Daily BriefsEquity Bottom-Up

Daily Brief Equity Bottom-Up: Mitsui OSK(9104): Ex-Div – The Last Straw… and more

In today’s briefing:

  • Mitsui OSK(9104): Ex-Div – The Last Straw…
  • Sunpower: Extension of CB’s Puts Focus Back on GI Business Fundamentals
  • Rakuten: 17% More Points in 2022
  • Kunlun Energy (135 HK): Rock Solid as Usual
  • Pokarna Ltd- Forensic Analysis
  • Leoch [842]:  +225% EPS, 5G Play, 4x P/E, 6% Dividend, Inflection Point
  • Yum China: Looking Delicious with Record Profits Expected in 1Q23 and Potential for Further Growth
  • Telekomunikasi Indonesia (TLKM IJ) – Transforming with a Digital Core
  • AKR Corporindo (AKRA IJ) – Smelting Upwards
  • Shenzhen Intl (152 HK): Don’t Look Back, Look Forward

Mitsui OSK(9104): Ex-Div – The Last Straw…

By Mark Chadwick

  • Mitsui OSK is up 460% since June 2020. Almost gravity defying. Strong Container profits have lead to high dividends. Now Shareholders hang on for one more big payoff
  • Container rates have just about to reverted to pre-pandemic levels. Utilization is falling; Capacity coming on; Customers using spot. All points to potential losses next year for  Containers and ONE
  • We expect a major profit decline=>div cut; How far could share price fall ? See the share price vs Shanghai Container Index correlation below.  We are bearish Mitsui OSK. 

Sunpower: Extension of CB’s Puts Focus Back on GI Business Fundamentals

By Nicolas Van Broekhoven

  • Sunpower Group (SPWG SP) announced it agreed to a 2-year extension of its CBs with two Chinese P/E funds that have been supporting it since 2017
  • The extension is unexpectedly favorable to Sunpower equity holders and removes a major overhang
  • After two difficult years with spiking coal prices and rolling lockdowns in China, the company can finally be valued on the merits of its GI business once again

Rakuten: 17% More Points in 2022

By Michael Causton

  • Loyalty points offer a significant incentive for consumers when deciding where to buy and many surveys confirm that points are a key factor in selection of online store.  
  • With inflation biting, the big loyalty programmes are promoting points as a way to save on future purchases.
  • Rakuten is by far the largest provider (10 pts above anyone else) and is enjoying strong growth – which could help adoption of its mobile store.

Kunlun Energy (135 HK): Rock Solid as Usual

By Osbert Tang, CFA

  • Core earnings of Kunlun Energy (135 HK) rose 25.2% in FY22, providing solid evidence for its strength against peers. We are delighted to see dollar margin even expanded 4.1%.
  • Pace of new project addition has not weakened as it secured 25 new projects in FY22. Collectively, they will increase sales volume by 3.2bn cu.m., 7% of FY22 volume.
  • Net cash of Rmb13.6bn equals 28% of share price, making 8.9% ROE look decent. Market earnings forecast is too low; and even so, it trades on just 7.2x FY23 PER.

Pokarna Ltd- Forensic Analysis

By Nitin Mangal

  • Pokarna Ltd (POKR IN) is principally engaged in the business of quarrying, manufacturing & processing and selling of Granite & manufacturing and selling of Apparel under the brand name ‘Stanza’.
  • One of the key audit matters related to IT systems risk, and these are reflected by some of the accounting misclassifications.
  • Other forensic concerns include high cost of debt on and ICDs and director loans, added WC burden, inventory valuation, etc.

Leoch [842]:  +225% EPS, 5G Play, 4x P/E, 6% Dividend, Inflection Point

By Evaluate Research

  • Capital Expenditure – New Investment in Mexico Plant in 2023
  • The company achieved a solid performance in its Recycled Lead business and Power Solutions business with a revenue growth of 18% and 13%, respectively, as compared to 2021.
  • The revenue for Recycled Lead business and Power Solutions business was RMB2,413 million and RMB10,433 million respectively. 

Yum China: Looking Delicious with Record Profits Expected in 1Q23 and Potential for Further Growth

By Oshadhi Kumarasiri

  • Chinese restaurant sector could see 15% YoY revenue growth in Q1 2023, as Total Retail Sales of Meals in China rose 16.4% YoY during Jan-Feb 2023.
  • Yum China Holdings Inc (9987 HK)‘s 1Q23 OP may reach a record high of $350m, and annual profitability is expected to double as restaurant footfall recovers.
  • We suggest buying Yum China for potential multiple expansion due to rapid profitability growth.

Telekomunikasi Indonesia (TLKM IJ) – Transforming with a Digital Core

By Angus Mackintosh

  • Telekomunikasi Indonesia (TLKM IJ) results reflect a company increasingly digital in nature with legacy services fading away and an increasing focus on building both quality infrastructure and subscribers. 
  • Despite losing subscribers last year, customer data consumption picked up and the ARPUs also improved reflecting a more profitable subscriber base. Indihome continues to see growth in its customer base.
  • Telkom continues to strengthen its presence in the cloud business and data centres as future growth drivers. Valuations are attractive versus historical levels with strong growth prospects ahead. 

AKR Corporindo (AKRA IJ) – Smelting Upwards

By Angus Mackintosh

  • AKR Corporindo (AKRA IJ) booked an impressive set of numbers significantly above consensus with net profit increasing +117% YoY driven by strong performance across all segments.
  • Trading & Distribution will be driven by both the demand for petroleum products together with chemicals, especially from the increasing number of smelters in Indonesia, both for copper and nickel.
  • JIIPE industrial estate booked 44.5 ha of sales, above guidance, with expectations for 70-75 hectares of land sales this year. Valuations are significantly below the historical average and consensus low.

Shenzhen Intl (152 HK): Don’t Look Back, Look Forward

By Osbert Tang, CFA

  • FY22 is definitely bad for Shenzhen International (152 HK) given the 64.9% profit plunge. However, negative contributors like Shenzhen Airlines and exchange losses will be removed in this year.
  • Earnings for Shenzhen Expressway (548 HK) will improve and 1Q23 has witnessed good traffic recovery. Logistics profit will benefit from higher occupancy, REIT issuance and new projects.
  • Upside will come from logistics park transformation with profit from Yicheng Qiwanli pre-sale potentially to be booked. Consensus earnings forecast of HK$4.1bn is at low-end of our estimate. 

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