Growth Ideas

In this briefing:

1. Las Vegas Sands: Singapore Expansion Impacts Our Valuation Now, Long Before Projected 2025 Debut
2. ECM Weekly (6 April 2019) – Bilibili, Huya, Qutoutiao, Polycab, PNB Metlife, CIMC Vehicle
3. Japan Post Insurance Placement – 3x the IPO Size – Basics and Index Impact
4. Shanghai/Shenzhen Connect – Inflow Turned Cautious in March but MSCI Adjustment Ahead
5. Huya Placement: Best Performing Live Streaming Stock but Beware Douyu Is Catching Up

1. Las Vegas Sands: Singapore Expansion Impacts Our Valuation Now, Long Before Projected 2025 Debut

• LVS at $64 has runway to $80 by Q4 this year with more core catalysts than many peers.
• Just announced Singapore expansion solidifies LVS first mover MICE advantage as developer of choice in other jurisdictions.
• Singapore outlook adds credibility to LVS pole position in race for Japan IR license before year’s end, adding ballast to our PT.

2. ECM Weekly (6 April 2019) – Bilibili, Huya, Qutoutiao, Polycab, PNB Metlife, CIMC Vehicle

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 63.5% for Placements 

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

New IPO filings

• Changliao AKA 派派(Hong Kong, ~US$100m)

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

• Leong Hup – comeback sunny side up
• Polycab India eyes to raise around Rs 1,345 crore through IPO
• Carlyle-backed Metropolis Healthcare’s IPO nears halfway mark on second day
• Eagle Hospitality Trust eyes Singapore IPO to raise up to US$575m
• Cancer Treatment Firm Plans Hong Kong IPO
• Goldman-Backed Chinese Online Pet Store Boqii Plans IPO
• China drone maker EHang delays IPO plan, eyes private funding-sources

This week Analysis on Upcoming IPO

• Map Aktif Follow-On Offering – Lace up for a Potential Long Run
• Zhongliang (中梁地产) Pre-IPO Review – Incredible Growth Bogged Down by Related Party Transactions
• CIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead
• PNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
• Polycab India Limited IPO – Probably Near Peak Margins, Improvements Unexplained

3. Japan Post Insurance Placement – 3x the IPO Size – Basics and Index Impact

Yesterday, post-market close, Japan Post Holdings (6178 JP)(JPH) announced that it will sell 185m shares (including over-allotment) or 30.8% of Japan Post Insurance (7181 JP)(JPI) amounting to US$4bn. JPI plans to buy back up to 50m shares out of these, leaving around US$3.1bn worth of stock to be placed. Out of these 185m shares, 30% will be placed with foreigners.

The selldown is part of the government’s plan for privatization under which JPH is supposed to reduce its stake in JPI and Japan Post Bank (7182 JP)(JPB) to around 50%. This was highlighted in the IPO of the three entities in 2015. Thus, the deal is not totally unexpected but the timing of it was never certain. For people interested in more about the history and background, we’ve covered the IPO and JPH sell down in the below series of insights:

• All three IPOs: When the bank is cheap and holdco discount makes the mothership cheaper, then who needs insurance?
• JPI IPO: Three’s a crowd – A minnow amongst giants risks getting lost in the chatter
• JPB IPO: Dividend yield looks enticing versus JGBs yield, while risks are similar
• JPH IPO: Final call to board the mothership. They don’t come much cheaper than this.
• JPH Placement: Japan Post Holdings Placement – Similar Reasons, Similar Price Will Probably Yield Similar Returns

In this insight, I’ll comment on some of the deal dynamics and index weighting impact.

4. Shanghai/Shenzhen Connect – Inflow Turned Cautious in March but MSCI Adjustment Ahead

In our Discover SZ/SH Connect series, we aim to help our investors understand the flow of northbound trades via the Shanghai Connect and Shenzhen Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by offshore investors in the past seven days.

We split the stocks eligible for the northbound trade into three groups: those with a market capitalization of above USD 5 billion, and those with a market capitalization between USD 1 billion and USD 5 billion.

We note that in March, northbound inflows turned more cautious vs strong inflows in February (link to our Feb note) and January (link to our Jan note). Nevertheless we see strong inflows into Healthcare sector, led by Jiangsu Hengrui Medicine Co., (600276 CH). We also highlight Universal Scientific Industrial Shanghai (601231 CH 环旭电子) in the mid cap space that attracted strong northbound inflows.

5. Huya Placement: Best Performing Live Streaming Stock but Beware Douyu Is Catching Up

Huya, a leading live streaming player in China, announced share placement of USD 550 million after market close on April 3rd. In this insight, we will look at recent developments of Huya and score the deal in our ECM Framework.

In this briefing:

1. M: Trimmed 2019-20E Earnings Forecast by 12% and 19%
2. UUUM (3990) Phenomenal Growth but at a Price.
3. Speedcast: Back on Track
4. MINT’s First Post-Acquisition Update

1. M: Trimmed 2019-20E Earnings Forecast by 12% and 19%

M had 4Q18 net profit of Bt606m (+11%YoY, -10%QoQ). The 2018 earnings was 10% lower than our forecast but in line with our expectation.

• Excluding impairment cost from employee benefit, 4Q18 core earnings grew 26.4%YoY to Bt690m. Meanwhile, gross margin remains flat at 68.3%, close to past four quarters level.
• The 2018 earnings increases 6% driven by gross profit margin expansion to 68.4% from 67.8% in 2017 and 4.3% growth in sales to Bt16bn due mainly to branches expansion and lower raw material costs respectively.
• We maintain our positive view toward its 2019-2020 outlook backed by SSSG recovery and branch expansion plan. However, we cut our 2019-20E earnings forecast by 12% and 19% respectively to factor in weak sales and margin than our previous expectation.

We maintain our BUY rating based on a new target price of Bt88 (27.4xPE’19) or down 8% from our previous target to follow earnings cut.

2. UUUM (3990) Phenomenal Growth but at a Price.

This has been a fantastic performer. Since our buy note one year ago, the shares are up just over 3 times. Earnings growth has been very strong, and much better than we had anticipated. The story is even better now than it was then. Unfortunately, the valuations are not! The company is very focussed on growing revenue for the time being. If one is happy to buy a very fast growing new business, then this is still worth looking at.

3. Speedcast: Back on Track

Speedcast International (SDA AU) recently reported FY18 (Dec YE) results which showed a solid recovery in 2H. That has allowed the stock to start to recover from a torrid 1H18 performance which saw targets missed. The strong recovery in operating performance in 2H18 has allowed Ian Martin to reset forecasts and he now looks for the EBITDA margin to increase steadily as acquisitions are bedded down. By FY20, we expect Speedcast to be in a much stronger position as rising cash flow leads to lower debts. We have a new 12m target price of A$4.40 based on 11.7x FY20F EPS. We expect SpeedCast to be in a materially better operating position as it moves into FY20, and good cash flow will be used to reduce debt through the year. Operating execution in 1H19 is crucial.

4. MINT’s First Post-Acquisition Update

We caught up with MINT and Bangkok Dec-Con today. Some highlights from the meeting:

• MINT has gained international presence following the acquisition of NH Hotels in Spain, but the first benefits is mainly coming from the top line side (34% revenue growth) rather than profit level at this stage. Having said that, NH itself has turned around significantly.
• Synergies expected through branding, loyalty programs, and cross-selling, though perhaps not all at once. 
• Leverage reduction. Much has already been achieved by asset revaluation, but the next step involves sales of some selected Tivoli assets and issuance of new warrants entailing a maximum dilution of 20%.
• Bangkok Dec-Con acquired a 40% stake in Phuket water concessionaire Gold Shores in December for Bt600m. A sizable diversification, eventhough they are really growing their profits like crazy in 2018.  

In this briefing:

1. UUUM (3990) Phenomenal Growth but at a Price.
2. Speedcast: Back on Track
3. MINT’s First Post-Acquisition Update

1. UUUM (3990) Phenomenal Growth but at a Price.

This has been a fantastic performer. Since our buy note one year ago, the shares are up just over 3 times. Earnings growth has been very strong, and much better than we had anticipated. The story is even better now than it was then. Unfortunately, the valuations are not! The company is very focussed on growing revenue for the time being. If one is happy to buy a very fast growing new business, then this is still worth looking at.

2. Speedcast: Back on Track

Speedcast International (SDA AU) recently reported FY18 (Dec YE) results which showed a solid recovery in 2H. That has allowed the stock to start to recover from a torrid 1H18 performance which saw targets missed. The strong recovery in operating performance in 2H18 has allowed Ian Martin to reset forecasts and he now looks for the EBITDA margin to increase steadily as acquisitions are bedded down. By FY20, we expect Speedcast to be in a much stronger position as rising cash flow leads to lower debts. We have a new 12m target price of A$4.40 based on 11.7x FY20F EPS. We expect SpeedCast to be in a materially better operating position as it moves into FY20, and good cash flow will be used to reduce debt through the year. Operating execution in 1H19 is crucial.

3. MINT’s First Post-Acquisition Update

We caught up with MINT and Bangkok Dec-Con today. Some highlights from the meeting:

• MINT has gained international presence following the acquisition of NH Hotels in Spain, but the first benefits is mainly coming from the top line side (34% revenue growth) rather than profit level at this stage. Having said that, NH itself has turned around significantly.
• Synergies expected through branding, loyalty programs, and cross-selling, though perhaps not all at once. 
• Leverage reduction. Much has already been achieved by asset revaluation, but the next step involves sales of some selected Tivoli assets and issuance of new warrants entailing a maximum dilution of 20%.
• Bangkok Dec-Con acquired a 40% stake in Phuket water concessionaire Gold Shores in December for Bt600m. A sizable diversification, eventhough they are really growing their profits like crazy in 2018.  

In this briefing:

1. Xinyi Solar Placement – Past Deals Have Done Well, Improvement in Sentiment Should Help

1. Xinyi Solar Placement – Past Deals Have Done Well, Improvement in Sentiment Should Help

Xinyi Solar Holdings (968 HK) is looking to raise about US$170m in its top-up placement with an upsize option of 225m shares.

The deal scored well on our framework owing to its good track record, strong earnings and price momentum. The company’s 2H 2018 result had marginally beaten estimates while the news of China potentially reversing its effort to reduce solar subsidy has helped improve the overall sentiment of Xinyi Solar. On top of that, the past deals have generally done well.

In this briefing:

1. Xinyi Solar Placement – Past Deals Have Done Well, Improvement in Sentiment Should Help
2. SIS: 4Q18 Result Broke the Record

1. Xinyi Solar Placement – Past Deals Have Done Well, Improvement in Sentiment Should Help

Xinyi Solar Holdings (968 HK) is looking to raise about US$170m in its top-up placement with an upsize option of 225m shares.

The deal scored well on our framework owing to its good track record, strong earnings and price momentum. The company’s 2H 2018 result had marginally beaten estimates while the news of China potentially reversing its effort to reduce solar subsidy has helped improve the overall sentiment of Xinyi Solar. On top of that, the past deals have generally done well.

2. SIS: 4Q18 Result Broke the Record

SIS’s 4Q18 net profit was Bt149m (+77%YoY, +16%QoQ), a record high level. The impressive 2018 result was much better than our forecast and accounts for 131% of our full-year forecast.

• A YoY and QoQ earnings growth were backed by an all-time high level of gross margin at 6.7% mainly driven by higher sales contribution from data center related products and others (security and surveillance) segments. 2018 net profit was at Bt468 (+58%YoY), buoyed by a record high sales and margin
• We maintain a positive outlook toward its 2019-20E earnings driven by 1) solid growth for high margin segments: enterprise, security and surveillance on the back of strong outlook for IT investment by private sector along the mega-trend of digitalization.
• Announced Bt0.55 of dividend payment or equivalent to 4.7% yield (XD on 3th May 2019

We maintain a BUY rating for SIS with our new target price of Bt15.0 derived from 10xPE’19E, its average trading range in the past five years or a 30% discount to the Thai Info Tech sector.

In this briefing:

1. ECM Weekly (6 April 2019) – Bilibili, Huya, Qutoutiao, Polycab, PNB Metlife, CIMC Vehicle
2. Japan Post Insurance Placement – 3x the IPO Size – Basics and Index Impact
3. Shanghai/Shenzhen Connect – Inflow Turned Cautious in March but MSCI Adjustment Ahead
4. Huya Placement: Best Performing Live Streaming Stock but Beware Douyu Is Catching Up
5. MTG Co Ltd; Problems Stretch Far Beyond the New Chinese E-Commerce Legislation

1. ECM Weekly (6 April 2019) – Bilibili, Huya, Qutoutiao, Polycab, PNB Metlife, CIMC Vehicle

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 63.5% for Placements 

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

New IPO filings

• Changliao AKA 派派(Hong Kong, ~US$100m)

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

• Leong Hup – comeback sunny side up
• Polycab India eyes to raise around Rs 1,345 crore through IPO
• Carlyle-backed Metropolis Healthcare’s IPO nears halfway mark on second day
• Eagle Hospitality Trust eyes Singapore IPO to raise up to US$575m
• Cancer Treatment Firm Plans Hong Kong IPO
• Goldman-Backed Chinese Online Pet Store Boqii Plans IPO
• China drone maker EHang delays IPO plan, eyes private funding-sources

This week Analysis on Upcoming IPO

• Map Aktif Follow-On Offering – Lace up for a Potential Long Run
• Zhongliang (中梁地产) Pre-IPO Review – Incredible Growth Bogged Down by Related Party Transactions
• CIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead
• PNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
• Polycab India Limited IPO – Probably Near Peak Margins, Improvements Unexplained

2. Japan Post Insurance Placement – 3x the IPO Size – Basics and Index Impact

Yesterday, post-market close, Japan Post Holdings (6178 JP)(JPH) announced that it will sell 185m shares (including over-allotment) or 30.8% of Japan Post Insurance (7181 JP)(JPI) amounting to US$4bn. JPI plans to buy back up to 50m shares out of these, leaving around US$3.1bn worth of stock to be placed. Out of these 185m shares, 30% will be placed with foreigners.

The selldown is part of the government’s plan for privatization under which JPH is supposed to reduce its stake in JPI and Japan Post Bank (7182 JP)(JPB) to around 50%. This was highlighted in the IPO of the three entities in 2015. Thus, the deal is not totally unexpected but the timing of it was never certain. For people interested in more about the history and background, we’ve covered the IPO and JPH sell down in the below series of insights:

• All three IPOs: When the bank is cheap and holdco discount makes the mothership cheaper, then who needs insurance?
• JPI IPO: Three’s a crowd – A minnow amongst giants risks getting lost in the chatter
• JPB IPO: Dividend yield looks enticing versus JGBs yield, while risks are similar
• JPH IPO: Final call to board the mothership. They don’t come much cheaper than this.
• JPH Placement: Japan Post Holdings Placement – Similar Reasons, Similar Price Will Probably Yield Similar Returns

In this insight, I’ll comment on some of the deal dynamics and index weighting impact.

3. Shanghai/Shenzhen Connect – Inflow Turned Cautious in March but MSCI Adjustment Ahead

In our Discover SZ/SH Connect series, we aim to help our investors understand the flow of northbound trades via the Shanghai Connect and Shenzhen Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by offshore investors in the past seven days.

We split the stocks eligible for the northbound trade into three groups: those with a market capitalization of above USD 5 billion, and those with a market capitalization between USD 1 billion and USD 5 billion.

We note that in March, northbound inflows turned more cautious vs strong inflows in February (link to our Feb note) and January (link to our Jan note). Nevertheless we see strong inflows into Healthcare sector, led by Jiangsu Hengrui Medicine Co., (600276 CH). We also highlight Universal Scientific Industrial Shanghai (601231 CH 环旭电子) in the mid cap space that attracted strong northbound inflows.

4. Huya Placement: Best Performing Live Streaming Stock but Beware Douyu Is Catching Up

Huya, a leading live streaming player in China, announced share placement of USD 550 million after market close on April 3rd. In this insight, we will look at recent developments of Huya and score the deal in our ECM Framework.

5. MTG Co Ltd; Problems Stretch Far Beyond the New Chinese E-Commerce Legislation

• MTG revised their original targets for FY2019 and issued revised targets which were significantly below the original targets
• The share price has already been on the decline even prior to the notice of revised targets
• Declining inbound sales of its flagship brand ReFa is the main culprit for guidance reversion
• The impact of Chinese e-commerce legislation was significant due to limited exposure to pure inbound sales
• Parallel buyers, those who buy products to resell them in China: dominates MTG’s inbound sales
• MTG’s price difference in Japan duty-free purchases vs official sales channels in China
• The Troubles of MTG, Causing Panic Among Consensus
• Insider ownership and lack of free float keeping the share price above its fair value
• Price to book approaching 1.0x; limits the immediate downside risk

In this briefing:

1. Xinyi Solar Placement – Past Deals Have Done Well, Improvement in Sentiment Should Help
2. SIS: 4Q18 Result Broke the Record
3. Renesas: Factory Stoppage Announcement Should Correct Premature Rebound Expectations

1. Xinyi Solar Placement – Past Deals Have Done Well, Improvement in Sentiment Should Help

Xinyi Solar Holdings (968 HK) is looking to raise about US$170m in its top-up placement with an upsize option of 225m shares.

The deal scored well on our framework owing to its good track record, strong earnings and price momentum. The company’s 2H 2018 result had marginally beaten estimates while the news of China potentially reversing its effort to reduce solar subsidy has helped improve the overall sentiment of Xinyi Solar. On top of that, the past deals have generally done well.

2. SIS: 4Q18 Result Broke the Record

SIS’s 4Q18 net profit was Bt149m (+77%YoY, +16%QoQ), a record high level. The impressive 2018 result was much better than our forecast and accounts for 131% of our full-year forecast.

• A YoY and QoQ earnings growth were backed by an all-time high level of gross margin at 6.7% mainly driven by higher sales contribution from data center related products and others (security and surveillance) segments. 2018 net profit was at Bt468 (+58%YoY), buoyed by a record high sales and margin
• We maintain a positive outlook toward its 2019-20E earnings driven by 1) solid growth for high margin segments: enterprise, security and surveillance on the back of strong outlook for IT investment by private sector along the mega-trend of digitalization.
• Announced Bt0.55 of dividend payment or equivalent to 4.7% yield (XD on 3th May 2019

We maintain a BUY rating for SIS with our new target price of Bt15.0 derived from 10xPE’19E, its average trading range in the past five years or a 30% discount to the Thai Info Tech sector.

3. Renesas: Factory Stoppage Announcement Should Correct Premature Rebound Expectations

We commented previously on 13 Dec 2018 that:

We visited Renesas Electronics (6723 JP) this week to discuss progress on inventory reduction and its likely ramp of utilisation rates/wafer throughput, as well as to gather further details on the IDT acquisition and its long -term strategy. On the whole, we continue to like the long-term picture, consider the stock to be undervalued and believe investors with long time horizons should be looking at the stock on the long side. However, our discussions suggested to us that while production cuts to reduce inventory should be completed this month or at worst in 1Q2019, a ramp in utilisation rates could take longer than is implied by consensus.

Following this comment Renesas Electronics (6723 JP) traded directionally with the market though in very volatile fashion, first dropping 17% before rebounding 69%. Now, with Nikkei reporting that the company would halt production at most facilities during the year and for as much as two months in some cases, the stock is once again giving up its gains and is limit down -14%.  This leaves it just 10% above where we previously commented on the stock and as it approaches the ¥500 level again we feel it is becoming interesting again. We examine the potential financial impact from the production halts below.

In this briefing:

1. SIS: 4Q18 Result Broke the Record
2. Renesas: Factory Stoppage Announcement Should Correct Premature Rebound Expectations

1. SIS: 4Q18 Result Broke the Record

SIS’s 4Q18 net profit was Bt149m (+77%YoY, +16%QoQ), a record high level. The impressive 2018 result was much better than our forecast and accounts for 131% of our full-year forecast.

• A YoY and QoQ earnings growth were backed by an all-time high level of gross margin at 6.7% mainly driven by higher sales contribution from data center related products and others (security and surveillance) segments. 2018 net profit was at Bt468 (+58%YoY), buoyed by a record high sales and margin
• We maintain a positive outlook toward its 2019-20E earnings driven by 1) solid growth for high margin segments: enterprise, security and surveillance on the back of strong outlook for IT investment by private sector along the mega-trend of digitalization.
• Announced Bt0.55 of dividend payment or equivalent to 4.7% yield (XD on 3th May 2019

We maintain a BUY rating for SIS with our new target price of Bt15.0 derived from 10xPE’19E, its average trading range in the past five years or a 30% discount to the Thai Info Tech sector.

2. Renesas: Factory Stoppage Announcement Should Correct Premature Rebound Expectations

We commented previously on 13 Dec 2018 that:

We visited Renesas Electronics (6723 JP) this week to discuss progress on inventory reduction and its likely ramp of utilisation rates/wafer throughput, as well as to gather further details on the IDT acquisition and its long -term strategy. On the whole, we continue to like the long-term picture, consider the stock to be undervalued and believe investors with long time horizons should be looking at the stock on the long side. However, our discussions suggested to us that while production cuts to reduce inventory should be completed this month or at worst in 1Q2019, a ramp in utilisation rates could take longer than is implied by consensus.

Following this comment Renesas Electronics (6723 JP) traded directionally with the market though in very volatile fashion, first dropping 17% before rebounding 69%. Now, with Nikkei reporting that the company would halt production at most facilities during the year and for as much as two months in some cases, the stock is once again giving up its gains and is limit down -14%.  This leaves it just 10% above where we previously commented on the stock and as it approaches the ¥500 level again we feel it is becoming interesting again. We examine the potential financial impact from the production halts below.

In this briefing:

1. SIS: 4Q18 Result Broke the Record
2. Renesas: Factory Stoppage Announcement Should Correct Premature Rebound Expectations
3. Matahari Department Store (LPPF IJ) – A Retail Conundrum

1. SIS: 4Q18 Result Broke the Record

SIS’s 4Q18 net profit was Bt149m (+77%YoY, +16%QoQ), a record high level. The impressive 2018 result was much better than our forecast and accounts for 131% of our full-year forecast.

• A YoY and QoQ earnings growth were backed by an all-time high level of gross margin at 6.7% mainly driven by higher sales contribution from data center related products and others (security and surveillance) segments. 2018 net profit was at Bt468 (+58%YoY), buoyed by a record high sales and margin
• We maintain a positive outlook toward its 2019-20E earnings driven by 1) solid growth for high margin segments: enterprise, security and surveillance on the back of strong outlook for IT investment by private sector along the mega-trend of digitalization.
• Announced Bt0.55 of dividend payment or equivalent to 4.7% yield (XD on 3th May 2019

We maintain a BUY rating for SIS with our new target price of Bt15.0 derived from 10xPE’19E, its average trading range in the past five years or a 30% discount to the Thai Info Tech sector.

2. Renesas: Factory Stoppage Announcement Should Correct Premature Rebound Expectations

We commented previously on 13 Dec 2018 that:

We visited Renesas Electronics (6723 JP) this week to discuss progress on inventory reduction and its likely ramp of utilisation rates/wafer throughput, as well as to gather further details on the IDT acquisition and its long -term strategy. On the whole, we continue to like the long-term picture, consider the stock to be undervalued and believe investors with long time horizons should be looking at the stock on the long side. However, our discussions suggested to us that while production cuts to reduce inventory should be completed this month or at worst in 1Q2019, a ramp in utilisation rates could take longer than is implied by consensus.

Following this comment Renesas Electronics (6723 JP) traded directionally with the market though in very volatile fashion, first dropping 17% before rebounding 69%. Now, with Nikkei reporting that the company would halt production at most facilities during the year and for as much as two months in some cases, the stock is once again giving up its gains and is limit down -14%.  This leaves it just 10% above where we previously commented on the stock and as it approaches the ¥500 level again we feel it is becoming interesting again. We examine the potential financial impact from the production halts below.

3. Matahari Department Store (LPPF IJ) – A Retail Conundrum

Pt Matahari Department Store (LPPF IJ)‘s FY18 results call was an interesting combination of kitchen sinking, a cautious outlook, combined with some more optimistic strategies on specialty stores with new brands and smaller format stores for regional expansion. The big question is whether these strategies will win out or will the company continue to underwhelm on its growth prospects? 

Pt Matahari Department Store (LPPF IJ) remains a market leader in its space with 159 departments stores across Indonesia selling affordable fashion to the middle classes but it has underwhelmed on a few occasions on its growth and guidance. It is reducing its dividend payout to facilitate the build-out of specialty stores with new brands on board. 

Valuations do now look interesting with the company trading on 6.0x FY19E PER and 5.4x FY20E PER. It generates a forecast ROE of 70% and ROE of 30%, which is extremely high for a retailer. The question is how much analysts will downgrade and whether investors will look through its Lippo connection. After another 9% fall in the share price today after 22% yesterday, a lot does seem to have been factored in already.

In this briefing:

1. SIS: 4Q18 Result Broke the Record
2. Renesas: Factory Stoppage Announcement Should Correct Premature Rebound Expectations
3. Matahari Department Store (LPPF IJ) – A Retail Conundrum
4. Yingcheng Intl (银城国际) – Quick Post-IPO Trading Update

1. SIS: 4Q18 Result Broke the Record

SIS’s 4Q18 net profit was Bt149m (+77%YoY, +16%QoQ), a record high level. The impressive 2018 result was much better than our forecast and accounts for 131% of our full-year forecast.

• A YoY and QoQ earnings growth were backed by an all-time high level of gross margin at 6.7% mainly driven by higher sales contribution from data center related products and others (security and surveillance) segments. 2018 net profit was at Bt468 (+58%YoY), buoyed by a record high sales and margin
• We maintain a positive outlook toward its 2019-20E earnings driven by 1) solid growth for high margin segments: enterprise, security and surveillance on the back of strong outlook for IT investment by private sector along the mega-trend of digitalization.
• Announced Bt0.55 of dividend payment or equivalent to 4.7% yield (XD on 3th May 2019

We maintain a BUY rating for SIS with our new target price of Bt15.0 derived from 10xPE’19E, its average trading range in the past five years or a 30% discount to the Thai Info Tech sector.

2. Renesas: Factory Stoppage Announcement Should Correct Premature Rebound Expectations

We commented previously on 13 Dec 2018 that:

We visited Renesas Electronics (6723 JP) this week to discuss progress on inventory reduction and its likely ramp of utilisation rates/wafer throughput, as well as to gather further details on the IDT acquisition and its long -term strategy. On the whole, we continue to like the long-term picture, consider the stock to be undervalued and believe investors with long time horizons should be looking at the stock on the long side. However, our discussions suggested to us that while production cuts to reduce inventory should be completed this month or at worst in 1Q2019, a ramp in utilisation rates could take longer than is implied by consensus.

Following this comment Renesas Electronics (6723 JP) traded directionally with the market though in very volatile fashion, first dropping 17% before rebounding 69%. Now, with Nikkei reporting that the company would halt production at most facilities during the year and for as much as two months in some cases, the stock is once again giving up its gains and is limit down -14%.  This leaves it just 10% above where we previously commented on the stock and as it approaches the ¥500 level again we feel it is becoming interesting again. We examine the potential financial impact from the production halts below.

3. Matahari Department Store (LPPF IJ) – A Retail Conundrum

Pt Matahari Department Store (LPPF IJ)‘s FY18 results call was an interesting combination of kitchen sinking, a cautious outlook, combined with some more optimistic strategies on specialty stores with new brands and smaller format stores for regional expansion. The big question is whether these strategies will win out or will the company continue to underwhelm on its growth prospects? 

Pt Matahari Department Store (LPPF IJ) remains a market leader in its space with 159 departments stores across Indonesia selling affordable fashion to the middle classes but it has underwhelmed on a few occasions on its growth and guidance. It is reducing its dividend payout to facilitate the build-out of specialty stores with new brands on board. 

Valuations do now look interesting with the company trading on 6.0x FY19E PER and 5.4x FY20E PER. It generates a forecast ROE of 70% and ROE of 30%, which is extremely high for a retailer. The question is how much analysts will downgrade and whether investors will look through its Lippo connection. After another 9% fall in the share price today after 22% yesterday, a lot does seem to have been factored in already.

4. Yingcheng Intl (银城国际) – Quick Post-IPO Trading Update

Yincheng International Holdi (1902 HK) raised US$100m in at HK$2.38 per share, at the mid-point of its IPO price range. We have previously covered the IPO in:

• Yincheng Intl (银城国际) IPO Quick Note: A Highly Levered Nanjing Developer Bet

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