In this briefing:
- NCsoft – A Strategy for Trading in 1H 2019
- AAC Tech (2018): Damage Is Done While Business Remain Intact – BUY
- Shaily Engineering-Q2FY18 Results Update
- MonotaRO (3064 JP): Strong Finish to FY Dec-18
- CCL Products Q2 FY19 Results Update- Moving up the Value Chain as Expected
1. NCsoft – A Strategy for Trading in 1H 2019
In this report, we will explain our strategy for trading NCsoft Corp (036570 KS) shares in 2019. NCsoft is expected to launch five new mobile games in 2019 including “Lineage 2M”, “AION 2”, “Blade & Soul 2”, “Blade & Soul M”, and “Blade & Soul S”. These five new games are based on its existing MMORPG franchise games. The company is hoping to release all five of these new mobile games in 1H 2019.
Lineage 2M, which is perhaps the most anticipated mobile game among these five games, is expected to be launched in 2Q19. Traders are starting to gear up for the launch of this important game in the coming months. Many investors are likely to take the “buy on rumor and sell on news” strategy, which in this case the news would refer to the launch of the Lineage 2M game.
Nonetheless, in this case, we believe that because many investors may be getting ready to sell NCsoft near the launch date of Lineage 2M, many savvy investors are likely to sell their shares a few days/weeks earlier than the actual launch date. At this point, the most likely period as to when Lineage 2M may be launched is in May 2019. As a result, a good time to consider selling NCsoft may be sometime in March/April 2019.
2. AAC Tech (2018): Damage Is Done While Business Remain Intact – BUY
The recent trade talk meeting between the US and Chinese government went into an extended unplanned third day which could be seen as a positive development – a sign that both sides are serious on getting a deal done. President Trump’s recent tweet citing “”Talks with China are going very well!” has been responded positively in Asian equities market. Is it all just that or are there more in the company?
3. Shaily Engineering-Q2FY18 Results Update
Shaily Engineering Plastics (SHEP IN) Q2 FY19 results were below our expectations. While revenue increased by 10% YoY, PAT declined by 9% YoY in Q2 FY19. This muted performance was primarily due higher raw material prices and a shortage of labour as well as power outage that resulted in low machine utilization. We analyze the results.
4. MonotaRO (3064 JP): Strong Finish to FY Dec-18
In the three months to December, MonotaRO’s domestic (parent company) sales continued to grow at an annual rate close to 25%, indicating that full-year consolidated results should be close to management’s guidance and our own estimates. This also suggests that our 18% sales growth forecast for 2019 could be conservative.
Parent company data for December show sales up 18.4% year-on-year in nominal terms, but up 24.6% when adjusted for the number of working days in the month. The figures for November were 27.3% growth in nominal terms, but 21.3% adjusted.
In the three months to December, adjusted sales were up 24.2%, a slight improvement from 23.9% growth in 3Q. In FY Dec-18 as a whole, reported parent company sales were up 24.4% to ¥105.3 billion, slightly exceeding management’s ¥104.1 billion guidance.
At ¥2,523 (Friday, January 11, close), the shares have dropped 25% since October. They are now selling at 61x our EPS estimate for FY Dec-18, 54x our estimate for FY Dec-19 and 47x our estimate for FY Dec-20. Price/sales multiples for the same three years are 5.7x, 4.8x and 4.2x.
Consolidated results for FY Dec-18 are due to be announced by the end of January.
MonotaRO is the only pure-play e-commerce MRO (Maintenance, Repair and Operation) investment in the Japanese stock market. With over 10,000 SKUs (stock keeping units – i.e., individual items, including gloves, hand and power tools, hardware, painting supplies, etc.) for sale to construction companies, manufacturers, auto repair shops and other customers, the company is both driving and benefitting from the growth of Japan’s B2B MRO market. Overseas subsidiaries in South Korea, Indonesia and China, which account for about 4% of consolidated sales, are not yet profitable.
5. CCL Products Q2 FY19 Results Update- Moving up the Value Chain as Expected
Ccl Products India (CCLP IN) Q2 FY19 results were beyond our expectations. Although the revenues declined by 2% YoY in Q2 FY19 due to lower realization as the green coffee prices have declined by near 20% YoY in Q2 FY19, PAT increased by 41% YoY (against our expectation of 20% YoY growth) due to higher capacity utilization and improving share of value added products in the revenue mix.
We analyze the results.
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