Smartkarma Daily Briefs

“The conditions precedent to the VTO have not been satisfied within one year from 22 November 2021 … the parties have declined to carry out the VTO.“
This statement was lifted from Telenor’s (the major shareholder of Total Access Communication (DTAC TB)) brief announcement. Telenor/CP Group aim to complete the transaction within the first quarter of 2023
This appears a cop-out on behalf of both Tender Offerors (Telenor & CP Group), who probably could have pushed for an extension. And why weren’t the scrip terms addressed?

Alibaba (BABA US): Fighting Back

By Steven Holden

Ownership in Alibaba Group Holdings is on the rise among active Greater China managers.
Stock price below $100 a catalyst for active Greater China managers to buy back in, with Invesco, JP Morgan and E Fund among those opening positions
Alibaba remains well behind both TSMC and Tencent on an average weight basis and is the 2nd largest underweight in the Greater China region.

Add Meituan on Rumors of Social Benefit Payments

By Xin Yu, CFA

Meituan’s recent price decline was partly due to the rumors about the social benefit payments.
First, rumors are unverified statements. There was no such meeting at all.
Second, the social benefit payment impact is probably controllable. I think the recent price decline provides a chance of adding on the stock.

Grab (GRAB US) – Shifting Down a Gear for A Steep Ascent

By Angus Mackintosh

Grab‘s recent results reflect a change of pace in terms of moving along the path to profitability with a more disciplined approach to incentives and a focus on cost controls.
Deliveries segment adjusted EBITDA turned positive for the first time, 3Qs ahead of previous guidance, and food 2Qs ahead of guidance both of which are positives.
A continuing drag will likely continue to come from expenses related to the buildout of its three digibanks. Grab‘s headline EBITDA is not forecast to be positive until 2025.

Link Admin (LNK AU) Sets in Motion a Strategy to Realise Underlying Value

By Shifara Samsudeen, ACMA, CGMA

The EGM to approve the PEXA Group (PXA AU) distribution of Link Administration (LNK AU)’s remaining 38.49% stake is on 23 December. Shareholders get one PEXA share per 7.52 Link shares.
This marks the latest move to unlock the underlying value by pursuing a breakup strategy. Discussions continue on DND’s acquisition of the CM and the BCM business for A$1.27 billion.
Our base-case SoTP value is A$4.42 per share, which is 28% above the last close. If you haven’t been turned off by the Link saga, it is worth a look.

Kuaishou: Domestic Business Turns Profitable for the First Time

Kuaishou Technology (1024 HK) reported 3Q2022 results. Revenue grew 12.9% YoY to RMB23.1bn (vs consensus RMB22.6bn) while reported operating losses declined to RMB2.6bn (vs consensus RMB3.1bn) from RMB3.1bn in 3Q2021.
The company’s domestic business made an operating profit for the first time while there has been significant reduction in operating losses from the overseas business
Kuaishou’s share price moved up 7% during today’s trade following its earnings announcement and we think there is further upside to the company’s current share price.

Oracle Corporation (ORCL US): TSS Recommendation Closed After One Week (-4.5%)

By David Coloretti, CMT

The development of TSS has been a life’s work. We anticipate a high win / loss ratio and accept than not every recommendation will be profitable.
On 15 November we determined that extreme ST momentum failure would likely deliver a 4.0% to 5.5% decline in ORCL US in 1-2 weeks.
ORCL US failed to deliver, declining only 0.6% before closing 1 week later, on 22 November, 4.5% above our recommendation entry level. This recommendation is now closed.

Broadridge Financial Solutions Inc.: Detailed Credit Analysis & Financial Strength Evaluation Report

Broadridge Financial Solutions is a well-known investor communications and technology-driven solutions provider for the financial services industry.
The company has had a decent financial performance in recent times and has seen a continuous expansion in investor positions, notwithstanding the market downturn.
Given their forward testing capabilities, Broadridge is confident of seeing steady growth in investor positions in the coming year.

BlackLine Inc.: Initiation of Coverage – Customer Attractiveness Scoring & Other Drivers

This is our first report on BlackLine, the renowned cloud-based solutions provider for accounting and financial management operations.
The company delivered solid financial results in the last quarter and managed an all-around beat with good growth in revenue.
Moreover, continued free cash flow and margin improvement were seen due to further disciplined expense management and operating efficiencies.

Without Disclosure and Ensuring Transparency, the Black Box on Compensation Will Increase

By Aki Matsumoto

Progress on ESG initiatives should be evaluated objectively. With insufficient transparency and disclosure of compensation, there is concern that incorporating ESG factors into compensation will further increase uncertainty.
Leadership is required for management to seek the evolution of essential initiatives so that ESG efforts don’t fall into “numbers matching” and not be intimidated by temporary setbacks or modifications.
There are the following unresolved issues: non-disclosure of individual director compensation, bias toward fixed compensation, opaque compensation formulas, and ensuring the independence of the Compensation Committee.

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Nov 24

Daily Brief Industrials: Keppel Corp, SM Investments and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Keppel (KEP SP) Vote on Keppel O&M and Sembcorp Marine Transaction on 8 Dec
SM Investments (SM PM): Retail Income Now Exceeds Pre-Covid Levels

Keppel (KEP SP) Vote on Keppel O&M and Sembcorp Marine Transaction on 8 Dec

Keppel Corp (KEP SP)’s EGM on 8 December requires majority shareholder approval of two ordinary resolutions. The IFA notes that the transaction terms are “not prejudicial” to minorities.
Keppel shareholders will be supportive due to attractive terms. The other key conditions precedent is Sembcorp Marine (SMM SP) shareholders and regulatory approvals (SGX-ST and Maritime Port Authority of Singapore).
The deal is expected to close by the end of the year. Our Keppel SoTP valuation is S$8.30 per share, which is 12% above the last close.

SM Investments (SM PM): Retail Income Now Exceeds Pre-Covid Levels

SM Investments (SM PM), the leading Filipino conglomerate, recently announced strong 9M22 earnings, buoyed by increased economic activity and strong consumer sentiment.
The standout was the unlisted SM Retail segment which recorded net income of PHP 11.5bn, exceeding 2019 pre-pandemic levels.
The implied stub/share – net of all listcos – of PHP 208/share compares to the five-year average of PHP 273/share, and the two-year average of PHP 252 preceding Covid.

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Nov 24

Daily Brief Industrials: Keppel Corp, SM Investments and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Keppel (KEP SP) Vote on Keppel O&M and Sembcorp Marine Transaction on 8 Dec
SM Investments (SM PM): Retail Income Now Exceeds Pre-Covid Levels

Keppel (KEP SP) Vote on Keppel O&M and Sembcorp Marine Transaction on 8 Dec

Keppel Corp (KEP SP)’s EGM on 8 December requires majority shareholder approval of two ordinary resolutions. The IFA notes that the transaction terms are “not prejudicial” to minorities.
Keppel shareholders will be supportive due to attractive terms. The other key conditions precedent is Sembcorp Marine (SMM SP) shareholders and regulatory approvals (SGX-ST and Maritime Port Authority of Singapore).
The deal is expected to close by the end of the year. Our Keppel SoTP valuation is S$8.30 per share, which is 12% above the last close.

SM Investments (SM PM): Retail Income Now Exceeds Pre-Covid Levels

SM Investments (SM PM), the leading Filipino conglomerate, recently announced strong 9M22 earnings, buoyed by increased economic activity and strong consumer sentiment.
The standout was the unlisted SM Retail segment which recorded net income of PHP 11.5bn, exceeding 2019 pre-pandemic levels.
The implied stub/share – net of all listcos – of PHP 208/share compares to the five-year average of PHP 273/share, and the two-year average of PHP 252 preceding Covid.

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Nov 24

Daily Brief Energy/Materials: Bharat Petroleum Corp, Growatt Technology, Intl Flavors & Fragrances and more

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

In today’s briefing:

NIFTY Quiddity Leaderboard Mar 23: Tata Motor DVR Could Be Included in NIFTY 100
Growatt Technology IPO: Growing Watts
International Flavors & Fragrances Inc.: Initiation of Coverage – Business Strategy & Other Drivers
International Flavors & Fragrances Inc.: Detailed Credit Analysis & Financial Strength Evaluation Report

NIFTY Quiddity Leaderboard Mar 23: Tata Motor DVR Could Be Included in NIFTY 100

By Janaghan Jeyakumar, CFA

In this insight, we take a look at the potential ADDs/DELs for the NIFTY 50, 100, and 500 Indices in the run up to the March 2023 Rebalance.
In October 2022, NIFTY Indices Ltd initiated a market consultation recently on the “treatment of merger/demerger in Nifty equity indices” and its outcome has been confirmed now.
Separately, Tata Motors DVR (TTMT/A IN) – previously ineligible for NIFTY 100 Inclusion for liquidity reasons – could become eligible for the March 2023 Rebalance event.

Growatt Technology IPO: Growing Watts

Growatt Technology (1833969D CH), a leading PV invertors manufacturer, is pre-marketing a US$500 million HKEx IPO in October, according to press reports.
We previously discussed the IPO in Growatt Technology IPO: The Bull Case and Growatt Technology IPO: The Bear Case.
The PHIP which disclosed the 1H22 results and latest developments suggests that Growatt is delivering high growth, profitability and cash generation.

International Flavors & Fragrances Inc.: Initiation of Coverage – Business Strategy & Other Drivers

This is our first report on International Flavors and Fragrances (IFF), one of the global market leaders in the production of cosmetic active and natural health ingredients for use in consumer products.
The increase in sales in the quarter was driven primarily by double-digit growth in its pharma and nourish solutions divisions.
In spite of its volatile market environment, IFF continues to execute its operational priorities for achieving strong bottom and top-line results.

International Flavors & Fragrances Inc.: Detailed Credit Analysis & Financial Strength Evaluation Report

International Flavors and Fragrances, commonly abbreviated as IFF, is one of the world leaders in the manufacture and distribution of cosmetic active and natural health ingredients for use in consumer products.
In spite of its volatile market environment, IFF continues to execute its operational priorities for achieving strong bottom and top-line results.
It also continues to progress against its portfolio optimization efforts, having completed successfully the divestiture of its Microbial Control business.

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Nov 24

Daily Brief Financials: IBF Financial Holdings, Mori Trust Sogo Reit, Pendal Group, Sunshine Insurance, Jb Financial Group and more

By Smartkarma Daily Briefs | Daily Briefs, Financials

In today’s briefing:

FTSE TWSE Taiwan Div+ Index: Recent Performance & Potential Trades
Mori Trust Sogo – Mori Trust Hotel REIT Merger
Pendal/Perpetual: 23 Dec Scheme Meeting
Sunshine Insurance Group Pre-IPO – PHIP Updates – Mixed Bag
JB Financial Group: Four Key Investment Merits

FTSE TWSE Taiwan Div+ Index: Recent Performance & Potential Trades

By Brian Freitas

The review period for the FTSE TWSE Taiwan Dividend+ index ended Monday, 21 November. We forecast 26 adds/ 5 deletes in December – the flows are huge.
Stocks with potential inflows have outperformed stocks with potential outflows over multiple time periods going back a month. Yesterday was an especially good day for the strategy.
We expect continued pre-positioning ahead of the passive flows will help the stocks with inflows outperform stocks with outflows. A reversal of performance could come post implementation.

Mori Trust Sogo – Mori Trust Hotel REIT Merger

By Travis Lundy

Yesterday, Mori Trust Sogo Reit (8961 JP) (MTR) and Mori Trust Hotel Reit (3478 JP) (MTH) announced a merger to be effective 1 March 2023. MTR will be the survivor.
The ratio is 1.00 : 0.92 MTR:MTH but MTR will conduct a 2:1 stock split on effective date to make it 1.00 : 1.84 to allow retail to continue holding.
This will effectively increase the size of MTR by 35%, and re-distributes earnings structure. There will be index consequences.

Pendal/Perpetual: 23 Dec Scheme Meeting

After the Supreme Court of NSW ruled that Perpetual Ltd (PPT AU) cannot stall the Scheme for Pendal Group (PDL AU), the Scheme Booklet is now out.
Under the revised terms, Pendal shareholders will receive 1 Perpetual (share for every 7 Pendal shares plus $1.65/share cash. The IE concluded the terms are fair and reasonable.
The Scheme Meeting will be held on the 23 December, with an expected implementation date on the 23 January.

Sunshine Insurance Group Pre-IPO – PHIP Updates – Mixed Bag

By Sumeet Singh

Sunshine Insurance Group (SIG), a life, health and P&C insurance company, aims to raise up to US$1bn in its HK IPO.
SIG is an integrated insurance provider which offers both life and health (L&H) and property and casualty (P&C) insurance in China.
We have looked at the company’s past performance in our previous notes. In this note, we will talk about the updates from its latest filings.

JB Financial Group: Four Key Investment Merits

By Douglas Kim

There are four major reasons why we like JB Financial Group.
They include highest ROE among peers, highest dividend yield among peers, potential inclusion in KOSPI200 in 2023, and continued pressure by Align Partners to improve corporate governance.
One of the key risk factors of the company is that it is not a nationwide banking group but most of its operations are in the southwestern portion of Korea.

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Nov 24

Daily Brief Health Care: PHC Holdings and more

By Smartkarma Daily Briefs | Daily Briefs, Healthcare

In today’s briefing:

PHC Holdings (6523 JP): Strong H1 Result; FY23 Revenue Guidance Raised; Mid-Term Plans Revised

PHC Holdings (6523 JP): Strong H1 Result; FY23 Revenue Guidance Raised; Mid-Term Plans Revised

By Tina Banerjee

PHC Holdings (6523 JP) has revised mid-term plan for FY23–26, targeting revenue of ¥420 billion in FY26, representing 5.4% CAGR. CGM will be one of the key growth engines.
During H1FY23, total revenue increased 3% y/y to ¥171 billion, mainly driven by a 3% growth in diabetes management business, which contributed 32% of total revenue.
In response to the recent depreciation of the Japanese yen, PHC has raised FY23 revenue guidance to ¥358 billion (+5% y/y) from ¥350 billion earlier.

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Nov 24

Daily Brief Consumer: HLB Inc, Oriental Land, DPC Dash, Workman Co Ltd, Geely Auto, Russell 2000 Index, China Dongxiang Group Co, Inter Parfums, Ambev SA, Petrobras Distribuidora SA and more

By Smartkarma Daily Briefs | Consumer, Daily Briefs

In today’s briefing:

A Guide to Arb Trade in Rights Offer: Feat. HLB & Lotte Chemical
Nikkei 225 Index Rebalance Preview (March): Three Potential Changes & Large Funding Trade
DPC Dash Pre-IPO – The Negatives – Lags the Leader, Remains Loss Making
2023 High Conviction: Workman’s Cost Performance Will Beat the Competition
Geely – ’22 Target Miss Already in Expectations, Catalysts for ’23
Small- And Mid-Cap Indexes Poised to Break Out?; Further Upside Expected; Buys Within Cyclicals
China Dongxiang (3818 HK): Losses Narrowing Down, a Good Sign
IPAR: Guidance Removes Overhang
Ambev SA: Initiation of Coverage – Improving Demand For Beer & Other Drivers
Petrobras: Pricing Amargeddon, With a Muddle Through Likely

A Guide to Arb Trade in Rights Offer: Feat. HLB & Lotte Chemical

By Sanghyun Park

This post will specifically examine arb trade opportunities during the subscription rights trading period, with the recent HLB and Lotte Chemical cases.
HLB gave an arb yield of 8%. As for Lotte Chemical, the size (₩1.1T) is much bigger, and it carries single-stock futures, a powerful incentive for arb traders.
Another thing for Lotte Chemical is that it is unclear whether the major shareholders will participate in the subscription, which can lead to a widening of our arb spread.

Nikkei 225 Index Rebalance Preview (March): Three Potential Changes & Large Funding Trade

By Brian Freitas

With just over two months left in the review period, we expect three changes to the Nikkei 225 (NKY INDEX) at the March rebalance.
Lasertec Corp (6920 JP), Oriental Land (4661 JP) and Renesas Electronics (6723 JP) could replace Toyobo Co Ltd (3101 JP), Nippon Light Metal (5703 JP) and Toho Zinc (5707 JP).
As with the last rebalance, there will be a large funding trade estimated at JPY 417bn. There are many stocks with over 0.5x ADV to sell.

DPC Dash Pre-IPO – The Negatives – Lags the Leader, Remains Loss Making

By Sumeet Singh

DPC Dash aims to raise around US$100m in its Hong Kong IPO.
The company is the exclusive master franchisee for Domino’s Pizza in China, HK and Macau. DPC operated 562 stores across 13 cities, as of Nov 2022.
In this note, we will talk about the not-so-positive aspects of the deal.

2023 High Conviction: Workman’s Cost Performance Will Beat the Competition

By Michael Causton

Although spending on non-necessities withered from March 2020 onwards, some low-cost retailers of discretionary items continued to grow.
Workman’s mix of high cost performance and engagement with the ever more active outdoor market has, and will, support expansion, even if same-store sales growth has slowed.
Future category expansion will deliver higher same-store sales as well as top line growth. 1,500 stores (from 1,000) is certain but 2,000 is possible thanks to new categories like footwear.

Geely – ’22 Target Miss Already in Expectations, Catalysts for ’23

By Victoria Li

Sector headwinds including supply chain shortage and business interruptions from Covid lockdown is easing.
More new models in pipeline to drive sales volumes and earnings in 2023E
Valuation re-rating would be triggered with earning recovery, consensus estimate upgrades, Zeekr ramping up and potentially Zeekr spin off.

Small- And Mid-Cap Indexes Poised to Break Out?; Further Upside Expected; Buys Within Cyclicals

By Joe Jasper

Despite $IWM already hitting our price target at 200-day MA/YTD downtrend, and the $SPX getting to within 1% of our target at 200-day MA, we see this 1.5-month rally continuing.
We expect further upside as long as the 1.5-month uptrend channels remain intact on the SPX and IWM, and we believe that breakouts above their 200-day MAs could be coming
Breakouts above their 200-day MAs that would likely signal the end to this bear market.

China Dongxiang (3818 HK): Losses Narrowing Down, a Good Sign

By Osbert Tang, CFA

Lower losses for investment business and sportswear retailing have contributed to a 48.4% reduction in losses for 1H FY23 at China Dongxiang Group Co (3818 HK).
The resumption of interim special dividend is a welcoming sign. Inventory clearance, store optimisation, cost reduction and growth at the PHENIX ski wear brands are positive drivers.
Its market capitalisation of HK$1.88bn represents a steep discount of 79% to its cash and investment portfolio of Rmb8.46bn, and this also means sportswear business is free.

IPAR: Guidance Removes Overhang

By Hamed Khorsand

IPAR continues to experience a strong consumer spending environment for fragrances where it has become increasing difficult to have all the components to manufacture a bottle
IPAR reported third quarter sales of $280.5 million compared to our original estimate of $275.3 million. The increase in sales was the result of a strong showing from new licenses
At the start of 2022, our 2022 EPS forecast was $3.05. It is now $3.40. IPAR’s stock has shown little movement for such an achievement

Ambev SA: Initiation of Coverage – Improving Demand For Beer & Other Drivers

This is our first report on Brazilian beverage giant, Ambev SA.
In spite of the headwinds in a few of its international operations, Ambev delivered strong results in the previous quarter in terms of both organic growth and net revenue.
Non-alcoholic beverages also delivered a stellar quarter with volume growth.

Petrobras: Pricing Amargeddon, With a Muddle Through Likely

By Superfluous Value

I had to write a brief note about the panic whipped up by UBS’ downgrade of Petrobras, cutting its price target from R$47 to R$22 on fears of a policy shift under the incoming Lula administration.
This combined with quarterly ex-dividend day, to send the shares sharply lower and extend their slide since the election.
This Reuters article sums up recent events nicely- namely Lula is over-hauling PBR management and seeking a strategic shift from monster dividend pay-outs, towards increased investment in renewables and possible domestic price caps.

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Nov 24

Daily Brief Thailand: Total Access Communication and more

By Smartkarma Daily Briefs | Daily Briefs, Thailand

In today’s briefing:

Disaster As VTOs Cancelled Under DTAC/True Merger

Disaster As VTOs Cancelled Under DTAC/True Merger

“The conditions precedent to the VTO have not been satisfied within one year from 22 November 2021 … the parties have declined to carry out the VTO.“
This statement was lifted from Telenor’s (the major shareholder of Total Access Communication (DTAC TB)) brief announcement. Telenor/CP Group aim to complete the transaction within the first quarter of 2023
This appears a cop-out on behalf of both Tender Offerors (Telenor & CP Group), who probably could have pushed for an extension. And why weren’t the scrip terms addressed?

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Nov 24

Daily Brief Australia: Link Administration, Pendal Group and more

By Smartkarma Daily Briefs | Australia, Daily Briefs

In today’s briefing:

Link Admin (LNK AU) Sets in Motion a Strategy to Realise Underlying Value
Pendal/Perpetual: 23 Dec Scheme Meeting

Link Admin (LNK AU) Sets in Motion a Strategy to Realise Underlying Value

The EGM to approve the PEXA Group (PXA AU) distribution of Link Administration (LNK AU)’s remaining 38.49% stake is on 23 December. Shareholders get one PEXA share per 7.52 Link shares.
This marks the latest move to unlock the underlying value by pursuing a breakup strategy. Discussions continue on DND’s acquisition of the CM and the BCM business for A$1.27 billion.
Our base-case SoTP value is A$4.42 per share, which is 28% above the last close. If you haven’t been turned off by the Link saga, it is worth a look.

Pendal/Perpetual: 23 Dec Scheme Meeting