In today’s briefing:
- Toyota’s Q2 Is a Huge Miss; EV Strategy in Flux
- SONY (6758) | Q2 Earnings Beat, Guidance Raise
- Komatsu(6301) | Post 2Q Earnings – BACKTEST STILL Says over 45% Upside
- Close Out the Pair Trade Between LG Chem & LG Energy Solution
- Hana – Granular Data On China
- Japan Tobacco: Revised Guidance & Growth in the US With Altria JV Could Get The Shares Moving Again
- CIMC Enric (3899 HK): Maintaining a Solid Trend
- KPIT: Strong Execution and Bullish Outlook
- HDFC Bank: Strong Results – In Line with Expectation
- WuXi AppTec (603259.CH/2359.HK) 22Q3- It’s Too Early to Think That The Past Rapid Growth Has Resumed
Toyota’s Q2 Is a Huge Miss; EV Strategy in Flux
- Toyota’s Q2 EPS undershot estimates by 28%. FY3/23 guidance was kept flat, but given a more favorable assumption for forex tailwinds, Toyota effectively lowered FY3/23 EPS by 7%.
- Management partially admitted to parts of recent media reports that Toyota was overhauling its EV strategy. Targets of 3.5m BEVs by 2030 are unchanged, but the ramp may be slower.
- Toyota’s 2H FY3/23 hurdles are low and its auto division’s operating profits appear to be bottoming. Stock may still be a laggard, but we’re bullish on a 12-month basis.
SONY (6758) | Q2 Earnings Beat, Guidance Raise
- Q2 OP rises +8% to Y344 billion on strong growth in Music and Image Sensors, despite 49% profit fall in Games segment.
- SONY sold 3.3 million PS5 units in the quarter, the same figure as a year ago. Managment remains confident of hitting 18m units by the end of the fiscal year
- Sony’s stock is down -30% YTD. We think the Q2 results/guidance lift should help put a floor under the stock. We would be buyers below 15x earnings
Komatsu(6301) | Post 2Q Earnings – BACKTEST STILL Says over 45% Upside
- Komatsu reported above Consensus 2Q OP; lifted OP guidance; and raised dividends. Outlook for next FY3/24 looks bright
- Share price is pricing in a severe recession. A PBR of 1.1x is implies a significant OP decline. We see no evidence of an earnings contraction next year
- We expect the share price to re-rate as the market prices in resilient earnings outlook. Our back test still suggests over 45% upside
Close Out the Pair Trade Between LG Chem & LG Energy Solution
- On 25 October, we recommended a pair trade between LG Chem (go long) and LGES (go short). Since then, this trade has resulted in a net gain of 15.7%.
- It is very unusual to get this kind of alpha sized gains on Korean large caps in such a short time period.
- Given the sharp net appreciation on this pair trade in the past week, we would close out this trade.
Hana – Granular Data On China
- Hana Financial Group reported a loss in its China banking business in 9MQ22
- Hana Bank (China) recorded credit costs at KRW119bn or 20% of group total
- Off balance sheet commitments in China appear to be moving on balance sheet
Japan Tobacco: Revised Guidance & Growth in the US With Altria JV Could Get The Shares Moving Again
- Japan Tobacco (2914 JP)’s 3Q22 was stronger than expected with revenue and OP surpassing consensus by 9.2% and 8.8% respectively through better than expected performance in almost all the markets.
- Just as we predicted in our previous insights, JT upgraded its revenue, OP, FCF and DPS guidance by ¥182bn, ¥100bn, ¥77bn and ¥38 respectively sighting stronger volumes and favorable pricing.
- We believe this earnings upgrade and a JV with Altria to expand Ploom in the US should get the share price going again after being held back by Russia fears.
CIMC Enric (3899 HK): Maintaining a Solid Trend
- CIMC Enric Holdings (3899 HK) has a steady 3Q22 with good revenue growth for the chemical & environmental and liquid food segments. Management also said margin has expanded YoY.
- Overall order backlog of Rmb13.7bn is generally sufficient to cover individual segment’s revenue over the next 6-15 months, comfortably securing the growth prospects.
- With significant overseas revenue, it is benefiting from depreciation of Rmb against the USD. It also anticipates a pick-up in domestic clean energy segment growth in FY23.
KPIT: Strong Execution and Bullish Outlook
- KPIT Technologies (KPIT) reported decent Q2FY23 earnings. Sales grew 8.3% QoQ and 27% YoY in Constant Currency (CC) terms. EBITDA and Net Profit grew 33% and 28% YoY, respectively.
- Led by an all-time high order pipeline, KPIT Technologies (KPITTECH IN) gave a bullish outlook and upgraded its FY23 growth guidance. KPIT’s Technica acquisition also looks very promising.
- In terms of order pipeline, KPIT has a couple of mega deals ($100mm+) in the offing, which if realized, would be the first-ever in its history.
HDFC Bank: Strong Results – In Line with Expectation
- Annualized credit cost at 87bp was at the lowest in many quarters. This provides further room to the bank to invest for future growth.
- HDFCB continues to focus on enhancing its distribution presence, both physical and digital. It is continuing to add new branches. Its digital efforts are also paying off well.
- At a valuation of 20x P/E, HDFC Bank (HDFCB IN) is attractively priced and offers potential for 23%+ IRR over the next 3Y.
WuXi AppTec (603259.CH/2359.HK) 22Q3- It’s Too Early to Think That The Past Rapid Growth Has Resumed
- WuXi AppTec’s 2022Q3 results beat the market expectations. The Company’s performance showed good recovery from the prior pandemic/lockdown, but it has not yet entirely reversed the trend of slowing growth.
- Wuxi AppTec has a problem of decreasing future gross margins. Although the Q3 results could bring short-term catalyst for WuXi AppTec’s share price, such rebound may not last long.
- We further analyzed WuXi AppTec’s business, and we remain to be conservative on the Company, because the whole outlook and investment logic of CXO have changed.
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