Daily Equities Bottom-Up: Intel Touts 3D Logic Scaling, Chiplets & Hybrid Design To Extend Moore’s Law and more

In this briefing:

1. Intel Touts 3D Logic Scaling, Chiplets & Hybrid Design To Extend Moore’s Law
2. Sea Ltd: A Surprise Winner in Cut-Throat E-Commerce Battle?
3. Discover SZ/​SH Connect: Foreigners Were Buying Industries and Financials in December
4. LG Uplus: Two Key Catalysts in 2019 (5G Roll-Out & Potential Acquisition of CJ Hellovision)
5. Jeans Mate Posts a Profit at Last

1. Intel Touts 3D Logic Scaling, Chiplets & Hybrid Design To Extend Moore’s Law

During an invitation-only Architecture Day held on December 11’th 2018,  Intel revealed three key strategies aimed at extending Moore’s Law. The first, 3D Logic packaging, aims to increase effective transistor density by scaling up rather than down, similar to the CoWoS technology introduced by Taiwan Semiconductor in 2012. The second, switching to multiple, smaller “chiplet” processor cores, is required to address the thermal and yield challenges precipitated by the progression of ever larger multi-core monolithic processor die and is the key foundation underpinning Advanced Micro Devices‘s Zen-based architecture. The third is a hybrid architecture aimed at reducing power consumption and clearly reminiscent of ARM’s big.LITTLE approach which was first introduced some six years ago and now widely used today in smartphone and tablet SOCs. 

At the event, Intel showcased their first product based on these three key concepts and it features a large Core processor combined with four smaller Atom processors, all manufactured on the same piece of silicon, an approach the company refers to as Hybrid x86. Intel confirmed that it will be the basis for a new line of products set to launch in the second half of 2019.

They say that imitation is the sincerest form of flattery and, based on what Intel had to say at its Architecture Day, TSMC, AMD and ARM will likely be flattered in equal measure. 

2. Sea Ltd: A Surprise Winner in Cut-Throat E-Commerce Battle?

• A big takeaway from our conversations with Indo e-commerce industry sources is that they vouch for Shopee’s (Sea Ltd’s (SE US) e-commerce arm) MS gains story in the country.
• Indo e-commerce market has been enjoying super growth period (94% CAGR in 2015-18E) despite three major challenges (logistics, payment and highly subsidized market).
• With SE’s fund raising a matter of when, not if (2H20 as most likely timetable), Shopee’s tremendous progress in key metrics (MS, take rate) provides comfort.
• Assuming fair valuation of US$3 bn (vs. US$1.4 bn implied in SE’s ADR price) for Shopee, 12-mo PT for SE works out to be US$15.73/ADR, representing 43% upside potential.  

3. Discover SZ/​SH Connect: Foreigners Were Buying Industries and Financials in December

In our Discover SZ/SH Connect series, we aim to help our investors understand the flow of northbound trades via the Shanghai Connect and Shenzhen Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by offshore investors in the past seven days.

We split the stocks eligible for the northbound trade into three groups: those with a market capitalization of above USD 5 billion, and those with a market capitalization between USD 1 billion and USD 5 billion.

We note that offshore investors were buying industries and financials in December. Interesting stocks in the north bound trades are Han’S Laser Technology In A (002008 CH), Muyuan Foodstuff Co Ltd A (002714 CH) and  Hangzhou Tigermed Consulting (300347 CH) . 

4. LG Uplus: Two Key Catalysts in 2019 (5G Roll-Out & Potential Acquisition of CJ Hellovision)

• LG Uplus Corp (032640 KS) was a clear market winner in 2018 as the stock was up 26% last year versus KOSPI which was down 17%. We think that LG Uplus is likely to continue to outperform the market over the next 12 months. There are many catalysts with this stock but the two most important catalysts on this stock over the next 12 months include the 5G roll-out and the potential acquisition of Cj Hellovision (037560 KS). 
• LG Uplus experienced a breakout year in 2013 with a steep increase in its share price. LG Uplus’ wireless ARPU increased 13.6% YoY in 2013, driven by higher ARPU 4G/LTE subscribers, which jumped from 4.4 million at end of 2012 to 7.1 million at end of 2013. Similar to the positive impact that the roll-out of 4G services had on LG Uplus’ wireless service ARPU and its share price, we believe that the roll-out of 5G services will have a positive impact on the company’s ARPU and its share price in 2019 and 2020. 
• At current price of 9,060 won for CJ Hellovision (market cap of 702 billion won), the EV is 1.3 trillion won, which would suggest an EV/EBITDA of 3.9x, using an estimated EBITDA of 272 billion won. If we double the value, the EV/EBITDA multiple would spike to 7.4x. LG Uplus is currently trading at 4.0x EV/EBITDA using 2018 consensus EBITDA estimates. Although it is a normal practice to pay a significant premium in Korea for an acquisition of a large controlling stake in a company, LG Uplus is probably analyzing on every angle to see if it is worth it paying a hefty 7.4x EV/EBITDA multiple for CJ Hellovision. 

5. Jeans Mate Posts a Profit at Last

While Rizap Group (2928 JP) has seen its share price crash and its CEO bow in apology after profit warnings and a plan to radically cut back on M&A, Jeans Mate Corp (7448 JP), which Rizap acquired last year, has quickly moved to modernise stores. It has just replaced its Shibuya store with a new concept called JEM that could mean the end of the Jeans Mate name altogether and posted its first operating profit in years. While many of Rizap’s acquisitions were dubious, Jeans Mate is one business that could be turned around into a modestly successful casual apparel retailer.