Equity Bottom-Up

Its revenue, GM and NM were NT$16.3bn, 42.6% and 36.1% in 1Q22.
GlobalWafer experienced their China Suzhou subsidiary, SST, suspended production during April 2~27 by local government’s COVID-19 control measure, but it had resumed production.
The stock dividend is NT$16 in 2022, which is 58.7% payout ratio from 2021 earnings. The payment date is to be 2022/08/05.

Alibaba (9988 HK) Pre-Earnings: Still Active Under Lockdown, Buy

By Ming Lu

We estimate that the revenue growth will rise to 11.5% YoY in 4Q22 from 9.7% YoY in 3Q22.
Freshippo is the store chain closest to the operation before the lockdown among all large retailers.
We believe the stock has an upside of 27% for March 2023.

Aurobindo Pharma (ARBP IN): Regulatory Issues Continue to Haunt the Company

Aurobindo Pharma (ARBP IN) has been issued six observations for its oral manufacturing unit by the FDA, which will further impact its business. The company closed its New Jersey facility.
Aurobindo’s recent acquisition of Veritaz Health for INR1.7 billion does not really fit for the company’s high hope for the domestic formulation business.
Aurobindo shares are trading at a forward P/E of 10.9x, which is cheaper than the peers. However, the company is not expected to see multiple expansion in near future.

Horiba (6856 JP): Semiconductor Division Leads Upward Revision for FY Dec-22

By Scott Foster

Sales of semiconductor equipment are running ahead of guidance. Management now sees a considerably stronger 2H and 19% operating profit growth in FY Dec-22 as a whole.
In the longer term, Japan – U.S. semiconductor cooperation should benefit Horiba and other companies in the Japanese semiconductor industry.
Selling at 10.5x new EPS guidance for FY Dec-22. Not meaningfully cheap if a down-cycle is coming, but attractive if it is not imminent and security concerns support demand.

JTower Q4 21 Results Reaction: Impact of Tower Deals Encouraging

Q4 and FY21 results released Thursday were largely in-line with forecasts although guidance for FY22 missed consensus as upfront costs for entering the tower business ramp up
For FY22, JTower will compete the transfer of 2,000 DoCoMo towers (c. one-third) and 90% of NTT East/West towers with the handover starting in Q3
By FY26, JTower expects annual revenue of ¥30bn (+51% CAGR from ¥6bn in FY22) and EBITDA margins of 60% (¥18bn in EBITDA v ¥ 1.6bn)

Phison (8299.TT): 2Q22 Could Expect a Slightly Growth QoQ

Phison reached to NT$17.1bn, 32%, 14% and NT$10.49 for revenue, GM, NM and the Diluted EPS in 1Q22.
We estimate it could be a slight positive growth in 2022, which could reach NT$18.1bn/32.5% for revenue/GM respectively.
Phison and its competitors shall continuously strive in Flash card and the related business.

KYEC (2449.TT): It Could Reach ~10% QoQ Growth in 2Q22 Because Some Orders Were Delayed in 1Q22.

KYEC reached revenue, GM, OPM and Diluted EPS of NT$8,984mn, 35.8%, 25.6% and NT$1.47 respectively in 1Q22.
KYEC could reach to ~10% revenue QoQ growth in 2Q22 because of some orders delayed in Suzhou for COVID-19 controlling measure in 1Q22.
The mainland China smartphone is not strong in 2Q22, but the smartphone chipset testing demand could still be the largest demand in KYEC.

Sihuan Pharmaceutical Hldgs (460.HK)- Privatization Rumor, Upside Potential and Concerns on Business

By Xinyao (Criss) Wang

The reason why Sihuan has received more attention from the market mainly lies in the medical aesthetics segment. However, both hyaluronic acid and botulinum toxin are facing challenges.
Recently, China Resources is rumored to be in talks to privatize Sihuan Pharmaceutical Hldgs (460 HK), but Sihuan denied it.
Sihuan is undervalued. The reasonable market value should be over RMB20 billion. We recommend investors to follow closely with Sihuan, either for decent upside potential or privatization possibility.

Before it’s here, it’s on Smartkarma

May 15

Equity Bottom-Up: Toshiba Corp, NCSOFT Corp, Silergy Corp, Celltrion Inc and more

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

In today’s briefing:

Toshiba – Special Dividend Not Enough To Offset Negatives
Top 20 Best Performers in the Korean Stock Market (Week of 13 May)
Silergy (6415.TT): 1Q22 Review-Clients Are Asking to Solve Supply Shortage and Even to Add Prices.
Celltrion (068270 KS): Muted Q1 2022 Performance Reflects Continuing Biosimilars Pricing Pressure

Toshiba – Special Dividend Not Enough To Offset Negatives

Toshiba reported results on Friday which were just a touch above their revised February guidance at ¥3.35trn in revenue and ¥159bn in OP.
Guidance was poor with revenue of ¥3.3trn below consensus ¥3.4trn and OP of ¥170bn noticeably below consensus’ ¥202bn.
The nomination of directors was also postponed and some segments showed a marked deterioration in profitability.

Top 20 Best Performers in the Korean Stock Market (Week of 13 May)

This is the second weekly series on the “Top 20 Best Performers in the Korean Stock Market Adjusted for Trading Value & Mkt Cap.”
Starting this weekly, we include stocks in both KOSPI and KOSDAQ. All the stocks in KOSPI and KOSDAQ are ranked, adjusted for market cap and trading value.
Among the top 20 performers, NCSoft, Hyundai Motor, Kia Motors, Dohwa Engineering, DB Hitek, SK Telecom, and KT Corp were included.

Silergy (6415.TT): 1Q22 Review-Clients Are Asking to Solve Supply Shortage and Even to Add Prices.

The 1Q22 revenue/GM/OPM was US$215mn/55%/36% respectively, with revenue growing 50% YoY and -2.6% QoQ. Silergy considers its own business will grow quarter by quarter in 2022.
Silergy expects to see ~3% revenue contribution for Automotive in 2022, which means it should grow over 3% by the end of 2022.
Silergy’s order visibility is extended from 3 quarters to over 6~8 quarters now. Meanwhile, Silergy aims to split the share to let more retail investors to hold their shares.

Celltrion (068270 KS): Muted Q1 2022 Performance Reflects Continuing Biosimilars Pricing Pressure

Celltrion Inc (068270 KS) reported muted Q1 results, with revenue, operating profit, and net profit declining quarter-over-quarter. Its biosimilar products in the EU are facing price competition.
Celltrion has recalled its COVID-19 rapid antigen test kits in the U.S. in April, which marks its third such recall in less than two months.
Celltrion shares plunged 15% since I published bearish insight on the company on March 8. Bear thesis of biosimilar competition still holds good for the company.

Before it’s here, it’s on Smartkarma

May 14

Equity Bottom-Up: KDDI Corp, Yum China Holdings, Inc, Macy’s Inc, BASE Inc, Mitsubishi Heavy Industries, Ichitan Group, Wice Logistics, XP Inc, Internet Initiative Japan and more

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

In today’s briefing:

KDDI (Buy) Q4 21 Results Reaction: FY22 Profits Steady and Wide-Ranging Mid-Term Plan
Yum China (YUMC.US): COVID-19 Headwind Will Have More Impacts in Q2
KDDI (9433) Results OK, Forecasts OK, Buyback Even Better, But No Longer Cheap
Macy’s: Amid Global Uncertainties, a Special Situation in an Out of Favor Sector
Base Inc: Shoppers Return to Offline, More Downside Left
Mitsubishi Heavy (7011 JP) | Just Getting (Re)Started
ICHI: Disappointing 1Q22 Result Already in the Price
WICE: Earnings Still Continue to Expand in 2022 with Potential Upside
XP (XP US) – Less Demanding Valuations, but the Overhang Still Weighs
IIJ (Buy) – Q4 21 Results Reaction: Reliable Growth and Margin Expansion

KDDI (Buy) Q4 21 Results Reaction: FY22 Profits Steady and Wide-Ranging Mid-Term Plan

Guidance for modest growth in FY22 operating income is broadly in line with expectations and reassuring after a range of potential outcomes in reports from NTT and Softbank
The company has issued a mid-term plan with a positive message on growth from new businesses and in-line guidance for capex/shareholder returns but a lack of FY24 finanical targets
On balance, the message is positive as a stable business and rising shareholder returns makes KDDI an attractive option in a frothy market

Yum China (YUMC.US): COVID-19 Headwind Will Have More Impacts in Q2

By Roger Xie

Yum China Holdings, Inc (YUMC US) delivered a better-than-fear 1Q22 results helped by its strong execution. KFC delivered solid margins above expectations given its store format and take-out service.
China COVID outbreak is getting worst, we expect 3000 stores will cancel dine-in service in April (compared with 1700 stores in March). Yum China might have deeper loss in 2Q22.
We continue to think Yum China is the best-run restaurant chain in China. It has resilient business model to navigate through pandemic. Risk/reward is more compelling to own Yum China.

KDDI (9433) Results OK, Forecasts OK, Buyback Even Better, But No Longer Cheap

By Travis Lundy

KDDI reported earnings today, offering a near meaningless March 2022 results presentation slide deck, and an only slightly more meaningful new Mid-Term Plan.
The only clarity provided is on the bit which makes up about a third of future OP as the two-thirds (mobile telephony ARPU-related revenues) will see considerable pain this year.
The buyback is nice, but KDDI is no longer cheap, and may have relative upside only against Softbank Corp.

Macy’s: Amid Global Uncertainties, a Special Situation in an Out of Favor Sector

By Howard J Klein

Amid ghost malls of closed stores across the US, this reimagined middle class retail legacy operator has transformed itself and become a special situation buy at its price.
With 794 stores in all major cities, Macy’s can move smartly up as global pandemic pressures begin to ease and bearish macro events like the Ukraine war find resolution.
Current market cap does not reflect impressive transformation of its business model management has put in place that shows in FY 2021 and promises better in 2022.

Base Inc: Shoppers Return to Offline, More Downside Left

By Oshadhi Kumarasiri

BASE Inc (4477 JP) is up more than 27% today as the Mothers Index bounced back 4.5% following a steep sell-off during the last one-month period.
Nevertheless, results were disappointing on both the top line and the bottom line with Q1 revenue and operating loss of ¥2,512m (consensus ¥2,659m) and ¥272m (consensus ¥139.2m) respectively.
After disappointing the market with a guidance range that was significantly below consensus in 2021, Base Inc has withheld from providing 2022 guidance.

Mitsubishi Heavy (7011 JP) | Just Getting (Re)Started

MHI reported a strong 7% growth in the order backlog to ¥5,500 billion
MHI is a beneficiary of the global energy crisis, geared into gas turbine and nuclear supply chains
The stock is trading below book value (10 year average 1x) at a time when the core energy order book is as strong as ever

ICHI: Disappointing 1Q22 Result Already in the Price

ICHI reported 1Q22 net profit at Bt104m (-15%YoY, -22%QoQ). The 1Q22 result came out lower than our expectation.
Excluding one-time tax items of Bt24m,1Q22 norm profit was at Bt128m(+5.4%YoY). The YoY and QoQ drop in earnings mainly from a contraction in gross profit margin to 14.7% in 1Q22
We expect 2Q22 earnings to recover QoQ from high season quarter. Revised down 2022 earnings by 18% to 20% in 2022-23E to factor in rising cost.

WICE: Earnings Still Continue to Expand in 2022 with Potential Upside

Expect impact from an expected drop in sea freight rate (50% of WICE revenue link to this freight price) is likely to be offset by an increase in cross border
We have factored in impact from China border restriction and a gradual drop in sea-air freight,which we anticipated to normalize to pre-COVID-19 gradually.Our revenue forecast at Bt8.2bn is on conservative
WICE report 1Q22 net profit at Bt158m (+93%YoY and -13%QoQ). QoQ contraction from all-time high level in 4Q21 was due to a drop in air freight and cross border revenue

XP (XP US) – Less Demanding Valuations, but the Overhang Still Weighs

By Victor Galliano

Itaú Unibanco’s acquisition of an 11.36% stake in XP in April is no strategic move; it is a contractual obligation that remained, after the regulator blocked Itaú’s acquisition plans
This adds to the existing overhang in XP shares, given that fellow XP shareholder Itausa deems its 11.5% XP stake to be non-strategic, having already made disposals through block trades
We remain cautious on XP shares based on the disposal overhang and competitive pressures in Brazilian wealth management undermining XP’s fundamentals; near term, Itausa warrants monitoring on its NAV discount

IIJ (Buy) – Q4 21 Results Reaction: Reliable Growth and Margin Expansion

Q4 and FY22 guidance beat driven by growth in corporate DX demand and margin discipline
Company expects FY22 double-digit revenue growth as mobile headwinds fade and has re-set its mid-term profitability target. Implied FY23 OP is 28% higher than year-ago forecasts
Near-Term profitability beat ties in to shareholder returns and FY21 DPS has been raised to ¥48 from ¥46 with further growth in FY22. We remain at Buy.

Before it’s here, it’s on Smartkarma

May 13

Equity Bottom-Up: Softbank Group, Tokyo Electron, JD.com Inc (ADR), NTT (Nippon Telegraph & Telephone), Subaru Corp, XL Axiata, Coupang, Nissan Motor, Mitra Keluarga Karyasehat Tbk and more

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

In today’s briefing:

Softbank – Not Pretty
Softbank Group Q4 21 Results Reaction: The Tech Winter Is Here
TEL – Margin Disappointment
JD.com (9618 HK): To Keep Revenue at Any Cost
NTT (Buy) – Q4 21 Results Reaction: Steady as She Goes
Subaru – One Of The Better Weak Yen Plays
XL Axiata (EXCL IJ) – Are You Converegent?
Coupang: Decelerating Revenue, Sporadic Profitability and Still Expensive
Nissan – Significant Upside But Peers Are Better
Mitra Keluarga Karysehat (MIKA IJ) – Back to the Business of Patient Health

Softbank – Not Pretty

Softbank results were about as ugly as expected and the only major new information in our view was that they took a small (too small) write-down on their private holdings.
Masayoshi Son did Masayoshi Son things regaling investor with tales of “To the moon bro!” but offered little of substance to suggest a turnaround was near.
Ultimately we keep coming back to the question of where margin calls might be struck.

Softbank Group Q4 21 Results Reaction: The Tech Winter Is Here

Softbank reported record losses, as expected, including some writedowns in the private portfolio. That may not be enough to assuage concerns with valuations still in free fall
Management says tech’s day will come again and it is best to be more defensive for now, including a slower pace of investing, which we think is positive
Concern on weak tech and high leverage likely keep the discount in the mid-50s range. There was nothing today to signal an inflection is at hand

TEL – Margin Disappointment

TEL generated ¥169bn in OP in 4Q, well above consensus at ¥150bn and even our ¥160bn estimate.
The issue is that this was on ¥565bn in revenue, well above ourselves and consensus, due to ramping R&D and depreciation expenses.
Those expenses also meant that guidance of ¥716bn in OP was just barely above consensus at ¥692bn.

JD.com (9618 HK): To Keep Revenue at Any Cost

By Ming Lu

JD is facing a severe logistics problem due to the lockdowns in many cities of China.
We believe JD is trying to secure its revenue no matter how large the fulfillment expense is.
We believe the stock has a downside of 22% for the year end 2022.

NTT (Buy) – Q4 21 Results Reaction: Steady as She Goes

Q4 results and FY22 guidance are in line with expectations and management is confident it is on track to meet its FY23 ¥370 EPS commitment
Returns to shareholders modestly better than expected with a ¥400bn buyback and the possibility of a further dividend hike later in the year still on the table
We remain positive on NTT shares which trade at an attractive 10-11x EPS with further support from expanding shareholder returns

Subaru – One Of The Better Weak Yen Plays

Subaru 4QFY22 was relatively strong compared to previous quarters with revenue of ¥737bn (+4.4% vs. consensus) but material prices pushed OP down to ¥13.3bn (-48.6% vs. consensus).
The FY23 guidance was relatively weak at just ¥3,500bn in revenue (+4.5% vs. consensus) and OP guidance of ¥200bn (-1.0% vs. consensus).
However with the yen where it is we believe Subaru is on track for a return to double digit OPM and OP of ¥370-450bn.

XL Axiata (EXCL IJ) – Are You Converegent?

By Angus Mackintosh

XL Axiata (EXCL IJ) results were encouraging with +8% revenue growth driven by data (95.5% of service revenues), with stable ARPUs and price competition easing during 1Q2022.
The march towards being truly converged continues with the completion of the Link Net acquisition giving it a significant leg up and due for completion on 27th May.
XL Axiata remains our top pick amongst Indonesia’s telcos, with the highest exposure to data and Indonesia’s headlong growth into all things digital and compelling valuations.

Coupang: Decelerating Revenue, Sporadic Profitability and Still Expensive

By Oshadhi Kumarasiri

Coupang (CPNG US)’s 1Q22 results were mixed with revenue 2.5% below consensus but an operating loss of $205.7m was $94.3m lower than consensus through a 3% gross margin improvement.
The company’s comments on the gross margin outlook are a bit concerning and make us think that the improvement in Q1 was just a one-off.
Coupang is fundamentally expensive on EV/GMV+Retail Sales. With selling pressure from Softbank and a significant downside to revenue estimates, we remain Short Coupang.

Nissan – Significant Upside But Peers Are Better

Nissan generated total revenue of ¥2,271bn (-12.0% vs. consensus) and OP of ¥56bn (+33.3% vs. consensus) in 4QFY22.
This enabled the company to hit ¥247bn in OP vs. our start of year projection of ¥250bn (when guidance was for breakeven).
Guidance looked superficially weak at ¥10trn in revenue (-0.4% vs. consensus) and ¥250bn in OP ¥250bn (-21.1% vs. consensus) but margin assumptions are silly and we expect ¥500bn in OP.

Mitra Keluarga Karysehat (MIKA IJ) – Back to the Business of Patient Health

By Angus Mackintosh

Mitra Keluarga Karyasehat released 1Q2022 results recently which reflected a changing patient mix with less COVID-related patients and a recovery in its core patient business.
Hospital occupancy is rising whilst Mitra Keluarga is also increasing bed numbers but margins have been impacted by changing patient mix but this is a positive long-term trend.
Mitra Keluarga Karyasehat (MIKA IJ) remains a key proxy for rising healthcare penetration in Indonesia, with valuation attractive from a historical basis.

Before it’s here, it’s on Smartkarma

May 12

Equity Bottom-Up: Toyota Motor, Softbank Corp, Taiwan Semiconductor Sp Adr, Faraday Future Intelligent Electric, Shinko Electric Industries, Beenos Inc, Capcom Co Ltd, China Longyuan Power, Semiconductor Manufacturing International Corp (SMIC) and more

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

In today’s briefing:

Toyota – Guidance Meaningless With A ¥115 Assumption
Softbank Corp Q4 21 Results Reaction: Behind the Headlines, Disappointing Guidance
TSMC (TSM.US; 2330.TT): Further Wafer Price Raise About 6% from the Beginning of 2023
Faraday Future (FFIE): Not Looking So Bright
Shinko Electric (6967 JP): Reality Check – Risk on the Downside
Beenos Decides to Lock-In Profits from Incubator Investments
Toyota Guides for a 22% Profit Drop–Tough to Buy This Dip For Now
Capcom – Can They Keep Suppressing Profit?
China Longyuan (916 HK): On Your Mark, Get Set, Go!
SMIC (981.HK): 2Q22 Preview- We Estimate Around 5% Growth Could Be the Case

Toyota – Guidance Meaningless With A ¥115 Assumption

Toyota results were weak missing by 2.9% and OP by 8.5% due to weak volumes, material costs and some evidence of pulling forward costs.
Guidance was for a sharp YoY decline from ¥3trn in OP to just ¥2.4trn but this assumes limited price hikes and ¥115/$ so… who cares?
We expect the weak yen, rising hybrid penetration and volume recovery to drive OP into the ¥3.6-4.0trn range.

Softbank Corp Q4 21 Results Reaction: Behind the Headlines, Disappointing Guidance

Softbank Corp will meet its mid-term business plan commitment of ¥1,000bn in FY22 operating income but it needs a boost from valuation gains from PayPay to get there
Operationally, it is forecasting a 11% EBITDA decline driven by mobile revenue erosion and higher marketing expense with the lack of a growth contribution from Z Holdings apparent
The good news is the dividend is unchanged. We expect a better story from NTT and KDDI later in the week but stable returns provide support

TSMC (TSM.US; 2330.TT): Further Wafer Price Raise About 6% from the Beginning of 2023

TSMC decided to notify clients that it will raise wafer price about 6% from the beginning of 2023.
It’s believed the Fabless company’s margin could be raised too much, which is considered to be abnormal.
There are too many factors influencing the market right now, like the inflation, geopolitical confrontation, Russia-Ukraine war, supply-chain risks, and etc.

Faraday Future (FFIE): Not Looking So Bright

By SC Capital

EV start-up Faraday Future (FF) will be de-listed by the Nasdaq if it fails to file its 2021 annual report & Q1 2022 results by May 16th.
FF has no revenues yet, but plans to start production in Q3. Cash as of March-end was only $273m vs cash burn of $181m & payment obligations of $193m.
FF’s growth strategy is risky & relies on the ultra-luxury car market, which is peaking. Without financing, FF may struggle to survive this year.

Shinko Electric (6967 JP): Reality Check – Risk on the Downside

By Scott Foster

Shinko may look attractively valued, but it is highly geared to a slowdown in demand. Rising materials costs and depreciation accentuate downside gearing.
Management is guiding for another year of strong sales growth, but may be ignoring the possibility of a decline in remote-work and other COVID-related demand.
Rolling over, but still up 6.7x since March 2020. Not worth the risk in the current environment.

Beenos Decides to Lock-In Profits from Incubator Investments

By Oshadhi Kumarasiri

Beenos Inc (3328 JP) results beat with revenue at ¥7.2bn (+4.6% vs consensus) and OP of ¥431m (+21.4% vs consensus).
FY22 guidance was raised across Beenos’ core e-commerce businesses due to the favourable impact of the yen depreciation on overseas demand and changes to shipping methods and rates.
What caught our eye the most was Beenos’ decision to gradually realise gains from its VC investments.

Toyota Guides for a 22% Profit Drop–Tough to Buy This Dip For Now

By SC Capital

Toyota is famous for conservative guidance, but today’s FY3/23 estimates of a 22% decline in pretax profit raised some eyebrows. Raw materials & logistics are to blame.
Adjusting for various conservative assumptions by Toyota for FY3/23, flat profits are possible, but margin deterioration appears unavoidable.
On flat profits in FY3/23, the 12x PER & 5.5x EV/EBITDA are not particularly cheap. Toyota is in the “Guidance Dog House” until it can produce a significant beat.

Capcom – Can They Keep Suppressing Profit?

Capcom results were previously flagged with a late guidance upgrade and so were unsurprising.
Guidance was a touch above consensus at both the revenue and OP levels but look somewhat conservative even on assumed unit volumes.
But we think there is significant upside to unit volumes and Capcom’s biggest challenge will be to hold down profit so they can generate double digit growth the year after.

China Longyuan (916 HK): On Your Mark, Get Set, Go!

By Osbert Tang, CFA

China Longyuan Power (916 HK) will see accelerating earnings momentum in the rest of the year – after a weak start due to high base for YoY comparison.
We believe the combination of increase in utilisation hours, growth in installed capacity, improvement in power tariff and better cash flow and cost performance are the major drivers.
Share price has been weak in this year, and has returned the stock to less demanding level of 13.3x FY22 PER which we think cannot adequately reflects earnings prospects.

SMIC (981.HK): 2Q22 Preview- We Estimate Around 5% Growth Could Be the Case

We think SMIC is likely to reach the high-end of 1Q22 guidance, which was US$6,259~6,368mn/36~38% respectively.
We thick SMIC is likely to reach ~US$6,680mn/39% for revenue/GM respectively in 2Q22.
SMIC cannot have the EUV machine because of the Wassenaar Arrangement. Therefore, SMIC has to optimize its operation and to expand 28nm and above technologies.

Before it’s here, it’s on Smartkarma

May 11

Equity Bottom-Up: Sony Corp, Nintendo Co Ltd, Raffles Medical, CJ Cheiljedang, Chiyoda Corp, Sumitomo Metal Mining, SK Telecom, Zydus Lifesciences Ltd, Tisco Financial Group and more

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

In today’s briefing:

Sony – That Revenue Guidance Tho
Nintendo – A Stock Split And Not Much Else
Raffles Medical (RFMD SP): Resilient Business Model; Border Reopening to Further Boost Growth
A Pair Trade Between CJ Cheiljedang and CJ Logistics
Raffles Medical: Earnings to Remain Under Pressure in 2022 but Long-Term Prospects Remain Attractive
Chiyoda – Just Getting Started
SMM – Guidance Makes Little Sense
SK Telecom: Better Control of Marketing Expenses & Improving Economies of Scale for 5G in 1Q 2022
Zydus Lifesciences (ZYDUSLIF IN): U.S. Business Is Cloudy; Innovative Portfolio Has A Long Way To Go
TISCO: Quality Growth with a High Dividend Payment

Sony – That Revenue Guidance Tho

Sony results were in-line with revenue of ¥9.92trn barely below ¥10trn consensus and OP of ¥1.20trn also just below consensus at ¥1.21trn.
Guidance was interesting however as Sony guided for revenue of ¥11.4trn and a slight decline in OP.
We believe that is either extreme conservatism or potentially a sign of very aggressive and interesting investment plans.

Nintendo – A Stock Split And Not Much Else

Nintendo results were in-line with both revenue and OP within 1% of consensus.
Guidance was extremely weak missing consensus by 5.5% at the revenue line and 20.5% at the OP line.
Nintendo gonna Nintendo so this is nothing to panic about but it isn’t positive either… though the stock split is.

Raffles Medical (RFMD SP): Resilient Business Model; Border Reopening to Further Boost Growth

Raffles Medical (RFMD SP) reported 27% y/y revenue growth to S$723.8 million and net profit increase of 30% y/y to S$83.7 million in 2021.
Following full border reopening by Singapore beginning April, medical tourism is set to revive. As a leading hospital operator in Singapore, Raffles is well-positioned to grab the opportunity.
Regular share buyback and recent stake increase by a major investor further enhance conviction on the company’s growth potential.

A Pair Trade Between CJ Cheiljedang and CJ Logistics

By Shifara Samsudeen, ACMA, CGMA

CJ Cheiljedang (097950 KS) reported better than expected earnings in 1Q 2022 and we continue to have a POSITIVE view of this stock.
Bio business sales increased by 39.3% YoY to 1.08 trillion won and operating profit jumped by 128% YoY 175.8 billion won in 1Q 2022, driven by strong demand for lysine.
We also like a pair trade between CJ Cheiljedang and CJ Logistics at current prices. We recommend on going long on CJ Cheiljedang and going short on CJ Logistics.

Raffles Medical: Earnings to Remain Under Pressure in 2022 but Long-Term Prospects Remain Attractive

Raffles Medical (RFMD SP) is a private medical provider in Singapore. The company owns and operates a network of medical clinics and hospitals.
The company’s earnings saw a boost in 2021 driven by demand for Covid-19 related services such as PCR tests, vaccine administration and operation of Cov-19 treatment facilities.
With Singapore reopening borders post Covid, we expect foreign patient volume to see a recovery, however, lower revenue from Covid related services would negatively impact earnings in 2022.

Chiyoda – Just Getting Started

Chiyoda results were slightly weak driven by a poor gross margin in the fourth quarter but revenue guidance was punchy at ¥500bn vs. consensus at ¥354bn.
We had flagged previously that Chiyoda would be moving to the favourable portion of the construction s-curve shortly and that appears to be coming through.
That drove OP guidance of ¥20bn which is far above consensus at ¥14bn and could eventually help Chiyoda reduce potential dilution.

SMM – Guidance Makes Little Sense

SMM beat at the PTP level by 10% driven by the surge in nickel prices but guided for just ¥194bn undershooting consensus by 9.3%.
We do not find guidance credible at all as it would defy historical trends to a very large degree.
In fact we believe that excluding one-off gains from the sale of Sierra Gorda, PTP could actually be up YoY.

SK Telecom: Better Control of Marketing Expenses & Improving Economies of Scale for 5G in 1Q 2022

We continue to have a POSITIVE view on SK Telecom following its excellent 1Q 2022 earnings results which displayed solid sales growth and improved control of its marketing expenses.
The company’s sales of 4.3 trillion won was in line with the consensus estimate and its operating profit of 432 billion won was 8.5% higher than the consensus estimate.
Despite concerns about SK Telecom getting deleted from MSCI Korea Index, foreigners have been increasing their stake in the company due to its attractive fundamentals amid macro uncertainties.

Zydus Lifesciences (ZYDUSLIF IN): U.S. Business Is Cloudy; Innovative Portfolio Has A Long Way To Go

Zydus Lifesciences Ltd (ZYDUSLIF IN) earns more than 40% revenue from the U.S. This business is under continued pricing pressure, which is squeezing the gross profit margin of the company.
The company has received approval for COVID-19 vaccine in India, which seems to have limited visibility and revenue potential, amid competition and uncertain COVID-19 outlook.
Zydus has launched one new drug and received approval for another in India. However, its innovation portfolio has to go a long way to become a significant growth contributor.

TISCO: Quality Growth with a High Dividend Payment

We initiate coverage of TISCO with a BUY rating and a target price of Bt106. Our valuation is derived from a Gordon growth model (ROE 17.5%, growth 2%),implying 2.0x PBV’22E
Moderate net profit growth at 6% CAGR in 2022-24 on a potential reduction in credit cost and higher NIM
Loans will likely pick up in 2022 with a focus on high-yield loans. Resilient asset quality and high loan loss reserves against uncertainties

Before it’s here, it’s on Smartkarma

May 10

Equity Bottom-Up: NTT (Nippon Telegraph & Telephone), Appier Group Inc, Coupang, GrafTech International Ltd, Match Group Inc, Industrial Bank of Korea, China Conch Venture Holdings, Palantir Technologies Inc, Denso Corp, Hon Hai Precision Industry and more

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

In today’s briefing:

NTT (Buy) – An Exciting Day for Data but Not Much Has Changed
Appier – Explosive US Growth
Coupang: Four Major Factors to Drive Higher Profit Margins in 2022
Graftech Q1 2022: Debt Deleveraging Continues, LTA Pricing Overhang An Issue
Revisiting Long Ideas: Match Group
IBK – Loan to Deposit Ratio at 181%
Conch Venture (586 HK): Another Spin-Off in the Pipeline
Palantir 1Q22 Earnings: War Supposedly Good for Business?
Denso – Strong Overshoot Potential And Only Modest Execution Risk
Hon Hai (2317.TT): 1Q22 Preview/2Q22 Outlook- For 2022, It Could Be the Lowest Revenue in 2Q22.

NTT (Buy) – An Exciting Day for Data but Not Much Has Changed

NTT and NTT Data will reorganize overseas assets into a new operating company run through NTT Data
The transaction results in little change for consolidated results at NTT Group although segment reporting may change and it will buy up to ¥100bn more of NTT Data
Restructuring could help unlock the potential of Dimension Data which has been a consistent laggard since NTT acquired it in FY11

Appier – Explosive US Growth

When we reviewed Appier’s 2021 results we rambled on about the US for about half of our note discussing explosive growth potential.
We said that while Appier touted a >50% QoQ growth rate in the US we suspected it was actually closer to 100%.
In 1Q it accelerated to >180% QoQ growth prompting the sell side to go all surprised Pikachu.

Coupang: Four Major Factors to Drive Higher Profit Margins in 2022

We have been Bearish on Coupang since 12 May 2021. Now we are turning Positive since we believe the valuations have become a lot more attractive.
We highlight four major factors that could result in higher profit margins for Coupang in 2022 including competitors exiting early dawn service, lower COVID and EATS related costs.
Our base case valuation of Coupang is implied market cap of $24.9 billion and target price of $14.1 per share, representing 32% upside from current levels.

Graftech Q1 2022: Debt Deleveraging Continues, LTA Pricing Overhang An Issue

By Sameer Taneja

GrafTech International Ltd (EAF US) reported solid results for Q1 2022. The stock still continues to look cheap at 4.7x FY22 PE.
The debt deleveraging target of 400 mn USD a year seems on track, and the company will be zero debt by FY23. FCF yield is 24% at the current price.
The company also bought back 30 mn USD of stock (3 mn shares @9.88 USD/share representing 1.1% of the outstanding shares) in Q1 2022.

Revisiting Long Ideas: Match Group

By Aaron Gabin

Match is down 52% over the past 6 months and at $71, Match trades at a 5% FCF yield, ~17x Fwd EBITDA, for ~20% growth / ~35% EBITDA margin
Covid restrictions lifted in Japan (2nd biggest market) should be tailwind for 2H22
New CEO from Zynga brings unique mobile monetization skillset ideally suited for coming Tinder Coins summer launch.

IBK – Loan to Deposit Ratio at 181%

By Daniel Tabbush

A wholesale funded bank with rising rates can see margin compression
In recent months Korea shows a higher delta on funding costs than loan yields
Credit costs already at half normal level, where ramp up was never high in FY20-21

Conch Venture (586 HK): Another Spin-Off in the Pipeline

By Osbert Tang, CFA

Following listing of China Conch Environment (587 HK), China Conch Venture (586 HK) is seeking a spin-off of CV Green Energy in A-share market and we view this move positively.
Limited details are currently available, but we think CV Green Energy, which operates WTE businesses, will trade at significantly higher multiples than its Hong Kong peers.
Assuming CV Green Energy to hold all Conch Venture’s WTE businesses, we estimate the IPO will boost the latter’s sum-of-the-parts value by 8% or HK$2.14 per share.

Palantir 1Q22 Earnings: War Supposedly Good for Business?

By Aaron Gabin

Revenue growth ex-SPAC decelerated to 19% this quarter, 11% below consensus.
1Q22 20% operating margins vs. consensus 27% margins as the company invests to reaccelerate growth in 2H from rising government contracts due to war.
Alex Karp warns that nuclear war in Ukraine is being dramatically underestimated.

Denso – Strong Overshoot Potential And Only Modest Execution Risk

Denso 4QFY22 revenue was strong at ¥1,506bn (+4.8% vs. consensus) but increases in raw material prices resulted in OP of just ¥85bn (-31.8% vs. consensus).
The company’s FY23 guidance was conservative projecting just ¥6,350bn (+2.2% vs. consensus at +15.1% YoY) but OP guidance was for ¥560bn (+5.3% vs. consensus).
We expect volume to grow further and the depreciating Yen should favourably impact ASPs next year.

Hon Hai (2317.TT): 1Q22 Preview/2Q22 Outlook- For 2022, It Could Be the Lowest Revenue in 2Q22.

Hon Hai’s revenue was NT$1,408bn in 1Q22. We expect the OPM and EPS would be ~2.2% and ~NT$2.18 in 1Q22.
It’s a gradually increase for end-product shipment in 2021, but we think it might be followed by a slower season in 2Q22.
Hon Hai’s target is to address the profit in 2022. For 2022, we believe it could be the lowest revenue in 2Q22.

Before it’s here, it’s on Smartkarma

May 09

Equity Bottom-Up: ASICS Corp, Health And Happiness (H&H), Tokyo Electron, JHBP (Genor), CanSino Biologics Inc, Aisin Seiki, UniCredit SpA, Hut 8 Mining, MatsukiyoCocokara and more

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

In today’s briefing:

Asics (7936) | Stepn into the Metaverse
H&H (1112 HK): Near Term Gloom Not Bad Enough to Lead to Long Term Doom.
Tokyo Electron (8035) | Fundamentals Don’t Matter…for Now
Genor Biopharma (6998 HK): First Product Approved in China; Late-Stage Pipeline Entails Visibility
CanSino Biologics (688185.CH/6185.HK) -Difficulties in 2022 Cannot Mask Long-Term Investment Value
Aisin – Low Margins But Volume Is Key
Unicredit (UCG IM) – Attractive on Capital Distribution Potential Despite Russia
Hut 8 Mining: North Bay Mining Site Will Add 100MW Capacity in Ontario
MatsukiyoCocokara (3088) | Triple Booster of Merger Synergies, Domestic Recovery, & Tourism

Asics (7936) | Stepn into the Metaverse

Asics reports Q1 results on 11 May – we expect a beat to consensus numbers
We are bullish on Asics for the long term market share opportunity in China and margin expansion driven by digital
The rather amazing tie-up with STEPN for NFTs highlights potential new ways to monetise Asics brand value

H&H (1112 HK): Near Term Gloom Not Bad Enough to Lead to Long Term Doom.

By Devi Subhakesan

Highly leveraged Balance sheet and a USD350 mn bridge loan that needs refinancing, amidst rising interest rates, have alarmed investors, thus driving Health And Happiness (H&H) (1112 HK) stock south.
With its core Baby nutrition segment sales declining and Adult, Pet nutrition still in ramp up phase, the going has been tough for H&H as operating margins weakened.
Even as its near term concerns seem daunting, long term prospects are good with a diversified premium-brand portfolio that can moderate long term risk to growth from declining birth rate.

Tokyo Electron (8035) | Fundamentals Don’t Matter…for Now

Tokyo Electron reports FY3/22 results on 12 May. We expect the company to meet guidance and analyst expectations
But the outlook may disappoint. Management may guide FY3/23 more conservatively than analysts who are looking for operating profit to grow 20% to ¥700 bn
Despite favorable industry conditions and strong outlook for WFE, we think that the stock could continue to de-rate

Genor Biopharma (6998 HK): First Product Approved in China; Late-Stage Pipeline Entails Visibility

JHBP (Genor) (6998 HK) received approval in China for its first commercial drug, GB242, a biosimilar to Remicade (infliximab). Approved indications have an addressable patient population of 10 million.
The company is also expected to obtain marketing approval for its drug candidate for the treatment of relapsed and refractory peripheral T-cell lymphoma (PTCL) in China this year.
In-Licensed GB491 (lerociclib) has entered in two phase 3 clinical trials for first and second-line treatments of breast cancer. NDA for GB491 is expected to be filed in 2023.

CanSino Biologics (688185.CH/6185.HK) -Difficulties in 2022 Cannot Mask Long-Term Investment Value

By Xinyao (Criss) Wang

We update our forecast on CanSino’s performance in 2022, which could be much lower than that in 2021 due to the concerns on commercialization outlook of COVID-19 vaccine and MCV2/MCV4.
However, due to strong R&D and technology platforms, the value of CanSino’s pipeline is higher and its products could become the ceiling of pricing power for other homogeneous competing products.
We still think CanSino has investment value in long term despite the headwinds in short term.The market value by May 6 of HK$18.1 billion (PE/TTM at 7.22) is also attractive.

Aisin – Low Margins But Volume Is Key

Aisin’s 4QFY22 was weak on margins with revenue of ¥1,049bn (+3.9% vs. consensus) and OP of ¥43bn (-33.4% vs. consensus).
Guidance had a similar tone with the company projecting ¥4,450bn in revenue (+2.4% vs. consensus) but OP of ¥190bn (-29.6% vs. consensus) which we think is too conservative.
While results were disappointing we expect volume growth to be the key catalyst next year and cheap valuations should support strong upside.

Unicredit (UCG IM) – Attractive on Capital Distribution Potential Despite Russia

By Victor Galliano

Unicredit, with its solid capital adequacy and improved credit quality metrics, is well positioned to deliver on capital distribution, despite the Russian challenges
We estimate that, even on a relatively conservative basis, capital distribution yield could reach 12% in 2022 and also be at the top end of the peer group post-2022
Unicredit has often been in the shadow of Intesa in capital distribution, but we believe that consensus estimates are currently under-estimating the potential for dividends and share buy-backs at Unicredit

Hut 8 Mining: North Bay Mining Site Will Add 100MW Capacity in Ontario

By Andrei Zakharov

Hut 8 Mining (HUT US) is a cryptocurrency mining company headquartered in Toronto, Canada. Crypto miner has two facilities in operation: Drumheller and Medicine Hat in Alberta.
In 2017, Hut 8 Mining established a partnership with Bitfury Group to acquire, install, maintain and operate Bitcoin mining data centers in North America.
We like the company’s solid balance sheet with 6,769 BTC held as of Apr-22, the opportunity to add an extra 100MW capacity in North Bay and the acquisition of TeraGo.

MatsukiyoCocokara (3088) | Triple Booster of Merger Synergies, Domestic Recovery, & Tourism

Merger synergies such as integrated purchasing will result in higher gross margins. A more efficient cost structure and sales synergies will boost the bottom line
We expect consumption to normalize in Japan as people get used to “living with covid.” Higher foot traffic will drive a resumption of high margin cosmetics
Inbound travel should be partially normalized this year and we believe the market will quickly price this in once borders reopen. We see 21% upside

Before it’s here, it’s on Smartkarma

May 08

Equity Bottom-Up: JCET Group, Misumi Group and more

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

In today’s briefing:

JCET (600584.CH): 2022 Outlook Should Be Better than Fear
Misumi Group (9962 JP): Watch Out for Recession

JCET (600584.CH): 2022 Outlook Should Be Better than Fear

JCET reported revenue/GM RMB$8,138mn/10.7% in 1Q22, which grew 21.2% YoY and 0.5% QoQ.
We expect that its growth would continue and likely reach to revenue/GM for about RMB$8,234.5mn/10.8% in 2Q22.
Although the mainland China insists in the Zero Policy against COVID-19, the GDP growth was targeting at ~5.5% in 2022.

Misumi Group (9962 JP): Watch Out for Recession

By Scott Foster

The shares look cheap on FY Mar-23 guidance, but operating profit has dropped back after a surge and 1H looks difficult.
On the positive side, the VONA e-commerce business is catching up with Factory Automation as a source of profit. Annual sales and profitability have reached new highs.
Management has rebalanced the business. The main risk now is macro-economic.

Related tickers: JCET Group (600584.SS), Misumi Group (9962.T)

Before it’s here, it’s on Smartkarma

May 07

Equity Bottom-Up: AEM, China Meidong Auto, Health And Happiness (H&H), Hoya Corp, DoorDash Inc, Aristocrat Leisure, Bangkok Bank Public, Vertex Pharmaceuticals, Bangkok Chain Hospital and more

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

In today’s briefing:

AEM: Increased FY22 Revenue Guidance; Riding on Intel’s Capex Binge into Multi-Year Ramp
China Meidong: Back the Porsche at 20 HKD
Health And Happiness (H&H) (1112.HK) – High Bankruptcy Risk Together with Gloomy Prospects
Hoya – Getting Towards Genuinely Bullish Levels of Cheapness
H&H (1112): Difficult Period?
DoorDash 1Q22 Earnings: Are Delivery Platforms More Profitable than Ride Sharing?
Aristocrat Leisure: A Value/Growth Bet on Gaming Trading near 52 Week Low
BBL: Growth Momentum Intact Despite Uncertainties
Vertex Pharmaceuticals (VRTX US): Trikafta Drove Q1 Results; 2022 Revenue Guidance Maintained
BCH: Solid Start Expected in 1Q22

AEM: Increased FY22 Revenue Guidance; Riding on Intel’s Capex Binge into Multi-Year Ramp

By Nicolas Van Broekhoven

AEM reported strong 1Q22 results (+226% YoY) and raised its FY22 revenue guidance to 700-750M SGD. AEM management continues to believe they are in a multi-year ramp-up.
While the US tech sector is imploding left and right AEM is a very specific story linked to Intel’s CAPEX binge. Expect momentum to remain in FY22 and into FY23.
Fair Value of 8 SGD remains unchanged (based on 20x 0.40 FY22 EPS), or 62% upside from the current 4.92 SGD share price.

China Meidong: Back the Porsche at 20 HKD

By Sameer Taneja

China Meidong Auto (1268 HK) trades at a 12x/9x PE FY22/23E with a 6.5% dividend yield at a 20 HKD/share price (assuming an 80% payout ratio).
In buying China Meidong Auto (1268 HK), you get an industry leader in the dealership space with supreme execution (35% ROE/47% CAGR profit growth/best capital allocator).
The integration of the Starchase Porsche Dealerships provides an upside potential, as the management, with their superior track record, can significantly improve the target’s operations.

Health And Happiness (H&H) (1112.HK) – High Bankruptcy Risk Together with Gloomy Prospects

By Xinyao (Criss) Wang

H&H is faced with multiple challenges. Internally, the performance is under pressure, with stagnating revenue, decreasing profits, cash flow shortage and bankruptcy risk.It’s difficult for H&H to turn things around.
Externally, factors such as the declining birth rate, lower demand, fierce competition in the infant formulas market, rising costs due to inflation, and economic slowdown worsen the Company’s prospects.
Based on our 2022 forecast (14% or lower adjusted EBITDA margin,1%-2% or flat revenue growth), we do not think H&H is a good investment. We are conservative about its outlook.

Hoya – Getting Towards Genuinely Bullish Levels of Cheapness

Hoya’s 4Q beat slightly with revenue beating consensus by 2.2% and PBT beating by 7.0%.
Those beats were better than peers such as Advantest and Lasertec and qualitative guidance suggests that YoY growth is likely driven by the Lifecare segment in particular.
That contrasts with our negative outlook for peer momentum and we expect Hoya’s recent underperformance to reverse in short order.

H&H (1112): Difficult Period?

By Henry Soediarko

FY 2021 was a difficult period for Health And Happiness (H&H) (1112 HK) with the lower than usual sales growth and a big one-off expenses.
It is true that the D/E ratio has gone up to 161% but this is not the first time it happened.
FCF/Sales remain at low double-digit and cash/TA is also at low double-digit so it is far from going bust.

DoorDash 1Q22 Earnings: Are Delivery Platforms More Profitable than Ride Sharing?

By Aaron Gabin

Doordash’s multiple has come in from 14x to 4x, it is no longer a good standalone short, but its valuation discrepancy vs. Uber means it is a good paired short.
Solid quarter overall, but commentary about pushing on investments remains openended, and with little quantification of unit economics, Dash remains uninvestable to us.
We still prefer Uber to Dash on valuation and long term profitability.

Aristocrat Leisure: A Value/Growth Bet on Gaming Trading near 52 Week Low

By Howard J Klein

Tis diverse maker of land based gaming machines and publisher of social games platforms has sustained strong growth and built value at the same time over the years.
The company’s core strategy involves a strong commitment to M&A that will continue to bring accretive EBITDA to its long range performance.
A strong balance sheet suggests plenty of financial strength to fulfill its M&A goals.

BBL: Growth Momentum Intact Despite Uncertainties

Maintain our BUY call with a lower target price of Bt159 (from Bt162) reflecting an earnings downgrade.Our BUY call reflects steady earnings growth,a resilient balance sheet, and an undemanding valuation.
Management maintained its 2022 financial targets and affirmed that the bank had solid fundamentals against uncertainties ahead.
Given the elevated volatility in the capital market ahead, we reduced our net profit projections by 4-5% for 2022-24 to reflect weaker non-interest income growth.

Vertex Pharmaceuticals (VRTX US): Trikafta Drove Q1 Results; 2022 Revenue Guidance Maintained

Vertex Pharmaceuticals (VRTX US) reported Q1 revenue of $2.10 billion, a 22% y/y increase, reflecting continued growth in the number of cystic fibrosis (CF) patients treated globally.
Vertex reiterated full year 2022 product revenue guidance of $8.4–8.6 billion. However, the company raised 2022 adjusted R&D and SG&A expenses by 5% at mid-point.
The company has a broad pipeline beyond CF and the pipeline progress calls for continued investment for R&D and SG&A. This may pressurize near-term profitability of the company.

BCH: Solid Start Expected in 1Q22

Reiterate HOLD rating with a TP of B21.00 derived from 14.36xPE’22E, which is close to -2SD of 3-years trailing average.Despite significant drop in 2022E earnings, we recommend a trading approach
We estimate 1Q22E earnings to be the peak quarter at Bt2.3bn (+613%YoY,-7%QoQ), supported by YoY rise in COVID-revenue, but QoQ decline by margin erosion.
We foresee earnings momentum to weaken in 2Q22, underscored by lower COVID-19 contribution, resulting from falling infection patients and stopped RT-PCR requirement.

Before it’s here, it’s on Smartkarma