Equity Bottom-Up

By Shifara Samsudeen, ACMA, CGMA

We believe KEPCO is well-positioned within the utility sector to benefit from growing support for nuclear restarts among policy makers and the general public
Given its substantial nuclear power generating capacity, KEPCO will likely see best-in-class balance sheet and cash flow-generation over the next several years.
This puts KEPCO well ahead of peers in terms of both environmental credentials and attractive shareholder returns.

IQiyi: Improving Profitability but Headwinds Continue

IQIYI Inc (IQ US) reported 2Q2022 earnings last week. Revenue decreased 12.5% YoY to RMB6.66bn (vs consensus RMB6.67bn) and reported an OP of RMB125.8m (vs consensus RMB30.4m).
The company also announced a US$500m private placement of convertible notes with PAG (PAG HK) and the transaction is expected to close in 4Q2022.
The company also has entered into a content licensing agreement with Douyin which will likely bring in high-margin business for content distribution segment.

SK Bioscience (302440 KS): Murky Outlook On Weak Vaccine Demand And Flooding Supply

SK Bioscience (302440 KS) received approval for Korea’s first locally-developed COVID-19 vaccine, SKYCovione. The company is seeking European approval and plans to apply for emergency use listing to the WHO.
The company is a late entrant in the overcrowded domestic vaccine market. Currently, six vaccines are approved for use in South Korea. Moreover, demand outlook is uncertain beyond 2022.
Recently, the company has dropped a multinational phase 3 trial of P2-VP8, trivalent rotavirus vaccine. Among the non-COVID pipeline, P2-VP8 was in the most advanced stage of clinical trial.

ZTO Express (2057 HK/ZTO US): Quality Speaks for Itself

The Aug China Express Development Index points to further industry recovery; and as the leader with 23% (+2pp YoY) market share, ZTO Express (2057 HK) should ride on the uptrend.
Sustained volume outperformance, upside on pricing and excellent cost control capability are drivers in 2H22. We are also comfortable with its solid financial position.
ZTO Express has above-average earnings quality and enjoys benefits from industry consolidation. Its on par valuation with the industry makes the stock appealing.

Sirnaomics (2257.HK)-Unverified Technology and Uncertainties Can Lead to Big Swings in Share Price

The current two mainstream delivery platforms such as LNP delivery platform and GalNAc RNAi platform have been verified and recognized, with products using these platforms successfully launched on the market.
Sirnaomics has developed its own differentiated delivery platforms, but the druggability has never been verified in trials, like a blind box. They will not be valuable until they are proven.
Sirnaomics has cashflow pressure and is uncertain if it can survive “this winter”. It’s also difficult for Sirnaomics to find suitable valuation anchor in HKEX. Share price may fluctuate largely.

UI: Revenue Rebounds, Target to $375

By Hamed Khorsand

Ubiquiti showcased a rebound in its business in the June 2022 quarter with revenue rising by nearly 24 percent from the March 2022 quarter
Ubiquiti reported fiscal fourth quarter revenue of $443.1 million compared to our estimate of $387.0 million
The increase in revenue during the June quarter suggests demand remains healthy enough to put Ubiquiti back on pace for potentially exceeding $500 million in revenue in a single quarter

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Sep 06

Daily Brief Equity Bottom-Up: StubWorld: Singtel Coming Up “Cheap” As Divestments Continue Apace and more

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

In today’s briefing:

StubWorld: Singtel Coming Up “Cheap” As Divestments Continue Apace
China Internet Weekly (5Aug2022): Tencent, NetEase, S.F., Baidu, IQ
Fast Retailing – Downside Risk Mounts as Xinjiang Cotton Controversy Takes Centre Stage Yet Again
Los Andes Copper: The Copper M&A Wave Has Started + Chilean Population Rejects New Constitution
Zydus Lifesciences Ltd (ZYDUSLIF IN): Q1FY23 Results Review- Showing Early Sign of Improvement in US
Beneunder (蕉下) Pre-IPO: Popular Sun-Protection Brand, But in Competition with Apparel Producers
Starbucks Corporation: CEO Change
Walmart Inc: Acquisition of Volt & Other Key Drivers
Skechers USA: Collaboration With Tokidoki & Other Drivers
Zoom Video Communication: The Solvvy Acquisition & Other Drivers

StubWorld: Singtel Coming Up “Cheap” As Divestments Continue Apace

By David Blennerhassett

S&P revises its outlook for Singtel (ST SP) following a series of divestments.
Preceding my comments on Singtel are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

China Internet Weekly (5Aug2022): Tencent, NetEase, S.F., Baidu, IQ

NetEase will start its first game studio in Europe after setting up two studios in the U.S.
Tencent and Sony invested minor shareholding in a Japanese game developer.
In 1H22, S.F. Holding’s revenue grew dramatically and its margins improved significantly.

Fast Retailing – Downside Risk Mounts as Xinjiang Cotton Controversy Takes Centre Stage Yet Again

Last week, The UNHR Office published a carefully worded report saying that the actions of the Chinese Government in Xinjiang “may constitute international crimes, in particular, crimes against humanity”.
Meanwhile, apparel brands in the US seem to be exploiting loopholes in the Uygur Forced Labour Prevention Act with Xinjiang’s clothing exports rising to a 2-year high in July 2022.
With pressure mounting on US customs to increase oversight, Fast Retailing (9983 JP)’s newest growth pillar (the US) could be about to meet major setbacks in the near term.

Los Andes Copper: The Copper M&A Wave Has Started + Chilean Population Rejects New Constitution

By Nicolas Van Broekhoven

Over the last two months, the two largest commodity behemoths have been trying to acquire copper deposits on the cheap. Both have been rebuffed.
Rio Tinto Ltd (RIO AU) has raised its original 34 CAD bid for Turquoise Hill Resources (TRQ CN) twice, but large minority shareholders have voiced opposition.
BHP Group Ltd (BHP AU) has offered to buy OZ Minerals Ltd (OZL AU) but has equally been rebuffed by management. Let the copper M&A Wave begin!

Zydus Lifesciences Ltd (ZYDUSLIF IN): Q1FY23 Results Review- Showing Early Sign of Improvement in US

Zydus Lifesciences Ltd (ZYDUSLIF IN) reported stable Q1FY23 results, with its U.S. business witnessing healthy rebound supported by volume share gain in base portfolio and new product launches.
Excluding COVID-related products, generics portfolio, and divested products, India branded prescription business grew 9% y/y. India consumer wellness business rebounded with 18% y/y revenue growth.
Zydus aims to grow across all our key businesses in FY23. Through cost control and improved efficiencies across the value chain, Zydus aspires to achieve 20%+ EBITDA margin for FY23.

Beneunder (蕉下) Pre-IPO: Popular Sun-Protection Brand, But in Competition with Apparel Producers

Beneunder has large sales volume on Chinese e-commerce platforms and has a large physical store chain.
However, outdoor brands and apparel brands compete with Beneunder and some brands’ prices are close to Beneunder.
Beneunder has to keep physical stores and control online advertising budget.

Starbucks Corporation: CEO Change

Starbucks has recently been in the news for its big CEO announcement with Laxman Narasimhan taking over the reins of the company from Howard Schultz.
In this quarter, Starbucks continued to extend its coffee leadership, bringing and innovating further elements of premiumization and customization to the total coffee category, which includes plat-based, handcrafted, and cold coffee beverages.
The demand for premium tailored cold coffee all over the world is enormous and this is bound to help the company.

Walmart Inc: Acquisition of Volt & Other Key Drivers

Like most other retailers, Walmart faced the impact of food inflation which continued to increase in the quarter.
Delivery and pickup in the quarter are quite strong, and growth has been improving on the website Walmart.com with the inclusion of the marketplace.
We provide the stock of Walmart with a ‘Hold’ rating with a revision in the target price.

Skechers USA: Collaboration With Tokidoki & Other Drivers

Skechers had a solid quarter and surpassed Wall Street expectations in terms of revenues with strong growth that was distributed geographically and is evident in both its Direct-to-consumer and wholesale segments in spite of Covid-19 headwinds in various markets.
During the quarter, the wholesale business of the U.S. increased because of improvements in categories and genders, including accessory and apparel lines.
In the quarter, Skechers opened 46 stores owned by the company, which included 15 large box shores in the US.

Zoom Video Communication: The Solvvy Acquisition & Other Drivers

Zoom had a mixed result with below par revenues though it did manage to post an earnings beat.
Though the online business had a low number of new subscriptions, renewals online improved which was a silver lining.
The platform strategy of Zoom is performing quite well, with Zoom Phone and Zoom Rooms being the vital components.

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Sep 05

Daily Brief Equity Bottom-Up: Kyocera (6971 JP): Strong Performance Unlikely to Last and more

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

In today’s briefing:

Kyocera (6971 JP): Strong Performance Unlikely to Last
Taiwan Tech Weekly: More Nvidia Issues, Broadcom Surprises, Yulon Soars
Haier Smart Home (6690 HK): A Trusted Name that Delivers
Seiko Epson (6724) | Home Printing Running Out of Ink
Polaris Group (6550 TT): An Attractive Bet With Differentiated Approach To Cancer Therapy
Cloudflare ($NET)
Beijing Tongrentang (600085.CH)- Neither Brand Nor Angong Niuhuang Pills Can Secure Future Prospects

Kyocera (6971 JP): Strong Performance Unlikely to Last

By Scott Foster

It is hard to see how Kyocera can avoid a significant slowdown in sales and earnings growth given the weakness in electronics markets and the overall economy.
R&D and capital spending continue to rise, putting pressure on margins and offsetting gains from the weak yen.
Valuations are not compelling. Watch out as the share price drops back from its recent high.

Taiwan Tech Weekly: More Nvidia Issues, Broadcom Surprises, Yulon Soars

US bans high end chip sales to China, Nvidia shares sink in reaction, as do Nvida suppliers and the overall sector.
Broadcom’s fiscal Q3 results beat expectations and its optimistic outlook bucks the industry trend.
Yulon motors soars 9%; its JV with Hon Hai has received 10,000 EV pre-orders in two days.

Haier Smart Home (6690 HK): A Trusted Name that Delivers

Driven by recovery of Casarte after lockdown removed and premiumisation of product and pricing, Haier Smart Home (6690 HK) should see sustained healthy earnings growth in 2H22.
We expect room to improve gross margin sequentially as cost pressure subsides in 2H22. Meanwhile, overseas markets still present good expansion opportunities.
Premium valuations are justified by its brand strength, global presence and strong execution capability. Healthy 1H22 should clear market’s concerns on impact of weak property market.

Seiko Epson (6724) | Home Printing Running Out of Ink

Seiko Epson has been one of the better performing tech stocks during 2022
We believe that the stock benefited from COVID-related stay-at-home demand for printers
We now turn Bearish as the Covid boost should dissipate, while the PC market has taken a turn for the worse

Polaris Group (6550 TT): An Attractive Bet With Differentiated Approach To Cancer Therapy

Polaris Group (6550 TT) is developing novel anti-cancer therapies, with its lead drug candidate, Pegargiminase (ADI‑PEG 20) in late-stage clinical development for a wide range of cancers.
The various cancers targeted by Pegargiminase combination therapy have combined annual new cases of more than 19 million. The treatment market size is estimated to reach $20 billion in 2025.
Polaris aims to get at least two biologics license applications (BLA) approvals by 2025. With cash balance of NT$7.7 billion, the company is well-resourced to fund its ongoing clinical activities.

Cloudflare ($NET)

By MT Capital

Over the last few weeks I have been picking away at the book “The Master and His Emissary”.
Within, Ian McGilchrist analyzes the differences between the two hemispheres of the brain (the right and the left), explaining how their inherent functionalities may drive the contradictions we all feel in human existence.
Without going into too much depth here (I encourage you to read his work instead), I found myself struck by the idea of The Belief in One Truth.

Beijing Tongrentang (600085.CH)- Neither Brand Nor Angong Niuhuang Pills Can Secure Future Prospects

2018 was a watershed for Tongrentang. After the incident of using expired honey was exposed and the corruption scandal afterwards, Tongrentang’s performance declined significantly and didn’t recover until 2021.
Angong Niuhuang Pill is the major performance driver and also Tongrentang’s core product. Due to the economic downturn, the price increase of Angong Niuhuang Pills could lead to inventory overstocking.
The high growth in 2021 may not be sustained. We lowered our forecast for 2022. Without core competitiveness and high moat, we are conservative about Tongrentang’s long-term outlook.

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Sep 04

Daily Brief Equity Bottom-Up: Meidong: Insights from Call with the Management for H1 2022 and more

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

In today’s briefing:

Meidong: Insights from Call with the Management for H1 2022
Applied Materials Inc: The Picosun Oy Acquisition & Other Drivers
82: Quick Look: Triumph Bancorp (TBK)
Norton LifeLock Inc: Evolution of Norton 360
Dell Technologies: New Additions To Storage Portfolio & Other Drivers
Cisco Systems Inc: Financial Forecasts, DCF & Comparables Valuation, ESG & Other Risks (09/22)
Macy’s Inc: Survival In A Challenging Macro Environment & Other Factors

Meidong: Insights from Call with the Management for H1 2022

By Sameer Taneja

China MeiDong Auto (1268 HK) presents an excellent investment opportunity, trading at 13.3x/8.1x FY22/23e, post street estimate revisions downwards with a dividend yield of 6.0%/10% (assuming an 80% payout).
China MeiDong Auto (1268 HK) ‘s integration of Starchase is progressing better than we expected, with metrics on inventory dramatically improving. We believe the management will focus on aftersales now.
The company will join the EV bandwagon by collaborating on aftersales with players having operational (not financial) difficulties performing this service, presenting a good opportunity for the company.

Applied Materials Inc: The Picosun Oy Acquisition & Other Drivers

Applied Materials saw a decent quarter as overall demand remains healthy which enabled the company to deliver an all-around beat.
In the quarter supply chain improved incrementally.
Among major updates, Applied Materials carried out the acquisition of Picosun Oy, a semiconductor equipment company based in Finland.

82: Quick Look: Triumph Bancorp (TBK)

By Watchlist Investing

A conversation with a new friend led me to take a look at Triumph Bancorp.
This friend knows the leadership of TBK and urged me to take a look. This quick look might turn into full Watchlist Investing Deep Dive.
Right now it’s more of a way for me to think through my first impressions of TBK and its business.

Norton LifeLock Inc: Evolution of Norton 360

Norton LifeLock’s business has been adversely affected by the volatile forex environment and various macroeconomic pressures.
The customer unit retention stays stable, and it continues to drive improvements to main cohorts with the inclusion of its newer customers.
It has made inroads from its latest Norton Identity Advisory Plus launch in the UK market.

Dell Technologies: New Additions To Storage Portfolio & Other Drivers

Dell Technologies’ stock price has crashed after the company indicated a weak sectoral outlook for PC sales.
The company observed ISG demand pushing throughout the quarter even though it was still expanding slowly.
Among new launches, Dell Technologies has also introduced software-driven modern storage solutions throughout its storage portfolio to promote improved intelligence, automation, cyber resilience, and multi-cloud flexibility.

Cisco Systems Inc: Financial Forecasts, DCF & Comparables Valuation, ESG & Other Risks (09/22)

Cisco Systems had quite a strong quarter and was able to exceed Wall Street expectation on all counts despite operating in an incredibly dynamic environment.
The company continues to view strong customer adoption of its subscriptions and software driven by its targeted investments.
We provide the stock of Cisco Systems with a ‘Hold’ rating with a revision in the target price.

Macy’s Inc: Survival In A Challenging Macro Environment & Other Factors

Despite the increasingly difficult consumer environment, Macy’s delivered a decent quarterly result which also happened to be an all-around beat.
Its $5.6 billion in quarterly net sales exceeded its projections, despite a 1.6% decline in comparable owned plus licenced sales.
Elevated inventory levels within particular categories were caused by the high industry-wide inventory levels and the decline in consumer discretionary spending.

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Sep 03

Daily Brief Equity Bottom-Up: Softbank Group – ARM Suing a Key Customer Is Not the Summer News We Expected and more

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

In today’s briefing:

Softbank Group – ARM Suing a Key Customer Is Not the Summer News We Expected
Mitsubishi Heavy Industries (7011) | Green Transition Bonds
Electronic Arts Inc: Market Position & Evolution & Other Drivers
Home Depot: B2B Platform Enhancements For Pros & Other Drivers
Declining Business Short Candidates: Corsair Gaming, Sinclair Broadcasting, Overstock, Ziff Davis
Microchip Technology: Excellent Base of Intangibles & Other Drivers
Lowe’s Companies: Major Drivers

Softbank Group – ARM Suing a Key Customer Is Not the Summer News We Expected

By Kirk Boodry

ARM is suing Qualcomm for breach of license and trademark infringement for its acquisition of (fellow ARM licensee) Nuvia last year
This is surprising on a number of levels as having Qualcomm inside the tent is better for sales, market share and its neutral-player reputation
ARM’s valuation benefits from perceptions of an expanding addressable market so this is not a good look. Meanwhile, Softbank’s discount to NAV is widening again as tech valuations fall

Mitsubishi Heavy Industries (7011) | Green Transition Bonds

MHI has a roadmap for becoming carbon neutral by 2040. The transition to a decarbonized society will be funded by green/transition bonds
MHI has issued its first green/transition bond amounting to 10 billion yen
We remain bullish on MHI and believe it is a key beneficiary of decarbonization trends in Japan

Electronic Arts Inc: Market Position & Evolution & Other Drivers

Electronic Arts’ solid results were driven by its extensive IP portfolio and expanding network of players that are actively involved in its live services.
These distinctive structural advantages helped the company deliver an all-around beat despite the fact that it navigates the macro environment’s volatility.
Their business’s durability and longevity are still fueled by their collection of sports and owned IP properties.

Home Depot: B2B Platform Enhancements For Pros & Other Drivers

Home Depot had a surprisingly good quarter unlike its rival, Lowe’s and delivered and all-around beat.
All of the merchandizing departments of Home Depot posted positive comps; hardware, paint, millwork, plumbing, and building materials were all above average.
Home Depot launched new capabilities on its B2B website to enhance the interconnected quoting and shopping business for its Pros.

Declining Business Short Candidates: Corsair Gaming, Sinclair Broadcasting, Overstock, Ziff Davis

By Eric Fernandez, CFA

Sales declines, margin compression, cuts in SG&A and cuts in guidance and estimates feature in our Declining Businesses model.
Declining business shorts tend to be lower beta, have longer time horizons, and tend to produce steadier (although slower) short returns.
Today we are flagging Corsair Gaming, Sinclair Broadcasting, Overstock, Ziff Davis.

Microchip Technology: Excellent Base of Intangibles & Other Drivers

Microchip’s results for the quarter were solid and the company’s revenue increased by 6.5% sequentially and 25.1% annually to $1.96 billion surpassing Wall Street expectations.
The management has signed into multiyear long-term supply agreements with several significant clients, effectively granting them reserved capacity in exchange for assured purchases, often lasting five years.
We also have a dedicated analysis of the company’s Environmental, Social, and Governance (ESG) risk scores in order to evaluate the sustainability risk.

Lowe’s Companies: Major Drivers

Lowe’s had a disappointing quarter and saw a decline in its total revenues.
Pro sales remained strong for the quarter.
The trends of underlying home improvements during the quarter remained strong in the quarter, but the sales of DIY have been lower.

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Sep 02

Daily Brief Equity Bottom-Up: PC Partner: Strong 1H22 but High Uncertainty into 2H22. Downside Supported by Cash and Dividend. and more

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

In today’s briefing:

PC Partner: Strong 1H22 but High Uncertainty into 2H22. Downside Supported by Cash and Dividend.
Raccoon: Maintaining COVID Momentum
Bilibili (9626 HK): 2Q22 Preview, Still Grew Rapidly, Will Reduce Loss
Burning Rock Biotech (BNR US): Despite Q2 Results Missing Consensus Management Reiterated Guidance
China Comm Const (1800 HK): Key Takeaways from Post-1H22 Call
SCBx – Positive Strategy Development
Intel Vs. TSMC/UMC Long/Sort Monitor: Take-Aways from DB Conference & Fireside Chat
Crowdstrike FY2Q23: FY2Q23: Not Just Endpoint, Identity and SIEM Accelerating Too
PRM : Excited Fleet Expansion Plan
Sany Profit Falls 73.85% as Demand for Construction Gear Dries Up

PC Partner: Strong 1H22 but High Uncertainty into 2H22. Downside Supported by Cash and Dividend.

By Nicolas Van Broekhoven

Pc Partner reported a strong set of 1H22 results last week and held a conf call with investors this week. Importantly, management sees no impact by US/China Nvidia AI situation.
3Q22 results will be weak as old inventory is being discounted in front of the launch of RTX 40 by NVIDIA Corp (NVDA US) in early 4Q22.
Stock is unlikely to rally before more clarity on inventory situation improvement, but well supported by net cash (5.4 HKD) and high interim dividend (11.4%).

Raccoon: Maintaining COVID Momentum

While its peers in Japanese e-commerce are losing momentum, Tokyo-listed B2B e-commerce company, Raccoon Holdings, Inc. (3031 JP) continues to march forward from the COVID elevated levels.
With the advertising cost no longer growing at the same rate as before, we expect around 60% upside to Raccoon’s FY+2 consensus OP of ¥1.6bn.
This would put Raccoon on 9.5x FY+2 OP with an OP CAGR of close to 50% and seems reasonably cheap in our opinion.

Bilibili (9626 HK): 2Q22 Preview, Still Grew Rapidly, Will Reduce Loss

In 2Q22, we believe revenue will grow fast, especially for value added service and advertising.
We believe operating loss will shrink, but far from making profit.
We believe the stock has an upside of 18% for the end of 2023.

Burning Rock Biotech (BNR US): Despite Q2 Results Missing Consensus Management Reiterated Guidance

Burning Rock Biotech (BNR US) has announced Q2 results. Despite the negative impact from COVID-related restrictions in China, revenue increased 3% y/y to RMB130.8 million, driven by pharma R&D service.
Gross margin deteriorated due to unfavorable revenue mix and inventory write down. Even upon this, operating expenses grew 19%, thereby widening net loss to RMB262.1 million.
Encouraged by ongoing business volume recovery, management has reiterated full-year 2022 revenue guidance of approximately RMB620 million, indicating H2 2022 revenue of RMB354 million, which represents 29% y/y growth.

China Comm Const (1800 HK): Key Takeaways from Post-1H22 Call

China Communications Construction (1800 HK) should see positive new contract momentum in 2H22. We also expect softening in cost pressure to bring about better margin.
It is actively looking to recycle and realise the value of its assets and good progress are expected in 2H22. Such moves will narrow the currently deeply discounted 0.18x P/B.
With order backlog amounting to 4.6x of annualised 1H22 revenue, earnings prospects are well secured, making its FY22F PER of 2.6x and FY23F of 2.3x very cheap.

SCBx – Positive Strategy Development

By Daniel Tabbush

The decision to not invest in BitKrub, crypto currency exchange, is highly positive
Net interest margins are rising, with better loan yields, stable deposit costs
Stage 2 loan decline is substantial, positive for future NPL outlook

Intel Vs. TSMC/UMC Long/Sort Monitor: Take-Aways from DB Conference & Fireside Chat

By Shifara Samsudeen, ACMA, CGMA

On August 31st, Intel’s GM of Data Center & AI spoke at Deutsche Bank’s Technology Conference. On the same day, another executive spoke at Arete Research’s fireside chat.
Q2 and Q3E should be the bottom for the business, implying a rebound in Q4. Consensus estimates a similar trend; the latest comments are a confirmation of Q2 results guidance.
We see opportunities for positive news flow in September and Q3 results, as Intel could make key product announcements and guide for Q4 to be a turnaround.

Crowdstrike FY2Q23: FY2Q23: Not Just Endpoint, Identity and SIEM Accelerating Too

By Aaron Gabin

Crowdstrike continues to gobble up share, printing another strong beat and raise, with ARR now at $2B, the second fastest software company to hit that mark.
EBIT margins up 800bps YoY, TTM FCF Margins 30%…profitable growth at Scale.
13x forward P/S for a unique software asset with long runways for 40%+ growth and multi-module driven margin expansion with a 15% pullback in the past week despite earnings.

PRM : Excited Fleet Expansion Plan

By Pi Research

Maintain HOLD recommendation for PRM but raised target price to Bt6.60 (Previous TP: Bt6.30) after revised earnings up by 16-25% in 2022-23E. We are positive toward 2H22 fleet expansion plan
2Q22 core profit dropped QoQ and YoY Report 2Q22 net profit at Bt199m. Excluding FX item,core earnings would be at Bt262m (-38%YoY -2%QoQ) YoY drop was due to high base
Core revenue hit all-time high at Bt1.7bn along with fleet expansion(59 vessels as of 2Q22)and an increase in transportation volume for domestic trading business (45% of total revenue in 2Q22)

Sany Profit Falls 73.85% as Demand for Construction Gear Dries Up

By Caixin Global

Sany Heavy Industry, one of China’s largest construction machinery makers, reported a plunge in first-half profit as slower growth and Covid restrictions reduce demand for building equipment.
Revenue fell 40.9% to 39.7 billion yuan ($5.76 billion) for the first six months of 2022, the company said Tuesday. Net income plummeted 73.85% to 2.63 billion yuan.
Excavators are Sany’s core product. In the first half, the company’s excavator sales declined 35.6% year-on-year to 16.7 billion yuan

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Sep 01

Daily Brief Equity Bottom-Up: Kyocera (6971 JP) Founder Kazuo Inamori Passes – Implications for Holdings and more

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

In today’s briefing:

Kyocera (6971 JP) Founder Kazuo Inamori Passes – Implications for Holdings
GoTo: Profitability Is a Tall Order and in Need of More Cash to Fuel Growth
United Tractors (UNTR IJ) – A Commodity Proxy with Substance
Sapphire Foods (SAPPHIRE IN) | Outperformance Not Justified
Dixon Technologies: Forensic Analysis
Taiwan Tech: Market Signals in the Latest Earnings Revisions
Escorts Kubota Limited (ESCORTS IN) | Market Share Gains Priced In
CanSino Biologics (6185.HK/688185.CH) 2022H1 – It’s Too Early to Be Completely Bearish on CanSino
CP All: All Good but Need More Visitors
EM Digital Banks Overview – Brazil, South Korea and Indonesia

Kyocera (6971 JP) Founder Kazuo Inamori Passes – Implications for Holdings

By Travis Lundy

Kazuo Inamori (稲盛和夫), founder of Kyocera Corp (6971 JP) and KDDI Corp (9433 JP) precursor company DDI (Dai Ni Den Den), and former chairman of JAL overseeing restructuring, has passed.
In his own name, he owns 10.212mm shares of Kyocera, and likely other assets. Inheritance tax would be due 10 months from now.
Kyocera is not blowing out the lights compared to peers, but it is relatively inexpensive to its history and peers. If the shares are sold, Kyocera can buy them.

GoTo: Profitability Is a Tall Order and in Need of More Cash to Fuel Growth

GoTo (GOTO IJ) reported 2Q2022 results yesterday. Gross revenue increased 45.4% YoY to IDR5.6trn while operating losses as a % of net revenue increased to 420% from 273.6% in 2Q2021.
The company expects to make positive contribution margin by 1Q2024E, however, we don’t expect GoTo to make operating profits for the next 3-4 years given its large fixed cost base.
Reuters reported that GoTo is planning to raise $1bn through convertible bonds. This shows that the company is burning cash to fuel growth but at the cost of margins.

United Tractors (UNTR IJ) – A Commodity Proxy with Substance

United Tractors (UNTR IJ) represents a well-rounded proxy to higher commodity prices through Komatsu heavy equipment, coal contracting and mining together with gold mining.
It booked a strong set of 1H2022 results with net profit rising +129% YoY but heavy equipment sales momentum has continued into 1H2022 given there are still supply constraints.
United Tractors possesses hidden value in Agincourt Resources’ gold reserves, which are worth more than the company’s market cap. Valuations are below historical averages despite the strength of the commodities.

Sapphire Foods (SAPPHIRE IN) | Outperformance Not Justified

By Pranav Bhavsar

YTD Sapphire Foods (SAPPHIRE IN) has delivered 10.5% vs Devyani International (DEVYANI IN) which has delivered 7.9% and Jubilant Foodworks (JUBI IN) which has delivered -16.43% (Relative to NIFTY).
On an NTM basis, SAPPHIRE at 58x trades 30% cheaper compared to DEVYANI, and only 16% cheaper than JUBI.
The business performance is poor, the worst capital allocation among peers is not expected to change materially in the near term warranting attention to YTD outperformance.

Dixon Technologies: Forensic Analysis

By Nitin Mangal

Dixon Technologies India Ltd (DIXON IN) is a manufacturer of various electric goods such as washing machines, mobiles, etc.
Dixon’s annual report and forensic analysis revealed several setbacks from related party transactions to questionable setting off of liabilities.
Other aspects which requires attention include heavy off-balance sheet liabilities, cash allocation woes, risks arising from debtor concentration and forex exposure, etc.

Taiwan Tech: Market Signals in the Latest Earnings Revisions

We analyze analyst earnings revisions over the last month to identify key industry takeaways from stocks with major downward and upward revisions.
Innolux indicates there could be another year of pain ahead for LCD Panels, Wistron sees notebook weakness through year-end.
Signs of strong demand persist in Commercial IT, AI, and Medical.

Escorts Kubota Limited (ESCORTS IN) | Market Share Gains Priced In

By Pranav Bhavsar

Based on current consensus estimates, Escorts Kubota Limited (ESCORTS IN) is expected to deliver implied domestic volume growth of 6.5% for FY23 and 10% for FY24.
Our earlier checks have indicated a challenging environment for gaining market share or growing ahead of the Industry for ESCORTS.
Even if we assume market share gains and volume recovery leading to above industry growth, at CMP it is already priced in.

CanSino Biologics (6185.HK/688185.CH) 2022H1 – It’s Too Early to Be Completely Bearish on CanSino

CanSino’s performance declined in 22H1 due to decreased demand of COVID-19 vaccine. Since we have analyzed our concerns on performance in prior insight, there should be psychological expectations for the decline.
The COVID-19 vaccine business brings CanSino rich cash flow and helps it establish commercial team. Together with MCV2/MCV4/mRNA/PCV13i, it’s too early to be completely bearish on CanSino.
The market has exaggerated the impact of performance decline of COVID-19 vaccine on CanSino. Although 2022 is a difficult year, it is a good time to bottom fish this stock.

CP All: All Good but Need More Visitors

By Henry Soediarko

Cheaper than AOT while both are correlated to the number of tourists’ arrival in Thailand.
An increase in the per customer’s spending seems to be overlooked by the market.
A potential increase in the number of visitors to the stores could provide another booster to the share price.

EM Digital Banks Overview – Brazil, South Korea and Indonesia

By Victor Galliano

Among the EM digital banks covered, we turn constructive on Inter, we remain cautious on Nubank and see Bank Jago as an over-valued growth play; we are neutral on Kakaobank
Client penetration is key, yet digital banks also need to achieve loan and other banking product penetration to drive revenue growth and ultimately better returns
We believe that neobanks’ key hurdles to enhanced profitability are “old school” banking metrics; delinquency and cost of risk charges, as well as high capital absorption from fast loan growth

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Aug 31

Daily Brief Equity Bottom-Up: CGN Power (1816 HK): No Nuclear Jitters and more

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

In today’s briefing:

CGN Power (1816 HK): No Nuclear Jitters
Prosus: 30% Discount Seems About Right
Antony Waste Handling Cell Ltd – Forensic Analysis
Ace Hardware (ACES IJ) – A Rebound in the Offing
Observability Pair Trade: Long Elastic / Short Splunk
Delta Electronics: Taiwan Vs. Thailand Pairs Monitor, Call with Management
Two Niche Semiconductor Industry Stocks Highly Exposed to EV Acceleration
Pinduoduo: Management Warns That 2Q22 Is Not a Good Benchmark For Future
Shenzhen Intl (152 HK): The Toughest Time Should Be over Now
Hangzhou Tigermed Consulting (3347.HK/300347.CH) 2022H1 – The Time Bomb Is Ticking

CGN Power (1816 HK): No Nuclear Jitters

By David Blennerhassett

Nuclear power is a clean energy source that contributes to energy savings and emissions reduction in society.
SASAC backed CGN Power (1816 HK) is China’s leading nuclear play, accounting for 55% of on-grid nuclear power generation, but just 1.2% of China’s total installed capacity of power generation.
As one of the few listed nuclear -plays in Asia, CGN trades at undemanding multiples, together with an attractive ROE and yield.

Prosus: 30% Discount Seems About Right

By Wium Malan, CFA

The initial impact, of the share repurchase program, was for Prosus’ simple discount to listed NAV to reduce from roughly 50% to around 25% within 4 weeks of implementation.
The weekly size of the share repurchase program has been reduced by ~40%, on a 4-week rolling average basis, since the discount has been below 30%.
We remain constructive on Tencent and, with Prosus at 25% or less simple discount to NAV, would own Tencent directly (long-only), or be long Tencent, short Prosus/Naspers.

Antony Waste Handling Cell Ltd – Forensic Analysis

By Nitin Mangal

Antony Waste Handling Cell Limited (AWHCL IN) is one of the key players operating in the Municipal Solid Waste (MSW) industry.
Key takeaways that warrant attention overlooked include disparity between accounting and management commentary on margins and reimbursements and stained auditor qualifications since F13
Other forensic checks consist of poor quality of debtors, subsidiary stress and few eye-brow raising related party transactions.

Ace Hardware (ACES IJ) – A Rebound in the Offing

Ace Hardware Indonesia (ACES IJ) 1H2022 results continued to reflect a hangover from COVID-19 in terms of slower growth although the company continues to demonstrate its resilience.
The company’s store expansion continues with plans for 15 stores in total for 2022, whilst SSSG have seen a sharp recovery recently bringing YTD SSSG into positive territory.
Ace Hardware is one of Indonesia’s top quality retailers with the potential for a sharp recovery and valuation looks attractive on 15x FY2023E PER versus 27x 5-year average PER.

Observability Pair Trade: Long Elastic / Short Splunk

By Aaron Gabin

Like PANW and SNOW, Elastic continues to power through macro headwinds seen by many other software companies.
Elastic has a Crowdstrike like dynamic, where it is capturing new workloads from incumbents, in the cloud. In this case, Symantec’s share donator role is being played by Splunk.
In this tough volatile environment, we like an observability pair trade of Long ESTC / Short SPLK.

Delta Electronics: Taiwan Vs. Thailand Pairs Monitor, Call with Management

We had a call with Delta Electronics (2308 TT) management to understand the company’s latest developments, particularly in relation to its growing automotive and EV businesses.
Delta Thailand shares have rallied 55.4% in T$ terms, while Delta Taiwan has only rallied 9.3%.
Delta’s EV business is growing 50% per year and has major customers including Tesla, GM, and Volkswagen, however, our sense is the Taiwan entity has an advantage.

Two Niche Semiconductor Industry Stocks Highly Exposed to EV Acceleration

SDI Corporation (2351 TT) and Jih Lin Technology (5285 TT) are well positioned to generate significant long-term business from automotive end-market chip demand.
The companies are the #1 and #2 leaders globally by market share respectively for power lead frames.
Could receive earnings upgrades if CEV to EV market expectations are pulled forward.

Pinduoduo: Management Warns That 2Q22 Is Not a Good Benchmark For Future

Pinduoduo (PDD US)’s 2Q22 was rather strong with revenue of RMB 31.4bn (consensus: RMB 23.6bn) and OP of RMB 8.7bn (consensus: RMB 3.6bn).
However, the management was quick to dismiss the pretence that piduoduo would be able to maintain these elevated growth/margin numbers throughout the rest of the year and over the medium-term.
This creates a lot of downside to consensus 2H22 and medium-term revenue and OP estimates in a time when valuation multiples have expanded over 70% from the March 2022 bottom.

Shenzhen Intl (152 HK): The Toughest Time Should Be over Now

The 1H22 result of Shenzhen International (152 HK) is 4% ahead of indicated in profit warning. Key drags are toll roads and Shenzhen Airlines, but their 2H22 outlook is better.
It will see many new logistics projects to commence operations in the next 12-18 months. Also, SZI guided that it will continue to realise underlying asset value through strategic disposals.
We think the toughest time should be behind and expect more positive news on asset gains. The stock is very cheap at 0.41x P/B and 58% discount to appraised NAV.

Hangzhou Tigermed Consulting (3347.HK/300347.CH) 2022H1 – The Time Bomb Is Ticking

Tigermed had high revenue growth in 2022H1 but with a YoY decrease in net profit attributable to the owners of the Company, mainly due to poor performance of investment business.
Tigermed’s investment business is like a “time bomb” that would detonate in the future. Its “CRO+PE/VC business model” would trap its performance in a vicious circle due to unfriendly macro.
We are conservative about Tigermed’s outlook and performance. Tigermed is difficult to achieve the V-shaped rebound. So we recommend investors to offload, or just do some short term trade.

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Aug 30

Daily Brief Equity Bottom-Up: Alibaba Cloud – On Path to Fetch Zero Dollar Valuation and more

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

In today’s briefing:

Alibaba Cloud – On Path to Fetch Zero Dollar Valuation
Meituan (3690 HK): 2Q22, Reduced Loss, But Unnecessarily Reclassifies Revenue
China Internet Weekly (29Aug2022): Tencent, JD, JD Health, KE, Dada, Kanzhun
Meituan: Earnings Beat Estimates but Sudden Change in Segmental Disclosure Is Dubious
Pinduoduo (PDD): 2Q22, Viewpoint Opposite to Marvelous Performance
US Inflation Reduction Act: Bifurcated Impact on Korean Chaebols (Hyundai, LG, Hanwha, SK & Samsung)
Berli Jucker (BJC TB) – Well-Packaged Recovery Proxy
Investree Completes Acquisition of Amar Bank, Increases Stake to 18.4 Per Cent
Duolingo. User Growth And Cash Flow Metrics Remain Robust. Management Raised FY22 Guidance
IPAR: Primetime of the Year Begins

Alibaba Cloud – On Path to Fetch Zero Dollar Valuation

State-Owned-Entities (SOEs) in Tianjin are set to complete the migration of their data from private sector operators like Alibaba Group (9988 HK) to a state-backed cloud by 30th Sept 2022.
This has already started to tip the balance of power in Chinese cloud computing in favour of politically favoured cloud operators like China Telecom.
We think the impact of nationalising the cloud could escalate to Alibaba Cloud’s overseas markets as most of its customers overseas are Chinese companies with a global presence.

Meituan (3690 HK): 2Q22, Reduced Loss, But Unnecessarily Reclassifies Revenue

The revenue growth rate decelerated, but operating loss shrank in 2Q22.
We believe the the revenue reclassification is unnecessary and suspicious.
We set a downside of 19% and a price target of HK$148.

China Internet Weekly (29Aug2022): Tencent, JD, JD Health, KE, Dada, Kanzhun

By Shifara Samsudeen, ACMA, CGMA

Tencent invested in Samsung Insurance China Co. Ltd. and is the second largest shareholder.
JD Health’s revenue increased by 48% YoY, but the stock plunged.
KE revenue shrank by 45% YoY due to the weak property market.

Meituan: Earnings Beat Estimates but Sudden Change in Segmental Disclosure Is Dubious

Meituan (3690 HK) reported 2Q2022 results on Friday. Revenue grew 16.4% YoY to RMB50.9bn (vs consensus RMB49.2bn) while operating losses dropped to 1.0% of revenue to RMB493m (vs consensus RMB3.3bn).
The company has changed its segmental reporting to a new reporting structure; Core Local Commerce, New Initiatives and Unallocated items.
Disclosures on key operating matrices such as GTV and no. of hotel room nights have not been provided and difficult to assess the performance of core businesses.

Pinduoduo (PDD): 2Q22, Viewpoint Opposite to Marvelous Performance

In 2Q22, revenue growth rate accelerated and the operating profit achieved record high.
However, we believe PDD does not fully explain its exclusive advantages over competitors.
We set a downside of 19% and a price target of US$47 for year end 2023.

US Inflation Reduction Act: Bifurcated Impact on Korean Chaebols (Hyundai, LG, Hanwha, SK & Samsung)

By Douglas Kim

The US Inflation Reduction Act (IRA) is likely to have a bifurcated impact on key Korean companies including Hanwha Solutions (009830 KS) and Hyundai Motor (005380 KS).
IRA is likely to have a positive impact on Hanwha Solutions, CS Wind, LG Energy Solution, and Samsung SDI and negative impact on Hyundai Motor Group.
The impact of the IRA could last for a few more trading days although it is difficult to tell exactly how long the bifurcated impact by the IRA will last.

Berli Jucker (BJC TB) – Well-Packaged Recovery Proxy

Berli Jucker (BJC TB) 2Q2022 results saw continue momentum to sales from the recovery in Thailand and Vietnam with some impacy from higher raw material costs on margins.
It packaging supply chain saw a strong recovery from both glass bottling and aluminium cans with the latter seeing the biggest rebound. Retail under BigC also saw strong growth.
Berli Jucker remains a top proxy for the recovery in domestic consumption in both Thailand and Vietnam through its packaging plus for the retail recovery in Thailand through BigC.

Investree Completes Acquisition of Amar Bank, Increases Stake to 18.4 Per Cent

By e27

This acquisition confirmed Investree as a minority stakeholder in the bank, while Tolaram Group remained a majority stakeholder
Fintech startup Investree today announced that it had completed the acquisition of local bank Amar Bank, increasing its stake from 10.9 per cent of all issued and fully paid shares in June to 18.4 per cent.
Investree and Amar Bank said that by utilising its “solid ecosystem”, they will build a digital bank for MSMEs, who is described by the companies as “the backbone of the country’s economy”, and utilise existing products by the two companies to support MSMEs.

Duolingo. User Growth And Cash Flow Metrics Remain Robust. Management Raised FY22 Guidance

By Andrei Zakharov

Duolingo (DUOL US) reported solid 2QFY22 results and hosted annual Duocon 2022 event in August. Management raised full-year revenue guidance, but the stock remained range bound.
We model total revenues growing +45% y/y to $365M in FY22 and +42% y/y to $517M in FY23, up vs. our prior estimates and projections.
2QFY22 results beat all key estimates, driven by accelerating user growth and strength across the entire business. Duolingo (DUOL US) remains our top mid-cap pick in the EdTech industry.

IPAR: Primetime of the Year Begins

By Hamed Khorsand

IPAR has taken over the Donna Karan and DKNY brands setting the stage for further growth with larger brand licenses in its portfolio
IPAR reported second quarter sales of $244.7 million, which was in line with IPAR’s preannouncement
The Euro declining in value versus the US Dollar dented European sales growth figures, but sales managed to increase by double-digits over last year

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Aug 29

Daily Brief Equity Bottom-Up: PT Surya Citra Media Tbk (SCMA IJ) – On the Cusp of a Convincing Recovery and more

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

In today’s briefing:

PT Surya Citra Media Tbk (SCMA IJ) – On the Cusp of a Convincing Recovery
Shiseido (4911 JP) | Wrinkle Free
Tencent: Domestic Game Approvals Over-Hyped as a Revenue Growth Driver
RPPL: Strong Earnings Led by Robust Demand and Margin Expansion
Bumrungrad Hospital Pub Co (BH TB): Flying High on Return of Medical Tourism
CIMC Enric (3899 HK): Growth Outlook Supported by Multiple Engines
Sumo Logic. 2QFY23 Wrap: Rising From The Ashes?
Jafron Biomedical (300529CH) 22H1- Possibility of Logic Reversal and Upside Potential of Stock Price

PT Surya Citra Media Tbk (SCMA IJ) – On the Cusp of a Convincing Recovery

PT Surya Citra Media 1H2022 reflects a recovery in advertising activity but also a normalisation of costs and investment in future growth, especially in its leading Indonesian OTT business Vidio.
The company continues to gain audience share, as it invests in new fresh content and its sporting content such as Liga 1, and the English Premier League kicks in.
PT Surya Citra Media is a proxy for recovering advertising spending as the Indonesian economy recovers plus its digital strategy through Vidio has already been proving successful.

Shiseido (4911 JP) | Wrinkle Free

We turn Bullish on Shiseido. The market has now digested the weak results for 2022 and can look to a recovery over the next year
Recent commentary from Estee Lauder’s CEO suggest that China is recovering and that the outlook is bright
Shiseido is one of the key beneficiaries as Japan re-opens its borders to foreign travellers

Tencent: Domestic Game Approvals Over-Hyped as a Revenue Growth Driver

By Wium Malan, CFA

New title approvals halved during 2021, yet overall industry games revenue grew by 3.4%y/y. 1H22 new games approvals are down a further 82%y/y, yet games revenue is down 1.8%.
Tencent has lost revenue market share to the overall Chinese online game software market, most notably to NetEase, this year.
Tencent’s paying gamer participation rate has dropped to levels last seen during 2018.

RPPL: Strong Earnings Led by Robust Demand and Margin Expansion

By Ankit Agrawal, CFA

Q1FY23 earnings came in strong for RPPL led by robust demand and margin expansion. Volumes grew by 23.6% YoY and 24.5% QoQ.
Operational EBITDA per kg grew by 25%+ YoY and 36%+ QoQ to INR 37.5+ per kg as the price rise in raw materials was passed on.
RPPL has guided for a strong FY23. It can clock a volume of 10500+ MT and EBITDA of INR 35+ per kg, barring any adverse volatility in raw material prices.

Bumrungrad Hospital Pub Co (BH TB): Flying High on Return of Medical Tourism

Bumrungrad Hospital Pub Co (BH TB) reported strong Q2 2022 results, with revenue growth of 64% y/y, mainy driven by a 121% y/y increase in revenue from non-Thai patients.
Despite international patient volume is recovering, it is still lower than pre-COVID levels. Non-Thai patients contributed 66.2% of total revenue in Q2 2019, higher than 62.3% reported for Q2 2022.
Thailand targets 10 million foreign tourist arrivals this year, which should augur well for Bumrungrad.

CIMC Enric (3899 HK): Growth Outlook Supported by Multiple Engines

We see the positive share price reaction of CIMC Enric Holdings (3899 HK) after posting a 34.5% 1H22 core profit growth not yet enough to reflect its encouraging earnings outlook.
Good order backlog, recovery at clean energy and increase in liquid food demand will add to the strength at chemical and environment segment as CIMC Enric’s drivers.
Hydrogen energy business made impressive contribution growth and it should benefit from local governments’ hydrogen initiatives. The stock’s high PERs are just reflection of huge long-term potential.

Sumo Logic. 2QFY23 Wrap: Rising From The Ashes?

By Andrei Zakharov

Sumo Logic Inc (SUMO US) surprised investors and reported solid 2QFY23 results pushing shares up over 10% during a regular trading session on Friday.
Provider of cloud-based machine data analytics reported revenue/non-GAAP EPS of $74.1M/($0.10), above consensus, and improved FY23 outlook.
Management focused on delivering more efficient growth and reduced hiring plans. Customer metrics remained strong, with a dollar-based net retention rate of 115%.

Jafron Biomedical (300529CH) 22H1- Possibility of Logic Reversal and Upside Potential of Stock Price