In this briefing:
- SVI (SVI TB): Production Capacity Expansion Should Continue to Pay Off
- Japan Display: Squeezing Up 36% As Chinese Investment Could Solve Balance Sheet Troubles
- Wonik Merger Swap: Div-Adjusted Yield Is Now at 4.17% – Cancellation Risk Is Slim
- Starbucks (SBUX): China Strategy Reaped by Luckin’s Parasitical Tactic, a Visit and Case Study
- Share Classifications: Mid-December 2018 Snapshot
1. SVI (SVI TB): Production Capacity Expansion Should Continue to Pay Off
- More attractive to analysts, solid short-term earnings momentum, and strong stock price momentum relative to its sector
- Production capacity expansion at Cambodia and Slovakia plants should continue to stimulate sales which was up by 32% in 3Q18 YoY
- SVI’s focus on industrial customers means less volatile sales, and the long selling cycle works against new competitors
- Trades slightly lower at 19CE* PEG ratio of 0.7 compared to Thai Info Tech at 0.8 PEG and SVI is net cash
- Risks: Swift changes in technology
* Consensus Estimates
2. Japan Display: Squeezing Up 36% As Chinese Investment Could Solve Balance Sheet Troubles
As we mentioned in a comment in Japan Display: Cost Structure Improvement Is Good but Shipment Delay and IPhone XR Cloud Outlook the NHK reported last night that JDI was in talks with a Chinese consortium to secure something in the region of ¥50bn in funding (more than its market cap yesterday) for a more than 33% stake in the company. The Nikkei shed light on the identities of some of the consortium this morning mentioning investment fund Silk Road, Minth Group Ltd (425 HK) and Shenzhen O Film Tech Co A (002456 CH). Bloomberg has also mentioned that the consortium could invest a further ¥500bn to establish a new facility in China for the production of OLED panels.
We spoke to the company this morning to get colour on these announcements.
3. Wonik Merger Swap: Div-Adjusted Yield Is Now at 4.17% – Cancellation Risk Is Slim
- Wonik IPS (240810 KS) / Wonik Tera Semicon (123100 KS) merger got shareholder approval yesterday. Spread now stands at 4.28%. Spread peaked at 5.12% on Dec 12. Dividend-adjusted spread is 4.17%.
- Tera Semicon is a bit of a concern. Its stock purchase price is 1.38% higher than current price. Worst case would be half of the minority shareholders claiming rights. Even if so, this would be less than ₩60bil. The company is liquid enough to absorb it.
- Local institutional arb traders have been seen doing this trade, at least partly. I’d make this trade when spread widens to 5~6%. I expect it to get to this level very soon.
4. Starbucks (SBUX): China Strategy Reaped by Luckin’s Parasitical Tactic, a Visit and Case Study
- We believe Luckin copies SBUX’s site selection, but chooses low rental places close to Starbucks shops.
- Starbucks plans to add delivery business to raise margins and comparable store sales, but Luckin has focused on delivery since inception.
- Starbucks needs the China market as its growth momentum, but we believe Luckin’s parasitical tactic will be a major resistance.
5. Share Classifications: Mid-December 2018 Snapshot
This weekly share class summary is a companion insight to Travis Lundy‘s H/A Spread & Southbound Monitor – most recently discussed in H/A Spread & Southbound Monitor – Going Into Year End.
This share class monitor provides a snapshot of the premium/discounts for various share classifications around the region, and comprises four sets of data:
1. 82 ADRs
2. 105 Korean Prefs
3. 22 Regional Dual Classes
4. 7 Foreign/Local Thai shares
The average premium/discount for each set over a one-year period is graphed below.
For a granular breakdown of each set, PDFs are attached at the bottom of this insight.
