In this briefing:
- New US Sanctions Against Venezuela: Impact on the Oil Sector and Prices
- Major Highlights of SK Telecom’s 4Q18 Earnings Conference Call
- TDK Revises FY03/19 Guidance on the Back of US-China Trade Tensions
- Alibaba (BABA): For Dec. Quarter, Focus on Profit Improvement, But Not Revenue Growth, 40% Upside
1. New US Sanctions Against Venezuela: Impact on the Oil Sector and Prices
US sanctions against Venezuela’s central bank and PDVSA, announced on Monday (January 28), have sent refiners on the US Gulf Coast scrambling for replacement supplies of heavy crude. Though they do not cover the business of non-US entities with PDVSA, the move has put Venezuelan crude importers in China and India on notice.
For US refiners, the three main alternative suppliers of heavy, sour crude — Canada, Mexico and Saudi Arabia — are either constrained in their ability to step up supply or are deliberately reducing shipments.
Venezuela’s upstream oil sector has been limping for a long time now. But the sanctions against PDVSA may deal it a death blow. The crude market is keeping a wary eye on the situation but appears unwilling to price in the worst-case scenario for the time being, as it remains fixated on the global economic prospects and concerns over oil demand growth.
We look at the fallout of the latest move by Washington on the primary entities doing oil business with Venezuela: refiners in the US, China and India (the main markets for Venezuelan crude) and Russian giants Rosneft and Lukoil.
We also discuss the likelihood and impact of Venezuelan crude production grinding down from the current 1 million b/d to zero.
2. Major Highlights of SK Telecom’s 4Q18 Earnings Conference Call
- SK Telecom (017670 KS) reported disappointing 4Q18 earnings results. SK Telecom’s revenue of 4,351.7 billion won was 0.2% lower than consensus and its operating profit of 225 billion won was 23% lower than the consensus in 4Q18. Despite the disappointing 4Q18 results (especially due to lower operating income and lack of flow through of SK Hynix dividends to SKT), we remain positive on SK Telecom.
- We believe that SK Telecom’s 10,000 won DPS in 2018 is a disappointment. However, we believe the stage has been set for higher DPS policy, linking SK Hynix’s dividends to SK Telecom and as mentioned in the conference call numerous times, this is likely to be announced in the AGM in March. In terms of amount, we believe 13,000 won to 15,000 won appears to be reasonable in 2019.
- The company’s comment about its sales and profits improving starting in 2H 2019 is consistent with its previous statement in the third quarter conference call. However, the company’s statement about its revenue target of more than 1 trillion won growth YoY in 2019 is new and positive. In 2018, SK Telecom generated consolidated sales of 16.9 trillion won, down 3.7% YoY. If the company is able to generate revenue of 17.9 trillion won in 2019, this would represent a growth of 5.9% YoY. The current consensus estimate of the company’s sales is 17.47 trillion won in 2019. Thus, the company has basically guided the 2019 sales target by 2.5% higher than the current consensus estimate.
3. TDK Revises FY03/19 Guidance on the Back of US-China Trade Tensions
- TDK revised its FY03/19E guidance following the 3QFY03/19 earnings release, which underperformed both consensus and LSR expectations.
- The company has been affected by the US-China trade war and the deceleration of the Chinese economy in the third quarter.
- Revenue guidance for FY03/19E has been decreased to JPY1,370bn from JPY1,420bn (-3.5%) projected in October 2018. OP guidance for the year has been reduced to JPY110bn compared to the previous expectation of JPY120bn (-8.3%).
- On our estimates, TDK is currently trading at a FY1 PE of 12x, lower than its historical median of 16.4x.
4. Alibaba (BABA): For Dec. Quarter, Focus on Profit Improvement, But Not Revenue Growth, 40% Upside
- For the December quarter results, the market is focusing on the slowdown of the revenue growth, but we notice that the growth rate of operating profits recovered.
- In two of our previous reports, we mentioned BABA’s efforts on cost control in the second half of 2018. Now we can see the results.
- We believe the most important risk is the significant operating losses in the minor business “digital media”.
- The P/E band suggests that the stock price has an upside of 40%.
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