (IHL AU): Attractive Idea Backed by Niche Focus on Cannabinoid Pharmaceuticals
Breakthrough Battery Innovation
China Internet Weekly (12Aug2022): Tencent, JD.com, Meituan, NetEase, Inkeverse

Nikon (7731) | Snapping up a 3D Printing World Leader

By Mark Chadwick

We believe the market may have missed the important acquisition of 3D printing firm, SLM Solutions
The 3D printing market is expected to grow rapidly driven by industrial applications that require accurate products and rapid time to market
We believe the acquisition is a good fit for Nikon and that the realization of synergies could see SLM making a meaningful profit contribution

Incannex Healthcare (IHL AU): Attractive Idea Backed by Niche Focus on Cannabinoid Pharmaceuticals

Incannex Healthcare (IHL AU) has a differentiated product portfolio, addressing unmet global medical needs. With cash balance of A$37.5 million, Incannex is well-resourced to fund its activities for ~2.5 years.
Recently completed acquisition of APIRx Pharmaceuticals has strategically expanded intellectual property portfolio to 28 clinical programs, the world’s largest portfolio of patented medicinal cannabinoid drug formulations and psychedelic treatment protocols.
The combined annual global market size of the targeted indications is over $420 billion. The company’s strategy of combining cannabinoids with FDA-approved generic drugs calls for shorter regulatory pathway.

Breakthrough Battery Innovation

By subSPAC

For those unfamiliar, Battery Maker Enovix has developed the next generation of Lithium-ion cells that powers everything from Smartphones to Electric Vehicles.
The company’s 3D silicon Cells use 100% active silicon anodes, compared to graphite anodes that are used by most Li-on batteries manufactured today.
Battery makers have stayed away from Silicon anodes due to several technical challenges, including battery swelling and short usable lifespan.

China Internet Weekly (12Aug2022): Tencent, JD.com, Meituan, NetEase, Inkeverse

By Shifara Samsudeen, ACMA, CGMA

Tencent invested more in Ubisoft Entertainment, a French game developer.
The monthly active users of local life recovered in China in June and July.
NetEase will close Music Street, the social networking-oriented karaoke app.

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Sep 10

Daily Brief Equity Bottom-Up: Bilibili: Profitability Sinks and Top Line Growth to Further Drop with Cost Controls and more

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

In today’s briefing:

Bilibili: Profitability Sinks and Top Line Growth to Further Drop with Cost Controls
Fushan Energy: Back to Interesting Levels
Lupin Ltd (LPC IN): Muted Q1FY23 Results as The US Sales Dipped Significantly
Indonesian Banks 2Q22 Screener; Stick with Bank Mandiri, and Negara Is Our Value Pick
GTX: Turbocharged Free Cash Flow

Bilibili: Profitability Sinks and Top Line Growth to Further Drop with Cost Controls

Bilibili reported 2Q2022 results yesterday. Revenue grew 9.2% YoY to RMB4.91bn (in-line with consensus), however, it declined 2.9% YoY sequentially driven by YoY decrease in revenue from mobile games.
Operating losses for the quarter further widened to RMB2.2bn (vs consensus RMB2.1bn) which accounted for 44.6% of revenues compared to 33.8% in the same period a year ago.
Bilibili Inc (BILI US) has taken several measure to improve its deteriorating profitability including headcount reduction, S&M cost cuts and close down of unprofitable businesses.

Fushan Energy: Back to Interesting Levels

Shougang Fushan Resources (639 HK) is back to interesting levels after a correction in HK/China and now trades at 4.5x PE/1.3x EV-EBITDA FY22e and a dividend yield of 17%.
With >50% of the market capitalization in cash (accounting for the dividend liability), there is an excellent margin of safety in the name.
A further correction of coking coal prices by 20% from these levels to 1700-1800 RMB/ton would still have the stock trading at a >10% dividend yield.

Lupin Ltd (LPC IN): Muted Q1FY23 Results as The US Sales Dipped Significantly

Lupin Ltd (LPC IN) reported muted Q1FY23 performance, with revenue declining 15% y/y and 7% q/q to INR36 billion. Revenue from North America is down 24% y/y and 29% q/q.
Price erosion in the U.S. coupled with shelf stock adjustment on the higher trade inventory are creating a dent to the quarterly numbers.
We would like to see a sustainable revival in the company’s North America revenue performance and margin improvement, before taking any position in the stock.

Indonesian Banks 2Q22 Screener; Stick with Bank Mandiri, and Negara Is Our Value Pick

By Victor Galliano

In 2Q22, the six Indonesian banks retain their strong capital adequacy ratios, healthy credit quality and good NPL coverage; yet we see select credit quality headwinds, especially in MSME credit
We maintain our positive view on Bank Mandiri, with its attractive pre-provision profitability and healthy cost of risk, whilst trading on attractive multiples; we prefer Bank Negara to Bank Rakyat
We await stronger signals from Bank Permata for its “turn around” potential, especially if management can improve credit quality, and keep lowering its cost of risk to boost returns

GTX: Turbocharged Free Cash Flow

By Hamed Khorsand

Garrett Motion (GTX) has elected to pay its quarterly dividend on its Series A Preferred shares in cash in lieu of stock.
We believe this is a signal to investors on how the business has performed in the Q3 after GTX affirmed its full year adjusted free cash flow guidance in August
The use of cash removes the compounding effect through issuing more shares, which would nullify the share buyback program GTX has in place

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Sep 09

Daily Brief Equity Bottom-Up: Matrimony.com (MATRIM IN) | Poor Quality Growth & Perplexing Operations and more

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

In today’s briefing:

Matrimony.com (MATRIM IN) | Poor Quality Growth & Perplexing Operations
People’s Insurance (PICC) (1339.HK) – The Rally (If Any) May Not Last Despite Undervalued
Elan Microelectronics Event: Index Removal Selling Could Exacerbate Price Divergence
Binjiang H1 2022: Management Soundbites
Reneging on Job Offers Underscores Sea’s Retrenchment
Toridoll – Bull Run Can Stretch Much Longer
Bilibili (9626 HK): 2Q22, Game Fell, But to Reduce Expense
Honda Sets Up New Venture to Procure Batteries From CATL
Dongfang Electric (1072 HK): At Full Throttle
Dr. Reddy’s Laboratories (DRRD IN): India Business Still the Brightest Spot; Slow Recovery in the US

Matrimony.com (MATRIM IN) | Poor Quality Growth & Perplexing Operations

By Pranav Bhavsar

Matrimony.com (MATRIM IN) is a leading player with the highest market share in the Indian matchmaking market.
A close examination of the marketing expenses and subscriber additions reveals poor quality growth.
Employee remuneration is perplexing and so is the decision that leads to a reduction in PP&E.

People’s Insurance (PICC) (1339.HK) – The Rally (If Any) May Not Last Despite Undervalued

By Xinyao (Criss) Wang

People’s Insurance (PICC) (1339 HK)’s 2022H1 performance outpaced the industry peers, mainly driven by the improved performance of motor vehicle insurance business and non-vehicle insurance business.
While non-life insurance business is the foundation/main driver of growth,life insurance business is the drag on performance, the successful transformation of which is an important factor to drive up valuation.
PICC’s is undervalued. The major catalyst could be the upcoming 20th National Congress, expecting some rally during this period. Due to unfriendly macro, the rally may not last long.

Elan Microelectronics Event: Index Removal Selling Could Exacerbate Price Divergence

By Vincent Fernando, CFA

Elan Microelectronics (2458 TT) will be removed from the FTSE Taiwan Mid Cap 100 Index on September 16th. As a result, it could see 12+ days of volume of selling.
We had a call with management. Guidance and product performance implies the company has relative strength vs. its end-market demand weakness.
The stock has already underperformed notebook-related peers by a wide margin, hence a further underperformance caused by passive selling could open up a rebound opportunity,

Binjiang H1 2022: Management Soundbites

Binjiang Service Group (3316 HK) presents a unique opportunity for investment in the property management space trading at 11.6x/9.4x FY22/23 PE, with a dividend yield of 5.2% FY22e (60% payout).
The company has >35% of its market capitalization in cash, and the parent so far has been a relatively safer investment option compared to the rest in the property space.
If the company is willing to continue paying >60%, we believe it can rerate to multiples comparable with SOEs of 16-20x PE.

Reneging on Job Offers Underscores Sea’s Retrenchment

By Caixin Global

Southeast Asian conglomerate Sea Ltd. has pumped the brakes on its e-commerce unit Shopee’s expansion, resorting to measures such as reneging on jobs offers to Chinese employees at the last minute.
The strategy shift came as the Singaporean company backed by Chinese tech giant Tencent Holdings Ltd. tries to slash costs to shore up its bottom line amid widening losses.
The red ink has followed several years of aggressive expansion by Shopee, which has piled pressure on its balance sheet this year, just as challenges raising money abroad mounted.

Toridoll – Bull Run Can Stretch Much Longer

TORIDOLL Holdings Corporation (3397 JP) is trading near the historical peak of ¥3,000 per share which translates to a consensus FY+2 EV/OP of 30.9x.
We think the stock has more room to run as its OP margin is expected to reach double digits for the first time since FY13.
Meanwhile, there could be an upside to FY23 guidance as it is currently based on an exchange rate of ¥116 per $1.0.

Bilibili (9626 HK): 2Q22, Game Fell, But to Reduce Expense

In 2Q22, the revenue growth rate was lower than we expected, especially in the game business.
We believe the May layoff will reduce operating expenses in following quarters.
We set an upside of 8.3% and a price target of HK$197.

Honda Sets Up New Venture to Procure Batteries From CATL

By Caixin Global

Honda Motor Co. Ltd.’s Chinese unit will set up a new joint venture with two Chinese partners to procure electric vehicle batteries from battery giant Contemporary Amperex Technology Co. Ltd. (CATL)
The joint venture will be 50% owned by Honda Motor (China) Investment Co. Ltd. and 25% each by Dongfeng Motor Corp. Ltd. and Guangzhou Automobile Group Co. Ltd. (GAC)
Honda’s joint ventures with Dongfeng and Guangzhou Automobile already use CATL batteries in electric cars made in China

Dongfang Electric (1072 HK): At Full Throttle

By Osbert Tang, CFA

Strong new orders in 2H22 and FY23 are the drivers for Dongfang Electric (1072 HK) after it posted a 31.6% earnings growth and new orders of Rmb36.7bn in 1H22.
Demand outlook for its major products including coal-fired, gas turbine, renewable, pumped storage and hydrogen energy are all very encouraging.
We estimate order backlog will equal to 1.6x FY22F revenue by year-end. Despite solid outperformance, DEC is still cheap at 12.6x and 9.8x PERs for FY22 and FY23.

Dr. Reddy’s Laboratories (DRRD IN): India Business Still the Brightest Spot; Slow Recovery in the US

Dr. Reddy’s Laboratories (DRRD IN) reported Q1FY23 results, with revenue growing 6% and 108% y/y, mainly driven by a 26% y/y growth in India business.
Despite price erosion and increasing competition in some of the key products, North America revenue grew 2% y/y, driven by launch of new products and favorable forex rates.
Bottom line got benefitted from one-off items including settlement income and non-core brand divestment proceeds. Net profit surged 108% y/y.

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Sep 08

Daily Brief Equity Bottom-Up: Sea Ltd – Just About Doomed and more

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

In today’s briefing:

Sea Ltd – Just About Doomed
Evolution Gaming: The World’s Largest Casino, Which You Probably Never Heard Of
PureTech Health (PRTC LN): Continued Value Unlocking; Multiple Catalysts Are Pushing Up Stock Price
Salesforce.com Inc: Code Builder Update & Other Drivers
Capri Holdings: Digital Momentum & Other Drivers
Breaking Estimate Short Candidates: Upstart, Cerence, Zillow, Trex
Campbell Soup Inc: Online Sales As A Key Driver & Other Factors Driving Growth

Sea Ltd – Just About Doomed

It was reported yesterday that Sea Ltd (SE US)‘s e-commerce arm “Shopee” has begun rescinding job offers.
Having burnt around $2.0bn during the first six months of 2022 pursuing e-commerce and fintech growth aspirations, this seems like an extreme measure to ensure the company’s survival.
With the gaming profitability fading, we are starting to think that even the extreme cost-cutting could be insufficient to overturn Sea’s e-commerce and fintech cash burn.

Evolution Gaming: The World’s Largest Casino, Which You Probably Never Heard Of

By Steven Chen

Although lesser-known, this Swedish company dominates one of the most lucrative segments of the global casino industry.
In our view, it is probably the only investable casino company, and despite its size, still has a massive growth runway ahead.
Our DCF model implies a 15%-20% total return for the company’s long-term shareholders.

PureTech Health (PRTC LN): Continued Value Unlocking; Multiple Catalysts Are Pushing Up Stock Price