In this briefing:
- JD.com (JD): The Real Main Business Grew 46% YoY, and Not 20% YoY in 4Q2018
- Optorun (6235) Orders Bottoming and 5G Will Benefit the Company Considerably. BUY
- Sea Ltd: Further Share Re-Rating After a 35% Daily Gain? Why Not?
1. JD.com (JD): The Real Main Business Grew 46% YoY, and Not 20% YoY in 4Q2018
- We believe the real main business line is service (commission), but not product (direct sales).
- In 4Q2018, service revenues grew by 46% YoY, but nominal main business line, product, grew only 20%.
- JD raised its commission rate in 2018, as demonstrating that the company still has the bargaining power over retailers.
- Historical GMV numbers suggest significant upside.
2. Optorun (6235) Orders Bottoming and 5G Will Benefit the Company Considerably. BUY
Given the slowdown in Apple orders, which are only part of the story here, the shares have been a dreadful performer. They have underperformed TOPIX by 40% over the last 12 months and are 40% off their July 2018 high. They now trade on 11x this year’s numbers (and yield 2.7%), which we believe to be conservative. With the roll out of 5G orders next year will surely be up as well. We would buy at current levels.
3. Sea Ltd: Further Share Re-Rating After a 35% Daily Gain? Why Not?
- The biggest positive surprise from Sea Ltd’s (SE US) conference call is strong 2019 adjusted sales guidance: 82%-97% YoY growth for Garena (digital entertainment division) and 117-127% YoY growth for Shopee (e-commerce arm).
- Management expects first positive quarterly EBITDA for Shopee Taiwan operations in 1Q19, indicating there is a path to profitability for Shopee’s business model.
- Another great news: management expresses high confidence that Shopee’s S&M expenses in terms of absolute dollars would trend down in 2019, vs. 2018.
- After a 35% daily share gain on 27 Feb, SE trades at 4.1x 2019E P/adjusted revenue excl. 1P sales, yet still a whopping 49% discount to Pinduoduo’s (PDD US) 8.1x P/S.
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