Daily TMT & Internet: Yaskawa Electric: We Are Probably Now Close to the Bottom for This LT Structural Growth Story and more

In this briefing:

1. Yaskawa Electric: We Are Probably Now Close to the Bottom for This LT Structural Growth Story
2. Starbucks (SBUX): Could Starbucks’ Beans Start to Lose Their Magic?
3. Xiaomi Placement – The Selling Continues
4. Weimob IPO Trading Update – Existing Shareholders to the Rescue
5. TRADE IDEA: Amorepacific (002790 KS) Stub: A Beautiful Opportunity

1. Yaskawa Electric: We Are Probably Now Close to the Bottom for This LT Structural Growth Story

Following Yaskawa’s second downward revision at 3Q earnings, we are shifting towards a more positive stance on the stock, even from a long-term perspective. We had been negative on the stock from late 2017 and as the stock tumbled we maintained that it was still too early buy for the long-term, though by mid-late 2018 we did (incorrectly) feel that there was the potential for a short term rally due to the severity of underperformance.

With the stock selling off harshly in the recent market fall but rebounding following its weak earnings we feel that much of the bad news is now priced in and expectations have corrected to the point where this is once again interesting on the long side.

2. Starbucks (SBUX): Could Starbucks’ Beans Start to Lose Their Magic?

Three key emerging risks to the Starbucks’ growth story: 1) New entrant poses a threat to China growth story; 2) New CEO is missing the magic of the beans; and 3) New Uber partnership could erode Starbucks’ brand equity.

In our January 8 research note, we cautioned that Starbucks had outperformed the NASDAQ by 37% since we turned positive on August 8 but we were concerned about two new developments that we viewed as red flags: shelving of Reserve coffee bar expansion and aggressive China expansion plans of Luckin Coffee. While we do not believe this represents a short opportunity, we do believe it foreshadows emerging risks to Starbucks’ long-term growth story.

3. Xiaomi Placement – The Selling Continues

An undisclosed institutional shareholder of Xiaomi Corp (1810 HK) is looking to sell 231m shares of the company for approximately US$273m. 

There will likely to be more selling pressure in the near term. The 594m shares sold down by Apoletto and the anonymous shareholder who sold at a 14% discount does not inspire confidence. Furthermore, there will be even more overhang to come from the twelve-month lock-up expiry. The deal also scores poorly on our framework owing to its expensive valuation and the lack of information on the seller. 

4. Weimob IPO Trading Update – Existing Shareholders to the Rescue

Weimob.com (2013 HK) IPO was priced at the low-end at HKD2.80/share. The retail tranche was 0.79x covered while the institutional tranche was slightly over-subscribed.

I’ve covered most aspects of the deal in my earlier insights: 

• Weimob Pre-IPO – Can Be Steamrolled by Tencent, Anytime
• Weimob IPO Quick Take – Less SaaS, More Ads -> Lower Valuation

In this insight, I’ll provide an update on the deal dynamics, valuations and provide a table with the implied valuations at different share price levels.

5. TRADE IDEA: Amorepacific (002790 KS) Stub: A Beautiful Opportunity

Take out an ad in a magazine or pay a one of the Wondergirls to post an Instagram photo of herself using our makeup? How do we get Americans and Europeans to want our bubble tea sleeping packs and panda-shaped palettes? All valid questions for K-beauty companies in the midst of a global expansion.

Korean beauty products powerhouse, Amorepacific is going through some growing pains at the moment. In the 3Q18 the group reported a YoY sales increase of 6% but OP tumbled 24% due to increased personnel and marketing costs. In a management policy statement last week, Chairman Suh outlined the problems the group is encountering as it copes with reaching customers in a world where online and offline customer interaction is changing. 

The stub is now trading at its widest discount to NAV in at least 3 years and has reached 22% discount to its Sum of the Parts NAV by my calculations. This level represents a level 1.5 standard deviations below its long-term average and also offers compelling value. 

In this insight I will detail:

• an actionable market-neutral trade idea
• an analysis of the various business units of Amorepacific
• reasons for the under-performance of Amorepacific parent and a sign of a rebound
• a recap of ALL my stub trade ideas on Smartkarma, including track record of performance