Smartkarma Daily Briefs

China government guided no commission capping on real estate brokerage business, but the ladder-pricing system may lead to moderate commission rate reduction for Beike.
We estimate that 0.1% of Lianjia commission rate cut can imply to 1.2% of revenue reduction for Beike in 2023.
Therefore, we lowered revenue by (2.8%) and net income by (5.3%) to factor in the potential changes. We maintain BUY rating but cut the TP by US$2 to US$21.

MGM China: 1Q23 Results Shine Positive Light on Higher Valuations Ahead

By Howard J Klein

Much market sentiment continues to await more evidence that recovery in Macau can be sustained long term towards reaching baseline 2019 revenue levels.
MGM China Holdings Ltd. market share tracked under double digits pre-covid but is now poised to rise to low to mid teens going forward.
We see the shares as undervalued because its ramp ahead starts at a lower base than peers and is poised for significant sequential earnings beats ahead.

[BeiGene, LTD. (BGNE US) Target Price Change]: Valuation Adjustment Can Drive the Stock Upside

BeiGene (BGNE) reported C1Q23 top line 7% and gross margin 1.5ppt above our estimates, leading to non-GAA operating loss 23% narrower than our estimate.
We raise BRUKINSA’s peak year sales from US$5bn to US$5.8bn while cutting Tislelizumab’s peak sales from US$1.5bn to US$1.2bn.
With transition to a biopharma complete, BGNE should enjoy a higher multiple; We raised TP from US$219 to US$254 and maintain BUY.

Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 10

Daily Brief Macro: A Reality Check on the Yuan’s Prospects as a Global Currency and more

By Smartkarma Daily Briefs | Daily Briefs, Macro

In today’s briefing:

A Reality Check on the Yuan’s Prospects as a Global Currency
With May Elections, Thailand Approaches a Major Turning Point
China’s Two-Track Recovery Exposes Underlying Fragilities
Fed Lending Survey: Bad for Growth, Spreads, and Equities

A Reality Check on the Yuan’s Prospects as a Global Currency

By Manu Bhaskaran

The notion of “de-dollarization” is once again in vogue, with the yuan being floated as the dollar’s successor as a global currency. We are skeptical of such maximalist claims.
Bolstering the yuan so that it develops the necessary features of a global currency would require colossal, and ultimately unlikely, changes in Beijing’s economic and foreign policy.
Asian governments may complain about dollar hegemony but will ultimately stick to the devil they know while taking measures to manage the downsides.

With May Elections, Thailand Approaches a Major Turning Point

By Manu Bhaskaran

Parliamentary elections next week come as the military-royalist establishment faces internal divisions and voter ire. Thailand is ripe for a transition in government.
The Pheu Thai Party of ousted Prime Minister Thaksin Shinawatra is set to become the largest party, but the more radical Move Forward is also emerging as a formidable force.
A “grand coalition” between Pheu Thai and pro-establishment parties is likely. That could lead to the compromises needed heal Thailand’s deep divisions and end its long malaise.

China’s Two-Track Recovery Exposes Underlying Fragilities

By Manu Bhaskaran

A short-term unleashing of accumulated pent-up demand is insufficient to drive sustained economic recovery. Beyond the flashy headlines, the economy is struggling to regain pre-pandemic momentum.
Policymakers in Beijing have in mind the cyclical and structural economic headwinds, but constraints on public finances mean that a substantial degree of stimulus is unlikely.
However, the government’s continued pursuit of economic security may risk being a distraction, or worse, send signals over future policy that do not engender business confidence.

Fed Lending Survey: Bad for Growth, Spreads, and Equities

By Jeroen Blokland

Tighter lending standards for Commercial & Industrial loans point to a US recession.
Tighter lending standards for Commercial & Industrial loans suggest the US high yield default rate should quadruple this year to above 7% from 1.7% last year.
Equity market valuation has recently increased, moving in the exact opposite direction of lending standards.

Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 10

Daily Brief Event-Driven: Toshiba – Kioxia Could Be A Break Risk and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Toshiba – Kioxia Could Be A Break Risk
Toshiba (6502 JP): Tender Offer Risk/Reward
JAPAN GOVERNANCE CHANGES III: New Return Policy at Seikitokyu (1898) – To Be Copied Elsewhere?
Yitai Coal (3948 HK): H-Share Offer (Likely) Imminent
BIGLY Marui Group (8252 JP) Buyback, Backed by Big Dividend Boost
KLINE (9107) – Salutary Earnings, Decent Div, Strong Forecast, and Flow To Come
Where Are We Now Regarding New Dividend Distribution Procedure in Korea?
Yitai Coal (3948 HK): H Share Buyback Offer at HK$17.50 Per H Share
Seven & I: Investor Activism Update
KOSPI Size Indices – Potential Changes in September

Toshiba – Kioxia Could Be A Break Risk

We believe Kioxia’s results present a significant risk to financing for JIP’s Toshiba bid.
Recent commentary from companies increasingly points to the potential for an L-shaped recovery rather than a U-shaped one.
In addition, if conditions remain as challenging as they have been or worsen it is not inconceivable for Kioxia to require more capital.

Toshiba (6502 JP): Tender Offer Risk/Reward

Toshiba Corp (6502 JP) reports FY2022 results on 12 May. Since the announcement of Japan Industrial Partners (JIP)’s pre-conditional tender offer of JPY4,620 per share, there have been no progress updates.
The spread to the offer is currently 4.2%, suggesting a reasonable probability of success. However, the offer’s success ultimately depends on shareholder backing, particularly from the activists on the register.
Shareholder support continues to pose a considerable risk as the peers have re-rated, the offer’s price ratio remains unattractive and the declining premium of the offer’s implied multiple vs peers.

JAPAN GOVERNANCE CHANGES III: New Return Policy at Seikitokyu (1898) – To Be Copied Elsewhere?

Activist Strategic Capital has made shareholder noise at civil engineer-road infra company Seikitokyu Kogyo (1898 JP) for years. Two years ago I wrote about Seikitokyu as “A REALLY Cheap Company.”
When I wrote, it was ¥885/share. 23 months later it was ¥824/share having paid ¥60/share over two years. Despite having bought back 10% of shares outstanding in the interim.
Today they announced a radical new Shareholder Return Policy. It is worth reading in detail. The insight is labelled BEARISH for a specific reason. That’s a detail too.

Yitai Coal (3948 HK): H-Share Offer (Likely) Imminent

Back on the 29 March, Inner Mongolia Yitai Coal Company Ltd (3948 HK) announced a possible H-share buyback at HK$17/share, a 50.4% premium to the undisturbed price.
Yitai Coal is PRC-incorporated, therefore it is not afforded compulsory acquisition rights. To buy back ALL H-shares, either a Merger by Acquisition or a Voluntary Conditional Offer is required.
The Offer/buyback, should it proceed, is subject to various PRC regulatory approvals, including SAFE; together with approval from Yitai Coal’s A/H shareholders. To date, the SAFE Registration has been completed.

BIGLY Marui Group (8252 JP) Buyback, Backed by Big Dividend Boost

Last year, fintech-wannabe Marui Group (8252 JP) announced a large buyback as part of its ¥100bn distribution to shareholders in its MTMP, then increased the size
They repurchased ¥26bn of shares. Today they announced the return of ¥50bn this year including a ¥40bn buyback. And having arrived at their optimal balance sheet structure, a new policy.
That’s 10% of market cap and 11.6% of shares. And again a delayed start. And as always, shareholder structure matters. In this case a lot.

KLINE (9107) – Salutary Earnings, Decent Div, Strong Forecast, and Flow To Come

Kawasaki Kisen Kaisha (9107 JP) has been a high conviction long since early November when it reported Q2 earnings and a buyback. Buyback executed, they upped the dividend.
At Q3, earnings were downgraded from ¥700bn to ¥650bn on container biz weakness. FY22 ended at ¥695bn. March 2024 had been forecast at ¥106bn, the forecast is now ¥120bn.
The dividend has been “lowered” to ¥200/share, which is higher than expected. That’s for this year.

Where Are We Now Regarding New Dividend Distribution Procedure in Korea?

By Sanghyun Park

646 listed companies (28.5%) in Korea have modified their articles of incorporation this March to prioritize determining the dividend amount before setting the dividend record date.
New practices will arise involving the use of single-stock futures for arbitrage trading through baskets among major high-dividend companies whose dates of the dividend records overlap.
It will be crucial to keep track of the dividend record dates with precision. In this connection, KLCA and KOSDAQCA will create a website monitoring this information.

Yitai Coal (3948 HK): H Share Buyback Offer at HK$17.50 Per H Share

Inner Mongolia Yitai Coal Company Ltd (3948 HK)‘s H Share buyback offer is at HK$17.50, a 54.9% premium to the undisturbed price and a 9.0% premium to the last close.
The key conditions are approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders rejection). There is a 90% minimum acceptance condition.
The three independent H shareholders holding a blocking stake will be supportive of the attractive offer (9-year H Share price high). The price is final. Timing is the key risk.

Seven & I: Investor Activism Update

By Oshadhi Kumarasiri

The relationship between Value Act and Seven & I Holdings (3382 JP) has become toxic due to Value Act’s opportunistic behaviour after the passing of the Seven & I founder.
Seven & I and Value Act have been exchanging letters more frequently, with recent ones taking on an angry tone, especially from Seven & I’s side.
Value Act’s attempt to block the reappointment of experienced directors could cause long-term value disruption, especially if their goal is to pressure a spinoff of the convenience store business.

KOSPI Size Indices – Potential Changes in September

The review period for the September rebalance of the KOSPI Size Indices will run from 1 June to 31 August. The changes will be implemented at the close 7 September.
We see 6 migrations from MidCap to LargeCap, 56 migrations from LargeCap to MidCap, 2 new adds to MidCap, and 11 migrations from SmallCap to MidCap.
Historically, stocks migrating from SmallCap to MidCap have outperformed stocks that are migrating between other categories.

Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 10

Most Read: Japan Petroleum Exploration, BeiGene Ltd, Yunnan Chihong Zinc&Germanium Co, Ltd., Toshiba Corp, Seikitokyu Kogyo, Inner Mongolia Yitai Coal Company Ltd, Marui Group, Kawasaki Kisen Kaisha, Hyundai Motor (2nd Pref) and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

JAPAN GOVERNANCE CHANGES II – Who Could Surprise on Buybacks? Quant Rankings
FXI Rebalance Preview: Three Potential Changes in June
MVIS Global Rare Earth/Strategic Metals Index Rebalance Preview: Identifying Potential Changes
Toshiba – Kioxia Could Be A Break Risk
Toshiba (6502 JP): Tender Offer Risk/Reward
JAPAN GOVERNANCE CHANGES III: New Return Policy at Seikitokyu (1898) – To Be Copied Elsewhere?
Yitai Coal (3948 HK): H-Share Offer (Likely) Imminent
BIGLY Marui Group (8252 JP) Buyback, Backed by Big Dividend Boost
KLINE (9107) – Salutary Earnings, Decent Div, Strong Forecast, and Flow To Come
Where Are We Now Regarding New Dividend Distribution Procedure in Korea?

JAPAN GOVERNANCE CHANGES II – Who Could Surprise on Buybacks? Quant Rankings

Japanese companies are buying back more stock than ever before, and recent moves by the TSE and METI are effectively pushing for more.
The new goal is to lift PBR and ROE. The easiest way to lift ROE is reduce E. Low-PBR Cos with excess assets and cross-holdings (outbound and inbound) are targets.
In this insight I look at several possible rankings for potential large buyback targets.

FXI Rebalance Preview: Three Potential Changes in June

As of 8 May, we see three potential changes to the iShares China Large-Cap (FXI) (FXI US) at the June rebalance. This is mainly driven by the inclusions.
There is over 1 day of ADV to trade on all stocks with the largest impact on BeiGene Ltd (6160 HK) at nearly 4 days of ADV.
Short interest has been increasing on the potential adds as they have run up a lot in the last few months.

MVIS Global Rare Earth/Strategic Metals Index Rebalance Preview: Identifying Potential Changes

The review period for the June rebalance ends on 31 May. Announcement of the changes will be made on 9 June with implementation at the close on 16 June.
There could be 4 or 5 A-share additions due to their inclusion in Northbound Stock Connect. That in turn expands the universe and could result in up to 3 deletions.
If all changes go through as expected, estimated one-way turnover at the rebalance will be 15.1% resulting in a one-way trade of US$99m.

Toshiba – Kioxia Could Be A Break Risk

We believe Kioxia’s results present a significant risk to financing for JIP’s Toshiba bid.
Recent commentary from companies increasingly points to the potential for an L-shaped recovery rather than a U-shaped one.
In addition, if conditions remain as challenging as they have been or worsen it is not inconceivable for Kioxia to require more capital.

Toshiba (6502 JP): Tender Offer Risk/Reward

Toshiba Corp (6502 JP) reports FY2022 results on 12 May. Since the announcement of Japan Industrial Partners (JIP)’s pre-conditional tender offer of JPY4,620 per share, there have been no progress updates.
The spread to the offer is currently 4.2%, suggesting a reasonable probability of success. However, the offer’s success ultimately depends on shareholder backing, particularly from the activists on the register.
Shareholder support continues to pose a considerable risk as the peers have re-rated, the offer’s price ratio remains unattractive and the declining premium of the offer’s implied multiple vs peers.

JAPAN GOVERNANCE CHANGES III: New Return Policy at Seikitokyu (1898) – To Be Copied Elsewhere?

Activist Strategic Capital has made shareholder noise at civil engineer-road infra company Seikitokyu Kogyo (1898 JP) for years. Two years ago I wrote about Seikitokyu as “A REALLY Cheap Company.”
When I wrote, it was ¥885/share. 23 months later it was ¥824/share having paid ¥60/share over two years. Despite having bought back 10% of shares outstanding in the interim.
Today they announced a radical new Shareholder Return Policy. It is worth reading in detail. The insight is labelled BEARISH for a specific reason. That’s a detail too.

Yitai Coal (3948 HK): H-Share Offer (Likely) Imminent

Back on the 29 March, Inner Mongolia Yitai Coal Company Ltd (3948 HK) announced a possible H-share buyback at HK$17/share, a 50.4% premium to the undisturbed price.
Yitai Coal is PRC-incorporated, therefore it is not afforded compulsory acquisition rights. To buy back ALL H-shares, either a Merger by Acquisition or a Voluntary Conditional Offer is required.
The Offer/buyback, should it proceed, is subject to various PRC regulatory approvals, including SAFE; together with approval from Yitai Coal’s A/H shareholders. To date, the SAFE Registration has been completed.

BIGLY Marui Group (8252 JP) Buyback, Backed by Big Dividend Boost

Last year, fintech-wannabe Marui Group (8252 JP) announced a large buyback as part of its ¥100bn distribution to shareholders in its MTMP, then increased the size
They repurchased ¥26bn of shares. Today they announced the return of ¥50bn this year including a ¥40bn buyback. And having arrived at their optimal balance sheet structure, a new policy.
That’s 10% of market cap and 11.6% of shares. And again a delayed start. And as always, shareholder structure matters. In this case a lot.

KLINE (9107) – Salutary Earnings, Decent Div, Strong Forecast, and Flow To Come

Kawasaki Kisen Kaisha (9107 JP) has been a high conviction long since early November when it reported Q2 earnings and a buyback. Buyback executed, they upped the dividend.
At Q3, earnings were downgraded from ¥700bn to ¥650bn on container biz weakness. FY22 ended at ¥695bn. March 2024 had been forecast at ¥106bn, the forecast is now ¥120bn.
The dividend has been “lowered” to ¥200/share, which is higher than expected. That’s for this year.

Where Are We Now Regarding New Dividend Distribution Procedure in Korea?

By Sanghyun Park

646 listed companies (28.5%) in Korea have modified their articles of incorporation this March to prioritize determining the dividend amount before setting the dividend record date.
New practices will arise involving the use of single-stock futures for arbitrage trading through baskets among major high-dividend companies whose dates of the dividend records overlap.
It will be crucial to keep track of the dividend record dates with precision. In this connection, KLCA and KOSDAQCA will create a website monitoring this information.

Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 10

Daily Brief Industrials: Toshiba Corp, Seikitokyu Kogyo, Kawasaki Kisen Kaisha, Recruit Holdings, AviChina Industry & Technology H, Uni Asia Holdings, General Electric Co, Waste Management, Boeing Co and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Toshiba – Kioxia Could Be A Break Risk
Toshiba (6502 JP): Tender Offer Risk/Reward
JAPAN GOVERNANCE CHANGES III: New Return Policy at Seikitokyu (1898) – To Be Copied Elsewhere?
KLINE (9107) – Salutary Earnings, Decent Div, Strong Forecast, and Flow To Come
Recruit Holdings: 4QFY2023 Earnings Preview
AviChina Industry (2357 HK): Benefiting from the Geopolitical Turmoil
10 in 10 with Uni-Asia Group – All Aboard the Robust Bulk Carrier Industry
General Dynamics Corporation: Winning Big With Its Combat Systems – Key Drivers
Waste Management Inc.: Cleaning Up With Its Pricing Strategy – Key Drivers
The Boeing Company: Acquisition Of CloudAhoy & Other Developments

Toshiba – Kioxia Could Be A Break Risk

We believe Kioxia’s results present a significant risk to financing for JIP’s Toshiba bid.
Recent commentary from companies increasingly points to the potential for an L-shaped recovery rather than a U-shaped one.
In addition, if conditions remain as challenging as they have been or worsen it is not inconceivable for Kioxia to require more capital.

Toshiba (6502 JP): Tender Offer Risk/Reward

Toshiba Corp (6502 JP) reports FY2022 results on 12 May. Since the announcement of Japan Industrial Partners (JIP)’s pre-conditional tender offer of JPY4,620 per share, there have been no progress updates.
The spread to the offer is currently 4.2%, suggesting a reasonable probability of success. However, the offer’s success ultimately depends on shareholder backing, particularly from the activists on the register.
Shareholder support continues to pose a considerable risk as the peers have re-rated, the offer’s price ratio remains unattractive and the declining premium of the offer’s implied multiple vs peers.

JAPAN GOVERNANCE CHANGES III: New Return Policy at Seikitokyu (1898) – To Be Copied Elsewhere?

Activist Strategic Capital has made shareholder noise at civil engineer-road infra company Seikitokyu Kogyo (1898 JP) for years. Two years ago I wrote about Seikitokyu as “A REALLY Cheap Company.”
When I wrote, it was ¥885/share. 23 months later it was ¥824/share having paid ¥60/share over two years. Despite having bought back 10% of shares outstanding in the interim.
Today they announced a radical new Shareholder Return Policy. It is worth reading in detail. The insight is labelled BEARISH for a specific reason. That’s a detail too.

KLINE (9107) – Salutary Earnings, Decent Div, Strong Forecast, and Flow To Come

By Shifara Samsudeen, ACMA, CGMA

Kawasaki Kisen Kaisha (9107 JP) has been a high conviction long since early November when it reported Q2 earnings and a buyback. Buyback executed, they upped the dividend.
At Q3, earnings were downgraded from ¥700bn to ¥650bn on container biz weakness. FY22 ended at ¥695bn. March 2024 had been forecast at ¥106bn, the forecast is now ¥120bn.
The dividend has been “lowered” to ¥200/share, which is higher than expected. That’s for this year.

Recruit Holdings: 4QFY2023 Earnings Preview

Recruit Holdings (6098 JP) will report FQ4 results on 15th May. Consensus expectations are ¥844.4bn and ¥92.5bn in revenue and EBITDA respectively.
The company revised its previous guidance in February and expects revenues and OP of ¥823bn and ¥89.2bn respectively for 4QFY03/2023.
Our revenue forecast for 4QFY03/2023 is in line with Recruit’s guidance, while we expect the company’s adjusted EBITDA to be slightly higher than the guidance.

AviChina Industry (2357 HK): Benefiting from the Geopolitical Turmoil

By Osbert Tang, CFA

AviChina Industry & Technology (2357 HK) remains cheap with 3-year earnings CAGR of 17.4% but only 11x PER. It also trades on 55% discount to value of its A-share subsidiaries.
Aggregate earnings for its four A-share listed subsidiaries grew a solid 26.8% in 1Q23, even faster than AviChina Industry’s FY23F earnings growth of 21.5%.
China is expected to increase military spending to narrow the gap against the US going forward. AviChina stays best exposed to such growth in defense demand.

10 in 10 with Uni-Asia Group – All Aboard the Robust Bulk Carrier Industry

By Geoff Howie

10 in 10 with Uni-Asia Group – All Aboard the Robust Bulk Carrier Industry

General Dynamics Corporation: Winning Big With Its Combat Systems – Key Drivers

General Dynamics had a strong quarter and managed an all-around beat with an improving order book position and a company-wide book-to-bill ratio of 0.9:1.
The Combat Systems group saw particularly robust order activity with a book-to-bill ratio of 5x.
While Aerospace & Technologies continues to deliver strong cash performance, the Combat Systems group, in particular, produced exceptional free cash flow this quarter.

Waste Management Inc.: Cleaning Up With Its Pricing Strategy – Key Drivers

Waste Management is off to a good start in 2023, with first-quarter performance exceeding analyst expectations.
Collection and disposal volume also increased by 0.8% in the first quarter.
Waste Management believes it is poised for another year of robust financial growth in 2023.

The Boeing Company: Acquisition Of CloudAhoy & Other Developments

After a series of bad results, Boeing managed a mixed quarter to start the year as its revenues were above Wall Street expectations though company reported wider-than-expected losses.
However, Boeing still expects to deliver 450 737 airplanes this year and plans to increase its rate to 38 per month later this year.
The company also delivered 130 commercial airplanes in the quarter, steadily increasing rates across critical programs to meet robust demand.

Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 10

Daily Brief Financials: Binance Coin, Chubb , Sino-Ocean Group and more

By Smartkarma Daily Briefs | Daily Briefs, Financials

In today’s briefing:

Binance Halts Withdrawals as BTC Fees Surge
Chubb Limited: A True Leader In Leader in P&C and Life Insurance Business – Key Drivers
Morning Views Asia: JSW Steel Ltd, Powerlong Commercial Management Holdings, Sino-Ocean Service

Binance Halts Withdrawals as BTC Fees Surge

By Kaiko

The rise in popularity of BRC-20 tokens, essentially memecoins on the Bitcoin blockchain, has pushed Bitcoin fees to 2 year highs.
BRC-20s have massively increased demand for Bitcoin blockspace for the first time in recent history, with the network suffering from congestion and unconfirmed transactions as a result.
Over the weekend, Binance had to pause BTC withdrawals twice as they hadn’t accounted for a surge in BTC fees in the amount they pay miners, which had caused many transactions to go unconfirmed.

Chubb Limited: A True Leader In Leader in P&C and Life Insurance Business – Key Drivers

Chubb had a mixed start to 2023 and delivered a mixed result with revenues above Wall Street expectations.
However, it failed to meet earnings expectations of analysts despite managing a double-digit operating earnings growth.
Life Insurance premium revenue and Life earnings doubled.

Morning Views Asia: JSW Steel Ltd, Powerlong Commercial Management Holdings, Sino-Ocean Service

By Charles Macgregor

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

JSW Steel Ltd
Powerlong Commercial Management Holdings
Sino-Ocean Service
Sunny Optical
Tata Steel Thailand
Yuexiu Property

Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 10

Daily Brief Energy/Materials: Inner Mongolia Yitai Coal Company Ltd, Kum Yang, Southern Copper, Pioneer Natural Resources and more

By Smartkarma Daily Briefs | Daily Briefs, Energy & Materials Sector

In today’s briefing:

Yitai Coal (3948 HK): H-Share Offer (Likely) Imminent
Yitai Coal (3948 HK): H Share Buyback Offer at HK$17.50 Per H Share
Yitai Coal (3948 HK): H-Share Buyback Firmed At HK$17.50
Potential Inclusions & Exclusions for KOSPI 200 and KOSDAQ 150 in May 2023 Highlighted by Locals
Southern Copper Corporation: The Best Copper Stock To Own? – Key Drivers
Pioneer Natural Resources Company: Making A Real Killing In The Permian Basin – Key Drivers

Yitai Coal (3948 HK): H-Share Offer (Likely) Imminent

Back on the 29 March, Inner Mongolia Yitai Coal Company Ltd (3948 HK) announced a possible H-share buyback at HK$17/share, a 50.4% premium to the undisturbed price.
Yitai Coal is PRC-incorporated, therefore it is not afforded compulsory acquisition rights. To buy back ALL H-shares, either a Merger by Acquisition or a Voluntary Conditional Offer is required.
The Offer/buyback, should it proceed, is subject to various PRC regulatory approvals, including SAFE; together with approval from Yitai Coal’s A/H shareholders. To date, the SAFE Registration has been completed.

Yitai Coal (3948 HK): H Share Buyback Offer at HK$17.50 Per H Share

Inner Mongolia Yitai Coal Company Ltd (3948 HK)‘s H Share buyback offer is at HK$17.50, a 54.9% premium to the undisturbed price and a 9.0% premium to the last close.
The key conditions are approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders rejection). There is a 90% minimum acceptance condition.
The three independent H shareholders holding a blocking stake will be supportive of the attractive offer (9-year H Share price high). The price is final. Timing is the key risk.

Yitai Coal (3948 HK): H-Share Buyback Firmed At HK$17.50

Timing is everything. Yesterday afternoon I flagged Inner Mongolia Yitai Coal Company Ltd (3948 HK)‘s possible H-share buyback at HK$17/share.
Roughly five hours later a firm HK$17.50/share Offer was announced. The Offer Price is final.
Other terms and approvals were largely as expected. Payment under the Offer may occur mid-August.

Potential Inclusions & Exclusions for KOSPI 200 and KOSDAQ 150 in May 2023 Highlighted by Locals

By Douglas Kim

In this insight, we discuss the potential inclusions and exclusions that the locals are highlighting for the KOSPI 200 and KOSDAQ 150 rebalance in May 2023.
The top five best performing stocks YTD that are expected to be included in either KOSPI200 and KOSDAQ150 include Rainbow Robotics, Kumyang, Cosmo Chemical, Yunsung F&C, and Posco M Tech.
In the coming weeks, there is a higher probability these five stocks underperform the market on average as many investors sell the news on them getting included in these indices.

Southern Copper Corporation: The Best Copper Stock To Own? – Key Drivers

Southern Copper Corporation had a great quarter despite several economic difficulties and managed an all-around beat.
The company’s other open pit operations reported a decrease in annual copper production, with the exception of the Buenavista operation, where production levels were higher than those in 2021.
We give Southern Copper Corporation a ‘Hold’ rating with a revised target price.

Pioneer Natural Resources Company: Making A Real Killing In The Permian Basin – Key Drivers

Pioneer Natural Resources delivered a mixed set of results in the last quarter.
Pioneer has formed the largest contiguous acreage position in the Midland Basin with its persistent focus on the Permian Basin.
We give Pioneer Natural Resources Company a ‘Hold’ rating with a revised target price.

Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 10

Daily Brief TMT/Internet: Tencent, Cosmo AM&T, Naver Corp, KE Holdings Inc, Novatek Microelectronics Corp, Meta Platforms (Facebook), ASML Holding NV and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

Tencent (700 HK) Earnings Preview: To See Recovery in 1Q23
KOSPI Size Indices – Potential Changes in September
Naver (2023 High Conviction Update): Poshmark & Gen Z – Key Drivers of Higher Sales in North America
[KE Holdings Inc. (BEKE US) Target Price Change]: Government Clears the Commission Uncertainties
Novatek: Volume Production of VR Driving Strongest Segment; AR/VR Finally Going Mass Market in 2023?
Meta Platforms Inc.: Riding The New AI Wave? – Market Dominance & Other Drivers
ASML Holding N.V.: Does It Have A Strong Enough Moat? – Key Drivers

Tencent (700 HK) Earnings Preview: To See Recovery in 1Q23

By Ming Lu

We believe total revenue will grow by 6% in 1Q23, compared to four stagnant quarters in 2022.
We also believe operating margin will improve by 2 percentage points YoY in 1Q23 due to the layoff in 1Q22.
We believe the stock has an upside of 48%, but we reduce our price target from HK$563 to HK$505.

KOSPI Size Indices – Potential Changes in September

The review period for the September rebalance of the KOSPI Size Indices will run from 1 June to 31 August. The changes will be implemented at the close 7 September.
We see 6 migrations from MidCap to LargeCap, 56 migrations from LargeCap to MidCap, 2 new adds to MidCap, and 11 migrations from SmallCap to MidCap.
Historically, stocks migrating from SmallCap to MidCap have outperformed stocks that are migrating between other categories.

Naver (2023 High Conviction Update): Poshmark & Gen Z – Key Drivers of Higher Sales in North America

By Douglas Kim

In this insight, we provide an update of Naver Corp which is our 2023 high conviction stock. Naver’s shares are up 19% YTD, outperforming KOSPI which is up 12% YTD.
The total transaction amount of Naver Commerce was 11.6 trillion won (up 19.7% YoY) in 1Q 2023. Poshmark also generated positive EBITDA in 1Q 2023.
Naver plans to cancel about 1.6 million treasury shares per year (1% of outstanding shares) in the next three years (for a combined 3% of outstanding shares).

[KE Holdings Inc. (BEKE US) Target Price Change]: Government Clears the Commission Uncertainties

China government guided no commission capping on real estate brokerage business, but the ladder-pricing system may lead to moderate commission rate reduction for Beike.
We estimate that 0.1% of Lianjia commission rate cut can imply to 1.2% of revenue reduction for Beike in 2023.
Therefore, we lowered revenue by (2.8%) and net income by (5.3%) to factor in the potential changes. We maintain BUY rating but cut the TP by US$2 to US$21.

Novatek: Volume Production of VR Driving Strongest Segment; AR/VR Finally Going Mass Market in 2023?

By Vincent Fernando, CFA

Novatek reported earnings ahead of expectations where margins rose thanks to recovery in pricing for its products in inventory. Inventory metrics improved as well.
Key industry readthrough — Novatek seeing strongest demand for DDICs (display driver chips) coming from the small/medium form factor and highlighted mass production of VR as a cause.
Apple could be quietly preparing for mass production of AR/VR headset ahead of announcement at June’s WWDC. Combined with Novatek’s comments, could AR/VR will be going mass market this year?

Meta Platforms Inc.: Riding The New AI Wave? – Market Dominance & Other Drivers

Meta Platforms had a decent quarter and surpassed Wall Street expectations in terms of revenues as well as earnings.
The company is progressing in improving its distributed work model, delivering AI tools to improve productivity, and removing unnecessary processes.
AI recommendations now operate more than 20% of users’ Facebook and Instagram Feeds and over 40% of content on Instagram.

ASML Holding N.V.: Does It Have A Strong Enough Moat? – Key Drivers

ASML Holding had a mixed first quarter with below par revenues but performing better than expected on the revenues front.
Net sales increased significantly due to higher-than-anticipated EUV and deep UV revenue from quicker system installation and earlier acceptance in the quarter.
The company also shipped 9 EUV systems with significant revenue from 17 systems.

Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 10

Daily Brief Health Care: Shockwave Medical Inc, BeiGene, Boston Scientific, Humana Inc and more

By Smartkarma Daily Briefs | Daily Briefs, Healthcare

In today’s briefing:

Shockwave Medical Inc (SWAV US): Beat-And-Raise 1Q23 Results; BSX Deal Reportedly Hit Roadblock
[BeiGene, LTD. (BGNE US) Target Price Change]: Valuation Adjustment Can Drive the Stock Upside
Boston Scientific Corporation: An Innovation Powerhouse In The Healthcare Domain – Major Drivers
Humana Inc.: Transforming Healthcare with its CenterWell Portfolio – Key Drivers

Shockwave Medical Inc (SWAV US): Beat-And-Raise 1Q23 Results; BSX Deal Reportedly Hit Roadblock

By Tina Banerjee

Shockwave Medical Inc (SWAV US) reported better-than-expected Q1 results, due to continued geography expansion and strong demand of its IVL catheters for the treatment of coronary and peripheral artery diseases.
Shockwave projects 2023 revenue of $700–720M, which represents 43–47% YoY growth. This compares to previous 2023 revenue guidance of $660–680M.
According to a new media report, the acquisition talks between Boston Scientific (BSX US) and Shockwave have hit a snag as both the parties could not agree on a price.

[BeiGene, LTD. (BGNE US) Target Price Change]: Valuation Adjustment Can Drive the Stock Upside

BeiGene (BGNE) reported C1Q23 top line 7% and gross margin 1.5ppt above our estimates, leading to non-GAA operating loss 23% narrower than our estimate.
We raise BRUKINSA’s peak year sales from US$5bn to US$5.8bn while cutting Tislelizumab’s peak sales from US$1.5bn to US$1.2bn.
With transition to a biopharma complete, BGNE should enjoy a higher multiple; We raised TP from US$219 to US$254 and maintain BUY.

Boston Scientific Corporation: An Innovation Powerhouse In The Healthcare Domain – Major Drivers

Boston Scientific Corporation’s first quarter performance exceeded Wall Street expectations across all business units and countries and the company delivered an all-around beat.
Total company operational sales increased by 15%, while organic sales increased by 14%, exceeding its guidance range of 6% to 8%.
During the quarter, the company launched its third-generation EXALT-D with improved ergonomic design modifications to improve the physician experience.

Humana Inc.: Transforming Healthcare with its CenterWell Portfolio – Key Drivers

Humana had a healthy start to the year and managed an all-around beat in Q1.
Total medical expenses in their Medicare Advantage business for the first quarter came in a little bit better than expected.
Furthermore, the CenterWell portfolio, which consists of primary care, home care, and pharmacy, continues to experience strong growth.

Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 10

Daily Brief Industrials: Toshiba Corp, Seikitokyu Kogyo, Kawasaki Kisen Kaisha, Recruit Holdings, AviChina Industry & Technology H, Uni Asia Holdings, General Electric Co, Waste Management, Boeing Co and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Toshiba – Kioxia Could Be A Break Risk
Toshiba (6502 JP): Tender Offer Risk/Reward
JAPAN GOVERNANCE CHANGES III: New Return Policy at Seikitokyu (1898) – To Be Copied Elsewhere?
KLINE (9107) – Salutary Earnings, Decent Div, Strong Forecast, and Flow To Come
Recruit Holdings: 4QFY2023 Earnings Preview
AviChina Industry (2357 HK): Benefiting from the Geopolitical Turmoil
10 in 10 with Uni-Asia Group – All Aboard the Robust Bulk Carrier Industry
General Dynamics Corporation: Winning Big With Its Combat Systems – Key Drivers
Waste Management Inc.: Cleaning Up With Its Pricing Strategy – Key Drivers
The Boeing Company: Acquisition Of CloudAhoy & Other Developments

Toshiba – Kioxia Could Be A Break Risk

We believe Kioxia’s results present a significant risk to financing for JIP’s Toshiba bid.
Recent commentary from companies increasingly points to the potential for an L-shaped recovery rather than a U-shaped one.
In addition, if conditions remain as challenging as they have been or worsen it is not inconceivable for Kioxia to require more capital.

Toshiba (6502 JP): Tender Offer Risk/Reward

Toshiba Corp (6502 JP) reports FY2022 results on 12 May. Since the announcement of Japan Industrial Partners (JIP)’s pre-conditional tender offer of JPY4,620 per share, there have been no progress updates.
The spread to the offer is currently 4.2%, suggesting a reasonable probability of success. However, the offer’s success ultimately depends on shareholder backing, particularly from the activists on the register.
Shareholder support continues to pose a considerable risk as the peers have re-rated, the offer’s price ratio remains unattractive and the declining premium of the offer’s implied multiple vs peers.

JAPAN GOVERNANCE CHANGES III: New Return Policy at Seikitokyu (1898) – To Be Copied Elsewhere?

Activist Strategic Capital has made shareholder noise at civil engineer-road infra company Seikitokyu Kogyo (1898 JP) for years. Two years ago I wrote about Seikitokyu as “A REALLY Cheap Company.”
When I wrote, it was ¥885/share. 23 months later it was ¥824/share having paid ¥60/share over two years. Despite having bought back 10% of shares outstanding in the interim.
Today they announced a radical new Shareholder Return Policy. It is worth reading in detail. The insight is labelled BEARISH for a specific reason. That’s a detail too.

KLINE (9107) – Salutary Earnings, Decent Div, Strong Forecast, and Flow To Come

By Shifara Samsudeen, ACMA, CGMA

Kawasaki Kisen Kaisha (9107 JP) has been a high conviction long since early November when it reported Q2 earnings and a buyback. Buyback executed, they upped the dividend.
At Q3, earnings were downgraded from ¥700bn to ¥650bn on container biz weakness. FY22 ended at ¥695bn. March 2024 had been forecast at ¥106bn, the forecast is now ¥120bn.
The dividend has been “lowered” to ¥200/share, which is higher than expected. That’s for this year.

Recruit Holdings: 4QFY2023 Earnings Preview

Recruit Holdings (6098 JP) will report FQ4 results on 15th May. Consensus expectations are ¥844.4bn and ¥92.5bn in revenue and EBITDA respectively.
The company revised its previous guidance in February and expects revenues and OP of ¥823bn and ¥89.2bn respectively for 4QFY03/2023.
Our revenue forecast for 4QFY03/2023 is in line with Recruit’s guidance, while we expect the company’s adjusted EBITDA to be slightly higher than the guidance.

AviChina Industry (2357 HK): Benefiting from the Geopolitical Turmoil

By Osbert Tang, CFA

AviChina Industry & Technology (2357 HK) remains cheap with 3-year earnings CAGR of 17.4% but only 11x PER. It also trades on 55% discount to value of its A-share subsidiaries.
Aggregate earnings for its four A-share listed subsidiaries grew a solid 26.8% in 1Q23, even faster than AviChina Industry’s FY23F earnings growth of 21.5%.
China is expected to increase military spending to narrow the gap against the US going forward. AviChina stays best exposed to such growth in defense demand.

10 in 10 with Uni-Asia Group – All Aboard the Robust Bulk Carrier Industry

By Geoff Howie

10 in 10 with Uni-Asia Group – All Aboard the Robust Bulk Carrier Industry

General Dynamics Corporation: Winning Big With Its Combat Systems – Key Drivers

General Dynamics had a strong quarter and managed an all-around beat with an improving order book position and a company-wide book-to-bill ratio of 0.9:1.
The Combat Systems group saw particularly robust order activity with a book-to-bill ratio of 5x.
While Aerospace & Technologies continues to deliver strong cash performance, the Combat Systems group, in particular, produced exceptional free cash flow this quarter.

Waste Management Inc.: Cleaning Up With Its Pricing Strategy – Key Drivers

Waste Management is off to a good start in 2023, with first-quarter performance exceeding analyst expectations.
Collection and disposal volume also increased by 0.8% in the first quarter.
Waste Management believes it is poised for another year of robust financial growth in 2023.

The Boeing Company: Acquisition Of CloudAhoy & Other Developments