In today’s briefing:
- Hengan/Vinda: Pulp Friction
- Warren Buffett’s Investments in Japanese Trading Firms: Impact on Korean Trading Companies
- Seven Bank – Assets 39x Loans | Strong 7% Loan Growth | ATM Transactions +8% | Retail Accounts +9%
- ICICI Securities Delisting: A Deja Vu of Troubles
- Kalbe Farma (KLBF IJ) – Back to The Future
- Micron Management Calls Memory Price Trough, Improving Pricing & Profitability Ahead
- KYEC (2449.TT): Beneficiary of AI with Contribution of CoWoS Testing
- IStyle Growth Following Amazon Shareholding
- ARLO: Preview of the Discounted Value
- Fresenius Medical Care (FME GR): Improved Guidance on Strong 1H23 Show; Turnaround Plan on Track
Hengan/Vinda: Pulp Friction
- Hengan International Group (1044 HK) and Vinda International (3331 HK) are both market leaders in China’s personal care industry.
- Hengan’s operations have greater exposure to sanitary napkins and diapers; whereas tissues account for 83% of Vinda’s revenue. Both companies have been impacted by an increase in wood pulp prices.
- Hengan is trading cheap; but Vinda’s bottom line is forecast to return to its glory days. Plus rumours of a possible takeover of Vinda continue to do the rounds.
Warren Buffett’s Investments in Japanese Trading Firms: Impact on Korean Trading Companies
- We believe that Warren Buffett’s investments in Japanese trading companies have also positively impacted several Korean trading companies in the past three years.
- We highlighted seven Korean trading companies three years ago including Posco International and their share prices are up more than 76% on average in this period.
- Despite their outstanding share price performance in the past three years, there could be some significant headwinds ahead, as evidenced by the steep inverted yield curve.
Seven Bank – Assets 39x Loans | Strong 7% Loan Growth | ATM Transactions +8% | Retail Accounts +9%
- Seven Bank Ltd (8410 JP) is the 7-11 convenience store bank, which focuses on ATM fees more than loans, so its cash is JPY952bn vs loans JPY35bn at FY23.
- Loan growth in 1Q24 is 7% YoY, one of strongest in Japan and it is accelerating in recent periods, alongside 8-9% growth in ATM transactions, retail accounts
- Exceptionally strong ATM transactions abroad at 92.4m in 1Q24 vs 66.5m in 1Q23, including US, Indonesia and Philippines.
ICICI Securities Delisting: A Deja Vu of Troubles
- ICICI Securities Ltd (ISEC IN) Turbulent Journey: From a disappointing IPO to a challenging delisting attempt.
- Delisting Plan and Shareholder Discontent: ICICI Securities Ltd (ISEC IN) seeks to become a wholly-owned subsidiary of ICICI Bank Ltd (ICICIBC IN), facing resistance from minority shareholders.
- Uncertain Future: The outcome of the delisting hinges on the decisions of institutional shareholders like Life Insurance of India (LICI IN) and the board’s actions.
Kalbe Farma (KLBF IJ) – Back to The Future
- Kalbe Farma (KLBF IJ) is one of the key proxies for increasing healthcare penetration and health consciousness in Indonesia through prescription drugs, consumer health, and nutritional products.
- The company saw a solid sales performance in 1H2023 driven by prescription drugs. There was some lingering margin pressure from higher materials but this should abate in 2H2023.
- Kalbe Farma continues to develop its digital capabilities, as well as export markets helping to drive efficiencies and growth. Valuations remain below the historical average despite strong earnings recovery ahead.
Micron Management Calls Memory Price Trough, Improving Pricing & Profitability Ahead
- Micron’s FY4Q23 results beat expectations. The company expects to return to a positive margin by FY2H24, however projected a higher FY1Q24 loss than consensus expected.
- As suggested would be the case in our pre-results piece, the company said it sees memory prices bottoming and expects improving pricing and profitability ahead for the industry.
- While next quarter’s guidance may be weaker than some expected, we believe the key take-away is that Micron is seeing a memory prices bottom.
KYEC (2449.TT): Beneficiary of AI with Contribution of CoWoS Testing
- NVIDIA Corp (NVDA US) drives King Yuan Electronics Co, Ltd. (2449 TT) stock price, but their growth is still limited in 2023F.
- King Yuan Electronics Co, Ltd. (2449 TT) acts as a buffer for Mediatek Inc (2454 TT) end demand during 2023F.
- Although it is not yet the time to reverse the downturn in 2023F, King Yuan Electronics Co, Ltd. (2449 TT) is expected to continue its upward trend throughout 2H23F.
IStyle Growth Following Amazon Shareholding
- @Cosme continues to carve out a significant share of the cosmetics market, with record sales last year.
- @Cosme appeals to a wide cross section of the population but this is about to get even wider once it starts selling via Amazon, its biggest shareholder.
- While there is debate about whether Amazon will increase its stake, what is certain is that Amazon will help drive iStyle’s sales growth.
ARLO: Preview of the Discounted Value
- ARLO reporting better than expected third quarter results would rely on paid subscriber additions remaining on their current trajectory
- The pause in ARLO’s stock price creates greater upside potential as ARLO demonstrates its ability to generate positive earnings and free cash flow with each passing quarter
- ARLO has released a new line up of Essential cameras. ARLO had previously indicated it would update its Essentials cameras this year ahead of the holidays
Fresenius Medical Care (FME GR): Improved Guidance on Strong 1H23 Show; Turnaround Plan on Track
- Fresenius Medical Care & (FME GR) reported accelerated organic revenue growth of 6% YoY in 2Q23, driven by both operating segments including sequentially stable treatment volumes in the U.S.
- Execution on turnaround plan translates into visible productivity improvements in care delivery segment achieving a Q2 margin at the lower end of the 2025 target margin band of 10–14%.
- The company now expects 2023 operating income to remain flat or decline by up to a low-single-digit percentage (previous target: remain flat or decline by up to a high-single-digit percentage).
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