Equity Bottom-Up

• 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 

• Water Oasis (1161 HK) reported a tepid H1 with profits coming in at 26 mn HKD, down 56.2% YoY.  This was below our expectations as the company received no subsidies.
• No interim dividend was paid as the profit in H1 was minuscule, and business had commenced on the 21st of April, impacting a month of H2.  
• Save for another lockdown in HK, we see a substantial improvement in profitability for Water Oasis (1161 HK) in H2, along with subsidies that are being paid retrospectively.

In our next Webinar, we are excited to host Analyst Chris Redl (SC Capital) who will outline his stock picks in the global automotive sector. What do major automotive names look like amidst the EV revolution? Tune in to hear more.

The webinar will be hosted on Wednesday, 29 June 2022, 17:00 SGT/HKT.

SC Capital has over 20 years’ experience covering the global automotive industry both on the Sell-side (UBS & Morgan Stanley) and Buy-side (Och-Ziff), along with a wealth of industry contacts. The current focus is on electric vehicle stocks & their supply chains, aiming is to identify the winners and losers from a long/short perspective. This includes close coverage of legacy automakers as well. From time to time, SC Capital covers opportunistic events with stocks in the manufacturing sector, food & beverage, healthcare, and tech.

• Tencent has been actively divesting its investments (mainly in China) given the ongoing regulatory challenges faced by tech platforms in China. Moreover, macroeconomic conditions also have led to these sell-downs.
• The company has explicitly mentioned that it would restructure its investment portfolio to manage risk, this includes divestments and distribution to shareholders.
• The latest sell-down was Tencent (700 HK)  stake in online education platform Koolearn, whose share price more-than tripled this month following its venture into livestreaming.

• My E.G. Services (MYEG MK) ‘s share price is pummelled down from the reopening sentiment, although investors missed the point on this given the range of services MyEG offers. 
• Plenty of the upsides from the new JV in the Philippines and Indonesia are yet to contribute to the full extent due to COVID-19.
• Trades at 19x PER, a deep discount to its historical highs despite stable profitability and a healthy ROE at 23%.  

• Fast Retailing (9983 JP)’s share price continues to hold at the post 2QFY22 level despite clear signs of weakness in many of its growth markets.
• Even though markets have partially priced in the losing competitiveness in the Chinese market, it still believes Fast Retailing can offset that with growth from North America and Europe businesses.
• As North America and Europe expose their true colours in the next quarterly results due mid-next month, we expect a much-needed correction to Fast Retailing’s share price.

• A webinar hosted by Smartkarma with Siloam International Hospitals revealed strong momentum behind its base-case revenues, with patient numbers, and some positive pricing strategies driving revenues.
• The company also continues to develop its centres of excellence and leading positions in a number of specialisations, which helps to widen catchment areas and increase the complexity of treatments. 
• Siloam continues to expand its hospital portfolio but may look to acquire more brownfield assets in the future plus it is experimenting with a managed services model. Valuations are attractive.

• Green Cross (006280 KS) is expected to receive FDA approval for its immune globulin injection, once the agency conducts onsite inspection of its production facility.
• After suffering in 2021, both blood products and vaccine business are back to double-digit growth path in Q1 2022. The company continues to win export orders for both of these.
• Hunter syndrome and hemophilia treatments are the company’s new growth engines. Green Cross has received approval for its hunter syndrome treatment in China and Japan.  

• Nanya Technology has warned of a downturn that could last to the end of the year. This follows reports of procurement delays in response to excess inventory at Samsung.
• Inflation, the Fed’s attempt to kill it with higher interest rates, and the growing risk of recession now threaten not only Tokyo Electron but the entire semiconductor supply chain.
• Record capital spending plans should be fully discounted. Potential delays and cutbacks now put a burden of uncertainty on the sector.

• Acquisitions and product price increases amid home-buying demand drove a dramatic increase in sales.  Product shortages and operating leverage enabled the company to push EBITDA margins 1000bps. 
• The macro environment for homebuilding is inflecting.  GDP posted a down since 2014.  Consumer sentiment is collapsing from the surge in inflation, political acrimony, crime and the war in Ukraine.  
• The stock is expensive on normalized margins.  After a dramatic run, the stock trades at high multiples of normalized earnings, but deceptively moderate multiples on inflated earnings.

• Oriental Watch (398 HK) profit alert for >350 mn HKD affirms our conviction on the increasing dividend (74 HKD cents for FY22, implying a 15.7% dividend yield). 
• Lockdowns in China (accounting for 67% of the revenue) cast doubt around how H1 2023 will shape up. 
• With cash > 50% of market capitalization, we remain positive on the company maintaining its high dividend payout for FY23 despite weakness in H1. 

• Our channels in Assam indicate a high impact of floods this year on the overall state economy. Normalcy is expected to take 4-5 months in order to be restored. 
• Despite the high impact, Bandhan Bank Ltd (BANDHAN IN) may not see an increase in NPAs.
• New recovery tools, changing regulations and customer mindsets are aiding faster than anticipated recovery even for older loans. 

• Recruit Holdings (6098 JP) shares have declined 44.35% YTD as the company’s earnings have started normalising following easing off of Covid-19 conditions.
• 4QFY03/2022 results showed that the strong growth in earnings that the company experienced in FY03/2022 has started to weaken with normalisation of recruitment and staffing markets.
• With weakening earnings, we think there is further downside and Recruit will be a good short over the next few weeks.

• Neom is the largest construction project in the world with total project size of nearly $500 billion. 
• Neom has started to provide construction project awards for key projects in 1H 2022. Hyundai E&C and Samsung C&T consortium recently won a project estimated at $1 billion for Neom. 
• Samsung C&T and Hyundai E&C are two key companies in Korea that will be long-term beneficiaries of the Neom futuristic city construction in Saudi Arabia. 

• Pola Orbis Holdings (4927 JP) is expanding its Travel Retail presence in the region to capitalise on the surge in demand from the recovery of air travel.
• Inbound demand could also return to Japanese cosmetics through the reopening of Japan’s borders to tourists.
• The sector is yet to break out from the downtrend. Investors willing to get in early could do that with Pola Orbis with limited downside risk.

• Banco Central do Brasil has been raising benchmark interest rates aggressively since 1H2021 and we believe it is approaching the peak of its tightening cycle; this feeds into loan spreads
• 1Q22 Brazil bank results showed limited evidence of widening spreads, due to a time lag, but loan quality is worsening due to the hiking interest rates amid the soft economy
• Disciplined loan origination should support bank returns, especially in the consumer and SME segments, containing credit cost charges growth as spreads expand; deep-value Banco do Brasil remains our top pick

• Maintain BUY for KKP with a target price of Bt82.00. We like its steady net profit growth, resilient fundamentals, and high dividend yield, expected at 5.3-6.6% for 2022-24.
• Strong 2Q22 net profit to rise YoY : We expect Kiatnakin Phatra (KKP) to post a net profit of Bt1.9b in 2Q22, up 39% YoY (-9% QoQ). 
• Lending growth in 2Q22 will likely continue to be strong at 4.2% QoQ (1Q22: +6.5% QoQ), largely due to higher demand from vehicle hire purchase and mortgage lending. 

• LVS is now entirely a balance sheet play in that its cash position vs. run rate assures good liquidity through the lingering covid crisis.
• Maturities of its debt pose no problems for refis until ’24,’25–and even minimal then.
• Recurring sporadic covid outbreaks and Beijing policies impede GGR recovery. We are moving LVS from BUY to HOLD to reflect the value of its sustainability rather than growth.

• Share price of Beijing Capital International Airport (BCIA) (694 HK) underperformed that for Air China Ltd (753 HK) by wide margin in this year, which we believe is not justified.
• Removal of lockdowns in various districts in Beijing and the revival of international passengers will be the major driver for BCIA to close the valuation gap.
• The gradual relaxation of inbound international passengers at Beijing and the potential for a full border opening in early next years are the catalysts for BCIA’s performance.

• After rising more than 40% since Q4 earnings, Alibaba (ADR) (BABA US) is threatening to break out from a downtrend that lasted a little less than 20 months.
• We think this bounce is quite normal given the fact that the stock lost more than 76% of its value during a challenging time period.
• We remain confident that Alibaba has more downside potential and thinks that this is yet another opportunity to make money on the short side.

• Aided by the weak yen, Imaging & Sensing Solutions should return as a major profit driver in FY Mar-23.
• Capacity expansion should help SONY regain image sensor market share over the next 3-4 years.
• Participation in TSMC’s foundry project in Kyushu should add to the division’s long-term potential.

• NTT has adopted a progressive telework policy that reportedly allows up to 50% of eligible employees (30,000) to work from anywhere in Japan
• All telcos are likely to go down this path although NTT stands out as a larger and more  traditional domestic company than KDDI or Softbank
• We have updated our model for new segment reporting. Our new forecasts support a ¥4,500 target price (March 2023) and we remain at Buy. 

• Just as we analyzed before, things get worse for PAGD. The loss expanded and gross margin declined. The gap between PAGD and its peers (JD Health, Alibaba Health) is widening. 
• PAGD’s Achilles’ heel is its business model/profit model is untenable. The new HMO services system would not help turn things around because China’s national condition is different from the US.
• Being on the wrong track, PAGD’s financial performance is expected to further weaken. We are conservative about PAGD’s outlook. Any brief upwards movement is just dead cat bounce.

• Ashok Leyland (AL IN) ‘s volumes recovered in FY22 thanks to a much milder than expected omicron wave and market share gains.
• Discounting lead gains, the absence of retail fleet owners in the market, and little excitement around the scrappage policy all warrant caution. 
• While the stock is currently outperforming, channel feedback and valuations point to caution. 

• Grab continues to innovate and adapt to more challenging times, with a needle focus on moving toward profitability with ongoing efforts to reduce incentives and rationalise non-core businesses.
• The launch of GrabMaps is interesting in that it has the potential to generate new revenue streams, create substantial cost savings, and enable targeted advertising adding to the enterprise segment.
• Grab (GRAB US)  has cash liquidity of US$8.2bn, which makes it look cheap relative to its market cap of only US$8.9bn and it is trading on 2.0x FY2023E EV/Sales. 

• With Softbank’s AGM coming up we examine some of the curious events that surround the firm as usual. 
• Following in the footsteps of former governance director Yuko Kawamoto, VC founder Lip-Bu Tan has also penned a curious resignation message.  
• Then there are the continuing questions surrounding Kenneth Siegel and his reappointment is not guaranteed in our view.

For our next Corporate Webinar, we are glad to welcome Golden Agri Resources (GGR SP) Director, Investor Relations, Richard Fung. In the upcoming Webinar, Richard will share a short company presentation, after which he will engage in a fireside chat with Smartkarma Analyst Angus Mackintosh. A live Q&A session will follow.

The Corporate Webinar will be hosted on Tuesday, 5 July 2022, 17:00 SGT.

• Belite Bio (BLTE US) shares jumped 383% from its IPO price of $6 (announced in late April). Its lead candidate LBS-008 is in clinical trial for currently untreatable eye diseases.
• LBS-008 continues to be well-tolerated. Interim safety and preliminary efficacy data from ongoing two-year phase 2 trial remained positive in Stargardt disease.
• Belite is well-funded to commercialize its pipeline. With the progression of the clinical trial and more data readouts, we believe further stream is left in Belite Bio’s share price.

• The number of visitors arriving in Singapore went up by almost 8x YoY and rail and bus ridership already hit 78% of the pre-pandemic level.
• Won a bid to provide public transport in Darwin, Australia for the next 6 years, transporting approximately 5.7 million passengers annually (similar to Singapore’s population). 
• As COE > SGD 100,000, the incentive to own a car in Singapore is even less and is a positive for public transport operators like Comfortdelgro Corp (CD SP) .

• Without entering NRDL and public hospital markets, Airdoc’s core product Airdoc-AIFUNDUS would be hard to generate solid performance due to its high pricing but limited value to patients and doctors.
• Due to lockdown/pandemic, we lowered our forecast on revenue growth/gross margin in 2022. As competition intensified, Airdoc’s revenue growth and margin could be significantly reduced in the coming years. 
• The biggest concern for Airdoc is the commercialization prospects. The real turning point for AI medical imaging has not arrived. We are not optimistic that Airdoc will end up profitable. 

• TSI seems to be following a strategy of diversify or die. It is using its vast cash resources to invest in and build new businesses with some success.
• But it also has a couple of compelling brands in strong growth sectors, particularly in golf, providing growth of nearly 50% last year in one case.
• This isn’t enough to sustain overall growth however and more needs to be done to get on to a more secure footing.

• Decathlon entered the Japanese retail market in 2017 with the opportunity to take a significant share of a growing sports and athleisure sector.
• But the French firm is already retreating: it will close its two stores and focus on online and wholesaling. 
• The market is poorer for but it does leave the market wide open for Workman – which built a consumer chain to combat Decathlon – to become dominant.

• Sinotrans (598 HK) has confirmed its plan to issue infrastructure REIT using six warehouse logistics assets as underlying assets, and they represents 7.6% of its total warehouse area.
• The proposed issuance may boost its value by HK$0.16/share, or 7.3% of share price. Should all 4m sq.m. of warehouse assets are securitised, this may nearly double the stock’s price.
• Since Jun, Sinotrans has repurchased 14m H-shares, suggesting positive view on outlook. There will be more to come, and as the shares will be cancelled, EPS will be enhanced. 

• All of Japan’s big apparel firms have radically restructured but there is a lot more work to be done.
• Onward has done a great job of transitioning to e-commerce but this is not enough to sustain the business and provide new sources of growth.
• Trading will improve but slowly and more dynamism is needed in brand development and marketing.

• Sanyo Shokai has posted losses in every year since FY2016 despite promising a return to profit on an annual basis too.
• Its latest 3-year plan is typically optimistic but, equally typically, lacks real substance as to just where this growth will come from.
• Of all Japan’s larger apparel firms, Sanyo Shokai has the least promising outlook and that is saying something.

• Due to doctors’ poor diagnosis/limited affordability, commercialization prospects of China autoimmune disease market could be much lower than expected. Internationalization is inevitable, but Keymed is lack of cash for MRCT.
• For CM310 and CM326, their total sales in China could be less than RMB2 billion. For CMG901, it is hard to say if Claudin 18.2 (ADC) would finally be successful.
• As long as Keymed can successfully develop either CM310 or CM326 (key premise), even temporarily only commercializing in the domestic market, the Company has the potential to double in valuation.

• The outlook for big apparel remains uncertain; most executives are optimistic about a rebound in sales of premium apparel brands, they are also running around looking for ways to diversify.
• Despite years of closing stores and a recent re-listing, World Co Ltd (3612 JP) remains in uncertain territory as it tries to boost sales of key brands.
• More brands may need to close but the apparel firm is at least investing in new ventures, even if small scale.

• No stock in the sector among major operators has taken a bigger hit than Melco, down over 60% this year.
• The bet is tied to whether Beijing will begin to ease travel bans and lockdowns or not before the end of this year. If so, Melco is very cheap here.
• Performance of its Manila property, the opening of its new Cyprus resorts could carry the company safely until Macau recovery is in place.

• There has been a recent press commentary about Sea Ltd laying off staff, which although unpleasant reflects management’s decisive and pragmatic decision-making style which is no bad thing.
• It is unclear how many staff are being laid off and where but it seems that Indonesia is not impacted in a big way and core markets continue to perform.
• We will not follow on the coattails of liquidity with a negative recommendation when what management is doing looks positive and Sea Ltd (SE US) is batting above its peers.

• I visited a Clarks store in Putney, London today. I provide details of this store visit. 
• Clarks is well poised to stage a major turnaround in business, capitalizing on improving popularity of its core Wallabee shoes and expansion into other distribution channels such as Deichmann. 
• Clarks hired Jonathan Ram as its new CEO in April 2022. Previously, Ram headed up HanesBrands global activewear since 2018. He also worked 16 years at New Balance.

• 3SBio Inc (1530 HK)‘s core products have dominant market share in their respective therapeutic areas, lending a favorable financial profile to the company to fund its R&D and commercialization efforts.  
• Flagship drug, TPIAO remained resilient to the COVID-19 and clocked a revenue CAGR of 32% during 2016–2021. Low penetration of TPIAO’s targeted indications leaves further room for its growth.
• Haircare product Mandi has high market share of 70%+ and clocked 64% y/y revenue growth in 2021. 3SBio aims to launch Mandi foam, which will further sharpen its competitive edge.

• Confluent (CFLT US)  is an American-based data infrastructure software company and a major contributor to the open-source project Apache Kafka. 
• Original creators of Apache Kafka founded the company in 2014. Today, Kafka has 5M+ lifetime downloads, and >100,000 organizations use the successful open source project.
• We believe Confluent (CFLT US)  is uniquely positioned to benefit from the widespread adoption of Apache Kafka and the growing $50B+ total addressable market. 

• Maruti Suzuki India (MSIL IN) ‘s dealers are optimistic, expecting easing supply, new launches and the Maruti brand promise to drive back some of the lost market share. 
• Kia Motors Corp (000270 KS) is gaining when it comes to fighting with its big brother Hyundai Motor Co (005380 KS). 
• There is a set of customers that now prefers Indian brands giving a good tailwind for Tata Motors Ltd (TTMT IN) & Mahindra & Mahindra (MM IN). 

• After a 50% fall in the share price, Lasertec looks cheap on an historical basis and trades at a discount to ASML  
• The secular growth outlook for its extreme ultraviolet (EUV) inspection systems is brighter than ever  
• Lasertec should be a core holding for Japan growth funds on expectations for continued earnings growth and high returns on equity 

• Sequential passenger traffic improvement makes us believe that the worst was over for Air China (753 HK). We expect it continues the YTD outperformance vs. Air China Ltd (753 HK). 
• With the pandemic under control and government’s focus on the economy, the release of pent-up demand will be a major driver. We have also seen relaxation in pandemic control measures.
• Increase in flight destinations and loosening of travel restrictions and quarantine requirements in Hong Kong should benefit Cathay Pacific Airways (293 HK) which now anticipates lower losses YoY in 1H22.

• This model looks for slowing growth, margin declines, sales and/or earnings disappointments, troubling working capital trends, poor estimate trends or lowered guidance, among other characteristics.
• The key judgement is whether a slowdown is temporary or the beginning of a trend.  These shorts tend to have high valuations and betas.  Multiple compression accelerates the stock’s decline.
• Today we are flagging Repligen, Snap, Dynatrace Inc, Intuitive Surgical

• China’s motor insurance has been showing signs of growth after years of decline due to deregulations and reforms in the sector.
• Motor insurance tailwind will benefit large players the most. Bullish on PICC P&C since it’s the largest player in motor insurance and to likely benefit the most from the tailwind.
• Bearish on CPIC since its P&C business is much smaller than PICC P&C and Ping An P&C, while its L&H growth continues to be under pressure.  

• Erajaya‘s 1Q2022 results do not reflect the company’s prospects for FY2022, given the impact of Omicron, the chip shortage, and significant IT upgrades taking place, all of which depressed performance.
• The company is stepping up its outlet expansion this year, with plans to add 400-500 new outlets in an effort to gain market share post-pandemic by expanding its network.
• Erajaya is adding new retail JVs outside its handset and IoT businesses including JD Sports, Wellings Pharmacy, Grand Lucky, and Paris Baguette, jointly managing these JVs.

• The news that PT Surya Citra Media’s digital platform Vidio has raised an additional US$45m from Sinarmas, Grab (GRAB US), and Bali United should be seen as a positive.
• Vidio is Indonesia’s leading OTT platform with 61m subs and 2.5m paying subs forecast to grow to 4m by year-end with Champions League, World Cup, and Original Drama driving demand.
• PT Surya Citra Media looks cheap relative to its holding in Vidio, which is worth 71% of its market cap, and trading at a discount to 5-year average forward PER.

• Raccoon Holdings, Inc. (3031 JP) is currently maintaining the COVID growth momentum while all others in Japanese e-commerce are face a significant drop-off in demand conditions.
• If this outperformance continues, valuation multiples that look somewhat decent today could look cheap beyond any reasonable doubts in a few years.
• In addition, if Raccoon succeeds in bringing down advertising spending to the pre-COVID level, the share price could rise above the previous peak of ¥3,300.

• M3’s shares have declined 53.2% over the last 12-months to JPY3,566 from JPY7,613 per share. Share price has lost 15% since 4QFY03/2022 earnings in April.
• The company’s Medical Platform business was a key beneficiary of pandemic which saw accelerated transformation in pharma marketing.
• However, with pandemic conditions easing off, m3’s earnings growth has begun to decelerate and we think there is further downside with weakening of core earnings.

• We had highlighted in our prior note that IPL Media Rights for next 5Y (2023-27) could fetch a value of over INR 40,000cr.
• The bidding concluded recently. Total value of IPL Media Rights came in at INR 48,390cr, well above the INR 40,000cr expectation and closer to our optimistic scenario of INR 50,000cr.
• RPSGV’s IPL team will receive INR 480cr+ per year from its share in media rights vs INR 300-350cr projected earlier. This improves IRR for RPSGV’s investment in IPL team substantially. 

• Maintain BUY for TISCO with a target price of Bt106.00. We like its high dividend yield, expected at 8.4-9.3%for 2022-24.We maintain a moderate net profit growth of 6%CAGR for 2022-24. 
• A mixed picture in 2Q22 We expect Tisco Financial Group (TISCO) to post a net profit of Bt1.74b in 2Q22, up 4.5% yoy (-3.1% qoq). The yoy rise will largely 
• Lending growth in 2Q22 is likely to continue rising by 0.4% QoQ (1Q22: +0.4% QoQ), given elevated demand from corporate and SME lending despite muted new auto HP lending. 

• The Philippine gaming market is recovering fast from covid with the future of hs biggest casino property plagued by legal battles.
• Founder Kazuo Okada dismissed in 2017 by the Universal board over his alleged financial self dealing, is seen behind a May 31st strong arm takeover of the property.
• The Manila government thus far remains neutral but plans for a Spac IPO by Universal and a US based hedge fund is delayed, but is scheduled to debut by September.

• Indian Premiere League cricket auction has brought in $6.6B thus far, up 3x from the 2018-2022 package, though the per game increase is closer to 2.3x.
• Disney was smart to relinquish the digital rights, saving itself $3.6B in cash (~$2/share) rather than spending to drive worthless Hotstar+ subs (~$0.26/share).
• Google may open up YouTube advertising to 3rd party platforms to settle EU antitrust…a potential boon for The Trade Desk.

• Cellid (299660 KS) is developing a rich pipeline of five cell-based anticancer therapeutic vaccines, for which there are no commercialized competing products at present. BVAC-C is the lead candidate.
• BVAC-C is being developed for cervical, head and neck, anal, and certain other cancers. It is the world’s first-in-class in terms of its complex and powerful anticancer action mechanism.
• Cellid has secured government funding of KRW8.9 billion for its COVID-19 vaccine candidate. The company is accelerating clinical trial of COVID-19 booster dose candidate.