In today’s briefing:
- Alibaba (BABA): Overly Impacted, Accumulate Before 3Q22 Result
- Sea Ltd (SE US) – A Himalayan Saga
- Sea Ltd in Free Fall Following the Removal of Free Fire from The App Store & Google Play
- Conviction Call Dowa – On Track for a Blowout and Growth Next Year
- ZZ CRRC Times Electric (3898): Electrification
- Nihon: False Recording of Sales Leads to More Than 40% Drop; Can Nihon Regain Investor Confidence?
- Novatek (3034.TT): A Good Year Ahead, and Likely to Expand to SMIC for Wafer Foundry
- China Travel Intl Inv (308 HK): The Fruit Has Ripened?
- Top Five Thai Banks in Our Chart Screener; Kasikorn Bank (KBANK TB) Is Top
- GTX: Free Cash Flow Motion
Alibaba (BABA): Overly Impacted, Accumulate Before 3Q22 Result
- The stock price declined to a very low level before the market fell.
- The Chinese e-commerce market is still promising despite of the high comparison base last year.
- We believe the stock has an upside of 68% for March 2023.
Sea Ltd (SE US) – A Himalayan Saga
- The spotlight is back on Sea Ltd (SE US) after its game FreeFire was named as one of 54 apps of Chinese origin to be banned in India.
- The ban on FreeFire comes despite Sea Ltd‘s recent move to reduce the influence from Tencent by scaling back its ownership of voting shares
- We see the recent price weakness as an opportunity to accumulate Sea Ltd given the growth story remains intact although investors may not pay the same multiple premium over peers.
Sea Ltd in Free Fall Following the Removal of Free Fire from The App Store & Google Play
- Sea Ltd dropped 18% yesterday following India’s decision to ban its battle royale game, Free Fire and 53 other Chinese apps from the Google Play and App Store in India.
- India’s Free Fire ban could deliver a double whammy to Sea Ltd (SE US) with lower Digital Entertainment profitability limiting Sea’s ability to bankroll Shopee’s expansion.
- With the macro-outlook for growth stocks not looking great, we wouldn’t be surprised to see “Sea” breaking the bottom end of the EV/Sales range towards the end of the year.
Conviction Call Dowa – On Track for a Blowout and Growth Next Year
- Dowa Holdings’ 3Q numbers PBT beat consensus by 18% putting the company on track to hit out ¥84bn FY target though its upward revision was only to ¥72.5bn.
- A new concrete recycling facility, recovering rhodium prices and a rebound in silver powder sales should help momentum going forward.
- We believe the current price implies sustainable PBT generation of under ¥40bn creating a lot of upside potential.
ZZ CRRC Times Electric (3898): Electrification
- The new product in IGBT for NEV will be the main driver going ahead riding on the growing EV ecosystem in China.
- The recent sell-off provides a good entry point for new investors. For those who are already invested, it provides an opportunity to add at a better price.
- It is a lesser-known NEV name in China that is still trading at a lower valuation compared to the mega-cap names such as CATL and BYD.
Nihon: False Recording of Sales Leads to More Than 40% Drop; Can Nihon Regain Investor Confidence?
- Nihon M&A Center (2127 JP) reported 3QFY03/2021 results yesterday alongside publication of investigation report over false recording of sales contracts on the internal system between FY03/2019 to 2QFY03/2021.
- The company announced on 20th December 2021 that it has commenced an investigation over the above issue and postponed the announcement of its 3Q results.
- Revenue for 3QFY03/2021 increased 14.6% YoY to JPY10.85bn (vs consensus JPY12bn) while OP dropped 5.1% YoY to JPY4.0bn (vs consensus JPY6.0bn).
Novatek (3034.TT): A Good Year Ahead, and Likely to Expand to SMIC for Wafer Foundry
- Novatek had reported a flattish sales outlook in 1Q22, and all of revenue, GM and OPM were expected to NT$35.8~36.8bn, 48~51% and 34~37% respectively, while revenue was at -1.92~+0.82% QoQ.
- We think the high inventory days of supply chain is giving a good chance to expand into China foundry for production, especially SMIC.
- We think Novatek would maintain its solid dividend policy for EPS NT$63.87 in 2021, and it’s pay-out ratio is 80% in the past.
China Travel Intl Inv (308 HK): The Fruit Has Ripened?
- Share price of China Travel International Investment Hong Kong (308 HK) (CTII) rallied 23% in last 3 months and 81% from its trough, which has well reflected the FY21 turnaround.
- Risk-Return profile looks less attractive as its P/B multiple of 0.56x only provides 14% upside to the historical average of 0.63x. In other words, safety margin has diminished.
- Macro picture turned against CTII – weaker-than-expected CNY visitors in Shenzhen, escalating Omicron cases in Hong Kong and caution on domestic tourism outlook all point to a more challenging FY22.
Top Five Thai Banks in Our Chart Screener; Kasikorn Bank (KBANK TB) Is Top
- These five value oriented Thai banks all have healthy credit quality, NPL coverage and sound capital adequacy ratios; in addition, encouraging cost of risk trends support the outlook for earnings
- Of these, we believe Kasikorn Bank screens well, with its attractive pre-provision and post-provision profitability versus peers, whilst trading on relatively undemanding multiples; we also highlight Bangkok Bank positively
- Of the other Thai banks, we think that TMBThanchart could be a potential “turn around” stock, especially if management can improve credit quality, driving down its cost of risk further
GTX: Free Cash Flow Motion
- GTX is experiencing a steady improvement in the number of turbocharger units produced and sold with the Company’s management citing pent up demand from its customers
- GTX’s management’s commentary associated to the current business climate contrasted favorably from the third quarter earnings call.
- Investors are giving GTX much credit for its free cash flow abilities even though GTX reduced its Series B Preferred by $211 million in the fourth quarter
Related tickers: Alibaba Group (BABA.N), Sea Ltd (SE.N), Sea Ltd (SE.N), Dowa Holdings (5714.T), Zhuzhou CRRC Times Electric Co., Ltd. (3898.HK), Nihon M&A Center (2127.T), Novatek Microelectronics Corp (3034.TW), China Travel International Investment Hong Kong (0308.HK), Kasikornbank PCL (KBANK.BK), Garrett Motion (GTX)
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