In this briefing:
- Nio Surged 31% in November; Will Momentum Continue Through 2019?
- TPCH (TPCH TB): Biomass Power Value Play
- Start Your Engines: SoftBank Corp (9434 JP) Is Off to the Races
- Lawson’s New Online Service Is Working, Doubles Coverage
- MCX: The Pieces of the Puzzle Have Fallen in Place, BUY for 32% Upside
1. Nio Surged 31% in November; Will Momentum Continue Through 2019?
- NIO Inc (NIO US) surged 30.7% in November after reporting steady growth in production and following certain notable investors such as Baillie Gifford & Co (largest investor in Tesla Motors (TSLA US) after Elon Musk) acquiring a stake in the company creating a bullish view on the company.
- The EV start-up delivered 3,089 vehicles in November, registering a more than 96% increase from October, indicating a smooth flow in its production line of ES8. The latter was something its rival, Tesla, took long to establish. The company has reached a total production of more than 10,000 units thus far.
- On the 15th of December which is the company’s ‘Nio Day’, Nio hopes to launch its ES6, a 5-seater, two-row, high-performance premium electric SUV that will have a longer range and at a lower price than its three-row seven-passenger ES8. Production and delivery of ES6 are expected to begin in 2019.
- Q3 FY2018 results although slightly below the company’s expectations was an improvement compared to the previous quarter and acted as a tailwind in increasing investor confidence in the company. Sales increased to USD214m in Q3 from USD 46 in Q2. Though the company has not yet generated any profits, operating losses as a % of revenues have declined to -191.2% in Q3 cf.-4,077% in Q2.
- For Q4 FY2019E the company expects to deliver 6,700 to 7,000 vehicles more than double the total deliveries during Q3, forecasting revenue between USD 418.5-436 m, at 95-100% increase from Q3. The company has not guided on OP.
- Although the company is still fighting for profits, which seems to be normal for a start-up, it should be noted that the company has a quite steady cash reserve to fund its operation and ramp up production of its to-be-released ES6 model. In our opinion, if the launch of ES6 is as successful as ES8 and the company avoids production delays like Tesla, then it may break even or even make profits within a shorter time period than which Tesla took (almost 8 years). That said, Nio’s stock is likely to witness further surges through 2019 following its recovery since November.
2. TPCH (TPCH TB): Biomass Power Value Play
- Strong long-term earnings growth, good growth in core profit, and relatively strong analyst recommendation relative to its sector
- As Thailand’s largest independent biomass power producer, TPCH is well-positioned to take advantage of government moves to diversify the country’s energy mix
- Longer-term earnings to be supported by ongoing capacity expansions, including the waste-to-energy project in Nonthaburi planned for 2019
- Trades below Thai Utilities at 19CE* 9.7x PE and offers double-digit EPS growth while the sector is expected to contract
- Risks: Higher feedstock costs as well as project delays and/or issues
* Consensus Estimates
3. Start Your Engines: SoftBank Corp (9434 JP) Is Off to the Races
The price has been set. The book building is done. Like watching a sleek race car aligned on the starting grid, the world eagerly awaits the start of trading for Softbank Corp (9434 JP) on Wednesday, 19 December.
We are also eager to see the stock go live. It’s not only nostalgia for the stock code “9434” to be brought back into the race, but it will be helpful to be able to compare the stock and to gain better insights into the domestic Japanese telecom industry.
That said, the past few weeks have been full of drama, and some of the drama has longer-term implications. In this insight, we take a more detailed look at some of the challenges facing SoftBank Corp. and some of the concerns that may give investors pause, or at least some things to keep in mind, over the months ahead.
Specifically, we look at issues related to:
- Network outages
- Huawei network equipment
- Corporate governance
- Regulatory headwinds
- Competitive threats
4. Lawson’s New Online Service Is Working, Doubles Coverage
Lawson (2651 JP) Fresh Pick is the convenience store operator’s new e-commerce solution for food launched earlier this year, and replacing various other less successful experiments.
Unlike competing services, Lawson’s service is limited to just 600 SKUs (stock keeping units), all fresh foods, and Lawson offers no home delivery, only click-and-collect.
In the nine months since launch, the service has expanded from 200 to 1,200 stores, currently concentrated in west Tokyo and Kanagawa.
It is a model that will expand rapidly across the rest of the country because Lawson has to invest so little to make this happen.
5. MCX: The Pieces of the Puzzle Have Fallen in Place, BUY for 32% Upside
- Multi Commodity Exch India (MCX IN) is the leading commodity futures exchange in India with ~90% market share. It enjoys ~100% market share in each of the top 7 products traded on its exchange.
- Average Daily Turnover (ADT) is up 24% YoY over YTD-Nov-18 after 4 years of stagnation on the back of increase in volatility of key commodity prices.
- We see 50-60% increase in ADT over FY18-21 on the back of Mutual Funds entering commodity futures trading creating enough liquidity for large industries like refineries shifting to MCX for hedging, bank distribution of commodity trading products and monetization of commodity options trading.
- MCX’s volumes are unlikely to be impacted by new entrants like NSE and BSE since none of the new entrants can offer any meaningful improvement over MCX’s offering in terms of lower cost, higher speed or tax friendliness. This makes MCX a ripe acquisition candidate going by global experience.
- We expect 16% Revenue Cagr, 20% EPS Cagr over FY18-21. Our target price for MCX at 28x Dec-20 EPS is Rs 950- implying 32% upside.
