Category

Growth Ideas

Mar 28
0

Brief Growth Ideas: Brazilian Payments Report: Cielo on the Defensive Against Disruptive Challengers and more

By | Growth Ideas

In this briefing:

  1. Brazilian Payments Report: Cielo on the Defensive Against Disruptive Challengers
  2. India’s Military Strikes on Pakistan: No War in the Offing from Either Side
  3. New J. Hutton Exploration Report (Week Ending 22/02/19)
  4. SYNEX: New Smartphone Launches Help Drive Earnings Momentum in 2019

1. Brazilian Payments Report: Cielo on the Defensive Against Disruptive Challengers

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  • The non-cash payments market continues to grow at a double-digit rate in Brazil, driven primarily by growing usage of credit and debit cards
  • De-regulation and new entrants have brought challenges for the incumbents, especially for the largest player Cielo SA (CIEL3 BZ), with the challengers taking market share, squeezing margins and promoting better service for SME merchants in particular
  • Competitive pressures continue in the Brazil payments market, reflected in the declining merchant discount rate (MDR), lower rental rates and sale prices for POS terminals, as well as pressure on the commissions for early payment of merchant receivables; the near-term prospects for Cielo remain challenging in our view
  • Due to the ongoing headwinds, we expect Cielo to show negative earnings growth to 2021; management has announced that Cielo will defend its market share against the challengers; we see further downside risk to consensus earnings and the real risk of a greater than consensus 2019 DPS cut
  • StoneCo Ltd (STNE US)and Pagseguro Digital Ltd (PAGS US) are two of the payment challengers in this de-regulated market, growing faster than the Brazilian non-cash transactions market and taking incumbents’ market share; we see StoneCo to be the preferred entity to PagSeguro, based on StoneCo’s higher revenue yielding SME segment of focus and on its more attractive PEG ratio valuation

2. India’s Military Strikes on Pakistan: No War in the Offing from Either Side

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The air strikes launched by the Indian Air Force on Jaba Top in Balakot, in the Khyber Pakhtunkhwa province of Pakistan, have raised the stakes in the escalation of conflict between the two nuclear-armed neighbours in South Asia.  The stock market reaction on the morning of February 26 was negative with the Nifty-50 down nearly 146 points (1.3%), but thereafter it recovered to close at 10,835, only 45 points down (0.4%) from the previous close.  The central issue for the Indian market remains whether this will result in another war or a military retaliation by Pakistan as India targeted a venue in Pakistan proper and outside Pakistan-administered Kashmir (PAK), unlike the earlier ‘surgical strike’ wherein Indian army units attacked a camp in PAK. A war will be prohibitively expensive for both countries, but more so for Pakistan. It would have a material impact on the fiscal deficits of both countries, and it is also unlikely that America would want an escalation of conflict in this heavily militarised region. Hence, while the Pakistani government may make appropriate noises to satisfy their public, their response may be non-military, through an escalation in low intensity conflict targeting the Indian military and para-military in Indian-administered Kashmir (IAK). Hence, while the casualties may rise, the possibility of another India-Pakistan war may be remote.

At the same time, there is an indirect fall-out of the present conflict. Since voters may perceive Prime Minister as a more credible war leader than his opponents, a war atmosphere may strengthen the prospects of the ruling party. If the market comes to this conclusion, the recent military strikes may in fact boost the market. However, that ‘war’ effect may wear off before the elections.

3. New J. Hutton Exploration Report (Week Ending 22/02/19)

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4. SYNEX: New Smartphone Launches Help Drive Earnings Momentum in 2019

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SYNEX’s 4Q18 net profit was at Bt190m (+16%YoY, +18QoQ), in-line with our expectation

  • Record-high level of sales at Bt10.38bn is the major contributor to impressive 4Q18 performance. Meanwhile , gross margin drops below 4% in the first time due to changing product mix towards more on device segment
  • SYNEX post 2018 net profit of Bt721m (+15%YoY) driven by 18% increase in revenue
  • We maintain our positive view toward FY19-20E earnings outlook driven by (1) number of flagship smartphone model launches and new brands for low budget users, Neffos, and, (2) higher sales contribution from high-margins product such as gaming desktops and post-sales services.

We maintain our BUY rating with a new target price of Bt16.80 (previous target price at Bt15.0) derived from 17xPE’2019E, which is the average of the World information and technology sector

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Mar 28
0

Brief Growth Ideas: Mexican Banks – Near Term Relief on Fees from the ABM Convention; Thoughts on January’s Bank Data and more

By | Growth Ideas

In this briefing:

  1. Mexican Banks – Near Term Relief on Fees from the ABM Convention; Thoughts on January’s Bank Data
  2. Viva Biotech (维亚生物) IPO: Warning Signs from 2018 Numbers (Part 2)
  3. Koolearn (新东方在线) Trading Update – A Wobbly Start
  4. Denso Continues to Strengthen Its Investment CASE with Acquisitions
  5. CanSino Biologics (康希诺) IPO Trading Update – Time to Cash Out

1. Mexican Banks – Near Term Relief on Fees from the ABM Convention; Thoughts on January’s Bank Data

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  • The Mexican president Andres Manuel Lopez Obrador (AMLO) announced at the annual Mexican bank association (ABM) convention on the 22nd March that there would be no cap or regulatory-enforced reduction in Mexican banking fee and commission charges
  • AMLO stated that he expects fees to decline going forward, as a result of increased competition between banks; in the ABM convention, it was also announced that banks will charge zero commissions on the planned platform for digital payments
  • This seems a better outcome on fees than the market expected – at least in the near term, as fees are still on the political agenda – and there was greater emphasis at the convention on how to achieve increased financial inclusion, via digital banking initiatives
  • Yet we still believe that bank fees could be a bone of contention over the medium term, and we show the FY 2018 ratio of fees to revenues and to assets for eight banks, in the charts below
  • The January 2019 Mexican banks data implies slower system loan growth going forward, yet credit quality remains healthy and credit spreads are holding steady
  • Despite the volatile global markets, in the short term banks like Grupo Financiero Banorte-O (GFNORTEO MM) could benefit from the “fee relief”; longer term, we would highlight Gentera SAB De CV (GENTERA* MM EQUITY) as an attractive fundamental pick in Mexican banks

2. Viva Biotech (维亚生物) IPO: Warning Signs from 2018 Numbers (Part 2)

Fvtpl%20movement%202018

Viva Biotechnology, a China-based drug discovery company, is seeking to raise USD 200m to list on the Hong Kong Stock Exchange. It has recently obtained approval for listing by the Hong Kong Stock Exchange. In our previous insight (link here), we discussed the company’s fundamentals, its unique business model, its shareholders, and our thoughts on its valuation.

In this insight, we look at its latest prospectus and review our valuation for Viva Biotech.

3. Koolearn (新东方在线) Trading Update – A Wobbly Start

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Koolearn (1797 HK) raised about US$214m at HK$10.20 per share, the mid-point of its IPO price range. We have previously covered the IPO in: 

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

4. Denso Continues to Strengthen Its Investment CASE with Acquisitions

Denso Corp (6902 JP) announced this month that it has invested in the Seattle-based connected vehicle services pioneer- Airbiquity Inc. Airbiquity is one of the leading companies in the connected vehicle services sector and has been one of the companies that has continuously developed automotive telematics technology. This investment made by Denso follows its investment made in Quadric.io this year ( Stake in Quadric.io Following Renesas; Denso Attempts to Keep Chip Makers Close to Achieve AD Aims). As we previously mentioned, Denso is in full swing in its development in the autonomous driving field and next-generation technologies development. Thus, it wouldn’t be a surprise to see Denso emerge as the first mover in next-generation technologies such as AD and connectivity solutions. According to Denso, its investment worth $5m in Airbiquity is expected to accelerate the development of over-the-air (OTA) systems for wirelessly updating automotive software from a remote location. OTA systems are methods of distributing new software, configuration settings, and providing updates to the electronic device in use, for instance, a car navigation system in a vehicle. These OTA systems which have been increasingly used to update the software of such multimedia products in a vehicle are now gaining more prominence given the emergence of next-generation technologies such as electrification, EV and connectivity. We also believe that Denso’s Stake in Airbiquity is likely to accelerate Denso’s transition in its business model to be a leading software solution provider. Thus, its series of investments such as in Tohoku Pioneer EG, JOLED, ThinCI, Quadric, and now Airbiquity are indicative of the decisiveness of its change in business model and moves towards achieving next-generation technology leadership.

5. CanSino Biologics (康希诺) IPO Trading Update – Time to Cash Out

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CanSino Biologics raised USD 148 million at HKD 22/share, at the high end of its guided price range. We have previously covered the IPO in the following note: 

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

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Mar 28
0

Brief Growth Ideas: India’s Military Strikes on Pakistan: No War in the Offing from Either Side and more

By | Growth Ideas

In this briefing:

  1. India’s Military Strikes on Pakistan: No War in the Offing from Either Side
  2. New J. Hutton Exploration Report (Week Ending 22/02/19)
  3. SYNEX: New Smartphone Launches Help Drive Earnings Momentum in 2019

1. India’s Military Strikes on Pakistan: No War in the Offing from Either Side

Balakot%20bbc

The air strikes launched by the Indian Air Force on Jaba Top in Balakot, in the Khyber Pakhtunkhwa province of Pakistan, have raised the stakes in the escalation of conflict between the two nuclear-armed neighbours in South Asia.  The stock market reaction on the morning of February 26 was negative with the Nifty-50 down nearly 146 points (1.3%), but thereafter it recovered to close at 10,835, only 45 points down (0.4%) from the previous close.  The central issue for the Indian market remains whether this will result in another war or a military retaliation by Pakistan as India targeted a venue in Pakistan proper and outside Pakistan-administered Kashmir (PAK), unlike the earlier ‘surgical strike’ wherein Indian army units attacked a camp in PAK. A war will be prohibitively expensive for both countries, but more so for Pakistan. It would have a material impact on the fiscal deficits of both countries, and it is also unlikely that America would want an escalation of conflict in this heavily militarised region. Hence, while the Pakistani government may make appropriate noises to satisfy their public, their response may be non-military, through an escalation in low intensity conflict targeting the Indian military and para-military in Indian-administered Kashmir (IAK). Hence, while the casualties may rise, the possibility of another India-Pakistan war may be remote.

At the same time, there is an indirect fall-out of the present conflict. Since voters may perceive Prime Minister as a more credible war leader than his opponents, a war atmosphere may strengthen the prospects of the ruling party. If the market comes to this conclusion, the recent military strikes may in fact boost the market. However, that ‘war’ effect may wear off before the elections.

2. New J. Hutton Exploration Report (Week Ending 22/02/19)

Figure%202

3. SYNEX: New Smartphone Launches Help Drive Earnings Momentum in 2019

Synex%20update%205

SYNEX’s 4Q18 net profit was at Bt190m (+16%YoY, +18QoQ), in-line with our expectation

  • Record-high level of sales at Bt10.38bn is the major contributor to impressive 4Q18 performance. Meanwhile , gross margin drops below 4% in the first time due to changing product mix towards more on device segment
  • SYNEX post 2018 net profit of Bt721m (+15%YoY) driven by 18% increase in revenue
  • We maintain our positive view toward FY19-20E earnings outlook driven by (1) number of flagship smartphone model launches and new brands for low budget users, Neffos, and, (2) higher sales contribution from high-margins product such as gaming desktops and post-sales services.

We maintain our BUY rating with a new target price of Bt16.80 (previous target price at Bt15.0) derived from 17xPE’2019E, which is the average of the World information and technology sector

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Mar 28
0

Brief Growth Ideas: A Reality Check for Money Forward (3994 JP): Key Takeaways from Our Recent Visit and more

By | Growth Ideas

In this briefing:

  1. A Reality Check for Money Forward (3994 JP): Key Takeaways from Our Recent Visit
  2. Small Cap Diary: Rajthanee Hospital, CAZ
  3. New J Hutton – Exploration Report (Weeks Ending 22/03/19)
  4. Cupid Ltd: Attractive Valuation Post Significant Correction
  5. SNK Corp IPO Preview

1. A Reality Check for Money Forward (3994 JP): Key Takeaways from Our Recent Visit

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In our previous note, Money Forward (3994 JP): Solid Mid-Term Prospects for the Fintech Pro, but Overvalued, published July last year (2018), we suggested that Money Forward (3994 JP) (MF) was overvalued despite its strong growth profile. MF’s share price, which was at an all-time high (close to JPY6,000) around this time, fell below its IPO price (JPY3,000) in December, reinforcing our bearish view.

Since then, Money Forward’s share price has picked up (closing at JPY4,400 on 26th March 2019), on the back of strong topline guidance for FY11/19E (+55%-65% YoY growth) and “aggressive” medium-term profit targets (positive EBITDA by FY11/21E).

However, following our recent conversation with MF’s IR team, we believe that the above guidance needs to be slightly toned down.

2. Small Cap Diary: Rajthanee Hospital, CAZ

We visited two small-cap companies from totally different industries today. These are the key highlights.

  • Rajthanee Hospital, a small hospital chain based in Ayuthya, achieved 15.7% revenue growth CAGR since 2016 on the back of its proximity to industrial estates.
  • CAZ has seen its backlog double to Bt2.5bn largely due to its good relations with major clients (PTT) and partners (Samsung and other Korean chaebol), which dole out projects in the oil & gas sector to it.
  • Internally, CAZ follows a sophisticated cost control method sporting bar codes and GPS to track materials and dedicated cost-control staff.

3. New J Hutton – Exploration Report (Weeks Ending 22/03/19)

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4. Cupid Ltd: Attractive Valuation Post Significant Correction

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Cupid Ltd one of the largest manufacturers of condoms in India 9MFY19 revenue was largely as per our expectations, as there was some order slippages. As forecasted in our initiation report Cupid Ltd: Protecting the Needy, the company reported a 20% decline in revenue at Rs 505mn, which also resulted in lower profitability both at the operating as well as net level. EBITDA stood at INR 161.6 mn declining by 32.53% with EBITDA margin at 31.95%. PAT was INR 108.5 mn declining by 24.58% with PAT margin at 21.46%.

Despite this below-par performance in the 9MFY19, we are fairly positive on the future growth prospects of the company. As of March 2019, it has a healthy order book of INR 1300 m with Book to Bill ratio of  1.99 times on its TTM sales. We expect revenues to grow at 15% over FY18-19 and margins to improve in medium to long term horizon.

Having corrected by 67% from its peak, the stock currently trades at 10.20x its FY19 EPS and 8.34x its FY20 EPS; we believe that this provides a good entry point for this niche high margin healthcare company with attractive long term growth possibilities.

5. SNK Corp IPO Preview

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SNK Corp (950180 KS), a Japanese game company founded in 1978, is trying to complete its IPO in the Korean stock market (KOSDAQ) in April. SNK is well known its The King of Fighters game. The IPO price range is between 30,800 won and 40,400 won. The IPO base deal size ranges from $114 million to $150 million. 

This is the second time that SNK Corp is trying to complete the IPO after a failed attempt in late 2018. The company has reduced the average IPO price range by 12% this time compared to the first try in late 2018.

The bankers used four comparable companies including Webzen, NCsoft, Pearl Abyss, and Netmarble Games to value SNK Corp. Using P/B valuation method, the bankers derived an average P/B multiple of 4.1x. The bankers then took the applied equity (controlling interest) of the company and applied the P/B multiple of 4.1x to derive an implied value of the company. After applying additional 8.57% to 32.99% IPO discount, the bankers derived an IPO price range of 34,300 – 46,800 won.  

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Mar 28
0

Brief Growth Ideas: Viva Biotech (维亚生物) IPO: Warning Signs from 2018 Numbers (Part 2) and more

By | Growth Ideas

In this briefing:

  1. Viva Biotech (维亚生物) IPO: Warning Signs from 2018 Numbers (Part 2)
  2. Koolearn (新东方在线) Trading Update – A Wobbly Start
  3. Denso Continues to Strengthen Its Investment CASE with Acquisitions
  4. CanSino Biologics (康希诺) IPO Trading Update – Time to Cash Out
  5. Nissan Governance Structure Report Out: Fog Dissipating Slowly. Sunny in Summer. Storms Next Winter?

1. Viva Biotech (维亚生物) IPO: Warning Signs from 2018 Numbers (Part 2)

Fvtpl%20movement%202018

Viva Biotechnology, a China-based drug discovery company, is seeking to raise USD 200m to list on the Hong Kong Stock Exchange. It has recently obtained approval for listing by the Hong Kong Stock Exchange. In our previous insight (link here), we discussed the company’s fundamentals, its unique business model, its shareholders, and our thoughts on its valuation.

In this insight, we look at its latest prospectus and review our valuation for Viva Biotech.

2. Koolearn (新东方在线) Trading Update – A Wobbly Start

Performance%20of%20ipos%20in%202019

Koolearn (1797 HK) raised about US$214m at HK$10.20 per share, the mid-point of its IPO price range. We have previously covered the IPO in: 

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

3. Denso Continues to Strengthen Its Investment CASE with Acquisitions

Denso Corp (6902 JP) announced this month that it has invested in the Seattle-based connected vehicle services pioneer- Airbiquity Inc. Airbiquity is one of the leading companies in the connected vehicle services sector and has been one of the companies that has continuously developed automotive telematics technology. This investment made by Denso follows its investment made in Quadric.io this year ( Stake in Quadric.io Following Renesas; Denso Attempts to Keep Chip Makers Close to Achieve AD Aims). As we previously mentioned, Denso is in full swing in its development in the autonomous driving field and next-generation technologies development. Thus, it wouldn’t be a surprise to see Denso emerge as the first mover in next-generation technologies such as AD and connectivity solutions. According to Denso, its investment worth $5m in Airbiquity is expected to accelerate the development of over-the-air (OTA) systems for wirelessly updating automotive software from a remote location. OTA systems are methods of distributing new software, configuration settings, and providing updates to the electronic device in use, for instance, a car navigation system in a vehicle. These OTA systems which have been increasingly used to update the software of such multimedia products in a vehicle are now gaining more prominence given the emergence of next-generation technologies such as electrification, EV and connectivity. We also believe that Denso’s Stake in Airbiquity is likely to accelerate Denso’s transition in its business model to be a leading software solution provider. Thus, its series of investments such as in Tohoku Pioneer EG, JOLED, ThinCI, Quadric, and now Airbiquity are indicative of the decisiveness of its change in business model and moves towards achieving next-generation technology leadership.

4. CanSino Biologics (康希诺) IPO Trading Update – Time to Cash Out

Sotp%20valuation%20march%2027th

CanSino Biologics raised USD 148 million at HKD 22/share, at the high end of its guided price range. We have previously covered the IPO in the following note: 

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

5. Nissan Governance Structure Report Out: Fog Dissipating Slowly. Sunny in Summer. Storms Next Winter?

Six weeks ago I wrote that Nissan’s governance outlook was “Foggy Now, Sunny Later.” I said “Governance changes are afoot, with a steady flow of developments likely coming in March, April, May, and June.”

The last couple of months have seen numerous media articles about the process of Nissan Motor (7201 JP) and Renault SA (RNO FP) rebuilding their relationship. There have been visits to Tokyo by Renault’s new chairman of the board of directors Jean-Dominique Senard, and visits to Paris and Amsterdam by the CEOs of Nissan and Mitsubishi Motors (7211 JP). 

There have been many suggestions in French and European newspapers in the interim that Jean-Dominique Senard would be the obvious choice as a representative director of Nissan. There have been other articles out there in the Japanese press suggesting what conclusions the committee might come to as to what outcomes should result. The difference is notable. The French side still wants control. The Japanese/Nissan/committee side sees the need to fix governance.

Today there was a report in the FT suggesting that Renault “wants” to restart merger talks with Nissan and “aims to restart merger talks with Nissan within 12 months.” It should be noted that these two sentences are not exactly the same. It may still be that France wants Renault to do so, and therefore Renault aims to do so. The same article revealed past talks on Renault merging with FCA but France putting a stop to it and a current desire to acquire another automaker – perhaps FCA – after dealing with Nissan. 

Also today, the long-awaited Nissan Special Committee for Improving Governance (SCIG) report was released. It outlines some of the issues of governance which existed under Ghosn- both the ones which got him the boot, and the structural governance issues which were “discovered” after he got the boot. 

There are clear patches in the fog. Two things shine through immediately. 

  1. Governance weaknesses under Ghosn were inexcusably bad. Worse than previously reported.
  2. The recommendations to the board now are, on the whole, pretty decent. Some are sine qua non changes – formation of nomination and compensation committees, whistleblower reporting to the audit committee and not the CEO, and greater checks and balances. Some are stronger in terms of the independence of Nissan from Renault: the committee recommends a majority of independent board members, an independent chairman, and no representative directors from Renault, Mitsubishi, or principal shareholders.

There are, however, other issues which were not addressed, which for Nissan’s sake probably should be addressed. Yesterday was a first step on what will be a 3-month procession of news about the way Nissan will address the SCIG report’s recommendations, the process by which it will choose new directors when it does not have an official nomination committee, and the AGM in June to propose and confirm new directors. Then they will start their jobs in July. 

The fog looks to lift slowly. And one may anticipate some better weather beyond. But business concerns remain a threat, and while relations appear to be getting better after the departure of Carlos Ghosn and the arrival of Jean-Dominique Senard, it is not clear that a Franco-Japanese storm is not brewing in the distance.

More below.

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Mar 28
0

Brief Growth Ideas: New J. Hutton Exploration Report (Week Ending 22/02/19) and more

By | Growth Ideas

In this briefing:

  1. New J. Hutton Exploration Report (Week Ending 22/02/19)
  2. SYNEX: New Smartphone Launches Help Drive Earnings Momentum in 2019
  3. CStone Pharma (基石药业) Post-IPO: Strong Debut but Lacks near Term Catalysts

1. New J. Hutton Exploration Report (Week Ending 22/02/19)

Figure%202

2. SYNEX: New Smartphone Launches Help Drive Earnings Momentum in 2019

Synex%20update%205

SYNEX’s 4Q18 net profit was at Bt190m (+16%YoY, +18QoQ), in-line with our expectation

  • Record-high level of sales at Bt10.38bn is the major contributor to impressive 4Q18 performance. Meanwhile , gross margin drops below 4% in the first time due to changing product mix towards more on device segment
  • SYNEX post 2018 net profit of Bt721m (+15%YoY) driven by 18% increase in revenue
  • We maintain our positive view toward FY19-20E earnings outlook driven by (1) number of flagship smartphone model launches and new brands for low budget users, Neffos, and, (2) higher sales contribution from high-margins product such as gaming desktops and post-sales services.

We maintain our BUY rating with a new target price of Bt16.80 (previous target price at Bt15.0) derived from 17xPE’2019E, which is the average of the World information and technology sector

3. CStone Pharma (基石药业) Post-IPO: Strong Debut but Lacks near Term Catalysts

Summary%20of%20biotech%20listing%202

CStone Pharma’s IPO was priced at HKD 12.00/share and started trading today. In this insight, we summarize the allocation, the use of proceeds and recap our view on our valuation. We also look at past few biotech listings and discuss our thoughts on the market sentiments. We are of the view that despite a strong debut performance, CStone lacks near term catalysts that can continue to drive performance after the first day. 

Our Previous Coverage of CStone

Get Straight to the Source on Smartkarma

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Mar 28
0

Brief Growth Ideas: New J. Hutton Exploration Report (Week Ending 22/02/19) and more

By | Growth Ideas

In this briefing:

  1. New J. Hutton Exploration Report (Week Ending 22/02/19)
  2. SYNEX: New Smartphone Launches Help Drive Earnings Momentum in 2019
  3. CStone Pharma (基石药业) Post-IPO: Strong Debut but Lacks near Term Catalysts
  4. Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation

1. New J. Hutton Exploration Report (Week Ending 22/02/19)

Figure%202

2. SYNEX: New Smartphone Launches Help Drive Earnings Momentum in 2019

Synex%20update%205

SYNEX’s 4Q18 net profit was at Bt190m (+16%YoY, +18QoQ), in-line with our expectation

  • Record-high level of sales at Bt10.38bn is the major contributor to impressive 4Q18 performance. Meanwhile , gross margin drops below 4% in the first time due to changing product mix towards more on device segment
  • SYNEX post 2018 net profit of Bt721m (+15%YoY) driven by 18% increase in revenue
  • We maintain our positive view toward FY19-20E earnings outlook driven by (1) number of flagship smartphone model launches and new brands for low budget users, Neffos, and, (2) higher sales contribution from high-margins product such as gaming desktops and post-sales services.

We maintain our BUY rating with a new target price of Bt16.80 (previous target price at Bt15.0) derived from 17xPE’2019E, which is the average of the World information and technology sector

3. CStone Pharma (基石药业) Post-IPO: Strong Debut but Lacks near Term Catalysts

Summary%20of%20biotech%20listing%202

CStone Pharma’s IPO was priced at HKD 12.00/share and started trading today. In this insight, we summarize the allocation, the use of proceeds and recap our view on our valuation. We also look at past few biotech listings and discuss our thoughts on the market sentiments. We are of the view that despite a strong debut performance, CStone lacks near term catalysts that can continue to drive performance after the first day. 

Our Previous Coverage of CStone

4. Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation

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Futu Holdings Ltd (FHL US) plans to raise around US$300m in its US IPO. The company is backed by Tencent Holdings (700 HK) , Matrix Partners and Sequoia.

In my earlier insight, Futu Holdings Pre-IPO – Great Metrics but in a Commoditised Industry, I looked at the company’s background and past financial performance along with some of the other firms that are competing in the same space. 

This insight covers the positive and negative takeaways from the FY18 updated filing and also includes our thoughts on valuation.

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Mar 28
0

Brief Growth Ideas: Koolearn (新东方在线) Trading Update – A Wobbly Start and more

By | Growth Ideas

In this briefing:

  1. Koolearn (新东方在线) Trading Update – A Wobbly Start
  2. Denso Continues to Strengthen Its Investment CASE with Acquisitions
  3. CanSino Biologics (康希诺) IPO Trading Update – Time to Cash Out
  4. Nissan Governance Structure Report Out: Fog Dissipating Slowly. Sunny in Summer. Storms Next Winter?
  5. A Reality Check for Money Forward (3994 JP): Key Takeaways from Our Recent Visit

1. Koolearn (新东方在线) Trading Update – A Wobbly Start

Concentration%20of%20shares

Koolearn (1797 HK) raised about US$214m at HK$10.20 per share, the mid-point of its IPO price range. We have previously covered the IPO in: 

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

2. Denso Continues to Strengthen Its Investment CASE with Acquisitions

Denso Corp (6902 JP) announced this month that it has invested in the Seattle-based connected vehicle services pioneer- Airbiquity Inc. Airbiquity is one of the leading companies in the connected vehicle services sector and has been one of the companies that has continuously developed automotive telematics technology. This investment made by Denso follows its investment made in Quadric.io this year ( Stake in Quadric.io Following Renesas; Denso Attempts to Keep Chip Makers Close to Achieve AD Aims). As we previously mentioned, Denso is in full swing in its development in the autonomous driving field and next-generation technologies development. Thus, it wouldn’t be a surprise to see Denso emerge as the first mover in next-generation technologies such as AD and connectivity solutions. According to Denso, its investment worth $5m in Airbiquity is expected to accelerate the development of over-the-air (OTA) systems for wirelessly updating automotive software from a remote location. OTA systems are methods of distributing new software, configuration settings, and providing updates to the electronic device in use, for instance, a car navigation system in a vehicle. These OTA systems which have been increasingly used to update the software of such multimedia products in a vehicle are now gaining more prominence given the emergence of next-generation technologies such as electrification, EV and connectivity. We also believe that Denso’s Stake in Airbiquity is likely to accelerate Denso’s transition in its business model to be a leading software solution provider. Thus, its series of investments such as in Tohoku Pioneer EG, JOLED, ThinCI, Quadric, and now Airbiquity are indicative of the decisiveness of its change in business model and moves towards achieving next-generation technology leadership.

3. CanSino Biologics (康希诺) IPO Trading Update – Time to Cash Out

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CanSino Biologics raised USD 148 million at HKD 22/share, at the high end of its guided price range. We have previously covered the IPO in the following note: 

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

4. Nissan Governance Structure Report Out: Fog Dissipating Slowly. Sunny in Summer. Storms Next Winter?

Six weeks ago I wrote that Nissan’s governance outlook was “Foggy Now, Sunny Later.” I said “Governance changes are afoot, with a steady flow of developments likely coming in March, April, May, and June.”

The last couple of months have seen numerous media articles about the process of Nissan Motor (7201 JP) and Renault SA (RNO FP) rebuilding their relationship. There have been visits to Tokyo by Renault’s new chairman of the board of directors Jean-Dominique Senard, and visits to Paris and Amsterdam by the CEOs of Nissan and Mitsubishi Motors (7211 JP). 

There have been many suggestions in French and European newspapers in the interim that Jean-Dominique Senard would be the obvious choice as a representative director of Nissan. There have been other articles out there in the Japanese press suggesting what conclusions the committee might come to as to what outcomes should result. The difference is notable. The French side still wants control. The Japanese/Nissan/committee side sees the need to fix governance.

Today there was a report in the FT suggesting that Renault “wants” to restart merger talks with Nissan and “aims to restart merger talks with Nissan within 12 months.” It should be noted that these two sentences are not exactly the same. It may still be that France wants Renault to do so, and therefore Renault aims to do so. The same article revealed past talks on Renault merging with FCA but France putting a stop to it and a current desire to acquire another automaker – perhaps FCA – after dealing with Nissan. 

Also today, the long-awaited Nissan Special Committee for Improving Governance (SCIG) report was released. It outlines some of the issues of governance which existed under Ghosn- both the ones which got him the boot, and the structural governance issues which were “discovered” after he got the boot. 

There are clear patches in the fog. Two things shine through immediately. 

  1. Governance weaknesses under Ghosn were inexcusably bad. Worse than previously reported.
  2. The recommendations to the board now are, on the whole, pretty decent. Some are sine qua non changes – formation of nomination and compensation committees, whistleblower reporting to the audit committee and not the CEO, and greater checks and balances. Some are stronger in terms of the independence of Nissan from Renault: the committee recommends a majority of independent board members, an independent chairman, and no representative directors from Renault, Mitsubishi, or principal shareholders.

There are, however, other issues which were not addressed, which for Nissan’s sake probably should be addressed. Yesterday was a first step on what will be a 3-month procession of news about the way Nissan will address the SCIG report’s recommendations, the process by which it will choose new directors when it does not have an official nomination committee, and the AGM in June to propose and confirm new directors. Then they will start their jobs in July. 

The fog looks to lift slowly. And one may anticipate some better weather beyond. But business concerns remain a threat, and while relations appear to be getting better after the departure of Carlos Ghosn and the arrival of Jean-Dominique Senard, it is not clear that a Franco-Japanese storm is not brewing in the distance.

More below.

5. A Reality Check for Money Forward (3994 JP): Key Takeaways from Our Recent Visit

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In our previous note, Money Forward (3994 JP): Solid Mid-Term Prospects for the Fintech Pro, but Overvalued, published July last year (2018), we suggested that Money Forward (3994 JP) (MF) was overvalued despite its strong growth profile. MF’s share price, which was at an all-time high (close to JPY6,000) around this time, fell below its IPO price (JPY3,000) in December, reinforcing our bearish view.

Since then, Money Forward’s share price has picked up (closing at JPY4,400 on 26th March 2019), on the back of strong topline guidance for FY11/19E (+55%-65% YoY growth) and “aggressive” medium-term profit targets (positive EBITDA by FY11/21E).

However, following our recent conversation with MF’s IR team, we believe that the above guidance needs to be slightly toned down.

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Mar 28
0

Brief Growth Ideas: Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation and more

By | Growth Ideas

In this briefing:

  1. Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation

1. Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation

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Futu Holdings Ltd (FHL US) plans to raise around US$300m in its US IPO. The company is backed by Tencent Holdings (700 HK) , Matrix Partners and Sequoia.

In my earlier insight, Futu Holdings Pre-IPO – Great Metrics but in a Commoditised Industry, I looked at the company’s background and past financial performance along with some of the other firms that are competing in the same space. 

This insight covers the positive and negative takeaways from the FY18 updated filing and also includes our thoughts on valuation.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Mar 28
0

Brief Growth Ideas: Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation and more

By | Growth Ideas

In this briefing:

  1. Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation
  2. Baidu (BIDU): Stagnant in 4Q18, Wrong Change Feeds a 24% User Increase to Google

1. Futu Holdings Pre-IPO – FY18 Updates And Quick Thoughts on Valuation

Quarltery%20performance

Futu Holdings Ltd (FHL US) plans to raise around US$300m in its US IPO. The company is backed by Tencent Holdings (700 HK) , Matrix Partners and Sequoia.

In my earlier insight, Futu Holdings Pre-IPO – Great Metrics but in a Commoditised Industry, I looked at the company’s background and past financial performance along with some of the other firms that are competing in the same space. 

This insight covers the positive and negative takeaways from the FY18 updated filing and also includes our thoughts on valuation.

2. Baidu (BIDU): Stagnant in 4Q18, Wrong Change Feeds a 24% User Increase to Google

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  • Baidu posted a weak result for 4Q2018.
  • We believe it is a wrong decision to change Baidu into an in-house search engine.
  • Alphabet Inc Cl C (GOOG US) ’s monthly active users in mainland China increased 24% QoQ in January 2019.
  • We believe Baidu’s stock price has been fairly impacted.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.