Consumer

In this briefing:

1. BGF Holdco/Sub Trade: Sub Overbuying Wouldn’t Last Another Day
2. Parco: 4 New Shopping Centres This Year, 28% Rise in Revenue in 5 Years to 2021
3. Valuetronics (VALUE SP): Trade War Uncertainty Continues, Downside Supported by Large Cash Position
4. FRETAIL IN
5. Puregold Price Club: Steady Grower with Provincial Expansion Story

1. BGF Holdco/Sub Trade: Sub Overbuying Wouldn’t Last Another Day

• BGF Sub had a 5.39% gain on better-than-expected 4Q18 results. Holdco stayed flat. As a result, we had a 2+σ jump from 95% of σ to -133% of σ. This is the widest jump in 120D. Holdco discount is currently at 47% to NAV.
• On a 120D horizon, price ratio is still well below 120D mean. Despite recent gains, Holdco price relative to Sub is nearly 20+%p down since 120D ago. 4Q results seem to be encouraging. But local sentiments are still heavily divided on Sub’s fundamentals. 4Q results aren’t strong enough to turn the tide drastically.
• Sub has been one of the most heavily shorted stocks in Korea lately. Yesterday’s huge gain might have been a short covering. This shouldn’t be a structural price pushing up for Sub. Sub staying below -1σ wouldn’t last another day. I expect a quick mean reversion at this point.

2. Parco: 4 New Shopping Centres This Year, 28% Rise in Revenue in 5 Years to 2021

Parco (8251 JP) is enjoying a new lease of life under J Front Retailing (3086 JP) ownership, investing assiduously in updating existing buildings and showing a decisiveness to rebuild entirely where location merits it and even closing down stores that don’t work.

It will celebrate its 50th anniversary this year by opening four new buildings, including the flagship Parco Shibuya and is forecasting a 28% rise in revenue for 2016-2021.

3. Valuetronics (VALUE SP): Trade War Uncertainty Continues, Downside Supported by Large Cash Position

Valuetronics reported its 3Q19 figures this week which showed a 7.5% decline in revenues but a small (+2.6%) increase in bottom line profits. Stronger margins in its ICE segment offset weakness in its CE segment.

Valuetronics Holdings (VALUE SP) remains a solid company run by a good management team with interesting clients in consumer electronics and automotive. The valuation of the company is cheap (5x ex-cash 2019 P/E) and the balance sheet is rock solid.

All these positives are currently being overshadowed by the US-China trade war as the company has 100% of its production in China and does 45.7% of its sales in North-America. While many companies try to downplay the impact of the trade-war Valuetronics cannot hide and the alternatives it is working on to offset the tariff impact will surely cause short-term disruption and increased costs.

YTD the share price is +12% as the market is hoping for a positive resolution to the US-China trade war. Management is cautious on macro political improvements as trade war friction is unlikely to dissipate soon. Given the weak outlook for its CE segment and no significant new customer wins in its ICE segment risk/reward does not seem very attractive despite good dividend yield and cheap valuation.

4. FRETAIL IN

We visit the large format stores of Future Retail (FRETAIL IN) fbb, Big Bazaar and Big Bazaar Gen Next, along with visiting stores run by Future Lifestyle Fashions (FLFL IN) Brand Factory and Central in Ahmedabad, Gujarat to understand some of the drivers behind SSSG of over 10% over the last 15 consecutive quarters. Our regional checks indicate the large format growth might be maintained in the future driven by loyalty programs like Future Pay. Interestingly the group has resorted to using its stores to mobilise funds for its fixed deposits, which could be a final indication that the planned of deal with Amazon.com Inc (AMZN US) is finally being called off.

5. Puregold Price Club: Steady Grower with Provincial Expansion Story

• Conference call with the IR of Puregold Price Club (PGOLD PM) reveals that SSSG grew healthily at 6.5% YoY in 9M18, thanks to personal income tax cut.
• The bigger growth driver is provincial expansion (outside Metro Manila), which would allow PGOLD to achieve mid-teen sales growth.
• There has been little to no sales impact from e-commerce as e-commerce penetration in Philippines is lagging even in the ASEAN context. 
• PGOLD trades at 18.3x 2019E PE, a 15% discount to peers average of 21.6x

In this briefing:

1. Nongshim Holdco/Sub Trade: Current Status & Trade Approach

1. Nongshim Holdco/Sub Trade: Current Status & Trade Approach

• Nongshim Sub took a beating yesterday. It lost nearly 5%. Holdco stayed flat. This made a 2σ jump. They are now at 253% of σ, nearly 200%p jump from 53% in a single day. It is true that China concerns are again being felt on many Korean F&B stocks. But there is no clear sign that we should seriously worry about Nongshim’s short-term fundamentals.
• Its local rival Ottogi is continuously making strides. But we are yet to see a long-short move on Nongshim Sub and Ottogi. Local institutions are still relatively supportive on Sub. There is no particular move on Sub shorting either. Sub’s 5% loss yesterday shouldn’t be indicative of any structural price correction.
• On a longer horizon (2Y), Holdco is still being undervalued relative to Sub. But this is the first time they are above +2.5σ in 120 days. I expect a quick mean reversion at this point. I’d have a long/short trade with a very short-term horizon. Just, Holdco liquidity can be an issue here again.

In this briefing:

1. Sony: Mispriced, Misunderstood, or Both?

1. Sony: Mispriced, Misunderstood, or Both?

• Forward earnings will focus heavily on the debut of PS5, the performance of the new Spider-Man movie and other core content revenue streams for the company this year.
• Some see Sony as coasting on historically successes of the past, others see recent Disney and ATT deals acquiring content competitors, as a prelude to a play on Sony this year.
• Investor pressure to sell or spin off non-content businesses growing due to continued poor performance in mobile and possible profitable departure from semiconductor sector.

In this briefing:

1. Parco: 4 New Shopping Centres This Year, 28% Rise in Revenue in 5 Years to 2021
2. Valuetronics (VALUE SP): Trade War Uncertainty Continues, Downside Supported by Large Cash Position
3. FRETAIL IN
4. Puregold Price Club: Steady Grower with Provincial Expansion Story
5. Nongshim Holdco/Sub Trade: Current Status & Trade Approach

1. Parco: 4 New Shopping Centres This Year, 28% Rise in Revenue in 5 Years to 2021

Parco (8251 JP) is enjoying a new lease of life under J Front Retailing (3086 JP) ownership, investing assiduously in updating existing buildings and showing a decisiveness to rebuild entirely where location merits it and even closing down stores that don’t work.

It will celebrate its 50th anniversary this year by opening four new buildings, including the flagship Parco Shibuya and is forecasting a 28% rise in revenue for 2016-2021.

2. Valuetronics (VALUE SP): Trade War Uncertainty Continues, Downside Supported by Large Cash Position

Valuetronics reported its 3Q19 figures this week which showed a 7.5% decline in revenues but a small (+2.6%) increase in bottom line profits. Stronger margins in its ICE segment offset weakness in its CE segment.

Valuetronics Holdings (VALUE SP) remains a solid company run by a good management team with interesting clients in consumer electronics and automotive. The valuation of the company is cheap (5x ex-cash 2019 P/E) and the balance sheet is rock solid.

All these positives are currently being overshadowed by the US-China trade war as the company has 100% of its production in China and does 45.7% of its sales in North-America. While many companies try to downplay the impact of the trade-war Valuetronics cannot hide and the alternatives it is working on to offset the tariff impact will surely cause short-term disruption and increased costs.

YTD the share price is +12% as the market is hoping for a positive resolution to the US-China trade war. Management is cautious on macro political improvements as trade war friction is unlikely to dissipate soon. Given the weak outlook for its CE segment and no significant new customer wins in its ICE segment risk/reward does not seem very attractive despite good dividend yield and cheap valuation.

3. FRETAIL IN

We visit the large format stores of Future Retail (FRETAIL IN) fbb, Big Bazaar and Big Bazaar Gen Next, along with visiting stores run by Future Lifestyle Fashions (FLFL IN) Brand Factory and Central in Ahmedabad, Gujarat to understand some of the drivers behind SSSG of over 10% over the last 15 consecutive quarters. Our regional checks indicate the large format growth might be maintained in the future driven by loyalty programs like Future Pay. Interestingly the group has resorted to using its stores to mobilise funds for its fixed deposits, which could be a final indication that the planned of deal with Amazon.com Inc (AMZN US) is finally being called off.

4. Puregold Price Club: Steady Grower with Provincial Expansion Story

• Conference call with the IR of Puregold Price Club (PGOLD PM) reveals that SSSG grew healthily at 6.5% YoY in 9M18, thanks to personal income tax cut.
• The bigger growth driver is provincial expansion (outside Metro Manila), which would allow PGOLD to achieve mid-teen sales growth.
• There has been little to no sales impact from e-commerce as e-commerce penetration in Philippines is lagging even in the ASEAN context. 
• PGOLD trades at 18.3x 2019E PE, a 15% discount to peers average of 21.6x

5. Nongshim Holdco/Sub Trade: Current Status & Trade Approach

• Nongshim Sub took a beating yesterday. It lost nearly 5%. Holdco stayed flat. This made a 2σ jump. They are now at 253% of σ, nearly 200%p jump from 53% in a single day. It is true that China concerns are again being felt on many Korean F&B stocks. But there is no clear sign that we should seriously worry about Nongshim’s short-term fundamentals.
• Its local rival Ottogi is continuously making strides. But we are yet to see a long-short move on Nongshim Sub and Ottogi. Local institutions are still relatively supportive on Sub. There is no particular move on Sub shorting either. Sub’s 5% loss yesterday shouldn’t be indicative of any structural price correction.
• On a longer horizon (2Y), Holdco is still being undervalued relative to Sub. But this is the first time they are above +2.5σ in 120 days. I expect a quick mean reversion at this point. I’d have a long/short trade with a very short-term horizon. Just, Holdco liquidity can be an issue here again.

In this briefing:

1. A War Between Netflix & Disney = $$$ for Studio Dragon

1. A War Between Netflix & Disney = $$$ for Studio Dragon

• In this report, we provide an update on Studio Dragon (253450 KS), which has been one of the best IPOs in Korea in the past two years. We believe that the stock is well poised to resume its higher share price in the upcoming months driven by a strong line up of new original dramas & movies in 2019. Studio Dragon (253450 KS) is a key beneficiary of the ultra-aggressive push by major global powerhouses such as Netflix and Disney to expand their OTT streaming services and provide “original” Korean drama contents that have the potential to become globally popular. 
• One of the strong competitive weapons of Studio Dragon is that its main script writers including Park Ji-Eun, Kim Eun-Sook, and Kim Young-Hyun are considered some of the best ones in Korea. The top screenwriters at Studio Dragon are women. It is fair to say that an overwhelming percentage of the Korean TV dramas have women as their key target audience. As such, most of the Korean TV dramas tend not to include too much violence. Most of them have intricate relationship based story lines geared towards the female audience.
• Valuation of the company has become more attractive since the highs in the summer of 2018. Studio Dragon (253450 KS) is currently trading at P/E multiples of 35x in 2019E and 26x in 2020E. If we apply the same 35x P/E to next year’s consensus net profit estimate of 99.6 billion won, this would imply a market cap of 3.5 trillion won, which would be 35% higher than current market cap of 2.6 trillion won. Thus, we remain positive on this stock. 

In this briefing:

1. Valuetronics (VALUE SP): Trade War Uncertainty Continues, Downside Supported by Large Cash Position
2. FRETAIL IN
3. Puregold Price Club: Steady Grower with Provincial Expansion Story
4. Nongshim Holdco/Sub Trade: Current Status & Trade Approach
5. Sony: Mispriced, Misunderstood, or Both?

1. Valuetronics (VALUE SP): Trade War Uncertainty Continues, Downside Supported by Large Cash Position

Valuetronics reported its 3Q19 figures this week which showed a 7.5% decline in revenues but a small (+2.6%) increase in bottom line profits. Stronger margins in its ICE segment offset weakness in its CE segment.

Valuetronics Holdings (VALUE SP) remains a solid company run by a good management team with interesting clients in consumer electronics and automotive. The valuation of the company is cheap (5x ex-cash 2019 P/E) and the balance sheet is rock solid.

All these positives are currently being overshadowed by the US-China trade war as the company has 100% of its production in China and does 45.7% of its sales in North-America. While many companies try to downplay the impact of the trade-war Valuetronics cannot hide and the alternatives it is working on to offset the tariff impact will surely cause short-term disruption and increased costs.

YTD the share price is +12% as the market is hoping for a positive resolution to the US-China trade war. Management is cautious on macro political improvements as trade war friction is unlikely to dissipate soon. Given the weak outlook for its CE segment and no significant new customer wins in its ICE segment risk/reward does not seem very attractive despite good dividend yield and cheap valuation.

2. FRETAIL IN

We visit the large format stores of Future Retail (FRETAIL IN) fbb, Big Bazaar and Big Bazaar Gen Next, along with visiting stores run by Future Lifestyle Fashions (FLFL IN) Brand Factory and Central in Ahmedabad, Gujarat to understand some of the drivers behind SSSG of over 10% over the last 15 consecutive quarters. Our regional checks indicate the large format growth might be maintained in the future driven by loyalty programs like Future Pay. Interestingly the group has resorted to using its stores to mobilise funds for its fixed deposits, which could be a final indication that the planned of deal with Amazon.com Inc (AMZN US) is finally being called off.

3. Puregold Price Club: Steady Grower with Provincial Expansion Story

• Conference call with the IR of Puregold Price Club (PGOLD PM) reveals that SSSG grew healthily at 6.5% YoY in 9M18, thanks to personal income tax cut.
• The bigger growth driver is provincial expansion (outside Metro Manila), which would allow PGOLD to achieve mid-teen sales growth.
• There has been little to no sales impact from e-commerce as e-commerce penetration in Philippines is lagging even in the ASEAN context. 
• PGOLD trades at 18.3x 2019E PE, a 15% discount to peers average of 21.6x

4. Nongshim Holdco/Sub Trade: Current Status & Trade Approach

• Nongshim Sub took a beating yesterday. It lost nearly 5%. Holdco stayed flat. This made a 2σ jump. They are now at 253% of σ, nearly 200%p jump from 53% in a single day. It is true that China concerns are again being felt on many Korean F&B stocks. But there is no clear sign that we should seriously worry about Nongshim’s short-term fundamentals.
• Its local rival Ottogi is continuously making strides. But we are yet to see a long-short move on Nongshim Sub and Ottogi. Local institutions are still relatively supportive on Sub. There is no particular move on Sub shorting either. Sub’s 5% loss yesterday shouldn’t be indicative of any structural price correction.
• On a longer horizon (2Y), Holdco is still being undervalued relative to Sub. But this is the first time they are above +2.5σ in 120 days. I expect a quick mean reversion at this point. I’d have a long/short trade with a very short-term horizon. Just, Holdco liquidity can be an issue here again.

5. Sony: Mispriced, Misunderstood, or Both?

• Forward earnings will focus heavily on the debut of PS5, the performance of the new Spider-Man movie and other core content revenue streams for the company this year.
• Some see Sony as coasting on historically successes of the past, others see recent Disney and ATT deals acquiring content competitors, as a prelude to a play on Sony this year.
• Investor pressure to sell or spin off non-content businesses growing due to continued poor performance in mobile and possible profitable departure from semiconductor sector.

In this briefing:

1. Maoyan Entertainment (猫眼娱乐) Post-IPO: The CNY Box Office Catalyst Hasn’t Materialized
2. Stake in Quadric.io Following Renesas; Denso Attempts to Keep Chip Makers Close to Achieve AD Aims

1. Maoyan Entertainment (猫眼娱乐) Post-IPO: The CNY Box Office Catalyst Hasn’t Materialized

We mentioned in our previous note prior to the listing of Maoyan Entertainment on Feb 4th that Chinese New Year (CNY) Box office from the two movies, namely Pegasus and The New King of Comedy that the company invested could be a catalyst post listing. However, our analysis of CNY box office data suggests although Pegasus reported box office revenues slightly north of RMB 1bn, it is far behind the number one movie, The Wandering Earth’s RMB 2bn box office. In addition to the company-specific movie investment, the overall box office for the CNY holiday has been disappointing, suggesting a challenging year for the movie industry in 2019. 

• Entertainment Plus (猫眼娱乐) IPO: The Engineered Movie Ticketing Leader that Runs Out of Steam (Part 1)
• Entertainment Plus (猫眼娱乐) IPO: The Coming Regulatory Bang Isn’t That Bad (Part 2)
• Maoyan Entertainment (猫眼娱乐) IPO: Turning Profitable, Thoughts on Valuation
• Maoyan Entertainment (猫眼娱乐) IPO: Lackluster Demand but CNY Blockbusters Could Be a Catalyst

2. Stake in Quadric.io Following Renesas; Denso Attempts to Keep Chip Makers Close to Achieve AD Aims

It was reported last Thursday that Denso Corp (6902 JP) through its wholly-owned subsidiary NSITEXE, Inc. acquired a stake in quadric.io, a fabless semiconductor start-up company based in Burlingame, California. It seems that the company has begun its planned investments for 2019. Last year, Denso increased its stake (from 0.5% to 5%) in chipmaker- Renesas Electronics (6723 JP) to support its progress of ADAS and related technology. We also mentioned in our insight, Denso Prepares for the Future; Investments in Tohoku Pioneer EG Following JOLED and ThinCI, that Denso has been making a series of investments to prepare itself for being the leading software solution provider alongside its hardware expertise, supporting its change in business model. Last year, NSITEXE invested in ThinCi, its partner, since 2016, in the development of a Data Flow Processor (DFP) designed to help autonomous vehicles make quick decisions in complicated and fast-evolving situations. Denso/NSITEXE’s investment in quadric.io has a similar goal. The investment in quadric.io is said to help the start-up in its development of edge processing units (EPUs), which are high-performance semiconductors that could be used as a foundation for enabling automated driving technology.

In this briefing:

1. FRETAIL IN
2. Puregold Price Club: Steady Grower with Provincial Expansion Story
3. Nongshim Holdco/Sub Trade: Current Status & Trade Approach
4. Sony: Mispriced, Misunderstood, or Both?
5. A War Between Netflix & Disney = $$$ for Studio Dragon

1. FRETAIL IN

We visit the large format stores of Future Retail (FRETAIL IN) fbb, Big Bazaar and Big Bazaar Gen Next, along with visiting stores run by Future Lifestyle Fashions (FLFL IN) Brand Factory and Central in Ahmedabad, Gujarat to understand some of the drivers behind SSSG of over 10% over the last 15 consecutive quarters. Our regional checks indicate the large format growth might be maintained in the future driven by loyalty programs like Future Pay. Interestingly the group has resorted to using its stores to mobilise funds for its fixed deposits, which could be a final indication that the planned of deal with Amazon.com Inc (AMZN US) is finally being called off.

2. Puregold Price Club: Steady Grower with Provincial Expansion Story

• Conference call with the IR of Puregold Price Club (PGOLD PM) reveals that SSSG grew healthily at 6.5% YoY in 9M18, thanks to personal income tax cut.
• The bigger growth driver is provincial expansion (outside Metro Manila), which would allow PGOLD to achieve mid-teen sales growth.
• There has been little to no sales impact from e-commerce as e-commerce penetration in Philippines is lagging even in the ASEAN context. 
• PGOLD trades at 18.3x 2019E PE, a 15% discount to peers average of 21.6x

3. Nongshim Holdco/Sub Trade: Current Status & Trade Approach

• Nongshim Sub took a beating yesterday. It lost nearly 5%. Holdco stayed flat. This made a 2σ jump. They are now at 253% of σ, nearly 200%p jump from 53% in a single day. It is true that China concerns are again being felt on many Korean F&B stocks. But there is no clear sign that we should seriously worry about Nongshim’s short-term fundamentals.
• Its local rival Ottogi is continuously making strides. But we are yet to see a long-short move on Nongshim Sub and Ottogi. Local institutions are still relatively supportive on Sub. There is no particular move on Sub shorting either. Sub’s 5% loss yesterday shouldn’t be indicative of any structural price correction.
• On a longer horizon (2Y), Holdco is still being undervalued relative to Sub. But this is the first time they are above +2.5σ in 120 days. I expect a quick mean reversion at this point. I’d have a long/short trade with a very short-term horizon. Just, Holdco liquidity can be an issue here again.

4. Sony: Mispriced, Misunderstood, or Both?

• Forward earnings will focus heavily on the debut of PS5, the performance of the new Spider-Man movie and other core content revenue streams for the company this year.
• Some see Sony as coasting on historically successes of the past, others see recent Disney and ATT deals acquiring content competitors, as a prelude to a play on Sony this year.
• Investor pressure to sell or spin off non-content businesses growing due to continued poor performance in mobile and possible profitable departure from semiconductor sector.

5. A War Between Netflix & Disney = $$$ for Studio Dragon

• In this report, we provide an update on Studio Dragon (253450 KS), which has been one of the best IPOs in Korea in the past two years. We believe that the stock is well poised to resume its higher share price in the upcoming months driven by a strong line up of new original dramas & movies in 2019. Studio Dragon (253450 KS) is a key beneficiary of the ultra-aggressive push by major global powerhouses such as Netflix and Disney to expand their OTT streaming services and provide “original” Korean drama contents that have the potential to become globally popular. 
• One of the strong competitive weapons of Studio Dragon is that its main script writers including Park Ji-Eun, Kim Eun-Sook, and Kim Young-Hyun are considered some of the best ones in Korea. The top screenwriters at Studio Dragon are women. It is fair to say that an overwhelming percentage of the Korean TV dramas have women as their key target audience. As such, most of the Korean TV dramas tend not to include too much violence. Most of them have intricate relationship based story lines geared towards the female audience.
• Valuation of the company has become more attractive since the highs in the summer of 2018. Studio Dragon (253450 KS) is currently trading at P/E multiples of 35x in 2019E and 26x in 2020E. If we apply the same 35x P/E to next year’s consensus net profit estimate of 99.6 billion won, this would imply a market cap of 3.5 trillion won, which would be 35% higher than current market cap of 2.6 trillion won. Thus, we remain positive on this stock. 

In this briefing:

1. Puregold Price Club: Steady Grower with Provincial Expansion Story
2. Nongshim Holdco/Sub Trade: Current Status & Trade Approach
3. Sony: Mispriced, Misunderstood, or Both?
4. A War Between Netflix & Disney = $$$ for Studio Dragon
5. Maoyan Entertainment (猫眼娱乐) Post-IPO: The CNY Box Office Catalyst Hasn’t Materialized

1. Puregold Price Club: Steady Grower with Provincial Expansion Story

• Conference call with the IR of Puregold Price Club (PGOLD PM) reveals that SSSG grew healthily at 6.5% YoY in 9M18, thanks to personal income tax cut.
• The bigger growth driver is provincial expansion (outside Metro Manila), which would allow PGOLD to achieve mid-teen sales growth.
• There has been little to no sales impact from e-commerce as e-commerce penetration in Philippines is lagging even in the ASEAN context. 
• PGOLD trades at 18.3x 2019E PE, a 15% discount to peers average of 21.6x

2. Nongshim Holdco/Sub Trade: Current Status & Trade Approach

• Nongshim Sub took a beating yesterday. It lost nearly 5%. Holdco stayed flat. This made a 2σ jump. They are now at 253% of σ, nearly 200%p jump from 53% in a single day. It is true that China concerns are again being felt on many Korean F&B stocks. But there is no clear sign that we should seriously worry about Nongshim’s short-term fundamentals.
• Its local rival Ottogi is continuously making strides. But we are yet to see a long-short move on Nongshim Sub and Ottogi. Local institutions are still relatively supportive on Sub. There is no particular move on Sub shorting either. Sub’s 5% loss yesterday shouldn’t be indicative of any structural price correction.
• On a longer horizon (2Y), Holdco is still being undervalued relative to Sub. But this is the first time they are above +2.5σ in 120 days. I expect a quick mean reversion at this point. I’d have a long/short trade with a very short-term horizon. Just, Holdco liquidity can be an issue here again.

3. Sony: Mispriced, Misunderstood, or Both?

• Forward earnings will focus heavily on the debut of PS5, the performance of the new Spider-Man movie and other core content revenue streams for the company this year.
• Some see Sony as coasting on historically successes of the past, others see recent Disney and ATT deals acquiring content competitors, as a prelude to a play on Sony this year.
• Investor pressure to sell or spin off non-content businesses growing due to continued poor performance in mobile and possible profitable departure from semiconductor sector.

4. A War Between Netflix & Disney = $$$ for Studio Dragon

• In this report, we provide an update on Studio Dragon (253450 KS), which has been one of the best IPOs in Korea in the past two years. We believe that the stock is well poised to resume its higher share price in the upcoming months driven by a strong line up of new original dramas & movies in 2019. Studio Dragon (253450 KS) is a key beneficiary of the ultra-aggressive push by major global powerhouses such as Netflix and Disney to expand their OTT streaming services and provide “original” Korean drama contents that have the potential to become globally popular. 
• One of the strong competitive weapons of Studio Dragon is that its main script writers including Park Ji-Eun, Kim Eun-Sook, and Kim Young-Hyun are considered some of the best ones in Korea. The top screenwriters at Studio Dragon are women. It is fair to say that an overwhelming percentage of the Korean TV dramas have women as their key target audience. As such, most of the Korean TV dramas tend not to include too much violence. Most of them have intricate relationship based story lines geared towards the female audience.
• Valuation of the company has become more attractive since the highs in the summer of 2018. Studio Dragon (253450 KS) is currently trading at P/E multiples of 35x in 2019E and 26x in 2020E. If we apply the same 35x P/E to next year’s consensus net profit estimate of 99.6 billion won, this would imply a market cap of 3.5 trillion won, which would be 35% higher than current market cap of 2.6 trillion won. Thus, we remain positive on this stock. 

5. Maoyan Entertainment (猫眼娱乐) Post-IPO: The CNY Box Office Catalyst Hasn’t Materialized

We mentioned in our previous note prior to the listing of Maoyan Entertainment on Feb 4th that Chinese New Year (CNY) Box office from the two movies, namely Pegasus and The New King of Comedy that the company invested could be a catalyst post listing. However, our analysis of CNY box office data suggests although Pegasus reported box office revenues slightly north of RMB 1bn, it is far behind the number one movie, The Wandering Earth’s RMB 2bn box office. In addition to the company-specific movie investment, the overall box office for the CNY holiday has been disappointing, suggesting a challenging year for the movie industry in 2019. 

• Entertainment Plus (猫眼娱乐) IPO: The Engineered Movie Ticketing Leader that Runs Out of Steam (Part 1)
• Entertainment Plus (猫眼娱乐) IPO: The Coming Regulatory Bang Isn’t That Bad (Part 2)
• Maoyan Entertainment (猫眼娱乐) IPO: Turning Profitable, Thoughts on Valuation
• Maoyan Entertainment (猫眼娱乐) IPO: Lackluster Demand but CNY Blockbusters Could Be a Catalyst

In this briefing:

1. Catch-Up Session with Intuch Group

1. Catch-Up Session with Intuch Group

We caught up with Intuch Group this week to check how things were going on with them and their subsidiaries, AIS and Thaicom. It’s good to touch base, since it’s been a while, and many things have changed in the interim:

• Intuch self-congratulated themselves for a narrowing of their discount to NAV from 28% to 20% in 2018 while introducing three new investments and announced the breakeven of their shopping network, a joint venture with Hyundai.
• Wongnai, an online foodie guide and one of Intuch’s largest investments, underperformed our revenue forecast significantly, but managed to post impressive revenue growth nevertheless. While profitable, their rapid expansion also means they are unlikely to meet their own internal profitability expectations.
• Thaicom posted a loss in Q4 and almost non-existent earnings in 2018 largely due to asset impairments, but there is some hope in the future with the government’s various PPP (public-private partnership) schemes mentioned in the meeting.
• AIS, the Group’s flagship company, posted flat earnings of Bt30bn and is in the process of reversing a decline in revenue market share through aggressive push in enterprise and consumer services.