Brief Japan: SBS (2384) A Great Third Party Logistics Company Seeing Good Organic Growth as Well as Via M&A. and more

In this briefing:

1. SBS (2384) A Great Third Party Logistics Company Seeing Good Organic Growth as Well as Via M&A.
2. The Dollar IS the Story; Gold Confounds, A Brexit Rabbit Hole; EUR Punished
3. Global-Ex-U.S. Equity Strategy: Add Exposure To Technology, Communications
4. Smartkarma’s Week That Was in JP/​​​​​​​​KR: Semiconductor Warnings, Exit of Chairman Cho, & 청년수당
5. Screening the Silk Road: (Small-)Mid Cap Free Cash Flow

1. SBS (2384) A Great Third Party Logistics Company Seeing Good Organic Growth as Well as Via M&A.

It is seeing decent organic growth, led by a focus on third party logistics (3PL). This will carry on. The recently acquired Ricoh Logistics should eventually see margins improve as it is integrated into SBS. This year’s operating profit forecast of Y9bn (+10%) is conservative. An increase of Y1bn this year will come from Ricoh Logistics alone, and then we have organic growth. In our view operating profit will be at least Y10bn. There is the unrealised profit on land, which add some Y85bn to a company whose market cap is Y71bn. Despite the outperformance over the last 12 months, this remains a decent long-term domestic buy, and one in which foreigners still own only 12%. The shares trade on 13x 12/19 assuming an operating profit of Y10bn. 

2. The Dollar IS the Story; Gold Confounds, A Brexit Rabbit Hole; EUR Punished

• The dollar IS the story
• EUR punished for negative yields
• Chasing Brexit down a rabbit hole
• Gold confounds
• Bitcoin at an interesting juncture

The fact that the dollar has strengthened despite the dovish turn at the Fed this year and the significant fall in US rates and bond yields has confounded many analysts.

3. Global-Ex-U.S. Equity Strategy: Add Exposure To Technology, Communications

We view weakness in global equity markets over the past week as correcting a significant amount of the excess optimism. We recommend taking advantage of the pullback by adding exposure to our favorite areas – namely Technology. Our overall outlook on global equities (both the MSCI ACWI and ACWI ex-US) remains positive and we continue to expect higher equity prices going forward.  In today’s report we provide a technical appraisal of all major markets and highlight actionable stocks throughout the int’l Technology and Communications sectors.

4. Smartkarma’s Week That Was in JP/​​​​​​​​KR: Semiconductor Warnings, Exit of Chairman Cho, & 청년수당

In the past week, there were earnings warnings from three major players in the global semiconductor sector, including Samsung Electronics (005930 KS), Micron Technology (MU US), and Infineon Technologies Ag (IFX GR). 

In Korea, after the collapse of the talks between Trump and KJU, the biggest loser has been President Moon Jae-In whose popularity has been sinking in the past several weeks. Moon Jae-In’s popularity has been sinking from the 80-90% range when he was first elected two years ago to the low-to-mid 40% range now. There has been a tremendous gain of the conservative Liberty Korea Party, led by Hwang Kyo-Ahn. Many people in Korea have become very dissatisfied with failing economic policies of the incumbent Moon Jae-In party and its excessive populism. 

In the past week, the following reports that are relevant for Japan and Korea have received a lot of interest among Smartkarma readers:

• Amarin–Our Talks With The CEO & An Update on New Trial Data Released at ACC Conference
• It’s The Annual Tuesday & Wednesday BUY TOPIX Trade
• Nissan: Atrocious Governance Should Be Rectified Before Even Thinking of a Merger
• Hitachi Bumps Yungtay Bid to NT$65. Take It.
• KOSPI 200 June 2019 Rebalancing: List of Addition/Deletion Candidates
• Samsung Electronics Voluntary Red Flag on 1Q Earnings
• The Final Countdown Between NPS Vs Korean Air Chairman Cho Yang-Ho
• SNK Corp IPO Preview

5. Screening the Silk Road: (Small-)Mid Cap Free Cash Flow

In April 2018, we published a FCF screen with the sole aim of identifying potential names which could prove to be strong candidates in a Small-Mid Cap portfolio. We move to update this list with a strong bias to the mid-cap stocks appearing.

This screen performs well with markets where the value style is in favour. Given the market appears to be trending back to this style, we believe the Small-Mid Cap universe should capitalise on this over the next 12-months. We identify within the screen some high trading liquidity deep value candidates across the Asia Pacific universe.

Our updated 2019 list of names contains 17 stocks, with a more diversified spread of countries and sectors, compared to April 2018. A point to note is that basic material stocks have strengthened within the composition. Interestingly, the style of stock which has increased its presence amongst the list is the contrarian style, highlighting an opening up in value.