In this briefing:
- Panasonic Is Bonding with Toyota- A JV Plan for 2020
- China Meidong (1268 HK): Standout Story in Gloomy Auto Dealership Sector; Luxury Brands Outperform
- Tosei (8923) An Undervalued and Depressed Japanese Property Developer.
- Golden Agri: Reduced Risk of El Niño Pushes Out CPO Price Recovery into 2020
- A Bear Investment Case for TSMC (In-Depth Version)
1. Panasonic Is Bonding with Toyota- A JV Plan for 2020
It seems that Panasonic Corp (6752 JP) is planning for long term growth by concentrating on building its relationship with Toyota Motor (7203 JP) while witnessing its key customer, Tesla Motors (TSLA US), drifts away. Toyota and Panasonic are in discussion to form a JV by 2020E with the aim of mass manufacturing EV batteries with possible benefits from cost-cutting efforts. We mentioned in Tesla Drifting Away Could Leave Panasonic Struggling to Gain Traction in China, that Tesla is looking for Chinese local players to source its factory in China upon the refusal from Panasonic to join hands with them in investing in their Chinese factory. Panasonic, which seemed to have felt the pressure mounting from Tesla potentially distancing itself from them, given that the majority of their battery sales are currently dependent on Tesla, is now preparing itself for the future by building long terms plans with its not-so-new customer, Toyota. Panasonic entered a partnership agreement with Toyota back in 2017 to develop EV batteries including their traditional prismatic batteries while also aiming to develop new battery solutions for the growing and evolving EV market. Thus, its plan to form a JV with Toyota by 2020E displays the confidence Panasonic has in Toyota while also indicating that the former is paving a path for some steady growth in its battery business being supported by one of the leading automakers.
2. China Meidong (1268 HK): Standout Story in Gloomy Auto Dealership Sector; Luxury Brands Outperform
China Meidong Auto (1268 HK) has been on a rollercoaster ride in 2018. The stock price of Meidong started 2018 around 2.7 HKD and recently has been trading around 2.9 HKD.
Nice and steady ride? Not exactly, as it has swung from 4.3 HKD in June to 2.6 HKD in August. After analyzing how NPAT estimates evolved over the past year there should be no justifications for these wild swings.
Meidong is likely to report solid FY18 results by late March vs industry peers which are expected to report a weak 2H18. While BMW dealers have been reportedly suffering in China during 2018, Meidong was fortunate to have other luxury brands pick up the slack.
FY19 should be another growth year for Meidong as 1) recently acquired BMW showrooms contribute their maiden results and 2) other luxury brands continue to perform despite overall doom and gloom in the Chinese auto market. Should the Chinese government launch car replacement stimulus measures this would be icing on the cake.
Fair Value lowered slightly from 4.7 HKD to 4.4 HKD (10x 2019E) on lower 2019 profit estimates, which leaves 52% upside excluding dividends.
3. Tosei (8923) An Undervalued and Depressed Japanese Property Developer.
The shares are very cheap. They trade at 0.9x book but there is some Y22bn in unrealised profit on land/buildings (vs. the market cap of Y46bn). If adjusted for this, the shares are less that half book. Meanwhile the dividend has been steadily increasing (both payout ratio and in absolute terms). To 11/19 the payout ratio will be 23% and the dividend will rise to Y37 from Y30 last year. At today’s price of Y950, the yield is thus 3.9%. And the shares trade on multiple of 6x. They rose significantly last year on the back of Morgan Stanley BUY note (from Y800 to Y1,500) but with the market’s correction and the tightening of bank lending to individuals (which has no impact on them), the shares have fallen back to Y950. For those looking for a cheap domestic small cap name, this is worth looking at.
4. Golden Agri: Reduced Risk of El Niño Pushes Out CPO Price Recovery into 2020
INVESTMENT VIEW:
The Australian Bureau of Meteorology has just downgraded its risk of El Niño from ‘Alert’ to ‘Watch’, and as a result, we temper our optimism for a near-term rally in CPO prices. Longer-term, we remain bullish on Golden Agri Resources (GGR SP), but higher CPO prices remain a key catalyst for our bullish call on the shares.
5. A Bear Investment Case for TSMC (In-Depth Version)
From end of 2008 to end of 2017, Taiwan Semiconductor Manufacturing Company (TSMC) (2330 TT) had a remarkable run with the share price up more than 400%. However, TSMC share price has not fared so well in the past year with its share price down nearly 16% during this period. In this report, we provide a BEAR INVESTMENT CASE for TSMC. We do not believe all its troubles are over. Rather, we expect its sales and earnings to be much lower than the consensus in 2020. The following are the seven major reasons that are likely to negatively impact TSMC’s share price and its financials in the next two years:
- Samsung Electronics’ technological edge in 7nm EUV foundry process. [More intense competition]
- SMIC & China [More intense competition]
- The major tipping point period of higher demand for autonomous vehicles (which is likely to drive higher incremental demand for semiconductor products) is not likely until 2023. [Timing of incremental customers demand]
- The major tipping point period of higher demand for 5G service (which is likely to drive higher incremental demand for semiconductor products) is not likely until 2021/2022. [Timing of incremental customers demand]
- Increasing threats to Apple. [Threats to a major customer]
- Major semiconductor memory prices such as DRAM and NAND Flash have been declining in the past few weeks. This could foreshadow a further softening of demand and prices in the entire semiconductor sector, including the foundry. The semiconductor companies increased their capex excessively in 2017 and this is likely to result in further reduced prices in 2019. [Concerns about oversupply/capex]
- Collapsing demand for cryptocurrency mining machines. [Concerns about a customer segment]
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