Daily Equities Bottom-Up: Aarti Industries-Q2FY19 Results Update and more

In this briefing:

1. Aarti Industries-Q2FY19 Results Update
2. Wonderla- Q2FY19 Results Update
3. Shemaroo Q2 FY 18 Results Update
4. Indonesia Banks – Exceptional ROA Still Unrecognized at PT BFI Finance
5. Pasona Non-Grata

1. Aarti Industries-Q2FY19 Results Update

Aarti Industries (ARTO IN) Q2 FY19 results were beyond our expectations, as the revenues grew by 46% YoY and net profit increased by 57% YoY against our expectation of 15% and 20% YoY growth in sales and PAT. This robust result was due to improving capacity utilization, rupee depreciation and expanding contribution of higher value products.

Based on the recent developments we have revised our estimates wherein we expect sales and PAT CAGR of 18% and 22% from FY18-20e.

We analyze the results.

2. Wonderla- Q2FY19 Results Update

Wonderla Holidays (WONH IN) Q2 FY19 results were below our expectations. While revenues declined by 16% YoY, EBITDA decreased by 18% YoY in Q2 FY19. The impact was primarily from its Kerala based amusement park that got affected by the devastating flood that the state has witnessed after a gap of near 100 years. We analyze the result.

3. Shemaroo Q2 FY 18 Results Update

Shemaroo Entertainment (SHEM IN) Q2 FY19 results were in line with our expectations. While the revenues grew by 21% YoY due to a strong growth from the digital business along with a strong recovery in the traditional business post demonetization and GST impact, PAT also grew by 22% YoY in Q2 FY19. We analyze the result.

4. Indonesia Banks – Exceptional ROA Still Unrecognized at PT BFI Finance

PT BFI Finance Indonesia (BFIN IJ) has the second highest ROA of all 107 banks and finance companies in our Indonesia database, at 8.2% as at 2017. It is a specialty lender, focussing on leasing and consumer financing. It provides financing for new cars, used cars, motorcycles through dealers and sales representatives, consumer loans and investment leasing for new and used heavy equipment, trucks, medical devices and machinery. The range of sectors in which its clients operate includes mining, trading, construction, services, agriculture, manufacturing, transportation and infrastructure. As at 3Q18 approximately 60% of lending is consumer finance or collateralized lending, with the remainder including vehicle financing and lease financing. BFIN is the old PT Bunas Finance, before changing its name in 2001. The company stands out in Indonesia and in Asia on a multitude of variables. Its ROA last year was 8.6x higher than the full industry average in Indonesia, and even outside this profitable banking market, there are few that compare. The company appears unrecognized despite consistently superior operating metrics, perhaps due to limited analyst coverage (two analysts) and low market capitalization (US$682m). This can create an opportunity. 

5. Pasona Non-Grata

PASONA NON-GRATA

Source: Japan Analytics

ROUND TRIP – Temporary staffing company Pasona (2168 JP)‘s shares have completed a year-long ’round trip’ after reaching Overbought territory one year ago following the launch of an ‘engagement campaign’ by the activist investor, Oasis. In May 2018, the company took advantage of its elevated share price to sell 2.3m shares (of which 2m were Treasury Shares), prompting a sharp correction in the share price. In recent months, the shares have languished as the company’s business performance has begun to deteriorate, reaching an 18-month low of 1,008 on 25th December, before rebounding 12% to close the year at ¥1,126.

HOLDCO DISCOUNT – According to the Smartkarma HoldCo Monitor, Pasona has the largest ‘ListCo as a % of Market Cap’ percentage at 365%, and the second-largest ‘Discount to Net Asset Value’ (78%) of the 77 companies that are tracked. With Pasona’s interim results due to be released on Friday 11th, January, the Insight will look at the company’s recent business performance, offer some guidelines for valuing the company and make two stock-specific recommendations. The format follows that of our recent Insight on GMO Internet.