In today’s briefing:
- Taste Gourmet: Multibagger Reopening Play
- Water Oasis: A Double From Here, Brace for the Re-Opening of Hong Kong
- Tencent – End of Game Approval Freeze Is a Positive; but Regulators Are Not Slowing Down
- Tokyo Electron (8035 JP): Delays and Uncertainty
- Sony – An Epic Funding Round
- Sido Muncul (SIDO): The Dawn of New Era
- Lawson: Profitability Held Back by Growth Investments
- Goldwin Expecting Record Sales
- HDFC Bank/HDFC Ltd Merger: Will Catalyze Growth, Not Dampen It
- UMC (2303.TT): 2Q22 Preview and the Order Booking Is Pretty Much Full in 3Q22.
Taste Gourmet: Multibagger Reopening Play
- The relaxing of restrictions by Hong Kong makes Taste Gourmet Group Ltd (8371 HK) a great reopening play, trading at 8.8x FY22e and 5.6x FY23e.
- Despite a challenging environment, the company has executed well, maintaining net margins north of 7-8%, which are far superior to other listed competitors.
- With >60% payout ratios, it trades at a dividend yield of 6.7%/11.4% FY22e/FY23e. Since 29% of the market capitalization is cash, we are confident in the dividend payments.
Water Oasis: A Double From Here, Brace for the Re-Opening of Hong Kong
- Beauty services in Hong Kong will pick up from the 21st of April 2022 post the reopening, due to pent-up demand and the disbursement of Consumption Vouchers by the government.
- Despite losing three months of H1 2022 and a month of H2 2022, we believe that Water Oasis (1161 HK) is still trading at 5.4x PE FY22e.
- With an 80% payout ratio, the dividend yield is alluring at 16.4%. Net cash represents 38% of market capitalization. A year of uninterrupted operations implies a 3.8x PE.
Tencent – End of Game Approval Freeze Is a Positive; but Regulators Are Not Slowing Down
- China’s gaming regulator, National Press and Publication Administration granted publication licenses to a list of 45 games, ending the nine-month long freeze on new game approvals in the country.
- While it comes as a relief, The Cyberspace Administration of China has kicked off a formal campaign to investigate and rectify algorithm security issues of tech companies.
- Though any of Tencent (700 HK) games didn’t receive approvals, the company’s shares have moved positively during today’s trade and up 2.1% from yesterday’s close.
Tokyo Electron (8035 JP): Delays and Uncertainty
- As of February, TEL expected the global wafer fab equipment market to grow by nearly 20% in calendar 2022. This seems increasingly unlikely.
- Japanese data shows equipment demand leveling off while the economic situation deteriorates and semiconductor capacity expansion projects are delayed.
- The shares have dropped 22% since the beginning of January and are now selling at 20x management’s EPS guidance for FY Mar-22. Not cheap in historical terms.
Sony – An Epic Funding Round
- Sony and LEGO’s investment in Epic comes shortly after the official release of Unreal Engine 5 which promises to significantly improve efficiency for game designers and visual effects artists.
- We had predicted that Sony and Epic would continue to drift closer and would eventually dominate the metaverse and this does nothing to change that view.
- We discuss below the impact on some popular metaverse plays which investors seem to fail to realise are only metaverse plays because they can be shorted.
Sido Muncul (SIDO): The Dawn of New Era
- Launched 30 new SKUs during COVID-19 in multiple areas of health that can transform the company from herbal remedies into a bigger conglomerate of health providers.
- PE firm that backed SIDO in the earlier years reduced its holdings but it should not be seen as a vote of negative confidence in the company.
- Sido Muncul (SIDO IJ) can be compared to Blackmores Ltd (BKL AU) which has a wide range of health products but trades at a 100% premium to SIDO.
Lawson: Profitability Held Back by Growth Investments
- The fourth quarter was again a disappointing one for Lawson Inc (2651 JP) with operating income falling short of consensus by 14.6%.
- The next year’s OP guidance of ¥53.0bn (12.5% YoY) is around ¥10.0bn below the pre-COVID level, but Lawson’s lower profitability could be due to heavy upfront investments.
- Further out, there is substantial upside to Lawson’s profitability and consensus could be unjustly penalizing Lawson’s growth investments by valuing the company at a discounted FY+2 OP multiple.
Goldwin Expecting Record Sales
- Goldwin Inc (8111 JP) has risen to hold a leading share in outdoor wear retailing on the back of the success of The North Face.
- It has developed considerable retail and marketing skills in the process and is now applying these to its own brand with hopes of going global.
- Demand for new forms of sports and outdoor brand remain strong in Japan and globally and Goldwin’s mix of technical fabrics and quality could give it an edge.
HDFC Bank/HDFC Ltd Merger: Will Catalyze Growth, Not Dampen It
- A first look at the merger suggests that the value proposition is tilted towards HDFC Ltd (“HDFC”) vs HDFC Bank (“HDFCB”), given the declining regulatory arbitrage between large-NBFCs and banks
- However, given HDFCB’s intense focus on growing its distribution prowess, HDFCB stands to benefit immensely from the merger and is thus a win-win deal.
- With the expanded distribution network and cross-sell synergies, HDFCB, despite the larger base, will benefit from an accelerated growth post-merger.
UMC (2303.TT): 2Q22 Preview and the Order Booking Is Pretty Much Full in 3Q22.
- The 1Q22 revenue is NTD$63.4bn, and we estimate GM is ~40%, which is consistent with 1Q22 guidance.
- We estimate the order is pretty much confirmed in UMC in 3Q22, which should be ~NTD$65bn.
- UMC will increase about 10-15k/month of 28nm capacity in 2H22.
Related tickers: Water Oasis (1161.HK), Tencent (0700.HK), Tokyo Electron (8035.T), Sony Corp (6758.T), Sido Muncul (SIDO.JK), Lawson Inc (2651.T), Goldwin Inc (8111.T), HDFC Bank (HDBK.NS), United Microelectron Sp Adr (UMC.N)
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