Lippo Malls Indonesia Retail Trust (LMRT SP) (“LMIRT”) today announced the acquisition of Lippo Mall Puri from its sponsor PT Lippo Karawaci Tbk for a consideration of Rp.3,700.0 bil (S$354.7 mil).
There is a significant amount of vendor support provided by Lippo Group to improve the net property income and NPI yield of Lippo Mall Puri. If we exclude the vendor support from the target NPI, the NPI yield excluding vendor support will just be 6.52% per annum.
The transaction is DPU and yield dilutive. The resultant DPU post-transaction will decline from 2.05 S-cents to 1.61 S-cents / 1.42 S-cents. Distribution yield will also fall from 10.25% to 9.28% / 8.85% based on TERP.
The transaction could also potentially result in LMIRT’s gearing increasing from 34.6% to 39.0% which will worsen its balance sheet strength and credit standings.
In view of the unattractive acquisition and potential EFR dilution, investors should avoid LMIRT for now and wait for opportunity to enter with a greater margin of safety.
Following three years of share price declines, Chris Hoare has started to moderate his negative view on Bharti Infratel (BHIN IN). Our thesis, that Infratel would struggle as the market consolidated to three players, has largely played out. We remain wary of the viability of Vodafone Idea (IDEA IN) at current tariff levels but the ongoing capital raising at IDEA puts off the day of reckoning, while IDEA’s exit penalties (as they consolidate with Vodafone) are being paid quarterly which will flatter revenues/cash flow. We think earnings forecasts have probably bottomed for the time being and raise our recommendation to Neutral and upgrade our price target to INR270 (from INR220).
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Lippo Malls Indonesia Retail Trust (LMRT SP) (“LMIRT”) today announced the acquisition of Lippo Mall Puri from its sponsor PT Lippo Karawaci Tbk for a consideration of Rp.3,700.0 bil (S$354.7 mil).
There is a significant amount of vendor support provided by Lippo Group to improve the net property income and NPI yield of Lippo Mall Puri. If we exclude the vendor support from the target NPI, the NPI yield excluding vendor support will just be 6.52% per annum.
The transaction is DPU and yield dilutive. The resultant DPU post-transaction will decline from 2.05 S-cents to 1.61 S-cents / 1.42 S-cents. Distribution yield will also fall from 10.25% to 9.28% / 8.85% based on TERP.
The transaction could also potentially result in LMIRT’s gearing increasing from 34.6% to 39.0% which will worsen its balance sheet strength and credit standings.
In view of the unattractive acquisition and potential EFR dilution, investors should avoid LMIRT for now and wait for opportunity to enter with a greater margin of safety.
Following three years of share price declines, Chris Hoare has started to moderate his negative view on Bharti Infratel (BHIN IN). Our thesis, that Infratel would struggle as the market consolidated to three players, has largely played out. We remain wary of the viability of Vodafone Idea (IDEA IN) at current tariff levels but the ongoing capital raising at IDEA puts off the day of reckoning, while IDEA’s exit penalties (as they consolidate with Vodafone) are being paid quarterly which will flatter revenues/cash flow. We think earnings forecasts have probably bottomed for the time being and raise our recommendation to Neutral and upgrade our price target to INR270 (from INR220).
Geo Energy Resources (GERL SP) reported weak 4Q18 results late last month. The reason for the 5M USD net loss in 4Q18 was mainly due to Chinese import restrictions for Indonesian coal in November and December last year. With the import quota removed as of January ICI4 coal prices have rebounded from +/-30 USD/ton late 2018 to 40 USD/ton this week.
Geo remains in deep value territory (3x EV/EBITDA) as the company still has over 200M USD+ in cash it raised from a 300M USD bond placing almost 18 months ago. While the CEO announced plans to organize a HK dual listing in 1H19 this cannot materialize unless management can execute on a significant acquisition opportunity it has been considering for the last twelve months. With Indonesian elections coming up next month the hope is that clarity on this potential transaction can be sorted by late 1H19.
While Europe is obsessed with Climate Change doomsday scenarios being shouted around by school-skipping teenagers, the reality is that three out of four of the most populated countries in the world (China, India and Indonesia) will remain heavy users of coal for decades to come. With cleaner coal technology being the key differentiator how much pollution is emitted.
My Fair Value estimate (Base case) remains 0.35 SGD or 89% upside. Please recall, Macquarie paid 0.29 SGD for a 5% stake in November 2018 and had warrants issued to it at 0.33 SGD.
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We initiate coverage of CHG with a BUY rating and a 2019E target price of Bt2.53, derived from a discounted cash flow valuation (WACC of 6.2% and terminal growth of 2.0%). This is equivalent to 44.5 PE’19E, which is near its five-year trading average of 43.7x.
The story:
Competitive player in a key strategic location
Pressures from launch of new greenfield hospitals should be short term
Recent share price retreat opens an investment opportunity
Expected flat earnings in 2019E and growth at a 19% CAGR in 2020-21E
Anti-PD-1 monoclonal antibody (mAb) is a hotly contested immunotherapy area in China, with seven companies working on clinical trials covering various lines of treatment for more than a dozen indications. Out of these indications, we have highlighted in our previous coverage on Chinese biotech companies that the most critical indication is the first line treatment of lung cancer, particularly non-small cell lung cancer (NSCLC). Valuation of PD-1 related drugs anchors many of the Hong Kong-listed biotech companies, such as Innovent Biologics Inc (1801 HK), Shanghai Junshi Bioscience Co. Ltd. (1877 HK), BeiGene Ltd (6160 HK), CStone Pharma (2616 HK) and China A-share listed Jiangsu Hengrui Medicine Co., (600276 CH).
In March, Merck’s Keytruda (generic name pembrolizumab) was approved by NMPA for the first line treatment of EGFR and ALK-negative non-squamous NSCLC. This marks Keytruda the first approved PD-1 drugs for the first line treatment of NSCLC in China.
In this insight, we will review the status and targeted indications of clinical trials of PD-1 candidates by domestic players.
The Reserve Bank of India’s (RBI) approval of the selection of Amitabh Chaudhry, the then HDFC Standard Life Insurance Chief Executive Officer (CEO), as the Axis Bank CEO on August 8, 2018, and his taking charge on January 1, 2019, were celebrated by the market. Analysts and the media were also favourably inclined towards his lateral new hires in the senior management, all of whom had spent many years in HDFC Bank. Unfortunately, these developments actually revealed a strategic fault line in the organisation. The Axis Bank board in its quarter century of existence has not only failed to groom internal candidates for the top-most job, but also recently has been unable to nurture or to trust internal candidates being appointed as executive directors and other critical posts (exception of Chief Risk Officer) in senior management. Recently, it has announced a voluntary retirement scheme which is virtually devoid of benefits to the retiring personnel; over 50 senior management personnel are being eased out at the end of April 2019 with little more than Mediclaim and unexercised stock options to show for their years of service. Such a step is likely to send demoralising tremors down the entire organisation. When the board of Axis Bank believes that only outsiders can be trusted in critical posts in senior management, and these posts are denied to the in-house cadre, how can the bank achieve the present CEO’s performance objectives of a sustainable ROE of 18% and doubling the market capitalisation?
We maintain PLANB with a BUY rating with the target price of Bt8.30 derived from 1.5xPEG’2019E of Thai consumer discretionary sector, which implies to 36xPE’19E.
The story:
Collaboration among the leaders in OOH industry
Revising down EPS in 2019-21E by 9-11% due to dilution effect
Risks: Obstacles for renewing concession contracts with state-owned enterprises along with falling consumer spending and a share-price dilution effect on the back of then generally mandated raise in capital.
China Meidong Auto (1268 HK) has been a great success story for its investors in the last two years. I first wrote about the company in May 2017 when shares were trading at 1.53 HKD. This week shares traded over 4.7 HKD. While the share price has gyrated wildly the past 24 months the underlying earnings of the company have been increasing steadily and shareholders have been rewarded with solid dividends.
FY18 results were released last month which showed strong growth in revenues (+44%) and net profits (+31%). With the importance of Lexus and Porsche increasing, FY19 should be another year of growth. The performance of BMW remains a wild card.
With the stock up 59% YTD shares are now fairly valued and trading at a 30% premium to its peers. Meidong remains a long-term favorite but has now exceeded my fair value estimate of 4.4 HKD (10x 2019 EPS). I suggest waiting for a better entry point.
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Anti-PD-1 monoclonal antibody (mAb) is a hotly contested immunotherapy area in China, with seven companies working on clinical trials covering various lines of treatment for more than a dozen indications. Out of these indications, we have highlighted in our previous coverage on Chinese biotech companies that the most critical indication is the first line treatment of lung cancer, particularly non-small cell lung cancer (NSCLC). Valuation of PD-1 related drugs anchors many of the Hong Kong-listed biotech companies, such as Innovent Biologics Inc (1801 HK), Shanghai Junshi Bioscience Co. Ltd. (1877 HK), BeiGene Ltd (6160 HK), CStone Pharma (2616 HK) and China A-share listed Jiangsu Hengrui Medicine Co., (600276 CH).
In March, Merck’s Keytruda (generic name pembrolizumab) was approved by NMPA for the first line treatment of EGFR and ALK-negative non-squamous NSCLC. This marks Keytruda the first approved PD-1 drugs for the first line treatment of NSCLC in China.
In this insight, we will review the status and targeted indications of clinical trials of PD-1 candidates by domestic players.
The Reserve Bank of India’s (RBI) approval of the selection of Amitabh Chaudhry, the then HDFC Standard Life Insurance Chief Executive Officer (CEO), as the Axis Bank CEO on August 8, 2018, and his taking charge on January 1, 2019, were celebrated by the market. Analysts and the media were also favourably inclined towards his lateral new hires in the senior management, all of whom had spent many years in HDFC Bank. Unfortunately, these developments actually revealed a strategic fault line in the organisation. The Axis Bank board in its quarter century of existence has not only failed to groom internal candidates for the top-most job, but also recently has been unable to nurture or to trust internal candidates being appointed as executive directors and other critical posts (exception of Chief Risk Officer) in senior management. Recently, it has announced a voluntary retirement scheme which is virtually devoid of benefits to the retiring personnel; over 50 senior management personnel are being eased out at the end of April 2019 with little more than Mediclaim and unexercised stock options to show for their years of service. Such a step is likely to send demoralising tremors down the entire organisation. When the board of Axis Bank believes that only outsiders can be trusted in critical posts in senior management, and these posts are denied to the in-house cadre, how can the bank achieve the present CEO’s performance objectives of a sustainable ROE of 18% and doubling the market capitalisation?
We maintain PLANB with a BUY rating with the target price of Bt8.30 derived from 1.5xPEG’2019E of Thai consumer discretionary sector, which implies to 36xPE’19E.
The story:
Collaboration among the leaders in OOH industry
Revising down EPS in 2019-21E by 9-11% due to dilution effect
Risks: Obstacles for renewing concession contracts with state-owned enterprises along with falling consumer spending and a share-price dilution effect on the back of then generally mandated raise in capital.
China Meidong Auto (1268 HK) has been a great success story for its investors in the last two years. I first wrote about the company in May 2017 when shares were trading at 1.53 HKD. This week shares traded over 4.7 HKD. While the share price has gyrated wildly the past 24 months the underlying earnings of the company have been increasing steadily and shareholders have been rewarded with solid dividends.
FY18 results were released last month which showed strong growth in revenues (+44%) and net profits (+31%). With the importance of Lexus and Porsche increasing, FY19 should be another year of growth. The performance of BMW remains a wild card.
With the stock up 59% YTD shares are now fairly valued and trading at a 30% premium to its peers. Meidong remains a long-term favorite but has now exceeded my fair value estimate of 4.4 HKD (10x 2019 EPS). I suggest waiting for a better entry point.
NTT Docomo Inc (9437 JP) recently announced it would sell its 25% stake in Hutchinson Telecom Hong Kong’s ( Hutchison Telecommunications Hk Hld (215 HK) mobile unit for US$60mn with closing expected at the end of May. This ends a 20-year association with Hutchinson forged in the initial excitement over 3G in 1999 but it hasn’t been a good ride for DoCoMo which lost close to 90% on its Hutchison investments and its other international forays were not much better. On a related note, the HK mobile sale follows soon after DoCoMo’s exit from its credit card joint venture with Sumitomo Mitsui but we would not read anything into this beyond a rationalization of its non-core investments.
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Following three years of share price declines, Chris Hoare has started to moderate his negative view on Bharti Infratel (BHIN IN). Our thesis, that Infratel would struggle as the market consolidated to three players, has largely played out. We remain wary of the viability of Vodafone Idea (IDEA IN) at current tariff levels but the ongoing capital raising at IDEA puts off the day of reckoning, while IDEA’s exit penalties (as they consolidate with Vodafone) are being paid quarterly which will flatter revenues/cash flow. We think earnings forecasts have probably bottomed for the time being and raise our recommendation to Neutral and upgrade our price target to INR270 (from INR220).
Geo Energy Resources (GERL SP) reported weak 4Q18 results late last month. The reason for the 5M USD net loss in 4Q18 was mainly due to Chinese import restrictions for Indonesian coal in November and December last year. With the import quota removed as of January ICI4 coal prices have rebounded from +/-30 USD/ton late 2018 to 40 USD/ton this week.
Geo remains in deep value territory (3x EV/EBITDA) as the company still has over 200M USD+ in cash it raised from a 300M USD bond placing almost 18 months ago. While the CEO announced plans to organize a HK dual listing in 1H19 this cannot materialize unless management can execute on a significant acquisition opportunity it has been considering for the last twelve months. With Indonesian elections coming up next month the hope is that clarity on this potential transaction can be sorted by late 1H19.
While Europe is obsessed with Climate Change doomsday scenarios being shouted around by school-skipping teenagers, the reality is that three out of four of the most populated countries in the world (China, India and Indonesia) will remain heavy users of coal for decades to come. With cleaner coal technology being the key differentiator how much pollution is emitted.
My Fair Value estimate (Base case) remains 0.35 SGD or 89% upside. Please recall, Macquarie paid 0.29 SGD for a 5% stake in November 2018 and had warrants issued to it at 0.33 SGD.
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Geo Energy Resources (GERL SP) reported weak 4Q18 results late last month. The reason for the 5M USD net loss in 4Q18 was mainly due to Chinese import restrictions for Indonesian coal in November and December last year. With the import quota removed as of January ICI4 coal prices have rebounded from +/-30 USD/ton late 2018 to 40 USD/ton this week.
Geo remains in deep value territory (3x EV/EBITDA) as the company still has over 200M USD+ in cash it raised from a 300M USD bond placing almost 18 months ago. While the CEO announced plans to organize a HK dual listing in 1H19 this cannot materialize unless management can execute on a significant acquisition opportunity it has been considering for the last twelve months. With Indonesian elections coming up next month the hope is that clarity on this potential transaction can be sorted by late 1H19.
While Europe is obsessed with Climate Change doomsday scenarios being shouted around by school-skipping teenagers, the reality is that three out of four of the most populated countries in the world (China, India and Indonesia) will remain heavy users of coal for decades to come. With cleaner coal technology being the key differentiator how much pollution is emitted.
My Fair Value estimate (Base case) remains 0.35 SGD or 89% upside. Please recall, Macquarie paid 0.29 SGD for a 5% stake in November 2018 and had warrants issued to it at 0.33 SGD.
Meituan Dianping reported 4Q2018 numbers last night. As we covered the company’s IPO and lock-up expiry, we took a close look the company 4Q2018 results and listened in the conference call. While we are encouraged by the company’s strong transaction volume and revenue growth in 4Q2018, we are less bullish given the deceleration of monetization growth. We also note that the company trimmed down the details of reporting, in particular, the operation of its New Initiative segment and hence results were less transparent.
Over the last 12 months, these shares have been a dreadful performer (as have the other ball bearing makers), both in absolute terms (-36%) and on a relative basis (underperformed TOPIX by 30%). Operating profits for the full year have recently been revised down (for the second time). The operating environment has deteriorated markedly into 4Q. It would appear to us that the market, and analysts, are aware of the current poor trading conditions. The question is when will conditions start to improve. The first half of next year will be very poor indeed with profits down perhaps 35% year-on-year. And it now appears that some analyst’s numbers do not assume recovery for any of next fiscal year, which we believe as too harsh.
Clearly the first half of next year (3/20) is going to show very poor year on year comparisons. This will be unavoidable given a good first half this year and business conditions now. The company itself is now forecasting a 4Q operating profit of Y16.7bn (-40%) having made Y24.8bn in 1Q, Y20.2bn in 2Q and Y21.3bn in 3Q. Assuming this level carries on into the first half of next year before starting a gradual recovery in the second half, then first half operating profit may well come in at about Y32-33bn, a 35% year-on-year fall. The consensus for the full year is currently about Y70bn with the lowest number being Y64bn. Sell recommendations have also begun to appear. To us this appear to be a bit after the event given where earnings are now and where the shares are trading.
The shares currently yield 4.2% and the pay-out ratio this year is 36%. Management’s target is for 30% but at the same time they are reluctant to cut the dividend going forward. This may well prove some support. Meanwhile the company owns 7% of itself and on our calculation is trading on an EV/ebitda of just under 4x. Finally, its book value (0.9x) relative to the market’s book value is now at a very depressed level (see chart below) which suggests to us that although there may be some short term down side risk, we would look to buy on a longer term.
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Geo Energy Resources (GERL SP) reported weak 4Q18 results late last month. The reason for the 5M USD net loss in 4Q18 was mainly due to Chinese import restrictions for Indonesian coal in November and December last year. With the import quota removed as of January ICI4 coal prices have rebounded from +/-30 USD/ton late 2018 to 40 USD/ton this week.
Geo remains in deep value territory (3x EV/EBITDA) as the company still has over 200M USD+ in cash it raised from a 300M USD bond placing almost 18 months ago. While the CEO announced plans to organize a HK dual listing in 1H19 this cannot materialize unless management can execute on a significant acquisition opportunity it has been considering for the last twelve months. With Indonesian elections coming up next month the hope is that clarity on this potential transaction can be sorted by late 1H19.
While Europe is obsessed with Climate Change doomsday scenarios being shouted around by school-skipping teenagers, the reality is that three out of four of the most populated countries in the world (China, India and Indonesia) will remain heavy users of coal for decades to come. With cleaner coal technology being the key differentiator how much pollution is emitted.
My Fair Value estimate (Base case) remains 0.35 SGD or 89% upside. Please recall, Macquarie paid 0.29 SGD for a 5% stake in November 2018 and had warrants issued to it at 0.33 SGD.
Meituan Dianping reported 4Q2018 numbers last night. As we covered the company’s IPO and lock-up expiry, we took a close look the company 4Q2018 results and listened in the conference call. While we are encouraged by the company’s strong transaction volume and revenue growth in 4Q2018, we are less bullish given the deceleration of monetization growth. We also note that the company trimmed down the details of reporting, in particular, the operation of its New Initiative segment and hence results were less transparent.
Over the last 12 months, these shares have been a dreadful performer (as have the other ball bearing makers), both in absolute terms (-36%) and on a relative basis (underperformed TOPIX by 30%). Operating profits for the full year have recently been revised down (for the second time). The operating environment has deteriorated markedly into 4Q. It would appear to us that the market, and analysts, are aware of the current poor trading conditions. The question is when will conditions start to improve. The first half of next year will be very poor indeed with profits down perhaps 35% year-on-year. And it now appears that some analyst’s numbers do not assume recovery for any of next fiscal year, which we believe as too harsh.
Clearly the first half of next year (3/20) is going to show very poor year on year comparisons. This will be unavoidable given a good first half this year and business conditions now. The company itself is now forecasting a 4Q operating profit of Y16.7bn (-40%) having made Y24.8bn in 1Q, Y20.2bn in 2Q and Y21.3bn in 3Q. Assuming this level carries on into the first half of next year before starting a gradual recovery in the second half, then first half operating profit may well come in at about Y32-33bn, a 35% year-on-year fall. The consensus for the full year is currently about Y70bn with the lowest number being Y64bn. Sell recommendations have also begun to appear. To us this appear to be a bit after the event given where earnings are now and where the shares are trading.
The shares currently yield 4.2% and the pay-out ratio this year is 36%. Management’s target is for 30% but at the same time they are reluctant to cut the dividend going forward. This may well prove some support. Meanwhile the company owns 7% of itself and on our calculation is trading on an EV/ebitda of just under 4x. Finally, its book value (0.9x) relative to the market’s book value is now at a very depressed level (see chart below) which suggests to us that although there may be some short term down side risk, we would look to buy on a longer term.
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The Reserve Bank of India’s (RBI) approval of the selection of Amitabh Chaudhry, the then HDFC Standard Life Insurance Chief Executive Officer (CEO), as the Axis Bank CEO on August 8, 2018, and his taking charge on January 1, 2019, were celebrated by the market. Analysts and the media were also favourably inclined towards his lateral new hires in the senior management, all of whom had spent many years in HDFC Bank. Unfortunately, these developments actually revealed a strategic fault line in the organisation. The Axis Bank board in its quarter century of existence has not only failed to groom internal candidates for the top-most job, but also recently has been unable to nurture or to trust internal candidates being appointed as executive directors and other critical posts (exception of Chief Risk Officer) in senior management. Recently, it has announced a voluntary retirement scheme which is virtually devoid of benefits to the retiring personnel; over 50 senior management personnel are being eased out at the end of April 2019 with little more than Mediclaim and unexercised stock options to show for their years of service. Such a step is likely to send demoralising tremors down the entire organisation. When the board of Axis Bank believes that only outsiders can be trusted in critical posts in senior management, and these posts are denied to the in-house cadre, how can the bank achieve the present CEO’s performance objectives of a sustainable ROE of 18% and doubling the market capitalisation?
We maintain PLANB with a BUY rating with the target price of Bt8.30 derived from 1.5xPEG’2019E of Thai consumer discretionary sector, which implies to 36xPE’19E.
The story:
Collaboration among the leaders in OOH industry
Revising down EPS in 2019-21E by 9-11% due to dilution effect
Risks: Obstacles for renewing concession contracts with state-owned enterprises along with falling consumer spending and a share-price dilution effect on the back of then generally mandated raise in capital.
China Meidong Auto (1268 HK) has been a great success story for its investors in the last two years. I first wrote about the company in May 2017 when shares were trading at 1.53 HKD. This week shares traded over 4.7 HKD. While the share price has gyrated wildly the past 24 months the underlying earnings of the company have been increasing steadily and shareholders have been rewarded with solid dividends.
FY18 results were released last month which showed strong growth in revenues (+44%) and net profits (+31%). With the importance of Lexus and Porsche increasing, FY19 should be another year of growth. The performance of BMW remains a wild card.
With the stock up 59% YTD shares are now fairly valued and trading at a 30% premium to its peers. Meidong remains a long-term favorite but has now exceeded my fair value estimate of 4.4 HKD (10x 2019 EPS). I suggest waiting for a better entry point.
NTT Docomo Inc (9437 JP) recently announced it would sell its 25% stake in Hutchinson Telecom Hong Kong’s ( Hutchison Telecommunications Hk Hld (215 HK) mobile unit for US$60mn with closing expected at the end of May. This ends a 20-year association with Hutchinson forged in the initial excitement over 3G in 1999 but it hasn’t been a good ride for DoCoMo which lost close to 90% on its Hutchison investments and its other international forays were not much better. On a related note, the HK mobile sale follows soon after DoCoMo’s exit from its credit card joint venture with Sumitomo Mitsui but we would not read anything into this beyond a rationalization of its non-core investments.
Profitability at China Minsheng Banking A (600016 CH) in 2018 slipped. Similar to other Chinese lenders, rising Loan Loss Provisions exerted a negative pull on the bottom-line, testament to gnawing Asset Quality issues. In addition, similar to some banks, the top-line came under pressure from the rising cost of source of funding. Also the bank was not alone in juicing up its bottom-line with hefty trading gains. Thus Earnings Quality could have been better.
Given the underlying squeeze on core Income, it was encouraging to see management at least restrain OPEX.
Regarding Asset quality, write-offs soared by 153% YoY while substandard and loss Loans jumped by 68% YoY and 14%, respectively, and Loan Loss Provisions rose by 35.6% YoY. It is perhaps a little surprising then that coverage ratios decreased given the trend in credit costs, NPL migration, and charge-offs.
LDR remains quite high though credit growth last year was not gung-ho and broadly in line with Deposit expansion. We do note though a ratcheting up of CRE lending which jumped from 8.8% of the total Loan book to 12.3%.
Shares do not appear optically dear: the bank trades on a P/Book, FV, Dividend and Earnings Yields of 0.7x, 9%, 5.2% and 17.4%, respectively. However, we see better quality value elsewhere, in particular at “The Big Four” which can be termed safer Income opportunities.
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Meituan Dianping reported 4Q2018 numbers last night. As we covered the company’s IPO and lock-up expiry, we took a close look the company 4Q2018 results and listened in the conference call. While we are encouraged by the company’s strong transaction volume and revenue growth in 4Q2018, we are less bullish given the deceleration of monetization growth. We also note that the company trimmed down the details of reporting, in particular, the operation of its New Initiative segment and hence results were less transparent.
Over the last 12 months, these shares have been a dreadful performer (as have the other ball bearing makers), both in absolute terms (-36%) and on a relative basis (underperformed TOPIX by 30%). Operating profits for the full year have recently been revised down (for the second time). The operating environment has deteriorated markedly into 4Q. It would appear to us that the market, and analysts, are aware of the current poor trading conditions. The question is when will conditions start to improve. The first half of next year will be very poor indeed with profits down perhaps 35% year-on-year. And it now appears that some analyst’s numbers do not assume recovery for any of next fiscal year, which we believe as too harsh.
Clearly the first half of next year (3/20) is going to show very poor year on year comparisons. This will be unavoidable given a good first half this year and business conditions now. The company itself is now forecasting a 4Q operating profit of Y16.7bn (-40%) having made Y24.8bn in 1Q, Y20.2bn in 2Q and Y21.3bn in 3Q. Assuming this level carries on into the first half of next year before starting a gradual recovery in the second half, then first half operating profit may well come in at about Y32-33bn, a 35% year-on-year fall. The consensus for the full year is currently about Y70bn with the lowest number being Y64bn. Sell recommendations have also begun to appear. To us this appear to be a bit after the event given where earnings are now and where the shares are trading.
The shares currently yield 4.2% and the pay-out ratio this year is 36%. Management’s target is for 30% but at the same time they are reluctant to cut the dividend going forward. This may well prove some support. Meanwhile the company owns 7% of itself and on our calculation is trading on an EV/ebitda of just under 4x. Finally, its book value (0.9x) relative to the market’s book value is now at a very depressed level (see chart below) which suggests to us that although there may be some short term down side risk, we would look to buy on a longer term.
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Meituan Dianping reported 4Q2018 numbers last night. As we covered the company’s IPO and lock-up expiry, we took a close look the company 4Q2018 results and listened in the conference call. While we are encouraged by the company’s strong transaction volume and revenue growth in 4Q2018, we are less bullish given the deceleration of monetization growth. We also note that the company trimmed down the details of reporting, in particular, the operation of its New Initiative segment and hence results were less transparent.
Over the last 12 months, these shares have been a dreadful performer (as have the other ball bearing makers), both in absolute terms (-36%) and on a relative basis (underperformed TOPIX by 30%). Operating profits for the full year have recently been revised down (for the second time). The operating environment has deteriorated markedly into 4Q. It would appear to us that the market, and analysts, are aware of the current poor trading conditions. The question is when will conditions start to improve. The first half of next year will be very poor indeed with profits down perhaps 35% year-on-year. And it now appears that some analyst’s numbers do not assume recovery for any of next fiscal year, which we believe as too harsh.
Clearly the first half of next year (3/20) is going to show very poor year on year comparisons. This will be unavoidable given a good first half this year and business conditions now. The company itself is now forecasting a 4Q operating profit of Y16.7bn (-40%) having made Y24.8bn in 1Q, Y20.2bn in 2Q and Y21.3bn in 3Q. Assuming this level carries on into the first half of next year before starting a gradual recovery in the second half, then first half operating profit may well come in at about Y32-33bn, a 35% year-on-year fall. The consensus for the full year is currently about Y70bn with the lowest number being Y64bn. Sell recommendations have also begun to appear. To us this appear to be a bit after the event given where earnings are now and where the shares are trading.
The shares currently yield 4.2% and the pay-out ratio this year is 36%. Management’s target is for 30% but at the same time they are reluctant to cut the dividend going forward. This may well prove some support. Meanwhile the company owns 7% of itself and on our calculation is trading on an EV/ebitda of just under 4x. Finally, its book value (0.9x) relative to the market’s book value is now at a very depressed level (see chart below) which suggests to us that although there may be some short term down side risk, we would look to buy on a longer term.
NIO’s 6-month Lock-up expires today and as of the time of this writing the stock is down by 6.6% from the closing price on Friday, March 8. The stock’s share overhang issue have been well covered on the Smartkarma platform by other analysts (see NIO Post-CBS Rally Making TSLA Valuation a Grand Bargain (Price Target =$3) , NIO (NIO US): Lock-Up Expiry – This Could Get Messy) so while we do not see a need to rehash those details in this insight, here are 3 things that we believe every NIO investor and would-be investor should keep in mind about the company especially if one wants to play the Tesla vs. NIO scenario:
Licensing/Regulatory Risk – NIO has an autonomous driving testing license but no EV manufacturing license. An EV manufacturing license issued by the NDRC is required for EV manufacturers to market and sell their products but a 100k unit scale is a main prerequisite. This is a key reason why NIO entered into a 5-year outsourcing relationship with JAC. While this relationship was assumed to be temporary, there could be many hurdles for NIO to actually obtain a license in the coming years should it decide to invest in production facilities again.
Core IP Held by Suppliers – Powertrain technology is held by CATL and the State-owned JAC is listed as the ES8’s manufacturer on the Ministry of Information and Technology website. Continental AG designs NIO’s vehicle suspension and chassis. It is also unclear how much actual development work other than exterior/cockpit design is done in-house at NIO based on publicly available information. Without scale and IP we believe NIO’s bargaining position with its suppliers is weak and displays stronger characteristics of a distributor than a final assembler.
Low ASP, low margins – NIO’s ASP on the ES8 from what we have seen was $64k per unit in 2018 and $63k per unit in 1Q19 while Tesla’s Model X ASP is about $100k per unit. There is a reason why gross margin at NIO is razor thin and it has more to do with low price point than low volumes in our view.
Given differences between the U.S. and China operating environment for EV makers, we believe Tesla is not a good equity valuation comp for NIO, which is basically a distributor in our view. As such, long term value drivers would most likely come from aftermarket and service revenues, while short-mid term value drivers seem elusive especially in the aftermath of the company’s decision to scrap its production plant investment plans in Shanghai.
The NIO ES8
Source: Company Website
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