In today’s briefing:
- Softbank – Transfer of Arm China Shares Does Nothing But Raise Red Flags
- JD.com (JD): Layoff Plan Covers Only Minor Businesses, Still a Buy
- Seven & I: A Lot Left in Speedway Synergies
- Softbank Corp (Buy) – Growth/Value Hybrid Has Been Left Behind by Telco Peers
- Nikon (7731) | Focusing on the 4 Year View
- Breaking Estimate Short Candidates: UiPath, EchoStar, Stitch Fix, First Solar
- Robinhood Markets, Inc. (HOOD): Sell Short
- Dongfang Electric (1072 HK): Beaten Down Too Excessively
- OneConnect Files for Secondary Listing; Not Yet a Convincing Story
- Yaskawa – We Expect a Slight Miss and Tepid Guidance
Softbank – Transfer of Arm China Shares Does Nothing But Raise Red Flags
- Caixin confirmed today that Arm had transferred its shares in its China JV to a special purpose vehicle which it owns together with Softbank, as the FT had initially flagged.
- This could technically eliminate the obstacles to an audit for an IPO but we believe regulators would be remiss in allowing such a flimsy change to pass muster.
- In addition, the move reeks of desperation for cash and Softbank’s typical disregard for prudence and the importance of due diligence to investors.
JD.com (JD): Layoff Plan Covers Only Minor Businesses, Still a Buy
- JD dismissed employees in many businesses, such as Retail, International, and Jingxi.
- However, we believe the layoff only covers minor businesses and functions.
- We believe the stock still has a upside of 48%.
Seven & I: A Lot Left in Speedway Synergies
- Even though the results weren’t a blowout as we expected, today’s price performance suggests that Seven & I Holdings (3382 JP) has not disappointed the market.
- We think Seven & I could be playing safe by holding back Speedway synergies.
- After a short breather, share price momentum has shifted positive and we expect this to continue alongside upgrades to Speedway synergy estimates.
Softbank Corp (Buy) – Growth/Value Hybrid Has Been Left Behind by Telco Peers
- Softbank Corp (9434 JP) shares have underperformed telco peers that benefit from a risk-off environment despite a sector-high dividend payout as 38% of value comes from Internet and fintech
- That dividend payout looks safe across our forecast period though as the telco business provides sufficient free cash and parent Softbank Group (9984 JP) can always use more cash
- At Q3, management reiterated confidence in financial guidance through FY22 and a positive Z Holdings (4689 JP) Q4 report could help shares make up lost ground
Nikon (7731) | Focusing on the 4 Year View
- The new four-year medium-term strategy that lays out a realistic route to greater profitability and growth.
- The stock has been trading below book value for years
- Buying back 10% of outstanding shares will give investors confidence
Breaking Estimate Short Candidates: UiPath, EchoStar, Stitch Fix, First Solar
- This model uncovers companies facing recent sharp cuts in estimates. These shorts can have very disparate characteristics.
- The key judgement involves whether the negative revisions are temporary or if they are indications of ongoing weakness in the business.
- Breaking Estimates stocks often continue to decline after the cuts. This week we flag: UiPath, EchoStar, Stitch Fix, First Solar
Robinhood Markets, Inc. (HOOD): Sell Short
- HOOD’s performance indicators are deteriorating. Growth in funded accounts is not growing. Monthly average users are declining, and ARPU is falling. Margins remain negative and are declining.
- The company’s main sources of revenue are from transactions in speculative instruments. Options and crypto trading represent 80% of transaction revenue… in accounts that average $4,300 in size.
- Small scale and lack of diversification leave it disadvantaged. Further, it generates little fee income, such as asset management fees. It is nearly entirely reliant on payment for order flow.
Dongfang Electric (1072 HK): Beaten Down Too Excessively
- We think the recent price weakness of Dongfang Electric (1072 HK) is overdone, and there is strong value proposition on the stock based on its current multiples.
- DEC’s orderbook has well covered in the next two years, while we see cost management measures will help mitigating the pressure on margin.
- It is well positioned to capture the wind power boom (26% of FY21 revenue) and remains the prime beneficiary of China’s hydrogen economy and pumped storage demand in the longer-term.
OneConnect Files for Secondary Listing; Not Yet a Convincing Story
- OneConnect Financial Technology (OCFT US) is a leading technology-as-a-service provider for financial services industry in China.
- The company is currently listed in the US and recently filed for a secondary listing in Hong Kong in an attempt to boost the liquidity of its shares.
- OCFT still relies on its parent Ping An to generate most of its revenues and despite seeing strong growth in top line, the company is still far from profits.
Yaskawa – We Expect a Slight Miss and Tepid Guidance
- Yaskawa reports today and we expect earnings and guidance to both be on the weak side.
- The stock has been weak of late but we still lean towards the idea that there is a little downside risk remaining.
- The key question is whether the market attaches any credibility to consensus projections of 15% YoY OP growth next FY.
Related tickers: Softbank Group (9984.T), JD.com Inc (ADR) (JD.O), Seven & I Holdings (3382.T), Nikon Corp (7731.T), Dongfang Electric (1072.HK), OneConnect Financial Technology (OCFT.N), Yaskawa Electric (6506.T)
Before it’s here, it’s on Smartkarma
