Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

Renesas posted strong 1Q results despite concerns regarding a fire at its production facilities that is exacerbating shortages for automotive semiconductors. Revenue came in just 1.3% above consensus but the real story was margins which improved very significantly QoQ with OPM moving from 19.4% in 4Q20 to 25.8% in 1Q21 (above guidance of 22.0%).

Renesas posted strong 1Q results despite concerns regarding a fire at its production facilities that is exacerbating shortages for automotive semiconductors. Revenue came in just 1.3% above consensus but the real story was margins which improved very significantly QoQ with OPM moving from 19.4% in 4Q20 to 25.8% in 1Q21 (above guidance of 22.0%).

Renesas – Profitability Is the Story Here, Not Factory Fires

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 9 April, Dialog <a href="https://www.dialog-semiconductor.com/sites/default/files/2021-04/Results_of_Meeting_Announcement_09.04.21_vff.pdf" target="_blank" rel="noopener">announced</a> that, in connection with the cash offer to be effected by means of a scheme of arrangement:
<ul>
<li>At the Court meeting, a majority of scheme shareholders voted in favour of the resolution to approve the Scheme.</li>
<li>At the EGM, the special resolution to approve the scheme was also passed.</li>
</ul>
Completion remains subject to satisfaction or waiver of the other conditions (see <a href="https://www.dialog-semiconductor.com/sites/default/files/2021-03/03.%20Scheme%20Document.pdf" target="_blank" rel="noopener">scheme document</a>), mainly competition and regulatory approvals (Germany, the People's Republic of China, Taiwan and the United States).
Timeline. The acquisition is currently expected to become effective in H2 2021.
The acquisition of Dialog will boost Renesas competitive offering in low-power technology and connectivity across smart devices, cars (especially EVs) and IoT. Renesas is mainly exposed to Car (47.6% of FY 2020 revenues) and Industrial/Infrastructure IoT (50.8% of FY 2020 revenues), therefore Dialog would increase the sales mix in mobile (including Apple, which would amount to less than 10% proforma revenues). Exposure to China will be increased. Main drivers for growth will be smartphones and IoT.
I am assuming that the offer will complete at the current offer price as the multiple offered is fair (that said, Dialog seemed arguably a bit undervalued by the market given its exposure to Apple), and there should not be anti-trust of regulatory concerns given the size of Dialog.
The gross spread (19 April market close) is 4.6%, c. 9% annualised, which is relatively high in comparison with recent European friendly deals. Dialog has not paid any dividend in recent years and presumably will not pay a dividend this one either (source: Capital IQ consensus). The spread may reflect concern over Renesas's leverage, and/or anti-trust scrutiny, low risk in my view. Dialog's shares are liquid.
Recommendation is long DLG GR, TP €67.5.

On 9 April, Dialog announced that, in connection with the cash offer to be effected by means of a scheme of arrangement:

At the Court meeting, a majority of scheme shareholders voted in favour of the resolution to approve the Scheme.
At the EGM, the special resolution to approve the scheme was also passed.

Completion remains subject to satisfaction or waiver of the other conditions (see scheme document), mainly competition and regulatory approvals (Germany, the People's Republic of China, Taiwan and the United States).
Timeline. The acquisition is currently expected to become effective in H2 2021.
The acquisition of Dialog will boost Renesas competitive offering in low-power technology and connectivity across smart devices, cars (especially EVs) and IoT. Renesas is mainly exposed to Car (47.6% of FY 2020 revenues) and Industrial/Infrastructure IoT (50.8% of FY 2020 revenues), therefore Dialog would increase the sales mix in mobile (including Apple, which would amount to less than 10% proforma revenues). Exposure to China will be increased. Main drivers for growth will be smartphones and IoT.
I am assuming that the offer will complete at the current offer price as the multiple offered is fair (that said, Dialog seemed arguably a bit undervalued by the market given its exposure to Apple), and there should not be anti-trust of regulatory concerns given the size of Dialog.
The gross spread (19 April market close) is 4.6%, c. 9% annualised, which is relatively high in comparison with recent European friendly deals. Dialog has not paid any dividend in recent years and presumably will not pay a dividend this one either (source: Capital IQ consensus). The spread may reflect concern over Renesas's leverage, and/or anti-trust scrutiny, low risk in my view. Dialog's shares are liquid.
Recommendation is long DLG GR, TP €67.5.

Semiconductors, Memory and SSDs Specialist, Objective Analysis

Jim Handy

Semiconductors, Memory and SSDs Specialist

Objective Analysis

Objective Analysis offers third-party independent market research and data for the semiconductor industry and investors in the semiconductor industry.

Semiconductors, Memory and SSDs

Thematic (Sector/Industry)

For the third month in a row semiconductor revenues have been 14% or more above trend, to set historic records.  This Smartkarma Insight explores this phenomenon and the price dynamic that is driving it.

For the third month in a row semiconductor revenues have been 14% or more above trend, to set historic records.  This Smartkarma Insight explores this phenomenon and the price dynamic that is driving it.

February Semiconductor Revenues Remain Impressively Above Trend

Lexus announced its new LF-Z EV concept yesterday, laying out broad plans for its electrification strategy and future development outlook. The brand has seen less news flow than the main Toyota brand in terms of technological progress but this appears to now be changing. This has implications for a variety of suppliers.

Lexus announced its new LF-Z EV concept yesterday, laying out broad plans for its electrification strategy and future development outlook. The brand has seen less news flow than the main Toyota brand in terms of technological progress but this appears to now be changing. This has implications for a variety of suppliers.

Our sceptical position on the elevated multiples for tech stocks has been relatively consistent over time. As with all bubbles, despite valuations clearly being out of touch with reality, markets have continued to trend upwards, and in many cases the least attractive stocks have done the best. We would argue that signs of liquidity issues at Ark and the rapid implosion of Archegos herald the beginning of the end.

Our sceptical position on the elevated multiples for tech stocks has been relatively consistent over time. As with all bubbles, despite valuations clearly being out of touch with reality, markets have continued to trend upwards, and in many cases the least attractive stocks have done the best. We would argue that signs of liquidity issues at Ark and the rapid implosion of Archegos herald the beginning of the end.

Softbank – Is Archegos the Bear Stearns CDO Funds in the Coalmine?

Japan

Renesas Electronics Corporation researches, develops, designs and manufactures electronic components such as semiconductors and integrated devices.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Renesas Electronics (6723 JP)

Renesas – Profitability Is the Story Here, Not Factory Fires

Renesas has been a bit of a laggard among semiconductor names but a strong increase in profitability could reassure investors worried about damage...

Mio Kato

Renesas/Dialog: Update and Spread

Gross spread (19 April) is 4.6%, about 9% annual spread considering less than six months to close, relatively high in comparison with recent...

Jesus Rodriguez Aguilar

February Semiconductor Revenues Remain Impressively Above Trend

What is driving the current boom in semiconductors? An ongoing shortage, which is driving striking price increases, leading to record revenues. ...

Jim Handy

Toyota – Electrifying Lexus

Lexus has seen less EV related news flow than the main Toyota brand in terms of technological progress but this appears to now be changing and has...

Mio Kato

Softbank – Is Archegos the Bear Stearns CDO Funds in the Coalmine?

With a lot of signs of market stress emerging following a truly bubbly run up in 2020 we examine the prospects for a stock that has traditionally...

Mio Kato

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)