Smartkarma Daily Briefs

JD: Douyin new merchant services aims to improve eCommerce quality (-)
BABA/PDD: Taobao begins to roll out “99 Bargain” portal (-)
1024HK / 3690HK: Kuaishou resumes exploration of local services (+/-)

China TMT Update – BILI/BEKE/9995HK -Some BILI Content Creators Reportedly Cease to Upload Videos(-)

BILI: Some BILI content creators reportedly cease to upload videos due to monetization(-)
BEKE: Housing transaction volume continue ramp up in March 2023(+)
9995HK: BioNTech signed ADC license deal with a Chinese startup (-)

China TMT Update: JD/PDD/981HK/1347HK/650HK/ACMR – Small Merchants Rebel Against PDD Policies

JD: JD plans listing of its MRO distributor subsidiary JD Industrials (+)
PDD: Reports indicate that small merchants rebel against PDD policies (-)
981HK/1347HK/650HK/ACMR: Japan announces restrictions on exports of semiconductor equipment (+)

GEM Weekly (7 Apr 2023): Asian PMI, South Korea, Thailand, Philippines CPI; SK Hynix, NCSoft, Kakao

By Wium Malan, CFA

The Global Emerging Markets Weekly provides a summary of the key news and related developments impacting the largest countries and constituents of the Global Emerging Markets equity indices.
Macro data points: Asian PMI data, South Korea exports and inflation, Thailand inflation, Philippines inflation, China Caixin PMI
Companies mentioned:SK Hynix (000660 KS), NCSOFT Corp (036570 KS), Kakao Corp (035720 KS)

US Banks – Off Balance Sheet Moving On?

By Daniel Tabbush

It appears as though off balance sheet lines are moving on balance sheet
We should not confuse loan growth from off balance sheet as positive
Credit costs can now rise from a myriad of factors, including off B/S

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Apr 08

Daily Brief Macro: CX Daily: How China’s Shrinking Population Is Driving Education Reform and more

By Smartkarma Daily Briefs | Daily Briefs, Macro

In today’s briefing:

CX Daily: How China’s Shrinking Population Is Driving Education Reform
Ignoring Tailwinds
Weekly Market Monitor 14 – Did the Fed Finally Break the US Labor Market?

CX Daily: How China’s Shrinking Population Is Driving Education Reform

By Caixin Global

In Depth: How China’s shrinking population is driving education reform
Beijing’s EU envoy warns of risks if bloc curbs China trade
Exclusive: Shagang still wants to buy Nangang Iron & Steel from Fosun

Ignoring Tailwinds

By Untying The Gordian Knot

The US 10-year rates futures had rallied for six consecutive days while Growth and Momentum stocks lagged.
Wednesday was a marked change, with NASDAQ falling while bonds rallied sharply.
It was a day when value and small caps outperformed FANMG and Growth stocks.

Weekly Market Monitor 14 – Did the Fed Finally Break the US Labor Market?

By Jeroen Blokland

Cracks are appearing in the US labor market, bringing relief for the Federal Reserve concerning inflation. But higher unemployment significantly increases the odds of a US recession.
The increase in Federal Reserve liquidity is keeping markets afloat. But assuming the banking crisis does not worsen from here, liquidity will reverse.
Our Fear & Frenzy Sentiment Index moved away from ‘Frenzy’ but remains in Neutral territory. Futures positioning and equity flows worsened, pushing the Fear & Frenzy Sentiment Index toward ‘Fear.’

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Apr 08

Daily Brief ECM: Gigavis IPO Valuation Analysis and more

By Smartkarma Daily Briefs | Daily Briefs, ECM

In today’s briefing:

Gigavis IPO Valuation Analysis

Gigavis IPO Valuation Analysis

Our base case valuation of Gigavis IPO is target price of 61,755 won per share, representing 56% higher than the high end of the IPO price range.
We estimate the company to generate sales of 126.6 billion won (up 27% YoY) in 2023 and 150.9 billion won (up 19.2% YoY) in 2024.
Our base case valuation is based on 21.8x P/E using our estimated net profit of 35.9 billion won in 2023.

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Apr 08

Daily Brief Equity Bottom-Up: Empire Energy Group (ASX:EEG) – Gas Bells Are Ringing and more

By Smartkarma Daily Briefs | Daily Briefs, Equity Bottom-Up

In today’s briefing:

Empire Energy Group (ASX:EEG) – Gas Bells Are Ringing
[Miniso Group (MNSO US）]: Strong Offline Traffic Bodes Well for C1Q23 Growth
PT Surya Citra Media (SCMA IJ) – Primed for Reset in 2023
Step One Clothing Ltd – Underwear Under Valued
[Atour Lifestyle (ATAT US, BUY, TP US$34) Target Price Change]: A Steady Expanding Year in 2023
Empire Energy Group Ltd – Gas Bells Are Ringing
[Nayuki Holding (2150 HK) Target Price Change]: Business Model Change Has Risky Consequence
Step One Holdings Ltd – Underwear Under Valued
X2M Connect Ltd – China Contract Adds to H2 Progress
Amaero International Ltd – “Plan B” Brings Risk but Potentially Greater Returns

Empire Energy Group (ASX:EEG) – Gas Bells Are Ringing

Carpentaria-2H testing results continue to build the economic case for EEG
IP30 gas flow of 3.0 mmcfd/1000m (normalised) is on the button and early analysis suggests gas recoveries of 6-8Bcf/well could be achievable
The business case is building with upgraded resource certification to come heading to a FID target date of end-2023.

[Miniso Group (MNSO US）]: Strong Offline Traffic Bodes Well for C1Q23 Growth

We expect Miniso to report C1Q23 revenue, operating profit, and net income 3.6%, 18.3% and 16.7% higher than consensus.
We think the strong foot traffic to offline stores post CNY bodes well for Miniso’s domestic store sales in 2023;
We maintain the Buy rating, and raise TP by US$1 to US$25 to factor in the sales recovery from higher foot traffic and ARPU.

PT Surya Citra Media (SCMA IJ) – Primed for Reset in 2023

By Angus Mackintosh

PT Surya Citra Media Tbk (SCMA IJ) had an exciting 2022, with a ramp-up in new audience share-winning original content along with the boost from the Word Cup rights.
Both SCTV and IVM gained significant audience share in 2022, and Vidio led the charge on OTT driven by killer content, finishing the year with 5m paying subscribers.
Profitability was hit by a sharp rise in production costs and investment in Vidio but we expect significant improvement in 2023. Valuations are attractive with SCMA on 12x FY2023E PER.

Step One Clothing Ltd – Underwear Under Valued

Step One Clothing (ASX:STP) is a Direct to Consumer (DTC), 100%-own-brand underwear retailer specialising in anti-chafe bamboo underwear across men’s and women’s wear, with a core colour range supplemented by regular limited-edition releases, all with FSC (Forest Stewardship Council) certification throughout the supply chain.
The company has operations in Australia (67% of sales), UK, (30% of sales) and the US (3% of sales). A H1 FY23 sales decline of 5.7% was better than our industry average estimate of-19% cycling lockdown, while lower sales and marketing spend saw EBITDA in-line with the pcp at $7.6m, the highest of any industry peer.
H2 FY23 should see similar trends and deliver EBITDA well above consensus.

[Atour Lifestyle (ATAT US, BUY, TP US$34) Target Price Change]: A Steady Expanding Year in 2023

Atour reported its 4Q22 revenue/non-GAAP operating profit/non-GAAP net income 8.0%/78.3%/114.6% higher than our estimate.
We adjust Atour’s hotel expansion estimate from 2.4k to 1.9k until 2025 due to its low appetite in expanding midscale segment.
We raise our 2023 earnings estimate due to better operating efficiency, but trimmed its hotel network expanding pace in 2023-2025, leading to TP cut by US$2.5 to US$34.

Empire Energy Group Ltd – Gas Bells Are Ringing

Empire Energy Group Limited (ASX:EEG) is an oil and gas producer/developer, with onshore Northern Territory (NT) and US oil/gas production assets.
EEG has the largest tenement position in the highly prospective Greater McArthur Basin, which includes the Beetaloo Sub-basin.
The NT energy basins are fast developing as strategic high-calorific gas bolsters for east coast Australia’s future domestic requirements, growing Gladstone LNG ullage and potential supply for Darwin’s expanding LNG export terminals, amid funding support from Territory and Federal governments.

[Nayuki Holding (2150 HK) Target Price Change]: Business Model Change Has Risky Consequence

Nayuki reported C2H22 top line 0.9% below our estimate but 18% below consensus，due to deteriorating cost ratios;
Company chose to drastically expand store count by ~600 in 2023. Our concern is that Nayuki stores now are drastically different from its past.
The company is abandoning its premium teahouse position, which begets unknown consequences in our opinion; We keep the TP unchanged at HK 3.1 and maintain SELL.

Step One Holdings Ltd – Underwear Under Valued

Step One Clothing (ASX:STP) is a Direct to Consumer (DTC), 100%-own-brand underwear retailer specialising in anti-chafe bamboo underwear across men’s and women’s wear.,
A H1 FY23 sales decline of 5.7% was better than our industry average estimate of -19%, while EBITDA was in-line with the pcp, the highest of any industry peer.
On our estimates this superior business model currently trades at a PER of 1.0x ex-cash. Inventory is the key risk, currently representing ~two years’ sales, but is low fashion risk.leared.

X2M Connect Ltd – China Contract Adds to H2 Progress

X2M Connect Ltd (ASX:X2M) has developed and is commercialising a patented proprietary Internet of Things (IoT) solution predominantly focused on the utilities sector across the Asia Pacific region, converting legacy meters into smart meters.
The company has announced it has secured $1.8m in hardware water quality sensor sales in China with three new contracts.
The contracts bring the contribution from China to $3.4m this financial year to date which exceeds the revenue generated from China in FY22.

Amaero International Ltd – “Plan B” Brings Risk but Potentially Greater Returns

Amaero International Ltd (ASX:3DA) is a global specialist in metal additive manufacturing for the defence, aerospace, and other industrial sectors.
Following a strategic review, Amaero has shifted its focus to titanium powder production and has created a new United Arab Emirates-based enterprise, Amaero Advanced Metals Ltd, to build an 827-tonne a year titanium powder operation within Abu Dhabi’s KEZAD industrial park.
The nuances of the focus have shifted since the company first announced plans to concentrate on the UAE and titanium powder operations but “Plan B” allows Amaero shareholders to retain 100% ownership of the project which has been scaled back to focus on the opportunity with the greatest economic return.

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Apr 08

Most Read: Nitori Holdings, Kunlun Tech, Lasertec Corp, Rakuten Bank, HS Holdings, KT Corp, Jardine Cycle & Carriage, Avalon Technologies, Samsung Electronics Pref Shares, GigaVis and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Nikkei 225 Index Rebalance Preview (Sep 2023): Potential Changes & Dark Horses
Index Rebalance & ETF Flow Recap: MSCI KR, S&P/ASX, SSE50, ChiNext, NIFTY, KQ150, AMFI, Rakuten Bank
Index Rebalance & ETF Flow Recap: Nikkei225, KOSDAQ150, KT Corp
Rakuten Bank (5838) IPO – New Price Is One To Take (Part 1)
Khan Bank IPO Is Here – At IPO Price, the Stake Is Worth More than HS Holdings’ Share Price
Why Will KT’s Foreign Room Stay Above 15% Until MSCI Review Period?
JCNC’s Logic-Defying Valuation
Avalon Technologies IPO- Forensic Analysis
Gap Trades in Korean Prefs Vs Common Share Pairs in 2Q 2023
Gigavis IPO Valuation Analysis

Nikkei 225 Index Rebalance Preview (Sep 2023): Potential Changes & Dark Horses

By Brian Freitas

The review period for the Nikkei 225 (NKY INDEX) September rebalance ends end July. We highlight 3 potential inclusions and exclusions for the index.
There are a few alternate adds that are interesting and their inclusion in the index could move things around a fair bit.
Due to the large size difference between the potential adds/deletes, there will be a large funding trade with passive trackers needing to sell over 0.5x ADV on many index constituents.

Index Rebalance & ETF Flow Recap: MSCI KR, S&P/ASX, SSE50, ChiNext, NIFTY, KQ150, AMFI, Rakuten Bank

By Brian Freitas

There are a bunch of implementations in the coming week, the largest being the Nikkei 225 (NKY INDEX) March rebalance.
There are some ad hoc changes to the KOSPI2 INDEX and KOSDAQ 150 Index following constituent stocks being designated as Administrative Issues and Investment Attention Issues.
Inflows to the iShares MSCI Emerging Markets ex China ETF (EMXC US) have continued and has taken AUM to a new high.

Index Rebalance & ETF Flow Recap: Nikkei225, KOSDAQ150, KT Corp

By Brian Freitas

The March rebalances of the NIFTY indices and the Nikkei 225 (NKY INDEX) were implemented last week. Plus some ad hoc rebalances for the KOSPI2 INDEX and KOSDQ150 INDEX.
A quieter week coming up with multiple market holidays across markets. We also near the start of the review period for the MSCI May QCIR.
There were inflows to Tracker Fund of Hong Kong Ltd (2800 HK) and iShares FTSE/Xinhua A50 China (2823 HK) during the week while there were outflows from some Korea ETFs.

Rakuten Bank (5838) IPO – New Price Is One To Take (Part 1)

By Travis Lundy

Rakuten Bank (5838 JP) has priced at a new range of ¥1,300-1,400/share, down from ¥1,630-1,930/share. That lowers TTM PER and PBR to well below where SBI Sumishin was priced.
This will now be universally recognised by pre-IPO analysts as a raging buy. Even at the top end. Important considerations: Rakuten parent TAM, growth, index inclusions, etc.
There are OTHER important considerations going forward which show themselves in the documents.

Khan Bank IPO Is Here – At IPO Price, the Stake Is Worth More than HS Holdings’ Share Price

By Travis Lundy

Today, it was announced that HS Holdings (8699 JP) subsidiary Khan Bank LLC – Mongolia’s largest bank – would IPO this month.
This is a big deal. The IPO is for 10% of the bank (US$521mm equivalent). Priced at 4x Dec 2022 earnings for a bank which has ~ 25% ROE.
There is a reason to expect substantial realisation of this value within 2023 due to a section of Feb 2021 Amended Mongolian Banking Law. Plus there is boatloads of cash.

Why Will KT’s Foreign Room Stay Above 15% Until MSCI Review Period?

By Sanghyun Park

There is only one factor that could have affected KT’s foreign flow in mid-February, and that is the repurchase of its shares.
If KT continues its buyback at the current pace, which is highly likely, we can bet that the foreign room will not fall below 15% until MSCI’s review period.
This implies an essential premise for us to set up a more aggressive preemptive position on KT.

JCNC’s Logic-Defying Valuation

By David Blennerhassett

Jardine Cycle & Carriage (JCNC SP)‘s implied stub value is around its highest-ever level, dating back to 2004.
The simple ratio of JCNC/ Astra International (ASII IJ) is also the highest level outside the brief spikes post-Covid and during the 2008 GFC.
There is no apparent justification for the current valuation. And a takeover from Jardine Matheson Holdings (JM SP) at these levels appears unrealistic.

Avalon Technologies IPO- Forensic Analysis

By Nitin Mangal

Avalon Technologies (6594468Z IN) has launched its Initial Public Offering.
The company states to have one of the highest ROCEs in the industry, one of the important reasons of high ROCE is unusual accounting treatment of capital reserve.
Other forensic concerns include lack of cash generation and some auditor discomforts.

Gap Trades in Korean Prefs Vs Common Share Pairs in 2Q 2023

In this insight, we discuss numerous gap trades involving Korean preferred and common shares in 2Q 2023.
The excessive gaps in the preferred and common shares of CJ Corp, Samsung Electronics, and LG Electronics could reverse in the next several months, in our view.
We see some attractive longer-term opportunities for Amorepacific Corp, Doosan Fuelcell, LG Electronics, and Samsung SDI which have especially high discounts for the preferred shares versus their counterpart common shares.

Gigavis IPO Valuation Analysis

Our base case valuation of Gigavis IPO is target price of 61,755 won per share, representing 56% higher than the high end of the IPO price range.
We estimate the company to generate sales of 126.6 billion won (up 27% YoY) in 2023 and 150.9 billion won (up 19.2% YoY) in 2024.
Our base case valuation is based on 21.8x P/E using our estimated net profit of 35.9 billion won in 2023.

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Apr 07

Daily Brief United States: Bitcoin, Formula One Group, Waters Corp, Ally Financial, West Pharmaceutical Services Inc, Old Dominion Freight Line, Perkinelmer Inc and more

By Smartkarma Daily Briefs | Daily Briefs, United States

In today’s briefing:

Q1 Liquidity Ranking for Crypto Assets
Formula One Group: Initiation of Coverage – Major Partnerships & Other Key Drivers
Formula One Group: Detailed Credit Analysis & Financial Strength Evaluation Report
PerkinElmer Inc.: Initiation of Coverage – Business Strategy & Key Drivers
Waters Corporation: Detailed Credit Analysis & Financial Strength Evaluation Report
Waters Corporation: Initiation of Coverage – The Wyatt Technology Acquisition & Other Drivers
Ally Financial: Comparisons To The Recently Failed Banks Are Inappropriate
West Pharmaceutical Services Inc.: Initiation of Coverage – Business Strategy & Key Drivers
Old Dominion Freight Line Inc.: Initiation of Coverage – Business Strategy & Key Drivers
PerkinElmer Inc.: Detailed Credit Analysis & Financial Strength Evaluation Report

Q1 Liquidity Ranking for Crypto Assets

By Kaiko

Last quarter I published the first liquidity ranking system for crypto assets, comparing each asset’s liquidity ranking to its market cap and investigating which token’s market cap is the most misleading from a liquidity standpoint.
Liquidity has arguably never been at more of a premium than right now in crypto, with USD payment rails being shut down and market makers pulling orders from exchanges.
With market depth at 10 month lows, price volatility has picked up and so it is essential investors can accurately evaluate the liquidity of each individual asset to gain an understanding of how much short term volatility to expect.

Formula One Group: Initiation of Coverage – Major Partnerships & Other Key Drivers

This is our first report on a global media and entertainment player, Formula One Group.
Its fourth quarter result was mixed and the company surpassed the revenue expectations of Wall Street but missed out on meeting earnings expectations.
The company introduced a new brand campaign in the quarter to demonstrate F1’s position in the sporting and entertainment worlds.

Formula One Group: Detailed Credit Analysis & Financial Strength Evaluation Report

Formula One Group is major global media and entertainment company with decent fundamentals.
The management anticipates Ford’s contribution as a technical engine supplier will be valuable for the sport and Red Bull.
Baptista Research looks to evaluate the different credit strengths and credit risks of the company as well as a line-by-line analysis of the financial statements of the company for the past four years.

PerkinElmer Inc.: Initiation of Coverage – Business Strategy & Key Drivers

This is our first report on PerkinElmer, a premium provider of life sciences, diagnostics, and applied services markets across the globe.
The company had a decent 2022 and their Life Sciences and Diagnostics business experienced organic growth of 9% for the entire year.
With the introduction of adeno-associated virus or AAV detection kits, the Life Sciences business has continued to innovate in cell and gene therapy.

Waters Corporation: Detailed Credit Analysis & Financial Strength Evaluation Report

This is our first report on major lab equipment manufacturer, Waters Corporation.
Its Pharma has also had decent growth, driven by both large and small molecule applications which has been led by the European markets.
Baptista Research looks to evaluate the different credit strengths and credit risks of the company as well as a line-by-line analysis of the financial statements of the company for the past four years.

Waters Corporation: Initiation of Coverage – The Wyatt Technology Acquisition & Other Drivers

This is our first report on major lab equipment manufacturer, Waters Corporation.
Waters’ growth has also been aided by its reinvigorated portfolio and this trend is expected to continue.
We initiate coverage on the stock of Waters Corporation with a ‘Hold’ rating.

Ally Financial: Comparisons To The Recently Failed Banks Are Inappropriate

By Vladimir Dimitrov, CFA

Ally Financial has emerged as a potential target after the recent events in the banking sector.
There are certain macroeconomic risks involved, but the company has changed dramatically over the past decade.
There are also major differences between the recently failed banks and Ally Financial that need to be considered, according to the company.

West Pharmaceutical Services Inc.: Initiation of Coverage – Business Strategy & Key Drivers

This is our first report on West Pharmaceutical Services, a major manufacturer of injectable medication delivery and packaging systems.
West Pharmaceutical reported an all-around beat in its last result and generated about 8% growth in organic sales overall.
With COVID-19 excluded, West anticipates that its base organic sales growth was in the low double digits, with proprietary product growth in the mid-teens.

Old Dominion Freight Line Inc.: Initiation of Coverage – Business Strategy & Key Drivers

This is our first report on a major LTL shipping company, Old Dominion Freight Line.
As a result, the company delivered double-digit growth in earnings per diluted share in the fourth quarter.
Besides that, the productive labor expenses as a percentage of revenue decreased by 170 basis points within their direct operating costs, while their purchase transportation costs decreased by 200 basis points.

PerkinElmer Inc.: Detailed Credit Analysis & Financial Strength Evaluation Report

PerkinElmer is a major provider of life sciences, diagnostics, and applied services markets across the globe.
The company had a decent 2022 and their Life Sciences and Diagnostics business experienced organic growth of 9% for the entire year.
With the introduction of adeno-associated virus or AAV detection kits, the Life Sciences business has continued to innovate in cell and gene therapy.

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Apr 07

Daily Brief South Korea: KT Corp, Samsung Electronics Pref Shares and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Why Will KT’s Foreign Room Stay Above 15% Until MSCI Review Period?
Gap Trades in Korean Prefs Vs Common Share Pairs in 2Q 2023

Why Will KT’s Foreign Room Stay Above 15% Until MSCI Review Period?

By Sanghyun Park

There is only one factor that could have affected KT’s foreign flow in mid-February, and that is the repurchase of its shares.
If KT continues its buyback at the current pace, which is highly likely, we can bet that the foreign room will not fall below 15% until MSCI’s review period.
This implies an essential premise for us to set up a more aggressive preemptive position on KT.

Gap Trades in Korean Prefs Vs Common Share Pairs in 2Q 2023