Brief Equities Bottom-Up: SBS (2384) A Great Third Party Logistics Company Seeing Good Organic Growth as Well as Via M&A. and more

In this briefing:

1. SBS (2384) A Great Third Party Logistics Company Seeing Good Organic Growth as Well as Via M&A.
2. Drill Results Confirm High-Grade Mineralisation (Flash Note)
3. Mexican Banks – Near Term Relief on Fees from the ABM Convention; Thoughts on January’s Bank Data
4. A Reality Check for Money Forward (3994 JP): Key Takeaways from Our Recent Visit
5. Small Cap Diary: Rajthanee Hospital, CAZ

1. SBS (2384) A Great Third Party Logistics Company Seeing Good Organic Growth as Well as Via M&A.

It is seeing decent organic growth, led by a focus on third party logistics (3PL). This will carry on. The recently acquired Ricoh Logistics should eventually see margins improve as it is integrated into SBS. This year’s operating profit forecast of Y9bn (+10%) is conservative. An increase of Y1bn this year will come from Ricoh Logistics alone, and then we have organic growth. In our view operating profit will be at least Y10bn. There is the unrealised profit on land, which add some Y85bn to a company whose market cap is Y71bn. Despite the outperformance over the last 12 months, this remains a decent long-term domestic buy, and one in which foreigners still own only 12%. The shares trade on 13x 12/19 assuming an operating profit of Y10bn. 

2. Drill Results Confirm High-Grade Mineralisation (Flash Note)

• Significant thick, high-grade Zn/Pb intersections with substantial by-products
• X-sections highlight ore thickness variability
• On schedule for maiden Resource mid-June incorporating both S. Nights and Wagga Tank
• Current drill programmes to be completed within a month
• Employing VMS structural and geochemical specialists for future exploration vectoring
• Maintain Speculative Buy Recommendation

3. Mexican Banks – Near Term Relief on Fees from the ABM Convention; Thoughts on January’s Bank Data

• The Mexican president Andres Manuel Lopez Obrador (AMLO) announced at the annual Mexican bank association (ABM) convention on the 22nd March that there would be no cap or regulatory-enforced reduction in Mexican banking fee and commission charges
• AMLO stated that he expects fees to decline going forward, as a result of increased competition between banks; in the ABM convention, it was also announced that banks will charge zero commissions on the planned platform for digital payments
• This seems a better outcome on fees than the market expected – at least in the near term, as fees are still on the political agenda – and there was greater emphasis at the convention on how to achieve increased financial inclusion, via digital banking initiatives
• Yet we still believe that bank fees could be a bone of contention over the medium term, and we show the FY 2018 ratio of fees to revenues and to assets for eight banks, in the charts below
• The January 2019 Mexican banks data implies slower system loan growth going forward, yet credit quality remains healthy and credit spreads are holding steady
• Despite the volatile global markets, in the short term banks like Grupo Financiero Banorte-O (GFNORTEO MM) could benefit from the “fee relief”; longer term, we would highlight Gentera SAB De CV (GENTERA* MM EQUITY) as an attractive fundamental pick in Mexican banks

4. A Reality Check for Money Forward (3994 JP): Key Takeaways from Our Recent Visit

In our previous note, Money Forward (3994 JP): Solid Mid-Term Prospects for the Fintech Pro, but Overvalued, published July last year (2018), we suggested that Money Forward (3994 JP) (MF) was overvalued despite its strong growth profile. MF’s share price, which was at an all-time high (close to JPY6,000) around this time, fell below its IPO price (JPY3,000) in December, reinforcing our bearish view.

Since then, Money Forward’s share price has picked up (closing at JPY4,400 on 26th March 2019), on the back of strong topline guidance for FY11/19E (+55%-65% YoY growth) and “aggressive” medium-term profit targets (positive EBITDA by FY11/21E).

However, following our recent conversation with MF’s IR team, we believe that the above guidance needs to be slightly toned down.

5. Small Cap Diary: Rajthanee Hospital, CAZ

We visited two small-cap companies from totally different industries today. These are the key highlights.

• Rajthanee Hospital, a small hospital chain based in Ayuthya, achieved 15.7% revenue growth CAGR since 2016 on the back of its proximity to industrial estates.
• CAZ has seen its backlog double to Bt2.5bn largely due to its good relations with major clients (PTT) and partners (Samsung and other Korean chaebol), which dole out projects in the oil & gas sector to it.
• Internally, CAZ follows a sophisticated cost control method sporting bar codes and GPS to track materials and dedicated cost-control staff.