Equity Bottom-Up

Tencent (700 HK) is expected to release fourth quarter and full-year 2021 results on 23rd March 2022.
We expect fourth quarter 2021 earnings to be soft driven by slowdown in online advertising and online games revenues.
In our 3Q2021 earnings note, we highlighted that weakness in Tencent’s earnings have begun to show up and we expect further declines in 4Q2021E.

Mazda – Profitability Is Surging

We have been consistently saying that the sell side is utterly clueless about Mazda’s profit structure.
The company just missed top line by 13.2% but beat on OP by 26% even excluding a reclassification of some costs to extraordinary losses.
The thesis here is simple – consensus projects a 3% OPM next FY and we believe Mazda will double that.

Shiseido: China Is Still a Question Mark But The Rest of The Business Deserves Plaudits

By Oshadhi Kumarasiri

Shiseido Company (4911 JP)’s share price is up more than 6% today following the yesterday’s strong Q4 results with 2021 EBITDA surpassing the November 2021 guidance by ¥17.6bn (11.3%).
The China business is still not completely out of the woods, although the like for like growth rate accelerated from 2.0% YoY in 3Q21 to 7.0% by 4Q21.
Nonetheless, strong performance across skin and beauty care in all regions suggests that the company is on track to become the world’s number 1 skin and beauty care brand.

Beyond 280 #6 | Zomato (Zomato IN) – Conversation with a Restaurant Chain E-Com Manager

By Pranav Bhavsar

We interact with E-Com manager of a large restaurant chain in South India with an objective to understand key demand drivers and current ordering trends for OFD players.
AOV and Order volumes have seen YoY increase in Q3FY22 for both Zomato (ZOMATO IN) and Swiggy.
Amazon.com Inc (AMZN US) has seen a jump in Food Delivery orders, but remains a pilot and is not a major threat to either Zomato or Swiggy.

TEL – Great Results but Some Warning Signs

TEL’s 3Q results were strong as expected with revenue of ¥506bn beating consensus by 6% and OP of ¥156bn beating by 14%.
Guidance was raised from ¥550bn to ¥570bn but could still prove about ¥20bn too light.
While TEL expects 20% market growth in 2022, that may not justify current multiples and there are some other concerns.

Disney 1Q2022: Knockin It Out of the Park

Incredible quarter for Parks, with sustainably higher levels of profitability in the cards due to Disney’s pricing power.
Streaming is still worrisome, growth driven by bundling and Hotstar+ subs which we don’t value as worth much to Disney.
SoTP gets us to ~$155 at best, which is where the stock trades post earnings. Not great risk reward here.

Yamaha Motor – Lowballing Guidance on Material Costs

Yamaha Motor’s 4Q21 beat on margins with revenue of ¥450bn (+1.2% QoQ, +11.3% YoY) and OP of ¥27.7bn for an OPM of 6.2%.
The reported OP was 8.6% higher than consensus estimates while revenue was relatively in-line.
Yamaha’s FY OP generation was ¥182.3bn, right in the middle of our ¥180-185bn estimate and 2022 guidance was more or less in-line with consensus.

AVYA: Sales Slipped, ARR Grew

By Hamed Khorsand

AVYA continues to face revenue recognition challenges from transitioning to a subscription revenue model. AVYA reported fiscal first quarter results missing expectations even though AVYA won a $400 million contract.
The issue at hand for AVYA is the ongoing transition is leading to its cash balance diminishing while management maintains a positive cash flow from operation outlook for the year.
AVYA reaffirmed its annual revenue guidance. AVYA is projecting revenue in fiscal second quarter to jump back to a midpoint of $738 million, which is higher than our original estimate

FSN E-Comm (NYKAA IN): Macro, Micro & Marketing Drive Metric Growth

By Devi Subhakesan

FSN E-Commerce Ventures (Nykaa) (NYKAA IN) announced a steady growth across all key operating metrics in both the Beauty and Fashion verticals for the quarter ending 31st December 2021.
Steady operating performance was helped by favorable macro (normalization in economic activity) and supportive sector-specific factors (Diwali, wedding season) as well as aggressive marketing (now 14% of revenues).
Despite an 83% growth in 9MFY22 GMV and a resultant 89% growth in gross profits, EBITDA grew only 11% as increased marketing spend consumed most of the margin upside.

Before it’s here, it’s on Smartkarma

Feb 10

Equity Bottom-Up: Alibaba Group, Renesas Electronics, Toyota Motor, Bukalapak, Mahindra & Mahindra, Commonwealth Bank of Australia, SUMCO Corp, Honda Motor, Advanced Semiconductor Engineering (Adr), Yum China Holdings, Inc and more

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

In today’s briefing:

Alibaba: Hitting the Brakes Hard
Renesas – Accelerating
Toyota – In-Line 3Q Sets Up Strong 4Q Beat
Bukalapak (BUKA IJ) – Storefronts, Specialty, and Financing
India Channel Insight #25 | Mahindra and Mahindra, Escorts
Commonwealth Bank of Australia – Pulling On All Earnings Levers
Sumco – Consensus Probably Too Timid on Price Hikes
Honda – Back and Forth OP Guidance Revisions
ASE Holding (ASX.US, 3711.TT): The Outlook of 1Q22 Could Be a Bit Bearish as Actionable
Yum China (YUMC.US/9987.HK): Zero-COVID Policy Weighted on Earnings

Alibaba: Hitting the Brakes Hard

By Oshadhi Kumarasiri

Even though the third quarter was seasonal historically, we are expecting the impact of seasonality to fade in future due to changes to Alibaba’s Core Commerce revenue composition.
Therefore, it seems like the market is expecting too much from Alibaba Group (9988 HK) in the third quarter with a consensus EBITDA estimate of RMB 51.7bn.
With equity markets near a breaking point and no change in investor sentiment towards Alibaba, an earnings miss in 3QFY22 could be potentially more price-sensitive than the last time.

Renesas – Accelerating

Renesas’ 4Q results were strong as revenue came in well above guidance as we predicted, beating even our ¥310bn estimate at ¥314.4bn.
EBITDA of ¥119.4bn was up 15.7% QoQ and should rise further thanks to a hefty backlog.
We said previously that 2022 EBITDA could be on the order of ¥500-550bn rather than the ¥391bn which consensus projects… for reasons which escape us.

Toyota – In-Line 3Q Sets Up Strong 4Q Beat

Toyota’s 3Q results were in-line with revenue and OP 2% above consensus and a slight QoQ improvement.
The FY production plan was revised down as expected though we see slight upside to the 8.25m unit plan.
Toyota has now averaged ¥853bn in OP over the last six pandemic driven quarters.

Bukalapak (BUKA IJ) – Storefronts, Specialty, and Financing

By Angus Mackintosh

Bukalapak (BUKA IJ) continues to expand the range of products it offers to its Mitras including logistics services and financial products but it is now extending more service to merchants.
The platform’s Storefront offering aims to enable merchants which often operate through social commerce channels to improve their ability to attract and maintain customers and to facilitate payments and logistics.
The Allo Bank stake was bought at 1.7x PBV and will grow through an ecosystem of 100m potential customers. Bukalapak (BUKA IJ) looks like value with positive newsflow.

India Channel Insight #25 | Mahindra and Mahindra, Escorts

By Pranav Bhavsar

We interact with two dealers of Mahindra & Mahindra (MM IN) & Escorts Ltd (ESC IN)
High pressure on billing is denting dealer profitability leading to dealership closures
Weddings and changing spending patterns suggest a weak demand environment likely to continue.

Commonwealth Bank of Australia – Pulling On All Earnings Levers

CBA reported modestly weaker FY 1H22 cash results from continuing operations of AUD 30.5 bn, which attributed primarily to a 77.1% decline in loss provision reversals;
Despite the poor result, CBA has chosen to pull on numerous earnings levers to make even these numbers; and
While credit has improved, reserves will need to be buttressed as we head into a period of higher interest rates.

Sumco – Consensus Probably Too Timid on Price Hikes

Sumco’s 4Q results were on the strong side with revenue beating by 2.3% and OP beating by 2.0%.
1Q guidance was also bullish with revenue guidance of ¥99bn 5.3% higher than consensus while OP guidance of ¥21bn was 12.8% higher.
Guidance is still a touch conservative in our view, particularly on the margin side.

Honda – Back and Forth OP Guidance Revisions

When Honda reported its 2QFY22 results it revised OP guidance down and we said that unnecessary.
Indeed, with 3Q now out they revised guidance UP, above where it was at 3Q, making the revision pattern look like ¥660bn > ¥ 780bn > ¥660bn > ¥800bn.
That remains conservative and the company should beat though we still see limited upside until next year’s prospects start to be priced in.

ASE Holding (ASX.US, 3711.TT): The Outlook of 1Q22 Could Be a Bit Bearish as Actionable

By Patrick Liao

Hope we could be wrong, but the outlook of 1Q22 could be a bit bearish since we believe ASE Holding (ASEH) revenue/GM will reach ~NT$165bn/19.4% and ~NT$150bn/19.5% in 4Q21/1Q22 respectively.
China has massive local efforts on OSAT business because of low entry barrier. In our views, China can exist very well in lower profit margin to compete.
The worldwide OSAT (Outsourced Semiconductor Assembly and Testing) companies of scale are majorly centered in Asia Pacific area.

Yum China (YUMC.US/9987.HK): Zero-COVID Policy Weighted on Earnings

By Roger Xie

Yum China Holdings, Inc (YUMC US) reported below-expectation 4Q21 earnings. Same store sale growth was down 11% year-over-year due to recent resurging of COVID cases in several regions of China.
Yum China has leveraged its digital orders and delivery service to alleviate the impacts. Based on its operation in 1Q20, we believe Yum China could recover quickly from current outbreak.
We think risk/reward is more compelling to own Yum China Holdings, Inc (YUMC US) as it has resilient business model and proven records to navigate through pandemic.

Before it’s here, it’s on Smartkarma

Feb 09

Equity Bottom-Up: Softbank Group, Toshiba Corp, China Unicom Hong Kong, LG Energy Solution, Nissan Motor, Murata Manufacturing, Sumitomo Metal Mining, Harmonic Drive Systems, China Three Gorges Renewables and more

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

In today’s briefing:

Softbank – Masayoshi Son’s Got Nothin’
Toshiba – Underwhelming MTP With Execution Risk
StubWorld: Unicom’s “Hs” Are Cheap
Softbank Group – Q3 21 Results Reaction: ARM IPO Pivot Is the Big Reveal
Highlights of LG Energy Solutions 4Q 2021 Earnings & Buy on Rumor/Sell the News Post MSCI Inclusion
Nissan – Limited Upside Till Next FY Starts to Be Priced In
Murata Mfg. (6981 JP): FY Guidance Raised but Quarterly OP Trend Is Down
SMM – Bump to Guidance Supports Recent Share Price Rise
Harmonic Drive – Good 3Q But No Guidance Revision
China Three Gorges Renewables (600905 CH): Good, and Better Is Coming

Softbank – Masayoshi Son’s Got Nothin’

It’s hard to believe but Softbank’s earnings briefing had even less of substance this time than usual, essentially amounting to an “innovative” unofficial roadshow for an Arm IPO.
The termination of the Arm-Nvidia deal was made official and there was the usual TED talk for retail investors on LTV, NAV and the brand-new concept of computer chips.
With portfolio performance since the start of this year as grim as expected there was little to cheer.

Toshiba – Underwhelming MTP With Execution Risk

Toshiba’s second IR day produced little of extra value as details on its new MTP did not add anything particularly new.
The company did a reasonable job of breaking down sources of growth and technological strengths but there were few immediate growth drivers.
As prospects for strong growth look to be shifting further out an SOTP analysis does not favour Toshiba.

StubWorld: Unicom’s “Hs” Are Cheap

By David Blennerhassett

Despite the recent share price gain, China Unicom (762 HK) is inexpensive with respect to parent China United Network (600050 CH) – its pseudo domestic A-share twin – and to peers.
Preceding my comments on Unicom, are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

Softbank Group – Q3 21 Results Reaction: ARM IPO Pivot Is the Big Reveal

The ARM sale to Nvidia has been cancelled but Softbank is charging full speed ahead on an IPO
That is unlikely to surface the value of a straight sale whilst the monetization rate at 15-20% would also be much lower
We remain cautious even with a 50% discount as NAV depends on volatile tech valuations but today’s report provides some reassurance on ARM at least

Highlights of LG Energy Solutions 4Q 2021 Earnings & Buy on Rumor/Sell the News Post MSCI Inclusion

NPS and other local pension funds have net purchased about 2.5 trillion won of LG Energy Solution shares from the IPO date to 8 February.
Many investors are having a buying the rumor/sell the news strategy on LGES. As the timing of the news approaches near, the risk/reward outlook on LGES looks less favorable.
LGES reported mixed results for its 4Q 2021 earnings. The company gave capex target of 6.3 trillion won in 2022, which was 57% higher than the consensus estimates.

Nissan – Limited Upside Till Next FY Starts to Be Priced In

Nissan generated total revenue of ¥2,207bn (+13.8% QoQ, -0.8% YoY) and OP of ¥52.2bn in 3QFY22.
The reported revenue was 0.9% lower than consensus estimates, while operating profit was ¥15bn higher.
The company revised revenue guidance to ¥8,710bn (-1.0%) while OP was increased by ¥30bn to ¥210bn (+16.7%) but our start of year estimate of ¥250bn OP is on the cards.

Murata Mfg. (6981 JP): FY Guidance Raised but Quarterly OP Trend Is Down

By Scott Foster

FY Mar-22 guidance was raised, but new orders were down in 3Q and both sales & operating are headed down in 4Q.
4Q is seasonally weak and long-term demand drivers such as 5G, IoT and auto electrification remain in place, but the timing of recovery is uncertain.
The shares have dropped 21% since last September, to the low side but not the bottom of their 5-year P/E range. Look for an opportunity to buy for the long-term.

SMM – Bump to Guidance Supports Recent Share Price Rise

Sumitomo Metal Mining delivered a strong 3Q with ¥73.7bn in current profit vs. consensus at ¥57.1bn.
Guidance was raised from ¥266bn in current profit to ¥314bn although this is inflated by about a ¥74bn gain on Sierra Gorda.
Nevertheless, valuations look cheap relative to earnings and imply a sharp commodity price correction which may not happen very quickly.

Harmonic Drive – Good 3Q But No Guidance Revision

Harmonic Drive posted relatively good numbers in 3Q on account of strong SG&A controls but neglected to raise guidance.
That looks conservative and backlog hit a new high, but valuations remain stretched.
Ultimately we still see significant risk for next FY and expect guidance to be significantly weaker than consensus expects.

China Three Gorges Renewables (600905 CH): Good, and Better Is Coming

By Osbert Tang, CFA

China Three Gorges Renewables (600905 CH) (CTGR) has an splendid FY21 as it pre-announced result with a range of 46.5-53.1% growth in recurring profit, fuelled by generation and disposal gains.
The first full-year contribution of many projects commissioned in 4Q21, which boosted a 28.4% QoQ surge in power generation, should underpin FY22 earnings – consensus forecast is expecting 41% growth.
YTD, CTGR’s share price performed in line with Shanghai Composite Index (-6.1%), but its strong EPS CAGR of 22% for FY21-23 provides room for it to outperformed in medium term.

Before it’s here, it’s on Smartkarma

Feb 08

Equity Bottom-Up: Toshiba Tec, Smoore International, Daikin Industries, NTT (Nippon Telegraph & Telephone), China Everbright Environment, State Bank Of India, Subaru Corp, Sprouts Farmers Market, Bank Rakyat Indonesia Persero, Samyang Tongsang and more

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

In today’s briefing:

Toshiba Tec – All-Time Highs
Smoore (6969 HK): Expanding Market Sizes, Both Domestic and Global
Daikin – Material Costs Look to Be Impacting Margins
NTT (Buy) – Q3 21 Results Reaction: NTT Data Drives Beat and Raise with Dividend Boost
China Everbright Environment (257 HK): Roaring in the Year of Tiger!
State Bank of India – Rules Don’t Apply
Subaru – Improvement in Margins Despite Revenue Decline
Declining Business Short Candidates: Weight Watchers, Triumph Grp, Sprouts, Ormat Tech
Bank Rakyat Indonesia (BBRI IJ) – MSME Marvel in the Making
Korea Small Cap Gem #14: Samyang Tongsang

Toshiba Tec – All-Time Highs

Toshiba Tec is one of our favourite small caps in Japan with a strong fundamental story and upside event risks from the Toshiba soap opera.
The name was up 14.3% today despite middling earnings released mid-day on its designation as non-core by parent Toshiba.
That puts it at an all-time high and within a whisker of ¥5,000 with the event risk now clearly visible.

Smoore (6969 HK): Expanding Market Sizes, Both Domestic and Global

By Ming Lu

The growth rate of the Chinese e-cigarette market bounced up to 73% in 2021 from 7% in 2020.
The global e-cigarette market increased by 23% in 2021, but Smoore is only good at vaping components.
We conclude that Smoore has an upside of 86% for year end 2022.

Daikin – Material Costs Look to Be Impacting Margins

Daikin 3Q results were mixed with revenue of ¥743bn (-2.2% QoQ, 21.3% YoY) looking strong but OP of ¥66.8bn, implying an OPM decline to 9.0% from 10.3% last quarter.
Reported revenue was 6.0% higher than consensus while OP was 4.2% lower.
The company revised its FY22 revenue guidance to ¥3,050bn (+4.1%) but OP was raised just ¥10bn to ¥310bn (+3.3%) which may disappoint.

NTT (Buy) – Q3 21 Results Reaction: NTT Data Drives Beat and Raise with Dividend Boost

NTT has raised financial guidance by 1-2% on upside at subsidiary NTT Data
A corresponding increase in the FY21 dividend from ¥110 to ¥115 provides a near-term reward for shareholders
We are raising our target price from ¥3,600 to ¥4,000 and remain at Buy

China Everbright Environment (257 HK): Roaring in the Year of Tiger!

By Osbert Tang, CFA

The FY21 result of China Everbright Environment (257 HK) (CEE) should look impressive and we see improvement in cash flow to relieve market concerns on leverage and financial position.
New project addition is solid over the last three months, adding about 5% to operational project portfolio. Strong special purpose bonds issuance in 4Q21 and 2022 will fuel pipeline momentum.
Valuations look undemanding at 4.1x PER and 0.65x P/B for FY22F; and by maintaining payout ratio at c.30%, dividend yields are at attractive 6.4% and 7.4% for next 2 years.

State Bank of India – Rules Don’t Apply

SBI results were highly managed in FY 2Q22, and going forward it’s difficult for anyone to take both these results and this bank very seriously;
SBI reported FY 3Q22 results of INR 84.3 bn, improving INR 8.1 bn (10.6%) linked quarter. Volatility between loss provisions and operating expenses continued; and
Net new NPLs accelerated 18.5% annualized, and SBI’s reserves are short INR 568 tn – over five quarters of pre-tax results.

Subaru – Improvement in Margins Despite Revenue Decline

Subaru’s 3QFY22 missed consensus with revenue of ¥666bn (-5.8% QoQ, -22.3% YoY) and OP of ¥42.0bn (6.3% OPM) both looking weak.
The reported revenue and OP were 11.2% and 2.8% lower than consensus estimates respectively.
The company revised OP guidance to ¥100bn from 2Q’s ¥150bn which itself was lowered from ¥200bn but this should be the last of the bad news.

Declining Business Short Candidates: Weight Watchers, Triumph Grp, Sprouts, Ormat Tech

By Eric Fernandez, CFA

Sales declines, margin compression, cuts in SG&A and cuts in guidance and estimates feature in our Declining Businesses model.
Declining business shorts tend to be lower beta, have longer time horizons, and tend to produce steadier (although slower) short returns.
Today we are flagging Weight Watchers, Triumph Grp, Sprouts, Ormat Tech .

Bank Rakyat Indonesia (BBRI IJ) – MSME Marvel in the Making

By Angus Mackintosh

Bank Rakyat Indonesia (BBRI IJ) booked strong growth in net profit in FY2021 beating its own guidance on most metrics and growing its exposure to MSMEs significantly.
Loan growth to micro, ultra-micro & smaller corporate borrowers saw significant growth while its cost of funds came down and the cost of credit improved increasing profitability.
With the increasing use of digital channels to grow its customer base and huge potential to cross-sell to 137m depositors, Bank Rakyat is a core holding amongst the Indonesian banks.

Korea Small Cap Gem #14: Samyang Tongsang

Samyang Tongsang (002170 KS) is the 14th company in our Korea Small Cap Gems series.
Samyang Tongsang’s net cash/market cap ratio is 124%, one of the highest among Korea companies with more than 100 billion won in market cap.
Chairman Huh (age 84) still has a 20% stake in the company. There could be material changes to corporate governance if the ownership structure changes in a few years.

Before it’s here, it’s on Smartkarma

Feb 07

Equity Bottom-Up: SGX, Vanguard Intl Semiconductor, GrafTech International Ltd, HDFC Limited, Home Product Center and more

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

In today’s briefing:

Singapore Exchange – No Real Progress
Vanguard (5347.TT): 8″ Capacity Tightness with TSMC Standing Behind as Actionable
Graftech: Encouraging Q4 2021, Stronger Pricing into 2022
HDFC Ltd. – Lack of Conservatism
HMPRO: Expect 4Q21 Earnings to Be the Highest of This Year

Singapore Exchange – No Real Progress

SGX FY 1H22 core results were not robust, coming in at SGD 216 mn, improving just SGD 1.0 mn (0.5%) HOH and reflected weakened revenues;
Derivatives revenue improved 3.4% HOH, resultant of slightly higher contract volumes, and higher rates and lower discounts. HKEX’s foray into the A50 will ultimately eat away at SGX’s business; and
Significant strategic alternatives are needed at SGX, if it is to avoid being hollowed out by the HKEX.

Vanguard (5347.TT): 8″ Capacity Tightness with TSMC Standing Behind as Actionable

By Patrick Liao

In our estimate, Vanguard’s 4Q21 revenue/GM is NT$12.6bn/46.3%, and 1Q22 revenue/GM is NT$12.3bn/46.1% respectively.
Vanguard has about 30% capacity utilized by TSMC’s foundry products. In technology deliverables, Vanguard also competes with TSMC for manufacturing excellence, which creates an internal competition.
Vanguard has dealt with their clients to share the expansion cost. Certainly, there is almost no such trust-worthy partnership, except Vanguard who has TSMC to back up.

Graftech: Encouraging Q4 2021, Stronger Pricing into 2022

By Sameer Taneja

GrafTech International Ltd (EAF US) Q4 2021 results demonstrated the company is well on track to an FY22 profit of over 520 mn USD, implying a 5x PE.
Debt deleveraging remains a powerful theme in the story. With an average debt reduction of 400 mn USD a year, the company will be close to zero debt by 2023.
We believe the company will also use its cash to buy back stock ( 159 mn USD authorized buyback or 6% of market capitalization ) and pay dividends.

HDFC Ltd. – Lack of Conservatism

By Research Group at Country Group Securities

HDFC Ltd (HDFC.IN) [HDFC] reported FY 3Q22 results of INR 30.5 bn, decreasing INR 6.2 bn (16.9%) linked quarter basis reflecting a lack of dividends received;
Given the INR 4.2 bn in NCO during FY 3Q22, net new NPLs increased INR 11.7 bn or 23.3% on an annualized basis; and
We also find that HDFC’s reserve still needs shoring up by another INR 185 bn or over a year of PBT.

HMPRO: Expect 4Q21 Earnings to Be the Highest of This Year

We maintain BUY rating for HMPRO with a target price to Bt16.10, derived from 35xPE’22E, or implying 40% premium to Thai Consumer Discretionary.
We expect HMPRO to report 4Q21 net profit at Bt1.57bn (+2%YoY, +80%QoQ),thanks to stores sales recovery (SSSG at +10%YoY) supported by pent-up demand, demand from home renovation after a flood
We foresee 2022E earnings to grow to Bt6bn close to pre-COVID levels (+16%YoY) supported by 1) a solid revenue growth at 4% close to Thailand GDP growth from re-opening stores

Before it’s here, it’s on Smartkarma

Feb 06

Equity Bottom-Up: ROHM Co Ltd, Daifuku Co Ltd and more

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

In today’s briefing:

Rohm (6963 JP): Buy into the Tech Sell-Off
Daifuku – Not a Big Enough Beat to Arrest the Correction

Rohm (6963 JP): Buy into the Tech Sell-Off

By Scott Foster

Sales, profits and profit margins continued to rise in 3Q, led by IC and discrete semiconductor sales for automotive and industrial applications.
FY Mar-22 guidance looks conservative, but management left it unchanged out of a sense of caution.
Having dropped 21% since November, the share price should now recover based on the fundamentals.

Daifuku – Not a Big Enough Beat to Arrest the Correction

Daifuku 3QFY21 results were mostly in-line with revenue beating by 1.4% while OP beat by 0.7%.
¥174.1bn in orders were positive however and the company revised up FY order guidance from ¥565bn to ¥575bn.
Nevertheless, multiples are correcting from extremely elevated levels suggesting even growth next year may not be enough to support the stock here.

Related tickers: ROHM Co Ltd (6963.T), Daifuku Co Ltd (6383.T)

Before it’s here, it’s on Smartkarma

Feb 05

Equity Bottom-Up: Oriental Watch, Toyota Motor, Square Enix Holdings, Amazon.com Inc, Snap Inc, Daehan Flour Mills, Major Cineplex Group, Suzuki Motor, Tuesday Morning and more

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

In today’s briefing:

Oriental Watch: Increasing Visibility on H2 2022
Toyota – So About That Whole Tesla Being Years Ahead of The Competition in Autonomous Thing…
Square Enix – A Beat, A Bump and More to Come
Amazon 4Q21: Don’t Call It a Comeback, We’ve Been Here (Investing) For Years
Snapchat 4Q21: A Quick Turnaround…And Why Facebook Didn’t Snapback
Korea Small Cap Gem #13: Daehan Flour Mills
MAJOR: Expect EBITDA to Turn Positive from 4Q21 and Onward to 2022
Suzuki – Steady but Nothing Special
TUEM: Inventory Leading Turnaround

Oriental Watch: Increasing Visibility on H2 2022

By Sameer Taneja

We have increasing confidence in Oriental Watch (398 HK) paying out a > 74 cent dividend for FY22 ( implied dividend >40 cents for H2 2022, full-year yield 17%).
Current net cash (ex-of dividend payable) is 1.1 bn HKD accounting for >50% of the market capitalization ( 2.1 bn HKD ), providing a significant margin of safety.
Expanding watch premiums for brands like Rolex and Patek Philippe due to tighter supply could result in better margins for the company, increasing upside potential.

Toyota – So About That Whole Tesla Being Years Ahead of The Competition in Autonomous Thing…

We have pointed out previously that the hype surrounding Tesla’s FSD system was delusional.
We have always regarded their differentiating factor as simply being a greater risk tolerance for endangering the lives of their customers.
However, some automakers are actually making efforts to improve safety… and they actually know what they are doing.

Square Enix – A Beat, A Bump and More to Come

We said that we expected MMO Final Fantasy XIV to drive a strong beat and FY OP towards ¥70bn rather than consensus’ ¥55bn.
With 3Q OP of ¥21.0bn easily beating consensus at ¥14.4bn we believe we are nicely on track.
Oh and there were some tidbits about NFTs which should get some segments of the market interested.

Amazon 4Q21: Don’t Call It a Comeback, We’ve Been Here (Investing) For Years

Prime price increased, Covid expenses starting to moderate, margins set to rise.
Fulfillment buildout moderates, 1-day shipping can now launch more widely, share gains will ensue, revenue growth will reaccelerate.
We reiterate Amazon as our Top 2022 long idea. We think its worth $6,000.

Snapchat 4Q21: A Quick Turnaround…And Why Facebook Didn’t Snapback

Snapchat largely dispelled the Apple bear case, and should return to the mid $60s.
Actual competitive differentiation vs. TikTok and Facebook means Snapchat’s user growth and engagement remain strong.
Revenue growth will reaccelerate as it works through IDFA, but international monetization is the kicker.

Korea Small Cap Gem #13: Daehan Flour Mills

By Research Group at Country Group Securities

Daehan Flour Mills is the 13th company in our Korea Small Cap Gems series.
Daehan Flour Mills is one of the largest companies in Korea engaged in the flour milling industry. It provides various types of flour in Korea.
Daehan Flour Mills, which is a deep value play, has just become very interesting since Lee Jong-Gak (honorary chairman and largest shareholder of the company), passed away on 3 February.

MAJOR: Expect EBITDA to Turn Positive from 4Q21 and Onward to 2022

We expect the company’s operating performance to improve gradually from the bottom in 3Q21as there are number of quality movies to be released after been postponed upon restricted measures induced
Expect the company to report Bt47m net profit in 4Q21, seven-quarter high in terms of core business operation
EBITDA in 4Q21 is expected to turn positive as it driven by pent-up demand after lockdown together with impressive ticket sales from Spider-Man: No Way Home.

Suzuki – Steady but Nothing Special

Suzuki reported its 3QFY22 results on Friday with revenue of ¥901bn (+8.8% QoQ, -0.5% YoY) and OP of ¥47.5bn implying an OPM of 5.3% compared to 5.3% in 2QFY22.
The reported revenue and OP were 3.8% and 5.9% higher than the consensus estimates respectively.
The company revised its full year revenue guidance to ¥3,400bn (¥200bn up from the previous guidance), while OP guidance remained unchanged on ¥170bn.

TUEM: Inventory Leading Turnaround

By Hamed Khorsand

TUEM reported fiscal second quarter (December) results surpassing our expectations as the Company maintained a steady flow of inventory at its stores during the holiday shopping season
TUEM’s inventory is the underscoring importance in the performance. Consumers responded to the improved merchandise quality and without TUEM having to undertake any promotions
COVID-19 slowed the momentum towards the end of the quarter, but this should prove temporary heading into the warmer months of 2022

Before it’s here, it’s on Smartkarma

Feb 04

Equity Bottom-Up: Mercari Inc, Keppel DC REIT, Meta Platforms (Facebook), Nintendo Co Ltd, BFI Finance Indonesia, Softbank Corp, Takeda Pharmaceutical, Meritz Securities, A10 Networks and more

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

In today’s briefing:

Mercari – Margin Miss Not Beat
Keppel DC REIT (KDCREIT SP) – Imminent Lifting of SG Data Centre Moratorium and Its Implications
Facebook 4Q21: Trending on TikTok ‘How to Lose $200B in Market Cap’
Nintendo – Solid Beat Should Confirm Early Nov Bottom
BFI Finance Indonesia (BFIN IJ) – Taking the Digital High Road
Softbank Corp (Buy) – Q3 21 Results Reaction: Weak Consumer Mobile but FY Targets in Sight
Takeda: Key Drugs Continue Growth and Upgrade to Guidance; Pipeline Progress Despite Recent Setbacks
Close Out the Pair Trade of KIH & MFG and Initiate a New Pair Trade Between KIH & Meritz Securities
ATEN: Performing Ahead of Expectations
Mercari – Don’t Panic Sell

Mercari – Margin Miss Not Beat

We got this wrong, expecting a beat on margins in spite of weak GMV, whereas Mercari actually fell into the red for the first time in six quarters.
The culprit is extremely aggressive promotional spend which looks to have hit all time highs in both Japan and the US.
The shift to an investment stance is not in and of itself a bad thing but the growth relative to the spend is disappointing so far.

Keppel DC REIT (KDCREIT SP) – Imminent Lifting of SG Data Centre Moratorium and Its Implications

By Jason Yap, CFA

Singapore government introduced a moratorium on new data centres in 2019
As result, incumbent data centre REITs recalibrated their portfolio strategy including to pursue DPU and NAV growth through accretive overseas acquisitions
In Q2 2022, the moratorium is expected to be lifted with conditional approvals for applicants that meet certain sustainability requirements. We discuss the implications for Keppel DC REIT (KDCREIT SP)

Facebook 4Q21: Trending on TikTok ‘How to Lose $200B in Market Cap’

5 Issues: Tough Comps, Supply Chain Disruptions, Reels MixShift, Apple IDFA, and TikTok…thats alot of issues
TikTok is pressuring engagement and Google is taking Facebook’s advertising revenues.
Strong management team with history of executing at a trough valuation provides a good entry point. But may make more sense to just buy Google.

Nintendo – Solid Beat Should Confirm Early Nov Bottom

Nintendo posted an impressive top line for 3Q at ¥696bn in revenue vs. consensus at ¥641bn for an 8.6% beat.
OP of ¥253bn beat consensus by 16.9% suggesting that sell side analysts do not understand Nintendo’s new profit structure.
The stock has been resilient since bottoming in early November and we expect strong performance to continue.

BFI Finance Indonesia (BFIN IJ) – Taking the Digital High Road

By Angus Mackintosh

The confirmation that Jerry Ng, one of the major shareholders of Bank Jago will take a controlling stake in BFI Finance Indonesia should create a win-win combination.
BFI Finance Indonesia brings best-in-class exposure to multi finance, whilst integration with Bank Jago and GoTo group should help it to accelerate the company’s digitalisation and boost growth.
The company trades on 2.7x FY21E PBV with a forecast ROE of 14.7% for FY2021E and 18.5% in FY2023E but historically it has generated ROEs of 25% plus.

Softbank Corp (Buy) – Q3 21 Results Reaction: Weak Consumer Mobile but FY Targets in Sight

Results were pretty much in line with expectations as growth from Z Holdings and Enterprise sales offset consumer mobile weakness.
The company is slightly behind the pace needed to meet its full-year operating profit target but appears confident on meeting FY21 and FY22 commitments
Management reports that cashless app PayPay generated ¥21bn in Q3 revenue as SME monetization kicked in

Takeda: Key Drugs Continue Growth and Upgrade to Guidance; Pipeline Progress Despite Recent Setbacks

Takeda announced 3QFY03/2022 results today. Reported revenue grew 7.7% YoY to JPY901.3bn (vs consensus JPY850.5bn) and OP declined 18.6% YoY to JPY116.5bn (vs consensus JPY115.6bn) due to divestitures.
Revenue from Top 14 key drugs grew 21.2% YoY, while revenue from top-seller Entyvio grew 24.2% YoY during the quarter.
Takeda has upgraded its previous guidance for full-year FY03/2022. The company continues to progress with drug development. Two of its products were approved during the last 6-months.

Close Out the Pair Trade of KIH & MFG and Initiate a New Pair Trade Between KIH & Meritz Securities

On 17 January 2022, we recommended going long on Korea Investment Holdings and going short on Meritz Financial Group.
We would close out this pair trade as it has returned 12% (net gains), as of 3 February.
We now see a better pair trade of going long Korea Investment Holdings & short Meritz Securities.

ATEN: Performing Ahead of Expectations

By Hamed Khorsand

ATEN reported fourth quarter results beating our estimates and held an investor day to layout the framework for the next few years.
ATEN has continued to benefit from growing demand for security as network traffic has increased
ATEN is forecasting Q1 and 2022 revenue to increase between 10 % and 12 %. ATEN forecasting gross margin of 78% to 80% leads us to raise our 2022 estimates

Mercari – Don’t Panic Sell

Mercari opened down 11.7% and has now recovered to be down “only” 8.5%.
While our impression of results yesterday was negative the intensity of the move is overdone in our view.
We still believe that momentum is likely to be muted for a while but the current price is not unattractive.

Before it’s here, it’s on Smartkarma

Feb 03

Equity Bottom-Up: Sony Corp, Paypal Holdings, Pan Pacific International Holdings, Z Holdings, Lasertec Corp, Aisin Seiki, Denso Corp, Chiyoda Corp, Evergrande, M3 Inc and more

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

In today’s briefing:

Sony – Guidance Upgrade
Paypal: Guess It Wasn’t Just a Pig Through a Python…But Is This a Compounder on Sale?
Pan Pacific International Valuation: All Signs Points to a Large Upside in the Short Term
Z Holdings (Buy) Q3 21 Results Reaction: Mostly Positive as Ad Sales Continues to Impress
Lasertec – Overvaluation Even More Phenomenal Than the Business
Aisin – Toyota Production Plan Indicates Further Upside
Denso – Slightly Disappointing Margins but It’s All About the Production Ramp
Chiyoda – Momentum Turn Could Be Around the Corner
China Evergrande Group – Tug of War
M3: Covid Related Trials and Vaccination Programs Drive Earnings; Core Business Growth Slowing Down

Sony – Guidance Upgrade

Sony posted a strong quarter on the back of resilient margins in gaming and stellar performance in the pictures segment.
Guidance was raised to ¥1.2trn above the top of consensus at ¥1.185trn but results will likely be around ¥1.3trn, a little below the ¥1.37trn we called in early 2021.
Next year should see further growth and we expect firm performance going forward.

Paypal: Guess It Wasn’t Just a Pig Through a Python…But Is This a Compounder on Sale?

FY22 revenue guidance which was lowered in 3Q (from 20% to 18%) was lowered again (to 15-17%) and is below the company’s medium term targets it issued a year ago.
FY22 EPS guidance was lowered to ~$4.60-4.75 (1.6% yoy at midpoint) vs. $5.24 consensus.
We think PYPL comes in at $5 and returns to 20% EPS growth in 2023, putting it a ~20x trough forward P/E multiple today.

Pan Pacific International Valuation: All Signs Points to a Large Upside in the Short Term

By Oshadhi Kumarasiri

With momentum behind defensive/semi defensive names in the Japanese market, Pan Pacific International Holdings (7532 JP)’ seems to have one of the best risk reward ratios among Japanese retail players.
PPI’s undervaluation is visible in valuation multiples across the board with all multiples trading near the past 10-year low level.
Thus, we would buy PPI with a target of 40% upside in the short term.

Z Holdings (Buy) Q3 21 Results Reaction: Mostly Positive as Ad Sales Continues to Impress

Q3 21 in-line for revenue but well ahead for EBITDA on solid advertising growth leading to an upgrade in management’s full-year EBITDA target.
Operational results were encouraging with double-digit gains in ad sales and 7% eCommerce growth despite strong year-ago comps.
Impairment losses for equity associate Demae-Can sting but the overall story is positive.

Lasertec – Overvaluation Even More Phenomenal Than the Business

Lasertec has been the darling of the SPE sector over the last few years, rising a 122x from mid-2016 to the peak at the start of this year.
With a commanding position for EUV inspection systems and its new ACTIS systems on deck the excitement is understandable.
The valuations though are not, and the share price has now clearly started to break down.

Aisin – Toyota Production Plan Indicates Further Upside

Aisin’s 3Q revenue of ¥1,004bn (+13.1% QoQ, -4.3% YoY) and OP of ¥54bn (5.4% OPM) reassured investors and the stock closed 4% higher.
Revenue was 1.7% higher than consensus estimates while OP was 4.9% lower but Aisin maintained guidance.
The real story is the production ramp from here however and risk-reward for Aisin remains phenomenally skewed.

Denso – Slightly Disappointing Margins but It’s All About the Production Ramp

Denso announced 3QFY22 during market hours today posting revenue of ¥1,426bn and OP of ¥97bn.
Reported revenue was 4.2% higher than the consensus estimates while OP was 17.8% lower.
The market reacted negatively to the weak OP print but we think the focus should be all on the upcoming volume ramp.

Chiyoda – Momentum Turn Could Be Around the Corner

Chiyoda’s 3Q numbers weren’t especially surprising nor impactful as the company continues its recovery.
We have been detailing for some time how current valuations look depressed and upside risk was present from the capital structure.
Now we believe that revenue trends are improving to the extent that they may put a floor under the stock.

China Evergrande Group – Tug of War

Aggressive foreclosure of Evergrande assets suggests a sea change in how mainland China is handling real estate company defaults – especially with foreign creditors;
Creditor China Cinda’s involvement on the seven-member risk management committee and the appointment of a Cinda senior executive is an alarming conflict of interest; and
4Q21 earnings season will be huge tell for mainland Chinese NPLs which likely peak at 20% of total loans.

M3: Covid Related Trials and Vaccination Programs Drive Earnings; Core Business Growth Slowing Down

M3 Inc (2413 JP) reported 3QFY03/2022 results on Wednesday. Revenue grew 16.0% YoY to JPY56.5bn (vs consensus JPY54.3bn) while OP grew 22.4% YoY to JPY22.6bn (vs consensus JPY20.6bn).
The company for the first time provided information on its US&EU businesses. Pharma marketing & research generates a majority of revenues followed by clinical trials in these regions.
M3 also has acquired MirVracha, a website providing marketing support services to pharmaceutical companies in Russia. MirVracha has approx. 400k members, around 60% of all physicians in the country.

Before it’s here, it’s on Smartkarma

Feb 02

Equity Bottom-Up: Keyence Corp, Globalwafers, Hoya Corp, Jcontentree Corp, Max Healthcare Institute, KDDI Corp, Mitsubishi Motors, Asian Sea and more

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

In today’s briefing:

Keyence – Strong as We Suggested
GlobalWafers (6488.TT): Maintain Target Price at NT$880-960 for Siltronic Mergence Failed
Hoya: Life Care Exceeds Pre-Covid Levels; Slight Upgrade to Forecasts with a Small Buyback
Jcontentree: “All of Us Are Dead” Zombie Drama Surges to #1 in Netflix Global Charts
Max Healthcare Institute (MAXHEALTH IN): Aggressive Expansion Amid High Occupancy to Boost Margin
KDDI (Buy) – Follow-Up After Q3 21 Results
Mitsubishi Motors – Further Recovery
ASIAN: Unlock Value and Potential Growth of AAI Via IPO

Keyence – Strong as We Suggested

Keyence’s 3Q numbers were noticeably stronger than consensus with revenue at ¥190bn (just below our estimate of ¥192bn+) vs. consensus at ¥182bn.
OP also beat by 4.2% but was held back slightly by high SG&A.
Nevertheless, this should move the outlook for 4Q up significantly setting up a reasonable full year beat and better prospects for next year.

GlobalWafers (6488.TT): Maintain Target Price at NT$880-960 for Siltronic Mergence Failed

By Patrick Liao

The GlobalWafers announced the deal to merge Siltronic did not get the approval by Germany government this morning. We maintain our Target Price for GlobalWafers doesn’t change at NT$880~960.
The GlobalWafers points out that the results will not influence business activities, and the European market remains the importance for GlobalWafers.
Comparing to 20s years ago, we think the semiconductor market has experienced a dramatic changes already.

Hoya: Life Care Exceeds Pre-Covid Levels; Slight Upgrade to Forecasts with a Small Buyback

Hoya Corp (7741 JP) reported 3QFY03/2022 results today. Revenue grew 16.6% YoY to JPY171.3bn (vs. consensus JPY162.1bn) and OP grew 17.0% YoY to JPY53.5bn (vs. consensus JPY51bn).
Life Care revenue which was severely impacted due to Covid-19, exceeded pre-Covid levels with a 11.7% YoY increase. IT revenue continued to maintain its momentum during the quarter.
Hoya has slightly upgraded its full-year forecasts and also has announced a share buyback program for JPY60bn.

Jcontentree: “All of Us Are Dead” Zombie Drama Surges to #1 in Netflix Global Charts

Jcontentree has hit a home-run with “All of Us Are Dead” zombie drama reaching number one in Netflix Inc’s global charts.
According to Flixpatrol on the 31 January, All of Us Are Dead took the top spot in Netflix’s global popularity rankings for two consecutive days from its release.
Jcontentree’s valuation multiples are likely to rise 20-30% or more in the coming days, driven by the global success of the All of Us Are Dead zombie drama.

Max Healthcare Institute (MAXHEALTH IN): Aggressive Expansion Amid High Occupancy to Boost Margin

By Tina Banerjee

Max Healthcare Institute (MAXHEALT IN) plans to double its bed capacity with an investment of $450 million over the next four years. The company has a net debt/EBITDA of 0.2x.
Due to its favorable market positioning, Max Healthcare demonstrates best-in-class occupancy and ARPOB. Its non-COVID occupancy was at five-month high of 82% in October.
Despite having a big run in 2021, further stream is left in Max Healthcare shares, with upcoming capacities, business recovery, and margin expansion.

KDDI (Buy) – Follow-Up After Q3 21 Results

We had a chat with KDDI after results last week including clarification on issues that came up on the analyst call (3G network shutdown, Q4 impacts on operating profit)
The competitive environment in mobile looks similar to Q2 but wider distribution for sub-brands UQ (retail store presence) and Povo (first full quarter of availability) helped drive user growth
We have updated our forecasts for Q3 results and remain at Buy

Mitsubishi Motors – Further Recovery

By Research Group at Country Group Securities

MMC reported its 3QFY22 results on 31st January which saw revenues of ¥526bn (+14.6% QoQ, +39.1% YoY) and OP of ¥30.8bn.
Revenue was in-line, only 0.3% higher than consensus estimates while OP beat consensus estimates by ¥15bn thanks to the 5.9% OPM.
The result bodes well for the auto sector overall but weak top line and a dependence on forex have us going… meh.

ASIAN: Unlock Value and Potential Growth of AAI Via IPO

Maintain BUY rating and roll forward valuations to FY22E, with a new target price of Bt23 (up 5% from previous TP),based on 10.3xPE’22, which is close to its 10-years historical
Our ratings reflect positive view on pet food, frozen VAP, and aqua feed demand recovery post lockdown, and solid margin from baht weakening.
The spin-off of AAI via IPO issuance will unlock its value and growth potential and we leave it as an upside to our TP.

Before it’s here, it’s on Smartkarma