In today’s briefing:
- Keyence(6861 JP) | The Rise of the Phoenix – A Company like No Other
- Seiko Epson(6724 JP)| Neutral 2Q Earnings; Negative Outlook – Remain Bearish
- LX Semicon KOSPI Migration & KOSDAQ 150 Special Change
- Intel Vs. TSMC/UMC Long/Short Monitor: Intel Results Drive Share Spike, Still Can Re-Rate
- Nitro Software Rejects Potentia, Again, And Engages With KKR
- Delta Taiwan Vs. Thailand Monitor: Delta Taiwan Reports Better Margin Trend, Rel Valuation Reverts
- Mediatek Results Takeaways — Inventory Correction Bottom Potential 4Q22, Mobile, TV Recovery 1H23?
- ServiceNow Inc: Acquisition of Era Software
- Texas Instruments: Production At New Facility & Other Drivers
Keyence(6861 JP) | The Rise of the Phoenix – A Company like No Other
- Keyence reported record 2Q Sales and OP, thoroughly beating street expectations. The company recorded high double-digit growth in all regions – even in Europe.
- Pricing power is on display 10-35% price hikes to shore up the dip in GPM to 81.3%, depressed on higher raw material costs. Sets up for future earnings growth.
- The share price has underperformed the TOPIX -26%YTD. Valuations at the bottom of the recent range. We expect a share price recovery and are bullish.
Seiko Epson(6724 JP)| Neutral 2Q Earnings; Negative Outlook – Remain Bearish
- 2Q Earnings Neutral; Mainly FX driven. The company sidestepped the worse of what we are seeing in broader printer market (See XEROX; Canon)
- The outlook remains Negative. Macro conditions set to be worse in H2 vs H1. Core Home & Office Printing Business key IJP unit sales struggling with severe margin pressures.
- Ongoing share buyback mildly supportive but unlikely to be a game changer with falling earnings. Target-based 0.8x PBR implying ¥1700 TP.
LX Semicon KOSPI Migration & KOSDAQ 150 Special Change
- LX Semicon (108320 KS) will be traded on KOSPI from November 3rd. This event has no trade suspension. So, it will be traded on KOSDAQ until November 2nd.
- Nextin (348210 KS) will replace LX Semicon for KOSDAQ 150. Again, the effective date is November 3rd. So, the index trackers will rebalance-trade at the close on November 2nd.
- LX Semicon will see an outflow of -1.91x ADTV, whereas Nextin will enjoy an inflow of 3.93x ADTV. This Special Change will likely save AptaBio Therapeutics (293780 KS) from deletion.
Intel Vs. TSMC/UMC Long/Short Monitor: Intel Results Drive Share Spike, Still Can Re-Rate
- Intel’s 3Q22 earnings beat expectations, and the shares reacted positively, rising 10.7%.
- The company announced $3bn of cost savings for 2023E and $8-10bn in annual cost savings by 2025E. 2023E earnings guidance will be provided at the company’s February Investor Day.
- Intel has outperformed TSMC and UMC since our pre-Intel Innovation Conference catalyst piece. Intel could still re-rate further relative to the companies into its next earnings.
Nitro Software Rejects Potentia, Again, And Engages With KKR
- On the 28 October, Potentia announced an improved (and final) off-market Offer of A$1.80/share for Nitro (NTO AU), a 13.9% improvement over its initial proposal on the 30 August.
- Nitro has now concluded the Potentia Takeover Bid undervalues Nitro. The Offer, however, is still proceeding, and will open in two weeks.
- Separately, KKR’s Alludo has pitched a non-binding – subject to due diligence – Offer by way of a Scheme (or off-market takeover) at A$2.00/share. Nitro is supportive of this Offer.
Delta Taiwan Vs. Thailand Monitor: Delta Taiwan Reports Better Margin Trend, Rel Valuation Reverts
- Delta Electronics (2308 TT) reported its earnings on October 28th, after its subsidiary Delta Electronics Thai (DELTA TB) had reported on October 25th.
- Sales grew 33% YoY and gross margin expanded sequentially, which outperformed Delta Thailand’s margin performance.
- Delta Taiwan shares have outperformed Delta Thailand since having dropped to a historically-extreme relative market cap below 1.0x. However, Delta Taiwan remains historically cheap on a relative basis.
Mediatek Results Takeaways — Inventory Correction Bottom Potential 4Q22, Mobile, TV Recovery 1H23?
- Mediatek’s business continues to grow YoY, albeit slower than earlier expected. Management comments provided insight into the inventory cycle.
- Management expects to see the worst impact of the inventory correction cycle in 4Q22E, but then in 1H23E sees potential for a turn around.
- We are still developing a conviction view, however we see the latest results as net-positive for the shares given signs of a turn around ahead and the stock’s laggard status.
ServiceNow Inc: Acquisition of Era Software
- Service Now had a solid third quarter and the company delivered another all-around beat.
- Considering the solid organic growth and market demand of the company, it is expected that there will be 750 million new applications built by 2025.
- The company focused on improving customer service experience and expanding its market by acquiring other software companies which is why it closed the acquisition of Era Software.
Texas Instruments: Production At New Facility & Other Drivers
- Texas Instruments had a good third quarter, with revenue increasing by 13% year over year to $5.2 billion, surpassing Wall Street expectations.
- After two years of construction, the company’s new semiconductor chip facility has begun producing chips.
- The management anticipates Texas Instruments’ fourth-quarter revenue to be in the $4.4 billion to $4.8 billion range.
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