Smartkarma Daily Briefs

• Fanuc is a core structural growth stock that has fallen by -4% over the past year. We turn bullish with 8 days to earnings
• We believe that Fanuc is a key beneficiary of continued investment in automation and realignment of supply chains globally
• We focus on Fanuc’s core value drivers – revenue, margins, risk and investment – and see 25% upside for long term investors

• China’s gaming regulator granted publishing licenses to 88 video games including three licenses to Tencent (for Undawn, Alchemy Stars and Yuan Meng Zhi Xing) and one for NetEase (for Badlanders).
• In December, NPPA gave approvals to 84 new domestic games and 44 imported games suggesting the 18-month long crackdown on the sector is nearing an end.
• Tencent’s online games revenue declined YoY for three consecutive quarters with regulatory hurdles and drop in ranking of key titles but we expect an improvement going into 2023.

• Fewer people wear suits as a regular office uniform and there are also fewer working age Japanese.
• Combined with the fact that more people work from home some days a week, this has meant a drastic decline in suit sales
• In response, the big retailers are exploiting the growing popularity of custom and premium suits but the shift won’t offset the decline.

• Kalbe Farma (KLBF IJ) remains an interesting proxy for the deepening penetration of healthcare and greater health consciousness in Indonesia through its prescription drugs, consumer health and nutritional products.
• The company continues to expand its scope if pharmaceutical products into areas such as oncology and biosimilar drugs, as well as growing its exposure BPJS with carefully selected unbranded generics. 
• Its distribution and logistics business continues to be a growth driver, it onboards new third-party principals. Valuations below 5-year historical average on a PER basis despite higher projected growth ahead. 

• Despite the steep stock rebound following a strong recovery in sales, stock attracts modest valuations in line with Infant milk players. Re-rating potential exists from valuing high-growth segments differently.
• Strong growth in Adult Nutrition and Pet products fueled overall sales. Baby Nutrition sales growth is muted and accounts for less than half of total sales (vs 2/3rd in 2020).
• Stock rebound triggered by a recovery in Sep. quarter sales thanks to its diverse product portfolio, and prospects of a revival in cross-border trade following China opening its borders.

• Share price of Shenzhen International (152 HK) started slow in this year, but it is on course for stronger earnings in FY23, following a dip in last year. 
• Upside from logistics business, benefits to Shenzhen Expressway (548 HK) on border re-opening, potential massive contribution from logistics parks transformation and upgrading and lack of Shenzhen Airlines’ drag are drivers. 
• ROE is expected to rebound to 11-12% in next two years, returning to FY20-21 level. Back then, its average P/B was 0.68x, suggesting at least 31% upside from 0.52x currently. 

• ACF identifies PPTA as a US national strategic asset (Sb)and best-in-class gold asset.
• Sb: Proven & Probable Reserves 148 Mlbs at 0.06% in 104 Mt.
• Au: Proven & Probable Reserves at 4.8 Moz gold (Au) @ 1.43 g/t.

In its FY22 post-close trading update, Secure Trust Bank (STB) announced that business has been trading in line with management expectations and with good momentum. Continuing profit before taxes and impairments was ‘significantly’ up, while its cost to income ratio ‘improved markedly’. Core loans rose by 19.1% y-o-y (we forecast 13%), with strongest growth in consumer finance as expected. New business lending did drop 11% y-o-y for Q422 as the bank tightened its lending criteria (as previously flagged by management) due to macroeconomic concerns. Loan arrears are back to pre-pandemic levels in vehicle finance and at record low levels in retail finance. This reflects STB’s repositioning to more prime segments and the de-risking of its loan book over the last few years. STB stated that its FY22 net interest margin percentage remained stable versus H122 despite rising funding costs (this matches our expectation).

Supermarket Income REIT (SUPR) has acquired an additional 25.5% beneficial interest in the Sainsbury’s Reversion Portfolio (SRP) from its joint venture (JV) partner. It now has a 51% interest with 49% held by Sainsbury’s. SUPR’s positioning in the winding up of the SRP structure is strengthened, its relationship with Sainsbury’s, operator of the stores, is deepened, and it expects to further enhance the return on its SRP investment. Separately, reflecting widespread expectations that yields will continue to widen across real estate sectors, our forecast net tangible assets (NTA) per share is reduced by c 10%.

Esker’s Q422 revenue update confirmed that the company hit the mid-point of its revenue guidance for FY22, despite the already flagged slowdown in volumes processed. The company continued to see strong bookings intake, with the annual recurring value (ARR) of contracts for Q422 up 21% y-o-y in constant currency (cc) and up 19% cc for FY22. This provides support for management’s FY23 guidance; our FY23 estimates are within the guidance range and we maintain our forecasts pending FY22 results on 23 March.