Brief Equities Bottom-Up: Robotics Earnings: Nabtesco and HDS Results Strong; Still No Reason to Own Fanuc and more

In this briefing:

1. Robotics Earnings: Nabtesco and HDS Results Strong; Still No Reason to Own Fanuc
2. A War Between Netflix & Disney = $$$ for Studio Dragon

1. Robotics Earnings: Nabtesco and HDS Results Strong; Still No Reason to Own Fanuc

Following a long period of weakness, robotics related stocks are displaying stronger performance recently as 3Q results have come in weak, but generally done so with management reassurances that this is the bottom.

We had been negative on the sector for some time before turning more constructive in mid January following Yaskawa’s earnings. We concur with the general messaging that this is the bottom based on our analysis of order levels for the companies and regional trend breakdowns. We do not expect a particularly sharp rebound in orders and sales in the near future and believe there is still some risk of these stocks returning toward the lows over the course of the year. However, we believe that the next significant move should be upwards and longer term investors should be looking for entry timings.

2. 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.