Equity Bottom-Up

Monex missed significantly at the PBT level with results of ¥1.01bn 73% below consensus of ¥3.77bn.
This was a result of weak revenue and margins for the crypto business as advertising expense escalated into falling top line.
The result is unlikely to do anything to reverse the recent downward trend of the stock and we recommend staying hedged.

HCM – Obvious Upgrade Is Obvious… Just Not to the Sell Side

HCM posted a strong set of 3Q results with revenue of ¥246.7bn a touch below our ¥248.5bn estimate and blowing away clueless consensus’ ¥219.2bn.
That the consensus high was just ¥231bn is an illustration of how poor the sell side understanding of HCM is compared to Komatsu.
We expect more of the same going forward… strength from HCM and cluelessness from sell side analysts.

HCM – Obvious Upgrade Is Obvious… Just Not to the Sell Side

HCM posted a strong set of 3Q results with revenue of ¥246.7bn a touch below our ¥248.5bn estimate and blowing away clueless consensus’ ¥219.2bn.
That the consensus high was just ¥231bn is an illustration of how poor the sell side understanding of HCM is compared to Komatsu.
We expect more of the same going forward… strength from HCM and cluelessness from sell side analysts.

Komatsu – Strong but Mostly Priced In

Komatsu’s 3Q results hit revenue of ¥723bn (+12.5% QoQ, +30.1% YoY) and OP of ¥87.5bn.
They beat consensus by 9.8% and 19.0% at the revenue and OP levels respectively.
That puts it on track to hit the high end of our ¥305-325bn OP estimate for the FY but upside is relatively moderate compared to HCM.

Sony – The Bungie Counterpunch

Sony has not taken long to respond to Microsoft’s purchase of Activision Blizzard.
It is being reported that Sony will acquire Bungie, original developer of the Halo franchise as well as Destiny for $3.6bn.
The cost effectiveness of this move stands in stark contrast to Microsoft’s acquisition and is significantly more targeted in its apparent goals, as usual.

Oriental Land: Price Reaction Unwarranted and There’s Significant Downside Risk in a Bear Market

By Oshadhi Kumarasiri

Oriental Land (4661 JP) positively surprised the market with 3QFY22 revenue surpassing the consensus estimate by more than 13% through gradual easing of limits imposed on park attendance.
FY22 revenue and OP guidance were raised by ¥22.9bn and ¥16.6bn respectively despite expecting Q4 attendance to fall short of the original forecast through the new state of emergency measures.
Nonetheless, we think Oriental Land is too expensive at 33.6x FY24 OP, especially considering that attendance is expected to fall short of the original forecasts in the fourth quarter.

Koei Tecmo – Nice on the Surface But We Are Worried

Koei Tecmo delivered strong results with revenue of ¥18.1bn and OP of ¥10.7bn comfortably beating consensus of ¥16.2bn and ¥5.7bn respectively.
OP guidance was raised from an absurdly conservative ¥24.5bn to a still conservative ¥31.5bn, below consensus at ¥33.6bn.
While these results look broadly positive we are concerned that the recent sell off may continue.

Bank Negara Indonesia (BBNI IJ) – Catching the Digital Wave

Bank Negara Indonesia (BBNI IJ) released a solid set of FY2021 results last week, with its PPOP coming in above consensus and guidance being met on all fronts.
The bank’s loan mix is moving towards lower risk assets but cost of funds has fallen significantly at the same time plus its progress on digital banking is impressive.
The bank’s increasingly digital credentials should lead to an upward re-rating of the bank’s valuations, which look attractive given the expected recovery in earnings and higher ROEs beyond 2022.

IndusInd Bank – Stabilizing Somewhat

IndusInd reported FY 3Q22 bottom-line results improved 4.8% linked quarter, driven by stronger core revenues and a lower provision;
NCOs remain elevated and show no sign of abating, and net new NPLs increased 31.6% annualized; and
IndusInd’s reserve needs to increase closer to 75% with a shortfall of INR 30 bn – representing two quarters of pre-tax results.

Before it’s here, it’s on Smartkarma

Jan 31

Equity Bottom-Up: Tencent, LG Energy Solution, Advantest Corp, Evergrande, Bank Mandiri Persero, Global Cord Blood, Keyence Corp, Kasikornbank PCL and more

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

In today’s briefing:

Tencent Holdings – Getting Its House In Order
NPS Exclusively Buying LG Energy Solution At the Expense of Other 2,400+ Stocks in Korea
Advantest – Upside and Downside Scenarios
China Evergrande Group – Fox in Henhouse
Bank Mandiri (BMRI IJ) – Moving into Higher-Yielding Assets
Global Cord Blood (CO US): No Immediate Respite Is Seen
Keyence – Not a Gimme but Worth a Small Buy Into Earnings
KBANK: More Focusing on Growth

Tencent Holdings – Getting Its House In Order

Substantial disagreements over the video streamer DouYu International’s strategic direction, prompts ownership re-think at Tencent;
Tencent is allegedly privatizing Douyu near the bottom of the market; and
Unlike the JD.com move, this transaction maximizes shareholder value while getting into regulatory compliance.

NPS Exclusively Buying LG Energy Solution At the Expense of Other 2,400+ Stocks in Korea

By Douglas Kim

The trading data of Korean stock market on January 27th and 28th clearly shows how the NPS and other local pension funds strongly supported LG Energy Solution IPO’s stock price.
What is concerning is that the local pension funds nearly neglected net purchase of all other 2,400+ stocks in Korea.
NPS and local pension funds may have less room to overly support LG Energy Solution and other Korean stocks in February.

Advantest – Upside and Downside Scenarios

Advantest shares are down 19% from their Jan 4th high after a post earnings rally on Friday.
While order momentum remains strong it has moderated slightly since 2Q and longer-term risks are a concern.
What remains to be seen is how sustainable Chinese demand is given its steady rise since 2016.

China Evergrande Group – Fox in Henhouse

Evergrande’s seven-member risk management committee includes China Cinda, a major Evergrande creditor;
Adding insult to injury, a China Cinda senior executive was appointed as an Evergrande director; and
This is massive conflict of interest coupled with the local municipality bonepickers give us little confidence that any creditor will be treated fairly.

Bank Mandiri (BMRI IJ) – Moving into Higher-Yielding Assets

Bank Mandiri (BMRI IJ) booked a strong set of results driven by operational improvements, lower credit costs, and lower cost of funds plus an increasing focus on digitalisation.
The bank is moving more aggressively into higher-yielding assets plus driving its consumer and wholesale digital strategies to improve returns with significant potential upside.
We are more optimistic on the prospects for Bank Mandiri (BMRI IJ) after the recent numbers given its drive towards enhancing future returns supported by a very low-cost funding base.

Global Cord Blood (CO US): No Immediate Respite Is Seen

Global Cord Blood (CO US) has rejected the acquisition offer from Alternate Ocean Investment as it fails to properly reflect the value of the company and maximize shareholder value.
Global Cord shares plunged 4% since we published our bearish view in late November. The shares are trading more than 35% below its 52-week high price.
Although we are not seeing any upside potential, we have analyzed some key catalysts, which can move the share price higher.

Keyence – Not a Gimme but Worth a Small Buy Into Earnings

We are broadly negative the FA sector as we expect earnings to fall next FY for most players and valuations are extended.
Keyence is an exception in that we expect further growth next year although valuations are extended even for Keyence.
We believe this is because the market is pricing in its greater earnings resilience but maybe not quite enough.

KBANK: More Focusing on Growth

We reiterate our BUY rating with a new target price of Bt174. Our BUY call reflects (1) steady growth ahead from improving economic recovery; (2) adequate reserves against new NPLs
Focus on the quality of growth and NPL management ahead.
The bank guided lending growth of 6-8% YoY in 2022 with an emphasis on a rise in retail loans and SME loans.

Before it’s here, it’s on Smartkarma

Jan 30

Equity Bottom-Up: Bank Central Asia, Advantest Corp, Classys, Moderna Inc and more

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

In today’s briefing:

Bank Central Asia (BBCA IJ) – The Digital Surge
Advantest (6857 JP): 3Q Results Point to Further Growth in 2022
Classys (214150 KS): Bain Capital Deal Implies 11% Upside Potential
Why Moderna And BioNTech Want To Boost Production Capacities In Africa?

Bank Central Asia (BBCA IJ) – The Digital Surge

Bank Central Asia (BBCA IJ) released results that were solid on a number of fronts but it was more about its preparedness for the new normal in 2022 that impressed.
The bank’s digital banking initiatives drove its transactional banking, rapid growth in new customers, as well as bringing down the cost of transactions and driving CASA growth.
Bank Central Asia (BBCA IJ) remains a core holding amongst Indonesian banks despite trading on higher PBV versus peers justified by its lead-in transactional banking and strong risk management.

Advantest (6857 JP): 3Q Results Point to Further Growth in 2022

By Scott Foster

New orders dropped back QoQ in 3Q, but were up 43% YoY and 1.2x greater than sales. The order backlog hit another record high.
FY Mar-22 sales and profit guidance was raised for the third time. Further growth seems likely next fiscal year.
The share price has dropped to the bottom of its recent trading range. We expect a short-term rebound while the market assesses longer-term risks.

Classys (214150 KS): Bain Capital Deal Implies 11% Upside Potential

Classys (214150 KS) insiders have transferred 61% stake to private equity company Bain Capital for KRW670 billion. The deal values the shares at KRW17,000.
Bain Capital has already invested in two beauty products companies in Korea. Both of the deals remained highly profitable for Bain. Classys is Bain’s third investment in the same space.
Classys, with its differentiated and competitive products, is expanding its geographic presence. Consumables account for 49% of total revenue, thereby creating a stable and recurring revenue source for the company.

Why Moderna And BioNTech Want To Boost Production Capacities In Africa?

By Andrei Zakharov

Leading mRNA vaccine producers announced plans to build manufacturing facilities in Africa this year.
According to Reuters, Rwanda, Senegal, or South Africa may be potential locations for Moderna’s new vaccine factory.
Africa has the world’s lowest vaccination rate, and only ~5% of Africans are fully vaccinated today.

Before it’s here, it’s on Smartkarma

Jan 29

Equity Bottom-Up: ZOZO Inc, Omron Corp, KDDI Corp, Alibaba Group, Koito Manufacturing, Bangkok Dusit Medical Services, VGI PCL and more

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

In today’s briefing:

Zozo – In Line as Reopening Looms
Omron – Downgrade on Normalising Profitability
KDDI (Buy) – Q3 21 Results Reaction: Slight Beat with Share Buy-Back Sweetener
China’s Central Bank Digital Currency; Is It a Major Threat to Non-Bank Digital Payment Providers?
Koito – Hit by Material Costs and Unexpected Plan Changes
Bangkok Dusit Medical (BDMS TB): Thailand Reopening+ Less Severe Omicron= Continued Business Revival
VGI: Positive for Short-Term Outlook While Long-Term Remain Promising

Zozo – In Line as Reopening Looms

Zozo results were in line to slightly strong with revenue beating consensus by 3.3% and OP 1.3% higher.
That slight beat was driven by very aggressive advertising spend however and we expect the recent correction for the stock to continue.
The question in our mind is whether this will eventually head under ¥1,000 as we previously predicted.

Omron – Downgrade on Normalising Profitability

Omron reported its 3QFY22 results on 28th January which saw revenues of ¥190.9bn (+5.8% QoQ, +13.4% YoY) and OP of ¥19.2bn.
The reported results were 0.6% and 17.1% lower than the consensus estimates for revenue and OP respectively.
This weakness also lead to a downgrade in guidance the size of which was a touch surprising.

KDDI (Buy) – Q3 21 Results Reaction: Slight Beat with Share Buy-Back Sweetener

By Kirk Boodry

Financial beat as enterprise sales grow and consumer mobile pressure stabilizes. A rebound in mobile user growth was a key driver
The company has raised its FY21 buyback program to a record ¥200bn
We are raising our target price from ¥4,030 to ¥4,440 and remain at Buy

China’s Central Bank Digital Currency; Is It a Major Threat to Non-Bank Digital Payment Providers?

By Victor Galliano

The pilot launch of the e-CNY, China’s sovereign digital currency effectively competes with domestic mobile payment apps including Alipay, WeChat and Weixin Pay; the e-CNY registered 261m downloads in 2021
Seven domestic commercial banks are included as the e-CNY’s operators, all of which offer extensive branch networks and large bases of retail customers to accelerate the digital currency’s distribution
The e-CNY’s broader digital payments usage should erode Alipay, WeChat and Weixin Pay market shares; yet we believe that the competitive threat is seemingly well discounted in Alibaba share valuations

Koito – Hit by Material Costs and Unexpected Plan Changes

Koito reported its 3QFY22 results yesterday and saw revenues of ¥199.7bn (+18.3% QoQ, -4.4% YoY) and OP of ¥14.2bn (7.1% OPM up 2.0% points QoQ).
The reported revenue was 6.5% higher than consensus estimates while operating profit was -9.2% lower creating a mixed picture.
Margins should normalise over time unlocking upside while underlying demand remains very healthy.

Bangkok Dusit Medical (BDMS TB): Thailand Reopening+ Less Severe Omicron= Continued Business Revival

Bangkok Dusit Medical Services (BDMS TB) should benefit from Thailand’s resumption of quarantine-free travel from February 1. International patients contributed 30% of total revenue of BDMS in pre-pandemic period.
With the less severe Omicron variant, BDMS non-COVID revenue is expected to recover. Its revenue and net profit through first nine months of 2021 are still lower than pre-pandemic levels.
Digitalization initiatives of BDMS will be a stable source of income and long-term growth driver for the company, contributing 10–15% of total revenue in next five years.

VGI: Positive for Short-Term Outlook While Long-Term Remain Promising

We maintain BUY rating for VGI with the new target price of Bt6.50 (Previous TP: Bt8.10), derived from SOTP method or 50% premium to Thai media peers. Target price downgrade
Bt12.9bn from Capital raising will be utilized to pay loan repayment from JMART 15% stake investment (Bt8.2bn) and future business expansion via M&A.
Expect 4QFY22 earnings (Jan’22-Mar’22) to face a hiccup given Omicron virus spread in Jan’22.We anticipate the media revenue stream to retreat to 70%of the level we have seen during pre-pandemic

Before it’s here, it’s on Smartkarma

Jan 28

Equity Bottom-Up: Sony Corp, Softbank Group, Alibaba Group, Fujitsu General, Shin Etsu Chemical, Nidec Corp, Adi Sarana Armada, Intel Corp, Servicenow Inc, Plan B Media and more

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

In today’s briefing:

Sony – Great Opportunity
Softbank – Hmmmmm…
Alibaba (BABA): Don’t Be Pessimistic About E-Commerce, Especially Big Platforms
Fujitsu General – A Second Hiccup
Shin-Etsu – Buy for the PVC Business
Nidec (6594): Catch a Falling Knife
Adi Sarana Armada (ASSA IJ) – Crystalizing Used Car Value
Intel 4Q21: Our Capex Is More Valuable than TSMC’s
ServiceNow: The Platform of Platforms
PLANB: Acquisition of New OOH Media Capacity Seems Worthwhile

Sony – Great Opportunity

Following its 12.8% fall last Wednesday Sony is now getting hit for 7.7% today thanks to Jay Powell.
This is an excellent opportunity to resize positions in our view as the long-term outlook remains excellent.
We had been worried about potential volatility due to the name becoming consensus but since that has been realised we are back to being uber bulls here.

Softbank – Hmmmmm…

Marcelo Claure is reportedly out, joining Katsunori Sago and Michael Ronen, Robert Townsend, Chad Fentress and Ziad Ojakli, Gary Ginsberg and Yuko Kawamoto.
This is the highest profile resignation at Softbank since Nikesh Arora and continues the pattern of people reportedly in disputes with Rajeev Misra leaving the company.
So does that 50% holdco discount offer any comfort here???

Alibaba (BABA): Don’t Be Pessimistic About E-Commerce, Especially Big Platforms

By Ming Lu

Market Research expects that e-commerce will grow 15% and 13% in following two years.
Big platforms, such as Alibaba and JD.com will still have advantage in the growth.
The risk is that consumers care significantly more about product brand than platform reputation.

Fujitsu General – A Second Hiccup

Fujitsu General’s 3QFY22 results saw solid revenues of ¥63.7bn (+20.3% YoY) but weak OP of just ¥35m (0.1% OPM).
Cost inflation is a concern here but we are most concerned with the top line and we see few issues there which leaves us encouraged.
There is also the possibility of a buyout offer from parent Fujitsu though we are concerned about any premium being too light.

Shin-Etsu – Buy for the PVC Business

In our last note we posed the question of whether Shin-Etsu could join the ¥1trn OP club.
The company’s upgrade of its guidance from ¥485bn to ¥675bn today suggests that in fact the answer is looking like a yes.
While conditions for the wafer business remain strong it may be dragged down by tech negativity leading Shin-Etsu to rely on its phenomenal PVC business instead.

Nidec (6594): Catch a Falling Knife

By Scott Foster

Operating profit declined in 3Q despite a 15% YoY increase in sales. FY Mar-22 profit guidance now looks too high.
The Automotive division is suffering from the semiconductor shortage, high materials prices and the cost of ramping up EV motor production – which is scheduled to continue until 2025.
But the share price has dropped 31% since the beginning of January. Long-term investors may now choose when to buy in.

Adi Sarana Armada (ASSA IJ) – Crystalizing Used Car Value

Adi Sarana Armada (ASSA IJ) has successfully spun off its Auto trading subsidiary Autopedia Sukses Lestari (ASLC IJ) through an IPO reducing debt and raising capital to grow the business.
Autopedia will focus on growing its online O2O business through Caroline, with a captive supply of used cars from its auction and car leasing businesses plus offline infrastructure in place.
Adi Sarana Armada (ASSA IJ) also looks attractive for its logistics and last-mile business, which is close to profitability and now more than 50% of its revenues and growing fast.

Intel 4Q21: Our Capex Is More Valuable than TSMC’s

By Aaron Gabin

Intel is promising is that it will advance five process nodes over the next four years, recapturing process leadership from TSMC by 2025, but significantly underspending TSMC in capex.
Overearning in datacenter is unwinding, leading to lower profits…overearning in PCs will unwind in 2022, leading to lower profits.
Lower profits and higher capex means less buybacks to support earnings growth.

ServiceNow: The Platform of Platforms

By Aaron Gabin

Blowout 4Q21 results headlined by (adjusted) 38% subscription billings growth – unbelievable for a company this size.
Generated a Rule of 75 Quarter (29% revenue growth + 46% FCF margins)
Multi-Module adoption continues to ramp, large deal sizes continue to ramp. At 12x forward revenues…incredible entry point.

PLANB: Acquisition of New OOH Media Capacity Seems Worthwhile

We believe PLANB’s acquisition of media business from AQUA PCL at total cost of Bt2.9bn will create value accretive for the company as it purchases at PE multiple of 16x-18x
2022 to be harvesting period after heavy CAPEX investment in the past two years ,which also included the largest deal on Aqua’s assets.
Media revenue is expected to grow 35%CAGR in 2022-23E, driven by revenue recognition of new media capacity in digital, static segments (mainly from Aqua), and, retail media in 7-eleven stores.

Before it’s here, it’s on Smartkarma

Jan 27

Equity Bottom-Up: Wilmar International, Nidec Corp, Capcom Co Ltd, Softbank Group, Fanuc Corp, Seven & I Holdings, CATL (A), Tesla Motors, Postal Savings Bank of China, DISCO Corp and more

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

In today’s briefing:

StubWorld: Wilmar Gains Ahead Of Adani Wilmar IPO
Nidec – Machinery and Appliance, Commercial and Industry Segments Rolling Over
Capcom – In-Line Results Could Drive a Re-Verse in Fortunes
Softbank Group – ARM News, Vision Fund Weakness Highlight That Share Buyback Will Be Back Loaded
Fanuc – Big Robot Beat Flops on the Margin Side
Seven & I: Activist & Long Term Investors Riled Up Yet Again
Contemporary Amperex Technology – King of the Overweights
Tesla – Starting to Look Safe to Short
China Banks – Credit Quality Snapshot Ahead of 4Q21
Disco (6146 JP): Valuation Reasonable but Not Compelling

StubWorld: Wilmar Gains Ahead Of Adani Wilmar IPO

By David Blennerhassett

Wilmar International (WIL SP) is coming up “expensive” on my stub monitor, yet still trades at a material 65% discount to NAV.
Preceding my comments on Wilmar are the weekly setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold of at least 20%.

Nidec – Machinery and Appliance, Commercial and Industry Segments Rolling Over

Nidec missed 3Q consensus as OP of ¥44.3bn came in 12.6% below consensus despite a 5.8% beat at the top line.
The deterioration in profitability across the Existing Auto, Machinery, and Appliance, Commercial and Industry businesses is a significant concern.
It also suggests that consensus expectations for 22.6% OP growth next year may prove highly optimistic.

Capcom – In-Line Results Could Drive a Re-Verse in Fortunes

We had expected 3Q results for Capcom to be unsurprising given a lack of new titles and OP of ¥6.17bn was in line with consensus at ¥6.23bn.
The launch of Monster Hunter Rise for PC did not go as smoothly as we hoped but the trend appears to be improving.
All in all FY OP looks set to slightly beat consensus and guidance for better than double digit growth is likely in our view.

Softbank Group – ARM News, Vision Fund Weakness Highlight That Share Buyback Will Be Back Loaded

By Kirk Boodry

Nvidia is reportedly close to throwing in the towel on the acquisition of ARM (although markets have assumed that outcome for awhile)
Softbank can still monetize the asset through an IPO but most likely at a lower valuation and with much fewer proceeds
We believe ARM was the primary source of buyback funds and with VF down $13bn QTD prospects for meaningful buybacks have been pushed out

Fanuc – Big Robot Beat Flops on the Margin Side

Fanuc results were a little better than the in-line we expected on account of a big jump in Robot segment sales.
Given relative margins however, the impact at the OP line was limited and Fanuc’s revised guidance is now just under consensus for the year.
Much of the recent strength in FA and Robots looks unsustainable and we suspect this result may be taken negatively.

Seven & I: Activist & Long Term Investors Riled Up Yet Again

By Oshadhi Kumarasiri

Seven & I Holdings (3382 JP) has climbed above the June 2021 peak for the first time in seven months despite weaknesses in the overall market.
Meanwhile, the Financial Times reported yesterday that 3 of the top 30 long term investors have requested Seven & I to get rid of underperforming businesses.
Although the company brushed off previous attempts by activist investors, the pressure from long term investors could tip the scales and force Seven & I to focus on convenience stores.

Contemporary Amperex Technology – King of the Overweights

By Steven Holden

In this analysis, we review allocations in Contemporary Amperex Technology among 3 sets of active China managers. MSCI China Funds, China A-Share Funds and Greater China Funds.
We find that exposure in Contemporary Amperex Technology has risen to peak levels across all 3 investor sets, making it one of the largest overweight positions in China.
Outside of dedicated China, we also see ownership growth among Global Emerging Market and Asia Ex-Japan active strategies.

Tesla – Starting to Look Safe to Short

Tesla beat CapIQ consensus for 4Q slightly, beating by 3.3% at the OP level and 6.5% at the top line.
Despite this, the reaction after hours was negative pointing to excessive froth in the name.
With the collapse in momentum for low quality small caps it seems reasonable to us to expect Tesla to be next.

China Banks – Credit Quality Snapshot Ahead of 4Q21

By Victor Galliano

The China real estate situation remains challenging for banks credit quality, with more real estate developers in financial difficulties, with them either close to, or at default
The macro-economic picture is challenged by China’s zero-Covid policy hurting supply chains, and PBOC is tightening liquidity despite the recent small cuts to reserve requirements and benchmark rates
Before 4Q21 results, the larger cap banks’ credit quality snapshot shows that China Minsheng is very challenged, with Postal Savings Bank and China Merchants in strong positions

Disco (6146 JP): Valuation Reasonable but Not Compelling

By Scott Foster

3Q results were above guidance, as expected. Full-year guidance looks conservative, as usual. New orders ahead of sales, pointing to one or two good quarters ahead.
Shares down 10% since the beginning of January. Valuation reasonable but not compelling given the risk of a cyclical peak in SPE demand this year.
Uncertainty likely to keep the shares in a trading range.

Before it’s here, it’s on Smartkarma

Jan 26

Equity Bottom-Up: Grab, Sony Corp, Toyota Motor, EC Healthcare, Ping An Healthcare and Technology Company Limited, Geely Auto, Cosco Shipping Energy Transportation Co. Ltd. (H), United Microelectron Sp Adr, Maruti Suzuki India, Quality Houses and more

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

In today’s briefing:

Grab – The Fama Factor
A Belated Look Back at Our 2020 and 2021 Conviction Calls and a Look Ahead to 2022
Toyota – 11m Unit Production Target Is a Positive Surprise
EC Healthcare (2138 HK): An Attractive Idea with Insider Buying and Continued Business Recovery
Ping An Health (Part II): Health Mall Growth to Slow Down with Growing Competition
Geely: Challenging Year Ahead, Share Price Reflects That
COSCO Shipping Energy (1138 HK): When All the Bad News Is Out…
UMC (UMC.US; 2303.TT) 4Q21 Financial Results/1Q22 Forecast: A Bit Higher in Revenue Outlook
Maruti Suzuki – Are Profitability Improvements Enough?
QH: 4Q21 Earnings Will Be the Peak Quarter in 2021

Grab – The Fama Factor

The move by Grab and Singtel to take a combined 32.52% stake in Bank Fama, owned by Emtek (EMTK IJ) is a significant strategic move in digital banking.
The Grab (GRAB US) consortium may increase its stake further given that the bank will need to raise future capital, especially given the magnitude of the initial stake.
There is huge potential for Grab (GRAB US) and OVO to tap both their respective ecosystems to rapidly build Bank Fama’s customer base but competition will be fierce.

A Belated Look Back at Our 2020 and 2021 Conviction Calls and a Look Ahead to 2022

In 2020 and 2021 we had nine conviction calls, four of which returned over 50% within just over a year.
Three more returned close to 40%, one returned 15% and just one was an abject failure returning -39%.
On average, alpha generation was 24.3% and our 2022 names are off to a good start putting up 14.7% in alpha in just over a month and a half.

Toyota – 11m Unit Production Target Is a Positive Surprise

The Nikkei is reporting that Toyota has set internal production targets of 11m units for the fiscal year ending March 2023.
That would imply a more than 20% YoY increase in production volumes.
And that in turn is very positive news not just for Toyota but for several other auto-related names.

EC Healthcare (2138 HK): An Attractive Idea with Insider Buying and Continued Business Recovery

By Shifara Samsudeen, ACMA, CGMA

EC Healthcare (2138 HK)’s Chairman and CEO acquired 543,000 shares at an average price of HKD9.1943 per share, thereby increasing his stake to 61.17% of the issued share capital.
H1FY22 and preliminary results for Q3FY22 shows continued business recovery. Medical services, which contributes 52.5% of total revenue continue to be the key growth driver.
In January, EC Healthcare acquired 55% equity interest in Bayley & Jackson Dental Surgeons Limited for HKD129 million. Bayley & Jackson operates seven dental clinics in Hong Kong.

Ping An Health (Part II): Health Mall Growth to Slow Down with Growing Competition

This is the Second of a series of reports on Ping An Healthcare where we will be discussing the other three segments of the company.
Health Mall is the largest revenue generator for Ping An Health but the segment is facing tough competition from other online healthcare providers which is negatively impacting its gross margins.
Similarly, though revenue from Consumer Healthcare biz has seen strong growth, we expect the margins to remain under pressure due to increased focus on corporate customers who generate lower margins.

Geely: Challenging Year Ahead, Share Price Reflects That

By Victoria Li

It would be very challenging for Geely to achieve its 2022 sales target of 1.65mn cars. However share price nearly halved from peak. Buy and wait for positive momentum.
Zeekr 001 got new market pushback which are concerns besides supply chain issue. Lynk&Co seems have only facelifts for 2022
Only Geely brand would launch new models to be the main sales booster.

COSCO Shipping Energy (1138 HK): When All the Bad News Is Out…

By Osbert Tang, CFA

We think the FY21 massive losses of Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) is a non-event, as reflected by the muted share price reaction following the pre-announcement.
The huge impairment charges have positive implications as vessel values are reduced and earnings expectations have trimmed. This will lower the hurdle for CSET in the next two years.
Focus should be on potential upside factors including recovery of tanker rate, higher LNG transportation contribution, rebound in vessel price and disposal gains and higher cost management incentives.

UMC (UMC.US; 2303.TT) 4Q21 Financial Results/1Q22 Forecast: A Bit Higher in Revenue Outlook

By Patrick Liao

Some investors are still questioning UMC if the inventory issues will become a problem. And UMC does not see the sign of inventory.
The 4Q21/1Q22 revenue are NT$59.1bn/~NT$62bn, which are higher than our previous estimate by 1.7%/3.3% respectively.
By 2024, UMC targets to grow revenue/ROE to US$10bn/>20% respectively.

Maruti Suzuki – Are Profitability Improvements Enough?

Suzuki reported its 3QFY22 results on Tuesday with revenue of INR236bn (+15.0% QoQ, -0.2% YoY) and OP of INR12.5bn implying an OPM of 5.3% compared to 0.5% in 2QFY22.
The reported revenue was 1.1% lower than the consensus estimates, while OP was 165.9% higher (INR7.8bn).
That reads positive overall but we are concerned that margins are still not on track to achieve consensus estimates for next FY.

QH: 4Q21 Earnings Will Be the Peak Quarter in 2021

Upgrade to BUY from HOLD rating and raise TP by 6%to Bt2.66 based on 11.8xPE’2022E, +1SD from its five-years trading average. Our rating factor in benefit from easing LTV policy
We expect the peak quarter profit in 4Q21 at Bt522 m (-10%YoY, +99%QoQ), driven by higher housing revenue recognition and rising equity income especially from HMPRO
Core operation in 4Q21 will be backed by secured backlog in 3Q21 worth Bt830m

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Jan 25

Equity Bottom-Up: Peijia Medical, ICICI Bank Ltd, Clearfield Inc, SiS Distribution (Thailand) PCL, TMBThanachart Bank, RS PCL, Synnex Thailand and more

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

In today’s briefing:

Peijia Medical (9996.HK) Vs Venus MedTech (2500.HK) Vs CardioFlow (2160.HK)-Pain Points and Solution
ICICI Bank – Continued Improvement
CLFD: Dropping Coverage, 32% Return in 4 Days
SIS: New Business Segments Will Drive Growth In Earnings and Price
TTB: Focusing on Quality Growth
RS: Rising for Sustainable Growth in 2022
SYNEX: 4Q21 Net Profit Will Be an All-Time High

Peijia Medical (9996.HK) Vs Venus MedTech (2500.HK) Vs CardioFlow (2160.HK)-Pain Points and Solution

By Xinyao (Criss) Wang

Venus MedTech (2500 HK) is taking the lead in TAVR industry, but Peijia Medical (9996 HK) has advantages in development progress of future products. So, the market pattern is not yet determined.
The high cost of TAVR surgery is the main reason for lower-than-expected sales performance of related companies and low market penetration. The fierce competition would also bring more challenges.
A good solution is to enter developing markets with CE mark, which would offer a new commercialization option and also a wider expansion beyond just European and American markets.

ICICI Bank – Continued Improvement

ICICI reported FY 3Q22 earnings of INR 61.9 bn, increasing INR 6.8 bn (12.4%) linked quarter, driven by net interest and fee improvement and a provision cut;
Net new NPLs continued to increase 11.4% on an annualized basis at FY 3Q22 versus INR 44.1 bn 43.7% at FY 3Q21; and
We find that ICICI is short on reserves to the tune of INR 116 bn or just over a half year of ICICI’s core operating result.

CLFD: Dropping Coverage, 32% Return in 4 Days

By Hamed Khorsand

We are electing to close out our Sell Rating on Clearfield (CLFD) after an unprecedented market response to our initiation.
In less than 4 trading days, CLFD’s stock has declined by approximately 32.3 percent
We see less of a reason to maintain coverage when the market has priced in for the business risks we had originally highlighted.

SIS: New Business Segments Will Drive Growth In Earnings and Price

Maintain BUY rating with a new TP of Bt50 (+10% from last TP) based on 19.7xPE’22 (+2.5SD historical 5-Year PE) due to positive prospects from new cloud and cybersecurity segments
We rerate PE target to 19.7xPE’22 from 18.1xPE’22 to factor in upside from change in market valuations. While SIS trades at 16.2xPE’22,SYNEX and COM7 trade at an average of 35.5xPE’22
•Expect earnings to grow 28% YoY in 22E, off the backs of new high-margin and high-demand cloud and cybersecurity segments.

TTB: Focusing on Quality Growth

We reiterate our BUY rating with a target price at Bt1.60. Our BUY call reflects (1) steady growth ahead; (2) adequate reserves against new NPLs, and (3) compelling valuation
The bank will concentrate its strategic efforts on improving the quality of its growth and bolstering its capital position in the face of uncertainty
TTB expects modest lending growth ahead in 2022 with a focus on the retail market expansion

RS: Rising for Sustainable Growth in 2022

We believe RS’s 2022E target revenue at Bt5.1bn (+31% from our 2021E forecast) is a bit optimistic given a slower-than-expected recovery in people purchasing power during post-COVID-19. However
Our expectation over earnings recovery in 2022E will be driven by 1.) an absence of heavy SG&A expense allocation after key product launch(Camu- C) in 2021, 2.) equity income recognition
Expect earnings in 4Q21 to reach bottom at Bt10m loss due to slower-than-expected recovery in MPC sales and Ads spending.

SYNEX: 4Q21 Net Profit Will Be an All-Time High

We maintain HOLD rating with a TP of Bt28.40 derived from 27.0xPE’22E, (+2S.D. ten-year average). We believe that the company’s strong expected growth in 22E is largely priced in.
We expect 4Q21 net profit to be Bt218mn (+12%QoQ), which is the company’s all time-high. All-time high revenue of Bt10.5bn (+19%QoQ),will be driven by strong sales of new Apple products
Positive earnings growth in 2022,driven by sales in gaming devices and equipment, which are high-margin products. Gaming equipment sales come from partnerships with major gaming-related companies like Nintendo, Sony (Playstation),Razer.

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Jan 24

Equity Bottom-Up: Globalwafers, Evergrande, PVR Ltd, Bangkok Bank Public, Kasikornbank PCL, Siam Commercial Bank Pub Co and more

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

In today’s briefing:

GlobalWafers (6488.TT): The Last Step to Go for Siltronic (WAF GR) Mergence
China Evergrande Group – Vultures Circling
PVR (PVRL IN) | Q3 | The “Pricy” Show Has Begun
Bangkok Bank – Positive Credit Turn
KBANK: Growth Momentum Remains Intact
SCB: Going More Digital Services

GlobalWafers (6488.TT): The Last Step to Go for Siltronic (WAF GR) Mergence

By Patrick Liao

To merge with Siltronic has reached to 95% in probability for GlobalWafers now. Our target price for GlobalWafers doesn’t change at NT$880~960 and $1,200 if it finally past.
Chinese government requested that GlobalWafers has to spin off its Denmark’s subsidiary 8” float zone (FZ) wafer within no more than 9 months at most.
Currently, Siltronic is delivering a GM of 25.6~32% during 1Q~3Q in 2021, which is competitive to Sumco, Shin Etsu. However, it shall be able to improve the GM further.

China Evergrande Group – Vultures Circling

Mainland Chinese municipalities and authorities continue to find numerous ways to bone pick the Evergrande carcass without compensation;
Evergrande’s offshore bondholders are now threatening legal enforcement of collateral over the company’s “opaque” debt restructuring process; and
Guangdong province is seeking to segregate Evergrande’s offshore assets in a fire sale to cover what they can of the company’s offshore debt.

PVR (PVRL IN) | Q3 | The “Pricy” Show Has Begun

By Pranav Bhavsar

PVR Ltd (PVRL IN) ‘s December performance on ATP and SHP was very encouraging. If the trend sustains we believe the earnings recovery would be much faster than anticipated.
New trends in content consumption, strong content pipeline and truce with OTT players make a case for a solid recovery for the Industry.
PVR has historically traded at an average of 11.4x EV/EBITDA. Based on our current estimates and conservative 10.5x multiple, there is a return potential of >20% from these levels.

Bangkok Bank – Positive Credit Turn

Bangkok Bank reported 4Q21 bottom-line results of THB 6.3 bn, declining THB 591 mn (8.6%) on a linked quarter basis, driven by costs which rose THB 3.5 bn or 21.8%;
Outside of expenses, BBL had a pretty solid quarter with net interest income improving and provisions declining; and
We find that BBL’s annualized net new NPLs were negative, and that reserves likely will begin being reversed in the near-term.

KBANK: Growth Momentum Remains Intact

We reiterate our BUY rating with a target price at Bt172. Our BUY call reflects (1) steady growth ahead from improving economic recovery; (2) adequate reserves against new NPLs
Management forecasted Thai GDP to accelerate to 3.7% YoY in 2022 from an expected rise of 1% in 2021
Following the analyst meeting, we remain neutral and maintain our net profit projections for 2022-23

SCB: Going More Digital Services

Maintain BUY with a target price at Bt149. Our BUY call reflects steady earnings growth, resilient asset quality, and leadership in digital banking services
Digital banking services remain a focus ahead. SCB expects moderate lending growth and credit costs to likely decline in 2022.
SCB X will offer newly-issued shares and make a tender offer for all of SCB’s shares in 1Q22.

Before it’s here, it’s on Smartkarma

Jan 23

Equity Bottom-Up: The Keepers Holdings, Inc., Asian Paints, Bajaj Finance Ltd, Austar Lifesciences and more

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

In today’s briefing:

Keepers Holdings: Cheap Consumption Multibagger in the Philippines
Asian Paints (APNT IN) | Q3 | Leveraging Leadership Position
Bajaj Finance: Gearing Up To Become India’s Dominant Fintech
Austar Lifesciences (6118 HK): It’s Risky to Catch the Falling Knife

Keepers Holdings: Cheap Consumption Multibagger in the Philippines

By Sameer Taneja

The Keepers Holdings, Inc. (KEEPR PM) is a play on the imported liquor distribution business in the Philippines, with a >74% marketshare conservatively growing at 12-15% CAGR.
Trading at 11.5x/10.0x FY21/22 PE with 35% of the market capitalization in cash ( implying an ex-cash PE of 7.5x), the stock is cheap with a significant margin of safety.
Value enhancing asset injection angle with potential for the chairman Lucio Co to inject his Bodegas William and Humbers (W&H) stake into the listco.

Asian Paints (APNT IN) | Q3 | Leveraging Leadership Position

By Pranav Bhavsar

Strong volume growth in Tier 1/2 locations aided revenue surprise, while RM inflation hurt profitability in Q3.
Impact of price hikes and demand revival in Tier 3/4 locations could be the possible catalysts to monitor going into Q4
Valuations apart, Asian Paints (APNT IN) market share gaining ability, strategic positioning and possibility of revenue surprise suggest the trade is best BULLISH and not BEARISH on APNT.

Bajaj Finance: Gearing Up To Become India’s Dominant Fintech

By Ankit Agrawal, CFA

Bajaj Finance Ltd (BAF IN) reported record quarterly profit of INR 2,125cr on the back of strong growth in AUM and improving asset quality.
BAF has launched its Phase 1 digital transformation. This quarter, it shared detailed updates around it. It is now working on year-long step-wise Phase 2 launch.
With liquidity buffer normalizing, asset quality improving, and customer acquisition accelerating led by digital initiatives, we believe BAF is at an interesting inflection point.

Austar Lifesciences (6118 HK): It’s Risky to Catch the Falling Knife

Management is not aware of any significant reason for the recent unusual price movement in Austar Lifesciences (6118 HK) shares.
The company’s strong financial performance in H1 2021 and order book seems to be mostly driven by the COVID-19 vaccine-related demand, which is expected to fade off this year.
Divestment of its 60% equity interest in Pall-Austar Lifesciences is expected to weaken its competitive positioning in the lifescience tool market in China.

Before it’s here, it’s on Smartkarma