In this briefing:
- PLANB: Moving Forward with VGI, the Outdoor Media Tycoon
- China Meidong (1268 HK): +59% YTD After Strong FY18 Results and Positive Outlook; Now Fairly Valued
- NTT DoCoMo: Sale of HTHK Mobile Stake Is the End of an Era (Thankfully)
- China Minsheng: Unless There Is Opposing Wind, a Kite Cannot Rise.
- Rakuten IPO Redux: Pinterest Surfaces More Liquidity but Not Paper Profits
1. PLANB: Moving Forward with VGI, the Outdoor Media Tycoon
We maintain PLANB with a BUY rating with the target price of Bt8.30 derived from 1.5xPEG’2019E of Thai consumer discretionary sector, which implies to 36xPE’19E.
The story:
- Collaboration among the leaders in OOH industry
- Revising down EPS in 2019-21E by 9-11% due to dilution effect
Risks: Obstacles for renewing concession contracts with state-owned enterprises along with falling consumer spending and a share-price dilution effect on the back of then generally mandated raise in capital.
2. China Meidong (1268 HK): +59% YTD After Strong FY18 Results and Positive Outlook; Now Fairly Valued
China Meidong Auto (1268 HK) has been a great success story for its investors in the last two years. I first wrote about the company in May 2017 when shares were trading at 1.53 HKD. This week shares traded over 4.7 HKD. While the share price has gyrated wildly the past 24 months the underlying earnings of the company have been increasing steadily and shareholders have been rewarded with solid dividends.
FY18 results were released last month which showed strong growth in revenues (+44%) and net profits (+31%). With the importance of Lexus and Porsche increasing, FY19 should be another year of growth. The performance of BMW remains a wild card.
With the stock up 59% YTD shares are now fairly valued and trading at a 30% premium to its peers. Meidong remains a long-term favorite but has now exceeded my fair value estimate of 4.4 HKD (10x 2019 EPS). I suggest waiting for a better entry point.
3. NTT DoCoMo: Sale of HTHK Mobile Stake Is the End of an Era (Thankfully)
NTT Docomo Inc (9437 JP) recently announced it would sell its 25% stake in Hutchinson Telecom Hong Kong’s ( Hutchison Telecommunications Hk Hld (215 HK) mobile unit for US$60mn with closing expected at the end of May. This ends a 20-year association with Hutchinson forged in the initial excitement over 3G in 1999 but it hasn’t been a good ride for DoCoMo which lost close to 90% on its Hutchison investments and its other international forays were not much better. On a related note, the HK mobile sale follows soon after DoCoMo’s exit from its credit card joint venture with Sumitomo Mitsui but we would not read anything into this beyond a rationalization of its non-core investments.
4. China Minsheng: Unless There Is Opposing Wind, a Kite Cannot Rise.
Profitability at China Minsheng Banking A (600016 CH) in 2018 slipped. Similar to other Chinese lenders, rising Loan Loss Provisions exerted a negative pull on the bottom-line, testament to gnawing Asset Quality issues. In addition, similar to some banks, the top-line came under pressure from the rising cost of source of funding. Also the bank was not alone in juicing up its bottom-line with hefty trading gains. Thus Earnings Quality could have been better.
Given the underlying squeeze on core Income, it was encouraging to see management at least restrain OPEX.
Regarding Asset quality, write-offs soared by 153% YoY while substandard and loss Loans jumped by 68% YoY and 14%, respectively, and Loan Loss Provisions rose by 35.6% YoY. It is perhaps a little surprising then that coverage ratios decreased given the trend in credit costs, NPL migration, and charge-offs.
LDR remains quite high though credit growth last year was not gung-ho and broadly in line with Deposit expansion. We do note though a ratcheting up of CRE lending which jumped from 8.8% of the total Loan book to 12.3%.
Shares do not appear optically dear: the bank trades on a P/Book, FV, Dividend and Earnings Yields of 0.7x, 9%, 5.2% and 17.4%, respectively. However, we see better quality value elsewhere, in particular at “The Big Four” which can be termed safer Income opportunities.
5. Rakuten IPO Redux: Pinterest Surfaces More Liquidity but Not Paper Profits
Rakuten Inc (4755 JP) investee Pinterest Inc (PINS US) has filed its IPO prospectus implying a lower valuation than its last venture round but a robust increase in value since Rakuten led the Series C round in May 2012. We think an initial ¥4bn investment could be worth ¥25-30bn at the midpoint of the suggested IPO range.
- As with Lyft, the absolute value again and shift to greater liquidity are positive as it gives Rakuten more financial flexibility as it ramps up investments in the mobile business.
- Unlike Lyft, the Pinterest IPO value is down from the latest funding round which impacts paper profits that provide cover for spending on mobile albeit at a fraction of the upside from Lyft.
Pinterest doesn’t generate the same headlines as Lyft but a second IPO of a Rakuten investment as its cash needs expand can only be good news
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