Equity Bottom-Up

• Alibaba CEO’s article appeared on a government journal, which can be a positive signal to non-state-owned companies.
• Prosus sells shareholdings in Tencent and JD.com to repurchase its own shares.
• Tencent is trying to use game technologies in other fields.

• KDDI’s entire network was out over the weekend and whilst service has been restored, there are still sporadic complaints 
• There are near-term risks for higher user churn and lost Q2 revenue, but these are on the margin and downside should be manageable (i.e. no change on company guidance)
• Looking past near-term weakness, KDDI remains an attractive defensive play 

• SCB is well-positioned to benefit from the delta in tourism
• There will be a special dividend at mid-year, amount still unknown
• BitKub acquisition announced last year, remains pending, may not go through

• Maintain BUY for BBL with a target price of Bt159.00. We like its strong balance sheet to withstand uncertainty, sustainable profit growth, potential benefits from an upcycle of interest rates
• A solid net profit in 2Q22 : We expect Bangkok Bank (BBL) to post a net profit of Bt7.4b in 2Q22, up 17% YoY (+4% QoQ). 
• Lending growth in 2Q22 is expected to rise by 1% QoQ given an expected rise in business loans and loans made through the international network. Asset quality remains resilient

• Alibaba Health’s core pharmaceutical direct sales business is facing challenges in terms of increasing competition as well as lower revenue growth and margins, dragging down the overall performance.
• The recent new policies about online drug sales on third-party digital healthcare platforms and online diagnosis and treatment would add more uncertainties on Alibaba Health’s business and outlook.
• If such unfavorable trend continues, the gap between Alibaba Health and JD Health would be wider. It’s not easy to break the deadlock. Investors may need to take heed.

• Z HD’s stock has been heavily sold with other tech stocks amid a rising interest rate environment
• However, we believe that the 3 core business segments are all performing strongly and will continue to gain share
• Using global comps, we believe that Z HD has more than 100% upside and is the top pick in the online space in Japan

• Indo Tambangraya Megah (ITMG IJ) is a 2.3 bn USD company with ~880 mn USD net cash adding >100 mn USD of free cash flow a month.
• At a 103 USD/ton ASP the company made a 475 mn USD profit for 2021. We estimate prices are easily around 200 USD/ton for the company in the current environment.
• Indo Tambangraya Megah (ITMG IJ) has a track record of paying >70% of its profits as dividends since 2009 ( implying a yield of 37% for FY22 ). 

• Taste Gourmet Group (8371 HK) reported worse numbers than we expected for Q4 2022 during the restrictions; Checks indicate recovery in Q1 2023 is far better than our expectations. 
• Cash declining from 96 to 65 mn HKD QoQ resulted in the company having to declare a smaller final dividend of 1.6 HKD cents ( interim: 4 HKD cents ) 
• Trading at 5.4x FY23 and 11.1% dividend yield (assuming a 60% payout ratio), the company represents an excellent investment opportunity with >100% upside at the very least.

• Due to the centralized procurement in PRC market and decreasing volume of operations in overseas markets during pandemic, Microport Scientific (853 HK)’s 2021 performance missed expectations. 
• Even if Microport could finally digest the negative impact of centralized procurement, its “unique” development mode would still put pressure and uncertainties on future performance/outlook, leading to lower-than-expected results.
• Our earnings estimate of Microport in 2022 could be about HK$-1.7, and revenue estimate could be about HK$7.3 billion. It’s quite possible that the Company will not end up profitable.

• Oil prices have had a good run, and so have oil stocks, but INPEX can still double from here
• High oil prices and rising production will generate strong operating cash flow growth
• Total shareholder returns will be close to 10% this year, meanwhile the valuation languishes at 0.6x P/B, way below global peers

• Mani Inc (7730 JP) reported Q2FY22 revenue ahead of guidance, mainly driven by demand recovery in the surgical segment and positive effect of foreign exchange. However, profitability declined year-over-year.
• Despite revenue beat in H1FY22, management reiterated FY22 guidance due to geographical risk. Outlook seems to be uncertain for China and India, which together contribute 33% of total revenue.
• Mani shares plunged 20% since I published bearish note on the company in January 2022. Investors should avoid Mani due to its uncertain revenue outlook and deteriorating profitability in short-term.

• Prosus (PRX NA)’s announced open-ended share repurchase programme, funded by on-market sale of its Tencent shares, is a significant positive catalyst to reduce its discount to NAV.
• Continued operating losses will likely require funding through capital events, in the form of either asset sales or debt issuance.
• Cash flow requirements and continued concerns around capital allocation should limit the reduction in the discount to NAV.

• The near term impact of ONDC on OFD platforms like Zomato & Swiggy is limited, longer term they will have to move from platform to a network centric model.
• An external shock will be required to drive faster ONDC adaption as we have seen in the case of UPI.
• Logistics companies especially the ones with express capabilities are likely beneficiaries in case ONDC scales up rapidly. 

• Vision Fund’s public portfolio lost $10bn in Q1 marking the third time in four quarters that valuation losses were in the tens of billions
• Global tech weaness remains the main challenge as portfolio losses are matched with concerns on the private portfolio, especially ARM
• And worries about ARM also feed into leverage concerns as Softbank’s QoQ decline in reported LTV was driven by an ARM upgrade.  Meanwhile, CDS prices are near all-time highs

• J Front reported strong Q1 numbers with OP recovering to +¥7.5b from red ink a year ago
• The company is reaping the benefits of restructuring and better cost control
• A recovery in domestic consumption and the opening of borders will drive further appreciation in the share price

• Askul posted Q4 results that were largely in-line and issued FY23 targets that are robust for revenue growth (+6%) but accompanied by upfront investment
• Management also announced it would prepare subsidiary AlphaPurchase for a public listing although the timing has not been determined
• The miss on profitability guidance is not ideal but the acceleration of top-line growth is attractive

• Starpharma Holdings (SPL AU) is an emerging biopharma company. The company has commercialized its flagship product Viraleze antiviral nasal spray in March 2021. It is now registered in 30+ countries.
• On June 30, Starpharma announced the relaunch of Viraleze in UK, one-year after its sales were paused temporarily in June 2021, thereby removing a major overhang on the share prices.
• Viraleze has shown strong potential to inactivate a broad spectrum of respiratory/cold viruses, including multiple variants of SARS-CoV-2 and influenza A and B.  

• Qualtrics International (XM US)  is the largest XM provider and pioneer in Experience Management. The company was founded in 2002 by Ryan Smith, Jared Smith, and their dad, Scott Smith.
• In 2018, SAP acquired Qualtrics for ~$8B in an all-cash deal, one of the largest-ever acquisitions of a SaaS company.
• We view Qualtrics International (XM US)  as well-positioned to continue to take market share with additional growth drivers such as new products and international expansion. 

• The weak yen should add several billion to operating profit this fiscal year, helping the company meet or exceed guidance.
• Medical Systems, which were once barely profitable, generated a 9.1% operating margin last year due to growing service revenues and a better product mix.
• The share price should continue to hold up in a declining market.

• Just as the December quarter was flattered by the last minute IPO of SenseTime Group (20 HK), expiration of the lockup six months later has delivered a corresonding valuation hit
• Vision Fund is still up on that investment but the public portfolio is flirting with a $10bn loss for the quarter depending on how US shares trade later
• The discount has improved modestly to 49% from 51% but remains at the high end of the recent range as worries on tech valuations cast a long shadow 

• Tencent’s share price is down 6.5% over the last five days as largest shareholder Prosus sais that it would sell down Tencent shares to fund the buyback of Prosus/Naspers shares.
• Though Chinese regulators removed the ban on new game approval in April this year, none of Tencent’s new game titles received approvals in over the last two months.
• Tencent’s 1Q2022 earnings were weak and we expect 2Q2022E earnings to further decelerate with resurgence of Covid cases in China alongside weak macroeconomy.

• Bukalapak (BUKA IJ) held its AGM this week, which effectively repeated the messages from its 1Q2022 results including guidance for FY2022 but there is more excitement beneath the headline numbers.
• One key metric tracked by management is the contribution margin, which is moving towards positive territory put take rates will improve for both Mitra and through its specialty store strategy. 
• AlloFresh has launched and is testing the offline line efficiencies before being applied to Mitra partners and AlloBank has also started its digital journey. Bukalapak looks cheap. 

• PT Nippon Indosari Corpindo (ROTI IJ) recently announced that it will launch two new product lines away from bread including Sari Roti chocolate spread and UHT Milk. 
• Investment in these products will be relatively small but it will increase the visibility of Sari Roti brands on the shelves of modern retail adding to its bread and cakes. 
• Wheat prices have stabilised recently but ROTI may consider raising prices further after assessing June performance. 2Q2022 performance has been stronger than expected post-Lebaran, as demand improved with greater mobility.

• The market seems to be focusing more on the cost risk increase than on Hyundai E&C’s sales growth following the top-line expansion of the urban renewal market.
• Instead, the market is looking forward to the possibility that Hyundai E&C’s leap forward as a nuclear power solution provider will lead to a growth premium for the share price. 
• The trading point should be to target this risk when the price is peaking out from the nuclear power theme. Specifically, we need to consider a sector pair long/short setup.

• Maintain BUY for KBANK with a target price of Bt174.00. We are optimistic about the joint venture between KBANK and JMT. Going forward, we expect KBANK’s profitability to increase 
• A joint venture between KBANK and JMT:  KBANK joined with JMT Network (JMT) in establishing JK Asset Management Co., Ltd. (JK AMC). The establishment of JK AMC will allow KBANK 
• KBANK plans to sell NPLs of Bt50bn to JK AMC within 2022, which will alleviate KBANK’s future NPLs, improve net interest margin (NIM), and reduce potential provisions 

• Itaú Corpbanca operates in Chile and Colombia, with the recent win by Colombian presidential candidate Gustavo Petro hitting Colombian share prices, including Itaú Corpbanca
• Nonetheless, we see some evidence of fundamental recovery from a bottom up perspective in the case of Itaú Corpbanca, despite the political headwinds
• We rate Itaú Corpbanca as a contrarian buy; it is an emerging recovery stock, unloved and undervalued by the market but with a firmer balance sheet base and returns recovering

• Yesterday site visit to BVP and BGP plants came out as neutral tone.We do see its underlying growth potential but believe both will not be a growth driver for 2022-23. 
• Yesterday’s company visit came in at neutral tone : We visited BVP (Paper packaging manufacturer) at Pathumthani and BGP (PET and Plastic films packaging manufacture) at Ayutthaya. 
• A challenging growth roadmap, but only time will tell: The company target to achieve sales to Bt25bn by 2025,representing a 19% 4Y CAGR (2021-25E) by M&A strategy focusing at businesses 

• Enterprise storage hardware market faces numerous headwinds and increasing commoditization
• STaaS is cannibalistic, facing increasing competition, and decelerated in the MRQ
• Each of the last 2 quarters have seen some meaningful, non-recurring revenues lead to PSTG beating estimates

• Ryohin Keikaku (Muji) slashed its earnings guidance for FY8/22 by 32%
• The retailer is facing a number of headwinds, only some of which are industry wide
• We remain bearish as Muji lacks the pricing power to push through higher input costs

• HK reopening is debatable and seems to be very hard to predict as the Chinese government is keen to keep zero COVID stands although recent quarantine time reduction is positive. 
• The number of passengers remains weak although the shorter quarantine reduction could provide short-term relief to the share price. 
• Valuation looks undemanding compared to the peers although the outlook is more uncertain. Stay out for now. 

• Tesla faces stiffer competition in 2H 2022 as chip supplies at rivals recover faster than expected. This will put pricing pressure on Tesla amid rising costs. 
• Cash could be tight in 2H 2022 as Tesla ramps up 2 new factories. There is a distinct possibility of Tesla resorting to equity financing.
• If the drop in Q2 earnings doesn’t return to high growth again from Q3, Tesla could finally see its valuation fall down to earth. Its premium has already shrunk.  

For our next Corporate Webinar we are glad to welcome IREIT Global (IREIT SP) CEO, Louis d’Estienne d’Orves.

In the upcoming Webinar, Louis will share a short company presentation, after which he will engage in a fireside chat with Smartkarma Analyst Jesus Rodriguez Aguilar. A live Q&A session will follow.

The Corporate Webinar will be hosted on Tuesday, 12 July 2022, 17:00 SGT.

• Our checks suggest Hitachi Home & Life Solutions India Ltd (JCHAC IN) has lost market share this season. 
• Market share loss has come on the back of poor product quality due to focus on costs and competition, which is irreparable in spite of the strong dealer network. 
• Poor capital allocation, high receivables and low-profit margins, all warrant attention. 

• We highlight the top five catalysts of why we believe Hyundai E&C is likely to outperform the market in the next 6-12 months. 
• Higher housing supply, surge in new orders, expansion in nuclear projects/inclusion in nuclear ETFs, Neom mega project, and shift to value stocks are likely to drive Hyundai E&C’s outperformance.
• Housing/Architecture accounted for 57.1% and 59.7% of total sales in 2021 and 1Q 2022, respectively. Plants/power plants accounted for 25.7% of total sales in 2021.

• Despite regional lockdowns caused by COVID-19 during most part of FY21, Arrail Group (6639 HK) posted 7% y/y growth in revenue, driven by 14% y/y growth in total patient visits.   
• China dental services market is growing at an average 20% per annum. Arrail’s low debt and strong cash position should support its business expansion plans to grab the market opportunity.
• Despite competition, the company is expected to report accelerated double-digit revenue growth in next three years, by leveraging on its market leadership positioning and favorable macro tailwind.

• We maintain our HOLD rating and TP of Bt47.60 based on DTAC’s tender offer price. We believe the company will benefit from seasonal low costs despite weak sales performance. 
• Expect QoQ improvement in 2Q22 net profit : We expect 2Q22 net profit to be at Bt854m (-44% YoY, +18% QoQ) as a result of seasonal low costs. 
• We expect 2Q22 revenue at Bt19bn (flat YoY, -4% QoQ). Top-line performance continues to struggle YoY and QoQ due to weak economic activity.

• Pinterest co-founder/CEO Ben Silbermann is replaced by Google exec Bill Ready.
• Ready is a payments industry veteran and is perfectly suited to drive commerce adoption at Pinterest. 
• Unique pay package incentivizes Ready to succesfully pivot the business. 

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

• Just Eat Takeaway’s Grubhub $7.3B acquisition has been a fiasco, an activist is demanding its sale.
• A rumored $1B price tag has attracted private equity investors Apollo and General Atlantic, but management yesterday said it preferred a strategic investment.
• We think Uber should make a bid – the deal logic from 2 years ago still holds and Doordash’s market share gains should blunt anti trust concerns.

• Rex will soon close a disappointing 1H22 as equipment upgrades and maintenance hamper production in Oman. Recently production was halted again due to a small oil leak in its flowline.
• Norway’s production has been declining in 1H. Rebound hopefully in 2H. New bond financing was announced for more Norwegian M&A. Malaysian assets to get the green light in 2H22.
• Rex remains very cheap but needs to deliver on operational milestones to unlock value. YTD share price performance has lagged sector peers substantially.

• Adaro Energy continues to ride the wave of higher coal prices but at the same time, it aims to increase production this year by over 13% further driving revenues.
• The company is on the cusp of a transformation, with the construction of a new smelter in North Kalimantan in a new green industrial park, the world’s largest planned. 
• FY2022 will see a sharp spike in earnings but Adaro will also pay out a significant dividend with a payout ratio similar to last year implying a yield over 20%.

• Rakuten’s stake in Goto is worth ¥13bn and the IPO of the latter in April and the subsequent value re-rating could provide some (very) modest offset to operating losses
• Our forecasts remain unchanged from our mid-month update although we would flag up potential electricity resale upside for Rakuten and the sector from utility resale 
• We have lowered our price target to ¥1,000 from ¥1,150 but uncertainty over the timing of a Bank listing, mobile recovery and return to profitability keep us cautious

• Hogy Medical (3593 JP) is high-quality idea on Japan re-opening, with surgical kit, especially premium kit being the main growth driver of the company.
• With the declining effect of the COVID-19 and resuming elective surgeries in Japan, Hogy expects 5% y/y revenue growth in FY23, driven by an 11% growth in surgical kit products.
• Hogy is expanding marketing initiatives in Southeast Asian countries. The company is enhancing production capacity of premium kit products, with partial operation of the new plant to start in July.

• Arrial’s positioning at high-end private dental chain indicates limited growth space. The large investment in dental professionals drags down overall margins but fails to generate good word-of-mouth and expected returns.
• Public hospitals with NRDL reimbursement and private dental chains with high cost performance would put more pressure on Arrail. Increasing marketing/promotion expenses cannot turn things around but further reduce margins.
• Overall, the high-end strategy cannot bring high-end returns. We are not optimistic about Arrail’s prospects and profitability. The Company may even keep losing money and hard to turn profitable.

• The six Malaysian banks have healthy capital adequacy ratios, healthy credit quality and adequate NPL coverage; increased tourism should support GDP, positive cost of risk trends and loan growth demand
• We like RHB, with its attractive post-provision profitability and sound cost of risk trends, whilst also trading on attractive multiples versus peers and on a relatively low PEG
• We also like big-cap Maybank with its reasonable valuations; combined with a prospective earnings recovery due to contained risk costs, this could drive a re-rating, after lacklustre share returns

• The recent correction in the share price offers a good chance for long-term bulls to get into the stock
• MHI is the core play on Japan’s energy security given its portfolio of gas and nuclear power plant assets
• The unseasonably HOT weather and potential power cuts, at the same time as soaring energy costs, could be the catalyst for the government to push for nuclear restarts

• Seven & I Holdings (3382 JP) should breeze through its rather unchallenging expectations when it releases its first-quarter results next week.
• The company has raised its previous guidance multiple times last year and we expect a similar pattern in the first half next year with 7-Eleven US continuing to exceed expectations.
• Thus, we would buy Seven & I Holdings leading up to earnings expecting a decent upside on rising guidance.

• New Medical Product Rule banned online direct sales of medical products.
• Koolearn’s stock price plunged after surging, as Tencent reduced its shareholdings.
• Alibaba dismissed employees in Freshippo and JD.com downsized its community group purchase.

• China has released a draft rule on 22nd June that would prevent third-party e-commerce platforms from selling drugs directly to consumers online.
• Alibaba Health as well as JD Health’s shares dropped 15% at the end of trade on 22nd June while Ping An Health’s shares lost about 5.7% of its value.
• This is the First of a series of reports where we analyse the impact of the above draft rule on leading digital-healthcare players in China. This report discusses JD Health.

• Through perfect partnership system, Gushengtang locks in the scarce TCM physicians, and then quickly establishes/merges offline medical institutions to occupy the market. Such development mode works well so far.
• The challenges are the risks of losing talents to competitors and the weak sales of healthcare products leading to lower profitability. 
• Gushengtang is in an industry that receives government encouragement/preferential policies. The 2022 revenue growth forecast could fall back to about 25% considering the pandemic/lockdown. The EPS could narrowly turn positive.

• Nidec’s share price jumped 6.5% on Friday, June 24, suggesting support near ¥8,000.
• Reconsider the company’s future as CEO Nagamori leads the turnaround of OKK and makes machine tools and industrial robots into a new product division.
• Nagamori, who will turn 78 in August, is still the Key Man at Nidec.

• EPAM is an IT Services firm that does high end software development for Fortune 2000 customers.
• One of the great under the radar compounders of all time. Feb 2012 IPO-Feb 2022: ~27% revenue, earnings, FCF CAGR, 45% equity CAGR.
• Core engineering talent historically in Ukraine, Belarus, and Russia, this is the overhang. We think great management team can navigate relocation and return to growth.

• The exposure draft about online drug sales activities on third-party digital healthcare platforms would add uncertainties on JD Health’s business. We analyzed the potential impact and the logic behind.
• Keeping both self-run and third-party business is the optimal option because JD Health cannot afford losing either one. The exact impact will have to wait until policy details are released.
• As main revenue contributor, there are concerns on JD Pharmacy in terms of profitability and policy risks. Before second growth point emerges, expectation on long-term valuation expansion would be discounted.

• Subscription usage continues to rise in Japan and a new survey suggests just under 50% of teens and 20s plan to use a subscription service this year.
• Daimaru-Matsuzakaya’s luxury and designer brand rental business has been so successful that the company had to turn away new members for a while.
• The department store’s owner, J Front Retailing (3086 JP), sees subscriptions as a third pillar to its business in the future.

• Z HD’s media business accounts for 80% of consolidated earnings.
• We believe that the combination of Yahoo Japan and LINE is driving new synergies and growth opportunities.
• We believe that the media business alone could justify an EV of ¥4.5t, way above ZHD’s current EV of ¥3.5t

• Lepu Biopharma (2157 HK) has filed NDA for its lead drug candidate pucotenlimab (HX008) for two indications in China, having a combined estimated market opportunity of RMB8 billion by 2030.
• Overcrowded PD-1 mAb drugs market in China, with 10 marketed drugs, may limit the growth potential of pucotenlimab. However, pucotenlimab has better efficacy than existing drugs.
• Lepu’s other core assets are also progressing and the company has sufficient cash to fund its R&D and commercialization initiatives.

• We continued to be cautious on China Gas Holdings (384 HK) given the challenges faced. It guided for a flat dollar margin in FY23 but we think this is optimistic.
• Connection fees are likely to stay under pressure after a 42.1% decline in FY22. It only projects 2.6-2.9m new residential connections for FY23, compared with 2.9m in FY22.
• Although China Gas is now the cheapest Hong Kong-listed China gas utilities company, it takes time to regain market confidence. At similar valuation, Kunlun Energy (135 HK) looks more interesting. 

• The healthy FY22 result of Bosideng International Holdings (3998 HK) showed its ability to solidify leadership position and ride through higher costs with margin expansion. 
• Management expects double-digit profit growth for FY23 as it pursues targeted “2+13” expansion strategy and increase push for online sales. New spokespersons and flagship store will add to promotional impacts.
• Net cash of Rmb7.8bn and strong FCF generation ability can ensure high dividend payout (FY22: 80.2%) to sustain. Premium valuation over local apparel peers is well justified. 

• Alfresa Holdings (2784 JP) reported revenue decline in FY21. Apart from market wide negative impact of COVID-19 and drug price revision, suspended qualification for public bidding tenders affected the company.
• In FY22, the company is expected to be back to its growth path with less impact of bidding suspension and increasing focus on high growth areas.
• According to its 2022–2024 mid-term management plan, Alfresa targets to achieve a revenue of ¥2.7 trillion and operating income margin of 1.5% or higher by FY25.

• Kino Indonesia (KINO IJ) continues to look like a lesser known consumer proxy despite its interesting portfolio of leading brands in beverages, personal care, food, and pharmacy. 
• The company is already seeing a strong rebound in the sales of beverages and personal care products, as mobility resumes in Indonesia. 
• Higher packaging, distribution, and input costs are putting some pressure on margins but this is being offset through selective price increases. The recent pull-back in share price provides an opportunity.

• The completion of the acquisition of a 66% stake in Link Net by Axiata Group and XL Axiata is a significant positive for the latter on its convergence journey.
• The deal will bring significant synergies for both parties but it gives XL Axiata (EXCL IJ) access to a nationwide fibre backbone, which will be invaluable for 5G longer-term.
• XL Axiata (EXCL IJ) will now be able to offer a truly bundled service including the best quality high-speed broadband and pay-TV through First Media. Valuations are attractive.

• Z Holdings has the best ecosystem in Japan with 30% top line growth over the past year
• We think that Z HD can out grow the competition in E-Commerce this year by leveraging group synergies
• Z HD has earmarked an aggressive ¥35b to grow its Commerce Business this year