Smartkarma Daily Briefs

May 03

China: SenseTime Group, China Huarong Asset Management, Kunlun Energy, China Communications Construction, Shenzhen Mindray Bio-Medical Electronics and more

By Smartkarma Daily Briefs | China, Daily Briefs

In today’s briefing:

SenseTime (20 HK): Lock-Up Expiry Will Bring BIG Passive Flow
HSCI Index Rebalance and Stock Connect: Potential Changes in June and September
Kunlun Energy (135 HK): A Record Quarter for Kunlun Gas
China Comm Const (1800 HK): Grossly Undervalued by the Market
Shenzhen Mindray Bio-Medical Electronics (300760.CH) – Still a “Safe Play” Despite Growth Slowdown

SenseTime (20 HK): Lock-Up Expiry Will Bring BIG Passive Flow

SenseTime Group (20 HK) currently has a float of 1.4%. That will increase to 46% at the end of June as pre-IPO and cornerstone investor lock-ups end.
The Hang Seng Tech Index FAF increase and potential inclusion in the Hang Seng China Enterprises Index will require passive trackers to buy 700m shares early September.
Economic stimulus in China, outlook for China tech, lock-up expiry, inclusion in Southbound Connect and flows from passive trackers will drive the stock for few months and provide trading opportunities.

HSCI Index Rebalance and Stock Connect: Potential Changes in June and September

We see seven new listings as potential inclusions to the HSCI in June. One is already a part of Connect while five will be added to Southbound Stock Connect.
We see 19 potential changes to the HSCI in September. Seven of the deletions are on market cap, four on liquidity, and eight due to prolonged trading suspension.
Some of the potential deletions have large Southbound holdings and some of these could be trimmed over the next couple of months.

Kunlun Energy (135 HK): A Record Quarter for Kunlun Gas

Healthy 17.2% growth in 1Q22 net profit of Kunlun Gas, the most important subsidiary of Kunlun Energy (135 HK), provides a welcoming evidence to ease market concerns on costs.
While gross margin was down 0.2pp YoY, it expanded by 0.4pp QoQ. Key cost items including selling, administrative and R&D are all under control, boosting EBIT margin by 0.5pp YoY.
1Q22 is a record quarter for Kunlun Gas, and gearing stays comfortable with strong operating cash flow. We believe such set of result signals good 1Q22 for Kunlun Energy.

China Comm Const (1800 HK): Grossly Undervalued by the Market

China Communications Construction (1800 HK) has bucked the trend of weaker earnings growth in the last two quarters by posting a healthy 17.7% YoY net profit growth for 1Q22.
While gross margin contracted slightly, the good control on selling and administrative expenses have partly absorbed margin contraction. Its new contract value for 1Q22 has also reached record high.
With government’s aggressive special purpose bond issue and infrastructure investment, we expect new contract momentum to pick up. Trading at 3.2x PER and 0.22x P/B, CCCC is massively undervalued.

Shenzhen Mindray Bio-Medical Electronics (300760.CH) – Still a “Safe Play” Despite Growth Slowdown

By Xinyao (Criss) Wang

In 2021/22Q1, Mindray’s 20%+ growth rate is not easy in this difficult/complicated environment, but the market hopes to see stronger data and a fresh logic of growth to restore confidence.
After China’s “new infrastructure” projects finish, how to maintain its 20%+ growth could be a challenge in the long term if Mindray couldn’t make breakthrough in internationalization or innovation.
However, Mindray is still a “safe play”. Its current PE/TTM is also more reasonable, but definitely not undervalued. It would be much better to long Mindray at a lower valuation.

Before it’s here, it’s on Smartkarma

May 03

TMT: SenseTime Group, Square Enix Holdings, Novatek Microelectronics Corp, AXT Inc and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

SenseTime (20 HK): Lock-Up Expiry Will Bring BIG Passive Flow
Square Enix – Eidos Sale Removes Downside Risks
Novatek (3034.TT): 1Q22 Results/ 2Q22 Outlook- The Outlook Seems Better than Feared in 2022. .
AXTI: Underappreciated Growth

SenseTime (20 HK): Lock-Up Expiry Will Bring BIG Passive Flow

SenseTime Group (20 HK) currently has a float of 1.4%. That will increase to 46% at the end of June as pre-IPO and cornerstone investor lock-ups end.
The Hang Seng Tech Index FAF increase and potential inclusion in the Hang Seng China Enterprises Index will require passive trackers to buy 700m shares early September.
Economic stimulus in China, outlook for China tech, lock-up expiry, inclusion in Southbound Connect and flows from passive trackers will drive the stock for few months and provide trading opportunities.

Square Enix – Eidos Sale Removes Downside Risks

By Mio Kato

Square Enix announced the of sale Eidos Interactive, Crystal Dynamics, Square Enix Montreal and associated IPs to Embracer for $300m.
We had been puzzling over Square Enix’s strangely low guidance despite excellent momentum in its MMO business for some time.
Considering the underperformance in HD Games profitability and this sale we think we can now put two and two together.

Novatek (3034.TT): 1Q22 Results/ 2Q22 Outlook- The Outlook Seems Better than Feared in 2022. .

By Patrick Liao

Novatek’s revenue was NT$36.512bn in 1Q22, which was 38.5% YoY and 62.6% QoQ. It was 50.73%/36.73%/30.5% GM/OPM/NM in 1Q22, which was higher than our prior expectation of 43.6%/27.3%/22.3% in GM/OPM/NM.
In our views, we revise up to be revenue/GM as NT$38.7bn/50.98% in 2Q20.
As the inflation, 5G, Russia-Ukraine war did change the landscape, the outlook seems not that so much worse in 2022.

AXTI: Underappreciated Growth

By Hamed Khorsand

AXTI continues to experience an increase in demand for substrates with indium phosphide (InP) and gallium arsenide (GaAs) growing in the first quarter
AXTI has shifted away from the seasonality it would find itself since making the move to multiple new facilities two years ago. Customers have continued to increase their spending
AXTI reported first quarter revenue of $39.7 million compared to $37.7 million reported in the fourth quarter. We had been forecasting revenue of $39.6 million

Before it’s here, it’s on Smartkarma

May 03

Event-Driven: SenseTime Group, China Huarong Asset Management, Shiga Bank, Schroders PLC, Chugoku Bank, Heineken Holding NV and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

SenseTime (20 HK): Lock-Up Expiry Will Bring BIG Passive Flow
HSCI Index Rebalance and Stock Connect: Potential Changes in June and September
JAPAN ACTIVISM: Silchester Goes After Shiga Bank
Schroders: Dual Share Class Unification
JAPAN ACTIVISM: Silchester Goes After Chugoku Bank
Selected European Holdcos and DLCs: April ‘22 Report

SenseTime (20 HK): Lock-Up Expiry Will Bring BIG Passive Flow

SenseTime Group (20 HK) currently has a float of 1.4%. That will increase to 46% at the end of June as pre-IPO and cornerstone investor lock-ups end.
The Hang Seng Tech Index FAF increase and potential inclusion in the Hang Seng China Enterprises Index will require passive trackers to buy 700m shares early September.
Economic stimulus in China, outlook for China tech, lock-up expiry, inclusion in Southbound Connect and flows from passive trackers will drive the stock for few months and provide trading opportunities.

HSCI Index Rebalance and Stock Connect: Potential Changes in June and September

We see seven new listings as potential inclusions to the HSCI in June. One is already a part of Connect while five will be added to Southbound Stock Connect.
We see 19 potential changes to the HSCI in September. Seven of the deletions are on market cap, four on liquidity, and eight due to prolonged trading suspension.
Some of the potential deletions have large Southbound holdings and some of these could be trimmed over the next couple of months.

JAPAN ACTIVISM: Silchester Goes After Shiga Bank

In early February 2022, Silchester International Investors (according to its website) sent letters to four low-ROE-earning Japanese regional banks proposing a new dividend policy.
The management and boards of each bank rejected the policy proposal though two of the four had upped their proposed dividend or changed policy prior, and two upped it afterwards.
While Bank of Kyoto (8369 JP) is the biggie, Shiga Bank (8366 JP) is another one with significant equity holdings.

Schroders: Dual Share Class Unification

By Jesus Rodriguez Aguilar

Schroders has announced the conversion of non-voting shares into voting shares. Holders of voting shares will receive a bonus issue of three additional ordinary shares for every 17 ordinary shares held.
Lo and behold, upon announcement and assuming the bonus shares, the value of the holdings of the Schroders family rose by £504 million to £3,933 million, a cool 15% increase.
The conversion is highly likely to proceed. The adjusted gross spread is 2%. Recommendation is long non-voting/short voting shares.

JAPAN ACTIVISM: Silchester Goes After Chugoku Bank

In early February 2022, Silchester International Investors (according to its website) sent letters to four low-ROE-earning Japanese regional banks proposing a new dividend policy.
The management and boards of each bank rejected the policy proposal though two of the four had upped their proposed dividend or changed policy prior, and two upped it afterwards.
While Bank of Kyoto is the biggest equity portfolio, Chugoku Bank (8382 JP) is a relatively large, provincial, regional bank, with middling equity portfolio. Different shape. Different situation.

Selected European Holdcos and DLCs: April ‘22 Report

By Jesus Rodriguez Aguilar

Discounts to NAV of holdcos have generally widened during April: Alba, tightened to 37.4%; GBL widened to 31.8%; Heineken Holdings widened to 20%; Industrivärden C widened to 12.1%;
Investor B widened to 11.5%; Porsche Automobile Holding widened to 29.9%. There is just one DLC left in this report, Rio Tinto, which widened to 11.8%.
Recommended trades: GBL vs. listed assets, Industrivärden C vs. listed assets, Investor B vs. listed assets; Porsche vs. VW (long 1 PAH3 GR/short 0.5136 VOW GR), Rio Tinto (DLC).

Before it’s here, it’s on Smartkarma

May 03

Consumer: Japan Tobacco, Heineken Holding NV, GS Retail, Trent Ltd, Bajaj Auto Ltd, Hindustan Unilever, Indian Hotels and more

By Smartkarma Daily Briefs | Consumer, Daily Briefs

In today’s briefing:

Japan Tobacco High Conviction Update: Russia Is Less Than Markets Feared & There’s Upside to DPS Est
Selected European Holdcos and DLCs: April ‘22 Report
BGF Retail & GS Retail: Korean CVS Plays Likely to Better Withstand Higher Inflation
Trent – On an Aggressive Growth Path; Earnings to Post a Sharp Revival
Bajaj Auto – Exports Growing on Strong Footing; Focus Shifting to EVs
Trent Ltd – Earnings Upgrade Continues
Hindustan Unilever – Near-Term Headwinds Temper Earnings Expectations
Indian Hotels – Business Travel Rebounds; FTAs to Provide Further Boost…

Japan Tobacco High Conviction Update: Russia Is Less Than Markets Feared & There’s Upside to DPS Est

By Oshadhi Kumarasiri

Japan Tobacco (2914 JP)’s 1Q22 was stronger than expected with revenue and OP surpassing consensus by 5.2% and 20.0% respectively despite the Russia Ukraine war situation.
Although the company has maintained the semi-annual dividend at ¥75.0 per share, we predict there could be an upside to the DPS guidance during the next three quarters.
With OP guidance of ¥534.0bn next year, we think Japan Tobacco should trade around ¥4,000-4,500 per share, indicating an upside of around 82-104%.

Selected European Holdcos and DLCs: April ‘22 Report

By Jesus Rodriguez Aguilar

Discounts to NAV of holdcos have generally widened during April: Alba, tightened to 37.4%; GBL widened to 31.8%; Heineken Holdings widened to 20%; Industrivärden C widened to 12.1%;
Investor B widened to 11.5%; Porsche Automobile Holding widened to 29.9%. There is just one DLC left in this report, Rio Tinto, which widened to 11.8%.
Recommended trades: GBL vs. listed assets, Industrivärden C vs. listed assets, Investor B vs. listed assets; Porsche vs. VW (long 1 PAH3 GR/short 0.5136 VOW GR), Rio Tinto (DLC).

BGF Retail & GS Retail: Korean CVS Plays Likely to Better Withstand Higher Inflation

By Douglas Kim

We believe BGF Retail and GS Retail are strong turnaround plays amid the end of the social distancing policies in Korea.
These CVS plays are well positioned to withstand higher inflation rates and higher product price increases among the various retail channels in Korea.
Valuation multiples of GS Retail have declined significantly in the past five years. Their valuations have become more attractive as compared to lofty levels 4-5 years ago.

Trent – On an Aggressive Growth Path; Earnings to Post a Sharp Revival

Trent’s aggressive footprint expansion and strong LTL growth of 16% YoY translated into a robust 53% YoY revenue growth; however, the back- ended store additions increased the costs disproportionately thereby reducing EBITDA growth to a mere 12% YoY.
Westside and Zudio’s store-level economics remains healthy as evident from: a) the strong LTL growth, b) Westside’s annualized revenue run-rate which was almost double its FY22 level ( >INR50b) and c) our channel checks.
We expect revenue/EBITDA growth of 45%/58% over FY22-24, respectively, on continued aggressive store additions and healthy LTL growth.

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.

Bajaj Auto – Exports Growing on Strong Footing; Focus Shifting to EVs

Results beat expectations; gross margin ahead of our estimate: Reported revenue at Rs79.7bn was ahead of broader expectations.

Initial signs of demand recovery in 2Ws; Management remains cautious

Valuation and outlook: At CMP, the company is trading at 16x FY24E core EPS, which is broadly in line with its long-term mean multiple.

Trent Ltd – Earnings Upgrade Continues

Standalone revenue grew 53% YoY to Rs11.9bn on low base and robust store additions, but dipped 12% QoQ as business was impacted in Jan/Feb’22 by the third wave of the pandemic.

Online revenue grew 74% YoY in FY22, with 7% of Westside revenue coming through online channels.

Accelerated store expansion plans: The company added 26 Westside stores in FY22, taking the total Westside store count to 200.

Hindustan Unilever – Near-Term Headwinds Temper Earnings Expectations

While4QFY22resultswereaboveexpectations, management did highlight the likely sequential margin pressures over the next 2-3 quarters.
Two factors that constrained HUVR’s earnings growth (ex-GSK) over the past two years were escalating material costs and lower-than-expected premiumization.
Nevertheless, positive factors can emerge from rural recovery fueled by: a) good Rabi crop, b) good monsoon, and c) sustained agri commodity inflation, unless offset by input cost pressures for farmers.

Indian Hotels – Business Travel Rebounds; FTAs to Provide Further Boost…

About the stock: With room inventory of 20,581 rooms, Indian Hotels is a diversified player in the hotel industry through brands such as Taj, Vivanta, SeleQtions and Ginger brands.

Q4FY22 Results: IHCL’s operational performance for Q4FY22 remained below estimates, impacted by the omicron wave.
What should investors do? Along with the improved outlook, the company is also focusing on driving more efficiencies through cost optimisation.

Before it’s here, it’s on Smartkarma

May 03

India: RBL Bank Ltd, Life Insurance Corp of India (LIC), Bajaj Auto Ltd, Embassy Office Parks REIT, Hindustan Unilever, Indian Hotels, Lodha Developers, Mahindra Logistics Ltd, PNB Housing Finance Ltd and more

By Smartkarma Daily Briefs | Daily Briefs, India

In today’s briefing:

Smartkarma Webinar | Myth Vs Reality: Corporate Governance in India’s Financial Sector
Life Insurance Corp of India IPO: Valuation Insights
Bajaj Auto – Exports Growing on Strong Footing; Focus Shifting to EVs
Embassy Office Parks REIT – New Lease Momentum Starting to Pick Up
Hindustan Unilever – Near-Term Headwinds Temper Earnings Expectations
Indian Hotels – Business Travel Rebounds; FTAs to Provide Further Boost…
Macrotech Developers – Ticking the Right Boxes
Macrotech Developers Limited – Record Year for Sales, Outlook Remains Strong
Mahindra Logistics – Non-Auto Segment Driving Volume Growth
PNB Housing Finance – Still Weak; Recovery Depends on Capital Raise

Smartkarma Webinar | Myth Vs Reality: Corporate Governance in India’s Financial Sector

By Smartkarma Research

In our next Webinar, we welcome back Analyst Hemindra Hazari , who will outline his views on recent corporate governance developments in Indian financial institutions, separating the narrative from the reality on the ground.

The webinar will be hosted on Wednesday, 4 May 2022, 17:00 SGT/HKT.

Register for the Webinar here

Hemindra Hazari is a SEBI-registered research analyst with over 25 years of experience in the Indian capital markets, specialising in banking and economy research. He has managerial experience in establishing profitable equities business, leading, and mentoring analysts. He has worked with prominent foreign and domestic capital market firms such as UBS, Societe Generale, HSBC, ASK Raymond James, and Karvy Stock Broking, and is a regular guest on business media channels and is respected for his non-consensus view on stocks and the market.

Life Insurance Corp of India IPO: Valuation Insights

By Arun George

Life Insurance Corp of India (LIC) (1248Z IN) is the largest life insurer in India. At the IPO price range of Rs902-904, the Indian government aims to raise $2.6-2.7 billion.
In Life Insurance Corp of India IPO: Key Takeaways from the RHP, we outlined the latest developments from the Red Herring Prospectus.
In this note, we look at LIC’s valuation metrics. In light of the challenging market conditions, the IPO price range is reasonable.

Bajaj Auto – Exports Growing on Strong Footing; Focus Shifting to EVs

Results beat expectations; gross margin ahead of our estimate: Reported revenue at Rs79.7bn was ahead of broader expectations.

Initial signs of demand recovery in 2Ws; Management remains cautious

Valuation and outlook: At CMP, the company is trading at 16x FY24E core EPS, which is broadly in line with its long-term mean multiple.

Embassy Office Parks REIT – New Lease Momentum Starting to Pick Up

Revenue up ~1.4% YoY and 1% QoQ at Rs7,488mn in 4QFY22: In 4QFY22, EOPR reported revenue of Rs7,488mn, up 1.4% YoY and 1% QoQ.
EBITDA margin down by 190bps QoQ but up by 480bps YoY at 76.7%: EBITDA in 4QFY22 increased by 480bps YoY to 76.7% due to: (1) Increase in revenue by 1.4% YoY (2) Decline in other expenses by 22.4% YoY primarily due to (a) decline in rates and taxes by 92.4%YoY (b) decline in valuation expenses by 42.4% YoY (c) decline in miscellaneous charges by 18.7% YoY.

Rise in depreciation expenses: Depreciation expenses rose by 1.8% QoQ to Rs2,024mn due to acquisition of fixed assets for the CAM services business.

Hindustan Unilever – Near-Term Headwinds Temper Earnings Expectations

While4QFY22resultswereaboveexpectations, management did highlight the likely sequential margin pressures over the next 2-3 quarters.
Two factors that constrained HUVR’s earnings growth (ex-GSK) over the past two years were escalating material costs and lower-than-expected premiumization.
Nevertheless, positive factors can emerge from rural recovery fueled by: a) good Rabi crop, b) good monsoon, and c) sustained agri commodity inflation, unless offset by input cost pressures for farmers.

Indian Hotels – Business Travel Rebounds; FTAs to Provide Further Boost…

About the stock: With room inventory of 20,581 rooms, Indian Hotels is a diversified player in the hotel industry through brands such as Taj, Vivanta, SeleQtions and Ginger brands.

Q4FY22 Results: IHCL’s operational performance for Q4FY22 remained below estimates, impacted by the omicron wave.
What should investors do? Along with the improved outlook, the company is also focusing on driving more efficiencies through cost optimisation.

Macrotech Developers – Ticking the Right Boxes

LODHA reported an improved performance in 4QFY22 across all metrics, with its best-ever quarterly and yearly bookings and strong collections, leading to a steady reduction (INR6b) in net debt to INR93b.

As it closed FY22 on a high note, the management has set a pre-sales target of INR115b in FY23, up 27% YoY. It aims to generate INR60b of operating cash flows, which will help it reduce its net debt to sub-INR60b.

We lower our FY23 pre-sales marginally (2%) to incorporate lower than estimated launches, but improve our collections and operating cash flows by 15% and 30%, respectively, on better collection efficiency

Macrotech Developers Limited – Record Year for Sales, Outlook Remains Strong

Record quarter/year for sales bookings: LODHA clocked Q4FY22 India business sales bookings worth Rs34.6bn vs. Isec estimate of Rs32.5bn (up 37% YoY and 33% QoQ) and it is the highest quarterly sales booking clocked by the company till date.

Net debt reduced by Rs6.2bn QoQ to Rs93.1bn: The company’s India business net debt reduced by Rs25.5bn QoQ to Rs99.3bn in Dec’21 from Rs125bn in Sep’21.

On track to achieve over Rs100bn of annual sales bookings over FY23-24E

Mahindra Logistics – Non-Auto Segment Driving Volume Growth

Improved utilization levels drive margin improvement – MLL delivered a revenue growth of 10% YoY in 4QFY22 (6% below our estimate), driven by 25% growth in the non-Auto vertical. The Auto segment reported flattish growth YoY.
Volumes improve YoY; high depreciation impacts PAT – Revenue grew 10% YoY to ~INR10.7b; 6% below our estimates.

Highlights from the management commentary – Revenue growth was driven by the non-Auto vertical. MLL saw good traction in freight forwarding and e-commerce.

PNB Housing Finance – Still Weak; Recovery Depends on Capital Raise

Sequential uptick led by retail loans: Overall loan assets increased by 0.2% QoQ, but declined by 8.6% YoY.

Corporate asset quality deteriorates: Gross stage 3 loans, although down QoQ, remained elevated at 8.12% compared to 4.74% as of March’21.

NIM impacted on multiple counts: NII was weak, declining by 31% YoY and 10.3% QoQ.

Before it’s here, it’s on Smartkarma

May 03

Japan: Shiga Bank, Chugoku Bank, Square Enix Holdings, Japan Tobacco and more

By Smartkarma Daily Briefs | Daily Briefs, Japan

In today’s briefing:

JAPAN ACTIVISM: Silchester Goes After Shiga Bank
JAPAN ACTIVISM: Silchester Goes After Chugoku Bank
Square Enix – Eidos Sale Removes Downside Risks
Japan Tobacco High Conviction Update: Russia Is Less Than Markets Feared & There’s Upside to DPS Est

JAPAN ACTIVISM: Silchester Goes After Shiga Bank

In early February 2022, Silchester International Investors (according to its website) sent letters to four low-ROE-earning Japanese regional banks proposing a new dividend policy.
The management and boards of each bank rejected the policy proposal though two of the four had upped their proposed dividend or changed policy prior, and two upped it afterwards.
While Bank of Kyoto (8369 JP) is the biggie, Shiga Bank (8366 JP) is another one with significant equity holdings.

JAPAN ACTIVISM: Silchester Goes After Chugoku Bank

In early February 2022, Silchester International Investors (according to its website) sent letters to four low-ROE-earning Japanese regional banks proposing a new dividend policy.
The management and boards of each bank rejected the policy proposal though two of the four had upped their proposed dividend or changed policy prior, and two upped it afterwards.
While Bank of Kyoto is the biggest equity portfolio, Chugoku Bank (8382 JP) is a relatively large, provincial, regional bank, with middling equity portfolio. Different shape. Different situation.

Square Enix – Eidos Sale Removes Downside Risks

By Mio Kato

Square Enix announced the of sale Eidos Interactive, Crystal Dynamics, Square Enix Montreal and associated IPs to Embracer for $300m.
We had been puzzling over Square Enix’s strangely low guidance despite excellent momentum in its MMO business for some time.
Considering the underperformance in HD Games profitability and this sale we think we can now put two and two together.

Japan Tobacco High Conviction Update: Russia Is Less Than Markets Feared & There’s Upside to DPS Est

By Oshadhi Kumarasiri

Japan Tobacco (2914 JP)’s 1Q22 was stronger than expected with revenue and OP surpassing consensus by 5.2% and 20.0% respectively despite the Russia Ukraine war situation.
Although the company has maintained the semi-annual dividend at ¥75.0 per share, we predict there could be an upside to the DPS guidance during the next three quarters.
With OP guidance of ¥534.0bn next year, we think Japan Tobacco should trade around ¥4,000-4,500 per share, indicating an upside of around 82-104%.

Before it’s here, it’s on Smartkarma

May 03

Macro: Alert: Do Bears Hunt in Packs? (Part 3) The Coming Turmoil in Currency and Commodity Markets and more

By Smartkarma Daily Briefs | Daily Briefs, Macro

In today’s briefing:

Alert: Do Bears Hunt in Packs? (Part 3) The Coming Turmoil in Currency and Commodity Markets
The Week That Was in ASEAN@Smartkarma – Astra International, Bluebird Taxi, and Keppel Restructuring

Alert: Do Bears Hunt in Packs? (Part 3) The Coming Turmoil in Currency and Commodity Markets

By Michael J. Howell

Global Liquidity seeing significant collapse and World Central Bank Liquidity slated to contract by 10-20% over 2 years
US Dollar set to make further gains. US dollar swap-lines become important
World commodity prices to skid lower as World economy hits recession

The Week That Was in ASEAN@Smartkarma – Astra International, Bluebird Taxi, and Keppel Restructuring

By Angus Mackintosh

The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across South East Asia.
The Past week saw insights on Bank Negara Indonesia (BBNI IJ), Astra International (ASII IJ), Bukalapak (BUKA IJ), AKR Corporindo (AKRA IJ), and Arwana Citramulia (ARNA IJ)
We also saw a an insight on Blue Bird (BIRD IJ) together with significant commentary on the ongoing Keppel Group restructuring plus an ESG angle on Carsome that may IPO.

Before it’s here, it’s on Smartkarma

May 03

Most Read: SenseTime Group, Hitachi Ltd, China Huarong Asset Management, GOLFZON, Shiga Bank and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

SenseTime (20 HK): Lock-Up Expiry Will Bring BIG Passive Flow
Hitachi Results, Special Gain on Asset Sale, and Semi-Bigly Buyback
HSCI Index Rebalance and Stock Connect: Potential Changes in June and September
KOSDAQ150 Index Rebalance Preview: 14 Potential Changes in June
JAPAN ACTIVISM: Silchester Goes After Shiga Bank

SenseTime (20 HK): Lock-Up Expiry Will Bring BIG Passive Flow

SenseTime Group (20 HK) currently has a float of 1.4%. That will increase to 46% at the end of June as pre-IPO and cornerstone investor lock-ups end.
The Hang Seng Tech Index FAF increase and potential inclusion in the Hang Seng China Enterprises Index will require passive trackers to buy 700m shares early September.
Economic stimulus in China, outlook for China tech, lock-up expiry, inclusion in Southbound Connect and flows from passive trackers will drive the stock for few months and provide trading opportunities.

Hitachi Results, Special Gain on Asset Sale, and Semi-Bigly Buyback

Hitachi Ltd (6501 JP) results were salutary but noisy and the year to March 2023 is forecast similar (salutary but noisy). Service integration and growth to external customers is key.
Forecast growth in main businesses ex- to-be-sold listed subs is decent, but could be better.
A SEMI-Bigly buyback will help cushion any selling, but it has recently outrun Siemens on a like-for-like basis.

HSCI Index Rebalance and Stock Connect: Potential Changes in June and September

We see seven new listings as potential inclusions to the HSCI in June. One is already a part of Connect while five will be added to Southbound Stock Connect.
We see 19 potential changes to the HSCI in September. Seven of the deletions are on market cap, four on liquidity, and eight due to prolonged trading suspension.
Some of the potential deletions have large Southbound holdings and some of these could be trimmed over the next couple of months.

KOSDAQ150 Index Rebalance Preview: 14 Potential Changes in June

The review period for the June rebalance of the KOSDAQ 150 Index ended on Friday. We see 14 potential changes to the index – most are high probability.
The impact of passive trading is higher on the deletions than on the additions. Short interest on the potential adds is zero/negligible and a lot larger on the potential deletions.
Short interest on a couple of potential deletion exceeds the estimated passive selling, while there are others where short interest is three-quarters of the estimated passive selling.

JAPAN ACTIVISM: Silchester Goes After Shiga Bank

In early February 2022, Silchester International Investors (according to its website) sent letters to four low-ROE-earning Japanese regional banks proposing a new dividend policy.
The management and boards of each bank rejected the policy proposal though two of the four had upped their proposed dividend or changed policy prior, and two upped it afterwards.
While Bank of Kyoto (8369 JP) is the biggie, Shiga Bank (8366 JP) is another one with significant equity holdings.

Before it’s here, it’s on Smartkarma

May 03

Equity Bottom-Up: Square Enix Holdings, Japan Tobacco, HSBC Holdings, Novatek Microelectronics Corp, Kunlun Energy, China Communications Construction, GS Retail, Shenandoah Telecommunications Company, Shenzhen Mindray Bio-Medical Electronics, ATN International and more

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

In today’s briefing:

Square Enix – Eidos Sale Removes Downside Risks
Japan Tobacco High Conviction Update: Russia Is Less Than Markets Feared & There’s Upside to DPS Est
HSBC – Will All Cylinders Ever Fire?
Novatek (3034.TT): 1Q22 Results/ 2Q22 Outlook- The Outlook Seems Better than Feared in 2022. .
Kunlun Energy (135 HK): A Record Quarter for Kunlun Gas
China Comm Const (1800 HK): Grossly Undervalued by the Market
BGF Retail & GS Retail: Korean CVS Plays Likely to Better Withstand Higher Inflation
SHEN: Rising Costs, Declining Cash
Shenzhen Mindray Bio-Medical Electronics (300760.CH) – Still a “Safe Play” Despite Growth Slowdown
ATNI: Sustaining Growth for Free Cash Flow

Square Enix – Eidos Sale Removes Downside Risks

By Mio Kato

Square Enix announced the of sale Eidos Interactive, Crystal Dynamics, Square Enix Montreal and associated IPs to Embracer for $300m.
We had been puzzling over Square Enix’s strangely low guidance despite excellent momentum in its MMO business for some time.
Considering the underperformance in HD Games profitability and this sale we think we can now put two and two together.

Japan Tobacco High Conviction Update: Russia Is Less Than Markets Feared & There’s Upside to DPS Est

By Oshadhi Kumarasiri

Japan Tobacco (2914 JP)’s 1Q22 was stronger than expected with revenue and OP surpassing consensus by 5.2% and 20.0% respectively despite the Russia Ukraine war situation.
Although the company has maintained the semi-annual dividend at ¥75.0 per share, we predict there could be an upside to the DPS guidance during the next three quarters.
With OP guidance of ¥534.0bn next year, we think Japan Tobacco should trade around ¥4,000-4,500 per share, indicating an upside of around 82-104%.

HSBC – Will All Cylinders Ever Fire?

By Daniel Tabbush

Latest earning show all of margin gain offset by worsening impairment costs
One may argue that in the coming year the bank will finally fire on all cylinders
It is not clear if recommended break-up of HSBC will come through or if it would help

Novatek (3034.TT): 1Q22 Results/ 2Q22 Outlook- The Outlook Seems Better than Feared in 2022. .

By Patrick Liao

Novatek’s revenue was NT$36.512bn in 1Q22, which was 38.5% YoY and 62.6% QoQ. It was 50.73%/36.73%/30.5% GM/OPM/NM in 1Q22, which was higher than our prior expectation of 43.6%/27.3%/22.3% in GM/OPM/NM.
In our views, we revise up to be revenue/GM as NT$38.7bn/50.98% in 2Q20.
As the inflation, 5G, Russia-Ukraine war did change the landscape, the outlook seems not that so much worse in 2022.

Kunlun Energy (135 HK): A Record Quarter for Kunlun Gas

Healthy 17.2% growth in 1Q22 net profit of Kunlun Gas, the most important subsidiary of Kunlun Energy (135 HK), provides a welcoming evidence to ease market concerns on costs.
While gross margin was down 0.2pp YoY, it expanded by 0.4pp QoQ. Key cost items including selling, administrative and R&D are all under control, boosting EBIT margin by 0.5pp YoY.
1Q22 is a record quarter for Kunlun Gas, and gearing stays comfortable with strong operating cash flow. We believe such set of result signals good 1Q22 for Kunlun Energy.

China Comm Const (1800 HK): Grossly Undervalued by the Market

China Communications Construction (1800 HK) has bucked the trend of weaker earnings growth in the last two quarters by posting a healthy 17.7% YoY net profit growth for 1Q22.
While gross margin contracted slightly, the good control on selling and administrative expenses have partly absorbed margin contraction. Its new contract value for 1Q22 has also reached record high.
With government’s aggressive special purpose bond issue and infrastructure investment, we expect new contract momentum to pick up. Trading at 3.2x PER and 0.22x P/B, CCCC is massively undervalued.

BGF Retail & GS Retail: Korean CVS Plays Likely to Better Withstand Higher Inflation

By Douglas Kim

We believe BGF Retail and GS Retail are strong turnaround plays amid the end of the social distancing policies in Korea.
These CVS plays are well positioned to withstand higher inflation rates and higher product price increases among the various retail channels in Korea.
Valuation multiples of GS Retail have declined significantly in the past five years. Their valuations have become more attractive as compared to lofty levels 4-5 years ago.

SHEN: Rising Costs, Declining Cash

By Hamed Khorsand

SHEN reported an unexpected loss for the first quarter due to new system upgrades and the cost structure could remain elevated for the next 20 months
SHEN’s revenue is pacing ahead of expectations on higher Glo Fiber subscription numbers. SHEN’s business plan requires additional capital expenditure spending to expand the fiber network for Glo Fiber
The higher expenses in the quarter reflect SHEN implementing upgrades to multiple systems companywide. The new software would save $2 million annually after the 20-month phase-in process is concluded

Shenzhen Mindray Bio-Medical Electronics (300760.CH) – Still a “Safe Play” Despite Growth Slowdown

By Xinyao (Criss) Wang

In 2021/22Q1, Mindray’s 20%+ growth rate is not easy in this difficult/complicated environment, but the market hopes to see stronger data and a fresh logic of growth to restore confidence.
After China’s “new infrastructure” projects finish, how to maintain its 20%+ growth could be a challenge in the long term if Mindray couldn’t make breakthrough in internationalization or innovation.
However, Mindray is still a “safe play”. Its current PE/TTM is also more reasonable, but definitely not undervalued. It would be much better to long Mindray at a lower valuation.

ATNI: Sustaining Growth for Free Cash Flow

By Hamed Khorsand

ATNI reported first quarter results where a seasonal decline in managed services (low margin equipment) had an impact on revenue, but adjusted EBITDA remained on track with our estimates
ATNI is investing in its fiber network to grow the number of subscribers. ATNI’s Alaskan business should continue to maintain an uptrend in the number of subscribers throughout the year
ATNI is reiterating full year adjusted EBITDA of $165 million to $170 million. We have increased our forecast to $167 million from $166 million

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