In this briefing:
- Naspers: Profitability Improvements Continue
- TRADE IDEA – Toyota Industries (6201 JP) Stub: Riding the Automation Wave
- Nexen Corp Holdco Trade: Status Update & Recommended Action
- BGF Holdo Trade: Status Update & Recommended Action
- Hikari Tsushin (9435) Continues to Generate Profits Growth as New Business Streams Contribute. BUY
1. Naspers: Profitability Improvements Continue
Following David Blennerhassett‘s recent StubWorld note, we wanted add a bit more detail on the non Tencent Holdings (700 HK) part of Naspers (NPN SJ). In any discussion of Naspers, this tends to get overlooked but in fact, Naspers has generally done quite well in these businesses, by building them, monetizing them, and in some cases selling them. Alastair Jones believes that, given moves to unbundle the pay-TV assets in 2019, there is scope for the NAV discount to narrow. The current low/negative valuation for the unlisted assets ignores their significant value.
Naspers valuation:
2. TRADE IDEA – Toyota Industries (6201 JP) Stub: Riding the Automation Wave
If ever there was a stub business that is poised to capitalize on global trends of factory automation, automated logistics handling and electric vehicle prevalence, it is that of Toyota Industries (6201 JP). In August, I took an in-depth look at the major businesses of Toyota Industries and concluded that the market was not giving the company credit for the global leadership it has established in the forklifts and automobile A/C compressor businesses, nor for the progress it has made in the logistics equipment business. While the market’s oversight appeared to have corrected in September and October as the discount to NAV contracted from 34% to 25%, the trend has since reversed and the discount is back at trough levels of 35%. In August, I implied that this would be a good trading opportunity. Today, I explicitly recommend going long the stub.
In this insight I will cover:
- A market-neutral trade setup
- A review of the core unlisted businesses
- Alternative data used to gauge performance in the core business
- Risks of the trade
- A recap of ALL my stub trade ideas on Smartkarma, including track record of performance
3. Nexen Corp Holdco Trade: Status Update & Recommended Action
- Nexen Corp (005720 KS) / Nexen Tire Corp (002350 KS) stub trade yield is 6.07%. Price ratio is now at 20D MA. Holdco discount now stands at 41.57% to NAV.
- Shorting on Tire has softened in the last two trading days. No yearend dividend boosting effect is expected on Holdco. Holdco discount isn’t particularly high. Price ratio is well above yearly avg. I’d close this position now at a 6.07% yield.
4. BGF Holdo Trade: Status Update & Recommended Action
- BGF Co Ltd (027410 KS) / Bgf Retail (282330 KS) stub trade is at a 4.38% loss. Price ratio is still well below -1 σ. It is actually at a new yearly low. Holdco discount now stands at 48.55% to NAV.
- Holdco price discount is too harsh. It’d be too tempting to pass up. An estimated 1.5~2%p difference in dividend yield must be pushing up price ratio soon.
- I still believe below -1 σ wouldn’t last for as long as it used to. I’d hold onto this position a bit longer with a 10% loss cut.
5. Hikari Tsushin (9435) Continues to Generate Profits Growth as New Business Streams Contribute. BUY
The company forecasts an operating profit of Y55bn this year, the consensus is for Y57bn which is not unreasonable as management want to hold profits back. Next year assuming they make about Y64bn, the shares are on about 19x. With long term profits growth expected, and a good shareholder return policy this is a great domestic long term BUY. BUY into recent weakness. Foreigners own 24% of this name.
