In today’s briefing:
- SONY (6758) | Regulators – Duty Calls
- Pinduoduo: The Odd One Out
- Taiwan Dual-Listings: TSMC & UMC Nice Setup Opportunities, Chunghwa Rare Deep Discount
- China Education Group (839 HK): Shining Through
- Theme International Holdings (990 HK): Getting To Know You
- Intel Vs. TSMC Monitor: TSMC Outperformed Too Much Too Soon?
- Singtel: Demand Surge
- Home First Finance (HOMEFIRS IN) | Bounce Rate and Sales Pressure
- Bilibili (9626 HK): 3Q22, Growth Accelerated, Loss Shrank, 38% Upside
- Nanya Technology: Inventory Risk, A 10% Downside Trade Is Still Available
SONY (6758) | Regulators – Duty Calls
- The next six months will be critical for the future of the global gaming industry as Regulators carry out further investigations into the Microsoft acquisition of Activision
- This is particularly important for SONY, where games account for around one third of consolidated revenue and profits
- This is a battle for the future of subscription services and cloud streaming – Call of Duty yields unprecedented power over the industry. Regulators need to do their Duty.
Pinduoduo: The Odd One Out
- Pinduoduo (PDD US)’s 3Q22 mirrored its strong previous quarter with revenue of RMB 35.5bn (consensus: RMB 30.8bn) and OP of RMB 10.4bn (consensus: RMB 6.7bn).
- CCP’s anti-monopoly drive and common prosperity measures are helping Pinduoduo to outperform the competition.
- Nonetheless, we refrain from being outright positive on any of the Chinese e-commerce names with the economy heading into a slowdown and the lowest sector-multiple at above 12x FY+1 OP.
Taiwan Dual-Listings: TSMC & UMC Nice Setup Opportunities, Chunghwa Rare Deep Discount
- TSMC — Trading near parity, decent setup opportunity at the current level.
- UMC — Trading at a discount, another decent setup opportunity.
- Chunghwa Telecom — Rare opportunity here, trading at a steep discount compared to the tight historical range.
China Education Group (839 HK): Shining Through
- China Education Group (839 HK)‘s 27.8% growth in net profit affirmed its solid fundamentals and minimal exposure to regulatory risks. We also welcome its resumption of dividends.
- Management expects profitability will be driven by the 48% new student enrollment growth, potential for tuition increase and global education segment recovery. Consensus forecasts are currently too conservative.
- Weaker 2H FY22 profit is due to higher depreciation and finance costs but will be absorbed with higher enrollment. Capex will be light and we also like its deleveraging move.
Theme International Holdings (990 HK): Getting To Know You
- Commodities trader Theme International Holdings (990 HK) is up 670% since the inset of Covid, and that is after declining 52% from the July 2021 peak.
- A sharp increase in iron ore prices since 2020 resulted in FY21 net income of HK$1bn against HK$146mn in FY19. Net cash is currently HK$4.2bn, 38% of Theme’s market cap.
- You Zhenhua is Theme’s largest shareholder. Theme recently acquired a 6.6% stake in You Zhenhua-controlled Esteel, which in turn holds a 61% stake in BRC Asia Ltd (BRC SP).
Intel Vs. TSMC Monitor: TSMC Outperformed Too Much Too Soon?
- Intel has eked out a small outperformance vs. TSMC most recently, and we believe there is more to come.
- Events appear to be in Intel’s favor in the near-term.
- TSMC has outperformed by a historically extreme amount in just three weeks.
Singtel: Demand Surge
- Sentiment switch for Singtel after surge in buying among Asia Ex-Japan funds
- New positions from Fullerton Asia Focus, Jupiter Asian Fund and Fullerton Asia Growth & Income head a total of 14 funds opening exposure between 01/31/2022 and 10/31/2022.
- Follows broader rotation in to key Singapore names despite heavy selling in Sea Ltd.
Home First Finance (HOMEFIRS IN) | Bounce Rate and Sales Pressure
- We interact with Home First Finance (HOMEFIRS IN) branch managers to understand the reason behind the increase in bounce rates.
- The overall NACH data also shows a high rejection rate in October despite being a festive month, which is surprising.
- With 92% of Home First Finance (HOMEFIRS IN) loans being disbursed in less than 48 hours, this focus on TAT could lead to higher than industry-average asset quality issues.
Bilibili (9626 HK): 3Q22, Growth Accelerated, Loss Shrank, 38% Upside
- The revenue growth rate rose for the first time in one year and a half.
- Also, operating loss shrank for the first time in one year and a half.
- We believe the stock has an upside of 38% for year end 2023.
Nanya Technology: Inventory Risk, A 10% Downside Trade Is Still Available
- Nanya Tech shares have dropped, but there’s still a 10% trading sell from these levels.
- The company had dramatically outperformed the Taiwan market and Memory chip peers, yet is heading into weakening end-demand with inventory levels at multi-year highs.
- We see the potential for inventory write-downs and a negative operating margin in the coming quarters. Meanwhile, opportunities for near-term good news appear limited.
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