In today’s briefing:
- MUFG – What if No Yield Curve Control Relief?
- Taiwan Tech Weekly: TSMC Cuts Capex; Hon Hai AI Servers in Demand; ASE Winning TSMC Orders
- Sanken (6707)| Attractive for Activists and Growth Investors
- Adi Sarana Armada (ASSA IJ) – Synergies Continue to Manifest Themselves
- Beauty Farm Medical (BFM HK): Expectations Are Flying Too High; 1H23 Result Will Set the Path
- Rakuten’s Seiyu Sell off Will Boost Netsuper Business
- Dell, HP, Qualcomm Signal AI-Driven PC Refresh Cycle, 2024E PC Growth, Accelerated Windows Upgrades
- HCG: Emerging Centers Are Inching Closer to Maturity
- CTO Realty Growth: One Of The Few Investable REITs Out There
- MARUKA FURUSATO Corporation (7128 JP) – 1Q Follow-Up
MUFG – What if No Yield Curve Control Relief?
- There may be no imminent yield curve control relief in Japan
- MUFG market capitalization is up 2-3x and at a near decade peak level
- Without YCC relief maybe the bank’s 60% rise in NPLs in the past 4 years is better noticed
Taiwan Tech Weekly: TSMC Cuts Capex; Hon Hai AI Servers in Demand; ASE Winning TSMC Orders
- TSMC reduced capex guidance to the bottom of its guidance range but maintained revenue expectations and still expects substantial growth in 2024E.
- Dell, HP, and Qualcomm comments signal an AI-Driven PC refresh cycle ahead and 2024E PC Growth. Windows 11 upgrades could be accelerated as new PC AI applications roll out.
- Hon Hai reported that it gained market share globally in 2022, and that it has 40% global market share for servers. Hon Hai’s AI servers expected to experience triple-digit growth.
Sanken (6707)| Attractive for Activists and Growth Investors
- Sanken benefits from the structural growth in EVs, which should underpin revenue growth and margin accretion.
- DCF valuation suggests the stock is slightly undervalued. However, better-than-expected revenue trends could easily drive significant upside.
- Almost 30% of shares are held by activist investors – there is an attractive 57% upside to a SOTP valuation that could be realised over time.
Adi Sarana Armada (ASSA IJ) – Synergies Continue to Manifest Themselves
- ASSA continues to demonstrate the ability to adapt to the changing environment in 1Q2023 with growth in its car fleet and improving profitability for logistics and the last mile.
- Anteraja has seen a slowdown in e-commerce revenues but is focusing more on building offline customers, whilst ASSA logistics is increasingly focused on mid-mile and cold-chain logistics.
- JBA Auction is seeing a strong recovery to pre-pandemic levels and maintains 40% market share, whilst Caroline is targeting 3,000-4,000 used car sales in 2023, whilst expanding its offline network.
Beauty Farm Medical (BFM HK): Expectations Are Flying Too High; 1H23 Result Will Set the Path
- Beauty Farm Medical and Health Industry (BFM HK) reported decline in revenue and net profit in 2022, due to the implementation of nationwide pandemic prevention and control policies.
- The company is seeing recovery in 2023. During January–May, customer traffic and average transaction value achieved double-digit growth YoY, while customer spending increased 20%+ YoY.
- In 2023, revenue and EPS are expected to grow 34% and 106%, YoY, respectively. The preliminary business operation overview seems to fall short of the expectations.
Rakuten’s Seiyu Sell off Will Boost Netsuper Business
- Rakuten sold its 20% stake in Seiyu to KKR at the end of May, divesting from direct ownership in physical supermarkets.
- This provides a much needed injection of cash for Rakuten’s digital projects and should also help the online platform build trust with other supermarket chains interested in joining its platform.
- Both companies reaffirmed their commitment to build the largest online food retail platform within the next two years.
Dell, HP, Qualcomm Signal AI-Driven PC Refresh Cycle, 2024E PC Growth, Accelerated Windows Upgrades
- HP and Dell’s industry outlook after their results last week indicate a PC market stabilizing and set for growth in 2024E. Qualcomm provided AI comments at a recent conference.
- Both HP and Dell managed to beat earnings expectations despite experiencing 20%+ YoY revenue declines. Neither stock’s price has made a significant move since results.
- AI incorporated into Windows 11 and PC’s themselves could be a major reason for companies and consumers to buy new PC’s. PC’s are being designed to run AI capabilities locally.
HCG: Emerging Centers Are Inching Closer to Maturity
- HCG ended FY23 with decent profitability and is on track to see significant scale up over the next 12-18 months as its emerging centers become mature.
- During the course of the next couple of years, HCG is also looking to enhance its presence through the inorganic route.
- We project that HCG may do a PAT of INR 200cr by FY25. At the current market cap of INR 4450cr, HCG is attractively valued at 22x per FY25E PAT.
CTO Realty Growth: One Of The Few Investable REITs Out There
- CTO Realty Growth, Inc. possesses the necessary characteristics to outperform the market.
- Diminishing credit spreads and more predictable inflation could result in tailwinds for best-in-class cyclical REITs such as CTO.
- Real Estate Investment Trusts (“REITs”) situated in the United States have underperformed the S&P 500 (SP500) by approximately 10% during the past year, which should not be a surprise as factors such as rising credit spreads, an unstable interest rate environment, and softening consumer sentiment have all dented the hopes of many cyclical assets.
MARUKA FURUSATO Corporation (7128 JP) – 1Q Follow-Up
- In 1Q FY12/23, net sales rose 12.8%, and operating profit increased 20.3%; thus, MARUKA FURUSATO made good progress toward achieving 1H forecasts of 9.2% increase in net sales and 9.4% decline in operating profit.
- As a large percentage of the company’s earnings comes from business orders, short-term earnings are unlikely to change much.
- It appears, however, that the company is making greater than initially expected progress in reducing its order backlog as supply constraints, such as shortage of semiconductors, are eliminated.
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