Growth Ideas

In this briefing:

1. Bilibili Placement: Momentum Bodes Well
2. Map Aktif Follow-On Offering – Lace up for a Potential Long Run
3. Pan Pacific/Don Quijote: Bringing Joy into Shopping
4. Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars
5. Last Week in GER Research: Lyft, Rakuten, Lynas, Yunji IPO, Xinyi IPO and Ruhnn IPO

1. Bilibili Placement: Momentum Bodes Well

Bilibili announced a USD 300 million share placement and a USD 300 million convertible note placement after market close on Monday. This is the first major placement since Bilibili’s IPO in March 2018. In this insight, we will provide our thoughts on the deal and score the deal in our ECM Framework. 

2. Map Aktif Follow-On Offering – Lace up for a Potential Long Run

CVC is looking to raise about US$353m through the sale of about 648m Map Aktif Adiperkasa PT (MAPA IJ) shares in the follow-on offering.

Map Aktif (MAPA) is a sports, leisure, and kids retailer in Indonesia. It is a subsidiary of Mitra Adiperkasa (MAPI IJ).  The selldown might not be totally unexpected as CVC planned to exit its investment by 2020. However, post this selldown it will still have 192m share left.

3. Pan Pacific/Don Quijote: Bringing Joy into Shopping

• Japanese Retail is in a secular decline: There are areas in retail that are worse affected than the rest
• Falling foot traffic: The biggest problem for Japanese retail
• Don Quijote’s recent history and growth potential
• Attracting shoppers from multiple store formats helps Don Quijote to expand its target market
• Don Quijote is least affected from slowdown in Chinese tourist spending
• FamilyMart UNY store conversions to contribute to revenue and EBIT growth over the next five years
• New store openings to cap at 25 per year because of UNY store conversions
• Valuation: Market unjustly penalized Don Quijote for the UNY acquisition
• Change in retail landscape to help make Don Quijote the “DON” in Japanese retail

4. Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars

While we have been sceptical about Mercari Inc (4385 JP)‘s efforts in the US, we have always appreciated the domestic business and have only been put off by the rather demanding multiples. After speaking to the company, we continue to like the domestic business and feel that recent initiatives to broaden the user base are likely to be successful. In addition, while we still feel that there are numerous question marks about whether the business model can work in the US, we have come around to a more positive view on the company’s execution there. Lastly, we believe Merpay’s edge in the cashless wars is underappreciated and the fall in the share price is starting to make the stock attractive.

We discuss the details below.

5. Last Week in GER Research: Lyft, Rakuten, Lynas, Yunji IPO, Xinyi IPO and Ruhnn IPO

Below is a recap of the key analysis produced by the Global Equity Research team. This week, we update on Lyft Inc (LYFT US) now that it is below its IPO price and remind of the potentially muted impact for strategic holder Rakuten Inc (4755 JP). On the M&A front, Arun digs into the conditional deal for Lynas Corp Ltd (LYC AU) from Wesfarmers Ltd (WES AU). With regards to IPO research, we initiate on e-commerce player Yunji Inc. (YJ US) and solar company Xinyi Energy Holdings Ltd (1671746D HK) while we update on the IPO valuation of Ruhnn Holding Ltd (RUHN US). 

In addition, we have provided an updated calendar of upcoming catalysts for EVENT driven names below. 

Best of luck for the new week – Arun, Venkat and Rickin

In this briefing:

1. Lyft IPO Preview: Maybe We’ll Just Walk?
2. Receding Political Gains to the Ruling Party, Possible Threat to the Markets

1. Lyft IPO Preview: Maybe We’ll Just Walk?

Lyft Inc (0812823D US) , a leading ride-sharing company, released its IPO prospectus in order to raise 3bn USD. Our key points are below 

Intro to Lyft

Lyft – a comparison vs. peers

Strengths and Weaknesses

Financials

2. Receding Political Gains to the Ruling Party, Possible Threat to the Markets

Post the downing of the Indian Air Force (IAF) MIG-21 by Pakistan over its territory and the capture and subsequent return of the pilot, the narrative which was strongly in favour of Narendra  Modi and the ruling Bharatiya Janata Party (BJP) rapidly spiralled downwards. Whether the Pakistan Air Force (PAF) entered Indian air space to deliberately attack Indian targets and was driven back, or it was a lure to ambush the IAF aircraft over Pakistani airspace, is not yet clear, but the stark acknowledgement that the IAF MIG-21 had been downed and the pilot captured, and  a video of his capture and  interrogation broadcasted on social media, were setbacks to the Indian government and its military. Although the Indian government claimed that a PAF F-16 was brought down (although some Indian defense commentators are stating that this is evidence of the downed PAF F-16), Pakistan is denying any loss of its aircraft.

If the market was banking on a decisive Modi victory in the 2019 national elections in the immediate aftermath of the IAF strike on Bagalkot that has been dissipated with the capture and return of the IAF pilot. Unless another such event arises (or is generated), the outcome of the national elections in India will be determined by political alliances and the socio-economic conditions of the electorate; national security concerns may play a secondary role

In this briefing:

1. Map Aktif Follow-On Offering – Lace up for a Potential Long Run
2. Pan Pacific/Don Quijote: Bringing Joy into Shopping
3. Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars
4. Last Week in GER Research: Lyft, Rakuten, Lynas, Yunji IPO, Xinyi IPO and Ruhnn IPO
5. Notes from the Silk Road: Xtep Int’l Holdings (1368 HK): Time to Run (Away) For Now

1. Map Aktif Follow-On Offering – Lace up for a Potential Long Run

CVC is looking to raise about US$353m through the sale of about 648m Map Aktif Adiperkasa PT (MAPA IJ) shares in the follow-on offering.

Map Aktif (MAPA) is a sports, leisure, and kids retailer in Indonesia. It is a subsidiary of Mitra Adiperkasa (MAPI IJ).  The selldown might not be totally unexpected as CVC planned to exit its investment by 2020. However, post this selldown it will still have 192m share left.

2. Pan Pacific/Don Quijote: Bringing Joy into Shopping

• Japanese Retail is in a secular decline: There are areas in retail that are worse affected than the rest
• Falling foot traffic: The biggest problem for Japanese retail
• Don Quijote’s recent history and growth potential
• Attracting shoppers from multiple store formats helps Don Quijote to expand its target market
• Don Quijote is least affected from slowdown in Chinese tourist spending
• FamilyMart UNY store conversions to contribute to revenue and EBIT growth over the next five years
• New store openings to cap at 25 per year because of UNY store conversions
• Valuation: Market unjustly penalized Don Quijote for the UNY acquisition
• Change in retail landscape to help make Don Quijote the “DON” in Japanese retail

3. Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars

While we have been sceptical about Mercari Inc (4385 JP)‘s efforts in the US, we have always appreciated the domestic business and have only been put off by the rather demanding multiples. After speaking to the company, we continue to like the domestic business and feel that recent initiatives to broaden the user base are likely to be successful. In addition, while we still feel that there are numerous question marks about whether the business model can work in the US, we have come around to a more positive view on the company’s execution there. Lastly, we believe Merpay’s edge in the cashless wars is underappreciated and the fall in the share price is starting to make the stock attractive.

We discuss the details below.

4. Last Week in GER Research: Lyft, Rakuten, Lynas, Yunji IPO, Xinyi IPO and Ruhnn IPO

Below is a recap of the key analysis produced by the Global Equity Research team. This week, we update on Lyft Inc (LYFT US) now that it is below its IPO price and remind of the potentially muted impact for strategic holder Rakuten Inc (4755 JP). On the M&A front, Arun digs into the conditional deal for Lynas Corp Ltd (LYC AU) from Wesfarmers Ltd (WES AU). With regards to IPO research, we initiate on e-commerce player Yunji Inc. (YJ US) and solar company Xinyi Energy Holdings Ltd (1671746D HK) while we update on the IPO valuation of Ruhnn Holding Ltd (RUHN US). 

In addition, we have provided an updated calendar of upcoming catalysts for EVENT driven names below. 

Best of luck for the new week – Arun, Venkat and Rickin

5. Notes from the Silk Road: Xtep Int’l Holdings (1368 HK): Time to Run (Away) For Now

Xtep International (1368 HK) has announced a placing and top-up subscription of new shares event, creating a capital base which is 9% larger. 

XTEP states that they have considered various ways of raising funds and consider that it would be in their best interests to raise equity funding through the placing and the subscription. 

With the share price down 16% since the placement, we examine what this means for the company’s fundamentals and shareholders. We believe the results will prove to be mixed for management and shareholders alike. We highlight how we expect the stock ranking to react, given we the placement was only a few days back and this is yet to reflect. This special situation analysis may surprise you with the conclusions.

In this briefing:

1. Pan Pacific/Don Quijote: Bringing Joy into Shopping
2. Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars
3. Last Week in GER Research: Lyft, Rakuten, Lynas, Yunji IPO, Xinyi IPO and Ruhnn IPO
4. Notes from the Silk Road: Xtep Int’l Holdings (1368 HK): Time to Run (Away) For Now
5. Sony Trading Low Just Above Higher Conviction Intermediate Buy Support

1. Pan Pacific/Don Quijote: Bringing Joy into Shopping

• Japanese Retail is in a secular decline: There are areas in retail that are worse affected than the rest
• Falling foot traffic: The biggest problem for Japanese retail
• Don Quijote’s recent history and growth potential
• Attracting shoppers from multiple store formats helps Don Quijote to expand its target market
• Don Quijote is least affected from slowdown in Chinese tourist spending
• FamilyMart UNY store conversions to contribute to revenue and EBIT growth over the next five years
• New store openings to cap at 25 per year because of UNY store conversions
• Valuation: Market unjustly penalized Don Quijote for the UNY acquisition
• Change in retail landscape to help make Don Quijote the “DON” in Japanese retail

2. Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars

While we have been sceptical about Mercari Inc (4385 JP)‘s efforts in the US, we have always appreciated the domestic business and have only been put off by the rather demanding multiples. After speaking to the company, we continue to like the domestic business and feel that recent initiatives to broaden the user base are likely to be successful. In addition, while we still feel that there are numerous question marks about whether the business model can work in the US, we have come around to a more positive view on the company’s execution there. Lastly, we believe Merpay’s edge in the cashless wars is underappreciated and the fall in the share price is starting to make the stock attractive.

We discuss the details below.

3. Last Week in GER Research: Lyft, Rakuten, Lynas, Yunji IPO, Xinyi IPO and Ruhnn IPO

Below is a recap of the key analysis produced by the Global Equity Research team. This week, we update on Lyft Inc (LYFT US) now that it is below its IPO price and remind of the potentially muted impact for strategic holder Rakuten Inc (4755 JP). On the M&A front, Arun digs into the conditional deal for Lynas Corp Ltd (LYC AU) from Wesfarmers Ltd (WES AU). With regards to IPO research, we initiate on e-commerce player Yunji Inc. (YJ US) and solar company Xinyi Energy Holdings Ltd (1671746D HK) while we update on the IPO valuation of Ruhnn Holding Ltd (RUHN US). 

In addition, we have provided an updated calendar of upcoming catalysts for EVENT driven names below. 

Best of luck for the new week – Arun, Venkat and Rickin

4. Notes from the Silk Road: Xtep Int’l Holdings (1368 HK): Time to Run (Away) For Now

Xtep International (1368 HK) has announced a placing and top-up subscription of new shares event, creating a capital base which is 9% larger. 

XTEP states that they have considered various ways of raising funds and consider that it would be in their best interests to raise equity funding through the placing and the subscription. 

With the share price down 16% since the placement, we examine what this means for the company’s fundamentals and shareholders. We believe the results will prove to be mixed for management and shareholders alike. We highlight how we expect the stock ranking to react, given we the placement was only a few days back and this is yet to reflect. This special situation analysis may surprise you with the conclusions.

5. Sony Trading Low Just Above Higher Conviction Intermediate Buy Support

Sony Corp (6758 JP) is forming a bullish descending wedge/channel that once mature will chisel out an intermediate low with scope to clear medium term breakout resistance. The tactical low near 4,400 lies just above more strategic support.

Clear pivot points will help manage positioning within the bull wedge that is in the final innings.

The tactical buy level is not that far from strategic support with a more bullish macro lean.

MACD bull divergence is not only supportive into near term weakness but also points to a breakout above medium resistance. Risk lies with Sony not looking back after hitting our tactical low target.

In this briefing:

1. Receding Political Gains to the Ruling Party, Possible Threat to the Markets

1. Receding Political Gains to the Ruling Party, Possible Threat to the Markets

Post the downing of the Indian Air Force (IAF) MIG-21 by Pakistan over its territory and the capture and subsequent return of the pilot, the narrative which was strongly in favour of Narendra  Modi and the ruling Bharatiya Janata Party (BJP) rapidly spiralled downwards. Whether the Pakistan Air Force (PAF) entered Indian air space to deliberately attack Indian targets and was driven back, or it was a lure to ambush the IAF aircraft over Pakistani airspace, is not yet clear, but the stark acknowledgement that the IAF MIG-21 had been downed and the pilot captured, and  a video of his capture and  interrogation broadcasted on social media, were setbacks to the Indian government and its military. Although the Indian government claimed that a PAF F-16 was brought down (although some Indian defense commentators are stating that this is evidence of the downed PAF F-16), Pakistan is denying any loss of its aircraft.

If the market was banking on a decisive Modi victory in the 2019 national elections in the immediate aftermath of the IAF strike on Bagalkot that has been dissipated with the capture and return of the IAF pilot. Unless another such event arises (or is generated), the outcome of the national elections in India will be determined by political alliances and the socio-economic conditions of the electorate; national security concerns may play a secondary role

In this briefing:

1. Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars
2. Last Week in GER Research: Lyft, Rakuten, Lynas, Yunji IPO, Xinyi IPO and Ruhnn IPO
3. Notes from the Silk Road: Xtep Int’l Holdings (1368 HK): Time to Run (Away) For Now
4. Sony Trading Low Just Above Higher Conviction Intermediate Buy Support
5. QTT Placement: Liquidity Warrants a Quick Trade

1. Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars

While we have been sceptical about Mercari Inc (4385 JP)‘s efforts in the US, we have always appreciated the domestic business and have only been put off by the rather demanding multiples. After speaking to the company, we continue to like the domestic business and feel that recent initiatives to broaden the user base are likely to be successful. In addition, while we still feel that there are numerous question marks about whether the business model can work in the US, we have come around to a more positive view on the company’s execution there. Lastly, we believe Merpay’s edge in the cashless wars is underappreciated and the fall in the share price is starting to make the stock attractive.

We discuss the details below.

2. Last Week in GER Research: Lyft, Rakuten, Lynas, Yunji IPO, Xinyi IPO and Ruhnn IPO

Below is a recap of the key analysis produced by the Global Equity Research team. This week, we update on Lyft Inc (LYFT US) now that it is below its IPO price and remind of the potentially muted impact for strategic holder Rakuten Inc (4755 JP). On the M&A front, Arun digs into the conditional deal for Lynas Corp Ltd (LYC AU) from Wesfarmers Ltd (WES AU). With regards to IPO research, we initiate on e-commerce player Yunji Inc. (YJ US) and solar company Xinyi Energy Holdings Ltd (1671746D HK) while we update on the IPO valuation of Ruhnn Holding Ltd (RUHN US). 

In addition, we have provided an updated calendar of upcoming catalysts for EVENT driven names below. 

Best of luck for the new week – Arun, Venkat and Rickin

3. Notes from the Silk Road: Xtep Int’l Holdings (1368 HK): Time to Run (Away) For Now

Xtep International (1368 HK) has announced a placing and top-up subscription of new shares event, creating a capital base which is 9% larger. 

XTEP states that they have considered various ways of raising funds and consider that it would be in their best interests to raise equity funding through the placing and the subscription. 

With the share price down 16% since the placement, we examine what this means for the company’s fundamentals and shareholders. We believe the results will prove to be mixed for management and shareholders alike. We highlight how we expect the stock ranking to react, given we the placement was only a few days back and this is yet to reflect. This special situation analysis may surprise you with the conclusions.

4. Sony Trading Low Just Above Higher Conviction Intermediate Buy Support

Sony Corp (6758 JP) is forming a bullish descending wedge/channel that once mature will chisel out an intermediate low with scope to clear medium term breakout resistance. The tactical low near 4,400 lies just above more strategic support.

Clear pivot points will help manage positioning within the bull wedge that is in the final innings.

The tactical buy level is not that far from strategic support with a more bullish macro lean.

MACD bull divergence is not only supportive into near term weakness but also points to a breakout above medium resistance. Risk lies with Sony not looking back after hitting our tactical low target.

5. QTT Placement: Liquidity Warrants a Quick Trade

Qutoutiao Inc (QTT US) announced a USD 100 million share sales by the company and its shareholders, slightly more than two weeks after the lock-up expiration on March 13th.  In this insight, we will provide our quick thought on the deal. 

In this briefing:

1. Last Week in GER Research: Lyft, Rakuten, Lynas, Yunji IPO, Xinyi IPO and Ruhnn IPO
2. Notes from the Silk Road: Xtep Int’l Holdings (1368 HK): Time to Run (Away) For Now
3. Sony Trading Low Just Above Higher Conviction Intermediate Buy Support
4. QTT Placement: Liquidity Warrants a Quick Trade
5. Zhongliang (中梁地产) Pre-IPO Review – Incredible Growth Bogged Down by Related Party Transactions

1. Last Week in GER Research: Lyft, Rakuten, Lynas, Yunji IPO, Xinyi IPO and Ruhnn IPO

Below is a recap of the key analysis produced by the Global Equity Research team. This week, we update on Lyft Inc (LYFT US) now that it is below its IPO price and remind of the potentially muted impact for strategic holder Rakuten Inc (4755 JP). On the M&A front, Arun digs into the conditional deal for Lynas Corp Ltd (LYC AU) from Wesfarmers Ltd (WES AU). With regards to IPO research, we initiate on e-commerce player Yunji Inc. (YJ US) and solar company Xinyi Energy Holdings Ltd (1671746D HK) while we update on the IPO valuation of Ruhnn Holding Ltd (RUHN US). 

In addition, we have provided an updated calendar of upcoming catalysts for EVENT driven names below. 

Best of luck for the new week – Arun, Venkat and Rickin

2. Notes from the Silk Road: Xtep Int’l Holdings (1368 HK): Time to Run (Away) For Now

Xtep International (1368 HK) has announced a placing and top-up subscription of new shares event, creating a capital base which is 9% larger. 

XTEP states that they have considered various ways of raising funds and consider that it would be in their best interests to raise equity funding through the placing and the subscription. 

With the share price down 16% since the placement, we examine what this means for the company’s fundamentals and shareholders. We believe the results will prove to be mixed for management and shareholders alike. We highlight how we expect the stock ranking to react, given we the placement was only a few days back and this is yet to reflect. This special situation analysis may surprise you with the conclusions.

3. Sony Trading Low Just Above Higher Conviction Intermediate Buy Support

Sony Corp (6758 JP) is forming a bullish descending wedge/channel that once mature will chisel out an intermediate low with scope to clear medium term breakout resistance. The tactical low near 4,400 lies just above more strategic support.

Clear pivot points will help manage positioning within the bull wedge that is in the final innings.

The tactical buy level is not that far from strategic support with a more bullish macro lean.

MACD bull divergence is not only supportive into near term weakness but also points to a breakout above medium resistance. Risk lies with Sony not looking back after hitting our tactical low target.

4. QTT Placement: Liquidity Warrants a Quick Trade

Qutoutiao Inc (QTT US) announced a USD 100 million share sales by the company and its shareholders, slightly more than two weeks after the lock-up expiration on March 13th.  In this insight, we will provide our quick thought on the deal. 

5. Zhongliang (中梁地产) Pre-IPO Review – Incredible Growth Bogged Down by Related Party Transactions

Zhongliang Holdings (ZLH HK) is looking to raise about US$800m in its upcoming IPO. 

ZLH is a fast-growing  real estate developer in China. Its completed projects are mostly in the Zhejiang Province but its projects under development are spread across the country.

It was highly leveraged in FY2016 as it ramped up its expansion efforts but had been able to reduce it significantly to about 260% net debt to equity levels while effective interest rates on debt has been falling every year.

In this insight, we will look at the company’s operations and financials, identify key corporate governance issues, and share our thoughts on peer valuation.

In this briefing:

1. Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?
2. 7-Eleven in India: Standard Franchise Model Would Require Minor Tweaks in India
3. Lyft IPO Preview: Maybe We’ll Just Walk?
4. Receding Political Gains to the Ruling Party, Possible Threat to the Markets

1. Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?

• We evaluate the attractiveness of Sea Ltd’s (SE US) US$1 bn follow-on public offering announced last Fri.
• This offering is a typical opportunistic fundraising as its ADR price has recently surged.
• At assumed deal price of US$21, SE post deal would trade at 4.6x 2019E P/adjusted sales (excl. 1P e-commerce sales), vs. peers average of 5.2x.
• We would recommend investors to go for the deal if it is priced at US$20 or lower.

2. 7-Eleven in India: Standard Franchise Model Would Require Minor Tweaks in India

• 7-Eleven partners up with Future Retail in an effort to enter the growing Indian Market
• Indian E-Commerce giants pose a significant threat to 7-Eleven’s plans
• 7-Eleven’s recent shift focuses more on developing markets.
• Lack of profitability in India could require changes to the standard franchise agreement in order to attract franchisees

On 28th February 2019, Seven & I Holdings (3382 JP), the operator of the world’s largest convenience store chain 7-Eleven, announced that the company has signed a master franchise agreement with Kishore Biyani’s Future Retail, the operator of the Indian large format store chain Big Bazaar, to expand the 7-Eleven convenience stores into India. Future Retail and Seven & I Holdings expect the first 7-Eleven convenience store in India to be opened in Mumbai in 2019.

3. Lyft IPO Preview: Maybe We’ll Just Walk?

Lyft Inc (0812823D US) , a leading ride-sharing company, released its IPO prospectus in order to raise 3bn USD. Our key points are below 

Intro to Lyft

Lyft – a comparison vs. peers

Strengths and Weaknesses

Financials

4. Receding Political Gains to the Ruling Party, Possible Threat to the Markets

Post the downing of the Indian Air Force (IAF) MIG-21 by Pakistan over its territory and the capture and subsequent return of the pilot, the narrative which was strongly in favour of Narendra  Modi and the ruling Bharatiya Janata Party (BJP) rapidly spiralled downwards. Whether the Pakistan Air Force (PAF) entered Indian air space to deliberately attack Indian targets and was driven back, or it was a lure to ambush the IAF aircraft over Pakistani airspace, is not yet clear, but the stark acknowledgement that the IAF MIG-21 had been downed and the pilot captured, and  a video of his capture and  interrogation broadcasted on social media, were setbacks to the Indian government and its military. Although the Indian government claimed that a PAF F-16 was brought down (although some Indian defense commentators are stating that this is evidence of the downed PAF F-16), Pakistan is denying any loss of its aircraft.

If the market was banking on a decisive Modi victory in the 2019 national elections in the immediate aftermath of the IAF strike on Bagalkot that has been dissipated with the capture and return of the IAF pilot. Unless another such event arises (or is generated), the outcome of the national elections in India will be determined by political alliances and the socio-economic conditions of the electorate; national security concerns may play a secondary role

In this briefing:

1. Optex (6914 JP): Factory Automation Slowdown in the Price
2. CIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead
3. Japanese Cosmetics Sector: Weak Inbound Sales in January Was Merely a One-Off Glitch
4. Sumco: Well Positioned to Expand Capacity Faster than Its Competitors if Demand Picks Up
5. Nexon to Increase Focus on Mobile Gaming Amidst Talks of Possible Sale of the Company

1. Optex (6914 JP): Factory Automation Slowdown in the Price

According to management, weak demand for factory automation sensors had a significant negative impact on sales and profits in 1Q of FY Dec-19. Also, in our estimation, it is likely to cause 1H results to fall short of guidance. But this should be in the share price, which has dropped by nearly 50% from its 52-week high. 

In the year to December 2018, operating profit was up only 2.1% on a 7.0% increase in sales, largely due to an increase in machine vision marketing expenses. In January and February 2019, factory automation orders and sales dropped abruptly as customers sought to reduce excess inventories. In March, some new orders were received for delivery in May, indicating that the situation may stabilize in 2H. Demand for security and automatic door sensors continues to grow at low single-digit rates.

For FY Dec-19 as a whole, management is guiding for a 6.2% increase in operating profit on a 7.2% increase in sales. Our forecast is for flat operating profit on a 2% increase in sales. Sales and profit growth should pick up over the following two years, in our estimation, but remain in single digits.

At ¥1,765 (Friday, March 29, closing price), Optex is selling at 18x our EPS estimate for FY Dec-19 and 17x our estimate for FY Dec-20. Over the past 5 years, the P/E has ranged from 13x to 36x. On a trailing 12-month basis, Japan Analytics calculates 5% upside to a no-growth valuation, which is in line with our forecast for this fiscal year. This suggests: buy either for the bounce or for the long term. 

2. CIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead

CIMC Vehicle, the largest manufacturer of semi-trailers in the world and a subsidiary of CIMC, will start to pre-market its USD300-500 million IPO in Hong Kong, as per media reports. In this insight, we will cover the following topics:

• Company background
• Semi-trailer and truck body industry
• Shareholders and pre-IPO investors
• Our thoughts on valuation

3. Japanese Cosmetics Sector: Weak Inbound Sales in January Was Merely a One-Off Glitch

• Japanese cosmetic companies showed a bit of concern in January when the inbound sales, which had been growing steadily over the past few years turned red all of a sudden.
• Tourist arrivals kept their growth momentum going into January, However per capita spend by tourists has been on the decline for a couple of years
• Chinese e-commerce legislation did have an impact on Japanese cosmetic companies, however, the impact wasn’t as significant for cosmetic companies as it was for some of the other retailers
• Inbound and travel retail sales: back on track from February onwards

4. Sumco: Well Positioned to Expand Capacity Faster than Its Competitors if Demand Picks Up

• The semiconductor silicon wafer market saw continued growth in demand for all wafer diameters supported by applications for servers, data centers, automobiles and IoT applications.
• While the demand for semiconductors, data centers and other IoT applications are declining, Sumco expects firm demand from power semiconductors, sensors and automotive uses. The management expects the demand from the 5G market also to aid in top-line growth.
• Sumco has posted an extraordinary loss following the early termination of a long-term polysilicon purchasing agreement. The long-term contract with Osaka Titanium is expected to end in March 2019. We expect this move to help Sumco switch to cheaper polysilicon which in turn should help reduce costs. That being said, some of the long-term contracts for polysilicon are still continuing, and there is still significant inventory built-up so this impact could take four to five years to be fully realised.
• Having visited the company recently, Sumco still has more potential brownfield capacity available, which we believe can be used in the event the demand picks up enabling the company to add new capacity faster than its competitors and enjoy the benefits from growing demand and increasing prices.

5. Nexon to Increase Focus on Mobile Gaming Amidst Talks of Possible Sale of the Company

• The global gaming market is transitioning towards mobile gaming, which currently captures around 50% of market share. This has resulted in Korean gaming company Nexon slowly shifting its focus towards mobile games.
• Over the year’s Nexon’s mobile gaming segment has grown faster than the PC online segment. When looking at the five-year revenue CAGR between the two business segments, the PC online segment has grown at a CAGR of 9.4% over FY2013-18 while the mobile games segment has grown at a double digit CAGR of 14.1% over the same period.
• For the mobile gaming segment, in the future, Nexon’s primary focus includes developing mobile games based on IPs of older PC games.
• The company has a steady line up of mobile games planned for FY2019, with ten titles set to release in the first half.
• On our estimates, Nexon seems over-valued, currently trading at a FY1 EV/OP of 9.6x compared to its five-year historical median of 7.7x.

In this briefing:

1. 7-Eleven in India: Standard Franchise Model Would Require Minor Tweaks in India
2. Lyft IPO Preview: Maybe We’ll Just Walk?
3. Receding Political Gains to the Ruling Party, Possible Threat to the Markets

1. 7-Eleven in India: Standard Franchise Model Would Require Minor Tweaks in India

• 7-Eleven partners up with Future Retail in an effort to enter the growing Indian Market
• Indian E-Commerce giants pose a significant threat to 7-Eleven’s plans
• 7-Eleven’s recent shift focuses more on developing markets.
• Lack of profitability in India could require changes to the standard franchise agreement in order to attract franchisees

On 28th February 2019, Seven & I Holdings (3382 JP), the operator of the world’s largest convenience store chain 7-Eleven, announced that the company has signed a master franchise agreement with Kishore Biyani’s Future Retail, the operator of the Indian large format store chain Big Bazaar, to expand the 7-Eleven convenience stores into India. Future Retail and Seven & I Holdings expect the first 7-Eleven convenience store in India to be opened in Mumbai in 2019.

2. Lyft IPO Preview: Maybe We’ll Just Walk?

Lyft Inc (0812823D US) , a leading ride-sharing company, released its IPO prospectus in order to raise 3bn USD. Our key points are below 

Intro to Lyft

Lyft – a comparison vs. peers

Strengths and Weaknesses

Financials

3. Receding Political Gains to the Ruling Party, Possible Threat to the Markets

Post the downing of the Indian Air Force (IAF) MIG-21 by Pakistan over its territory and the capture and subsequent return of the pilot, the narrative which was strongly in favour of Narendra  Modi and the ruling Bharatiya Janata Party (BJP) rapidly spiralled downwards. Whether the Pakistan Air Force (PAF) entered Indian air space to deliberately attack Indian targets and was driven back, or it was a lure to ambush the IAF aircraft over Pakistani airspace, is not yet clear, but the stark acknowledgement that the IAF MIG-21 had been downed and the pilot captured, and  a video of his capture and  interrogation broadcasted on social media, were setbacks to the Indian government and its military. Although the Indian government claimed that a PAF F-16 was brought down (although some Indian defense commentators are stating that this is evidence of the downed PAF F-16), Pakistan is denying any loss of its aircraft.

If the market was banking on a decisive Modi victory in the 2019 national elections in the immediate aftermath of the IAF strike on Bagalkot that has been dissipated with the capture and return of the IAF pilot. Unless another such event arises (or is generated), the outcome of the national elections in India will be determined by political alliances and the socio-economic conditions of the electorate; national security concerns may play a secondary role