In this briefing:
- Okinawa Cellular (9436 JP): Warm Tropical Breezes with KDDI
- FGEN (FGEN PM): New Contract with Meralco to Support Cash Flow
1. Okinawa Cellular (9436 JP): Warm Tropical Breezes with KDDI
As the colder winter weather is felt and the icy blast of industry tariff cuts continues to chill sentiment, we seek some respite (at least mentally) in the warmer climes of Okinawa. Okinawa Cellular is a unique company. It’s a small cap telecom network operator in Japan with a focus on the sub-tropical islands of Okinawa Prefecture. As part of the KDDI group, the company benefits from its parent’s economies of scale, but with its local presence, it also benefits from being the hometown hero.
Because the stock is relatively small, from an investment perspective it runs into liquidity constraints that the other telcos do not have, so it’s a different type of investment but one that we think is worth looking at. Over the past 12 months Okinawa Cellular’s stock has fallen by 12.3%, but over the past year the stock has delivered a return in the middle of its peer group and has outperformed the broad TOPIX by about 5.5%. Like most telcos, Okinawa Cellular is also ramping its dividend payments, and the current yield is about 3.5%.
2. FGEN (FGEN PM): New Contract with Meralco to Support Cash Flow
- Low correlation to the Thai market, low correlation with Western stock markets, and cheap on a PE basis relative to its sector
- Stable cash flow from new contract for FGEN’s San Gabriel plant to sell its entire capacity of 414 MW to Meralco Manila Electric Company (MER PM) until 2024
- Geothermal-energy producer EDC has been delisted through a share buyback tender offer, FGEN to benefit from higher equity stake (47% vs 42%) and more control over the firm to implement longer-term strategies
- Trades at discount to ASEAN Utilities at 19CE* 6.5x PE and offers much better EPS growth
- Risks: Facility breakdowns, uncertainty regarding plans for LNG facility
* Consensus Estimates
