Smartkarma Daily Briefs

Jun 01

Event-Driven: Mercari Inc, Renesas Electronics, HKBN Ltd, Nissui Pharmaceutical, Dongfeng Automobile, Ardent Leisure Group Ltd, Tenneco Inc, HYBE, Itausa-Investimentos Itau-Pr and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Mercari (4385 JP): Section Transfer Means TOPIX & FTSE Inclusion
Mercari (4385) TOPIX Inclusion, Finally… And It’s Bigger Than It Looks
Nikkei 225 Index Rebalance Preview: Market Consultation & Potential Changes
(Mostly) Asia M&A: May 2022 Roundup
Shimadzu (7701) To Buy Out Nissui Pharma (4550) In Tender Offer
Dongfeng Auto (600006 CH): Dongfeng Motors’ Partial Offer
Ardent Leisure’s EGM Related to Main Event Sale on 29 June; Unlock Value
MergerTalk: Why We Think The Risk In Apollo’s Tenneco Buy Out Is Overpriced
End of Mandatory Lock-Up Periods for 40 Companies in Korea in June 2022
Itausa (ITSA4 BZ) – Historically Wide, and Potentially Understated, NAV Discount

Mercari (4385 JP): Section Transfer Means TOPIX & FTSE Inclusion

Mercari Inc (4385 JP) was deleted from the MSCI Japan at the close today. Then the company announced that it would move to the Prime Market on 7 June.
Transfer to Prime Market will require passive TPX INDEX trackers to buy stock end July and FTSE All-World trackers to buy in September – around 19% of free float together.
Short interest is over 13% of free float. Some of the shorts would have covered against the passive MSCI selling today but the remaining shorts could look to cover.

Mercari (4385) TOPIX Inclusion, Finally… And It’s Bigger Than It Looks

4.5 months ago I wrote Mercari (4385) Applying for TSE Prime Means TOPIX Inclusion in 4-5 Months and today it was announced Mercari would move from TSE Growth to Prime.
The move happens on 7 June, which means that the actual TOPIX inclusion will be at the close of 28 July.
This will change things near-term, and going forward. As always, we dig deeper below.

Nikkei 225 Index Rebalance Preview: Market Consultation & Potential Changes

The Nikkei 225 (NKY INDEX) market consultation released last week could lead to some tweaks to the index methodology and the stock selection process. Nothing really material enough though.
Potential index inclusions in September are Renesas Electronics, Oriental Land and Pan Pacific International Holdings, while Toyobo Co Ltd, Nippon Light Metal and Oki Electric Industry are potential index deletions.
Passive Nikkei 225 trackers will need to buy between 4-9% of the real float on the high/ medium probability names, while they need to buy between 2.5-14 days of ADV.

(Mostly) Asia M&A: May 2022 Roundup

By David Blennerhassett

For the month of May, 10 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$26bn.
The average premium for the new deals announced (or first discussed) in May was ~53%.
This compares to the average premium for all deals in 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 33%, 31%, and 31.5% respectively.

Shimadzu (7701) To Buy Out Nissui Pharma (4550) In Tender Offer

Nissui Pharmaceutical (4550 JP) has been cheap for years. Years and years and years.
It has traded at negative Enterprise Value for almost all of the past year.
Now Shimadzu Corp (7701 JP) is taking it over and heavily indebted parent Nippon Suisan Kaisha (1332 JP) is letting it go.

Dongfeng Auto (600006 CH): Dongfeng Motors’ Partial Offer

By David Blennerhassett

Dongfeng Motor (489 HK) (DFMG) has entered into an agreement to buy back the controlling stake in Dongfeng Automobile (600006 CH) (DFAC) from Nissan Motor (7201 JP).
DFMG and Nissan’s JV (split 50:50) holds a 60.1% stake in DFAC. Under the agreement, 29.9% of the JV’s stake in DFAC will be transferred to DFMG.
Subsequent to the completion of the transfer, DFMG will launch a partial offer for 25.1% of DFAC, with a view to holding 55% of shares out in DFAC.

Ardent Leisure’s EGM Related to Main Event Sale on 29 June; Unlock Value

By Arun George

The EGM to approve Dave & Buster’S Entertainment, Inc (PLAY US)‘s acquisition of Main Event is on 29 June. Ardent Leisure Group Ltd (ALG AU) will receive A$670.3 million.
If the transaction is approved, shareholders will receive a total return of A$0.95 through capital return and special dividends. The independent expert opines that the transaction is fair and reasonable.
At the last close price, the remaining business is valued at just 2 cents. Our SoTP valuation of A$1.65 per share is a 22% upside to the last close.

MergerTalk: Why We Think The Risk In Apollo’s Tenneco Buy Out Is Overpriced

By Robert Sassoon

The 18% spread suggests there the Apollo Global Management Inc (APO US) / Tenneco Inc (TEN US) transaction is fraught with risks which, we believe, are more imaginary than real
With TEN shareholders expected to approve the merger next week, we assess regulatory obstacles low and the risk of APO reconsidering the transaction unlikely except in the most unexpected circumstances
Overall we believe the risk-reward for arbs skews to the attractive with the opportunity to game IRRs in excess of 30%

End of Mandatory Lock-Up Periods for 40 Companies in Korea in June 2022

By Douglas Kim

We discuss end of the mandatory lock-up periods for 40 stocks in Korea in June 2022, among which 5 are in KOSPI and 35 are in KOSDAQ.
These 40 stocks on average could be subject to further selling pressures in June and could underperform relative to the market.
Among these 40 stocks, HYBE (352820 KS) and Koreacenter.com Co Ltd (290510 KS) could face further selling pressures in the coming weeks.

Itausa (ITSA4 BZ) – Historically Wide, and Potentially Understated, NAV Discount

By Victor Galliano

Itausa is trading at a stated 24.4% discount to the HoldCo’s NAV, with the discount having widened sharply since last month; we turn positive on Itausa
We believe that the discount under-estimates the stated NAV; separate from Itausa’s stake in XP, Itaú Unibanco, in which Itausa holds a 37.2% stake, has a direct 11.36% XP stake
Adding its indirect XP stake share to Itausa’s NAV implies a discount of 26.1%; since December 2008, only on 11% of the month end datapoints has Itausa’s discount exceeded 25%

Before it’s here, it’s on Smartkarma

Jun 01

TMT: Mercari Inc, Renesas Electronics, GoTo, Tencent, iQIYI Inc, TRIPLE-1, Pagseguro Digital Ltd, AKM Industrial, Aon Plc and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

Mercari (4385 JP): Section Transfer Means TOPIX & FTSE Inclusion
Mercari (4385) TOPIX Inclusion, Finally… And It’s Bigger Than It Looks
Nikkei 225 Index Rebalance Preview: Market Consultation & Potential Changes
GoTo (GOTO IJ) – Ploughing a Path to Profitability
Tencent: Is Tencent Trying to Cope with Revenue Slowdown?
IQiyi – Generates Profits for the First Time; Can It Maintain Its Profitability?
TRIPLE-1 – Power Efficient ASICS
Payment Companies Screens – More Constructive Market Signals or a Bear Market Rally?
AKM’s Scheme Document, Court Meeting on 22 June, IFA Opinion
Weitz Investment Management Value Fund Q1 2022 Commentary

Mercari (4385 JP): Section Transfer Means TOPIX & FTSE Inclusion

Mercari Inc (4385 JP) was deleted from the MSCI Japan at the close today. Then the company announced that it would move to the Prime Market on 7 June.
Transfer to Prime Market will require passive TPX INDEX trackers to buy stock end July and FTSE All-World trackers to buy in September – around 19% of free float together.
Short interest is over 13% of free float. Some of the shorts would have covered against the passive MSCI selling today but the remaining shorts could look to cover.

Mercari (4385) TOPIX Inclusion, Finally… And It’s Bigger Than It Looks

4.5 months ago I wrote Mercari (4385) Applying for TSE Prime Means TOPIX Inclusion in 4-5 Months and today it was announced Mercari would move from TSE Growth to Prime.
The move happens on 7 June, which means that the actual TOPIX inclusion will be at the close of 28 July.
This will change things near-term, and going forward. As always, we dig deeper below.

Nikkei 225 Index Rebalance Preview: Market Consultation & Potential Changes

The Nikkei 225 (NKY INDEX) market consultation released last week could lead to some tweaks to the index methodology and the stock selection process. Nothing really material enough though.
Potential index inclusions in September are Renesas Electronics, Oriental Land and Pan Pacific International Holdings, while Toyobo Co Ltd, Nippon Light Metal and Oki Electric Industry are potential index deletions.
Passive Nikkei 225 trackers will need to buy between 4-9% of the real float on the high/ medium probability names, while they need to buy between 2.5-14 days of ADV.

GoTo (GOTO IJ) – Ploughing a Path to Profitability

By Angus Mackintosh

GoTo announced its much-anticipated FY2021 and 1Q2022 results, which did not disappoint, with improvements in a number of different metrics across its main verticals.
1Q2022 saw a QoQ increase for on-demand, e-commerce, and fintech versus a seasonally strong 4Q plus the group improved take rates and contribution margin in 1Q2022 versus 4Q2021.
GoTo‘s guidance for 2Q2022 is positive and it should be boosted by higher commission rates plus continuing synergies across the group, helping to improve profitability and growth.

Tencent: Is Tencent Trying to Cope with Revenue Slowdown?

Tencent reported lowest YoY increase in revenue in 1Q2022. Subsequent to this, Tencent mentioned during earnings call that it continues to scale back on loss-making activities across its business segments.
Recent scale back of operation is in its cloud-services segment that includes loss-making activities such as projects with high proportion of sub-contractors and deeply discounted-contracts for CVM and CDN capacity.
Layoffs have become prevalent as a cost cutting measure and Tencent is in the process of reducing headcount at gaming and fintech businesses.

IQiyi – Generates Profits for the First Time; Can It Maintain Its Profitability?

IQiyi reported 1Q2022 results last week. Revenue fell 8.7% YoY to RMB 7.3bn (vs consensus RMB 7.22bn) and reported an OP of RMB 93.4m (vs consensus loss of RMB 297m).
Growth in ARM helped offset decline in the number of subscribers for membership revenue. However, online advertising and content distribution both declined due to lack of content and macroeconomic weaknesses.
IQiyi’s shares have gained 11.2% since its earnings announcement as the company reported an OPM for the first time.

TRIPLE-1 – Power Efficient ASICS

By Mio Kato

TRIPLE-1 was established in 2016 and got its start designing highly power efficient ASICs used for cryptocurrency mining, partnering with TSMC to use its leading-edge nodes.
Since then the company has moved on to develop ASICs specialised in AI applications as well as for 5G base stations.
In all cases the company emphasises power efficiency and with significant gearing into local 5G networks the domestic focus could be a positive rather than a negative.

Payment Companies Screens – More Constructive Market Signals or a Bear Market Rally?

By Victor Galliano

Since our March-end report, our shorts – especially Kakao Pay – worked better than our longs, given the continuing turbulent conditions; Santander’s offer for Getnet minorities signals a specific opportunity
We still favour Mastercard in the megacaps, and we stick with PagSeguro and Nexi despite both having disappointed; Cielo has been a strong performer, but we would not chase it
Among our shorts, we remain negative on DLocal, given its very demanding valuations, and we still see Kakao Pay to be fundamentally over-valued; we reintroduce Paytm to the shorts list

AKM’s Scheme Document, Court Meeting on 22 June, IFA Opinion

By Arun George

The AKM Industrial (1639 HK) scheme document is out with the court and EGM meeting on 22 June. The IFA considers the offer to be fair and reasonable.
The key condition is the scheme approval by at least 75% and rejection by <10% of disinterested shareholders. Shareholders who hold blocking stakes have provided irrevocables.
At last close and for a 4 August payment, the gross and annualised spread to the offer is 1.1% and 6.2%, respectively. This is a done deal.

Weitz Investment Management Value Fund Q1 2022 Commentary

Founded by value investor Wally Weitz in 1983, Weitz Investment Management, Inc. is a boutique, employee-owned asset management firm headquartered in Omaha, Nebraska.
The Value Fund’s Institutional Class returned -7.96% for the first quarter.
Our companies are generally reporting solid financial results, at least so far, and they are adapting fluidly to rapidly evolving conditions.

Before it’s here, it’s on Smartkarma

Jun 01

Consumer: Dongfeng Automobile, Xinyi Glass Holdings, Ardent Leisure Group Ltd, Tenneco Inc, Fast Retailing, Aon Plc, United Spirits, Axalta Coating Systems, Lemon Tree Hotels Ltd, Crompton Greaves Consumer Electricals and more

By Smartkarma Daily Briefs | Consumer, Daily Briefs

In today’s briefing:

Dongfeng Auto (600006 CH): Dongfeng Motors’ Partial Offer
Xinyi Glass Vs Flat Glass: Collapse and Long XYG
Ardent Leisure’s EGM Related to Main Event Sale on 29 June; Unlock Value
MergerTalk: Why We Think The Risk In Apollo’s Tenneco Buy Out Is Overpriced
Fast Retailing: China Near Pandemic Lows and America, Europe and Asia Affected by Rising Inflation
Weitz Investment Management Partners Value Fund Q1 2022 Commentary
United Spirits Update: All Round Progress
Weitz Investment Management Hickory Fund Q1 2022 Commentary
Lemon Tree Hotels – Revival in Corporate Travel Turns Favorable
Crompton Greaves Consumer Electricals – Strong Rebound Post Weak Jan’22

Dongfeng Auto (600006 CH): Dongfeng Motors’ Partial Offer

By David Blennerhassett

Dongfeng Motor (489 HK) (DFMG) has entered into an agreement to buy back the controlling stake in Dongfeng Automobile (600006 CH) (DFAC) from Nissan Motor (7201 JP).
DFMG and Nissan’s JV (split 50:50) holds a 60.1% stake in DFAC. Under the agreement, 29.9% of the JV’s stake in DFAC will be transferred to DFMG.
Subsequent to the completion of the transfer, DFMG will launch a partial offer for 25.1% of DFAC, with a view to holding 55% of shares out in DFAC.

Xinyi Glass Vs Flat Glass: Collapse and Long XYG

By Henry Soediarko

The correlation between Xinyi Glass Holdings (868 HK) and Flat Glass (6865 HK) has narrowed thus it is time to lock the profit while it is still possible.
Xinyi Glass formed a JV with Xinyi Solar Holdings (968 HK) to set up a polysilicon manufacturing facility.
A 7% dividend with some potential growth juice from owning the shares at less than 7x PER is really quite a steal.

Ardent Leisure’s EGM Related to Main Event Sale on 29 June; Unlock Value

By Arun George

The EGM to approve Dave & Buster’S Entertainment, Inc (PLAY US)‘s acquisition of Main Event is on 29 June. Ardent Leisure Group Ltd (ALG AU) will receive A$670.3 million.
If the transaction is approved, shareholders will receive a total return of A$0.95 through capital return and special dividends. The independent expert opines that the transaction is fair and reasonable.
At the last close price, the remaining business is valued at just 2 cents. Our SoTP valuation of A$1.65 per share is a 22% upside to the last close.

MergerTalk: Why We Think The Risk In Apollo’s Tenneco Buy Out Is Overpriced

By Robert Sassoon

The 18% spread suggests there the Apollo Global Management Inc (APO US) / Tenneco Inc (TEN US) transaction is fraught with risks which, we believe, are more imaginary than real
With TEN shareholders expected to approve the merger next week, we assess regulatory obstacles low and the risk of APO reconsidering the transaction unlikely except in the most unexpected circumstances
Overall we believe the risk-reward for arbs skews to the attractive with the opportunity to game IRRs in excess of 30%

Fast Retailing: China Near Pandemic Lows and America, Europe and Asia Affected by Rising Inflation

By Oshadhi Kumarasiri

Fast Retailing (9983 JP)’s share price rose 10% towards the top end of the trend channel since reporting 15.8% YoY same-store sales growth in April 2022.
However, the growth rate was influenced by weak comps and in April 2022 domestic revenue was 9% below the pre-pandemic level.
Meanwhile, Uniqlo’s growth drivers are faltering with China’s revenue near pandemic lows and North America, Europe and Asia affected by rising inflation.

Weitz Investment Management Partners Value Fund Q1 2022 Commentary

Founded by value investor Wally Weitz in 1983, Weitz Investment Management, Inc. is a boutique, employee-owned asset management firm headquartered in Omaha, Nebraska.
The Partners Value Fund’s Institutional Class returned -8.68% for the first quarter.
Our company value estimates are mostly steady or increasing, with a few notable exceptions.
Our team estimatesthat theportfolio trades at a price-to-valuein thelow 80s,which provides a healthycushion against near-term forecasting errors.

United Spirits Update: All Round Progress

By Nitin Mangal

United Spirits (UNSP IN) Q4F22 results have shown some good improvement.
There is all round progress witnessed, including debt reduction, focus on gaining market share, better scope of working capital management. There is an intent of supporting premiumization as well.
The results and strategic decision making reinforces our bullish stance on United Spirits; the cherry on top is that there is further room for improvement in the short-mid term.

Weitz Investment Management Hickory Fund Q1 2022 Commentary

Founded by value investor Wally Weitz in 1983, Weitz Investment Management, Inc. is a boutique, employee-owned asset management firm headquartered in Omaha, Nebraska.
The Hickory Fund returned -13.15% in the first quarter of 2022.
Portfolio returns for the quarter and fiscal year were disappointing on both a relative and absolute basis.
In our opinion, however, the near-term (at least) investment landscape remains fluid.

Lemon Tree Hotels – Revival in Corporate Travel Turns Favorable

Revenue declines by 16.8% QoQ but increases by 25.7% YoY to Rs1,195mn: Revenue at Rs1,195mn declined by 16.8% QoQ but increased by 25.7% YoY in 4QFY22.

EBITDA margin declines by 3,180bps QoQ and 1,770bps YoY in 4QFY22 to 12.3%: The company reported EBITDA margin of 12.3% in 4QFY22 vs 44.1%/30% in 3QFY22/4QFY21.

Net loss at Rs367mn in 4QFY22 vs a net loss of Rs52mn/Rs267mn in 3QFY22/4QFY21: The net loss stood at Rs367mn in 4QFY22 v/s Rs52mn/Rs267mn in 3QFY22/4QFY21.

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.

Crompton Greaves Consumer Electricals – Strong Rebound Post Weak Jan’22

Strong rebound in demand during Feb’22-Mar’22 after muted Jan’22: In 4QFY22 Pumps business faced a slowdown due to industry-wide weakness

Market share gain continues; distribution expansion to aid overall growth: On a rolling 12-month basis, the company gained 3% market share in the overall fans segment.

Cost-saving program helping protect margins: The company saved Rs680mn in 4QFY22 from Project UNNATI.

Before it’s here, it’s on Smartkarma

Jun 01

India: Daikin Industries, Life Insurance Corp of India (LIC), Clean Science and Technology, G R Infraprojects, United Spirits, PNC Infratech Ltd, Sun Pharmaceutical Industries, Aarti Industries, Apar Industries and more

By Smartkarma Daily Briefs | Daily Briefs, India

In today’s briefing:

India Channel Insight #36 | Daikin, Havells, Voltas
Life Insurance Corporation of India: Time to Think About Scope 3 “Financed Emissions”
Clean Science & Technology – 4Q Ahead of Estimates; Continues to Gain Customer
G R Infraprojects: Efficient Execution to Drive Growth; Maintain BUY
United Spirits Update: All Round Progress
PNC Infratech – Monetization of HAM Portfolio a Key Monitorable
Sun Pharma Industries – One-Time Costs Hit Earnings
Aarti Industries – In-Line Quarter
United Spirits (4QFY22): Uptrend Story Continues; Uninspiring Brand Sale. Maintain ADD
Apar Industries – Strong Quarter; Outlook Mixed

India Channel Insight #36 | Daikin, Havells, Voltas

By Pranav Bhavsar

The overall Air Condition (AC) season has been good, with volumes up by more than +20% compared to the last two years.
Daikin Industries (6367 JP) & Voltas Ltd (VOLT IN) have performed below expectations with stiff pricing and poor dealer support.
Havells India (HAVL IN) (Lloyd) market share gain is on the back of lower prices. The focus has moved from premiumizing brand & expanding margins to gaining market share.

Life Insurance Corporation of India: Time to Think About Scope 3 “Financed Emissions”

By Kyle Rudden

For better or for worse, the Life Insurance Corporation of India (LICI IN) IPO is done. Maybe we should start thinking about LIC’s Scope 3 “financed emissions” (aka “portfolio emissions”).
Financed emissions are investors’ “shares” of investees’ Scopes 1 and 2. A bit like someone else pulling the trigger, but being sent to the gallows for selling them the gun.
Portfolio emissions are major source of climate-related financial risks, often “hidden” because financed emissions are grossly under-reported (or, quite commonly, un-reported).

Clean Science & Technology – 4Q Ahead of Estimates; Continues to Gain Customer

We are comfortable with everything but valuation: Implementation of sustainable chemistry practices and ongoing process improvement (to cut down or eliminate the use of toxic materials such as KSMs, Efflux) is the need of the hour.
While many companies are increasingly taking initiatives on that front, CLEAN is the pioneer in the same and is the classic example of why the chemical industry should shift to these practices in order to protect the environment without compromising their operational performance.
Hence, valuation premium vis-à-vis like-to-like peers as well as chemicals industry should persist, in our view.

G R Infraprojects: Efficient Execution to Drive Growth; Maintain BUY

By Axis Direct

GR Infraprojects Ltd (GRIL) reported a decent set of numbers in Q4FY22. The company reported revenue of Rs 2,268 Cr, better than our estimate of Rs 2,103 Cr, down 13.7% YoY
It registered EBITDA Margins of 17.8% in Q4FY22 (our estimate: 14.9%) as against 15.6% in Q4FY21
We maintain a BUY on GRIL and value the EPC business at 15x FY24E EPS and HAM portfolio at 1x Book Value to arrive at a target price of Rs 1,765/share, implying an upside of 26% from the CMP.

United Spirits Update: All Round Progress

By Nitin Mangal

United Spirits (UNSP IN) Q4F22 results have shown some good improvement.
There is all round progress witnessed, including debt reduction, focus on gaining market share, better scope of working capital management. There is an intent of supporting premiumization as well.
The results and strategic decision making reinforces our bullish stance on United Spirits; the cherry on top is that there is further room for improvement in the short-mid term.

PNC Infratech – Monetization of HAM Portfolio a Key Monitorable

Comfortable order book position: As on 31st March’22, the unexecuted orderbook stood at Rs146bn.

FY23 guidance: The management has given guidance of 15% revenue growth for FY23 and 13-13.5% EBITDA margin.

Asset monetization update: PNC has concluded the deal to sell the Ghaziabad-Aligarh project to Cube Highways on 29th May, 2022.

Sun Pharma Industries – One-Time Costs Hit Earnings

Sun Pharma reported revenue at Rs94,468mn, up 10.8% YoY but the same was down 4.2% QoQ.

India Branded Generics business reported sales at Rs30,956mn, up 15.9% YoY, but down 2.3% QoQ

US Formulations business reported sales at Rs29,246mn, up 8.5% YoY but down 1.6% QoQ.

Aarti Industries – In-Line Quarter

4QFY22 performance highlights: ARTO’s consolidated adjusted revenue grew by ~45% YoY in 3QFY22 wherein Specialty Chemicals and Pharma segments grew by ~45% YoY and ~73% YoY, respectively.

Growth guidance: ARTO incurred ~Rs13bn capex in FY22 and management has guided for >Rs30bn capex over the next 2 years.

Update on long term contracts, Pharma demerger: Capacity for 1st long term contract, which got terminated, is expected to ramp up over the next 2 years and management is mulling a fresh capex of ~Rs10bn in order to offer the complete Dicamba chain.

United Spirits (4QFY22): Uptrend Story Continues; Uninspiring Brand Sale. Maintain ADD

By HDFC Securities

P&A continues its growth momentum: Net revenue was up by 9% YoY (+12% in Q4FY21 and +16% in Q3FY22) vs. HSIE’s 13%.

Total volume was up by 5% to 20.7mn cases (+8% in Q4FY21, +4% in Q3FY22) vs. HSIE 20.6mn cases. P&A revenue up by 15% YoY (+26% in Q4FY21, +20% in Q3FY22, HSIE 17%).

P&A realisation was up 6% YoY (+5% in Q4FY21 and +11% in Q3FY22) to INR 1,617/case.

Apar Industries – Strong Quarter; Outlook Mixed

Conductors segment update: The Conductors segment’s revenue increased by 28% YoY to Rs15.03bn (48.3% of total sales)

Oil segment update: Oil segment’s revenue grew by 29.2% YoY to Rs9.28bn (29.8% of total sales).

Outlook: We expect 8.1%/2.6% revenue/earnings CAGR over FY22-FY24E.

Before it’s here, it’s on Smartkarma

Jun 01

Thailand: Digital Telecommunications Infrastructure Fund and more

By Smartkarma Daily Briefs | Daily Briefs, Thailand

In today’s briefing:

Digital Telecommunications Infrastructure Fund Placement – Routine Trim Down from Parent

Digital Telecommunications Infrastructure Fund Placement – Routine Trim Down from Parent

By Clarence Chu

True Corp Pcl (TRUE TB) is looking to raise around US$102m by trimming a portion of its stake in Digital Telecommunications Infrastructure Fund (DIF TB).
While we wouldn’t outright say that the deal is well flagged, True Corporation has trimmed its stake multiple times in the past.
The deal would be a large one, representing 25 days of three month ADV.

Before it’s here, it’s on Smartkarma

Jun 01

Industrials: Daikin Industries, Aon Plc, Apple, FirstService Corp, G R Infraprojects, Cornerstone Building Brands, Apar Industries, PNC Infratech Ltd and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

India Channel Insight #36 | Daikin, Havells, Voltas
Weitz Investment Management Value Fund Q1 2022 Commentary
Weitz Investment Management Partners III Opportunity Fund Q1 2022 Commentary
Distillate Capital Q1 2022 Letter To Investors
G R Infraprojects: Efficient Execution to Drive Growth; Maintain BUY
Blue Tower Asset Management Q1 2022 Commentary
Apar Industries – Strong Quarter; Outlook Mixed
PNC Infratech – Monetization of HAM Portfolio a Key Monitorable

India Channel Insight #36 | Daikin, Havells, Voltas

By Pranav Bhavsar

The overall Air Condition (AC) season has been good, with volumes up by more than +20% compared to the last two years.
Daikin Industries (6367 JP) & Voltas Ltd (VOLT IN) have performed below expectations with stiff pricing and poor dealer support.
Havells India (HAVL IN) (Lloyd) market share gain is on the back of lower prices. The focus has moved from premiumizing brand & expanding margins to gaining market share.

Weitz Investment Management Value Fund Q1 2022 Commentary

Founded by value investor Wally Weitz in 1983, Weitz Investment Management, Inc. is a boutique, employee-owned asset management firm headquartered in Omaha, Nebraska.
The Value Fund’s Institutional Class returned -7.96% for the first quarter.
Our companies are generally reporting solid financial results, at least so far, and they are adapting fluidly to rapidly evolving conditions.

Weitz Investment Management Partners III Opportunity Fund Q1 2022 Commentary

Founded by value investor Wally Weitz in 1983, Weitz Investment Management, Inc. is a boutique, employee-owned asset management firm headquartered in Omaha, Nebraska.
The Weitz Investment Management Partners III Opportunity Fund’s Institutional Class returned -5.09% in the first quarter of 2022.
Anticipating a hawkish shift at the Federal Reserve, investors began the year repricing assets for a higher interest rate environment.

Distillate Capital Q1 2022 Letter To Investors

Distillate Capital Partners LLC was formed in 2017 and is based in Chicago, IL. The firm is 100% employee-owned, and DCP’s partners each have invested significantly in the firm’s investment strategies.
Distillate’s U.S. FSV returned -3.60% net of fees versus -4.60% for the benchmark.
Distillate’s Intl. FSV strategy returned -6.19% net of fees.
Distillate’s U.S. SQV’s 2022 Q1 total return after fees was -4.49%.

G R Infraprojects: Efficient Execution to Drive Growth; Maintain BUY

By Axis Direct

GR Infraprojects Ltd (GRIL) reported a decent set of numbers in Q4FY22. The company reported revenue of Rs 2,268 Cr, better than our estimate of Rs 2,103 Cr, down 13.7% YoY
It registered EBITDA Margins of 17.8% in Q4FY22 (our estimate: 14.9%) as against 15.6% in Q4FY21
We maintain a BUY on GRIL and value the EPC business at 15x FY24E EPS and HAM portfolio at 1x Book Value to arrive at a target price of Rs 1,765/share, implying an upside of 26% from the CMP.

Blue Tower Asset Management Q1 2022 Commentary

Blue Tower Asset Management provides portfolio management services to individuals, financial advisers, and institutions.
Our strategy composite returned -15.87% net of fees in the first quarter (-15.62% gross).
We plan on liquidating our Russian portfolio companies as soon as they are unfrozen and we are able to receive a reasonable valuation for them.

Apar Industries – Strong Quarter; Outlook Mixed

Conductors segment update: The Conductors segment’s revenue increased by 28% YoY to Rs15.03bn (48.3% of total sales)

Oil segment update: Oil segment’s revenue grew by 29.2% YoY to Rs9.28bn (29.8% of total sales).

Outlook: We expect 8.1%/2.6% revenue/earnings CAGR over FY22-FY24E.

PNC Infratech – Monetization of HAM Portfolio a Key Monitorable

Comfortable order book position: As on 31st March’22, the unexecuted orderbook stood at Rs146bn.

FY23 guidance: The management has given guidance of 15% revenue growth for FY23 and 13-13.5% EBITDA margin.

Asset monetization update: PNC has concluded the deal to sell the Ghaziabad-Aligarh project to Cube Highways on 29th May, 2022.

Before it’s here, it’s on Smartkarma

Jun 01

Equity Bottom-Up: Xinyi Glass Holdings, GoTo, Tencent, Daikin Industries, iQIYI Inc, Fast Retailing, Pagseguro Digital Ltd, PureTech Health, Intco Medical Technology Co., Ltd-A, United Spirits and more

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

In today’s briefing:

Xinyi Glass Vs Flat Glass: Collapse and Long XYG
GoTo (GOTO IJ) – Ploughing a Path to Profitability
Tencent: Is Tencent Trying to Cope with Revenue Slowdown?
India Channel Insight #36 | Daikin, Havells, Voltas
IQiyi – Generates Profits for the First Time; Can It Maintain Its Profitability?
Fast Retailing: China Near Pandemic Lows and America, Europe and Asia Affected by Rising Inflation
Payment Companies Screens – More Constructive Market Signals or a Bear Market Rally?
PureTech Health (PRTC LN): Own Pipeline and Strategic Investments Act as Dual Growth Engines
Intco Medical Technology (300677.CH) – Declining Performance & Overcapacity Indicate Gloomy Outlook
United Spirits Update: All Round Progress

Xinyi Glass Vs Flat Glass: Collapse and Long XYG

By Henry Soediarko

The correlation between Xinyi Glass Holdings (868 HK) and Flat Glass (6865 HK) has narrowed thus it is time to lock the profit while it is still possible.
Xinyi Glass formed a JV with Xinyi Solar Holdings (968 HK) to set up a polysilicon manufacturing facility.
A 7% dividend with some potential growth juice from owning the shares at less than 7x PER is really quite a steal.

GoTo (GOTO IJ) – Ploughing a Path to Profitability

By Angus Mackintosh

GoTo announced its much-anticipated FY2021 and 1Q2022 results, which did not disappoint, with improvements in a number of different metrics across its main verticals.
1Q2022 saw a QoQ increase for on-demand, e-commerce, and fintech versus a seasonally strong 4Q plus the group improved take rates and contribution margin in 1Q2022 versus 4Q2021.
GoTo‘s guidance for 2Q2022 is positive and it should be boosted by higher commission rates plus continuing synergies across the group, helping to improve profitability and growth.

Tencent: Is Tencent Trying to Cope with Revenue Slowdown?

Tencent reported lowest YoY increase in revenue in 1Q2022. Subsequent to this, Tencent mentioned during earnings call that it continues to scale back on loss-making activities across its business segments.
Recent scale back of operation is in its cloud-services segment that includes loss-making activities such as projects with high proportion of sub-contractors and deeply discounted-contracts for CVM and CDN capacity.
Layoffs have become prevalent as a cost cutting measure and Tencent is in the process of reducing headcount at gaming and fintech businesses.

India Channel Insight #36 | Daikin, Havells, Voltas

By Pranav Bhavsar

The overall Air Condition (AC) season has been good, with volumes up by more than +20% compared to the last two years.
Daikin Industries (6367 JP) & Voltas Ltd (VOLT IN) have performed below expectations with stiff pricing and poor dealer support.
Havells India (HAVL IN) (Lloyd) market share gain is on the back of lower prices. The focus has moved from premiumizing brand & expanding margins to gaining market share.

IQiyi – Generates Profits for the First Time; Can It Maintain Its Profitability?

IQiyi reported 1Q2022 results last week. Revenue fell 8.7% YoY to RMB 7.3bn (vs consensus RMB 7.22bn) and reported an OP of RMB 93.4m (vs consensus loss of RMB 297m).
Growth in ARM helped offset decline in the number of subscribers for membership revenue. However, online advertising and content distribution both declined due to lack of content and macroeconomic weaknesses.
IQiyi’s shares have gained 11.2% since its earnings announcement as the company reported an OPM for the first time.

Fast Retailing: China Near Pandemic Lows and America, Europe and Asia Affected by Rising Inflation

By Oshadhi Kumarasiri

Fast Retailing (9983 JP)’s share price rose 10% towards the top end of the trend channel since reporting 15.8% YoY same-store sales growth in April 2022.
However, the growth rate was influenced by weak comps and in April 2022 domestic revenue was 9% below the pre-pandemic level.
Meanwhile, Uniqlo’s growth drivers are faltering with China’s revenue near pandemic lows and North America, Europe and Asia affected by rising inflation.

Payment Companies Screens – More Constructive Market Signals or a Bear Market Rally?

By Victor Galliano

Since our March-end report, our shorts – especially Kakao Pay – worked better than our longs, given the continuing turbulent conditions; Santander’s offer for Getnet minorities signals a specific opportunity
We still favour Mastercard in the megacaps, and we stick with PagSeguro and Nexi despite both having disappointed; Cielo has been a strong performer, but we would not chase it
Among our shorts, we remain negative on DLocal, given its very demanding valuations, and we still see Kakao Pay to be fundamentally over-valued; we reintroduce Paytm to the shorts list

PureTech Health (PRTC LN): Own Pipeline and Strategic Investments Act as Dual Growth Engines

By Tina Banerjee

PureTech Health (PRTC LN) has highly differentiated wholly owned pipeline of seven therapeutic candidates and four lymphatic and inflammation platforms. It also has strategic investments in six founded entities.
KarXT, lead candidate of founded entity Karuna Therapeutics Inc (KRTX US), is progressing toward commercialization, thereby entailing milestone and royalty opportunities for PureTech.
PureTech’s lead candidate LYT-100 is in three late-stage clinical trials for three indications addressing large patient population. LYT-100 also has potential to address to other underserved diseases.

Intco Medical Technology (300677.CH) – Declining Performance & Overcapacity Indicate Gloomy Outlook

By Xinyao (Criss) Wang

Due to the reduction of glove selling price, lower demand, significant cost hike and inflation, it is expected that Intco would continue to face declining performance and margins.
Under current circumstances, supply exceeds demand. The overcapacity could lead to substantial asset impairment. So, it would take some time before the industry clearing is finished or reach new balance.
Intco’s weak performance would continue. Its share price is likely to remain depressed for some time.So, it may not be wise to bottom fishing that early even with low valuation.

United Spirits Update: All Round Progress

By Nitin Mangal

United Spirits (UNSP IN) Q4F22 results have shown some good improvement.
There is all round progress witnessed, including debt reduction, focus on gaining market share, better scope of working capital management. There is an intent of supporting premiumization as well.
The results and strategic decision making reinforces our bullish stance on United Spirits; the cherry on top is that there is further room for improvement in the short-mid term.

Before it’s here, it’s on Smartkarma

Jun 01

Macro: A Crude Development and more

By Smartkarma Daily Briefs | Daily Briefs, Macro

In today’s briefing:

A Crude Development
EA: Inflation Back to Brutal Beatings
CX Daily: The Covid-Fighting Struggle of China’s Nursing Homes

A Crude Development

By Shyam Devani

Brent Crude is approaching important levels at $124 and may be about to breakout
The overall picture on the chart indicates a move to $150. If seen with rising yields again, it would yet again provide a negative backdrop for equities.
While the S&P 500 may stretch up to 4,300 in the short term, that would be a sell zone as the medium term picture points to further downside.

EA: Inflation Back to Brutal Beatings

By Phil Rush

EA inflation resumed its trend rise and tendency to exceed forecasts with a 61bp jump to 8.05% in May-22. Headline rates increased for all countries except the Netherlands.
Upside news was broad-based across countries, except for the Netherlands, Spain and Cyprus. Food, energy, and core aggregates were all above our expectations.
We still forecast another rise in June into a higher flattish peak, with excess inflation remaining relatively persistent in our view. The ECB seems set to hike in July.

CX Daily: The Covid-Fighting Struggle of China’s Nursing Homes

By Caixin Global

Cover Story: The Covid-fighting struggle of China’s nursing homes
Beijing probes whether hospital Covid protocols contributed to man’s death
China draws from next year’s budget for local government handouts

Before it’s here, it’s on Smartkarma

Jun 01

Most Read: Orient Overseas International, Mercari Inc, Renesas Electronics, LG Corp and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

MSCI May 2022 Index Rebalance: Flows at the Close Today & Performance So Far
Mercari (4385 JP): Section Transfer Means TOPIX & FTSE Inclusion
Mercari (4385) TOPIX Inclusion, Finally… And It’s Bigger Than It Looks
Nikkei 225 Index Rebalance Preview: Market Consultation & Potential Changes
Short LG Corp on the Unsustainable Price Spike

MSCI May 2022 Index Rebalance: Flows at the Close Today & Performance So Far

For Asia Pacific, there are 48 adds/76 deletes for the Standard Indices and 166 adds/147 deletes for the Small Cap Index that will be implemented at the close today.
The adds have outperformed the deletes on average over the last few weeks/months. A long adds/short deletes trade performed better for Small Caps as compared to the Standard index.
There are a lot of stocks that will have same-way flow from other index trackers over the next few weeks and there could be a higher impact on these names.

Mercari (4385 JP): Section Transfer Means TOPIX & FTSE Inclusion

Mercari Inc (4385 JP) was deleted from the MSCI Japan at the close today. Then the company announced that it would move to the Prime Market on 7 June.
Transfer to Prime Market will require passive TPX INDEX trackers to buy stock end July and FTSE All-World trackers to buy in September – around 19% of free float together.
Short interest is over 13% of free float. Some of the shorts would have covered against the passive MSCI selling today but the remaining shorts could look to cover.

Mercari (4385) TOPIX Inclusion, Finally… And It’s Bigger Than It Looks

4.5 months ago I wrote Mercari (4385) Applying for TSE Prime Means TOPIX Inclusion in 4-5 Months and today it was announced Mercari would move from TSE Growth to Prime.
The move happens on 7 June, which means that the actual TOPIX inclusion will be at the close of 28 July.
This will change things near-term, and going forward. As always, we dig deeper below.

Nikkei 225 Index Rebalance Preview: Market Consultation & Potential Changes

The Nikkei 225 (NKY INDEX) market consultation released last week could lead to some tweaks to the index methodology and the stock selection process. Nothing really material enough though.
Potential index inclusions in September are Renesas Electronics, Oriental Land and Pan Pacific International Holdings, while Toyobo Co Ltd, Nippon Light Metal and Oki Electric Industry are potential index deletions.
Passive Nikkei 225 trackers will need to buy between 4-9% of the real float on the high/ medium probability names, while they need to buy between 2.5-14 days of ADV.

Short LG Corp on the Unsustainable Price Spike

By Sanghyun Park

The question now is whether this event can lead to a structural uptrend in LG Corp. I am skeptical about this.
LG Corp took a preemptive action to increase its attractiveness as a dividend stock to prevent a share price decline ahead of the listing of LG CNS.
However, this measure does not address the root cause of LG Corp’s massive NAV discount. So, I would consider a short position setup for LG Corp.

Before it’s here, it’s on Smartkarma