Smartkarma Daily Briefs

The inclusion of Orient Overseas International, Zhongsheng Group, Semiconductor Manufacturing International Corp (SMIC) and China Hongqiao plus the deletion of AAC Technologies Holdings takes us to 69 index stocks.
Changes to the stocks, number of shares, float and capping result in an estimated one-way turnover is 3.43% and will result in a one-way trade of HK$7,444m.
There is huge short interest on Zhongsheng Group (881 HK) and China Hongqiao (1378 HK) and there could be some short covering from now to implementation.

Brookfield/HomeServe: Agreed 1200p Offer

By Jesus Rodriguez Aguilar

HomeServe has reached an agreement on a 1,200p cash offer (vs. my 1,206 TP), 71% premium and an implied EV of £4,706 million; 13.3x EV/Fwd EBITDA, 25.7x Fwd P/E.
While the deal is highly likely to close (15.3% IRR by year 8) and the founder will bag £490 million, HomeServe could still attract interest from other parties.
Gross spread as of today’s close is 3.4% and the estimated annual return would be 7.9% assuming settlement on 30 October. Reiterate long HSV LN.

Before it’s here, it’s on Smartkarma

May 21

Equity Bottom-Up: Ultrajaya Milk Industry & Trading, Frasers Hospitality Trust, Hyphens Pharma International, Shiseido Company, Eicher Motors, NCSOFT Corp, True Corp Pcl, Asian Sea, Sappe Pcl, Minor International and more

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

In today’s briefing:

Ultrajaya Milk Industry & Trading (ULTJ IJ) – Dairy and Tea Driven Momentum Continues
Fraser Hospitality Trust (FRHO): Privatization + Recovery.
Smartkarma Corporate Webinar | Hyphens Pharma: Deepening Presence in ASEAN
Shiseido: Around 59% Upside Possible on Upgrades to Consensus
Eicher Motors (EIM IN) | The “Twins” (New Models & Exports) Are Firing
NCsoft: A Strong Turnaround Play in Korean Game Sector
TRUE: Merger Still Progressing but Large Losses Expected in 22E
ASIAN: Pet Food Unit Continue to Be Key Growth Driver
SAPPE: Targets to Hit Revenue at Bt10bn by 2026
MINT: Hotel Segment’s Recovery Will Boost 2022 Growth

Ultrajaya Milk Industry & Trading (ULTJ IJ) – Dairy and Tea Driven Momentum Continues

By Angus Mackintosh

Ultrajaya Milk Industry & Trading saw continued growth momentum in 1Q2022 both for its core UHT milk business (No.1) and its carton tea business as mobility restrictions were lifted.
The company also sources more of its milk requirements locally, which means less exposure to imported milk power but prices there have started to come off.
Management remains optimistic that the company can achieve double-digit growth this year plus it has increased ASPs by +3% in April. Valuations at a discount to staple peers.

Fraser Hospitality Trust (FRHO): Privatization + Recovery.

By Henry Soediarko

Most of the countries that Frasers Hospitality Trust (FHT SP) has assets in have their borders already opened.
The full impact of the reopening will only be seen in the subsequent quarters thus it is almost certain that next quarter’s result will be better than the past one.
The upside from privatization is mostly priced in but the recovery of the business is real albeit potentially gradual.

Smartkarma Corporate Webinar | Hyphens Pharma: Deepening Presence in ASEAN

By Smartkarma Research

For our next Corporate Webinar, we are glad to welcome Hyphens Pharma International (HYP SP) Chairman and CEO, Mr. Lim See Wah.

In the upcoming webinar, Mr Lim will share a short company presentation, after which he will engage in a fireside chat with Smartkarma Analyst Tina Banerjee. A live Q&A session will follow.

The Corporate Webinar will be hosted on Tuesday, 7 June 2022, 17:00 SGT.

Register for the Webinar here

Hyphens Pharma International Limited and its subsidiaries (the “Group”) is Singapore’s leading specialty pharmaceutical and consumer healthcare group, leveraging on its diverse footprint in ASEAN countries. The Group has a direct presence in Singapore, Vietnam, Malaysia, Indonesia, and the Philippines, and is supplemented by a marketing and distribution network covering 10 other markets – Bangladesh, Brunei, Cambodia, China, Hong Kong S.A.R., Macau S.A.R., Myanmar, Oman, South Korea, and Sri Lanka.

Singapore is the Group’s regional headquarters, where its strategic planning, finance, regulatory affairs, research and development, legal, business development, and logistics operations are based. The Group’s core business comprises the following segments: Specialty Pharma Principals, Proprietary Brands, and Medical Hypermart & Digital. Besides marketing and selling a range of specialty pharmaceutical products in selected ASEAN countries through exclusive distributorship or licensing and supply agreements with brand principals mainly from Europe and the United States, the Group also develops, markets, and sells its own proprietary range of dermatological products and health supplement products. In addition, the Group operates a medical hypermart for healthcare professionals, healthcare institutions and retail pharmacies, to supply pharmaceutical products and medical supplies and an online e-pharmacy for doctors to prescribe and have medications delivered to their patients’ homes.

Corporate Webinars by Smartkarma Corporate Solutions feature discussions with IROs and Executives, discussing their companies, the challenges they face, and the opportunities in their sectors and markets.

Shiseido: Around 59% Upside Possible on Upgrades to Consensus

By Oshadhi Kumarasiri

At 4% below the COVID sell-off low level, Shiseido Company (4911 JP) is looking genuinely attractive over the medium-long term.
In addition, there could be a shift in the short term market sentiment towards Japanese cosmetics with China’s COVID lockdowns expected to ease from the beginning of next month.
With the downside risk limited to less than 10%, we think it may be a good time to start owning Shiseido.

Eicher Motors (EIM IN) | The “Twins” (New Models & Exports) Are Firing

By Pranav Bhavsar

Eicher Motors (EIM IN) is well-positioned to offset margin pressures due to its aspirational brand, the success of its new models and exports.
Easing supply issues along with newer export markets provide a compelling runway for revenue growth.
While our estimates are in line with consensus, we believe the YTD outperformance is likely to continue and any opportunities presented amidst market volatility must be exploited.

NCsoft: A Strong Turnaround Play in Korean Game Sector

By Douglas Kim

Amid recent market carnage, one of the strong turnaround stocks in Korea is NCSOFT Corp (036570 KS) which is down 54% from its highs in February 2021.
Three major reasons why NCsoft’s share price will turnaround include attractive valuations, better control of labor costs, and strong pipeline of new games.
Short sale value/market cap ratio for NCsoft has declined materially in the past several weeks, reflecting increased optimism in the company’s future prospects.

TRUE: Merger Still Progressing but Large Losses Expected in 22E

Conference meeting on Wednesday came with negative news on 22E earnings prospects. We maintain our BUY rating with TP of Bt5.09, based on the tender offer price.
Management expects no pushback in terms of creditor approval.We believe that the merger will also receive regulatory approval,but with several regulations to also protect consumers, which could impact NewCo’s potential.
We revise 22E earnings down to Bt2.9bn loss from Bt736m loss, previously, to reflect higher D&A costs and ARPU decline due to harsh competition in 2022.

ASIAN: Pet Food Unit Continue to Be Key Growth Driver

Maintain BUY rating with TP of B23.00 derived from 16xPE’22E, which is close to +1SD of 5-years trading average. Our rating reflects strong pet food growth outlook, attractive 3.8% yield
We foresee earnings momentum to improve QoQ in 2Q22, supported by better pet food business unit from new capacity, and further strengthen by Baht downtrend.
In our view, the new pet food capacity should gather pace in 2H22, upon better demand in light of favorable macro dynamics. Moreover

SAPPE: Targets to Hit Revenue at Bt10bn by 2026

Yesterday analyst meeting came out with a positive tone.We reiterate our BUY rating for SAPPE with a target price of Bt35.25 (+10% from previous TP)based on 24xPE’22E, close to +1SD
Management targeted revenue at Bt10bn by 2026 or +22%CAGR(2022-26). •In our view, SAPPE target is quite challenging amid concern over rising inflation situation.
We expect 2Q22 earnings to continue to grow YoY and QoQ supported by (1) higher oversea market penetration, (2) distribution channel expansion, (3) more effective marketing activities

MINT: Hotel Segment’s Recovery Will Boost 2022 Growth

Analyst meeting came out with a positive tone regarding 2022 outlook.We maintain BUY rating with a target price of Bt38.0,based DCF method (WACC of 8% and terminal growth of 2%)
Positive 2022outlook as we expect the hotel industry to make a strong come back in 2022due to vaccine roll outs and easing of international travel restrictions,making the earnings positive for2022
Since 1Q is typically the lowest travel seasonality,we expect the revenue from hotels to grow for next 3 quarters (around 50% by 4Q22), contributing around 75% of the total revenue.

Before it’s here, it’s on Smartkarma

May 21

Most Read: SK Telecom, Woodside Petroleum, Celltrion Inc, MyDeal.com.au Ltd and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

SK Telecom (017670 KS): Implications of Zero Foreign Room
SK Telecom: MSCI Special Deletion & Immediate Price Spike on Share Recall
Woodside Shareholders Approve Deal but Not WPL’s Green Credentials; Now People Talk About Flows
FnGuide Top 10 Rebalancing on June 10: More Substantial Flow Impact than Last Time
Woolies Moves On MyDeal (MYD AU)

SK Telecom (017670 KS): Implications of Zero Foreign Room

Foreign investors hold 106.51m shares of SK Telecom (017670 KS) versus a limit of 107.23m shares. There are only 723k more shares (1 day of ADV) available for foreign buying.
MSCI will delete SK Telecom (017670 KS) from its indices once the foreign room reaches zero, while FTSE will likely reduce the investability weight in two tranches of 5% each.
SK Telecom (017670 KS) could continue underperforming KT Corp (030200 KS) in the short-term due to passive selling and inability of foreign investors to buy the stock.

SK Telecom: MSCI Special Deletion & Immediate Price Spike on Share Recall

Looking at these past similar cases, the MSCI will likely announce SKT’s special deletion within 2-3 days of reaching zero foreign room and rebalancing within 2-3 days after the announcement.
We will see a passive outflow of about 2M shares or about ₩115B, equivalent to 2.7x ADTV, which will likely lead to an immediate price spike.
ETF funds tracking the MSCI have a large proportion of loaning SKT shares. So, when an MSCI down-weight occurs to SKT, an immediate recall will push up the price.

Woodside Shareholders Approve Deal but Not WPL’s Green Credentials; Now People Talk About Flows

The EGM of Woodside Petroleum (WPL AU) today approved the BHP Petroleum merger in overwhelming fashion. 98.66% FOR.
They did not approve of the Climate Report the board submitted to vetting by shareholders for the first time. That got 51% “support.”
But now that’s done, people will talk about flows. So far the trade has worked but now time to think about how far to stretch it.

FnGuide Top 10 Rebalancing on June 10: More Substantial Flow Impact than Last Time

Celltrion Inc (068270 KS)’s deletion seems pretty much a foregone conclusion as its average float-adjusted market cap on May 3-19 is way below the next one in line.
Shinhan Financial (055550 KS) is the one to replace Celltrion based on the numbers so far. There is close to a ₩1T gap with the next one, POSCO (005490 KS).
In this rebalancing, the flow impact of the addition/deletion is even more significant. So, their share price fluctuations on June 10 will likely be more substantial than last time.

Woolies Moves On MyDeal (MYD AU)

By David Blennerhassett

Woolworths Ltd (WOW AU) proposes to acquire all shares in MyDeal.com.au Ltd (MYD AU) other than those held by Sean Senvirtne and other key management personnel.
MyDeal shareholders will receive $1.05/share in cash, a punchy 62.8% premium to last close, but just 5% above its 2020 IPO price.
This proposal is being done by way of a Scheme with expected completion in Q3/Q4 2022.

Before it’s here, it’s on Smartkarma

May 21

Macro: UK: Consumers Drown Their Sorrows and more

By Smartkarma Daily Briefs | Daily Briefs, Macro

In today’s briefing:

UK: Consumers Drown Their Sorrows
Crypto: Perfect Storm on Stablecoin Infrastructure
Let The Macro Polar Stars Guide You

UK: Consumers Drown Their Sorrows

By Phil Rush

The bleak retail performance of the previous two months reversed to a surprising extent as sales surged by 1.4%. Demand for booze dominated falling non-food store sales.
GDP seems only slightly less weak in Q2 as this bounce will probably prove short-lived around Easter. Falling real incomes squeezes sale volumes rather than raising values.
Crashing consumer confidence has now reached record lows in contrast to the business optimism that seems set for a rude awakening as customers baulk at higher prices.

Crypto: Perfect Storm on Stablecoin Infrastructure

By Roger Xie

Stablecoin TerraUSD (UST CURNCY) has de-pegged from USD; the implosion put pressure on Tether (USDT CURNCY). This resembled the confidence crises that precede bank runs.
The incident happened under macro headwind such as tech stock sell-off, rising benchmark interest rates and TerraUSD specific algorithm design.
The bigger worry of de-pegging has investors to re-assess the reserve behind stablecoin in the crypto ecosystem; we expect the ripple impact will continue for some time before settling down.

Let The Macro Polar Stars Guide You

By The Macro Compass

Powell’s remarks in the Wall Street Journal interview this week were quite interesting, and markets seem to have noticed: we have seen quite some wild moves, but again the most relevant price action is happening under the surface.
In such a choppy market environment, systematic risk management techniques and a data-driven investment approach are key to tell the forest from the trees and reduce drawdowns in your portfolio.
Powell played the hawkish horn again, and markets are reacting in quite some interesting ways.

Before it’s here, it’s on Smartkarma

May 21

Thailand: True Corp Pcl, Asian Sea, Minor International, Sappe Pcl, Global Power Synergy Company Ltd, WHA Corp Pcl and more

By Smartkarma Daily Briefs | Daily Briefs, Thailand

In today’s briefing:

TRUE: Merger Still Progressing but Large Losses Expected in 22E
ASIAN: Pet Food Unit Continue to Be Key Growth Driver
MINT: Hotel Segment’s Recovery Will Boost 2022 Growth
SAPPE: Targets to Hit Revenue at Bt10bn by 2026
GPSC: Improving Earnings Performance from Tariff Adjustment
WHA: Positive Outlook for Three Key Businesses in 2022

TRUE: Merger Still Progressing but Large Losses Expected in 22E

Conference meeting on Wednesday came with negative news on 22E earnings prospects. We maintain our BUY rating with TP of Bt5.09, based on the tender offer price.
Management expects no pushback in terms of creditor approval.We believe that the merger will also receive regulatory approval,but with several regulations to also protect consumers, which could impact NewCo’s potential.
We revise 22E earnings down to Bt2.9bn loss from Bt736m loss, previously, to reflect higher D&A costs and ARPU decline due to harsh competition in 2022.

ASIAN: Pet Food Unit Continue to Be Key Growth Driver

Maintain BUY rating with TP of B23.00 derived from 16xPE’22E, which is close to +1SD of 5-years trading average. Our rating reflects strong pet food growth outlook, attractive 3.8% yield
We foresee earnings momentum to improve QoQ in 2Q22, supported by better pet food business unit from new capacity, and further strengthen by Baht downtrend.
In our view, the new pet food capacity should gather pace in 2H22, upon better demand in light of favorable macro dynamics. Moreover

MINT: Hotel Segment’s Recovery Will Boost 2022 Growth

Analyst meeting came out with a positive tone regarding 2022 outlook.We maintain BUY rating with a target price of Bt38.0,based DCF method (WACC of 8% and terminal growth of 2%)
Positive 2022outlook as we expect the hotel industry to make a strong come back in 2022due to vaccine roll outs and easing of international travel restrictions,making the earnings positive for2022
Since 1Q is typically the lowest travel seasonality,we expect the revenue from hotels to grow for next 3 quarters (around 50% by 4Q22), contributing around 75% of the total revenue.

SAPPE: Targets to Hit Revenue at Bt10bn by 2026

Yesterday analyst meeting came out with a positive tone.We reiterate our BUY rating for SAPPE with a target price of Bt35.25 (+10% from previous TP)based on 24xPE’22E, close to +1SD
Management targeted revenue at Bt10bn by 2026 or +22%CAGR(2022-26). •In our view, SAPPE target is quite challenging amid concern over rising inflation situation.
We expect 2Q22 earnings to continue to grow YoY and QoQ supported by (1) higher oversea market penetration, (2) distribution channel expansion, (3) more effective marketing activities

GPSC: Improving Earnings Performance from Tariff Adjustment

We maintain the HOLD rating based on a target price of Bt69.0,derived using DCF methodology (WACC 5.7% and TG 1%),implying 32x PE’23E.Our valuation reflects weak SPP operations outlook in 2022
Expect the 2Q22 earnings to improve QoQ,from 1) better SPP margin backed by upward Ft adjustment 2) Full quarter profit recognition from GE phase 5 after maintenance shut down (3Q21-1Q22)
Full year 2022 outlook remains weak, as we expect the EPS to shrink by 37%.YoY due to continued pressure on SPP margins from high fuel cost. We are more positive

WHA: Positive Outlook for Three Key Businesses in 2022

We maintain the BUY call and a target price of Bt3.80 derived from 18.0xPE’22 (5-year average) or implies 10% discount to Thai real estate sector. BUY rating reflects positive outlook
Expect Industrial estate business’s revenue (15% of total revenue in 2021) to grow 50% in 2022E supported by 1.) higher land transfer along with increasing investor traffic at site-visit, and,
Maintain positive outlook for utility business under WHAUP(BUY: Bt4.60)in 2022E driven by an increase in water sales volume, solar roof portfolio expansion (target to hit 300MW by 2023 from 60MW

Before it’s here, it’s on Smartkarma

May 20

India: INR 10Y, Indraprastha Gas, ITC Ltd, Kajaria Ceramics, Manappuram Finance, Multi Commodity Exchange India, Pi Industries, Star Cement Ltd and more

By Smartkarma Daily Briefs | Daily Briefs, India

In today’s briefing:

Yields in Asia Are Far from the Peak – Part II
Indraprastha Gas – PAT Beat of 26.9% on Lower Gas Cost
ITC: Healthy OverallPerformance
ITC Ltd – Robust Operating Performance- Dividend Yield Improves Further
HSIE Results Daily: Kajaria Ceramics
Manappuram Finance – Customer Acquisition Weak Amid High Competition, Weak Demand
4QFY22 Results Update – MCX
PI Industries – Domestic Revenue Growth Outpaces Exports
Star Cement: Encouraging Volume Growth; Better Cost Management
Star Cement Ltd – Volume Growth Finally Kicks In, Driving Earnings Beat

Yields in Asia Are Far from the Peak – Part II

By Gautam Jain, PhD, CFA

Even as the US 10y yield has come off the peak, rates in emerging markets – including in Asia – have been selling off as they remain under pressure.
Rates in Asia are vulnerable as they are expensive vis-à-vis the rest of EM, rising inflation should result in further rate hikes in the region, and debt profiles have deteriorated.
I thus expect rates in Asia to underperform and prefer selling bonds in the region paired with long bond positions in countries in other regions.

Indraprastha Gas – PAT Beat of 26.9% on Lower Gas Cost

Revenue grew by 55.2% YoY to Rs24.06bn vs NBIE estimate of Rs24.56bn, a 2.1% miss on our estimate and 0.38% miss vs street estimate.

Gross margin came in at 36.9% vs our estimate of 32% as COGS was 9.1% below our estimate while revenue miss was 2.1%.

PBT was up 33.2% vs NBIE estimate at Rs4.95bn; Share of JV/Associates was a 11.8% beat at Rs723mn.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

ITC: Healthy OverallPerformance

By Axis Direct

ITC reported a healthy set of numbers in Q4FY22with Revenue of Rs 15,331Cr (our estimate – Rs16,205Cr), down 2.2%QoQ but up ~16.5% YoY, led by a strong 8% volume growth in Cigarettes (in line with our estimates).
Gross Margins at 52.5% was 132bps lower YoY on account of unprecedented RM inflation
Benign taxation, inexpensive valuations (20x FY24E EPS), 5% dividend yield makes us BUYers of the stock. Our TP is revised to Rs 295 (earlier Rs 280).

ITC Ltd – Robust Operating Performance- Dividend Yield Improves Further

4QFY22 headline performance: ITC’s 4QFY22 standalone topline (adjusted for excise duty) was up 16.8% YoY at Rs155bn vs our est. of 21.9% YoY growth to Rs162bn.

4QFY22 segmental performance: Cigarette revenue grew by 10% YoY to Rs64.4bn (vs our est. of Rs65.3bn), up ~12% on a two-year CAGR basis.

FY22 performance: Standalone Revenue, EBITDA and APAT grew by 23.9%, 22% and 15.5%, respectively.

HSIE Results Daily: Kajaria Ceramics

By HDFC Securities

Q4FY22 performance: Kajaria posted lower-than-estimated margin (~200bps miss) in Q4FY22, as margin compressed QoQ on rising gas prices (crude linked).

Tiles sales volumes/revenue rose 2/16% YoY (2-year CAGR 19/29%). Outsourced volume continues to lead growth (+12% YoY, 2-year CAGR 39%).

Outlook: For FY23, KJC targets volume/revenue growth of ~15-20%/20-25%.

Manappuram Finance – Customer Acquisition Weak Amid High Competition, Weak Demand

Yields remain under pressure; likely to recover: Net yield in 4QFY22 declined to 18.8% from 20.3% in 3QFY22 and 25.3% in 2QFY22 amid high competition from other lenders.

Gold loan AUM down QoQ; uptick in NPA not worrisome: Total gold loans AUM declined 1.4% QoQ while gold holdings/collateral declined by 2.9% QoQ.

MFI growth revive in FY23: In 4QFY22, the company scaled back growth in the MFI business as it prioritized improvement in asset quality and collections.

4QFY22 Results Update – MCX

By Motilal Oswal

Strong operational performance, an exceptional item impacts PAT –Overall futures ADT improved by 4% QoQ and options ADT jumped by 70%, which resulted in a 19% rise in revenue ahead of our estimate.
Healthy volume growth driven by Crude Oil – Total volumes grew 29% YoY and 21% QoQ to INR26t in 4QFY22.

Key takeaways from the management commentary – MCX is awaiting approval from the regulators (Sebi and CERC) to launch Electricity derivatives.

PI Industries – Domestic Revenue Growth Outpaces Exports

Key positives: (i) PI added 8 new customers in FY22 (ii) New thrust on non-agrochem CSM – 35% of its 36 enquiries (iii) PI’s goal is to develop high-value CSM services in Agrochem/Pharma/Specialty Chemicals, based on cost leadership and sustainable manufacturing through differentiated technology/synthesis.

We see a bull case/bear case valuation of Rs3,318/Rs2,943 based on 100%/nil impact of the DCF value of a potential M&A deal for a Pharma asset.

4QFY22 results are lower than our estimates. Revenue at Rs13.95bn was a miss of 1.1% vs NBIE estimate, but a beat of 2% vs street estimate.

Star Cement: Encouraging Volume Growth; Better Cost Management

By Axis Direct

Star Cement (SCL) reported robust revenue/volume growth of 27%/24%YoY in Q4FY22, driven by higher demand in its operating region. However, lower realization impacted the company’s margins
The stock is currently trading at 8x FY23E and 7x FY24E EV/EBITDA
We retain our BUY rating on the stock and value the company at 8x FY24E EV/EBITDA to arrive at a target price of Rs 105/share, implying an upside of 14% from the CMP.

Star Cement Ltd – Volume Growth Finally Kicks In, Driving Earnings Beat

4QFY22 performance: In 4QFY22, the company reported volume growth of 27% YoY (up by 33% QoQ) at 1.15mn mt, which was 20.1% above our estimate.

Higher domestic coal sourcing will keep costs lower for STRCEM: The company has used low-cost coal inventory, which was available from CIL (~200k mt). It has a long-term FSA with CIL for 150k mt of coal on an annual basis at a fixed price, which will mitigate the risk of price hikes in the future.

Capex and expansion plan: A 3mn mt clinker unit in Meghalaya and a 2mn mt grinding unit in Guwahati are expected to be commissioned by the end of CY23.

Before it’s here, it’s on Smartkarma

May 20

United States: Square Inc, Cf Industries Holdings, Hawkins Inc and more

By Smartkarma Daily Briefs | Daily Briefs, United States

In today’s briefing:

Revisiting Long Ideas: Square (Block)
Overearning Short Candidates, CF Industries, Photronics, LSB Industries, Builders FirstSource
HWKN: Beat and Raise Quarter

Revisiting Long Ideas: Square (Block)

By Aaron Gabin

Impressive Analyst Day Presentation got us bulled up on the potential for Afterpay to juice growth on both Square and the Cash App
Cash App getting a design overhaul to create a super app that spans commerce, investing, payments, personal finance, loans, etc.
Unit economics outlined today lead us to a ~40% potential EBITDA margin in 3-5 years…well higher than is currently considered by consensus today.

Overearning Short Candidates, CF Industries, Photronics, LSB Industries, Builders FirstSource

By Eric Fernandez, CFA

This model seeks companies that are potentially “overearning”, defined as companies with unusually high margins relative to their own history or relative to the industry.
The reasons for the margin increases are sometimes unsustainable or fraudulent. The critical judgement involves to what extent unsustainable margins are embedded in a company’s forecasts and/or the stock’s valuation.
These shorts tend to have moderate to higher betas, higher valuations due to recent strong results and good short responses to subsequently disappointing earnings.

HWKN: Beat and Raise Quarter

By Hamed Khorsand

Rising prices continued to have a positive impact for Hawkins (HWKN) in the March 2022 quarter
We had highlighted how the ongoing inflationary backdrop in commodities would benefit HWKN through higher liquid fertilizer sales, which is what occurred in the March quarter
The continuation of industrial segment pricing marching higher is unlikely, but such an event would reintroduce gross margins above 20 percent

Before it’s here, it’s on Smartkarma

May 20

Japan: Seiko Epson, SCREEN Holdings, Safie, Sumitomo Dainippon Pharma Co, Tokyo Stock Exchange Tokyo Price Index Topix, MatsukiyoCocokara and more

By Smartkarma Daily Briefs | Daily Briefs, Japan

In today’s briefing:

Epson (6724) – A Big Buyback Amid Benign Backdrop
Screen Holdings (7735 JP): Good Results, Optimistic Guidance, Great Uncertainty
Safie – Cost Overshoot Could Drive This Lower But…
Sumitomo Dainippon Pharma Co (4506 JP): New Launches Ensure Post-Latuda Growth Trajectory
About an Article on the Skills Matrix
Japan Tourism | A Journey of a Thousand Miles Begins with a Single Step

Epson (6724) – A Big Buyback Amid Benign Backdrop

Seiko Epson (6724 JP) announces the first special div for the 2023 Nikkei 225 dividend futures.
And it also announces a VERY big buyback. The headlines say 9.5%. The reality is more like 4.0-4.4%, but that is still going to be 15-20% of Real World Float.
Given mildly positive backdrop, a net cash position, low multiples, and lack of major Real World Float active investor, this could go up.

Screen Holdings (7735 JP): Good Results, Optimistic Guidance, Great Uncertainty

By Scott Foster

Screen Holdings beat FY Mar-22 profit guidance by a wide margin. This year, management is aiming for 12% sales growth and a 22% increase in operating profit.
New SPE orders have exceeded sales for seven straight quarters and the backlog is at a record high. But 1H of FY Mar-23 is expected to be weak.
A new factory is scheduled to come on line in 4Q, raising total SPE capacity by 20%. The risk is that this will coincide with a downturn in demand.

Safie – Cost Overshoot Could Drive This Lower But…

By Mio Kato

Safie’s 1Q results disappointed the market as revenue came in 5% lower than the average of two consensus estimates and R&D expense surged.
Nevertheless, 1Q should be the worst quarter of the year as downside from the specific distributor issue is now quantifiable and the stock is now on 2.5x 2022 EV/Sales.
Valuations are already highly compelling and if the sentiment driven sell off continues we would be looking for 5-10x returns over a 3-4 year timeframe.

Sumitomo Dainippon Pharma Co (4506 JP): New Launches Ensure Post-Latuda Growth Trajectory

By Tina Banerjee

Sumitomo Dainippon Pharma Co (4506 JP)‘s flagship drug Latuda will loss patent protection in the U.S. in 2023. Latuda is already seeing revenue erosion.
Sumitomo is expected to reap the benefit of new products launched in the U.S. market in 2020 and 2021. These are expected to gradually become next growth drivers.
The company has a rich pipeline and targets to launch at least two new drugs in the U.S. in next two years.

About an Article on the Skills Matrix

By Aki Matsumoto

I would like to discuss the Nikkei article, “An increasing number of companies are disclosing their skill matrices, but few explain why those skills are needed by the company.”
The reason for the rapid increase in the number of companies disclosing skill matrices over the last year is the addition of Supplemental Principle 4-11-IV in revised Corporate Governance Code.
METI and other in hiring of independent directors, there is a tendency for boards of directors to be composed of individuals who are aligned with the wishes of the president.

Japan Tourism | A Journey of a Thousand Miles Begins with a Single Step

By Mark Chadwick

Ancient proverbs dictate the pace of policy change in Japan. But, the first step has been taken
Investors should be watching for further relaxation of inbound tourist restrictions, particularly on the Chinese market
Out top pick on this thematic is MatsukiyoCocokara (3088 JP) . Tourists used to account for over 10% of sales, but there is more…

Before it’s here, it’s on Smartkarma

May 20

South Korea: SK Telecom, Enchem and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

SK Telecom: MSCI Special Deletion & Immediate Price Spike on Share Recall
SK Telecom (017670 KS): Implications of Zero Foreign Room
KOSDAQ 150 Rebalancing: Complete List of Candidates, Including Enchem

SK Telecom: MSCI Special Deletion & Immediate Price Spike on Share Recall

Looking at these past similar cases, the MSCI will likely announce SKT’s special deletion within 2-3 days of reaching zero foreign room and rebalancing within 2-3 days after the announcement.
We will see a passive outflow of about 2M shares or about ₩115B, equivalent to 2.7x ADTV, which will likely lead to an immediate price spike.
ETF funds tracking the MSCI have a large proportion of loaning SKT shares. So, when an MSCI down-weight occurs to SKT, an immediate recall will push up the price.

SK Telecom (017670 KS): Implications of Zero Foreign Room

Foreign investors hold 106.51m shares of SK Telecom (017670 KS) versus a limit of 107.23m shares. There are only 723k more shares (1 day of ADV) available for foreign buying.
MSCI will delete SK Telecom (017670 KS) from its indices once the foreign room reaches zero, while FTSE will likely reduce the investability weight in two tranches of 5% each.
SK Telecom (017670 KS) could continue underperforming KT Corp (030200 KS) in the short-term due to passive selling and inability of foreign investors to buy the stock.

KOSDAQ 150 Rebalancing: Complete List of Candidates, Including Enchem

Enchem (348370 KS) is in a bit tricky situation. Applying the KRX’s review period calculation criterion to Enchem satisfies the minimum listing requirement.
So, we should consider Enchem’s addition odds quite high. Enchem’s inclusion will pave the way for Sungwoo Hitech (015750 KS) to leave the Index.
We have ten adds/deletes, and WYSIWYG Studios (299900 KS) leads the adds for the passive impact, whereas JNTC Co Ltd (204270 KS) will suffer the most relative to ADTV.

Before it’s here, it’s on Smartkarma

May 20

Event-Driven: Core Lithium Ltd, SK Telecom, Woodside Petroleum, HKBN Ltd, Seiko Epson, Enchem, Siemens Gamesa Renewable Energy, S.A., Tencent and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

S&P/ASX Index Rebalance Preview: Tabcorp, Crown & Potential Changes in June
SK Telecom: MSCI Special Deletion & Immediate Price Spike on Share Recall
Woodside Shareholders Approve Deal but Not WPL’s Green Credentials; Now People Talk About Flows
SK Telecom (017670 KS): Implications of Zero Foreign Room
HKBN (1310 HK): KKR & PAG’s Pipe Dreams
Epson (6724) – A Big Buyback Amid Benign Backdrop
HKBN in the Crosshairs of KKR and PAG
KOSDAQ 150 Rebalancing: Complete List of Candidates, Including Enchem
Siemens Energy/Siemens Gamesa: Possible Delisting Offer
Shanghai/Shenzhen Southbound Connect: Weekly Moves (20 May 2022)

S&P/ASX Index Rebalance Preview: Tabcorp, Crown & Potential Changes in June

The Crown Resorts Scheme Meeting is scheduled for 20 May and the last trading day could be 24 May, while The Lottery Corp is expected to start trading 24 May.
The changes for the S&P/ASX 50 Index and S&P/ASX 100 Index will depend on the market cap of The Lottery Corp (TLC AU) and new Tabcorp Ltd (TAH AU).
The potential adds have outperformed the potential deletes over the last week and couple of months so there will be some pre-positions in there already.

SK Telecom: MSCI Special Deletion & Immediate Price Spike on Share Recall

Looking at these past similar cases, the MSCI will likely announce SKT’s special deletion within 2-3 days of reaching zero foreign room and rebalancing within 2-3 days after the announcement.
We will see a passive outflow of about 2M shares or about ₩115B, equivalent to 2.7x ADTV, which will likely lead to an immediate price spike.
ETF funds tracking the MSCI have a large proportion of loaning SKT shares. So, when an MSCI down-weight occurs to SKT, an immediate recall will push up the price.

Woodside Shareholders Approve Deal but Not WPL’s Green Credentials; Now People Talk About Flows

The EGM of Woodside Petroleum (WPL AU) today approved the BHP Petroleum merger in overwhelming fashion. 98.66% FOR.
They did not approve of the Climate Report the board submitted to vetting by shareholders for the first time. That got 51% “support.”
But now that’s done, people will talk about flows. So far the trade has worked but now time to think about how far to stretch it.

SK Telecom (017670 KS): Implications of Zero Foreign Room

Foreign investors hold 106.51m shares of SK Telecom (017670 KS) versus a limit of 107.23m shares. There are only 723k more shares (1 day of ADV) available for foreign buying.
MSCI will delete SK Telecom (017670 KS) from its indices once the foreign room reaches zero, while FTSE will likely reduce the investability weight in two tranches of 5% each.
SK Telecom (017670 KS) could continue underperforming KT Corp (030200 KS) in the short-term due to passive selling and inability of foreign investors to buy the stock.

HKBN (1310 HK): KKR & PAG’s Pipe Dreams

By David Blennerhassett

According to Bloomberg, KKR and PAG are considering bids for Hong Kong broadband play HKBN Ltd (1310 HK).
Private equity firms, possibly including Stonepeak, are understood to be conducting due diligence on HKBN, which has a current market cap of ~US$1.6bn.
Increased broadband usage became a Covid trend. That looks set to continue. This is a steady business, with an attractive yield.

Epson (6724) – A Big Buyback Amid Benign Backdrop

Seiko Epson (6724 JP) announces the first special div for the 2023 Nikkei 225 dividend futures.
And it also announces a VERY big buyback. The headlines say 9.5%. The reality is more like 4.0-4.4%, but that is still going to be 15-20% of Real World Float.
Given mildly positive backdrop, a net cash position, low multiples, and lack of major Real World Float active investor, this could go up.

HKBN in the Crosshairs of KKR and PAG

By Arun George

Bloomberg reported KKR & Co Inc (KKR US) and PAG are carrying out due diligence on HKBN Ltd (1310 HK), with a view to launching a privatisation bid.
HKBN has a relatively concentrated shareholder register which suggests a requirement for a high takeover premium.
Precedent transactions suggest a privatisation forward EV/EBITDA multiple of at least 10x, implying a minimum offer price of HK$11.80 per share, a 23% premium to the last close.

KOSDAQ 150 Rebalancing: Complete List of Candidates, Including Enchem

Enchem (348370 KS) is in a bit tricky situation. Applying the KRX’s review period calculation criterion to Enchem satisfies the minimum listing requirement.
So, we should consider Enchem’s addition odds quite high. Enchem’s inclusion will pave the way for Sungwoo Hitech (015750 KS) to leave the Index.
We have ten adds/deletes, and WYSIWYG Studios (299900 KS) leads the adds for the passive impact, whereas JNTC Co Ltd (204270 KS) will suffer the most relative to ADTV.

Siemens Energy/Siemens Gamesa: Possible Delisting Offer

By Jesus Rodriguez Aguilar

Siemens Energy is considering a cash offer for the 32.9% of Siemens Gamesa it does not own. Group simplification and major restructuring would make sense.
Applying the 6-month VWAP rule, the offer price could reach c. €18.1/share. Takeover regulation says the offer must be in cash and the price equitable, allowing for other calculation methods.
Siemens Energy does not need to offer a high premium and could make an announcement on 24 May (CMD). Recommendation is long.

Shanghai/Shenzhen Southbound Connect: Weekly Moves (20 May 2022)

By David Blennerhassett

Inside is a recap of movements in the last week relating to the Shanghai and Shenzhen-Hong Kong Stock Connect facilities, broken down by company and industry.
Overall, the total value increased US$12.5bn in the past week, with Shanghai accounting for US$5.7bn and Shenzhen US$6.8bn. Tencent (700 HK) is the dominant holding across both programs
Glory Sun Financial Group Limited (1282 HK) saw the biggest upward movement as the chairman sold to pay off debt. China South City (1668 HK) was reduced by both programs.

Before it’s here, it’s on Smartkarma