In today’s briefing:
- Kyocera (6971 JP): Another Leg Down
- Tencent/Netease: January Game Approval Shows Tencent Playing Catching Up
- Brilliance China: Special Dividend Amount Disappoints, but More Could Be on the Way
- Sosei Group (4565 JP): Partners’ Pipeline Progress Reflects Power of Drug Discovery Platform
- Adani Enterprises Offering – A Discount and a Put Option But Liquidity Is a Bug Not A Feature
- Keepers: Thoughts on the Move Up, More to Come Easy Double from Here
- Visa: Looking For Quality As Recession Looms On The Horizon
- Seiyu Plans ¥100 Billion Investment
- Leonardo: European Value Defense Play
- Calbee’s FY24 OP Is Bound to Exceed ¥30.0bn
Kyocera (6971 JP): Another Leg Down
- Kyocera’s aggressive long-term investment plan makes sense: abandon an unnecessary zero-debt policy and borrow while interest rates are still low. The resulting debt/equity ratio should be manageable.
- But the near- to medium-term outlook is not encouraging. Semiconductor inventories are still too high and demand is down. Recovery is likely to be slow.
- The shares have dropped 21% since mid-September, but FY Mar-23 guidance looks too high and both consumer and corporate spending are weak. Wait for capitulation.
Tencent/Netease: January Game Approval Shows Tencent Playing Catching Up
- China just announced game approval for January batch. The number of games approved is slightly higher than the previous three months.
- Pace of China game approval stays flattish, at a much slower pace than pre-tightening.
- Both Tencent and Netease received approval for one game each. Overall Tencent is still behind its peers since the approval resumed.
Brilliance China: Special Dividend Amount Disappoints, but More Could Be on the Way
- HK$0.96 per share special dividend announced last Friday disappointed the market.
- The dividend implies only 20% of the cash on the balance sheet paid out in dividends
- We think there could be 1-2 more special dividends in 2023E given lack of obvious uses for the cash balance
Sosei Group (4565 JP): Partners’ Pipeline Progress Reflects Power of Drug Discovery Platform
- Sosei Group (4565 JP) is currently eligible for total milestone payment of more than $9.5B for its existing collaborations. During 9MFY23, Sosei reported revenue growth of 141% YoY to ¥8.6B.
- Pfizer Inc (PFE US) has dosed first subject in phase 2 clinical trial of type 2 diabetes drug candidate PF-07081532. Achievement of this milestone triggers a $10M payment to Sosei.
- Sosei has four programs in preclinical studies and 10+ in discovery phase, which are still unpartnered. The company has a cash runway into 2025 to fund its drug discovery activities.
Adani Enterprises Offering – A Discount and a Put Option But Liquidity Is a Bug Not A Feature
- After the postal ballot approved the offering in December 2022, Adani Enterprises (ADE IN) is on track to conduct a Rs 200bn or US$2.4bn+ Equity Offering.
- One exchange release today gave the timing, and following few articles in recent days suggesting it, another release said the offering would be partly paid shares.
- The structure of the Offer and risks are detailed below but investors should remember, it was illiquidity which got the price here. Liquidity is a Bug not a Feature.
Keepers: Thoughts on the Move Up, More to Come Easy Double from Here
- The Keepers Holdings (KEEPR PM) recent move of +24% (3 months) was catalyzed by the dividend payout ratio (to 50%) increase and a solid Q4 2022 on the cards.
- Post the move, the stock trades at 8.4x/6.6x FY22/23e. The dividend yield for FY23e/FY24e is 6.0%/7.6% ( based on a 50% payout). 8% of the market cap is net cash.
- We expect the next catalyst to be when the company reports its earnings ( probably the second week of April 2023).
Visa: Looking For Quality As Recession Looms On The Horizon
- Visa continues to outperform the market and fully capitalize on the prolonged business cycle.
- The company’s share price appears fairly valued both relative to peers and to its historical business fundamentals, according to the company’s stock price.
- The share price seems fairly valued and to the historical business fundamental, says the company.
Seiyu Plans ¥100 Billion Investment
- Rakuten only has a 15% stake in Seiyu, alongside majority shareholder, KKR, but the pivot by Seiyu post-acquisition shows the potential for Rakuten in this sector.
- Building on the 5 year plan that it set out in 2021, Seiyu last month announced a ¥100 billion in investment over the next 5 years.
- Funds will be used to increase integration with Rakuten’s online supermarket, with the aim to become the biggest GMS retailer.
Leonardo: European Value Defense Play
- Leonardo’s revenues should benefit from several program ramp-ups driven by strong book-to-bill in prior years, and an impressive backlog that now stands at €37.4bn
- The underlying market for defense spending remains strong and is set to grow further
- The stock screens very cheap, trading on low multiples vs the sector, and our model shows a fair value well above the current share price.
Calbee’s FY24 OP Is Bound to Exceed ¥30.0bn
- Japan’s largest snacks maker, Calbee Inc (2229 JP) has raised prices by 10-20% for almost 75% of its product range.
- Meanwhile, main inputs such as potatoes and palm oil have seen extensive price drops in the past few months.
- With margin pressures alleviating from both angles (revenue & cost), we think Calbee’s FY24 OP is bound to exceed ¥30.0bn.
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