In this briefing:
- Puregold Price Club: Steady Grower with Provincial Expansion Story
- Chunghwa Telecom’s 2019 Guidance Looks Optimistic After Missing 2018 Guidance.
- KDDI Tender Offer for Kabu.com (8703 JP) Decided
- Robotics Earnings: Nabtesco and HDS Results Strong; Still No Reason to Own Fanuc
1. Puregold Price Club: Steady Grower with Provincial Expansion Story
- Conference call with the IR of Puregold Price Club (PGOLD PM) reveals that SSSG grew healthily at 6.5% YoY in 9M18, thanks to personal income tax cut.
- The bigger growth driver is provincial expansion (outside Metro Manila), which would allow PGOLD to achieve mid-teen sales growth.
- There has been little to no sales impact from e-commerce as e-commerce penetration in Philippines is lagging even in the ASEAN context.
- PGOLD trades at 18.3x 2019E PE, a 15% discount to peers average of 21.6x
2. Chunghwa Telecom’s 2019 Guidance Looks Optimistic After Missing 2018 Guidance.
Chunghwa Telecom (2412 TT) recently announced very ambitious FY19 guidance targets. While the market may view management’s optimism poistively, we expect this to be very short-lived for two reasons (i) Chunghwa’s 2018 guidance proved to be hopelessly optimistic, eventually missing revenue and EBITDA by a wide margin, and (ii) Chunghwa starts 2019 with a -6% revenue growth. It will be tough to get to the guided 2.4-3.5% growth in 2019. Management seem to be assuming the competitive environment will ease, but the comparables will be very tough in 1H19, and we will not see a repeat of the one-off cancellation fees received in May 2018. The dividend looks to be at risk, and if that is a key concern, we would prefer to own Far Eastone (4904 TT) or Taiwan Mobile (3045 TT) which should keep dividends stable. We to reiterate our Reduce recommendation and slightly lower the target price to NT$86.
3. KDDI Tender Offer for Kabu.com (8703 JP) Decided
Today after the close, KDDI Corp (9433 JP) announced its intention to conduct a Tender Offer for Kabu.Com Securities (8703 JP) through a made-for-purpose SPC. The deal is not terribly different in scope than the one discussed in KDDI Deal for Kabu.com (8703 JP) Coming? about two weeks ago.
The Tender Offer is to purchase a minimum of 45,758,400 shares at ¥559/share, which is a 5.67% premium to today’s close and a 46.3% premium to the undisturbed price of 23 January 2019. Obtaining the minimum would get the combination of KDDI and MUFJ Securities (which currently holds 52.96% of the shares outstanding, and will not tender) to 66.67% which would allow the combination to do a Two Step Squeezeout, which KDDI states in the document that it intends to do.
Anti-trust and regulatory approvals are required, and KDDI expects that the Tender Offer will commence in late April. This looks pretty easy as a deal, with few impediments. A rival bid is unlikely in the extreme, KDDI has a headstart with the shares of MUFG Bank which have committed to the deal.
There are a couple interesting aspects to this deal, and KDDI made several other announcements simultaneously which taken together show some of the extent of KDDI’s plans.
4. Robotics Earnings: Nabtesco and HDS Results Strong; Still No Reason to Own Fanuc
Following a long period of weakness, robotics related stocks are displaying stronger performance recently as 3Q results have come in weak, but generally done so with management reassurances that this is the bottom.
Company | Peak to Trough Performance | Trough | Performance Since Trough |
-52.8% | 26 Dec | +18.6% | |
-58.5% | 4 Jan | +24.7% | |
-58.9% | 26 Dec | +35.4% | |
-65.8% | 4 Jan | +41.3% |
We had been negative on the sector for some time before turning more constructive in mid January following Yaskawa’s earnings. We concur with the general messaging that this is the bottom based on our analysis of order levels for the companies and regional trend breakdowns. We do not expect a particularly sharp rebound in orders and sales in the near future and believe there is still some risk of these stocks returning toward the lows over the course of the year. However, we believe that the next significant move should be upwards and longer term investors should be looking for entry timings.
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