Equity Bottom-Up

China Banking and Insurance Regulatory Commission warned on Friday against fund-raising and investment products related to the metaverse concept given the speculative nature of these investments.
The Office of the United States Trade Representatives (USTR) announced on Thursday that e-commerce sites operated by Tencent have been placed on US government’s “notorious markets” list of entities.
Tencent’s shares have dropped 5.2% during today’s trade following speculation that fresh regulatory crackdowns are possible following the warning on metaverse.

NetEase (NTES) Pre-Earnings: Exploring Overseas Market

By Ming Lu

NTES is exploring overseas market by starting studios and selling games.
We believe NTES has the experience in dealing with the license suspension for new games.
We believe the stock has an upside of 48% for year end 2022.

Yaskawa – Increasingly Positive on Robotics but Still Too Early… Except…

We spoke to Yaskawa today to understand recent trends and the detailed outlook on demand going forward.
There were no major surprises with the company still relatively positive on demand remaining strong across the board though only robots seem to offer strong growth potential.
Profitability for robots should also improve going forward creating a nice story, but valuations are still too dear.

Base Inc: Down, But Not Down Enough

Both management and consensus seem to think that BASE Inc (4477 JP) will be able to maintain the COVID-19 growth trajectory beyond the COVID affected years.
However, investors seem more circumspect with shares currently trading around 90% below the peak level.
With the company likely failing to meet revenue targets and losses expanding exponentially, we think Base Inc could fall another 25-30% towards the pre-COVID level.

China Shineway Pharmaceutical (2877.HK) – Uncertainties Cloud the Outlook

Driven by favorable policies on TCM and COVID-19 under control, the performance recovery would be a good signal, making the FY2021 performance worthy of expectation.
The expansion scope of VBP on TCM and the concerns on TCM injection products cast doubts on China Shineway Pharmaceutical (2877 HK)’s outlook.
Due to the uncertainties, we choose to be conservative about the Company’s outlook at the current stage.

LG Innotek: One of the Most Attractive Fundamentals in the Korean Stock Market

By Douglas Kim

Lg Innotek (011070 KS), a leading global producer of optical electronic parts, has one of the most attractive fundamentals in Korea.
LG Innotek has become one of the critical suppliers for Apple’s smartphones. For example, LG Innotek accounted for more than 70% of the camera modules used for Apple’s iPhone 13.
In the intermediate term, LG Innotek is expected to benefit from higher demand for metaverse related cameras, 3D sensing modules, and autonomous vehicle cameras.

AKR Corporindo (AKRA IJ) – Chemically and Industrially Enhanced

By Angus Mackintosh

AKR Corporindo (AKRA IJ) paints an optimistic finish to 2021, with indications of +20-30% QoQ growth for both chemical and fuel distribution in 4Q2021.
The outlook for FY2022 looks equally promising for the distribution business, with a ramp-up of retail fuel distribution plus a strong pipeline of demand for its JIIPE industrial estate.
AKR Corporindo (AKRA IJ) remains an interesting industrial proxy for the recovery of the overall Indonesian economy trading at a significant discount to its historical average.

GULF: 4Q21 Earnings Grew from INTUCH Profit Share

The 4Q21 net profit rose to an all time high of Bt3.0bn (+65 YoY, +92% QoQ). excluding FX and other extraordinary items the recurring profit was Bt2.7bn (+120% YoY,+19% QoQ)
The result came out better than our expectation, The 2021 net profit rose to a record high of Bt7.8bn (+79% YoY), 14% above our forecast.
The 4Q21 earnings growth was due to 1st time revenue recognition from GSRC power project – Unit 2 and equity income from INTUCH.

UMC (UMC.US; 2303.TT): Although It Could Be ~1% ASP Changed Only, but the Price Is Lifted in 2Q22.

To our understanding, UMC and Samsung have dealt the 28nm wafer demand and have lifted 28nm wafer price in 2Q22.
We think it’s possible to lift the wafer price again in 2H22 if TSMC decides to further lift wafer price recently.
Entering the 5G era, there could be more demand in several aspects, like data storage, data transmission and processing, smartphone, and PC/NB upgrade and etc.

TOP: Capital Increase Within 2022

The BOD approved TOP’s recapitalization plan which includes 1)disposal of GPSC stake (by 2Q22) and 2) capital increase (within 2022). The proceeds will be used for repaying bridge loans raised
The company will raise around Bt22.4bn by sale of its 10.78% stake in GPSC. And around Bt12-to-14bn by equity offering of up to 239.2m newly issued shares with green shoe
Positive view on recapitalization plan, given the investment in CAP will provide an entry to high potential Olefin’s business segment. Also,We see the net EPS dilution to be below 5%

Before it’s here, it’s on Smartkarma

Feb 21

Equity Bottom-Up: Tencent, Evergrande, Modern Dental Group, Amplitude, SK Hynix, Freshworks, Cosco Shipping Energy Transportation Co. Ltd. (H), Hapvida Participacoes E Inve and more

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

In today’s briefing:

Tencent Holdings – Bad News On The Doorstep
China Evergrande Group – Be A Hero, Take It To Zero
Modern Dental Group (3600.HK) – More Suitable for Short Term Trading than Long Term Holding
Amplitude – Our Stock Pick With Huge Upside Potential
SK Hynix: Improving Global Market Positioning Whilst Still Trading at Discount Valuation Multiples
Freshworks: Six Months Post-IPO. Valuation Update
COSCO Shipping Energy (1138 HK): US Crude Export and China Import the Wild Cards?
Hapvida (HAPV3 BZ) And Grupo Notredame (GNDI3 BZ) Business Combination- Potential Value Generation

Tencent Holdings – Bad News On The Doorstep

The US Trade Representative (“USTR”) office added Tencent and Alibaba Group to the US government’s latest “notorious markets” list;
Similar to being implicated in running afoul of regulators in mainland China, Tencent “strongly disagrees” with the USTR label; and
*We look forward to Tencent’s 4Q21 results announcement on March 23, 2021 where management will continue to refuse to discuss anything meaningful.

China Evergrande Group – Be A Hero, Take It To Zero

The shares of Evergrande aren’t worth the paper their printed on;
Shanghai Construction receives a positive court outcome at expense of Evergrande; and
The likelihood that Evergrande has enough liquidity and will not have a fire sale of assets is nil – we can add Evergrande to the list of the walking dead.

Modern Dental Group (3600.HK) – More Suitable for Short Term Trading than Long Term Holding

The impact of dental implants centralized procurement on Modern Dental Group (3600 HK) (MDG) could be limited, and the strategic partnership with Meitu Inc (1357 HK) on “QJ Smile” also brings more possibilities.
The concerns include doubts on R&D/innovation capability, complex international relations, foreign policy disturbances, unsettling macro environment and immature invisible orthodontic business, bringing uncertainties in terms of future development outlook.
Although the 2021 full-year performance is worth looking forward to, which could be the short-term catalyst, MDG is more suitable for short term trading than long term holding.

Amplitude – Our Stock Pick With Huge Upside Potential

By Andrei Zakharov

This year the market presents investors with opportunities, especially in the technology sector, and we believe VC-backed Amplitude is one of them.
The market cap of the leading product and data analytics unicorn fell to ~$2.3B, keeping in mind last private round valuation was ~$4B in June of 2021.
$21 valuation, based on ~10x 2022E EV/Revenue and ~8x 2023E EV/Revenue, applies to our bear case revenue estimates of $226M in CY22 and $287M in CY23.

SK Hynix: Improving Global Market Positioning Whilst Still Trading at Discount Valuation Multiples

By Wium Malan, CFA

SK Hynix has lost slight market share in DRAM, but gained significantly in NAND to become a strong #2 contender
Revenue growth expectations seem conservative given Intel consolidation, market growth expectations, and the current pricing environment
The company is still trading at discount valuation multiples despite improved market positioning and medium-term dividend clarity

Freshworks: Six Months Post-IPO. Valuation Update

By Andrei Zakharov

We are moving our PT to $26 by applying a 14x multiple to CY22 revenue estimate of $491M, which we believe is fair given lower implied CY22 growth.
Freshworks has resolved the litigation filed by Zoho Corporation regarding trade secret misappropriation against Freshworks, eliminating key risk factor for investors.
Freshworks crossed the $400M ARR mark in the quarter ended Dec-21, and quarterly revenue exceeded $100M for the first time.

COSCO Shipping Energy (1138 HK): US Crude Export and China Import the Wild Cards?

By Osbert Tang, CFA

US crude export growth is the positive driver while China import contraction is the negative for tanker ton-mile demand in last year which contraction 5.3% YoY.
Significant room exists for a rebound in US oil export as oil majors announced plans to increase output. China’s import growth will recover in the next 12-18 months as well.
US oil export to China needs 2x more VLCC than from Arabian Gulf. This bodes well for tanker rate, benefiting Cosco Shipping Energy (1138 HK) in the medium term.

Hapvida (HAPV3 BZ) And Grupo Notredame (GNDI3 BZ) Business Combination- Potential Value Generation

The business combination of Hapvida Participacoes E Inve (HAPV3 BZ) and Notre Dame Intermed Par SA (GNDI3 BZ) concluded on Feb 11. GNDI3 shares are no longer trading.
Since Feb 14, 2022, GNDI has become a wholly-owned subsidiary of Hapvida. The combined business has become Brazil’s largest vertical healthcare operator, with a market share of approximately 18%.
The combined company estimates operational synergies of BRL1.38 billion during 2022–2024. With a share of 58%, revenue is expected to be the biggest contributor of the synergies.

Before it’s here, it’s on Smartkarma

Feb 20

Equity Bottom-Up: Sea Ltd, Taiwan Semiconductor Sp Adr, Mesoblast Ltd and more

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

In today’s briefing:

Beyond 280 #7 | Shopee’s India Playbook
TSMC (TSM.US; 2303.TT): TSMC Shall Decide Whether to Raise Wafer Price in One, or Two Month.
Mesoblast (MSB AU): Preparing for Re-Submission of Biologics License Application for Ryoncil

Beyond 280 #7 | Shopee’s India Playbook

By Pranav Bhavsar

We speak to a B2B e-commerce consultant who onboards companies looking to sell on platforms like Amazon, Flipkart, Meesho & Shopee.
Shopee’s approach to a deal based app is seeing encouraging responses both from customers and sellers.
Indian E-Com has its own nuances, and there is a possibility that growth projections companies operating in the Industry may be overstated.

TSMC (TSM.US; 2303.TT): TSMC Shall Decide Whether to Raise Wafer Price in One, or Two Month.

We believe TSMC shall decide whether to raise wafer price in one, or two month.
To our understanding, Intel has gotten the wafer allocation from TSMC for the next two years.
To our understanding, MediaTek is the first client to perform 4nm production, although the booking quantity is less than Apple iPhone.

Mesoblast (MSB AU): Preparing for Re-Submission of Biologics License Application for Ryoncil

Mesoblast Ltd (MSB AU) has developed a range of late-stage product candidates derived from its first and second generation proprietary mesenchymal lineage cell therapy technology platforms.
BLA resubmission of remestemcel-L and formal BLA submission of rexlemestrocel-L to the FDA are two near-term catalysts for Mesoblast. Latest clinical trial results should support efficacy of both the candidates.
In November, Mesoblast completed a refinancing of its senior secured debt facility with a new $90 million five-year facility. Current funding is available for an estimated seven quarters.

Before it’s here, it’s on Smartkarma

Feb 19

Equity Bottom-Up: Palantir Technologies Inc, BCPG PCL, HKEX, Huize Holding Limited, Sky Perfect Jsat, Advanced Info Service, Iridium Communications and more

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

In today’s briefing:

Palantir 4Q21 Earnings: Declining Bookings, Shrinking Margins, Eccentric CEO
BCPG: Gain from Indonesia Asset Divestment
HKEx (388.HK): Latest COVID Outbreak Weighted Trading Activities
Huize: Getting More Difficult to Justify an Investment
Sky Perfect JSAT (Buy) – Follow up After Q3 21 Results
ADVANC: 5G and Enterprise Segment Will Drive Strong Growth in 2022
IRDM: Constellation of Free Cash Flow

Palantir 4Q21 Earnings: Declining Bookings, Shrinking Margins, Eccentric CEO

By Aaron Gabin

Palantir’s ongoing SPAC investment strategy is driving an increasing bifurcation between reported and underlying results… which continues to be ignored by sell side and retail investors.
Revenue growth missed ex-SPAC, while Billings Growth collapsed 31% YoY ex-SPAC investments…unheard of for a software company.
Margin guidance for 1Q22 well below consensus as sales headcount continues to ramp. Stay short.

BCPG: Gain from Indonesia Asset Divestment

BCPG’s 4Q21 net profit fall to Bt238m (-24% YoY, -65% QoQ),a 16-quarter low, mainly dragged by FX loss. The recurring profit stood at Bt583m (+9% YoY,-18% QoQ),inline with our expectation
The revenue recognition from new 20MW project in Japan (4Q21) resulted the YoY growth. While QoQ drop was due to seasonal weak hydro operation.
The company announced divestment of its full stake (33%) in Indonesia geothermal power project. BCPG will book a gain of B1.6bn from the deal

HKEx (388.HK): Latest COVID Outbreak Weighted Trading Activities

By Roger Xie

The sluggish share performance of HKEX (388 HK) underscored the weak trading activities at Hong Kong, its January average daily turnover (ADT) is down 47% year-over-year.
Hong Kong’s surging COVID cases have already accounted for more confirmed infections than all previous outbreak combined, we believe this will also dampen market sentiment short-term.
However, we remain bullish on HKEX (388 HK) with the view that China economy will likely rebound in 2022, which will drive the rebound of IPO activities and trading volume.

Huize: Getting More Difficult to Justify an Investment

By Alec Tseung

Huize’s further acceleration of the “online to offline integration strategy” likely pushes it to compete more directly against China’s insurance giants (e.g., Ping An).
One key challenge smaller Chinese insurtech players face (when it comes to attracting investors) is that some of the country’s insurance giants are relatively well digitized.
Ping An still represents a good way to gain exposure to China’s broader insurance/insurtech space, especially given its current low valuation.

Sky Perfect JSAT (Buy) – Follow up After Q3 21 Results

By Kirk Boodry

Space segment revenue is growing despite Covid-19 headwinds for in-flight Wi-Fi and should continue into the next few years as new capacity is unlocked
Investment in the media segment is likely to step up in Q4 on prootional spending for new Japan professional baseball and the Spoox streaming service
The outlook is improving heading into 2022 as the company will lap accounting changes that made headline revenue look weaker. We’ve updated our forecasts and remain at Buy

ADVANC: 5G and Enterprise Segment Will Drive Strong Growth in 2022

Upgrade to BUY rating with new TP of Bt269 (up 19% from previous TP), based on DCF, implying 24.1xPE’22. Analyst meeting came out with positive tone about new strategic direction
Expect Enterprise revenue to contribute 20% of total revenue by 2025. Management believes this segment will reach 20% of total revenue by 2024.We believe differently as we expect further competition
Revised 22E and 23E net profit upwards by 4% and 13%, respectively, to factor in high revenue growth. While 2022 will demonstrate healthy net profit growth, we believe enterprise segment

IRDM: Constellation of Free Cash Flow

By Hamed Khorsand

IRDM grew the number of billable subscribers using its Certus satellite service in the fourth quarter
Q4 is seasonally a slow period for commercial voice and data, but that did not stop IRDM from growing the number of subscribers by 6 percent from the year prior
IRDM issued 2022 service revenue guidance of growth between 5 percent and 7 percent. This growth is higher than we were modeling

Before it’s here, it’s on Smartkarma

Feb 18

Equity Bottom-Up: Kirin Holdings, Safie, W Scope Corp, Dechra Pharmaceuticals, SJM Holdings, China Southern Airlines, Kerry Express Thailand and more

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

In today’s briefing:

Kirin: Off of Myanmar & Off to a Good Start
Safie – Baby Thrown Out With the Bathwater Number Two
W Scope (6619): Improved and Price Is Moving
Dechra Pharmaceuticals (DPH LN): Recent Sell-Off Is a Buying Opportunity; Fundamentals Remain Intact
SJM Holdings Ltd: A Bet on Macau Recovery Against a Moody’s Downgrade Poses Dilemma for Investors
China Southern Airlines (1055 HK): A Tough Start
KEX: Price War Still Go on for the at Least Until 2nd Half of 2022

Kirin: Off of Myanmar & Off to a Good Start

Earlier this week, Kirin Holdings (2503 JP)’s board decided to withdraw from all the businesses in Myanmar urgently.
With the Myanmar JV issue out of the way and asset write-offs mostly complete, we think Kirin’s normalised EPS will grow at a CAGR of 11% through 2021-24.
This puts Kirin on 9.4x 2024 EPS, limiting the down side risk to the bare minimum.

Safie – Baby Thrown Out With the Bathwater Number Two

Safie reported 2021 results on Monday and beat slightly with revenue 1.6% above guidance and an operating loss of ¥76m, better than guidance of a ¥225m loss.
The stock is rated neutral by the sell side despite offering perhaps the best growth prospects in Japan and demonstrating numerous signs of exceptional management.
We consider the name to be potentially Japan’s best growth story in the small cap space.

W Scope (6619): Improved and Price Is Moving

By Henry Soediarko

W Scope Corp (6619 JP) share price has severely underperformed Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX)in the last 5 years.
Its business has picked up followed by the ability to pare debt down and potentially lower shipping costs that will expand margin.
It trades at 1.8x PBR, cheaper than Samsung SDI and LG Energy solution although more expensive than Showa Denko but W Scope’s operational number has been phenomenal.

Dechra Pharmaceuticals (DPH LN): Recent Sell-Off Is a Buying Opportunity; Fundamentals Remain Intact

Dechra Pharmaceuticals (DPH LN) shares corrected around 25% from its recent peak of GBX5,150 in late December, due to general market apathy toward high multiple stocks.
Despite the extraordinary levels experienced in the prior year, Dechra maintained its double-digit revenue growth and reported constant currency revenue growth of 15% y/y for H1FY22.
Long-Term fundamental growth story remains intact for Dechra. The company has also forayed into a new and niche therapy area through acquisition of one drug this year.

SJM Holdings Ltd: A Bet on Macau Recovery Against a Moody’s Downgrade Poses Dilemma for Investors

By Howard J Klein

Post CNY results point to the beginning of a sustainable recovery of the Macau gaming market, particularly in the mass segment where SJM has its greatest strength.
The company’s new flagship Grand Lisboa Palace opened last July by phases and is expected to lead recovery of company fortunes in the out years.
Moody’s downgrade not an immediate threat but still casts a shadow over out year’s performance when refis must be securely in place.

China Southern Airlines (1055 HK): A Tough Start

By Osbert Tang, CFA

While China Southern Airlines (1055 HK) saw passenger traffic up 17.3% in Jan, this is at the expense of higher capacity, leading to a 1.8pp YoY passenger load contraction.
Its cargo traffic underperformed both CEA and Air China with a YoY decline; and this is disappointing in a period of time where airfreight rate is at record-breaking level.
We see reduced local travel demand, higher operating costs, weaker cargo business, pressure on yield and higher base of comparison key challenges in 2022, and prefer Air China Ltd (753 HK).

KEX: Price War Still Go on for the at Least Until 2nd Half of 2022

We anticipate KEX earnings performance to experience net loss for at least in the next two quarters while expecting to see market consolidation within the express delivery industry in Thailand
First net loss since listed at Bt604m in 4Q21 pressured by aggressive price cutting strategy and cost arise from spare resources on labour and transportation. This resulted
Report Bt47m net profit in 2021 (-98%YoY) due to a price war which resulted in a drastic fall in average selling price. (contracted 20-25%YoY in 2021)

Before it’s here, it’s on Smartkarma

Feb 17

Equity Bottom-Up: Bumitama Agri, Japan Post Insurance, Raffles Medical, Kuala Lumpur Kepong, Appier Group Inc, Parade Technologies, ROBLOX Corp, Bilibili Inc, Arwana Citramulia, Tower Semiconductor Ltd and more

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

In today’s briefing:

Bumitama Agri: Lagging CPO Price Action; Large Special Dividend Possible at FY21 Results Briefing
Japan Post Insurance – Why This Could Double… In Charts
Raffles Medical (RFMD SP) – Pivot in SG Travel Rules, Testing Regime and Its Implications
CPO Plays Lag Palm Oil Prices As ESG Issues Weigh
Appier – Baby Thrown Out With the Bathwater Number One
Top Three Takeaways: Parade Technologies
Roblox 4Q21: Metaverse or Optical Illusion?
Bilibili (BILI): Upgrade to Buy for First Time Before 4Q21 Result
Arwana Citramulia (ARNA IJ) – Tiling a Porcelain Path
Tower Semiconductor (TSME.US): To Be Merged by Intel- A Fastest Way, but a Patience Test, Too.

Bumitama Agri: Lagging CPO Price Action; Large Special Dividend Possible at FY21 Results Briefing

By Nicolas Van Broekhoven

Bumitama Agri (BAL SP) is a pure-play CPO play on SGX which like the rest of its peers has lagged the price of CPO by a mile.
What could be the catalyst to change this? We preview FY21 results which will be announced on 28th February and its dividend outlook going into FY22.
BAL should take a page from the Geo Energy Resources (GERL SP) playbook and start to pay out aggressive bi-annual dividends to get Mr. Market’s attention.

Japan Post Insurance – Why This Could Double… In Charts

Japan Post Insurance beat consensus 3Q estimates by 77% at the NP level and the company revised up FY guidance 30.5% to ¥365.49 in EPS.
Consensus still forecasts EPS to drop to ¥234 next FY but we see little reason to not expect a further increase.
If so, the name is likely to be close to 5x PE vs. peers at over 10x creating a significant opportunity.

Raffles Medical (RFMD SP) – Pivot in SG Travel Rules, Testing Regime and Its Implications

By Jason Yap, CFA

Singapore will apply streamlined COVID-19 rules from 25 February 2022, with a focus on vaccination status instead of an aggressive testing and surveillance regime
We previously discussed how Raffles Medical benefits as the primary testing services provider at Changi airport and by facilitating Singapore’s vaccination drive
Given the latest pivot in border protocols, and taking into account Singapore’s high vaccination rates, we discuss whether our initial investment hypothesis remains intact

CPO Plays Lag Palm Oil Prices As ESG Issues Weigh

By David Blennerhassett

Palm oil prices are up 177% since May 2020 and 66% since June of last year. Palm oil touched a record high of RM5,700/mt the 31 January.
Yet while palm oil has enjoyed a meteoric price rise, the performance of listed palm oil plays has bifurcated.
Valuations appear largely constrained by environmental, social, and governance concerns, resulting in plantation stocks trading below their historical averages.

Appier – Baby Thrown Out With the Bathwater Number One

Appier reported 4Q21 results on Monday with revenue beating consensus by 5% and EBITDA beating by 323%.
The company guided for ¥17.5bn in revenue, above consensus at ¥16.2bn but significantly below our guesstimate of ¥20.8bn.
However, a close look at trends in the US suggest that our initial estimate remains reasonable enough.

Top Three Takeaways: Parade Technologies

By Wium Malan, CFA

Revenue growth is slowing and would require additional capacity and new products to re-accelerate core segment growth
Gross margin expectations are high, leaving very little margin of error
The near-term revenue growth visibility and medium-term demand outlook remain robust

Roblox 4Q21: Metaverse or Optical Illusion?

By Aaron Gabin

Roblox was crushed on 4Q21 earnings, owing to a weak guidance for January due to tough Covid comps.
We think the selloff is overdone given the still strong user growth and the “of course” normalization that was due to occur after incredible growth for the past two years.
Once growth normalizes midyear, the platform narrative will resume as reaccelerating core growth and 2023 advertising growth comes into view. A likely double from here.

Bilibili (BILI): Upgrade to Buy for First Time Before 4Q21 Result

By Ming Lu

BILI’s stock price has plunged significantly over the past year.
We believe the revenue growth will be stable in 4Q21.
We believe all business lines remains promising except for advertising.

Arwana Citramulia (ARNA IJ) – Tiling a Porcelain Path

By Angus Mackintosh

Tile manufacturer Arwana Citramulia (ARNA IJ)‘s 4Q2021 results confirmed a strong finish to the year and management expects an equally vibrant performance in 2022, as a top quality Indonesian industrial
Increased capacity, better product mix, greater efficiencies on gas usage, and the new line of porcelain tiles will help to drive better margins this year.
Arwana Citramulia throws off high returns with ROEs of more than 30%. Valuations do not look challenging with a strong EPS 30% growth and a forward PER of 11x.

Tower Semiconductor (TSME.US): To Be Merged by Intel- A Fastest Way, but a Patience Test, Too.

Transaction is expected to be immediately accretive to Intel’s non-GAAP EPS. The stock market reacted exciting for Tower raised 42% to reach $47.07 and Intel raised with ~1.8% respectively.
Tower Semiconductor is emphasized on analog semiconductor specialty foundries. Namely, it’s different from TSMC, UMC and GlobalFoundries, which are focusing on digital products original, and expand into analog afterward.
Intel wants to march into foundry business and have to count on Tower to bring in such operation know-hows, but Intel has to tolerate a completely different system.

Before it’s here, it’s on Smartkarma

Feb 16

Equity Bottom-Up: Alibaba Group, Sea Ltd, Dowa Holdings, Zhuzhou CRRC Times Electric Co., Ltd., Nihon M&A Center, Novatek Microelectronics Corp, China Travel International Investment Hong Kong, Kasikornbank PCL, Garrett Motion and more

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

In today’s briefing:

Alibaba (BABA): Overly Impacted, Accumulate Before 3Q22 Result
Sea Ltd (SE US) – A Himalayan Saga
Sea Ltd in Free Fall Following the Removal of Free Fire from The App Store & Google Play
Conviction Call Dowa – On Track for a Blowout and Growth Next Year
ZZ CRRC Times Electric (3898): Electrification
Nihon: False Recording of Sales Leads to More Than 40% Drop; Can Nihon Regain Investor Confidence?
Novatek (3034.TT): A Good Year Ahead, and Likely to Expand to SMIC for Wafer Foundry
China Travel Intl Inv (308 HK): The Fruit Has Ripened?
Top Five Thai Banks in Our Chart Screener; Kasikorn Bank (KBANK TB) Is Top
GTX: Free Cash Flow Motion

Alibaba (BABA): Overly Impacted, Accumulate Before 3Q22 Result

By Ming Lu

The stock price declined to a very low level before the market fell.
The Chinese e-commerce market is still promising despite of the high comparison base last year.
We believe the stock has an upside of 68% for March 2023.

Sea Ltd (SE US) – A Himalayan Saga

By Angus Mackintosh

The spotlight is back on Sea Ltd (SE US) after its game FreeFire was named as one of 54 apps of Chinese origin to be banned in India.
The ban on FreeFire comes despite Sea Ltd‘s recent move to reduce the influence from Tencent by scaling back its ownership of voting shares
We see the recent price weakness as an opportunity to accumulate Sea Ltd given the growth story remains intact although investors may not pay the same multiple premium over peers.

Sea Ltd in Free Fall Following the Removal of Free Fire from The App Store & Google Play

Sea Ltd dropped 18% yesterday following India’s decision to ban its battle royale game, Free Fire and 53 other Chinese apps from the Google Play and App Store in India.
India’s Free Fire ban could deliver a double whammy to Sea Ltd (SE US) with lower Digital Entertainment profitability limiting Sea’s ability to bankroll Shopee’s expansion.
With the macro-outlook for growth stocks not looking great, we wouldn’t be surprised to see “Sea” breaking the bottom end of the EV/Sales range towards the end of the year.

Conviction Call Dowa – On Track for a Blowout and Growth Next Year

Dowa Holdings’ 3Q numbers PBT beat consensus by 18% putting the company on track to hit out ¥84bn FY target though its upward revision was only to ¥72.5bn.
A new concrete recycling facility, recovering rhodium prices and a rebound in silver powder sales should help momentum going forward.
We believe the current price implies sustainable PBT generation of under ¥40bn creating a lot of upside potential.

ZZ CRRC Times Electric (3898): Electrification

By Henry Soediarko

The new product in IGBT for NEV will be the main driver going ahead riding on the growing EV ecosystem in China.
The recent sell-off provides a good entry point for new investors. For those who are already invested, it provides an opportunity to add at a better price.
It is a lesser-known NEV name in China that is still trading at a lower valuation compared to the mega-cap names such as CATL and BYD.

Nihon: False Recording of Sales Leads to More Than 40% Drop; Can Nihon Regain Investor Confidence?

Nihon M&A Center (2127 JP) reported 3QFY03/2021 results yesterday alongside publication of investigation report over false recording of sales contracts on the internal system between FY03/2019 to 2QFY03/2021.
The company announced on 20th December 2021 that it has commenced an investigation over the above issue and postponed the announcement of its 3Q results.
Revenue for 3QFY03/2021 increased 14.6% YoY to JPY10.85bn (vs consensus JPY12bn) while OP dropped 5.1% YoY to JPY4.0bn (vs consensus JPY6.0bn).

Novatek (3034.TT): A Good Year Ahead, and Likely to Expand to SMIC for Wafer Foundry

Novatek had reported a flattish sales outlook in 1Q22, and all of revenue, GM and OPM were expected to NT$35.8~36.8bn, 48~51% and 34~37% respectively, while revenue was at -1.92~+0.82% QoQ.
We think the high inventory days of supply chain is giving a good chance to expand into China foundry for production, especially SMIC.
We think Novatek would maintain its solid dividend policy for EPS NT$63.87 in 2021, and it’s pay-out ratio is 80% in the past.

China Travel Intl Inv (308 HK): The Fruit Has Ripened?

By Osbert Tang, CFA

Share price of China Travel International Investment Hong Kong (308 HK) (CTII) rallied 23% in last 3 months and 81% from its trough, which has well reflected the FY21 turnaround.
Risk-Return profile looks less attractive as its P/B multiple of 0.56x only provides 14% upside to the historical average of 0.63x. In other words, safety margin has diminished.
Macro picture turned against CTII – weaker-than-expected CNY visitors in Shenzhen, escalating Omicron cases in Hong Kong and caution on domestic tourism outlook all point to a more challenging FY22.

Top Five Thai Banks in Our Chart Screener; Kasikorn Bank (KBANK TB) Is Top

By Victor Galliano

These five value oriented Thai banks all have healthy credit quality, NPL coverage and sound capital adequacy ratios; in addition, encouraging cost of risk trends support the outlook for earnings
Of these, we believe Kasikorn Bank screens well, with its attractive pre-provision and post-provision profitability versus peers, whilst trading on relatively undemanding multiples; we also highlight Bangkok Bank positively
Of the other Thai banks, we think that TMBThanchart could be a potential “turn around” stock, especially if management can improve credit quality, driving down its cost of risk further

GTX: Free Cash Flow Motion

By Hamed Khorsand

GTX is experiencing a steady improvement in the number of turbocharger units produced and sold with the Company’s management citing pent up demand from its customers
GTX’s management’s commentary associated to the current business climate contrasted favorably from the third quarter earnings call.
Investors are giving GTX much credit for its free cash flow abilities even though GTX reduced its Series B Preferred by $211 million in the fourth quarter

Before it’s here, it’s on Smartkarma

Feb 15

Equity Bottom-Up: Recruit Holdings, Toshiba Corp, DBS, SMC Corp, Rakuten Inc, Jasmine Broadband Internet Infrastructure Fund, Huadong Medicine Co Ltd A, Green World FinTech Service, Affirm Holdings, freee and more

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

In today’s briefing:

Conviction Call Recruit – Strong Results; Earnings Weakness Begins to Show Up and Down More Than 15%
Toshiba – Decent 3Q Means Downward Revision Was Probably Unnecessary
DBS Group Holdings – Weak Print, But Credit Improves
SMC – Consensus Estimates Ignore Potential Down Cycle
Rakuten (Neutral) – Q4 21 Results Reaction: Hard to Look past Mobile Losses
JASIF: Attractive Dividend Yield with Inflation Hedge
Huadong Medicine Co Ltd (000963.CH) – The Medical Cosmetology Business Is the Key Breakthrough Point
Green World FinTech Service: A Fintech Company in Taiwan with Rock-Solid Fundamentals
Affirm FY Q2 2022 Earnings Review: Leading BNPL Player Maintains Its Hyper-Growth Trajectory
Freee 2Q: OP Beat Wipes Out Concerns on Mid/Large User Growth and Profitability

Conviction Call Recruit – Strong Results; Earnings Weakness Begins to Show Up and Down More Than 15%

Recruit Holdings (6098 JP) reported its 3QFY03/22 results today and reported a revenue growth of 22.0% YoY to ¥746bn (vs consensus revenue of ¥706.6bn, 5.6% beat).
OP increased 61.5% YoY to ¥110.6bn with an OP beat of 10.1%. Adjusted EBITDA grew by 54.1% to ¥134.8bn compared to ¥87.5bn for the 3rd quarter last year.
Though 3Q results was strong, earnings weakness begins to show up with normalisation of recruitment activities. Stock is down more than 15% since we made our conviction call short.

Toshiba – Decent 3Q Means Downward Revision Was Probably Unnecessary

Toshiba’s 3Q results were relatively strong with revenue beating by 2.8% and OP beating by 18.3%.
Given typical profit patterns and Toshiba’s new 4Q revenue guidance, FY OP would likely be close to ¥190bn so the downward revision from ¥170bn to ¥155bn looks unnecessary.
Toshiba also set March 24th as the date for its EGM to vote on the two-way split, simultaneously recommending against 3D’s proposals.

DBS Group Holdings – Weak Print, But Credit Improves

DBS reported a weak set of 4Q21 results of SGD 1.4 bn, down SGD 307 mn (18.1%) linked quarter and driven by negative operating jaws;
While provisions weren’t reversed this quarter, reserves should still be shored up in the neighborhood of SGD 1.1 bn – amounting to about a half quarter of operating results; and
Three transactions in the span of a year is too much. DBS needs to focus on improving its own legacy issues before taking on those of other financial institutions.

SMC – Consensus Estimates Ignore Potential Down Cycle

SMC’s 3Q revenue of ¥184bn (+4.5% QOQ, +31.3% YoY) OP of ¥57bn continued its strong recent trend.
Reported revenue and OP were 8.0% and 8.3% higher than consensus estimates and drove SMC to revise up FY22 revenue and OP guidance respectively to ¥715bn (+2.1%) and ¥228bn (+4.6%).
The main concern remains a momentum peak, however, and a decline in YoY growth does not help.

Rakuten (Neutral) – Q4 21 Results Reaction: Hard to Look past Mobile Losses

By Kirk Boodry

The core eCommerce and Fintech segments posted good results for the quarter but that will certainly get lost in the discussion on mobile
Mobile operating losses exceeded $1bn in Q4 and whilst management is guiding to losses bottoming out in Q1 22, the magnitude of improvements remains undefined
Rakuten Mobile capex is on par with incumbents and will remain unchanged in FY22

JASIF: Attractive Dividend Yield with Inflation Hedge

We initiate coverage of JASIF with a BUY rating at a target price of Bt12.10, derived from a DCF methodology (WACC=9.6%, g=0%), implying 1.1xPBV’22E. The story:
Stable and secured earnings will support an attractive dividend yield of 9% for the next 10 years.
The fund’s financial performance is secured by long-term contracts with TTTBB, a leading internet provider in Thailand.

Huadong Medicine Co Ltd (000963.CH) – The Medical Cosmetology Business Is the Key Breakthrough Point

Huadong Medicine (000963 CH)’s traditional core businesses are facing great pressure due to VBP and medical insurance negotiation, which is difficult for Huadong to establish its long-term core competitiveness.
Despite the fierce competition in medical cosmetology industry, the entry of medical cosmetology equipment field is a wise step, helping Huadong form the most complete layout among competitors.
In terms of whether Huangdong could achieve business transformation successfully, the future performance of medical cosmetology business is the key breakthrough point.

Green World FinTech Service: A Fintech Company in Taiwan with Rock-Solid Fundamentals

By Douglas Kim

Green World Fintech Service is a fintech company in Taiwan with one of the most rock-solid fundamentals among all Asian fintech companies.
It had 39% and 122% CAGR growth in sales and operating profit, respectively from 2017 to 2020. Its operating margin improved from 4.9% in 2017 to 28.9% in 1Q-3Q 2021.
Nonetheless, our valuation analysis suggests a base case valuation of 15.9 billion TWD and implied price per share of 1,076 TWD, which is 8% below current price.

Affirm FY Q2 2022 Earnings Review: Leading BNPL Player Maintains Its Hyper-Growth Trajectory

By Andrei Zakharov

Total revenue jumped to $361M, 77% YoY, and the number of active merchants reached a record of ~168,000 in FY Q2 2022.
The number of active consumers skyrocketed by 150% YoY to 11.2 million, and GMV more than doubled year-over-year in reporting period.
Growth of key operating and financial metrics was driven by the strong holiday season, adoption of Shop Pay Installments, and partnership with Amazon.

Freee 2Q: OP Beat Wipes Out Concerns on Mid/Large User Growth and Profitability

freee (4478 JP) reported 2QFY06/2022 earnings today. Revenue grew 38.5% YoY to JPY3.31bn, marginally below consensus revenue of JPY3.47bn.
Operating losses for the quarter was JPY544m (16.4% of revenues vs 17.8% in 2QFY06/2021) which was well below consensus operating loss of JPY673.1 (19.4% of consensus revenue.
Though revenues fell slightly below consensus, we think 2Q results have eased some of the concerns we had over freee’s acquisition of Ninja Sign and its path to profits.

Before it’s here, it’s on Smartkarma

Feb 14

Equity Bottom-Up: Semiconductor Manufacturing International Corp (SMIC), Evergrande, Comfortdelgro Corp, Vitzrocell, Pan Pacific International Holdings, Zhangzhou Pientzehuang Pharmaceutical Co., Ltd., Indiabulls Housing Finance and more

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

In today’s briefing:

SMIC (0981.HK): Raising CapEx to $5bn in 2022. Exciting News, or Fierce Competition Ahead?
China Evergrande Group – Just Stop the Nonsense
Comfortdelgro (CD): Reopening and Green
Korea Small Cap Gem #15: Vitzrocell Co
PPIH: Q2 Should Ease Concerns on Profitability & Help The Share Price Return to Pre Q1 Level
Zhangzhou Pientzehuang Pharmaceutical (600436.CH) – The Strength and the Concerns
IndiaBulls Housing Finance – Manufactured Bottom-Line

SMIC (0981.HK): Raising CapEx to $5bn in 2022. Exciting News, or Fierce Competition Ahead?

SMIC had reported a very exciting outlook in 1Q22, and both of revenue and GM are rising up to US$1,817~1,848.7mn and 36~38% respectively, which is growing at 15~17% QoQ.
SMIC plans to expand capacity in Shenzhen, Tianjin and Beijing in 2022 because of the unprecedently foundry demands. The Capex plan is ~US$5bn in 2022, which’s lager than UMC’s US$3bn.
China is still 3-4 generations behind TSMC, which is a big gap to catch up with.

China Evergrande Group – Just Stop the Nonsense

Be a hero, just take Evergrande to zero. The scrip isn’t worth the paper their written on;
Without an Act of God, the likelihood that Evergrande has enough liquidity and will not have a fire sale of assets is nil; and
Major creditor, China Cinda, be placed in charge creates a massive conflict of interest that no investor or creditor should get comfortable with.

Comfortdelgro (CD): Reopening and Green

By Henry Soediarko

Southeast Asia has started to reopen amid increasing Omicron cases including Malaysia and Vietnam.
Singapore has extended its F1 contracts for the next 7 years and there will be an F1 night race this year in Singapore, boosting the likelihood of reopening.
More than 80% of its buses are Euro 5 compliant, creating a case for green transportation.

Korea Small Cap Gem #15: Vitzrocell Co

By Douglas Kim

Vitzrocell (082920 KS) is the 15th company in our Korea Small Cap Gems series.
Vitzrocell is the domestic leader in lithium-based primary batteries. In the global market, it is considered as one of the top three players along with SAFT (France) and Tandiran (Israel).
On 3 February, it was reported that Scion Asset Management increased its stake in the company to 5.25% (as of 26 January 2022).

PPIH: Q2 Should Ease Concerns on Profitability & Help The Share Price Return to Pre Q1 Level

PPIH beat consensus 2QFY22 OP by 8.6% last week following a dismal 1QFY22 which saw quarterly OP fall 30.7% YoY due to lower sales of seasonal products and price competition.
Q2 results showed investors that Q1 was a temporary blip and Pan Pacific International Holdings (7532 JP) managed to catch up most of the lost ground in the second quarter.
Currently down 30% due to Q1 weakness, We predict PPIH’s share price to bounce back to the pre-Q1 earnings level over the next few weeks.

Zhangzhou Pientzehuang Pharmaceutical (600436.CH) – The Strength and the Concerns

In terms of the business model,the uniqueness and scarcity of Pien Tze Huang keep the market demand at high level,supporting its strong ability to raise prices and establish high moat.
The concerns on single product risk, scare raw materials and inadequate production capacity would cast a shadow over the Company’ future development.
The breakthrough point lies in whether the Company can make use of the unique advantages generated from “Pien Tze Huang” series to cultivate a second strong growth point in time.

IndiaBulls Housing Finance – Manufactured Bottom-Line

IndiaBulls reported FY 3Q22 results of INR 3.0 bn, improving INR 167 mn (5.8%) linked quarter; results were of poor quality;
Net new NPLs had increased INR 7.1 bn for the quarter for an annualized rate of increase of 139.6%; and
Given the continued break in credit, loss reserves appear light close to INR 28 bn – representing seven quarters of PBT and 17.1% of stated equity.

Before it’s here, it’s on Smartkarma

Feb 13

Equity Bottom-Up: Krishna Institute of Medical Sciences and more

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

In today’s briefing:

Krishna Institute of Medical Sciences (KIMS IN): Solid Q3 Results; Expansion Plan Is on Track

Krishna Institute of Medical Sciences (KIMS IN): Solid Q3 Results; Expansion Plan Is on Track

Krishna Institute of Medical Sciences (KIMS IN) shares gained ~18% since we initiated it on October 28, 2021. Investors can add to positions at the current level.
Regional focus is still paying off and KIMS reported solid Q3 results, with revenue and PAT growing by 10% and 76%, y/y, respectively, driven by higher patient volume and occupancy.
EBITDA margin of acquired assets has enough headroom to grow to the level of mature assets. The company is on track to add 1,650–1,800 beds in next three years.

Related tickers:

Before it’s here, it’s on Smartkarma