Brief Equities Bottom-Up: Monex Group (8698 JP): Upside Is Unlikely Due to Weak Cryptocurrency Markets and more

In this briefing:

1. Monex Group (8698 JP): Upside Is Unlikely Due to Weak Cryptocurrency Markets
2. GOLD:  Expect FY1Q19 Earnings to Be Bottom Out
3. NYT: Property Tax Expense Pressured 4Q18 Earnings to Its Trough in 2018
4. Manulife US REIT (MUST SP): Strong FY18 NPI Growth Led by Acquisitions

1. 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.

2. 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.

3. NYT: Property Tax Expense Pressured 4Q18 Earnings to Its Trough in 2018

NYT reported 4Q18 net profit of Bt90m (-11%YoY, -24%QoQ), the lowest level in the past eight quarters. The 2018 result was in-line with our forecast.

• A drop in 4Q18 earnings was caused by one-time expense on property tax, which we expected at around Bt10-13m.
• 4Q18 revenue also remained flat at Bt368m (-1%YoY, +3.5%YoY) as number of vehicles that passed through the A5 terminal slightly dropped along the country’s car export unit to 281,853 units (-3%YoY, -5%QoQ).
• The company announced Bt0.30 of annual dividend or equivalent to 5.7% (XD on 3th of May 2019)

We maintain our 2019-20E earnings forecast and still rank NYT as a BUY with a target price of *Bt7.60 based on DCF (8.8%WACC, 1%TG) which implies 20xPE’2019E

*We make no changes to forecast, recommendation, and target price at the time of result announcement.

4. Manulife US REIT (MUST SP): Strong FY18 NPI Growth Led by Acquisitions

Manulife Us Reit (MUST SP) announced a 3.6% year-on-year (y-o-y) growth in adjusted DPU to 6.05 US cents for financial year ended 31 December 2018 (FY18).  Net property income (NPI) for FY18 grew 55.4% y-o-y to US$90.7mn, beating our forecast by 15%. Distributable income grew 51.9% y-o-y to US$71.0mn, mainly due to contributions from the four office properties acquired in 2017 (Plaza and Exchange in New Jersey) and 2018 (Penn in Washington D.C. and Phipps in Atlanta).  The 2H18 distribution of 3.04 US cents per unit will be paid on 29 March 2019. The book closure date is 19 February 2019.

Strong occupancy rate and rental escalation continue to support organic growth

MUST continued to maintain high portfolio occupancy rate of 96.7% and long weighted average lease expiry (WALE) by net lettable area (NLA) of 5.8 years. Leases signed in FY18 resulted in positive rental reversions of 8.9%. Moving forward, the leases expiring in 2019 are minimal while 60.7% of the portfolio’s leases by NLA will only expire in 2023 and beyond. As the majority of MUST’s leases by gross rental income have rental escalations averaging 2.5% p.a., MUST’s gross revenue will continue to enjoy stable organic growth. In addition, MUST’s properties are Class A and Trophy assets in cities where future supply are limited. Majority of its properties have passing rents below market rents, which further supports organic rental growth.

Potential acquisitions remain as key catalysts

MUST’s balance sheet remains strong (aggregate leverage at 37.2%) and it has additional debt headroom of about US$209mn before hitting the maximum regulatory gearing limit of 45%. As its unit price had rebounded from a low in 4Q18, the discount to net asset value (NAV) was removed. Currently trading at about 1.07x P/NAV, MUST may see greater opportunities for potential yield-accretive acquisitions.    

Proposed US Tax Act, 267A Regulations no material impact

The 267A Regulations are still in proposed form but the manager expects that the proposed regulations and the proposed Bardados tax changes will not have any material impact on the net tangible asset (NTA) and DPU of MUST.

Maintain “Buy” with fair value of US$1.04/unit

Valuations remain attractive with FY19F and FY20F yield of 7.1% and 7.2%. From its lowest point of 69.5 US cents in 4Q18, MUST’s unit price had rebounded about 23%, outperforming the FTSE ST Real Estate Investment Trusts Index. We maintain our BUY recommendation with a higher fair value of US$1.04, implying a 21% upside from the current price (coverage initiated on 16 Nov 2018). Reversing from a position of discount to net asset value to the current 1.07x P/NAV, , MUST may see greater opportunities in making yield-accretive acquisitions. Fair value is derived based on the dividend discount model with a required rate of return of 9% (using U.S. 10-year risk free rate of 2.64%) and a terminal growth rate of 1.5%.