In today’s briefing:
- Fanuc (6954 JP) – Let the Derating Begin
- Z Holdings (Neutral) – Quick Thoughts on the Read Across from Google, Meta, and CyberAgent
- META Platforms 3Q22: You Got to Keep ‘em Separated
- Nagacorp: Contrary News Flow Is a Symptom of How Volatility Can Hide True Value
- China Healthcare – A Pair Trade: Long Sino Biopharm (1177.HK), Short Hengrui Medicine (600276.CH)
- Zijin Mining Plans $1.4 Billion Bond as It Buys Up Metal Used in Green Transition
- China Longyuan (916 HK): Continuing the Good Upturn
- PT Nippon Indosari Corpindo (ROTI IJ) – The Nation’s Baker
- SK Biopharmaceuticals (326030 KS): Strong Xcopri US Sales Not Reflected in Share Price Performance
- Align Technology (ALGN US): Q3 Result Not Aligned with Consensus; Outlook Remains Cloudy
Fanuc (6954 JP) – Let the Derating Begin
- 2Q earnings miss and full year guidance cut – negative surprise to the market
- Core FA orders down sequentially QoQ; Weak FA negative for overall OPM
- Maintain bearish stance as negative YoY Machine Tool orders yet to come.
Z Holdings (Neutral) – Quick Thoughts on the Read Across from Google, Meta, and CyberAgent
- Internet advertising revenue growth has come in below expectations for Google, Meta and CyberAgent as ad budgets appear to be shrinking
- There is an indirect read-across to Z Holdings which has almost always posted slower ad growth although it has some insulation from volatility with eCommerce and LINE official accounts
- Sill, management targets for ad revenue growth of 5-10% look increasingly challenging which is an issue when Media generates c. 80% of profitability. We remain cautious
META Platforms 3Q22: You Got to Keep ‘em Separated
- Blowout (in a bad way) opex and capex guidance triggered a puke in META. Metaverse spending slowdowns completely ignored by Zuck.
- Underlying engagement trends are suprisingly solid, as is underlying revenue growth (which was 8% organic this quarter ex-FX, IDFA, and Reels).
- The key question is…what is the LT capital intensity for META to retain its competitive advantage through AI – related spending.
Nagacorp: Contrary News Flow Is a Symptom of How Volatility Can Hide True Value
- Within days of each other, news reports both bullish and bearish for the shares of this sector leader have diluted visibility of a strong bull case intermediate term.
- Moody’s downgraded Nagacorp debt due to continuing concerns about China’s zero tolerance policy seeming to have no defined duration ahead. Lowered VIP also seen as bearish.
- Another report within two weeks showed evidence of continuing strong recovery of Nagaworld GGR in VIP, premium mass and mass. Context is needed on all coveage.
China Healthcare – A Pair Trade: Long Sino Biopharm (1177.HK), Short Hengrui Medicine (600276.CH)
- Due to VBP/NRDL negotiation, 2022 is the low point of Hengrui’s performance.The question is to what extent would Hengrui recover?Its development model isn’t an advantage since the game rule changes.
- Unlike Hengrui, Sino Biopharm hasn’t given up on generics business,which becomes a ” performance buffer”. Its BD capability/vision is commendable, which would help the company find the next “golden egg”.
- The stock price trend of the two companies could diverge. Sino Biopharm is more likely to outperform Hengrui in the medium to long term. Long Sino Biopharm, and short Hengrui.
Zijin Mining Plans $1.4 Billion Bond as It Buys Up Metal Used in Green Transition
- China’s Zijin Mining Co. Ltd. plans to issue a 10 billion yuan ($1.4 billion) convertible bond to fund its acquisitions of gold and molybdenum ore mines
- About 2.5 billion yuan of proceeds will be used to purchase an 84% stake in a molybdenum ore mine located in East China’s Anhui province – Asia’s largest mine of the rare metal which is used as an alloy to make stronger steel.
- The planned deal will cost 5.9 billion yuan and will increase the company’s molybdenum reserves to 2.9 million tons from the current 920,000 tons
China Longyuan (916 HK): Continuing the Good Upturn
- China Longyuan Power (916 HK) has a very good 3Q22 with earnings increased 55.1% YoY. This has reversed the trend of lower profit YoY in the last two quarters.
- The pressure on margin has lessened relative to 1H22 and this is partly reflected by good cost performance. Tariffs for wind and other renewables also look resilient.
- Recent pullback in share price has returned Longyuan to attractive multiples. Its growth stories stay intact and outperformance against national power generation is encouraging.
PT Nippon Indosari Corpindo (ROTI IJ) – The Nation’s Baker
- PT Nippon Indosari Corpindo (ROTI IJ) released a strong set of 3Q2022 results against all odds given the increased pressure from higher raw material prices and specifically wheat.
- Quarterly sales hit record levels with modern trade driving growth and the company improved margins despite surging raw material costs and saved on operational costs through reduced ad spend.
- Wheat prices are now -34% from peak levels which should be positive for ROTI’s margins and it continues to expand distribution and new products, driving growth. Valuations are attractive.
SK Biopharmaceuticals (326030 KS): Strong Xcopri US Sales Not Reflected in Share Price Performance
- SK Biopharmaceuticals Co Ltd (326030 KS) is reporting continued stellar performance of its flagship drug cenobamate in US, with Q2 sales rising 114% y/y and 27% q/q to KRW40.3 billion.
- Thus far, cenobamate has been launched in the U.S. and EU. The company is looking to launch the drug in Korea, China, and Japan in 2025.
- Going forward, the company is expected to narrow its losses, and should turn profitable in 2024. The company is expected to launch new drug, carisbamate in global market in 2025.
Align Technology (ALGN US): Q3 Result Not Aligned with Consensus; Outlook Remains Cloudy
- On a constant-currency basis, Q3 revenue of Align Technology (ALGN US) was reduced by 3% sequentially and 6% year-over-year, one of the largest quarterly foreign exchange impacts.
- Weak consumer sentiment is taking a toll on Invisalign shipment, with adult case starts plunging 11% q/q and 16% y/y to 377K. Invisalign ASPs nosedived to nine-quarter low of $1,150.
- Amid increasing competition and macroeconomic headwinds, long-term model of 20–30% revenue growth is hard to achieve. The company is also expected to miss 2022 operating margin target of 20%.
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