In today’s briefing:
- Rex: Bargain Purchase and Auditor Fantasy Valuations
- Conviction Call Dowa – Add Into This Correction
- Japan Tobacco 2022 High Conviction Update: The Russia Ukraine War Impact Is a Bit Overdone
- Bilibili: All Things Point to Slowdown in Earnings Growth
- Upstart Holdings: Fast-Growing, Profitable, Cash Generative with Share Buybacks
- Upstart Holdings: Slowdown In Revenue Growth And Tightening Of Credit Markets
- Solvency Risk Short Candidates: Invitae, AMC, 2U Inc., Delek US
- TOA: Squeeze Margin Pressured 1H22 Earnings
- BGRIM: Rising Gas Cost to Drag SPP Margins in 1H22
Rex: Bargain Purchase and Auditor Fantasy Valuations
- Rex International Holding (REXI SP) reported FY21 results in late February which showed a dramatic improvement over FY20 due to rising oil prices and increased production
- Accounting wise the picture was muddied by auditor fantasy valuation exercises which understated FY21 results. FY22 to be a “clean” year where positive cash flow impact becomes clearer to market.
- Since 08/03/22 Rex trades on the SGX mainboard and remains the best pure-play oil bet in the Singapore market. Current oil prices indicate an FY22 cash flow bonanza.
Conviction Call Dowa – Add Into This Correction
- Our 2022 conviction call Dowa Holdings is up 25% since we made that call and was up as much as 44% a few days ago.
- We believe the recent correction is a simple reaction to the speed at which it had been rising.
- We see significant further upside and unlike peers we believe all-time high earnings can be sustained even with commodity price moderation.
Japan Tobacco 2022 High Conviction Update: The Russia Ukraine War Impact Is a Bit Overdone
- Japan Tobacco (2914 JP)’s share price fell 14% from the bottom end of the upward trend channel and underperformed Topix by 6% over the last 15 days.
- Even if Russia yields zero dollars, we think the impact on JT’s valuation could be around 20%.
- With demand for cigarettes expected to go up during these war times, we think the market reaction of this scale is unwarranted.
Bilibili: All Things Point to Slowdown in Earnings Growth
- Bilibili Inc (BILI US) reported 4Q2021 results last week where revenues increased 50.6% YoY to RMB 5.8bn while operating losses increased to RMB 2bn compared to RMB 903m in 4Q2020.
- This marks the lowest YoY growth in top line since 2Q2019. Though all segments experienced YoY growth in revenue, we have observed that the growth is slowing down.
- The company also has announced a share buyback of up to US$500m of its ADS over the next 24 months
Upstart Holdings: Fast-Growing, Profitable, Cash Generative with Share Buybacks
- Upstart Holdings Inc (UPST US) is both a consumer Internet brand as well an online loan origination platform.
- Upstart is a rare fintech that has established credibility by delivering high growth with profits and cash generation. The healthy 2022 outlook underscores the long-term potential.
- While the ongoing market volatility is a near-term risk, the tech sell-off presents an opportunity to gain exposure to a good story at an attractive valuation.
Upstart Holdings: Slowdown In Revenue Growth And Tightening Of Credit Markets
- We see limited upside potential for Upstart Holdings Inc (UPST US) shares after reporting a record 200%+ YoY revenue growth rate in CY’21.
- Our calculations suggest insiders sold ~$1.5 billion worth of Upstart shares since August 2020, including Third Point, CEO of Upstart Holdings, and management of the fintech company.
- Rising interest rates and tightening of credit markets may negatively impact revenue, keeping in mind that Upstart Holdings Inc (UPST US) primarily facilitates unsecured personal loans on the platform.
Solvency Risk Short Candidates: Invitae, AMC, 2U Inc., Delek US
- This model seeks companies facing dangerously high leverage coupled with negative or declining cash flows. It considers interest expense, capex and short term maturities for additional input.
- The companies may not be viable given cash flows and capital structures. These shorts tend to have higher betas and can have strong down moves as the crisis is recognized.
- This week we flag: Invitae, AMC, 2U Inc., and Delek US
TOA: Squeeze Margin Pressured 1H22 Earnings
- Yesterday analyst meeting came out with a negative tone.We expect TOA net profit in 1H22to weaken YoY due to an increase in raw material cost in spite of upward selling
- We expect earnings drop both QoQ and YoY in 1Q22 caused by squeezed GPM from rising raw material cost. In contrast,revenue will be expanded YoY supported by demand for painting
- We revised down 2022-23 earnings by 3-7% in 2022-23E to factor in further decrease in gross profit margin caused by a rise in material cost following spike in oil price.
BGRIM: Rising Gas Cost to Drag SPP Margins in 1H22
- The analyst meeting came out in a negative tone, as the projected rise in gas cost will pressure the SPP margins and drag the earnings in 1H22.
- We expect 1Q22 recurring profit to soften due to continued rise of fuel cost. The earnings should bottom out in 1H22 and pick up gradually 3Q22 onwards.
- The SPP gas price has rose to Bt336/ MMBTU in 4Q21 compared to Bt268/MMBTU in 3Q21.According to management guidance the gas prices are further expected to rise near Bt450/MMBTU level
Related tickers: Rex International Holding (REXI.SI), Dowa Holdings (5714.T), Japan Tobacco (2914.T), Bilibili Inc (BILI.O), Invitae Corp (NVTA.N), TOA Paint (Thailand) (TOA.BK), B Grimm Power (BGRIM.BK)
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