Equity Bottom-Up

According to Reuters, Alibaba Group (9988 HK)’s supermarket chain Freshippo is seeking to raise around $400-500m from a fresh funding round which values the loss making company at $6.0bn.
The fact that Alibaba is willing to dilute ownership at a significant discount to its expected valuation is an additional sign that Alibaba could be running into some financial difficulties.
Having slashed spending budgets of its smaller investments and more down rounds expected in ventures that are considered too big to fail, we anticipate a challenging time ahead.

China Stimulus: Big Loan Growth Numbers, Good for FMG?

By Sameer Taneja

Fortescue Metals (FMG AU) has corrected due to the iron ore price dropping. China’s massive stimulus could provide an impetus to demand in 6-8 months and revive pricing.
Substantial correction of steel margins is halted. Iron ore the inventory at the mills and ports has now stabilized. We believe this provides support to pricing at these levels.
Fortescue Metals (FMG AU) yields at the spot have dropped to 12% FCF and 9% dividend yields, but we believe there is an upside to this.

Yamazaki Baking (2212) | Price Hikes to Test Consumer Appetite

Strong Q1 results have pushed up the share price offering a good entry point for Shorts
We think that full year guidance remains a risk given input costs and ability to push through higher prices
Given the risks, persistently low margins and returns to equity, we remain bearish

HRTech Sector Series: Changing HR Landscape Post-Covid Create Opportunities

The global HRTech market is forecast to grow at a CAGR of 5.8% between 2022-2028E to US$35.68bn driven by increased investment in product and technology development.
We have chosen four companies that will have an exciting year ahead (either bullish or bearish) and have discussed their business models, key drivers, fundamentals and their valuation.
We have chosen two stocks from the US (Ceridian and Automatic Data Processing) and two from Japan (Recruit and Visional) with a market capitalisation of >$1bn and ADTV>$1m.

Piramal Enterprises (PIEL IN): Demerger to Create a Differentiated and Niche Pharmaceutical Business

Piramal Enterprises (PIEL IN) obtained shareholders nod for demerging its pharma business and consolidated under Piramal Pharma Limited (PPL). Later, PPL will be listed on India stock exchange.
PPL has a differentiated pharmaceutical business model, with three business verticals. CDMO, the largest revenue contributor, has track record of consistent above-market growth due to its niche and complex capabilities.
Listed as a separate entity, PPL will see multiple expansion and command premium valuation over other Indian generic drug makers, due to its niche and limited competition portfolio.

WDFC: Spraying on a Sell Rating, Initiating

By Hamed Khorsand

We are initiating coverage of WD-40 Company (WDFC) with a Sell Rating and $88 target.
We believe WDFC is prone to an earnings decline stemming from higher input costs and the Company’s first in first out accounting practice.
People are no longer staying indoors. The squeaking door is not bothering anyone like it used to. WDFC benefited from people staying home during pandemic. Now inventory is rising

SCGP : Time to Repack for Brighter 2H22 Outlook

We retain our BUY rating with a TP of Bt66 derived from 33xPE’22E which is close to its 3-years trailing mean. We recommend investors to increase position in SCGP ahead
Modest recovery in 2Q22, post 1Q22 bottom : We estimate 2Q22 core profit at Bt1.9bn (-8%YoY, +12%QoQ) based on assuming gross margin of 17.4% (-3.1ppts YoY, +0.3ppts QoQ).
Likewise, we forecast the company to register revenue at Bt38.1bn (+28%YoY, +4%QoQ). The YoY rise is attributed to healthier demand volume and M&Ps contribution, upon the resumption of economic activities

Declining Business Short Candidates: PRA Grp, Herbalife, DISH, DXC Tech, Corsair Gaming, Ubiquiti

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 PRA Grp, Herbalife, DISH, DXC Tech, Corsair Gaming, Ubiquiti .

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Jul 14

Daily Brief Equity Bottom-Up: China Dairy Sector: Long Inner Mongolia Yili and Short China Mengniu Dairy and more

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

In today’s briefing:

China Dairy Sector: Long Inner Mongolia Yili and Short China Mengniu Dairy
Softbank Group – Fortress Sale Looks Better when Returns and Exchange Rate Considered
Money Forward (3994) | SaaS Crash Survivor
Money Forward – Q2 22 Results Reaction: Mixed Results Short of Consensus
Walmart (WMT US) | Why Walmart Is Likely to Win in India’s ONDC World Compared to Amazon
Money Forward: Growth at the Cost of Profits
SCB X (SCB TB) – The Song Remains the Same
Renesas Electronics (6723 JP): Tie-Ups with Tata Group Add to Growth Potential
Faraday Future (FFIE) Struggles to Finance Amid Internal “Civil War”

China Dairy Sector: Long Inner Mongolia Yili and Short China Mengniu Dairy

By Douglas Kim

In this insight, we discuss a pair trade involving going long on Inner Mongolia Yili Industrial Group (A) (600887 CH)(“Yili”) and going short on China Mengniu Dairy Co (2319 HK).
Yili has more impressive financial metrics than China Mengniu Dairy in terms of ROE, operating margins, and sales growth. However, Yili is trading at lower EV/EBITDA than China Mengniu Dairy.
Yili should be trading at premium valuation than China Mengniu Dairy. Therefore, we believe Yili is well poised to outperform China Mengniu Dairy’s share price in the next 12 months.

Softbank Group – Fortress Sale Looks Better when Returns and Exchange Rate Considered

Softbank sale of Fortress removes an asset that is surplus to requirements at a price that is not as bad as headlines suggest
A sale to Mubadala at ~$1bn seems low versus the $3.3bn it paid in 2017 but dividend payments and a strong yen mean a c. 70% loss is actually ~10%
The discount has modestly narrowed recently but VF valuations likely to remain volatile whilst worries on China tech regulation persist

Money Forward (3994) | SaaS Crash Survivor

Money Forward has one of the largest SaaS/Fintech platforms in Japan and is a key beneficiary of corporate digital transformation
The stock has fallen 48% year to date as valuations crashed with global SaaS multiples
We think MF will emerge from downturn in good shape. At 10x EV/Rev, we see 22% upside (maybe even 55%….)

Money Forward – Q2 22 Results Reaction: Mixed Results Short of Consensus

Q2 financial results were in-line or better than management targets but lagged consensus expectations
Guidance for Q3 is slightly disappointing with the target range for revenue mostly below expectations whilst promotional and marketing spend continues to expand
The secular growth story is attractive and operating KPI growth remains robust but investors probably needed more from a stock that trades at 7.5x EV/FY22 rev in a risk-off environment

Walmart (WMT US) | Why Walmart Is Likely to Win in India’s ONDC World Compared to Amazon

By Pranav Bhavsar

India’s Open Network for Digital Commerce (ONDC) is expected to break duopolies across the digital commerce ecosystem including e-marketplaces like Flipkart Online Services (1398508D IN) & Amazon.com Inc (AMZN US).
We think it is the other way around. We expect them to thrive and become even more dominant in case the market expands as envisioned under ONDC.
While it could be too early & premature, Walmart (WMT US) thanks to its investments in Flipkart and the path chosen by PhonePe is better placed compared to Amazon in India.

Money Forward: Growth at the Cost of Profits

Money Forward (3994 JP) reported 2QFY11/2022 results yesterday. Revenue grew 27.2% YoY to JPY5.08bn (vs consensus JPY5.13bn). Operating losses for the quarter was JPY2.2bn (vs consensus JPY1.9bn).
MF’s top line growth has been slowing down, and the company continues to spend heavily on advertising to acquire users for its SaaS business.
Though MF continues to grow its user base, it comes at the cost of profits.

SCB X (SCB TB) – The Song Remains the Same

By Angus Mackintosh

SCB X has been a slightly disappointing performer since its restructuring under a new holding company to allow for a reallocation of capital towards growing tech areas.
A key overhang has been its sizable planned investment into leading Thai crypto exchange BitKub but the due diligence for this has been extended signalling a potential cancellation.
The bank’s core business is recovering with loan growth recovering and credit costs coming down plus strong growth in digital banking reducing costs. Valuations are attractive on 0.7x FY22E PBV.

Renesas Electronics (6723 JP): Tie-Ups with Tata Group Add to Growth Potential

By Scott Foster

Renesas and Tata Group companies have announced a new partnership in electronic systems and wireless telecom for automotive and other applications.
Specifically, they are working on the development of electric vehicles and industrial system solutions combining their semiconductor, IT system and manufacturing expertise.
This should provide a significant boost to their business in India and global markets. As Mio Kato wrote in late April, Renesas – Like We Said… Accelerating

Faraday Future (FFIE) Struggles to Finance Amid Internal “Civil War”

By SC Capital

Faraday has been actively looking for financing as cash on hand in April was only $222m and its cash-burn in Q1 ran at $173m.
On top of SEC & DoJ investigations, Faraday’s financing efforts are further hampered by a recent proxy battle against the Board of Directors launched by Faraday’s founder.
Faraday “believes” it has enough cash to see the launch its first EV in Q3, but Q2 results may show it has little cash left for a successful ramp-up.

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Jul 13

Daily Brief Equity Bottom-Up: Fast Retailing (9983) | Time to Ditch the Shorts and more

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

In today’s briefing:

Fast Retailing (9983) | Time to Ditch the Shorts
Tencent/Netease: Under Pressure with No Game Approval in July
Tencent – Excluded Again from New Game Approvals
Topsports International (6110.HK) – Has the Potential to Turn Things Around Despite the Headwinds
Topsports International: CCP’s ZERO COVID Policy Has a Bigger Whopper Impact than Cheap Valuations
Eisai Co (4523 JP): Trying Another Luck for Alzheimer’s Disease; Strengthening Presence in Oncology
TMT Pre-2Q Earnings: The TikTok Impact
Lawson: Profitability to Expand with Slowing Growth Investments
TCAP : A Dividend Play

Fast Retailing (9983) | Time to Ditch the Shorts

We turn bullish on Fast Retail as the current quarter marks the bottom for China sales
The company continues to surprise in its mastery of gross margins and operating costs
China is key, but the US is emerging as a new (and profitable) growth driver

Tencent/Netease: Under Pressure with No Game Approval in July

By Ke Yan, CFA, FRM

China just announced game approval for July batch. More games were approved in July compared to June and May.
Pace of China game approval has picked up albeit at a much slower pace than pre-tightening.
Tencent and Netease will be under pressure as they continue to score zero in July domestic game approval.

Tencent – Excluded Again from New Game Approvals

China’s NPPA issued a list of 67 new games approved for July 2022, and once again, Tencent (700 HK) and its smaller rival NetEase were excluded from the list.
The nine-month long freeze on new game approval was lifted in April, however, none of Tencent’s new games were included in the approved lists in April, June and July.
This further affirms our view that the anti-monopoly crackdown on tech firms hasn’t slowed down, but regulators are probing on dominant players such as Tencent to level the playing field.

Topsports International (6110.HK) – Has the Potential to Turn Things Around Despite the Headwinds

By Xinyao (Criss) Wang

Topsports suffered the first decline in performance since FY2018. Besides pandemic outbreaks and inventory shortage due to global supply chain disruption, over-reliance on Nike and Adidas is also the reason.
This is the best opportunity to reduce the number of stores based on “Select+Optimize” strategy. With resumption of sports events and good prospects of China’s sports industry, Topsports could rebound.
Topsports is undervalued compared with its peers, but we are now in a complicated macro environment. Share prices may not rise as expected, which should be aware of by investors.

Topsports International: CCP’s ZERO COVID Policy Has a Bigger Whopper Impact than Cheap Valuations

By Douglas Kim

One of the key reasons why we are bearish on this stock (despite cheap valuations) is that the valuations may become even cheaper.
The CCP remains intent on maintaining its ZERO COVID policy which means continued sporadic lockdowns and social distancing measures, which is negative for sports apparel products.
All in all, we believe that a better time to get back into Topsports International is when the CCP becomes more vocal about finally relenting on its ZERO COVID policy.

Eisai Co (4523 JP): Trying Another Luck for Alzheimer’s Disease; Strengthening Presence in Oncology

Eisai Co Ltd (4523 JP) has been granted priority review by the FDA for its second Alzheimer’s disease drug candidate, lecanemab. Approval is expected in Q1 2023.
Lecanemab could become the first anti-amyloid antibody to obtain full approval for Alzheimer’s disease in the U.S. Eisai is aiming for submission of lecanemab in Japan and EU this fiscal.
Anticancer agent Lenvima is the largest selling drug of Eisai. Revenue from Lenvima increased 44% in FY22. The drug has taken top share in hepatocellular carcinoma market.

TMT Pre-2Q Earnings: The TikTok Impact

By Aaron Gabin

TikTok’s business model advantage: short form video creates greater signal for algorithmic addiction is forcing rivals to react (where possible).
META is best positioned to copy TikTok, and is trading at a valuation approximating cable networks during cord cutting.
Netflix is worst positioned… as YouTube, Instagram, and Snap incorporate TikTok’s short form video, more attention will be drawn away from the streaming services. Tough spot to be in.

Lawson: Profitability to Expand with Slowing Growth Investments

Lawson Inc (2651 JP)’s Q1 OP of ¥13.3bn (consensus: ¥10.6bn) seems to suggest that the company’s profitability is heading up following the upfront investments in store renovations.
After beating consensus OP by more than 25% in Q1, we think the company is being overly conservative by maintaining the OP guidance around ¥10.0bn below the pre-COVID level.
Based on the FY+1 OP to share price trend historically, our FY23 OP estimate of ¥63.0bn suggests that Lawson should trade at around ¥6,500 per-share, an upside of around 36%.

TCAP : A Dividend Play

We initiate coverage of TCAP with a HOLD rating and a target price of Bt39.00. We expect TCAP’s net profit will decline by 10% YoY in 2022 before turning
Positive lending growth intact despite uncertainties The Bank of Thailand (BOT) estimates Thailand’s economy will expand by 3.3% YoY in 2022 on the back of an improvement in domestic demand
We expect TCAP’s lending growth to continue rising by 10% YoY in 2022 (2021:+7% YoY), supported by higher demand for hire purchase lending via Ratchthani Leasing (THANI) and higher SME

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Jul 12

Daily Brief Equity Bottom-Up: China’s Crackdown on Big Tech: Not Over by Any Means and more

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

In today’s briefing:

China’s Crackdown on Big Tech: Not Over by Any Means
Tencent Fined for Violating Disclosure on Past Transactions; Anti-Monopoly Probe Is Far From Over
Golden Agri Resources (GGR SP) – Replanting and Processing to Drive Future Growth
China Internet Weekly (11Jul2022): JD.com, Alibaba, Suning.com, GoGoX
EVA Precision 838 HK: Play on EV Market Growth
Hope Education (1765 HK): More than Just Hopes
MicroPort MedBot (2252.HK)- Lack an “anchor” for Valuation Due to Uncertainties in Commercialization

China’s Crackdown on Big Tech: Not Over by Any Means

Just as investors were starting to get comfortable investing in Chinese big tech, the Government has imposed new fines on a range of tech companies.
Meanwhile, the June ending quarter could yet again be a disspointment with growth curtailed through lack of funding for loss making businesses.
Having gained around 50% in June 2022 through signs of easing the tech crackdown, these new fines and a weak June-ending quarter could resend tech valuations to March-2022 lows.

Tencent Fined for Violating Disclosure on Past Transactions; Anti-Monopoly Probe Is Far From Over

On 10th July, SAMR published 28 administrative penalties for violating anti-monopoly law related to disclosing past transactions on firms including Tencent, Alibaba, Didi, Weibo and Bilibili.
A fine of RMB17.2m (US$2.56m) was imposed in total and were fined for not properly reporting past deals between March 2011 to July 2021.
The market has come to believe that the anti-monopoly investigation in China is easing off, however, the recent development suggests that the anti-monopoly normalisation will continue.

Golden Agri Resources (GGR SP) – Replanting and Processing to Drive Future Growth

By Angus Mackintosh

A recent webinar hosted by Smartkarma with Golden Agri Resources revealed a company confident in the outlook for both its plantation and its value-added processing businesses.
Golden Agri Resources leads the industry in terms of the yields on its plantations versus both Indonesia and Malaysia and continues to replant with higher-yielding varieties.
The company has plentiful processing capacity for its own needs and those of third parties, which will help maintain margins. Management is confident in the outlook for palm oil prices.

China Internet Weekly (11Jul2022): JD.com, Alibaba, Suning.com, GoGoX

By Ming Lu

JD.com opened a physical shopping mall and we believe it is following Alibaba.
JD.com signed contract with a state-owned power company for two reasons.
Two suppliers applied for the liquidation of Suning.com to the court.

EVA Precision 838 HK: Play on EV Market Growth

By Sameer Taneja

Eva Precision Industrial Holdings (838 HK) is a supplier of office and automotive equipment (seat/battery frames and moulds), trading at 8.1x PE FY22 with an inflection point in earnings growth.
As a supplier to Tesla Motors (TSLA US), Great Wall Motor (2333 HK), and Lucid, it is a play on the expansion of the EV space.
Legacy business of office equipment will also experience growth due to the exit of foreign businesses like Fuji and Samsung enabling the company to have 25% CAGR revenue growth.

Hope Education (1765 HK): More than Just Hopes

By Osbert Tang, CFA

Hope Education Group Co Ltd (1765 HK) achieved good student enrollment quota increase for 2022/2023 academic year and student recruitment results at overseas schools are also very encouraging.
Improvement in teaching quality and better facilities should narrow the gap of fees per student (Rmb11,814) with the national average (Rmb20,000), driving net profit growth in 3-5 years.
Capex will come down over time given good upside in utilisation and the removal of management fees will relieve financial position. Its relative valuation is also inexpensive.

MicroPort MedBot (2252.HK)- Lack an “anchor” for Valuation Due to Uncertainties in Commercialization

By Xinyao (Criss) Wang

To achieve massive sales expansion, surgical robots and consumables have to reduce price largely to enter NRDL reimbursement. This is at odds with expectations that they will generate high profits.
The actual market share gained and revenue generated by Medbot may fall far short of expectations, resulting in an inability to cover years of rapid growth in R&D/selling/administrative expenses.
Due to uncertainties on commercialization and profitability outlook, Medbot lacks an “anchor” for valuation.The large fluctuation in share price would continue. Surgical robots are not a good business for now.

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Jul 11

Equity Bottom-Up: Lotus Pharmaceutical and more

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

In today’s briefing:

Lotus Pharmaceutical (1795 TT): Ready for Next Phase of Growth with New Ownership and Product Launch

Lotus Pharmaceutical (1795 TT): Ready for Next Phase of Growth with New Ownership and Product Launch

Aztiq and Innobic have formally become the leading shareholder of Lotus Pharmaceutical (1795 TT), with the controlling stake of 51%. New ownership will accelerate the growth and expansion of Lotus.
Lotus has created a niche for itself through its focus on oral oncology drug. Launch of Lenalidomide in 14 European countries drove 31% q/q growth in export revenue in Q1.
Continued strong uptake of the company’s newly acquired drug Cialis in Taiwan and bevacizumab biosimilar launch in Korea and Taiwan should boost its Asian business revenue.

Related tickers: Lotus Pharmaceutical (1795.TWO)

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Jul 10

Equity Bottom-Up: Paramount Bed Holdings Co Lt, Yaskawa Electric and more

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

In today’s briefing:

Paramount Bed (7817 JP): Record High Revenue Clocked in FY22; New Management Target Announced
Yaskawa Electric (6506) | Don’t Be Fooled by the “strong” Q1 Print

Paramount Bed (7817 JP): Record High Revenue Clocked in FY22; New Management Target Announced

Paramount Bed Holdings Co Lt (7817 JP) announced record high sales in FY22, driven by strong demand of hospital beds and achieved management target two year ahead of plan.
While near-term challenges including high input cost and semiconductor supply shortage negatively impact FY23 performance, Paramount aims to achieve 33% revenue growth and 50bps operating margin expansion during FY22–27.
Paramount is a strong play on COVID recovery. The shares gained 15% since I published bullish note on the company on January 17, 2022. More stream is still left.

Yaskawa Electric (6506) | Don’t Be Fooled by the “strong” Q1 Print

Q1 OP +8%, but core OP (pre-adjustments) fell 18% YoY on significant decline in profitability
Bulls may point to the surprising strength in orders, but the boost from China re-opening and weaker yen are not reflective of the underlying outlook
We think Yaskawa will be hard-pressed to make full year guidance of ¥72b. Stay bearish for now

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Jul 09

Equity Bottom-Up: Haier Smart Home Co Ltd, Nexteer Automotive, Sri Trang Gloves (Thailand) Public Company Limited, Shift Inc, Z Holdings and more

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

In today’s briefing:

India Channel Insight #41 | Haier, Samsung, Voltas
Nexteer (1316): Unjustly Punished and Bounce Soon?
Sri Trang Gloves (STGT TB): 2022 Started On a Weak Note; Lower ASP Is Industry Wide Phenomena
Shift 3Q: Earnings Below Consensus but Heavy Hiring Spend Should Help in the Long Run
Z Holdings (Neutral) – PayPay Rebranding of ECommerce; We Remain Cautious in a Rebuilding Year

India Channel Insight #41 | Haier, Samsung, Voltas

By Pranav Bhavsar

The demand environment for offline electronic retailers has been good in Q1, the macro factors also point to good growth for FY23.
Companies like Haier Smart Home Co Ltd (6690 HK) and Samsung Electronics (005930 KS) have done well. Voltas Ltd (VOLT IN) has not been able to recover.
Indian consumer no longer wants everything cheap, assuming affordability, quality and brand value is taking prominence.

Nexteer (1316): Unjustly Punished and Bounce Soon?

By Henry Soediarko

Nexteer Automotive (1316 HK) share price fell 50% in Q1 22 due to the China lockdown scare although it has manufacturing facilities all over the world.
It traded below book value at some point and rallied alongside other Chinese names in the past month to currently at book value.
Most of the new business won is from EV OEMs thus the company deserves a higher multiple given the high growth in the EV sector.

Sri Trang Gloves (STGT TB): 2022 Started On a Weak Note; Lower ASP Is Industry Wide Phenomena

Sri Trang Gloves (Thailand) Public Company Limited (STGT TB) reported record high sales volume due to strong demand in existing markets and expansion into new markets.
However, lower ASP as a result of additional supply in the market, dragged down revenue and profitability of the company. No recovery in ASP is seen in near-term.
By leveraging on its locational advantage for NR glove, focusing on fast growing developing markets, and launching high-margin surgical glove in Thailand, STGT is well-positioned to outpace its Malaysian peers.

Shift 3Q: Earnings Below Consensus but Heavy Hiring Spend Should Help in the Long Run

Shift reported 3QFY08/2022 results yesterday. Revenue grew 36.1% YoY to JPY17.1bn (vs consensus JPY18.3bn) while OP grew 25.7% to JPY1.3bn (vs consensus JPY1.54bn).
Revenue from the largest segment Enterprise market grew 35.3% while enterprise segment grew 47.5% YoY during the quarter.
According to Shift, the application of revenue recognition standard has lowered revenues and OP. The drop in OPM was due to heavy SG&A expenses as a result of hiring.

Z Holdings (Neutral) – PayPay Rebranding of ECommerce; We Remain Cautious in a Rebuilding Year

Z Holdings will integrate its eCommerce platforms in a move that boosts the PayPay brand and may generate some (very) modest synergies
We are publishing updated forecasts and setting a new target price at ¥550 but we remain cautious on the shares in the near term as consensus remains high
Shares of ZHD still appear expensive at 14-16x our estimate of FY22e EBITDA and are more expensive than Alphabet at these levels (12x EBITDA)

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Jul 08

Equity Bottom-Up: Perfect Medical Health, Seven & I Holdings, Softbank Group, Bank Rakyat Indonesia, Softbank Group (ADR), Supermax Corp, Assertio Holdings, Marinemax Inc and more

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

In today’s briefing:

Perfect Medical 1830 HK: The Perfect HK Recovery Play
Seven & I: Positives All Around But Upside Is Limited
Softbank (9984 JP) – Klarna’s Coming “down Round”
Seven & I (3382) | So What if Walmart Missed
Softbank – Misra Out
Bank Rakyat Indonesia – Increasingly Digitalised Micro Champion
Softbank Group – Business as Usual
Supermax Corp (SUCB MK): Quickly Mending the Damage; Soft Demand Outlook Remains the Main Overhang
ASRT: Rolling Up with Buy Initiation
Overearning Short Candidates: Alpha Metall, MarineMx, ON Semi, Kulicke & Soffa, Pool Co, Century Com

Perfect Medical 1830 HK: The Perfect HK Recovery Play

By Sameer Taneja

Perfect Medical Health (1830 HK) is a recovery play for HK/China beauty trading at 11.8x PE FY23, with a dividend yield of 8.5% (assuming a 100% payout).
With net cash (including investments) of 565 mn HKD ( > 10% of market cap ), the company is primed for M&A in an environment where restrictions have weakened competitors.
The chairman’s recent buying of shares ( representing a 0.41% stake ) and the company share repurchase ( representing 0.08%) indicate the company’s confidence in its prospects.

Seven & I: Positives All Around But Upside Is Limited

With OP up by 32.1% YoY, 1QFY23 was the first genuine sign of the realisation of synergies from the Speedway acquisition.
There could be more good news on the horizon as various news outlets have reported that the sale of Sogo Seibu is moving closer.
Yet we are neutral on Seven & I Holdings (3382 JP) in the short-term. We think investors needs to see the true colours of synergies for shares to break ¥6,100.

Softbank (9984 JP) – Klarna’s Coming “down Round”

By Victor Galliano

Press reports indicate that Klarna is seeking a new funding round, after a 1Q22 of big losses and a recent 10% headcount reduction at Klarna
Softbank made its investment in Klarna at its peak valuation in July 2021; the implied new Klarna valuation range is between 30% and 85% down from the peak
We explore the coming “down round”, and we assess Klarna’s potential valuation metrics relative to payment company peers including US listed BNPL company Affirm and the hit to Softbank’s investment

Seven & I (3382) | So What if Walmart Missed

Investors should ignore the news around restructuring….it’s nice but basically irrelevant
The long-term valuation proposition is driven by the core convenience store businesses in the US and Japan
Unlike Walmart, we think 7&I should have a good quarter in the US and beat analyst expectations for Q1

Softbank – Misra Out

By Mio Kato

It was reported today that Vision Fund CEO Rajeev Misra would step away from his role to establish his own investment fund.
This continues the pattern of turnover of high profile figures within the Softbank Group raising questions about overall management stability.
With Masayoshi Son also now officially taking amore direct role in managing Vision Fund 2 it also underscores the continuing concentration of decision-making ability.

Bank Rakyat Indonesia – Increasingly Digitalised Micro Champion

By Angus Mackintosh

Despite what looked like a solid set of 1Q2022 results, Bank Rakyat Indonesia has seen a sharp correction in its share price, which looks unjustified given a positive outlook.
The bank has 84% of its loan exposure to micro and ultra-micro customers, which generates higher returns than corporate lending plus it is improving returns through increasing digitalisation.
Management guidance for this year remains positive, and the bank is well-positioned to take advantage of the economic recovery with abundant liquidity and a low cost of funds.

Softbank Group – Business as Usual

Vision Fund head Rajeev Misra will step down from Vision Fund 2 to take a new gig managing money for Midde Eastern partners. His VF1 role is unchanged for now
Structurally, this does not change very much as Son-san has always been the decision maker on investments and we never considered Misra as a candidate for succession
After surviving $47bn in public equity losses over the last year, it surprisingly looks like Misra’s departure is voluntary

Supermax Corp (SUCB MK): Quickly Mending the Damage; Soft Demand Outlook Remains the Main Overhang

Supermax Corp (SUCB MK) is facing import ban from the U.S. and Canada. Recently, Norway wealth fund has put the investment in the company under observation for two years.
Since 2019, Supermax is being alleged for the poor living and working conditions experienced by its employees. Recently the company has aligned itself to the ILO standard.
However, COVID-driven demand of glove is cooling off. Even upon this, excess capacity is bringing down the average selling price, thereby making the earnings outlook uncertain for glove manufacturers.

ASRT: Rolling Up with Buy Initiation

By Hamed Khorsand

ASRT is classic roll-up story where it is leveraging cash flow from one drug to create a portfolio of multiple drugs
ASRT has managed to stay under investor radars through acquisitions of drugs with small revenue streams. The revenue is starting to add up
ASRT can use its digital marketing approach to grow earnings and free cash flow from each of the drugs it acquires

Overearning Short Candidates: Alpha Metall, MarineMx, ON Semi, Kulicke & Soffa, Pool Co, Century Com

By Eric Fernandez, CFA

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

Before it’s here, it’s on Smartkarma

Jul 07

Equity Bottom-Up: New Oriental Education & Technology Group, DoorDash Inc, Xperi, Delta Electronics Thai, Medy Tox Inc and more

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

In today’s briefing:

A New New Oriental?
Amazon’s Grubhub Deal Worse for DoorDash than Uber
XPER: Positive Catalyst to Growth Story
DELTA: Shortage Issue Still Persists Despite Concerns on Weakening Demand in 2022
Medy Tox Inc (086900 KS): Legal Battle Continues; Muted Recovery in Export Revenue

A New New Oriental?

By Evelyn Zhang

Oriental Selection achieves high-speed user growth through bilingual livestreaming, thanks to Douyin’s algorithmic recommendation mechanism before 6/18 ecommerce, after 6/18 the increase in the follower numbers & GMV dropped sharply.
The unit price of the product is below average, due to the focus on produce and books, Agricultural livestreaming has always been a difficult to grow category
10%-15% Commission is lower than industry average, and subsequent supply chain control and 1st party products have lower margins.

Amazon’s Grubhub Deal Worse for DoorDash than Uber

By Aaron Gabin

Amazon announced a partnership with TKWY’s Grubhub where Amazon Prime members will get one year free of Grubhub+ membership.
Amazon has the option to take a 2% stake in Grubhub which could grow to 15% depending on performance conditions.
Deal is a direct shot at DoorDash’s Dashpass subscription program, which is 30% of DASH’s customers and accounts for ~50%? of GOV… expect a price cut to stave off churn.

XPER: Positive Catalyst to Growth Story

By Hamed Khorsand

XPER is accelerating its presence within connected TVs with the acquisition of Vewd Software
Vewd Software is a middleware developer that has been installed in more than 450 million connected TVs and devices.
The synergistic value of Vewd could be revealed to shareholders in the next 12 to 18 months when XPER begins to monetize Vewd’s install base

DELTA: Shortage Issue Still Persists Despite Concerns on Weakening Demand in 2022

We maintain our BUY rating and TP of Bt419 based on based on 51.7xPE’22E. Business update meeting last Friday came with positive news on improving shortage situation by 4Q22
2Q22E earnings to decline QoQ: We believe that 2Q22E net profit will be at Bt2.7bn (+61% YoY, -4% QoQ).
We expect 2Q22E sales to be at Bt24bn (+15%YoY, -4% QoQ). QoQ decline is mainly due to lockdown issues in China and longer holidays during 2Q22.

Medy Tox Inc (086900 KS): Legal Battle Continues; Muted Recovery in Export Revenue

The U.S. International Trade Commission is starting an official investigation based on Medy Tox Inc (086900 KS)’s complaint against Hugel for the alleged theft of its botulinum toxin strain.
The verdict is expected in H12023. Hugel is expected to receive FDA approval for botulinum toxin by the end of 2022, while Medytox plans to file to FDA in H12023.
Medytox’s export revenue has still not recovered. However, Q1 sales jumped 25%, on the back of 89% increase in domestic revenue. Medytox shares has declined 20% YTD.

Before it’s here, it’s on Smartkarma

Jul 06

Equity Bottom-Up: SenseTime Group, Shionogi & Co, China Power International, Jasmine Broadband Internet Infrastructure Fund, Advanced Info Service, FUJIFILM Holdings and more

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

In today’s briefing:

SenseTime: Shares Fall with Lock-Up Expiry; Further Downside with More Selling at the Next Expiry
Shionogi & Co (4507 JP): Ready To Cash-In On COVID-Related Efforts; Long-Term Growth Drivers Added
China Power International (2380 HK): Another Step in Clean Energy Transition
JASIF : Contract Cancellation Will Affect Dividend Payment
ADVANC : Large Boost to Broadband Business Growth
Fujifilm (4901) | Bio Pharma Giant Is a Double

SenseTime: Shares Fall with Lock-Up Expiry; Further Downside with More Selling at the Next Expiry

AI software company SenseTime’s share price dropped more than 50% over the last one week with the expiry of lock-up period as pre-investors of the company took some profits.
The company was placed in an investment blacklist by the US government prior to the IPO which forced to launch the IPO without investors from the US.
The company also priced the IPO at the bottom of the price range and despite all of this, shares quickly went up to HK$8.20 from IPO price of US$3.85.

Shionogi & Co (4507 JP): Ready To Cash-In On COVID-Related Efforts; Long-Term Growth Drivers Added

Shionogi & Co (4507 JP), an established global name in infectious diseases, is banking on COVID-related products to achieve accelerated double-digit revenue growth in current fiscal.
Shionogi applied for the domestic marketing of its COVID-19 oral drug and signed a basic agreement with the government, which is expected to purchase 1 million courses immediately after approval.
It has a stable revenue stream from HIV franchise. Apart from infectious diseases, Shionogi has multiple late-stage candidates in psycho-neurological diseases and other new growth areas, including oncology and cardiology.

China Power International (2380 HK): Another Step in Clean Energy Transition

By Osbert Tang, CFA

China Power International (2380 HK) will acquire 2.15GW clean energy capacity from its parent SPIC for a total of Rmb7.5bn. This will add 14.3% to its end-FY21 clean energy portfolio.
We think the assets are priced attractively at 12.5x PER for FY21, a discount to peers’ average of 14x. The acquired capacity has an impressive 45.8% YoY earnings growth.
CPI targets to have 70% of end-FY23 capacity from clean energy, and this implies a 46.3% CAGR between FY21 and FY23, which is a very exciting momentum.

JASIF : Contract Cancellation Will Affect Dividend Payment

Downgrade to HOLD fom BUY and cut TP by 28% to Bt8.80 derived form DCF (WACC=8.02%, g=0%) to factor in significant reduction in revenue and dividend from 2023
A non-attractive deal for JASIF shareholders: On July 4th 2022, JAS informed SET that, ADVANC is considering purchase of 99.99% of TTTBB and 19% of total JASIF units at Bt8.5
In that case,The Amended Rental Assurance agreement that generates a superior rental rate of770/km/month will be cancelled which will cause a dip of 30%in the revenue generation of JASIF in2023onwards.

ADVANC : Large Boost to Broadband Business Growth

We maintain our BUY rating and TP of Bt259 based on based on DCF,representing 26.4xPE’22E. Analyst meeting yesterday on ADVANC’s acquisition of TTTBB and JASIF units came with positive tone
The deal should be highly favorable for ADVANC:We believe that the entire transaction could provide a 8.5% upside to our current forecasted 23E EPS through Adjusted EPS, leading to Bt11.54/share.
2Q22E earnings will keep 22E earnings on track We believe that 2Q22E net profit will be at Bt6.5bn(-7% YoY, +4% QoQ).Seasonal low costs, despite high competition, will lead to QoQ

Fujifilm (4901) | Bio Pharma Giant Is a Double

It is time to throw off the old valuation models. Fujifilm is no longer a dusty old camera maker
The healthcare business is already the biggest earnings driver and with aggressive capex….
Fujifilm will become the biggest biopharma contract manufacturing company in the world. Valuations don’t reflect that.

Before it’s here, it’s on Smartkarma