Category

Growth Ideas

Brief Growth Ideas: New Oriental (EDU): Stock Up 120% in 2019, But Still 23% Upside Due to Excellent Q2 and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. New Oriental (EDU): Stock Up 120% in 2019, But Still 23% Upside Due to Excellent Q2
  2. IndusInd Bank – NPL Formation Doubling
  3. RHB Bank – Quiet Transformation
  4. TSMC. Setting The Stage For Record Growth In 2020 And Beyond

1. New Oriental (EDU): Stock Up 120% in 2019, But Still 23% Upside Due to Excellent Q2

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  • EDU’s stock price had risen more than 120% in 2019.
  • The growth rate of both students and revenues accelerated in 2Q2020 (ended November 2019).
  • The operating margin turned to 3% in 2Q2020 versus -5% in 2Q2019.
  • The classroom-based business grew more rapidly than the online business and EDU has been utilizing learning centers more efficiently.
  • We believe, in fiscal 2020 (ended May 2020), total revenues will grow 29% and the operating margin will improve to 14% versus 10% in F2019.
  • The P/E band suggests an upside of 23%.

Our previous coverage on New Oriental:

2. IndusInd Bank – NPL Formation Doubling

Image 71944491231579514748432

Indusind Bank (IIB IN) is one of India’s fastest growing financials. This means that it has higher unseasoned loans than many. Where this occurs alongside weak or deteriorating economic conditions, it can see higher NPL formation. The numbers just out, are illustrative of how this can look. Our emphasis herein is on Pillar 3 detail of NPLs and also credit costs, but for an intriguing read of questionable accounting and disclosure, we refer to Hemindra Hazari‘s report IndusInd Bank’s Charge on Shareholder Funds: Obscurity Is the Best Policy?.

3. RHB Bank – Quiet Transformation

Image 16387586551579140765536

RHB Bank Bhd (RHBBANK MK) used to be far more focused on corporate loans and this has changed dramatically over the years, in favor of consumer loans and SME loans. The bank’s transformation is also evident in its digitalization program, which may be easier for a medium-sized, well-managed bank to affect, than for large banks or less able small banks. The result of the bank’s strategic shift is evident in many facets, including ROA and ROE. But we believe there is more to come. Better credit metrics than most is also a stand out feature, as is the RHB’s relatively low market capitalization level compared with assets.

4. TSMC. Setting The Stage For Record Growth In 2020 And Beyond

Screen%20shot%202020 01 20%20at%2010.55.18%20am

TSMC kicked off earnings season with a bang, racking up their highest ever quarterly revenues and closing out 2019 with the company’s highest ever annual CapEx spending. Expecting semi sales, excluding memory, to grow by 8% in 2020, they forecasted that foundry will grow by 17% and that TSMC will grow even more than that

During what was a strongly upbeat earnings call, they shrugged off concerns about geopolitics, lingering trade wars and even the threat of further changes to the US Export Administration Regulations (EAR) de minimis rules. Here’s a look in detail at what TSMC had to say. 

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Brief Growth Ideas: WeWork: Softbank Details Imply Slowing Top Line Growth and $1bn+ in Losses and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. WeWork: Softbank Details Imply Slowing Top Line Growth and $1bn+ in Losses
  2. Orica Placement – Not a Game Changer but past Deals Did Well
  3. BEM: Leading Mass Transit Operator Is About to Get Huge
  4. Intesa SanPaolo Swoops on UBI for a Win-Win Deal
  5. AP Moller Maersk (MAERSKb): Assessing the Stock Price Development

1. WeWork: Softbank Details Imply Slowing Top Line Growth and $1bn+ in Losses

Ww%20impact%20q3

According to Softbank (indirectly), WeWork revenue growth continues to slow and losses to expand. We did not get any detailed financial data this quarter but its announcement of financial targets and a breakdown of WeWork’s impact on Softbank Q3 numbers give us enough to get a rough idea. The magnitude of near-term losses does explain why conversions for most recent investments/contribution of joint venture stakes and the tender offer for the minority shareholders don’t kick until April when (presumably) the situation has stabilised. Meanwhile, it also The appears the fair value for equity has declined from $7.8bn at Q2 (Sep) to $7.3bn as of December.

2. Orica Placement – Not a Game Changer but past Deals Did Well

Image 99375195031582077997867

Orica Ltd (ORI AU) is looking to raise US$334m in its placement to acquire Exsa.

The acquisition of Exsa does not look like a game changer, at least in the near term. It will not be EPS accretive in the first full year of ownership. Its past deals (albeit a long time ago), have consistently been positive over the past one week.

3. BEM: Leading Mass Transit Operator Is About to Get Huge

Bem%20story%209

We initiate coverage of BEM with a HOLD rating, based on a target price of Bt11.70 derived from a sum-of-the-parts methodology, which implies 45xPE’20E, or a 10% premium to the Thailand transportation sector

The story:

• Extensive transportation network in metropolitan areas
• Growth phase for MRT is just around the corner
• Upside from Orange and South Purple MRT lines
• Steady cash flow from toll businesses
• Plenty of opportunities for commercial development business
• Potential upside from airport-linked fast track 

Risks:  Concession termination, interest rate fluctuation and legal disputes

4. Intesa SanPaolo Swoops on UBI for a Win-Win Deal

Screenshot%202020 02 18%20at%209.51.49%20pm

Intesa Sanpaolo (ISP IM) today announced one of the largest and certainly one of the boldest bank takeovers in Europe in the past ten years in an all-share deal for Unione Di Banche Italiane (UBI IM), Italy’s 5th largest lender and probably the strongest among the second tier.

The thing is, it’s hostile/unsolicited.

And it’s all shares – which is relatively unusual – executed through a Voluntary Public Exchange Offer.

Various media are reporting that the deal was launched without informing UBI’s board, on the day after UBI presented its 2022 Strategic Plan (which among other things included cutting 2000+ jobs, the closure of 175 branches in the next three years, and a plan for a 40% payout ratio). 

The announcement by Intesa Sanpaolo is laudatory of UBI:

Intesa Sanpaolo considers UBI Banca amongst the best Italian banks. UBI Banca has local entrenchment in the most dynamic regions of the country, enjoys outstanding results that have been achieved thanks to the excellent job of both its CEO and its management team, and has a sound Business Plan. All this can continue to be achieved and be indeed further enhanced in the combined Group. UBI Banca stands out for its similarities with Intesa Sanpaolo, specifically as regards the business model and the corporate values – many UBI Banca managers have had previous job experience at the Intesa Sanpaolo Group. In view of the shared corporate values in terms of sustainability and inclusion and social and environmental responsibility, a new unit of the combined Group’s Impact Bank will be based in Brescia and in Bergamo. The presence of the large number of Italian shareholders of UBI Banca, specifically the foundations, among the shareholders of the combined Group would reinforce the shared values, including in terms of shareholder base.

The Intesa announcement is here, and the UBI 2022 Strategic Plan is here.

Early days, and UBI is trading 5% through terms almost immediately, on what could be short-covering given the declared shorts in the name. 

More discussion below.

5. AP Moller Maersk (MAERSKb): Assessing the Stock Price Development

4

While the market was looking brighter in the latter half of 2019, when most of the liner companies posted profits, it has taken a U-turn since then. Stocks have been on a downwards trajectory since the beginning of 2020 amid the war rhetoric between the US and Iran in January and the negative news of the virus thereafter. In the short term, we expect volatility in liner company stock prices as the news flow surrounding the virus ebbs and flows; this also encourages investors to take positions in companies, including APMM which offers a favourable risk-reward.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Growth Ideas: IndusInd Bank – NPL Formation Doubling and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. IndusInd Bank – NPL Formation Doubling
  2. RHB Bank – Quiet Transformation
  3. TSMC. Setting The Stage For Record Growth In 2020 And Beyond
  4. Nippon Prologis REIT Placement: DPU Accretive Despite Lower NOI Yield than past Deals

1. IndusInd Bank – NPL Formation Doubling

Image 71944491231579514748432

Indusind Bank (IIB IN) is one of India’s fastest growing financials. This means that it has higher unseasoned loans than many. Where this occurs alongside weak or deteriorating economic conditions, it can see higher NPL formation. The numbers just out, are illustrative of how this can look. Our emphasis herein is on Pillar 3 detail of NPLs and also credit costs, but for an intriguing read of questionable accounting and disclosure, we refer to Hemindra Hazari‘s report IndusInd Bank’s Charge on Shareholder Funds: Obscurity Is the Best Policy?.

2. RHB Bank – Quiet Transformation

Image 16387586551579140765536

RHB Bank Bhd (RHBBANK MK) used to be far more focused on corporate loans and this has changed dramatically over the years, in favor of consumer loans and SME loans. The bank’s transformation is also evident in its digitalization program, which may be easier for a medium-sized, well-managed bank to affect, than for large banks or less able small banks. The result of the bank’s strategic shift is evident in many facets, including ROA and ROE. But we believe there is more to come. Better credit metrics than most is also a stand out feature, as is the RHB’s relatively low market capitalization level compared with assets.

3. TSMC. Setting The Stage For Record Growth In 2020 And Beyond

Screen%20shot%202020 01 20%20at%2010.55.18%20am

TSMC kicked off earnings season with a bang, racking up their highest ever quarterly revenues and closing out 2019 with the company’s highest ever annual CapEx spending. Expecting semi sales, excluding memory, to grow by 8% in 2020, they forecasted that foundry will grow by 17% and that TSMC will grow even more than that

During what was a strongly upbeat earnings call, they shrugged off concerns about geopolitics, lingering trade wars and even the threat of further changes to the US Export Administration Regulations (EAR) de minimis rules. Here’s a look in detail at what TSMC had to say. 

4. Nippon Prologis REIT Placement: DPU Accretive Despite Lower NOI Yield than past Deals

Image 36142831321579491313331

Nippon Prologis Reit (3283 JP) announced a placement to raise up to USD 277 million, together with its financial results for the 14th fiscal period. We have previously covered NPR’s placements in:

The deal is DPU accretive and it scores well on most aspects of our framework despite an expensive valuation.

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Brief Growth Ideas: Luckin Coffee (LK) On the Ground: Lost Residential and Office Consumers Due to Epidemic and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. Luckin Coffee (LK) On the Ground: Lost Residential and Office Consumers Due to Epidemic
  2. Shanghai International Airport (600009 CH): Best of the Breed
  3. Coles Placement – Selldown from Wesfarmers Expected but Discount Is Narrow at the Top
  4. HSBC – Move Along, There’s Nothing To See Here
  5. Philips to Divest Domestic Appliances Business – Potential for Margin Expansion

1. Luckin Coffee (LK) On the Ground: Lost Residential and Office Consumers Due to Epidemic

Image?1582013051

  • LK has lost office consumers, as very few employees are in their offices.
  • LK also lost resident consumers, as delivery men cannot enter communities.
  • We believe LK can hardly survive the epidemic.

Our previous coverage on Luckin Coffee:

2. Shanghai International Airport (600009 CH): Best of the Breed

Price%20performance

We regard Shanghai International Airport Co, Ltd. (600009 CH) (SIAC) as the best airport play in China when compared with its peers like Beijing Capital International Airport (BCIA) (694 HK) and Guangzhou Baiyun International Airport (600004 CH) given its strong competitive position, its exposure to international traffic growth in the long term and growth in non-aeronautical revenue. 

Despite its premium P/B valuation, SIAC has a better ROE and stronger profit outlook. We think this justifies the stock’s higher P/B valuation than BCIA. In earnings terms, however, it is the least expensive amongst its peers on FY21 PER. Its high international exposure may be clouded by the Novel Coronavirus Pnemonia (NCP) outbreak, but we expect SIAC to be best positioned for the revival in international traffic over the long term. 

3. Coles Placement – Selldown from Wesfarmers Expected but Discount Is Narrow at the Top

Image 50147640101582012436632

Wesfarmers Ltd (WES AU) is looking to sell 65.4m shares in Coles Group Ltd (COL AU). Post selldown, Wesfarners will still have about 10.1% stake in Coles.

The deal scores well on our framework owing to good short-term momentum, relatively better leverage than peers. However, the deal size is large, representing about 21 days of three-month ADV. 

4. HSBC – Move Along, There’s Nothing To See Here

Image 83167007521582006533645

It was 20 years ago that HSBC Holdings (5 HK) bought CCF in France. The conservative Scottish lender paid USD10.6bn for the French bank that had shareholders’ equity of USD3.2bn in 1999. Perhaps this was another poor purchase, at an inflated price? We all know the more fabled story of Household International, which become HSBC Finance, and forever changed the face of HSBC Holdings. The results just out once again show how past poor decisions are not always historical events. HSBC recorded a USD7.3bn goodwill impairment charge for Europe, causing a loss during 4Q19.

5. Philips to Divest Domestic Appliances Business – Potential for Margin Expansion

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  • Dutch health technology company, Philips during its 4Q2019 results release, announced that it will be reviewing options for future ownership of its Domestic Appliance business.
  • The domestic appliance business is engaged in the sale of coffee machines, air purifiers and air fryers and the company has booked the domestic appliance business under its Personal Health Segment.
  • Philips has a long history of business restructuring where it previously divested/spun-off its semiconductor, TVs and lighting businesses in order to narrow down its focus on healthcare equipment and personal health products.
  • In this insight, we take a look at the company’s Domestic Appliance business, potential valuation and the impact on Philips’ revenue and margins.

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Brief Growth Ideas: Orica Placement – Not a Game Changer but past Deals Did Well and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. Orica Placement – Not a Game Changer but past Deals Did Well
  2. BEM: Leading Mass Transit Operator Is About to Get Huge
  3. Intesa SanPaolo Swoops on UBI for a Win-Win Deal
  4. AP Moller Maersk (MAERSKb): Assessing the Stock Price Development
  5. HDFC AMC

1. Orica Placement – Not a Game Changer but past Deals Did Well

Image 88287894361582079977164

Orica Ltd (ORI AU) is looking to raise US$334m in its placement to acquire Exsa.

The acquisition of Exsa does not look like a game changer, at least in the near term. It will not be EPS accretive in the first full year of ownership. Its past deals (albeit a long time ago), have consistently been positive over the past one week.

2. BEM: Leading Mass Transit Operator Is About to Get Huge

Bem%20story%202

We initiate coverage of BEM with a HOLD rating, based on a target price of Bt11.70 derived from a sum-of-the-parts methodology, which implies 45xPE’20E, or a 10% premium to the Thailand transportation sector

The story:

• Extensive transportation network in metropolitan areas
• Growth phase for MRT is just around the corner
• Upside from Orange and South Purple MRT lines
• Steady cash flow from toll businesses
• Plenty of opportunities for commercial development business
• Potential upside from airport-linked fast track 

Risks:  Concession termination, interest rate fluctuation and legal disputes

3. Intesa SanPaolo Swoops on UBI for a Win-Win Deal

Screenshot%202020 02 18%20at%209.51.49%20pm

Intesa Sanpaolo (ISP IM) today announced one of the largest and certainly one of the boldest bank takeovers in Europe in the past ten years in an all-share deal for Unione Di Banche Italiane (UBI IM), Italy’s 5th largest lender and probably the strongest among the second tier.

The thing is, it’s hostile/unsolicited.

And it’s all shares – which is relatively unusual – executed through a Voluntary Public Exchange Offer.

Various media are reporting that the deal was launched without informing UBI’s board, on the day after UBI presented its 2022 Strategic Plan (which among other things included cutting 2000+ jobs, the closure of 175 branches in the next three years, and a plan for a 40% payout ratio). 

The announcement by Intesa Sanpaolo is laudatory of UBI:

Intesa Sanpaolo considers UBI Banca amongst the best Italian banks. UBI Banca has local entrenchment in the most dynamic regions of the country, enjoys outstanding results that have been achieved thanks to the excellent job of both its CEO and its management team, and has a sound Business Plan. All this can continue to be achieved and be indeed further enhanced in the combined Group. UBI Banca stands out for its similarities with Intesa Sanpaolo, specifically as regards the business model and the corporate values – many UBI Banca managers have had previous job experience at the Intesa Sanpaolo Group. In view of the shared corporate values in terms of sustainability and inclusion and social and environmental responsibility, a new unit of the combined Group’s Impact Bank will be based in Brescia and in Bergamo. The presence of the large number of Italian shareholders of UBI Banca, specifically the foundations, among the shareholders of the combined Group would reinforce the shared values, including in terms of shareholder base.

The Intesa announcement is here, and the UBI 2022 Strategic Plan is here.

Early days, and UBI is trading 5% through terms almost immediately, on what could be short-covering given the declared shorts in the name. 

More discussion below.

4. AP Moller Maersk (MAERSKb): Assessing the Stock Price Development

3

While the market was looking brighter in the latter half of 2019, when most of the liner companies posted profits, it has taken a U-turn since then. Stocks have been on a downwards trajectory since the beginning of 2020 amid the war rhetoric between the US and Iran in January and the negative news of the virus thereafter. In the short term, we expect volatility in liner company stock prices as the news flow surrounding the virus ebbs and flows; this also encourages investors to take positions in companies, including APMM which offers a favourable risk-reward.

5. HDFC AMC

Image 752032350131582006361576

HDFC Asset Management Co Ltd (HDFCAMC IN)  is our preferred Asset Management play in spite of rich valuations thanks to the HDFC Parentage. With a focus on Individual Investor, HDFC AMC has carved out a unique space in the asset management industry, which offers substantial revenue visibility backed with strong industry tailwinds. 

A strong fund management team, high market share in B30 cities, and growth in preference for Equity as an asset class by individual investors are some of the key catalysts which could help maintain AAUM Growth.

Our Target Price based on 45x FY21 EPS works out INR 3,334.50 offering a mere 3% return over the previous close of INR 3,244. Investors with a short term horizon will be better off waiting for an attractive entry point that can provide a more attractive return.

However, the HDFC Parentage and strong structural tailwinds in the Industry keep us bullish on this stock. 

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Brief Growth Ideas: BEM: Leading Mass Transit Operator Is About to Get Huge and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. BEM: Leading Mass Transit Operator Is About to Get Huge
  2. Intesa SanPaolo Swoops on UBI for a Win-Win Deal
  3. AP Moller Maersk (MAERSKb): Assessing the Stock Price Development
  4. HDFC AMC
  5. Luckin Coffee (LK) On the Ground: Lost Residential and Office Consumers Due to Epidemic

1. BEM: Leading Mass Transit Operator Is About to Get Huge

Bem%20story%206

We initiate coverage of BEM with a HOLD rating, based on a target price of Bt11.70 derived from a sum-of-the-parts methodology, which implies 45xPE’20E, or a 10% premium to the Thailand transportation sector

The story:

• Extensive transportation network in metropolitan areas
• Growth phase for MRT is just around the corner
• Upside from Orange and South Purple MRT lines
• Steady cash flow from toll businesses
• Plenty of opportunities for commercial development business
• Potential upside from airport-linked fast track 

Risks:  Concession termination, interest rate fluctuation and legal disputes

2. Intesa SanPaolo Swoops on UBI for a Win-Win Deal

Screenshot%202020 02 18%20at%208.55.44%20pm

Intesa Sanpaolo (ISP IM) today announced one of the largest and certainly one of the boldest bank takeovers in Europe in the past ten years in an all-share deal for Unione Di Banche Italiane (UBI IM), Italy’s 5th largest lender and probably the strongest among the second tier.

The thing is, it’s hostile/unsolicited.

And it’s all shares – which is relatively unusual – executed through a Voluntary Public Exchange Offer.

Various media are reporting that the deal was launched without informing UBI’s board, on the day after UBI presented its 2022 Strategic Plan (which among other things included cutting 2000+ jobs, the closure of 175 branches in the next three years, and a plan for a 40% payout ratio). 

The announcement by Intesa Sanpaolo is laudatory of UBI:

Intesa Sanpaolo considers UBI Banca amongst the best Italian banks. UBI Banca has local entrenchment in the most dynamic regions of the country, enjoys outstanding results that have been achieved thanks to the excellent job of both its CEO and its management team, and has a sound Business Plan. All this can continue to be achieved and be indeed further enhanced in the combined Group. UBI Banca stands out for its similarities with Intesa Sanpaolo, specifically as regards the business model and the corporate values – many UBI Banca managers have had previous job experience at the Intesa Sanpaolo Group. In view of the shared corporate values in terms of sustainability and inclusion and social and environmental responsibility, a new unit of the combined Group’s Impact Bank will be based in Brescia and in Bergamo. The presence of the large number of Italian shareholders of UBI Banca, specifically the foundations, among the shareholders of the combined Group would reinforce the shared values, including in terms of shareholder base.

The Intesa announcement is here, and the UBI 2022 Strategic Plan is here.

Early days, and UBI is trading 5% through terms almost immediately, on what could be short-covering given the declared shorts in the name. 

More discussion below.

3. AP Moller Maersk (MAERSKb): Assessing the Stock Price Development

2

While the market was looking brighter in the latter half of 2019, when most of the liner companies posted profits, it has taken a U-turn since then. Stocks have been on a downwards trajectory since the beginning of 2020 amid the war rhetoric between the US and Iran in January and the negative news of the virus thereafter. In the short term, we expect volatility in liner company stock prices as the news flow surrounding the virus ebbs and flows; this also encourages investors to take positions in companies, including APMM which offers a favourable risk-reward.

4. HDFC AMC

Image 958797691111582006215660

HDFC Asset Management Co Ltd (HDFCAMC IN)  is our preferred Asset Management play in spite of rich valuations thanks to the HDFC Parentage. With a focus on Individual Investor, HDFC AMC has carved out a unique space in the asset management industry, which offers substantial revenue visibility backed with strong industry tailwinds. 

A strong fund management team, high market share in B30 cities, and growth in preference for Equity as an asset class by individual investors are some of the key catalysts which could help maintain AAUM Growth.

Our Target Price based on 45x FY21 EPS works out INR 3,334.50 offering a mere 3% return over the previous close of INR 3,244. Investors with a short term horizon will be better off waiting for an attractive entry point that can provide a more attractive return.

However, the HDFC Parentage and strong structural tailwinds in the Industry keep us bullish on this stock. 

5. Luckin Coffee (LK) On the Ground: Lost Residential and Office Consumers Due to Epidemic

Image?1582013049

  • LK has lost office consumers, as very few employees are in their offices.
  • LK also lost resident consumers, as delivery men cannot enter communities.
  • We believe LK can hardly survive the epidemic.

Our previous coverage on Luckin Coffee:

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Growth Ideas: RHB Bank – Quiet Transformation and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. RHB Bank – Quiet Transformation
  2. TSMC. Setting The Stage For Record Growth In 2020 And Beyond
  3. Nippon Prologis REIT Placement: DPU Accretive Despite Lower NOI Yield than past Deals
  4. China Internet Weekly (20Jan2020): 18,000 Game Developers Bankrupt, PDD Sued in 1,765 Lawsuits

1. RHB Bank – Quiet Transformation

Image 16387586551579140765536

RHB Bank Bhd (RHBBANK MK) used to be far more focused on corporate loans and this has changed dramatically over the years, in favor of consumer loans and SME loans. The bank’s transformation is also evident in its digitalization program, which may be easier for a medium-sized, well-managed bank to affect, than for large banks or less able small banks. The result of the bank’s strategic shift is evident in many facets, including ROA and ROE. But we believe there is more to come. Better credit metrics than most is also a stand out feature, as is the RHB’s relatively low market capitalization level compared with assets.

2. TSMC. Setting The Stage For Record Growth In 2020 And Beyond

Screen%20shot%202020 01 20%20at%2010.55.18%20am

TSMC kicked off earnings season with a bang, racking up their highest ever quarterly revenues and closing out 2019 with the company’s highest ever annual CapEx spending. Expecting semi sales, excluding memory, to grow by 8% in 2020, they forecasted that foundry will grow by 17% and that TSMC will grow even more than that

During what was a strongly upbeat earnings call, they shrugged off concerns about geopolitics, lingering trade wars and even the threat of further changes to the US Export Administration Regulations (EAR) de minimis rules. Here’s a look in detail at what TSMC had to say. 

3. Nippon Prologis REIT Placement: DPU Accretive Despite Lower NOI Yield than past Deals

Image 36142831321579491313331

Nippon Prologis Reit (3283 JP) announced a placement to raise up to USD 277 million, together with its financial results for the 14th fiscal period. We have previously covered NPR’s placements in:

The deal is DPU accretive and it scores well on most aspects of our framework despite an expensive valuation.

4. China Internet Weekly (20Jan2020): 18,000 Game Developers Bankrupt, PDD Sued in 1,765 Lawsuits

Image 98273767621579395100706

The Weekly will be suspended for two weeks and be back on February 10, as normally Chinese authorities and companies do not release significant news during the Chinese New Year. The news we can expect is that three tutoring companies will release their quarterly results on January 20th and 21st. They are TAL Education, New Oriental (EDU), and EDU’s subsidiary Koolearn (1797 HK). 

Ratings of our coverage in China:

  • Buy: Alibaba (BABA), Tencent (700 HK), JD.com (JD), Meituan (3690), TAL Education (TAL), New Oriental (EDU).
  • Hold: Ctrip.com (CTRP), Autohome (HTHM), 58.com (WUBA), NetEase (NTES)
  • Sell: Tencent Music (TME), Baidu (BIDU), Weibo (WB), Pinduoduo (PDD)

You are currently reading Executive Summaries of Smartkarma Insights.

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Brief Growth Ideas: TSMC. Setting The Stage For Record Growth In 2020 And Beyond and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. TSMC. Setting The Stage For Record Growth In 2020 And Beyond
  2. Nippon Prologis REIT Placement: DPU Accretive Despite Lower NOI Yield than past Deals
  3. China Internet Weekly (20Jan2020): 18,000 Game Developers Bankrupt, PDD Sued in 1,765 Lawsuits
  4. JUUL’s Demise to Drive Japan Tobacco’s E-Vapor & T-Vapor Growth & Ensures Long Term Survival

1. TSMC. Setting The Stage For Record Growth In 2020 And Beyond

Screen%20shot%202020 01 20%20at%2010.55.18%20am

TSMC kicked off earnings season with a bang, racking up their highest ever quarterly revenues and closing out 2019 with the company’s highest ever annual CapEx spending. Expecting semi sales, excluding memory, to grow by 8% in 2020, they forecasted that foundry will grow by 17% and that TSMC will grow even more than that

During what was a strongly upbeat earnings call, they shrugged off concerns about geopolitics, lingering trade wars and even the threat of further changes to the US Export Administration Regulations (EAR) de minimis rules. Here’s a look in detail at what TSMC had to say. 

2. Nippon Prologis REIT Placement: DPU Accretive Despite Lower NOI Yield than past Deals

Image 36142831321579491313331

Nippon Prologis Reit (3283 JP) announced a placement to raise up to USD 277 million, together with its financial results for the 14th fiscal period. We have previously covered NPR’s placements in:

The deal is DPU accretive and it scores well on most aspects of our framework despite an expensive valuation.

3. China Internet Weekly (20Jan2020): 18,000 Game Developers Bankrupt, PDD Sued in 1,765 Lawsuits

Image 98273767621579395100706

The Weekly will be suspended for two weeks and be back on February 10, as normally Chinese authorities and companies do not release significant news during the Chinese New Year. The news we can expect is that three tutoring companies will release their quarterly results on January 20th and 21st. They are TAL Education, New Oriental (EDU), and EDU’s subsidiary Koolearn (1797 HK). 

Ratings of our coverage in China:

  • Buy: Alibaba (BABA), Tencent (700 HK), JD.com (JD), Meituan (3690), TAL Education (TAL), New Oriental (EDU).
  • Hold: Ctrip.com (CTRP), Autohome (HTHM), 58.com (WUBA), NetEase (NTES)
  • Sell: Tencent Music (TME), Baidu (BIDU), Weibo (WB), Pinduoduo (PDD)

4. JUUL’s Demise to Drive Japan Tobacco’s E-Vapor & T-Vapor Growth & Ensures Long Term Survival

Image 87844444021579484687575

    • As youth vaping became a trend and the term “Juuling” became a part of American high school life, Juul became the most popular e-cigarette in the US with over 70% market share.
    • JUUL Labs, the producer of Juul, is an American e-cigarette company with over $2.0bn in revenue.
    • The success of Juul in the e-cigaratte market even attracted the interest of Altria, who sells Marlboro and many other cigarette brands in the US.
    • Altria acquired a 35% stake in Juul Labs for $12.8bn on December 20, 2018, giving Juul Labs a valuation of more than $36.0bn
    • Juul Labs and Altria’s honeymoon was over even before it started as adults, health and safety organisations and politicians became increasingly concerned about the “Juuling” epidemic within teenagers in the US.
    • According to the company, Juul is about giving adult smokers a less harmful alternative to cigarettes. It also insists that it never marketed or knowingly sold its trendy e-cigarettes and flavoured nicotine pods to teenagers. But in reality, Juul was never about helping the adult smokers as it turned a blind eye as to who is purchasing its e-cigarettes and nicotine pods.
    • Since Juul Labs ignored the fact that Juul and teenage vaping has become an epidemic, its success was short lived. The company is now buried under a mountain of investigations, subpoenas and lawsuits.
    • Towards the end of last year, Juul announced that it will cut 650 jobs, freeze hiring and stop broadcast, print and digital advertising for its products. These initiatives are expected to save around $1.0bn of costs in 2020.
    • Under these circumstances, Juul’s valuation was cut 35% by Altria and certain unidentified sources suggest that Juul itself has decreased the valuation to $24.0bn. The initial investors such as Tiger Global and Fidelity Investments have also decreased their valuations of the company by more than 50%. ($19.0bn and $16.4bn respectively).
    • Now, Juul is kept on a short leash by the US regulatory bodies and as a result it had to suspend sales of its non-tobacco, non-menthol-based flavours in the US.
    • Amidst these bans, Juul was pushing to enter new markets in Europe, the Middle East, Africa, South America and Asia.
    • However, it was reported last week that Juul was pulling back from overseas expansion and we believe Juul’s troubles in the US market plays into the hands of other vaping brands such as Japan Tobacco’s Logic and Ploom.

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Brief Growth Ideas: Apple Supplier Foxconn to Make Electric Cars Jointly with Fiat Chrysler and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. Apple Supplier Foxconn to Make Electric Cars Jointly with Fiat Chrysler

1. Apple Supplier Foxconn to Make Electric Cars Jointly with Fiat Chrysler

Image 51634407431579455789754

  • It was reported by several news media outlets including the Nikkei on Friday (17th January) that Apple supplier Foxconn and Fiat Chrysler (FCA) are setting up a joint venture to manufacture electric vehicles.
  • FCA will hold 50% of the JV while Foxconn’s share will not exceed more than 40% (some sources say Foxconn will own 40% directly and 10% indirectly) and the contract is expected to be signed during 1Q2020.
  • The JV will initially focus on manufacturing electric vehicles in China for the Chinese market, while the venture will explore exporting EVs to foreign markets eventually. At the same time, the venture will also focus on the internet of vehicles.
  • According to Nikkei, FCA will be in charge of the car making while Foxconn will offer its electronics know-how including hardware and software.
  • The operation of Foxconn’s EV business will be overseen by group subsidiaries FIT Hon Teng, which makes automobile components and FIH Mobile, responsible for Foxconn’s Android smartphone assembly arm.
  • According to Foxconn, FIH Mobile will offer software solutions for automotive systems in electric cars.

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Brief Growth Ideas: Apple Supplier Foxconn to Make Electric Cars Jointly with Fiat Chrysler and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. Apple Supplier Foxconn to Make Electric Cars Jointly with Fiat Chrysler
  2. China Phase 1 – Dumb Deal

1. Apple Supplier Foxconn to Make Electric Cars Jointly with Fiat Chrysler

Image 51634407431579455789754

  • It was reported by several news media outlets including the Nikkei on Friday (17th January) that Apple supplier Foxconn and Fiat Chrysler (FCA) are setting up a joint venture to manufacture electric vehicles.
  • FCA will hold 50% of the JV while Foxconn’s share will not exceed more than 40% (some sources say Foxconn will own 40% directly and 10% indirectly) and the contract is expected to be signed during 1Q2020.
  • The JV will initially focus on manufacturing electric vehicles in China for the Chinese market, while the venture will explore exporting EVs to foreign markets eventually. At the same time, the venture will also focus on the internet of vehicles.
  • According to Nikkei, FCA will be in charge of the car making while Foxconn will offer its electronics know-how including hardware and software.
  • The operation of Foxconn’s EV business will be overseen by group subsidiaries FIT Hon Teng, which makes automobile components and FIH Mobile, responsible for Foxconn’s Android smartphone assembly arm.
  • According to Foxconn, FIH Mobile will offer software solutions for automotive systems in electric cars.

2. China Phase 1 – Dumb Deal

  • Not So Fast:  Mainland China is NOT reducing tariffs on USD 138 bn of existing US imports at rates of 5%-25%, and will only suspend new tariffs. The exchange rate of CNY/USD remains at 7 and is weakening and more than offsets the existing tariffs on mainland Chinese goods.
  • Pie In the Sky:Under Phase 2, the US is demanding mainland China address SOE subsidies, cyber attacks, cross-border data flows, et al.   
  • Sentiment Positive:As for the markets, the draft agreement is a positive for sentiment to the extent this convinces businesses to invest. 

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