Growth Ideas

In this briefing:

1. Optorun (6235) Orders Bottoming and 5G Will Benefit the Company Considerably. BUY
2. SGP: Ready for New Growth Cycle
3. Sea Ltd: Further Share Re-Rating After a 35% Daily Gain? Why Not?
4. Notes from the Silk Road: Smartgroup Corporation Ltd (SIQ.AX) – Multiple Expansion Potential

1. Optorun (6235) Orders Bottoming and 5G Will Benefit the Company Considerably. BUY

Given the slowdown in Apple orders, which are only part of the story here, the shares have been a dreadful performer. They have underperformed TOPIX by 40% over the last 12 months and are 40% off their July 2018 high. They now trade on 11x this year’s numbers (and yield 2.7%), which we believe to be conservative. With the roll out of 5G orders next year will surely be up as well. We would buy at current levels.

2. SGP: Ready for New Growth Cycle

We initiate coverage of SGP with a BUY rating and a 2019E target price of Bt14.00, derived from 10.9x PE’19E, which is +0.5 SD of its 3-year trading average. We believe that a new growth cycle is poised to act as a re-rating catalyst.

The story:

• Regional LPG player with upstream transportation network
• New businesses to drive new growth cycle
• LPG price set to bottom out
• Expected earnings to recover in 2019E

Risks: 

             Currency  fluctuation

             Raw material price fluctuation

             Overseas investment failure

3. Sea Ltd: Further Share Re-Rating After a 35% Daily Gain? Why Not?

• The biggest positive surprise from Sea Ltd’s (SE US) conference call is strong 2019 adjusted sales guidance: 82%-97% YoY growth for Garena (digital entertainment division) and 117-127% YoY growth for Shopee (e-commerce arm).
• Management expects first positive quarterly EBITDA for Shopee Taiwan operations in 1Q19, indicating there is a path to profitability for Shopee’s business model.
• Another great news: management expresses high confidence that Shopee’s S&M expenses in terms of absolute dollars would trend down in 2019, vs. 2018.
• After a 35% daily share gain on 27 Feb, SE trades at 4.1x 2019E P/adjusted revenue excl. 1P sales, yet still a whopping 49% discount to Pinduoduo’s (PDD US) 8.1x P/S.

4. Notes from the Silk Road: Smartgroup Corporation Ltd (SIQ.AX) – Multiple Expansion Potential

Whilst Smartgroup Corporation Limited (SIQ) has reported a  solid set of 2018 earnings, the real story is not the results, but the outlook.

We examine the potential for the company to simply deliver a multiple expansion. If SIQ succeeds with some further consolidation of acquisitions. The potential for this Event-driven upside is significant if this is combined with additional earnings trends. 

Furthermore, the stock rank system which the company is benchmarked against suggests potential to post an upgrade, which inevitably fuels share price performance. 

In this briefing:

1. Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics

1. Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics

Futu Holdings Ltd (FHL US) plans to raise up to US$130m in its US listing. 

In my earlier insights, I looked at the company’s background,  past financial performance and scored the deal on our IPO framework.: 

• Futu Holdings Pre-IPO – Great Metrics but in a Commoditised Industry, 
• Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation, and
• Futu Holdings IPO – Given the Team, Execution, and Backers, Might Be Worth a Look at the Low-End 

In this insight, I do a quick comparison of Futu versus Up Fintech (TIGR US) (aka Tiger Brokers) who is regarded as Futu’s main competitor in the space.

In this briefing:

1. Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics
2. China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle

1. Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics

Futu Holdings Ltd (FHL US) plans to raise up to US$130m in its US listing. 

In my earlier insights, I looked at the company’s background,  past financial performance and scored the deal on our IPO framework.: 

• Futu Holdings Pre-IPO – Great Metrics but in a Commoditised Industry, 
• Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation, and
• Futu Holdings IPO – Given the Team, Execution, and Backers, Might Be Worth a Look at the Low-End 

In this insight, I do a quick comparison of Futu versus Up Fintech (TIGR US) (aka Tiger Brokers) who is regarded as Futu’s main competitor in the space.

2. China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle

China Risun, a leading coking coal refining player in China, is seeking up to USD 243 million via a listing in Hong Kong. In this insight, we will discuss the following topics:

• Company’s business and the value chain of coking coal
• Industry backdrop of the coking coal processing industry in China
• Shareholders and investors
• Thoughts on valuation

In this briefing:

1. Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics
2. China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle
3. QH: 2018 Earnings Grew 10% In-Line with Our Forecast

1. Futu Holdings IPO Quick Note – Comparison with Tiger Brokers – Same Market, Different Economics

Futu Holdings Ltd (FHL US) plans to raise up to US$130m in its US listing. 

In my earlier insights, I looked at the company’s background,  past financial performance and scored the deal on our IPO framework.: 

• Futu Holdings Pre-IPO – Great Metrics but in a Commoditised Industry, 
• Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation, and
• Futu Holdings IPO – Given the Team, Execution, and Backers, Might Be Worth a Look at the Low-End 

In this insight, I do a quick comparison of Futu versus Up Fintech (TIGR US) (aka Tiger Brokers) who is regarded as Futu’s main competitor in the space.

2. China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle

China Risun, a leading coking coal refining player in China, is seeking up to USD 243 million via a listing in Hong Kong. In this insight, we will discuss the following topics:

• Company’s business and the value chain of coking coal
• Industry backdrop of the coking coal processing industry in China
• Shareholders and investors
• Thoughts on valuation

3. QH: 2018 Earnings Grew 10% In-Line with Our Forecast

QH has 4Q18 net profit of Bt786m (-13%YoY, -40%QoQ). The 2018 result was in-line with our expectation.

• 4Q18 earnings from property development segment drop 36%YoY caused by one time charge of Bt150m from litigation and lead to higher SG&A-to-sales to 25.4% from 18.1% in 4Q17. Meanwhile, total sales grew 20%YoY.
• 4Q18 equity income grew 12%YoY at Bt493m driven by HMPRO contribution which derived from its branches expansion and HMPRO S.
• 2018 core earnings grew 83%YoY to Bt2.0bn backed by gross margin improvement and better SG&A controls. Meanwhile, sales drop 6% YoY due to lower new project launches.
• We maintain positive outlook in 19-20E driven by Q Sukhumvit transfer and foresee little impact from LTV implementation. QH’s portfolio are based on luxury segment and 50% of net profit come from equity income which mainly driven by HMPRO.
• Announced an interim dividend payment of Bt0.14 (XD on 24 Apr), which is equivalent to 4.3% upcoming dividend yield.

We maintain our BUY rating with a target price of Bt3.9 based on 10xPE’19E.

In this briefing:

1. ECM Weekly (30 March 2019) – ESR, Yunji, Ruhnn, Jinxin Fertility, Metropolis Health, Viva Biotech
2. Shaky Situations at DEMCO and Pranda
3. Metropolis IPO: Priced to Leave Limited Upside
4. Japan Mobile: MVNO Data for Q3 Includes Slowest Growth Since 2014 but that Makes Sense for Rakuten
5. India Bulls Housing Finance- Can It Become Another HDFC? Signs Are Encouraging!!

1. ECM Weekly (30 March 2019) – ESR, Yunji, Ruhnn, Jinxin Fertility, Metropolis Health, Viva Biotech

Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.

Accuracy Rate:

Our overall accuracy rate is 72.4% for IPOs and 63.9% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings

• Haitong UniTrust International Leasing (Hong Kong, re-filed)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

News on Upcoming IPOs

• As IPO flood recedes, Asia bankers bet on follow-on capital raising
• Bitmain forced to delay Hong Kong IPO amid crypto-mining decline

This week Analysis on Upcoming IPO

• Viva Biotech (维亚生物) IPO: Warning Signs from 2018 Numbers (Part 2)
• Metropolis Healthcare IPO – Fairly Valued, at Best
• Jinxin Fertility (锦欣生殖) Pre-IPO: Strong Foothold in Sichuan but Weak Sentiment for Sector
• Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk
• Yunji (云集) Pre-IPO Review – Poor Disclosure on Data
• ESR Cayman Pre-IPO- First Stab at Valuation
• Leong Hup Pre-IPO – Hard to Pinpoint What’s Going to Be the Revenue Driver Going Forward
• Dongzheng Auto Finance (东正汽车金融) IPO Review – Relaunched at Lower Price
• SNK Corp (950180 KS)

2. Shaky Situations at DEMCO and Pranda

We visited two companies with very different trajectories. 

• Renewable power specialist DEMCO is struggling, despite doing really well in the past, while jeweler Pranda, once struggling, is on the recovery path.
• DEMCO reported gross profit and revenue decline of 8% and 7% respectively. Their earnings more than doubled, but that’s solely due to dividends from Wind Energy, an investment that cost them Bt800m and is embroiled in scandal.
• Pranda’s operating cash flows surged from Bt12m to Bt230m, as they restructured their store network.
• We’d still be caution on PDJ, as management doesn’t feel the restructuring is over. More stores could be closed down in the future.

3. Metropolis IPO: Priced to Leave Limited Upside

We like Metropolis Health Services Limited (MHL IN) ’ track record of growing revenue/patient despite competition, premium pricing and strong margin defence. Margins have however, come under some pressure in 9MFY19. Its patient growth lags that of Dr Lal Pathlabs (DLPL IN)’s despite rapid network expansion. It is also at the highest risk from any government instituted pricing cap on pathology tests owing to (1) high share of institutional business and (2) premium pricing. Also, 51.6% of promoter stake will be pledged with lenders after the IPO. At the upper end of its price band, Metropolis is valued at 20.9x FY20F EV/EBITDA and 33.3x FY20F PE- at ~15% discount to Dr Lal. We see EPS compounding at 12% Cagr over FY18-21, lower than the 16% EPS Cagr of Dr Lal’s. We feel valuation leaves limited upside.

4. Japan Mobile: MVNO Data for Q3 Includes Slowest Growth Since 2014 but that Makes Sense for Rakuten

The Ministry of Industry Affairs and Communications (MIC, the regulator) released Q3 (Dec 2018) data for industry mobile virtual network operator (MVNO) subs today (29 March) characterized by continued declines in growth YoY (+15% in Q3 v 18% in Q2) and the lowest absolute net adds (+480K) since Q2 2014.  Growth for the largest consumer-focused MVNO Rakuten Inc (4755 JP) also appears to be the lowest since data has become available but that is not necessarily a sign of strength for the existing network operators as it makes sense for Rakuten to slow MVNO growth before its October real network launch.  

5. India Bulls Housing Finance- Can It Become Another HDFC? Signs Are Encouraging!!

This is the concluding part of our Housing Finance Companies (HFC) series where we elaborated the outlook of the mortgage industry in India along with initiating coverage on the best HFCs who we believe may continue to be the key beneficiaries of a long term secular growth in the Indian mortgage industry. (please click here, here and here ).

In this report we cover  Indiabulls Housing Finance (IHFL IN) , the third largest HFC in the country. The company is among the fastest growing HFCs whose loan portfolio has grown at a CAGR of 29% in the last 5 years ending FY18. And in spite of robust growth, the asset quality has remained steady.

Due to a strong track record of high capital adequacy, high liquidity coverage, high asset quality, improving operational efficiency and high return ratios, the company was recently awarded AAA rating by ICRA and CRISIL, the top 2 credit rating agencies in India.

From the parameters that are analyzed in detail in this report, we believe that the company in the long term has the potential to be in the league of HDFC Ltd., a benchmark in terms of corporate governance, robust asset management and wealth creation for shareholders.

In this briefing:

1. China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle
2. QH: 2018 Earnings Grew 10% In-Line with Our Forecast

1. China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle

China Risun, a leading coking coal refining player in China, is seeking up to USD 243 million via a listing in Hong Kong. In this insight, we will discuss the following topics:

• Company’s business and the value chain of coking coal
• Industry backdrop of the coking coal processing industry in China
• Shareholders and investors
• Thoughts on valuation

2. QH: 2018 Earnings Grew 10% In-Line with Our Forecast

QH has 4Q18 net profit of Bt786m (-13%YoY, -40%QoQ). The 2018 result was in-line with our expectation.

• 4Q18 earnings from property development segment drop 36%YoY caused by one time charge of Bt150m from litigation and lead to higher SG&A-to-sales to 25.4% from 18.1% in 4Q17. Meanwhile, total sales grew 20%YoY.
• 4Q18 equity income grew 12%YoY at Bt493m driven by HMPRO contribution which derived from its branches expansion and HMPRO S.
• 2018 core earnings grew 83%YoY to Bt2.0bn backed by gross margin improvement and better SG&A controls. Meanwhile, sales drop 6% YoY due to lower new project launches.
• We maintain positive outlook in 19-20E driven by Q Sukhumvit transfer and foresee little impact from LTV implementation. QH’s portfolio are based on luxury segment and 50% of net profit come from equity income which mainly driven by HMPRO.
• Announced an interim dividend payment of Bt0.14 (XD on 24 Apr), which is equivalent to 4.3% upcoming dividend yield.

We maintain our BUY rating with a target price of Bt3.9 based on 10xPE’19E.

In this briefing:

1. China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle
2. QH: 2018 Earnings Grew 10% In-Line with Our Forecast
3. Hitachi Chemical (4217) Bad News All in the Price. Outlook on 12 Month View Is Bright. BUY

1. China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle

China Risun, a leading coking coal refining player in China, is seeking up to USD 243 million via a listing in Hong Kong. In this insight, we will discuss the following topics:

• Company’s business and the value chain of coking coal
• Industry backdrop of the coking coal processing industry in China
• Shareholders and investors
• Thoughts on valuation

2. QH: 2018 Earnings Grew 10% In-Line with Our Forecast

QH has 4Q18 net profit of Bt786m (-13%YoY, -40%QoQ). The 2018 result was in-line with our expectation.

• 4Q18 earnings from property development segment drop 36%YoY caused by one time charge of Bt150m from litigation and lead to higher SG&A-to-sales to 25.4% from 18.1% in 4Q17. Meanwhile, total sales grew 20%YoY.
• 4Q18 equity income grew 12%YoY at Bt493m driven by HMPRO contribution which derived from its branches expansion and HMPRO S.
• 2018 core earnings grew 83%YoY to Bt2.0bn backed by gross margin improvement and better SG&A controls. Meanwhile, sales drop 6% YoY due to lower new project launches.
• We maintain positive outlook in 19-20E driven by Q Sukhumvit transfer and foresee little impact from LTV implementation. QH’s portfolio are based on luxury segment and 50% of net profit come from equity income which mainly driven by HMPRO.
• Announced an interim dividend payment of Bt0.14 (XD on 24 Apr), which is equivalent to 4.3% upcoming dividend yield.

We maintain our BUY rating with a target price of Bt3.9 based on 10xPE’19E.

3. Hitachi Chemical (4217) Bad News All in the Price. Outlook on 12 Month View Is Bright. BUY

After the recent inspection issues, the company clearly needs to tighten compliance issues and is now talking about improving profitability over the next two years by getting rid of low profit and none core businesses.  Given the current valuations, the mid-term outlook and the renewed focus on profitability we would look to buy here. The internal issues that have hit the share price in the past appear behind them. We would look for an operating profit of about Y50bn to 3/20 which would put the shares on an EV/ebitda multiple of about 5x. The shares yield 3% and still trade at book.

In this briefing:

1. China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle
2. QH: 2018 Earnings Grew 10% In-Line with Our Forecast
3. Hitachi Chemical (4217) Bad News All in the Price. Outlook on 12 Month View Is Bright. BUY
4. Dexin China (德信中国) Post IPO – Poor Trading Liquidity, Top Ten Placees Hold 76% of IPO Shares

1. China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle

China Risun, a leading coking coal refining player in China, is seeking up to USD 243 million via a listing in Hong Kong. In this insight, we will discuss the following topics:

• Company’s business and the value chain of coking coal
• Industry backdrop of the coking coal processing industry in China
• Shareholders and investors
• Thoughts on valuation

2. QH: 2018 Earnings Grew 10% In-Line with Our Forecast

QH has 4Q18 net profit of Bt786m (-13%YoY, -40%QoQ). The 2018 result was in-line with our expectation.

• 4Q18 earnings from property development segment drop 36%YoY caused by one time charge of Bt150m from litigation and lead to higher SG&A-to-sales to 25.4% from 18.1% in 4Q17. Meanwhile, total sales grew 20%YoY.
• 4Q18 equity income grew 12%YoY at Bt493m driven by HMPRO contribution which derived from its branches expansion and HMPRO S.
• 2018 core earnings grew 83%YoY to Bt2.0bn backed by gross margin improvement and better SG&A controls. Meanwhile, sales drop 6% YoY due to lower new project launches.
• We maintain positive outlook in 19-20E driven by Q Sukhumvit transfer and foresee little impact from LTV implementation. QH’s portfolio are based on luxury segment and 50% of net profit come from equity income which mainly driven by HMPRO.
• Announced an interim dividend payment of Bt0.14 (XD on 24 Apr), which is equivalent to 4.3% upcoming dividend yield.

We maintain our BUY rating with a target price of Bt3.9 based on 10xPE’19E.

3. Hitachi Chemical (4217) Bad News All in the Price. Outlook on 12 Month View Is Bright. BUY

After the recent inspection issues, the company clearly needs to tighten compliance issues and is now talking about improving profitability over the next two years by getting rid of low profit and none core businesses.  Given the current valuations, the mid-term outlook and the renewed focus on profitability we would look to buy here. The internal issues that have hit the share price in the past appear behind them. We would look for an operating profit of about Y50bn to 3/20 which would put the shares on an EV/ebitda multiple of about 5x. The shares yield 3% and still trade at book.

4. Dexin China (德信中国) Post IPO – Poor Trading Liquidity, Top Ten Placees Hold 76% of IPO Shares

Dexin China Holdings (2019 HK) raised US$189m in at HK$2.80 per share, at the mid-point of its IPO price range. We have previously covered the IPO in:

• Dexin China (德信中国) Pre-IPO – Related Party Transactions and Partial Asset Listing
• Dexin China (德信中国) IPO Review – Key Issues Remain but 9M Results Showed Strong Growth.

In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.

In this briefing:

1. Shaky Situations at DEMCO and Pranda
2. Metropolis IPO: Priced to Leave Limited Upside
3. Japan Mobile: MVNO Data for Q3 Includes Slowest Growth Since 2014 but that Makes Sense for Rakuten
4. India Bulls Housing Finance- Can It Become Another HDFC? Signs Are Encouraging!!
5. SBS (2384) A Great Third Party Logistics Company Seeing Good Organic Growth as Well as Via M&A.

1. Shaky Situations at DEMCO and Pranda

We visited two companies with very different trajectories. 

• Renewable power specialist DEMCO is struggling, despite doing really well in the past, while jeweler Pranda, once struggling, is on the recovery path.
• DEMCO reported gross profit and revenue decline of 8% and 7% respectively. Their earnings more than doubled, but that’s solely due to dividends from Wind Energy, an investment that cost them Bt800m and is embroiled in scandal.
• Pranda’s operating cash flows surged from Bt12m to Bt230m, as they restructured their store network.
• We’d still be caution on PDJ, as management doesn’t feel the restructuring is over. More stores could be closed down in the future.

2. Metropolis IPO: Priced to Leave Limited Upside

We like Metropolis Health Services Limited (MHL IN) ’ track record of growing revenue/patient despite competition, premium pricing and strong margin defence. Margins have however, come under some pressure in 9MFY19. Its patient growth lags that of Dr Lal Pathlabs (DLPL IN)’s despite rapid network expansion. It is also at the highest risk from any government instituted pricing cap on pathology tests owing to (1) high share of institutional business and (2) premium pricing. Also, 51.6% of promoter stake will be pledged with lenders after the IPO. At the upper end of its price band, Metropolis is valued at 20.9x FY20F EV/EBITDA and 33.3x FY20F PE- at ~15% discount to Dr Lal. We see EPS compounding at 12% Cagr over FY18-21, lower than the 16% EPS Cagr of Dr Lal’s. We feel valuation leaves limited upside.

3. Japan Mobile: MVNO Data for Q3 Includes Slowest Growth Since 2014 but that Makes Sense for Rakuten

The Ministry of Industry Affairs and Communications (MIC, the regulator) released Q3 (Dec 2018) data for industry mobile virtual network operator (MVNO) subs today (29 March) characterized by continued declines in growth YoY (+15% in Q3 v 18% in Q2) and the lowest absolute net adds (+480K) since Q2 2014.  Growth for the largest consumer-focused MVNO Rakuten Inc (4755 JP) also appears to be the lowest since data has become available but that is not necessarily a sign of strength for the existing network operators as it makes sense for Rakuten to slow MVNO growth before its October real network launch.  

4. India Bulls Housing Finance- Can It Become Another HDFC? Signs Are Encouraging!!

This is the concluding part of our Housing Finance Companies (HFC) series where we elaborated the outlook of the mortgage industry in India along with initiating coverage on the best HFCs who we believe may continue to be the key beneficiaries of a long term secular growth in the Indian mortgage industry. (please click here, here and here ).

In this report we cover  Indiabulls Housing Finance (IHFL IN) , the third largest HFC in the country. The company is among the fastest growing HFCs whose loan portfolio has grown at a CAGR of 29% in the last 5 years ending FY18. And in spite of robust growth, the asset quality has remained steady.

Due to a strong track record of high capital adequacy, high liquidity coverage, high asset quality, improving operational efficiency and high return ratios, the company was recently awarded AAA rating by ICRA and CRISIL, the top 2 credit rating agencies in India.

From the parameters that are analyzed in detail in this report, we believe that the company in the long term has the potential to be in the league of HDFC Ltd., a benchmark in terms of corporate governance, robust asset management and wealth creation for shareholders.

5. SBS (2384) A Great Third Party Logistics Company Seeing Good Organic Growth as Well as Via M&A.

It is seeing decent organic growth, led by a focus on third party logistics (3PL). This will carry on. The recently acquired Ricoh Logistics should eventually see margins improve as it is integrated into SBS. This year’s operating profit forecast of Y9bn (+10%) is conservative. An increase of Y1bn this year will come from Ricoh Logistics alone, and then we have organic growth. In our view operating profit will be at least Y10bn. There is the unrealised profit on land, which add some Y85bn to a company whose market cap is Y71bn. Despite the outperformance over the last 12 months, this remains a decent long-term domestic buy, and one in which foreigners still own only 12%. The shares trade on 13x 12/19 assuming an operating profit of Y10bn. 

In this briefing:

1. QH: 2018 Earnings Grew 10% In-Line with Our Forecast
2. Hitachi Chemical (4217) Bad News All in the Price. Outlook on 12 Month View Is Bright. BUY
3. Dexin China (德信中国) Post IPO – Poor Trading Liquidity, Top Ten Placees Hold 76% of IPO Shares
4. Amarin Q4 2018 Conference Call–Strong Sales & High Confidence

1. QH: 2018 Earnings Grew 10% In-Line with Our Forecast

QH has 4Q18 net profit of Bt786m (-13%YoY, -40%QoQ). The 2018 result was in-line with our expectation.

• 4Q18 earnings from property development segment drop 36%YoY caused by one time charge of Bt150m from litigation and lead to higher SG&A-to-sales to 25.4% from 18.1% in 4Q17. Meanwhile, total sales grew 20%YoY.
• 4Q18 equity income grew 12%YoY at Bt493m driven by HMPRO contribution which derived from its branches expansion and HMPRO S.
• 2018 core earnings grew 83%YoY to Bt2.0bn backed by gross margin improvement and better SG&A controls. Meanwhile, sales drop 6% YoY due to lower new project launches.
• We maintain positive outlook in 19-20E driven by Q Sukhumvit transfer and foresee little impact from LTV implementation. QH’s portfolio are based on luxury segment and 50% of net profit come from equity income which mainly driven by HMPRO.
• Announced an interim dividend payment of Bt0.14 (XD on 24 Apr), which is equivalent to 4.3% upcoming dividend yield.

We maintain our BUY rating with a target price of Bt3.9 based on 10xPE’19E.

2. Hitachi Chemical (4217) Bad News All in the Price. Outlook on 12 Month View Is Bright. BUY

After the recent inspection issues, the company clearly needs to tighten compliance issues and is now talking about improving profitability over the next two years by getting rid of low profit and none core businesses.  Given the current valuations, the mid-term outlook and the renewed focus on profitability we would look to buy here. The internal issues that have hit the share price in the past appear behind them. We would look for an operating profit of about Y50bn to 3/20 which would put the shares on an EV/ebitda multiple of about 5x. The shares yield 3% and still trade at book.

3. Dexin China (德信中国) Post IPO – Poor Trading Liquidity, Top Ten Placees Hold 76% of IPO Shares

Dexin China Holdings (2019 HK) raised US$189m in at HK$2.80 per share, at the mid-point of its IPO price range. We have previously covered the IPO in:

• Dexin China (德信中国) Pre-IPO – Related Party Transactions and Partial Asset Listing
• Dexin China (德信中国) IPO Review – Key Issues Remain but 9M Results Showed Strong Growth.

In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.

4. Amarin Q4 2018 Conference Call–Strong Sales & High Confidence

Q4 2018 Revenues Stronger Than Pre-Announcement on January 4th: Amarin released its Q4 2018 results today and held a conference call. Results of $77m in sales (+44% YoY), were stronger than the January 4th pre-announced range of $72m and $76m.  2019 revenue guidance of 50% growth to $350m was left unchanged, but management sounded very confident on the conference call (see details below). 

Q1 2019 Revenue Growth Appears Stronger than Expected: On the conference call, Amarin was asked whether Q1 revenues were tracking the prescription data, which indicates +50% YoY growth so far. Management said that sales looked about the same, despite revenues tending not to track prescriptions that closely in Q1 normally.   

FDA May Fast-Track Vascepa Label Expansion: While Amarin’s CEO, John Thero, is usually very conservative with guidance, today he explored the possibilities of fast-track treatment by the FDA for Vascepa’s label expansion for the first time. Amarin is still on course to file for this with the FDA by March-end. Fast-track treatment by the FDA would speed up the approval process to 6 months, versus 10 months, and if favorable, could have significant upside impact on 2019 revenues. 

Approval for Vascepa in Europe to be Sought This Year: Amarin disclosed for the first time that it would seek approval for Vascepa in Europe this year. This is highly significant because the cardiovascular disease (CVD) patient population is 22% higher than the US. Amarin confirmed that FDA approval for label expansion would speed up the approval process in Europe. 

Next Catalyst is the ACC Conference on March 18th: Amarin will be announcing “late-breaking” data from the Reduce-It clinical trial at the American College of Cardiology on March 18th. Because the Reduce-It trial results themselves were so powerful, we expect the ACC event to be of high interest among CVD specialists and investors. 

Amarin Remains an Attractive Take-Over Candidate: Given the high efficacy of Vascepa in the treatment of CVD patients, Amarin continues to be one of the most highly attractive take-over candidates in the pharmaceutical world. Management’s confidence on today’s call appears to be linked to a stronger than expected response to Vascepa among doctors since its block-buster trial results were announced last September. For details about our outlook on Amarin, please refer to our deep-dive report published last month: Amarin–2019’s Biggest Buyout Target for Big Pharma