In today’s briefing:
- Kyocera (6971 JP) Founder Kazuo Inamori Passes – Implications for Holdings
- GoTo: Profitability Is a Tall Order and in Need of More Cash to Fuel Growth
- United Tractors (UNTR IJ) – A Commodity Proxy with Substance
- Sapphire Foods (SAPPHIRE IN) | Outperformance Not Justified
- Dixon Technologies: Forensic Analysis
- Taiwan Tech: Market Signals in the Latest Earnings Revisions
- Escorts Kubota Limited (ESCORTS IN) | Market Share Gains Priced In
- CanSino Biologics (6185.HK/688185.CH) 2022H1 – It’s Too Early to Be Completely Bearish on CanSino
- CP All: All Good but Need More Visitors
- EM Digital Banks Overview – Brazil, South Korea and Indonesia
Kyocera (6971 JP) Founder Kazuo Inamori Passes – Implications for Holdings
- Kazuo Inamori (稲盛和夫), founder of Kyocera Corp (6971 JP) and KDDI Corp (9433 JP) precursor company DDI (Dai Ni Den Den), and former chairman of JAL overseeing restructuring, has passed.
- In his own name, he owns 10.212mm shares of Kyocera, and likely other assets. Inheritance tax would be due 10 months from now.
- Kyocera is not blowing out the lights compared to peers, but it is relatively inexpensive to its history and peers. If the shares are sold, Kyocera can buy them.
GoTo: Profitability Is a Tall Order and in Need of More Cash to Fuel Growth
- GoTo (GOTO IJ) reported 2Q2022 results yesterday. Gross revenue increased 45.4% YoY to IDR5.6trn while operating losses as a % of net revenue increased to 420% from 273.6% in 2Q2021.
- The company expects to make positive contribution margin by 1Q2024E, however, we don’t expect GoTo to make operating profits for the next 3-4 years given its large fixed cost base.
- Reuters reported that GoTo is planning to raise $1bn through convertible bonds. This shows that the company is burning cash to fuel growth but at the cost of margins.
United Tractors (UNTR IJ) – A Commodity Proxy with Substance
- United Tractors (UNTR IJ) represents a well-rounded proxy to higher commodity prices through Komatsu heavy equipment, coal contracting and mining together with gold mining.
- It booked a strong set of 1H2022 results with net profit rising +129% YoY but heavy equipment sales momentum has continued into 1H2022 given there are still supply constraints.
- United Tractors possesses hidden value in Agincourt Resources’ gold reserves, which are worth more than the company’s market cap. Valuations are below historical averages despite the strength of the commodities.
Sapphire Foods (SAPPHIRE IN) | Outperformance Not Justified
- YTD Sapphire Foods (SAPPHIRE IN) has delivered 10.5% vs Devyani International (DEVYANI IN) which has delivered 7.9% and Jubilant Foodworks (JUBI IN) which has delivered -16.43% (Relative to NIFTY).
- On an NTM basis, SAPPHIRE at 58x trades 30% cheaper compared to DEVYANI, and only 16% cheaper than JUBI.
- The business performance is poor, the worst capital allocation among peers is not expected to change materially in the near term warranting attention to YTD outperformance.
Dixon Technologies: Forensic Analysis
- Dixon Technologies India Ltd (DIXON IN) is a manufacturer of various electric goods such as washing machines, mobiles, etc.
- Dixon’s annual report and forensic analysis revealed several setbacks from related party transactions to questionable setting off of liabilities.
- Other aspects which requires attention include heavy off-balance sheet liabilities, cash allocation woes, risks arising from debtor concentration and forex exposure, etc.
Taiwan Tech: Market Signals in the Latest Earnings Revisions
- We analyze analyst earnings revisions over the last month to identify key industry takeaways from stocks with major downward and upward revisions.
- Innolux indicates there could be another year of pain ahead for LCD Panels, Wistron sees notebook weakness through year-end.
- Signs of strong demand persist in Commercial IT, AI, and Medical.
Escorts Kubota Limited (ESCORTS IN) | Market Share Gains Priced In
- Based on current consensus estimates, Escorts Kubota Limited (ESCORTS IN) is expected to deliver implied domestic volume growth of 6.5% for FY23 and 10% for FY24.
- Our earlier checks have indicated a challenging environment for gaining market share or growing ahead of the Industry for ESCORTS.
- Even if we assume market share gains and volume recovery leading to above industry growth, at CMP it is already priced in.
CanSino Biologics (6185.HK/688185.CH) 2022H1 – It’s Too Early to Be Completely Bearish on CanSino
- CanSino’s performance declined in 22H1 due to decreased demand of COVID-19 vaccine. Since we have analyzed our concerns on performance in prior insight, there should be psychological expectations for the decline.
- The COVID-19 vaccine business brings CanSino rich cash flow and helps it establish commercial team. Together with MCV2/MCV4/mRNA/PCV13i, it’s too early to be completely bearish on CanSino.
- The market has exaggerated the impact of performance decline of COVID-19 vaccine on CanSino. Although 2022 is a difficult year, it is a good time to bottom fish this stock.
CP All: All Good but Need More Visitors
- Cheaper than AOT while both are correlated to the number of tourists’ arrival in Thailand.
- An increase in the per customer’s spending seems to be overlooked by the market.
- A potential increase in the number of visitors to the stores could provide another booster to the share price.
EM Digital Banks Overview – Brazil, South Korea and Indonesia
- Among the EM digital banks covered, we turn constructive on Inter, we remain cautious on Nubank and see Bank Jago as an over-valued growth play; we are neutral on Kakaobank
- Client penetration is key, yet digital banks also need to achieve loan and other banking product penetration to drive revenue growth and ultimately better returns
- We believe that neobanks’ key hurdles to enhanced profitability are “old school” banking metrics; delinquency and cost of risk charges, as well as high capital absorption from fast loan growth
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