In today’s briefing:
- Fujitsu (6702) Subsidiary Selldowns To Come
- January TOPIX FFW Review – Some Big Sells
- LG Energy Solution: Trading Strategy on End of ESOP Lockup & Valuation Comparisons
- Alibaba(Baba.US/9988.HK) 4Q22 Preview: Raise TP for Margin Beat and Topline Recovery
- EQD | HSI Index Vs SPX Index: Sell Chinese Equity Vol to Buy US Equity Vol
- PIF and GIC Combined Invest About 1.2 Trillion Won in Kakao Entertainment
- FUTU(FUTU.US) 4Q22 Preview: Solid Fundamentals Drive Long Term Growth
- JD(JD.US/9618.HK) 4Q22 Preview: Topline Reacceleration Could Happen in C2Q23
- IQiyi(IQ.US) 4Q22 Preview: Strong Content Only Secures Temporal Performance
- Mastercard: Turning Cautiously Positive On The Business As Recession Looms Ahead
Fujitsu (6702) Subsidiary Selldowns To Come
- Three years ago I wrote Fujitsu Subsidiary Selldowns or Buy-Ins? My choice then was Fujitsu Frontech which was bought out 8 months later.
- A Bloomberg article today with quotes from an interview with the CEO of Fujitsu fuelled some movement today.
- The “obvious” trade is Shinko Electric Industries (6967 JP) but you have to buy the new dream.
January TOPIX FFW Review – Some Big Sells
- The January 2023 TOPIX FFW Trade was announced today. The two-way trade is worth about ¥325bn.
- There are four ADDs previously discussed: Sun* (4053 JP), Appier Group (4180 JP), Chubu Steel Plate (5461 JP), and Chubu Steel Plate (5461 JP).
- There are 57 downweights, 11 upweights (but only seven FFW buys). The rest is reverse funding to buy. There are 10 names with >$10mm AND >3 days ADV to sell.
LG Energy Solution: Trading Strategy on End of ESOP Lockup & Valuation Comparisons
- This insight provides a trading strategy on LG Energy Solution (373220 KS) with a focus on the end of the ESOP shares lockup period on 27 January.
- Currently, LG Energy Solution is trading at P/E of 46.5x in 2024 which is more than 100% higher than the P/E multiples of CATL (20.4x) and Tesla (19.2x) in 2024.
- Our view is that in the long-term, LG Energy Solution should not trade at such high valuation premium to Tesla given the latter company’s higher return on capital.
Alibaba(Baba.US/9988.HK) 4Q22 Preview: Raise TP for Margin Beat and Topline Recovery
- We expect BABA’s revenue in C4Q22 to be in line with cons., non-GAAP net income to beat cons. by 6%, supported by cost reduction in Freshippo, Taocaicai and Taobao Deal.
- Affected by logistics disruption and rising infections, we estimate BABA’s GMV and local consumer service in C4Q22 to decelerate compared to C3Q22. Both segments are to recover in C1Q23.
- We raise TP from US$110 to US$130 to reflect upsides from rebound of discretionary demand, slowing Douyin eCommerce growth, and easing regulatory environment. Our TP implies 13x PE in FY2024.
EQD | HSI Index Vs SPX Index: Sell Chinese Equity Vol to Buy US Equity Vol
- Chinese equity vol has been high over the last few months with extreme market moves on a number of headlines but is starting to calm down
- US equity volatility continues to screen cheap despite calls for a challenging year and likely recession
- We consider 2 relative vol trades to play a narrowing of the spread
PIF and GIC Combined Invest About 1.2 Trillion Won in Kakao Entertainment
- On 11 January, it was announced that Kakao Entertainment (103260 KS) has attracted large scale investments from Saudi Arabia’s Sovereign Fund (Public Investment Fund – PIF) and GIC (Singapore).
- Maekyung Business Daily reported that PIF and GIC combined invested about 1.1 trillion won to 1.2 trillion won in Kakao Entertainment, valuing the company at about 10 trillion won.
- This major investment in Kakao Entertainment by PIF and GIC should have a positive impact on Kakao Corp (035720 KS), the controlling shareholder of the company.
FUTU(FUTU.US) 4Q22 Preview: Solid Fundamentals Drive Long Term Growth
- We expect FUTU to post C4Q22 revenue and non-GAAP net income 6.4% and 16.0% above consensus, driven by the improved turnover rate in HKEX and the rising interest rate.
- We believe the recent regulation measures has little impact on FUTU’s adjusted expectations now widely held by investors. We expect revenue growth to reaccelerate at 37%/31% YoY in 4Q22/2023.
- Maintain BUY to FUTU and raise TP by US$1 to US$51.
JD(JD.US/9618.HK) 4Q22 Preview: Topline Reacceleration Could Happen in C2Q23
- In C4Q22, we expect JD’s total revenue to grow 8% YoY, largely in line with cons. Non-GAAP net margin is expected to reach 2.0%, up 0.7ppt YoY.
- We estimate JD’s GMV growth in C4Q22 to be ~7% YoY, slightly slower than C3Q22 due to logistics disruption in October and November.
- Maintain BUY rating and raise TP to US$70.0 due to for acceleration in top line as well as margin improvement. Our TP implies 23x P/2023E.
IQiyi(IQ.US) 4Q22 Preview: Strong Content Only Secures Temporal Performance
- We forecast iQIYI 4Q22 top line would be in line, while bottom line would beat cons by 6.4%, largely due to the strong content pipeline and continued cost-saving measures.
- Although IQ conducted a series of cost saving measures, we expect these measures are not sustainable. Our top and bottom lines in 2023 are (3.4%)/3.4% vs cons.
- Reiterate with SELL and TP US$ 4.15, implying 14.9X PE in 2023.
Mastercard: Turning Cautiously Positive On The Business As Recession Looms Ahead
- As M&A activity has cooled down, some risks for shareholders have been reduced and management has prioritized higher returns to shareholders.
- Although I am turning cautiously positive on Mastercard, there are still risks that need to be considered, according to Mastercard’s chief executive.
- The performance gap between Mastercard (NYSE:MA) and the S&P 500 that opened in 2021 has now been completely closed.
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