Brief Equities Bottom-Up: JD.com (JD): The Real Main Business Grew 46% YoY, and Not 20% YoY in 4Q2018 and more

In this briefing:

1. JD.com (JD): The Real Main Business Grew 46% YoY, and Not 20% YoY in 4Q2018
2. Optorun (6235) Orders Bottoming and 5G Will Benefit the Company Considerably. BUY
3. SGP: Ready for New Growth Cycle
4. Sea Ltd: Further Share Re-Rating After a 35% Daily Gain? Why Not?
5. Notes from the Silk Road: Smartgroup Corporation Ltd (SIQ.AX) – Multiple Expansion Potential

1. JD.com (JD): The Real Main Business Grew 46% YoY, and Not 20% YoY in 4Q2018

• We believe the real main business line is service (commission), but not product (direct sales).
• In 4Q2018, service revenues grew by 46% YoY, but nominal main business line, product, grew only 20%.
• JD raised its commission rate in 2018, as demonstrating  that the company still has the bargaining power over retailers.
• Historical GMV numbers suggest significant upside.

2. Optorun (6235) Orders Bottoming and 5G Will Benefit the Company Considerably. BUY

Given the slowdown in Apple orders, which are only part of the story here, the shares have been a dreadful performer. They have underperformed TOPIX by 40% over the last 12 months and are 40% off their July 2018 high. They now trade on 11x this year’s numbers (and yield 2.7%), which we believe to be conservative. With the roll out of 5G orders next year will surely be up as well. We would buy at current levels.

3. SGP: Ready for New Growth Cycle

We initiate coverage of SGP with a BUY rating and a 2019E target price of Bt14.00, derived from 10.9x PE’19E, which is +0.5 SD of its 3-year trading average. We believe that a new growth cycle is poised to act as a re-rating catalyst.

The story:

• Regional LPG player with upstream transportation network
• New businesses to drive new growth cycle
• LPG price set to bottom out
• Expected earnings to recover in 2019E

Risks: 

             Currency  fluctuation

             Raw material price fluctuation

             Overseas investment failure

4. Sea Ltd: Further Share Re-Rating After a 35% Daily Gain? Why Not?

• The biggest positive surprise from Sea Ltd’s (SE US) conference call is strong 2019 adjusted sales guidance: 82%-97% YoY growth for Garena (digital entertainment division) and 117-127% YoY growth for Shopee (e-commerce arm).
• Management expects first positive quarterly EBITDA for Shopee Taiwan operations in 1Q19, indicating there is a path to profitability for Shopee’s business model.
• Another great news: management expresses high confidence that Shopee’s S&M expenses in terms of absolute dollars would trend down in 2019, vs. 2018.
• After a 35% daily share gain on 27 Feb, SE trades at 4.1x 2019E P/adjusted revenue excl. 1P sales, yet still a whopping 49% discount to Pinduoduo’s (PDD US) 8.1x P/S.

5. Notes from the Silk Road: Smartgroup Corporation Ltd (SIQ.AX) – Multiple Expansion Potential

Whilst Smartgroup Corporation Limited (SIQ) has reported a  solid set of 2018 earnings, the real story is not the results, but the outlook.

We examine the potential for the company to simply deliver a multiple expansion. If SIQ succeeds with some further consolidation of acquisitions. The potential for this Event-driven upside is significant if this is combined with additional earnings trends. 

Furthermore, the stock rank system which the company is benchmarked against suggests potential to post an upgrade, which inevitably fuels share price performance.