In this briefing:
- A War Between Netflix & Disney = $$$ for Studio Dragon
- Muthoot Finance – Top ROA Lender, with 116 Tons of Gold!
- Catch-Up Session with Intuch Group
- Monex Group (8698 JP): Upside Is Unlikely Due to Weak Cryptocurrency Markets
- GOLD: Expect FY1Q19 Earnings to Be Bottom Out
1. A War Between Netflix & Disney = $$$ 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.
2. Muthoot Finance – Top ROA Lender, with 116 Tons of Gold!
India’s non-banking finance company (NBFC), Muthoot Finance (MUTH IN; “MTF”), lends against gold, arguably the best collateral of all. Its gold jewelry kept as security is up from 147 tons to 166 tons, from December 2016 to December 2018. This may be one reason that the company’s bad loans are low, not only in an India context, but in Asia. Its stage three loans surged after demonetization peaking in December 2017 at INR21.5bn. Since then, figures have fallen sharply, to INR6.4bn as at December 2018. As a percentage of loans, stage three loans declined from 7.6% to 2.0% over this period. With credit costs and write-offs down 96% during 9M19 YoY, credit metrics appear healthy.
3. 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.
4. Monex Group (8698 JP): Upside Is Unlikely Due to Weak Cryptocurrency Markets
In our previous note, Monex Group (8698 JP): Weak Fundamentals Deter the Possibility of a Further Upside, we suggested that despite the partial resumption of Coincheck’s services, further upside for Monex Group Inc (8698 JP) is unlikely due to weak cryptocurrency markets.
Since then, Monex’s share price (which was around JPY500 in mid-November 2018) has fallen to JPY367 as of 8th February 2019. This is only marginally above the pre-acquisition (of Coincheck) price of JPY344 (on 2nd April 2018). In the meantime, Bitcoin (XBTUSD CURNCY) has also fallen from around USD6,000 in mid-November to around USD3,500 at present.
We maintain our previous direction for Monex as we believe that upside is unlikely in the short run unless there is a significant improvement in cryptocurrency market conditions, despite the resumption of most of Coincheck’s services and Monex’s share price falling almost to the pre-acquisition (of Coincheck) level.
5. GOLD: Expect FY1Q19 Earnings to Be Bottom Out
GOLD reported FY1Q19 net profit of Bt459m (-26%YoY, -13%QoQ), the lowest in past six quarters. The FY1Q19 result was 21% of our full-year forecast and 10% lower than our forecast.
- The disappointed FY1Q19 result (ending Dec 18) was mainly due to flat sales from real estate at Bt3.76bn which contribute 89% of total sales. Meanwhile, gross margin also fell to 30.4% compared to 32.3% in FY1Q18 due to higher marketing cost. We expect FY1Q19 earnings to be the bottom out as the company adjusted down unit selling price in order to boost sales during the last quarter last year.
- We maintain our positive outlook toward its FY2019-20 performance and beyond driven by new projects and upside from sale of FYI CENTER to GVREIT and operate the Sam Yan Mitrtown large mixed-use complex.
We maintain our forecast and BUY rating with a target price of Bt15 based on 13xPE’19E.
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