Daily Brief Equity Bottom-Up: Softbank Group (9984 JP) –Vision and LatAm Funds Take Another USD10bn Valuation Hit in 2Q 22 and more

• Headline 2QFY22 results for Softbank Group were in the black, largely due to the Alibaba stake sale, but the group’s three funds registered an aggregate USD10bn of valuation losses
• FTX’s write-down to zero will cost Softbank’s Vision Fund 2 USD100m in 3Q22, our main concern is what the VC funding downturn means for portfolio valuations in the coming quarter
• The group’s NAV discount has now tightened meaningfully; we believe that this makes it less advantageous for management to announce another share buy-back programme

• Recruit Holdings (6098 JP) reported 2QFY03/2023 earnings today. Revenue increased 25.3% YoY to JPY878.4bn (vs consensus JPY842.7bn) while EBIT decreased 8.2% YoY to JPY108.5bn (vs consensus JPY116.1bn).
• HR Tech’s top line growth further slowed down to 40.2% YoY while adjusted EBITDA margin of the segment declined to 30.4% from 40.6% in the same period a year ago.
• The company’s 2QFY03/2023 earnings were better than we expected, however, it shows that the earnings growth is slowing down with weakening of labour markets globally.

In the upcoming webinar, Harmeet Bedi, Deputy CEO and CFO of PRIME US REIT, will share a short company presentation. After which, he will engage in a fireside chat with Smartkarma Insight Provider, Sumeet Singh. The Corporate Webinar will include a live Q&A session.

The webinar will be hosted on Tuesday, 29 November 2022, 17:00 SGT/HKT.

• NetEase and Activision Blizzard will possibly terminate their cooperation next January.
• Singles’ Day sales were not very successful for e-commerce apps such as Alibaba and JD.com.
• IQiyi announced a revenue share rule to short TV series producers, including cost per mille and membership fee.

• Machine Tool Orders in Japan decreased to 141 billion yen in October from 149 billion yen a year ago.
• The 5.4% decline marks the start of the third downturn in Machine Tool Orders over the past decade. 
• We analyse those downturns and believe that Fanuc’s stock price has probably hit bottom, but THIS TIME IS DIFFERENT

• Bloomberg reported on Friday that GoTo (GOTO IJ) is planning to cut more than 1k jobs across all its divisions to cutdown its costs and improve its financials.
• Though GoTo’s top line has continued to expand, the company continues to burn cash and the losses have further widened during the recent quarters.
• GoTo’s shares rose 11.7% during Friday’s trade, however, share price is still down by about 45%  from the company’s IPO price.

• With e-commerce and fintech segments performing reasonably well, Rakuten Inc (4755 JP)’s Q3 results were mostly in line with expectations.
• However, the Mobile segment failed to live up to expectations with the segment’s operating loss narrowing by just ¥3.4bn to ¥120.9bn in 3Q22.
• Nonetheless, we are excited about the prospects of Rakuten Mobile through the success of Rakuten Symphony as the business is close to signing 12 new corporate customers.

• Early this year I was quite pessimistic on Hong Kong stocks.
• But since then the Hang Seng is down another 20% or so. A lot of stocks with 9-10%+ dividend yields are laying around.
• I should have been a bit quicker writing this up, but then you are getting it for free.

• In this insight, we discuss a pair trade between NCSOFT Corp (036570 KS) (go long) and Netmarble Corporation (251270 KS) (go short).
• NCSoft is currently trading at lower valuation multiples (in terms of EV/EBITDA and P/E) than Netmarble, which we believe is not justified.
• One of the key risk factors of Netmarble is that it could be excluded from the MSCI Korea Index in 2023/2024.

• Jiangsu Expressway (H) (177 HK) has seen marginally weaker traffic in 4Q22 relative to 3Q22 due to sporadic COVID outbreaks but the magnitude is manageable. 
• We welcome its indication that stable absolute DPS level will be maintained, with additional target to increase gradually. That means secured FY22 and FY23 yield of at least 8.3%.
• Clean energy investment and exit of property business will improve earnings quality. Projected ROE of over 13% also provides good justification for upside to its 0.8x P/B.