In this briefing:
- Parco: 4 New Shopping Centres This Year, 28% Rise in Revenue in 5 Years to 2021
- Hana Financial: Hand It to Hana
- Fujimi (5384 JP): Silicon Slow, HDD & Industrial Down in 3Q
- NTT Corp: The Rising Dividend Story Is Playing Out.
- Valuetronics (VALUE SP): Trade War Uncertainty Continues, Downside Supported by Large Cash Position
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. Hana Financial: Hand It to Hana
Fundamental trends at Hana Financial (086790 KS) are benign and stand out within South Korea’s improving and deep value banking universe. Key metrics/signal at 12M18 positive fundamental momentum and value-quality trends embodied in a high PH Score™.
Hana is an important constituent of South Korea’s Banking Sector, holding approximately 13% of the system total loans, 15% of deposits and about 40% of the nation’s trade finance due to the bank’s entrenched foreign-currency clearing system. This valuable franchise is backed by strengthening capitalisation, improving asset quality after a difficult period for banks grappling with corporate exposures, and discrete gains on Efficiency and Profitability post sizeable merger and integration costs.
Corporate governance remains an issue to monitor after the nepotism scandal of recent years and was covered by Douglas Kim last year.
Having said that, Hana is a slightly higher risk than peers with a HY profile given its default rating.
Shares of Hana are attractively priced, trading on earnings and dividend yields of 19% and 3.8%, respectively, a dividend-adjusted PEG factor of 2x, a P/B of 0.47x, and a franchise value of 5% with the tailwinds of a quintile 1 PH Score™. In line with regulatory change regarding higher DPRs, Hana will raise its dividend payout ratio to 25.5% in 2019 from 22.5% in 2018.
3. Fujimi (5384 JP): Silicon Slow, HDD & Industrial Down in 3Q
Fujimi’s sales and operating profit increased by only 1.2% and 2.3% year-on-year, respectively, in the three months to December. Sales of hard disc and industrial polishing materials declined. Sales of silicon wafer lapping and polishing materials, and CMP slurry, continued to rise, but at slower rates than in 2Q.
Full-year FY Mar-19 guidance was left unchanged, implying year-on-year declines in both sales and profits in 4Q. We believe that guidance is conservative, but we also expect the slowdown to continue.
At ¥2,368 (Wednesday, February 13, closing price), the shares are selling at 13.3x our EPS estimate for FY Mar-19 and 12.7x our estimate for FY Mar-20. These and other projected valuations are not at the bottom of their historical ranges, but should be low enough to support the share price as long as a U.S.-China trade deal – and, therefore, the implementation of deferred investment plans – seems likely.
4. NTT Corp: The Rising Dividend Story Is Playing Out.
As we wrote about in Preference for NTT Retained on Its Commitment to a Substantial Long Term Profit Increase, we like the long term story at NTT (Nippon Telegraph & Telephone) (9432 JP) given its relatively low payout ration, long term opportunities for cost reductions as their workforce shrinks through retirements. While government action and the announced price cuts announced by NTT Docomo Inc (9437 JP) hurt sentiment to the sector in 2H18, Chris Hoare remains positive. The recent 3Q results were decent with the key positives being a rising dividend and strong cash flow growth which is in line with our long term positive thesis on the stock. We remain Buyers with a target price of ¥7,150.
5. 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.
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