In today’s briefing:
- China Dairy Sector: Long Inner Mongolia Yili and Short China Mengniu Dairy
- Softbank Group – Fortress Sale Looks Better when Returns and Exchange Rate Considered
- Money Forward (3994) | SaaS Crash Survivor
- Money Forward – Q2 22 Results Reaction: Mixed Results Short of Consensus
- Walmart (WMT US) | Why Walmart Is Likely to Win in India’s ONDC World Compared to Amazon
- Money Forward: Growth at the Cost of Profits
- SCB X (SCB TB) – The Song Remains the Same
- Renesas Electronics (6723 JP): Tie-Ups with Tata Group Add to Growth Potential
- Faraday Future (FFIE) Struggles to Finance Amid Internal “Civil War”
China Dairy Sector: Long Inner Mongolia Yili and Short China Mengniu Dairy
- In this insight, we discuss a pair trade involving going long on Inner Mongolia Yili Industrial Group (A) (600887 CH)(“Yili”) and going short on China Mengniu Dairy Co (2319 HK).
- Yili has more impressive financial metrics than China Mengniu Dairy in terms of ROE, operating margins, and sales growth. However, Yili is trading at lower EV/EBITDA than China Mengniu Dairy.
- Yili should be trading at premium valuation than China Mengniu Dairy. Therefore, we believe Yili is well poised to outperform China Mengniu Dairy’s share price in the next 12 months.
Softbank Group – Fortress Sale Looks Better when Returns and Exchange Rate Considered
- Softbank sale of Fortress removes an asset that is surplus to requirements at a price that is not as bad as headlines suggest
- A sale to Mubadala at ~$1bn seems low versus the $3.3bn it paid in 2017 but dividend payments and a strong yen mean a c. 70% loss is actually ~10%
- The discount has modestly narrowed recently but VF valuations likely to remain volatile whilst worries on China tech regulation persist
Money Forward (3994) | SaaS Crash Survivor
- Money Forward has one of the largest SaaS/Fintech platforms in Japan and is a key beneficiary of corporate digital transformation
- The stock has fallen 48% year to date as valuations crashed with global SaaS multiples
- We think MF will emerge from downturn in good shape. At 10x EV/Rev, we see 22% upside (maybe even 55%….)
Money Forward – Q2 22 Results Reaction: Mixed Results Short of Consensus
- Q2 financial results were in-line or better than management targets but lagged consensus expectations
- Guidance for Q3 is slightly disappointing with the target range for revenue mostly below expectations whilst promotional and marketing spend continues to expand
- The secular growth story is attractive and operating KPI growth remains robust but investors probably needed more from a stock that trades at 7.5x EV/FY22 rev in a risk-off environment
Walmart (WMT US) | Why Walmart Is Likely to Win in India’s ONDC World Compared to Amazon
- India’s Open Network for Digital Commerce (ONDC) is expected to break duopolies across the digital commerce ecosystem including e-marketplaces like Flipkart Online Services (1398508D IN) & Amazon.com Inc (AMZN US).
- We think it is the other way around. We expect them to thrive and become even more dominant in case the market expands as envisioned under ONDC.
- While it could be too early & premature, Walmart (WMT US) thanks to its investments in Flipkart and the path chosen by PhonePe is better placed compared to Amazon in India.
Money Forward: Growth at the Cost of Profits
- Money Forward (3994 JP) reported 2QFY11/2022 results yesterday. Revenue grew 27.2% YoY to JPY5.08bn (vs consensus JPY5.13bn). Operating losses for the quarter was JPY2.2bn (vs consensus JPY1.9bn).
- MF’s top line growth has been slowing down, and the company continues to spend heavily on advertising to acquire users for its SaaS business.
- Though MF continues to grow its user base, it comes at the cost of profits.
SCB X (SCB TB) – The Song Remains the Same
- SCB X has been a slightly disappointing performer since its restructuring under a new holding company to allow for a reallocation of capital towards growing tech areas.
- A key overhang has been its sizable planned investment into leading Thai crypto exchange BitKub but the due diligence for this has been extended signalling a potential cancellation.
- The bank’s core business is recovering with loan growth recovering and credit costs coming down plus strong growth in digital banking reducing costs. Valuations are attractive on 0.7x FY22E PBV.
Renesas Electronics (6723 JP): Tie-Ups with Tata Group Add to Growth Potential
- Renesas and Tata Group companies have announced a new partnership in electronic systems and wireless telecom for automotive and other applications.
- Specifically, they are working on the development of electric vehicles and industrial system solutions combining their semiconductor, IT system and manufacturing expertise.
- This should provide a significant boost to their business in India and global markets. As Mio Kato wrote in late April, Renesas – Like We Said… Accelerating
Faraday Future (FFIE) Struggles to Finance Amid Internal “Civil War”
- Faraday has been actively looking for financing as cash on hand in April was only $222m and its cash-burn in Q1 ran at $173m.
- On top of SEC & DoJ investigations, Faraday’s financing efforts are further hampered by a recent proxy battle against the Board of Directors launched by Faraday’s founder.
- Faraday “believes” it has enough cash to see the launch its first EV in Q3, but Q2 results may show it has little cash left for a successful ramp-up.
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