In today’s briefing:
- China Internet Weekly (24Oct2022): Tencent, Alibaba, Kuaishou, JD.com, NetEase, Zhihu
- Pinduoduo: The US Expansion Could Slash Profitability While Risking Xi’s Wrath
- Softbank Group – Another China Shock as Markets Fret over Macro Environment
- SK Inc: Solid Dividends, Ongoing Buyback, and Emphasis on Value Should Lead to Outperformance
- Tencent: Added Pressure with Declining Game Industry and Challenging Macroeconomy
- Tokyo Electron (8035) | WFE Scenarios Suggest Stock May Have Hit Bottom
- Nidec (6594) | Solid Traction
- Lowya – the Zozo of Home Decor?
- Arwana Citramulia (ARNA IJ) – Grand Master of Tiles
- Matahari Department Store (LPPF IJ) – Freshening Merchandise Is Paying Dividends
China Internet Weekly (24Oct2022): Tencent, Alibaba, Kuaishou, JD.com, NetEase, Zhihu
- Chinese online game market size decreased by 19.1% YoY and 12.6% QoQ in 3Q22.
- Tmall, Alibaba’s direct sales app, started a mini-program in Tencent’s WeChat.
- State Post Bureau announced that it would revise the express delivery rules, especially for green packaging.
Pinduoduo: The US Expansion Could Slash Profitability While Risking Xi’s Wrath
- With growth fading in the domestic market, the Chinese e-commerce company, Pinduoduo (PDD US) has made its first overseas push with the launch of Temu.com in the US.
- However, the launch was less than impressive, especially considering that the company created a lot of excitement about its US expansion in the previous earnings call.
- Selling $10.00 earbuds at $3.70, Temu could eat a significant chunk off of Pinduoduo’s profitability in the next couple of quarters.
Softbank Group – Another China Shock as Markets Fret over Macro Environment
- HK markets fell to 13-year lows as President Xi solidified his hold on power, raising concerns for private businesses that have already struggled with harsher regulation
- Softbank looks smart for its early settlement of Alibaba-linked derivative contracts in August as political worries have shares testing new lows
- But exposure remains with Alibaba’s 12% decline equal to $3.3bn (¥485bn) in lost value. Shares have rallied throughout October but China news appears to have stalled the move
SK Inc: Solid Dividends, Ongoing Buyback, and Emphasis on Value Should Lead to Outperformance
- Our base case target price of 276,567 won suggests a 37% upside from current levels for SK Inc. Our base case valuation assumes a 30% holdco discount.
- At DPS of 8,000 won, this would represent dividend yield of 4% at current price of 202,000 won.
- The three largest holdcos/quasi holdcos in Korea which include Samsung C&T, SK Inc, and LG Corp have strongly outperformed KOSPI this year.
Tencent: Added Pressure with Declining Game Industry and Challenging Macroeconomy
- Tencent (700 HK) shares dropped 11.43% during yesterday’s trade over concerns on the country’s political environment with Chinese president Xi Jinping securing an unprecedented third term.
- Gamma Data reported that mobile game sales in China dropped 25% YoY during third-quarter 2022 despite 3Q being a peak period for gaming due to 2-month long school holidays.
- Tencent’s shares dropped With renewed geopolitical challenges and further weakening of Tencent’s earnings, we expect share price to drop further.
Tokyo Electron (8035) | WFE Scenarios Suggest Stock May Have Hit Bottom
- We expect strong Q2 results from TEL but full year earnings guidance is a risk
- WFE demand is deteriorating rapidly. Will TEL provide any thoughts on the 2023 outlook?
- We provide a scenario analysis for different WFE scenarios…the stock may have bottomed
Nidec (6594) | Solid Traction
- Positive impression of Q2 results: sales +28% YoY beat consensus, OP +16% in-line.
- Near term headwinds for the precision motors and appliance businesses, but FX will significantly offset downside risk
- We remain bullish on the stock given solid progress in the e-Axle business. We see the division turning a profit next year
Lowya – the Zozo of Home Decor?
- Lowya is an online furniture brand run by Vega Corp that hit the headlines with 42% growth in 2020 while most other lifestyle retailers were reeling from the pandemic.
- Sales fell last year post-Covid and won’t grow much this year either but Lowya wants to become a ¥60 billion business and looks a good bet for the long-term.
- Lowya will shift to a mall model similar to Zozo which should allow it to grow faster, while tie-ups with major retailers like Aeon should raise brand awareness fast.
Arwana Citramulia (ARNA IJ) – Grand Master of Tiles
- Arwana Citramulia (ARNA IJ) booked yet another positive set of earnings in 3Q2022 driven by increased efficiency and cost reduction leading to 32% YoY growth in profits above consensus.
- There are a number of potential positives in 4Q related to new capacity coming on stream which should help to boost sales of the company’s higher end products.
- Consensus has caught up with the company’s projects profit growth forecast of +30% for FY2022 but this may prove conservative, with valuations looking attractive on a 9x forward PER multiple.
Matahari Department Store (LPPF IJ) – Freshening Merchandise Is Paying Dividends
- Matahari Department Store remains an unappreciated transformational retail growth story in Indonesia with the new management team improving the merchandise mix and restarting the company’s store expansion in earnest.
- The company plans to add a total of 10 new stores this year and 12-15 new stores next year, as well as adopt an increasingly omnichannel approach to expansion.
- Matahari Department Store remains attractive from a valuation perspective trading on 8x FY23E PER with a forecast dividend of 9.9% for FY2023E, which makes it look ripe for a rerating.
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