Growth Ideas

In this briefing:

1. DoubleDragon Properties (DD PM): From Overhyped to Undervalued; Multi-Bagger in the Making?
2. Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent
3. CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)

1. DoubleDragon Properties (DD PM): From Overhyped to Undervalued; Multi-Bagger in the Making?

This Insight was written by Nicolas Van Broekhoven and Lloyd Moffatt.

What is an Orphan Stock?

An attractively valued company with a minimum market cap of USD $1 billion but no sell-side coverage.Doubledragon Properties (DD PM) meets those criteria.

Why Read This Report?

Learn about the Philippines youngest self-made billionaire*, Edgar ‘Injap’ Sia,  how he created one of the largest fast-food chains (Mang Inasal) in the country and successfully sold it to Jollibee Foods (JFC PM) for over USD$100 M.

After selling Mang Inasal in 2010, Sia started building DoubleDragon (DD) as he joined hands with Tony Tan (founder of Jollibee Foods (JFC PM) ). DD was listed in 2014 at a market value of USD$85 M (PHP2/share) and reached a market cap of over USD$3 B USD two years after listing (PHP70/share).

DD’s valuation mid-2016 was overhyped and overvalued.

From mid-2016 to late 2018 the share price fell by approximately 75%. Last year the stock bottomed at PHP17.2 despite fundamentals improving drastically between 2016 and 2018.

We value DD on a blended a) P/E multiple and b) Cap Rate basis.

DD recently traded around PHP 22/share and is currently valued at 9.5x FY20 P/E, a steep discount to its industry peers. Assuming the company achieves PHP10.8 B in recurring revenues by FY20 the market is currently valuing the company at a 21% Cap Rate vs 7% for its primary peer Sm Prime Holdings (SMPH PM). DD should trade at a discount to SM (long track record, higher liquidity, included in PSE index) but the gap is too wide.

We argue DD should trade at a) 15x P/E and b) 10% cap rate. Combining the two valuation methods we arrive at a blended Fair Value of PHP 40.31/share, or 83% upside from current levels.

The founders control 70% of the company and expect to grow the current USD$1.2B market cap exponentially the coming 3-5 years. DoubleDragon is a potential multi-bagger in the making.

1. FY18 results publication by early April 2019
2. Delivery of 100 operating CityMalls by FY20
3. The passing of workable REIT law
4. Delivery of PHP5.5B FY20 profit target
5. FCF inflection point coming closer in FY20
6. Re-discovery by sell-side firms as index inclusion looms
7. Visibility into FY21-FY25 dividend potential

Footnote: *Injap was reported as having USD$1 B in assets by Forbes in 2017, as the share price of DD has fallen we estimate this has dropped to approximately USD$ 400-500 M, which would still rank him among the top-25 wealthiest individuals in the Philippines.

2. Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent

Dongzheng Automotive Finance (2718 HK) is raising up to US$428m in its upcoming IPO. We have covered the background of the company in Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth. 

In this insight, we will look into the company’s valuation, compare it to listed auto peers, and run the deal through our framework.

3. CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)

CanSino is a China-based biotechnology company with a focus on vaccine development. In our previous insight (link to Part 1 and Part 2), we have discussed CanSino’s drug pipeline, the competitive landscape, and the valuation. 

As the company is starting pre-marketing, we will provide an updated valuation based on new information obtained from the approved application document. Our base case valuation for CanSino is USD 856 million on a pre-money basis. Majority of the rNPV based SOTP valuation still comes from its meningococcal conjugate vaccine (MCV2 and MCV4). Over the past few months, the company has completed Phase III for MCV4 and submitted NDA (new drug application) for MCV2 candidates.

In this briefing:

1. Uber IPO Preview: Surge Pricing
2. MonotaRO (3064 JP): Slow March, Strong 1Q
3. Yaskawa: Results Confirm Bottoming Out Despite Weakness, but the Stock Has Run Too Far
4. Shenwan Hongyuan (申万宏源) A+H: No Reason for a Valuation Premium
5. So-Young (新氧) Pre-IPO Review – Au Naturel

1. Uber IPO Preview: Surge Pricing

Uber has filed its S1 prospectus in order to raise a reported $10bn with an estimated valuation of $100bn. We note the following key points

Intro to Uber IPO

UBER financials: Heavy cash burn and negative margins

Major revenue slowdown in the latest quarter

You can find our cautious take on the Lyft IPO here: Lyft IPO Preview: Maybe We’ll Just Walk?

2. MonotaRO (3064 JP): Slow March, Strong 1Q

MonotaRO’s domestic (parent company) sales growth rate declined in March, but was up in 1Q as a whole. We expect no change to FY Dec-19 guidance when consolidated results are announced at the end of April. 

Parent company data for March show sales up 17.4% year-on-year in nominal terms, but up 23.3% when adjusted for the number of working days in the month. The adjusted figures for January and February were 30.5% and 26.6%. In the three months to March, adjusted sales were up 26.5% vs. 24.2% growth in 4Q of FY Dec-18 and 26.2% a year earlier. 

At ¥2,366 (Thursday, April 11, close), the shares are selling at 51x our estimate for FY Dec-19 and 44x our estimate for FY Dec-20. Price/sales multiples for the same two years are 4.5x and 3.9x. Projected valuations look high, but are on the low side of their recent historical ranges. Continuing double-digit growth should support the share price.

3. Yaskawa: Results Confirm Bottoming Out Despite Weakness, but the Stock Has Run Too Far

Yaskawa Electric (6506 JP) reported FY03/19 results yesterday where OP of ¥49.8bn missed guidance of ¥53bn (-6.0% miss) and consensus of ¥52.1bn. Guidance of ¥46.5bn OP for FY02/20 was light relative to consensus at ¥48.7bn and our own expectations for about ¥50bn in OP but we believe guidance looks a little conservative and consider it to be mostly in line. The main concern was 4Q orders which were down 17% YoY and 10% QoQ with both Motion Control and Robotics displaying weakness.

The company also announced a buyback of 0.76% of outstanding shares for ¥9bn which we feel is a little small and also somewhat poorly timed given the 50% rally in the stock price in the last three months.

4. Shenwan Hongyuan (申万宏源) A+H: No Reason for a Valuation Premium

Shenwan Hongyuan started institutional book building today. We have covered the fundamentals of the company in our previous insight (Shenwan Hongyuan (申万宏源) A+H: A Commoditized Broker Business). In this insight, we will discuss:

• Valuation comparison with peers
• A-H premium history of Chinese brokers
• Key metrics of past Chinese brokers listing in the H-share market
• Concerns of liquidity

5. So-Young (新氧) Pre-IPO Review – Au Naturel

So-Young (SY US) is looking to raise US$150m in its upcoming IPO. The company filed its prospectus with the SEC on Monday.

The company operates online platforms (mobile, website, and WeChat mini program) for discovering, evaluating, and reserving medical aesthetic services in China. It helps medical aesthetic service providers acquire customers through user generated content and other creative content format.

In this insight, we will look at the company’s business model, analyze its financial and operating performance, review the competitive landscape and point out some questions for management.

In this briefing:

1. Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent
2. CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)
3. TTW: Cut 2019-2023 Earnings on the Rise of Depreciation Expenses
4. CyberAgent (4751 JP): Key Takeaways from Our Discussion with the IR Team

1. Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent

Dongzheng Automotive Finance (2718 HK) is raising up to US$428m in its upcoming IPO. We have covered the background of the company in Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth. 

In this insight, we will look into the company’s valuation, compare it to listed auto peers, and run the deal through our framework.

2. CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)

CanSino is a China-based biotechnology company with a focus on vaccine development. In our previous insight (link to Part 1 and Part 2), we have discussed CanSino’s drug pipeline, the competitive landscape, and the valuation. 

As the company is starting pre-marketing, we will provide an updated valuation based on new information obtained from the approved application document. Our base case valuation for CanSino is USD 856 million on a pre-money basis. Majority of the rNPV based SOTP valuation still comes from its meningococcal conjugate vaccine (MCV2 and MCV4). Over the past few months, the company has completed Phase III for MCV4 and submitted NDA (new drug application) for MCV2 candidates.

3. TTW: Cut 2019-2023 Earnings on the Rise of Depreciation Expenses

We maintain our positive view toward its long-term outlook on the backs of potential growth from its location and secured contract with government agency. Maintain a BUY rating with a new target price of Bt16.8 (SOTP).

The story:

• We cut our 2019-2021 earnings forecast by 12-13% to factor in rising depreciation expenses caused by its shortening depreciated years of PTW’s assets.
• Our new target price of Bt16.8 is derived from Some-of-the-parts (SOTP) which comprises (1) Bt13.8 from core business (tap water supply under both TTW and PTW) based on DCF(6.7%WACC, 0%TG) and (2) Bt3.0 from CKP based on IFA report.

4. CyberAgent (4751 JP): Key Takeaways from Our Discussion with the IR Team

Our recent conversation with CyberAgent’s IR team suggests that a significant improvement in the OP margin is unlikely in the next few quarters. The OP margins of both Game business and the Internet Advertisement, while likely to improve gradually, are likely to remain low compared to recent history due to higher advertising and personnel costs.

Upfront investments in AbemaTV are likely to continue until the target of 10m Weekly Average Users (WAU) is met, which could take a year or more. The company expects around 50% of AbemaTV revenue to eventually come from premium users, which seems to be a shift in strategy, from a “free” service towards a more hybrid model.

CyberAgent’s share price closed at ¥4,050 on Tuesday, up 7.1% from its previous close, following the news that the stock was added to the Goldman Sachs’ conviction list with a reiterated buy rating. However, even before this, CyberAgent’s share price had been on a steady increase over the past two weeks (+29.0%), recovering from a one-year low in early February. This increase, despite rather mediocre 1Q results, a downward revision of OP guidance, and lack of any major short term catalysts is an indication that the market deems CyberAgent to be undervalued – mainly on the AbemaTV front.

In this briefing:

1. Snippets #20: Dark Clouds in Thai Equities

1. Snippets #20: Dark Clouds in Thai Equities

Of the five interesting trends/events/developments we heard this month, we highlighted five and how they could impact Thai equities in the near term:

• Thai Raksa Chart Party dissolution. The dissolution of the TRC, the second largest Thaksinite party, poses some political risks but could affect sentiments for companies founded by Thaksin, such as Intuch and AIS.
• Thai Air Asia says no to Nok Air. After the briefest considerations, the larger airline came to the conclusion that they wouldn’t acquire a stake in struggling Nok Air.
• Capital Gains Taxes are currently under consideration by the government for the first time. If implemented, they are likely to have negative impact on overall equities but the brokers in particular.
• From LINE to BEC. LINE (Thailand)’s Country Manager Ariya Phanomyong has agreed to move to BEC. Though mildly positive, we believe improvements will revolve around distribution rather than the more key issue of content.
• True Move’s Request for 5G delay may sound odd at first glance, but we see it as a rational, if not very tactful, way of delaying a new round of capex.

In this briefing:

1. MonotaRO (3064 JP): Slow March, Strong 1Q
2. Yaskawa: Results Confirm Bottoming Out Despite Weakness, but the Stock Has Run Too Far
3. Shenwan Hongyuan (申万宏源) A+H: No Reason for a Valuation Premium
4. So-Young (新氧) Pre-IPO Review – Au Naturel
5. Maybe Koito’s Premium Can Be Justified

1. MonotaRO (3064 JP): Slow March, Strong 1Q

MonotaRO’s domestic (parent company) sales growth rate declined in March, but was up in 1Q as a whole. We expect no change to FY Dec-19 guidance when consolidated results are announced at the end of April. 

Parent company data for March show sales up 17.4% year-on-year in nominal terms, but up 23.3% when adjusted for the number of working days in the month. The adjusted figures for January and February were 30.5% and 26.6%. In the three months to March, adjusted sales were up 26.5% vs. 24.2% growth in 4Q of FY Dec-18 and 26.2% a year earlier. 

At ¥2,366 (Thursday, April 11, close), the shares are selling at 51x our estimate for FY Dec-19 and 44x our estimate for FY Dec-20. Price/sales multiples for the same two years are 4.5x and 3.9x. Projected valuations look high, but are on the low side of their recent historical ranges. Continuing double-digit growth should support the share price.

2. Yaskawa: Results Confirm Bottoming Out Despite Weakness, but the Stock Has Run Too Far

Yaskawa Electric (6506 JP) reported FY03/19 results yesterday where OP of ¥49.8bn missed guidance of ¥53bn (-6.0% miss) and consensus of ¥52.1bn. Guidance of ¥46.5bn OP for FY02/20 was light relative to consensus at ¥48.7bn and our own expectations for about ¥50bn in OP but we believe guidance looks a little conservative and consider it to be mostly in line. The main concern was 4Q orders which were down 17% YoY and 10% QoQ with both Motion Control and Robotics displaying weakness.

The company also announced a buyback of 0.76% of outstanding shares for ¥9bn which we feel is a little small and also somewhat poorly timed given the 50% rally in the stock price in the last three months.

3. Shenwan Hongyuan (申万宏源) A+H: No Reason for a Valuation Premium

Shenwan Hongyuan started institutional book building today. We have covered the fundamentals of the company in our previous insight (Shenwan Hongyuan (申万宏源) A+H: A Commoditized Broker Business). In this insight, we will discuss:

• Valuation comparison with peers
• A-H premium history of Chinese brokers
• Key metrics of past Chinese brokers listing in the H-share market
• Concerns of liquidity

4. So-Young (新氧) Pre-IPO Review – Au Naturel

So-Young (SY US) is looking to raise US$150m in its upcoming IPO. The company filed its prospectus with the SEC on Monday.

The company operates online platforms (mobile, website, and WeChat mini program) for discovering, evaluating, and reserving medical aesthetic services in China. It helps medical aesthetic service providers acquire customers through user generated content and other creative content format.

In this insight, we will look at the company’s business model, analyze its financial and operating performance, review the competitive landscape and point out some questions for management.

5. Maybe Koito’s Premium Can Be Justified

We mentioned in Koito Outperforms in 3Q While Stanley Disappoints; Latter Still on Track to Achieve FY03/19E Target, that Koito Manufacturing (7276 JP) has managed to beat consensus estimates in 3Q after a series of disappointing results in the previous quarters. This was despite the weak nine-month ended results. The company cited the loss in sales from China (as a result of the deconsolidation of the Shanghai unit) alongside unfavourable economic conditions especially in China and Europe as key reasons for the decline in earnings. Our visit to Koito in March, gave us more insight on the effect of its deconsolidated Shanghai unit and its future plans in China, alongside their investment for capacity expansions and new products. Following these insights, we have revised our view on Koito in a slightly positive manner.

In this briefing:

1. Shenwan Hongyuan (申万宏源) A+H: No Reason for a Valuation Premium
2. So-Young (新氧) Pre-IPO Review – Au Naturel
3. Maybe Koito’s Premium Can Be Justified
4. CHG: Short-Term Cost Pressures Create an Opportunity to Invest
5. Keytruda Approved for Lung Cancer Treatment in China – A Review of PD-1 Battle Field

1. Shenwan Hongyuan (申万宏源) A+H: No Reason for a Valuation Premium

Shenwan Hongyuan started institutional book building today. We have covered the fundamentals of the company in our previous insight (Shenwan Hongyuan (申万宏源) A+H: A Commoditized Broker Business). In this insight, we will discuss:

• Valuation comparison with peers
• A-H premium history of Chinese brokers
• Key metrics of past Chinese brokers listing in the H-share market
• Concerns of liquidity

2. So-Young (新氧) Pre-IPO Review – Au Naturel

So-Young (SY US) is looking to raise US$150m in its upcoming IPO. The company filed its prospectus with the SEC on Monday.

The company operates online platforms (mobile, website, and WeChat mini program) for discovering, evaluating, and reserving medical aesthetic services in China. It helps medical aesthetic service providers acquire customers through user generated content and other creative content format.

In this insight, we will look at the company’s business model, analyze its financial and operating performance, review the competitive landscape and point out some questions for management.

3. Maybe Koito’s Premium Can Be Justified

We mentioned in Koito Outperforms in 3Q While Stanley Disappoints; Latter Still on Track to Achieve FY03/19E Target, that Koito Manufacturing (7276 JP) has managed to beat consensus estimates in 3Q after a series of disappointing results in the previous quarters. This was despite the weak nine-month ended results. The company cited the loss in sales from China (as a result of the deconsolidation of the Shanghai unit) alongside unfavourable economic conditions especially in China and Europe as key reasons for the decline in earnings. Our visit to Koito in March, gave us more insight on the effect of its deconsolidated Shanghai unit and its future plans in China, alongside their investment for capacity expansions and new products. Following these insights, we have revised our view on Koito in a slightly positive manner.

4. CHG: Short-Term Cost Pressures Create an Opportunity to Invest

We initiate coverage of CHG with a BUY rating and a 2019E target price of Bt2.53, derived from a discounted cash flow valuation (WACC of 6.2% and terminal growth of 2.0%). This is equivalent to 44.5 PE’19E, which is near its five-year trading average of 43.7x.

The story:

• Competitive player in a key strategic location
• Pressures from launch of new greenfield hospitals should be short term
• Recent share price retreat opens an investment opportunity
• Expected flat earnings in 2019E and growth at a 19% CAGR in 2020-21E

Risks:     Medical personnel shortage

                Litigation for medical services

                Change in social security policy

5. Keytruda Approved for Lung Cancer Treatment in China – A Review of PD-1 Battle Field

Anti-PD-1 monoclonal antibody (mAb) is a hotly contested immunotherapy area in China, with seven companies working on clinical trials covering various lines of treatment for more than a dozen indications. Out of these indications, we have highlighted in our previous coverage on Chinese biotech companies that the most critical indication is the first line treatment of lung cancer, particularly non-small cell lung cancer (NSCLC). Valuation of PD-1 related drugs anchors many of the Hong Kong-listed biotech companies, such as Innovent Biologics Inc (1801 HK), Shanghai Junshi Bioscience Co. Ltd. (1877 HK), BeiGene Ltd (6160 HK), CStone Pharma (2616 HK)  and China A-share listed Jiangsu Hengrui Medicine Co., (600276 CH). 

In March, Merck’s Keytruda (generic name pembrolizumab) was approved by NMPA for the first line treatment of EGFR and ALK-negative non-squamous NSCLC. This marks Keytruda the first approved PD-1 drugs for the first line treatment of NSCLC in China.

In this insight, we will review the status and targeted indications of clinical trials of PD-1 candidates by domestic players. 

In this briefing:

1. Maybe Koito’s Premium Can Be Justified
2. CHG: Short-Term Cost Pressures Create an Opportunity to Invest
3. Keytruda Approved for Lung Cancer Treatment in China – A Review of PD-1 Battle Field
4. Axis Bank Board’s Motto: Trust Only in Strangers
5. Indonesia Bull Wedge Targets New Highs

1. Maybe Koito’s Premium Can Be Justified

We mentioned in Koito Outperforms in 3Q While Stanley Disappoints; Latter Still on Track to Achieve FY03/19E Target, that Koito Manufacturing (7276 JP) has managed to beat consensus estimates in 3Q after a series of disappointing results in the previous quarters. This was despite the weak nine-month ended results. The company cited the loss in sales from China (as a result of the deconsolidation of the Shanghai unit) alongside unfavourable economic conditions especially in China and Europe as key reasons for the decline in earnings. Our visit to Koito in March, gave us more insight on the effect of its deconsolidated Shanghai unit and its future plans in China, alongside their investment for capacity expansions and new products. Following these insights, we have revised our view on Koito in a slightly positive manner.

2. CHG: Short-Term Cost Pressures Create an Opportunity to Invest

We initiate coverage of CHG with a BUY rating and a 2019E target price of Bt2.53, derived from a discounted cash flow valuation (WACC of 6.2% and terminal growth of 2.0%). This is equivalent to 44.5 PE’19E, which is near its five-year trading average of 43.7x.

The story:

• Competitive player in a key strategic location
• Pressures from launch of new greenfield hospitals should be short term
• Recent share price retreat opens an investment opportunity
• Expected flat earnings in 2019E and growth at a 19% CAGR in 2020-21E

Risks:     Medical personnel shortage

                Litigation for medical services

                Change in social security policy

3. Keytruda Approved for Lung Cancer Treatment in China – A Review of PD-1 Battle Field

Anti-PD-1 monoclonal antibody (mAb) is a hotly contested immunotherapy area in China, with seven companies working on clinical trials covering various lines of treatment for more than a dozen indications. Out of these indications, we have highlighted in our previous coverage on Chinese biotech companies that the most critical indication is the first line treatment of lung cancer, particularly non-small cell lung cancer (NSCLC). Valuation of PD-1 related drugs anchors many of the Hong Kong-listed biotech companies, such as Innovent Biologics Inc (1801 HK), Shanghai Junshi Bioscience Co. Ltd. (1877 HK), BeiGene Ltd (6160 HK), CStone Pharma (2616 HK)  and China A-share listed Jiangsu Hengrui Medicine Co., (600276 CH). 

In March, Merck’s Keytruda (generic name pembrolizumab) was approved by NMPA for the first line treatment of EGFR and ALK-negative non-squamous NSCLC. This marks Keytruda the first approved PD-1 drugs for the first line treatment of NSCLC in China.

In this insight, we will review the status and targeted indications of clinical trials of PD-1 candidates by domestic players. 

4. Axis Bank Board’s Motto: Trust Only in Strangers

The Reserve Bank of India’s (RBI) approval of the selection of Amitabh Chaudhry, the then HDFC Standard Life Insurance Chief Executive Officer (CEO), as the Axis Bank CEO on August 8, 2018, and his taking charge on January 1, 2019, were celebrated by the market. Analysts and the media were also favourably inclined towards his lateral new hires in the senior management, all of whom had spent many years in HDFC Bank. Unfortunately, these developments actually revealed a strategic fault line in the organisation. The Axis Bank board in its quarter century of existence has not only failed to groom internal candidates for the top-most job, but also recently has been unable to nurture or to trust internal candidates being appointed as executive directors and other critical posts (exception of Chief Risk Officer) in senior management. Recently, it has announced a voluntary retirement scheme which is virtually devoid of benefits to the retiring personnel; over 50 senior management personnel are being eased out at the end of April 2019 with little more than Mediclaim and unexercised stock options to show for their years of service. Such a step is likely to send demoralising tremors down the entire organisation. When the board of Axis Bank believes that only outsiders can be trusted in critical posts in senior management, and these posts are denied to the in-house cadre, how can the bank achieve the present CEO’s performance objectives of a sustainable ROE of 18% and doubling the market capitalisation?  

5. Indonesia Bull Wedge Targets New Highs

We have held a bullish/long position in Indonesia from 6,080 after the breakout above 6,000 resistance and continue to see the macro cycle in a positive light to challenge and clear the 2018 highs.

Bull energy is brewing once again for a bull breakout of the noted wedge that will open the way for the macro bull cycle to resume. Lower wedge support is our preferred buy zone to add to our long position with clear wedge breakout resistance and bull inflection point.

For those not long this offers an excellent risk to reward entry with a controlled stop.

Buy volumes remain healthy and supportive of the macro bull cycle.

Indonesia is our top pick within SE Asia.

In this briefing:

1. Momo (MOMO): Paying Users Up 17%, Benefiting from Bankrupt Competitors, 80% Upside
2. Snippets #20: Dark Clouds in Thai Equities
3. Meituan Dianping: Time to Bail? Relax, Core Business Progressing Toward Profitability

1. Momo (MOMO): Paying Users Up 17%, Benefiting from Bankrupt Competitors, 80% Upside

• The stock price has risen 32% after the short seller J Capital slammed it.
• MOMO’s paying user base of live video increased 22% yoy in 3Q18 and 17% yoy in 4Q2018 even though the live show market shrank in 2018.
• We believe MOMO will benefit from small competitors’ bankruptcy.
• The growth rate of the main business revenues stopped declining.
• Our P/E band suggests upside of 80% for MOMO’s stock price.

2. Snippets #20: Dark Clouds in Thai Equities

Of the five interesting trends/events/developments we heard this month, we highlighted five and how they could impact Thai equities in the near term:

• Thai Raksa Chart Party dissolution. The dissolution of the TRC, the second largest Thaksinite party, poses some political risks but could affect sentiments for companies founded by Thaksin, such as Intuch and AIS.
• Thai Air Asia says no to Nok Air. After the briefest considerations, the larger airline came to the conclusion that they wouldn’t acquire a stake in struggling Nok Air.
• Capital Gains Taxes are currently under consideration by the government for the first time. If implemented, they are likely to have negative impact on overall equities but the brokers in particular.
• From LINE to BEC. LINE (Thailand)’s Country Manager Ariya Phanomyong has agreed to move to BEC. Though mildly positive, we believe improvements will revolve around distribution rather than the more key issue of content.
• True Move’s Request for 5G delay may sound odd at first glance, but we see it as a rational, if not very tactful, way of delaying a new round of capex.

3. Meituan Dianping: Time to Bail? Relax, Core Business Progressing Toward Profitability

• Conference call with Meituan Dianping (3690 HK) reveals that ballooning losses from new initiatives (incl. one-off expenses) largely contributed to record quarterly EBIT losses in 4Q18.
• Importantly, this masks Meituan Core’s (combined food delivery and in-store, hotel & travel divisions) continued progress toward profitability.
• Management is bullish on every division’s outlook in 2019, particularly guiding for 1) balanced growth and profitability strategy for food delivery and 2) disciplined investments in new initiatives.
• Meituan attractively trades at 2.9x 2019E P/S, only around half of peers’ valuation (5.5x).  

In this briefing:

1. Snippets #20: Dark Clouds in Thai Equities
2. Meituan Dianping: Time to Bail? Relax, Core Business Progressing Toward Profitability

1. Snippets #20: Dark Clouds in Thai Equities

Of the five interesting trends/events/developments we heard this month, we highlighted five and how they could impact Thai equities in the near term:

• Thai Raksa Chart Party dissolution. The dissolution of the TRC, the second largest Thaksinite party, poses some political risks but could affect sentiments for companies founded by Thaksin, such as Intuch and AIS.
• Thai Air Asia says no to Nok Air. After the briefest considerations, the larger airline came to the conclusion that they wouldn’t acquire a stake in struggling Nok Air.
• Capital Gains Taxes are currently under consideration by the government for the first time. If implemented, they are likely to have negative impact on overall equities but the brokers in particular.
• From LINE to BEC. LINE (Thailand)’s Country Manager Ariya Phanomyong has agreed to move to BEC. Though mildly positive, we believe improvements will revolve around distribution rather than the more key issue of content.
• True Move’s Request for 5G delay may sound odd at first glance, but we see it as a rational, if not very tactful, way of delaying a new round of capex.

2. Meituan Dianping: Time to Bail? Relax, Core Business Progressing Toward Profitability

• Conference call with Meituan Dianping (3690 HK) reveals that ballooning losses from new initiatives (incl. one-off expenses) largely contributed to record quarterly EBIT losses in 4Q18.
• Importantly, this masks Meituan Core’s (combined food delivery and in-store, hotel & travel divisions) continued progress toward profitability.
• Management is bullish on every division’s outlook in 2019, particularly guiding for 1) balanced growth and profitability strategy for food delivery and 2) disciplined investments in new initiatives.
• Meituan attractively trades at 2.9x 2019E P/S, only around half of peers’ valuation (5.5x).  

In this briefing:

1. Snippets #20: Dark Clouds in Thai Equities
2. Meituan Dianping: Time to Bail? Relax, Core Business Progressing Toward Profitability
3. Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth

1. Snippets #20: Dark Clouds in Thai Equities

Of the five interesting trends/events/developments we heard this month, we highlighted five and how they could impact Thai equities in the near term:

• Thai Raksa Chart Party dissolution. The dissolution of the TRC, the second largest Thaksinite party, poses some political risks but could affect sentiments for companies founded by Thaksin, such as Intuch and AIS.
• Thai Air Asia says no to Nok Air. After the briefest considerations, the larger airline came to the conclusion that they wouldn’t acquire a stake in struggling Nok Air.
• Capital Gains Taxes are currently under consideration by the government for the first time. If implemented, they are likely to have negative impact on overall equities but the brokers in particular.
• From LINE to BEC. LINE (Thailand)’s Country Manager Ariya Phanomyong has agreed to move to BEC. Though mildly positive, we believe improvements will revolve around distribution rather than the more key issue of content.
• True Move’s Request for 5G delay may sound odd at first glance, but we see it as a rational, if not very tactful, way of delaying a new round of capex.

2. Meituan Dianping: Time to Bail? Relax, Core Business Progressing Toward Profitability

• Conference call with Meituan Dianping (3690 HK) reveals that ballooning losses from new initiatives (incl. one-off expenses) largely contributed to record quarterly EBIT losses in 4Q18.
• Importantly, this masks Meituan Core’s (combined food delivery and in-store, hotel & travel divisions) continued progress toward profitability.
• Management is bullish on every division’s outlook in 2019, particularly guiding for 1) balanced growth and profitability strategy for food delivery and 2) disciplined investments in new initiatives.
• Meituan attractively trades at 2.9x 2019E P/S, only around half of peers’ valuation (5.5x).  

3. Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth

Dongzheng Automotive Finance (2718 HK) is looking to raise approximately US$300 – 500m in its upcoming IPO. 

DAF is a fast growing auto finance company which acquires customers through a network of dealership around China. Its net interest income grew by 66% CAGR from FY2016 to FY2018 while net fees/comms income and profit grew by 39.6% and 61% CAGR over the same period.

However, most of its growth originated from ZhengTong dealers and joint promotion arrangement. Excluding loans from joint promotion arrangement, gross outstanding loan had only grown by 12% CAGR.

In this insight, we will look at the company’s business, analyze the competitive landscape, provide thoughts on valuation, and some questions for management.