In today’s briefing:
- Ajinomoto (2802) Secondary Offering (Cross-Holder Unwind) Matched Against Large Buyback
- Appier (4180) | Key Drivers Behind Strong Q3 Performance
- Taiwan Dual Listings Monitor: TSMC ADR Spread at Decent Short Level; UMC ADR Short Interest Soaring
- Sea Ltd: Potential for a Short Squeeze
- China Feihe (6186 HK): Year-Of-The-Dragon Trade
- Sanyo Trading (3176 JP) – Transitioning onto the Next Stage
- Indian Banks Screener: Stick with Bank of Baroda and HDFC Bank
- Life Insurance of India (LICI IN) 2Q24 Review: Poor Performance; No Signs of Turnaround. Sell.
- Japan Elevator Service Holdings (6544 JP) – Game-Changer Continuing to Excel
- Himax Vs. Novatek Long/Short: Display Industry Inventory Normalized, Growth Expected for 2024E
Ajinomoto (2802) Secondary Offering (Cross-Holder Unwind) Matched Against Large Buyback
- Today after the close, Ajinomoto Co (2802 JP) announced a large secondary offering of 14.3mm shares (2.75% of shs out). At last price that is ¥82bn.
- At the same time, they announced a 10mm share (1.92%) ¥40bn buyback to be conducted from the delivery date of the Offering through 31 March 2024.
- Over time, there would be some index upweight as float increases. On a net basis, this is a small deal on a low vol stock with a semiconductor story lurking.
Appier (4180) | Key Drivers Behind Strong Q3 Performance
- Appier’s Q3 demonstrated a 39% YoY revenue increase, reaching a record JPY7.1B. This was driven by substantial growth in the US/EMEA markets (117% YoY), customer expansion, and Digital Content growth.
- Appier’s gross margin expanded from 51.3% to 52.6% and the operating margin reached a historical high of 4.4%. Despite ongoing investments, EBITDA margins hit12.1%, showcasing strong operating leverage.
- Appier’s revised full-year outlook, with increased revenue target (JPY 26.2B), operating income (JPY0.70B), and EBITDA (JPY2.6B), exceeds consensus expectations by 1%, 11%, and 8%, respectively.
Taiwan Dual Listings Monitor: TSMC ADR Spread at Decent Short Level; UMC ADR Short Interest Soaring
- TSMC’s ADR premium is 10.4%, this is a decent level to short it based on the historical trading range.
- UMC’s ADR premium is near a good level to short the spread but one should wait for it to rise above 1.5% in our view.
- UMC ADR short interest continues to trend higher; TSMC ADR short interest continues to fall.
Sea Ltd: Potential for a Short Squeeze
- We suspect that the recent strength in Sea (SE US)‘s price performance is likely due to short covering, with shorts incentivized to cover after a nearly 38% gain.
- As earnings approach, short positions have been increasing since late October, likely anticipating another earnings disappointment from Sea Ltd’s Q3 report on November 14, 2023.
- Consensus estimates for Sea Ltd are at their lowest since its inception. A modest outperformance could lead to a squeeze in short interest.
China Feihe (6186 HK): Year-Of-The-Dragon Trade
- China Feihe (6186 HK) saw major derating (from around 20x PE to the current high-single-digit PE) coupled with sizable earnings drop (-28% yoy in 2022/-25% yoy in 1H23) since 2022.
- The investment thesis or trade thesis here is a play on the rise of new born babies in 2024, the year of the dragon in China.
- The margin of safety here is also high given a 7% forward dividend yield (Feihe has pledged to increase dividend payout ratio going forward).
Sanyo Trading (3176 JP) – Transitioning onto the Next Stage
- Impressive progress to date – Q1-4 FY9/2023 results were at record highs for the company, demonstrating a sustained track record of above-average profitability and disciplined capital allocation via M&A.
- Business diversification to life sciences has led to sales mix improvement and a more resilient business in our view.
- Company guidance for FY9/2024 indicates a decrease in earnings YoY, attributed to the accumulation of strategic upfront investments for business development.
Indian Banks Screener: Stick with Bank of Baroda and HDFC Bank
- We retain Bank of Baroda as the deep value Indian bank from our peer group, for its modest valuations, healthy ROE and further improvements in pre- and post-provision returns
- The market seems unconvinced by HDFC Bank but we retain it as our quality bank pick, with its potential for savings from the HDFC merger and its strong balance sheet
- Axis bank stays on our watchlist, but its premium valuations are the challenge; we remain negative on State Bank of India for its delinquency risks and limited progress on returns
Life Insurance of India (LICI IN) 2Q24 Review: Poor Performance; No Signs of Turnaround. Sell.
- Life Insurance of India (LICI IN) reported its 1H24 earnings which are a continuation of the poor performance of the largest life insurer in India.
- Total sales were down -10% (individual sales – flat y-o-y); VNB margins falling; outlook not positive. Not positive shifts in product mix or distribution trends.
- We value LIC at 0.5x FY25e P/EV, implying a -15% downside from the current price, reflecting poor sales growth, loss of market-share and its failure to turn-around the business model.
Japan Elevator Service Holdings (6544 JP) – Game-Changer Continuing to Excel
- Success of disruptive innovation – we believe Q1-2 FY3/2024 results were ahead of the run-rate for FY guidance, driven by 1) sustained growth in maintenance and repair service contracts, and
- 2) stronger than expected demand for modernization services, resulting in gross margin improvement QoQ in Q2 FY3/2024 via amplified proposal effectiveness and increases in pricing.
- We expect to see JES continue to successfully disrupt the market via innovation, driven by secular growth as building owners convert to reputable independent providers for cost management and structural demand from aging elevators requiring modernization.
Himax Vs. Novatek Long/Short: Display Industry Inventory Normalized, Growth Expected for 2024E
- Both Himax and Novatek reported their results last week; both delivered gross margins at the high-end or above their previous guidance.
- Both companies showed a continued decline in inventory levels. Himax is trading at one of the cheapest levels relative to Novatek in history.
- Novatek sees industry inventory levels as normalized and expects 2024E to be an industry growth year. We rate both stocks as Structural Longs.
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