Daily Brief Equity Bottom-Up: Beyond the Bubble: A Deep Dive into the Forces Behind the Nikkei Index Surge and more

• Japan’s Nikkei Stock Average has surged past its 1989 peak, fueled by global investor interest, corporate reforms, and innovative investment initiatives like the Nippon Individual Savings Account (NISA).
• This resurgence marks a significant milestone in Japan’s economic landscape, reflecting renewed investor confidence, structural reforms, and potential growth opportunities in the market.
• The Nikkei’s surpassing of its previous peak signals a shift in perception towards Japan’s market potential, prompting investors to reconsider the country’s economic trajectory and explore new avenues for investment.

• Astra International booked record earnings for 2023 despite some softening of commodities, driven by strong performance from the auto division and financing plus the strong performance from motorcycles. 
• Astra has continued to invest in growth areas of the Indonesian economy with investments last year in the EV battery ecosystem, increased exposure to healthcare, and investment in data centres.
• Management flagged a potential 2H cyclical downturn but it is well-diversified enough to weather this. Valuations look attractive on 6.8x FY2024E PER and with a 6.6% dividend yield.

• Recent newsflow and company results suggest China outbound travel is on track to recover to pre-pandemic level by the end of this year.
• China airports have different exposures to outbound travel, which largely determines the scale of their duty-free shopping business and earnings upside amidst this recovery cycle.
• Beijing Capital Airport offers best risk/return profile among listed China airports in our view as current valuation does not fully capture even a conservative scenario of recovery in outbound travel.

• China announced game approval for the Feb batch. The number of games approved remained at a higher level than 2023.
• The pace of China game approval appears to be accelerating, to the same level as pre-tightening.
• Netease gets one game approved but we don’t see that the acceleration of game approval benefits big names proportionally.

• LI Auto reported C4Q23 top line, non-GAAP operating profit and GAAP net income (6.2%), 13% and 81% vs. our estimates and 4.9%, 52% and 102% vs. consensus.
• We believe LI can beat our delivery estimate on exports, but can also miss the consensus on gross margins if its 2024 volume target is met by sedans;
• We raise our TP by US$5 to US$52 and reiterate BUY.

• Despite average weights falling from over 6% in 2020 to under 2% today, 73% of EM funds remain invested in Alibaba.
• The make up of the investor base has changed, with a rotation between high growth investors (out) and Value investors (in).
• Of the 73% of current holders, the core portfolio weight range sits between 1.5% and 3%, with the most bullish topping out at 5%+

• Uchi Technologies (UCHI MK) reported a solid Q4FY23/FY23 result, with revenue up 18%/13.2% YoY, operating profit up 28%/21% YoY, but profits up 9%/8.3% YoY (due to increased taxation).
• For FY24, the company conservatively guided a mid-single-digit decline in revenue growth. In FY23, the company guided flat USD revenue growth (but delivered 9.2% YoY).
• Assuming the current currency and guidance, the stock trades at 14x FY24e with a yield of 7% (assuming a 100% payout similar to last two years) and ROCE above 60%. 

• Sido Muncul‘s recent results reflect a sharp recovery in its core herbal and F&B business as increased sales volumes have brought scale benefits to its iconic products. 
• The company saw recovery in both sales and profits, with margins improving considerably  in 4Q2023 due to increased volumes and lower raw material prices. 
• Tolak Angin remains an iconic brand catering to all demographics with 70% leadership of its category, with Kuku Bima being the leader in powdered energy drinks. Valuations appealing versus history. 

• OpenAI, founded in 2015 as a nonprofit research lab, has transitioned into a for-profit entity with ambitious goals of creating artificial general intelligence to benefit humanity.
• The company’s CEO, Sam Altman, is focused on solving the problem of super intelligence and has plans to set up his own semiconductor manufacturing pipeline and extend human lifespan.
• OpenAI’s business model now involves catering to enterprise customers to generate revenue, and they face challenges in balancing their grand mission with the need for significant investment.

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• A Profit-Oriented State Owned Enterprise that is walking the walk.
• Management incentives are aligned with shareholders, a rarity in China.
• Plenty of upside remains despite the market outperformance to date