Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: Bilibili Inc, Alibaba Group, Kimia Farma Persero, JD.com Inc., HDFC Bank, SK Hynix, China Tourism Group Duty Free Corp Ltd, Bank Of America, JPMorgan Chase & Co, L&T Finance Holdings and more

In today’s briefing:

  • Bilibili: Buy the Dip
  • Alibaba (BABA): China E-Commerce Growth Rate Not Declining, But Accelerating
  • Kimia Farma (KAEF): Legitimate Pharmacy
  • Jd.com – a Critical Quarter on the Horizon
  • HDFC Bank – Is This Really India’s Best Bank?
  • SK Hynix: Leading DRAM IDM, Trading at Discount Multiples, in a Strong Demand Environment
  • CTG Duty Free (601888 CH) H-Share Pre-IPO: Fundamentally Speaking
  • Bank of America – Brian’s Song
  • J.P. Morgan & Co. – Not Good Jamie
  • L&T Finance Holdings – Struggling To Survive

Bilibili: Buy the Dip

By Shifara Samsudeen, ACMA, CGMA

The Chinese mobile games and video platform Bilibili Inc (BILI US) ’s shares have dropped 30.3% to US$109.01 per ADS from its peak of US$156.37 per ADS in mid-February 2021 due to the widening antitrust probe and cyberspace crackdown on Chinese tech companies, those that are listed in the US in particular.
However, considering Bilibili’s business operations and its not so dominant market share in the Chinese mobile games and video streaming markets, we believe Bilibili is less likely to be probed by the Chinese antitrust authorities and the current drop in the company’s share price offers a good point of entry.

Alibaba (BABA): China E-Commerce Growth Rate Not Declining, But Accelerating

By Ming Lu

  • We believe China online retail growth rate accelerated in May and June 2021 compared to the same months in 2019.
  • In 2021, e-commerce apps managed to retain most users who started online shopping during the lockdown in 2020.
  • The YoY growth rates are misleading. It is a mistake that online shopping is slowing down after the pandemic has eased in China.

Kimia Farma (KAEF): Legitimate Pharmacy

By Henry Soediarko

With the ever-increasing COVID-19 cases in Indonesia, combined with the slow action to inoculate the citizens either due to the lack of vaccines supply or due to public distrust of the vaccine or COVID-19 itself, demand for medication is at an all-time high. Amid the ongoing “second wave” of COVID-19, some people have started taking it upon themselves to fend off the ever-looming threat of the coronavirus with unproven do-it-yourself (DIY) remedies and self-medication tips spreading rampantly on social media platforms, such as WhatsApp and Facebook, creating extra demand for a legitimate medicine sold in a licensed pharmacy.

The YTD share price weakness and the recent knee jerk reaction from the delay of paid vaccination drive provides a better entry point for investors as the Indonesian government just released a rule to permit certain COVID-19 medications to be sold in licensed pharmacies in Indonesia and Kimia Farma Persero (KAEF IJ) is the only listed SOE pharmacy in Indonesia with more than 1000 outlets across the country. 


Jd.com – a Critical Quarter on the Horizon

By Rickin Thakrar

We believe a critical quarter looms for JD.com. The company will face the first in a series of brutally tough quarterly comps from last year. In addition, we believe further scrutiny is likely to arise on the durability of JD.com’s cash flow which started to show weakness in 1Q21. We provide an early preview as investors may also look through to other companies as an early read-across for JD.com


HDFC Bank – Is This Really India’s Best Bank?

By Thomas J. Monaco

*Earnings Miss: HDFC Bank (HDFCB.IN) [HDFCB] released another disappointing set of results, as its FY 1Q22 bottom-line result declined another INR 4.6 bn (5.6%) to INR 77.3 bn on a linked quarter basis. The earnings disappointment came from a net interest income decline, a loss provision increase, and fee revenue weakness; and

*Credit Challenged Still: We calculate that net new NPLs actually increased a whopping INR 57.6 bn or 152.8% on an annualized basis – accelerating from the INR 49.2 bn or 130.4% increase posted in FY 4Q20. By our calculation, reserves are massively short by nearly INR 316 bn or nearly an entire year of core operating results. 


SK Hynix: Leading DRAM IDM, Trading at Discount Multiples, in a Strong Demand Environment

By Wium Malan, CFA

SK Hynix (000660 KS) is the second-largest Dynamic Random-Access Memory (DRAM) semiconductor Integrated Device Manufacturer (IDM) in the world and is set to become a major player in the global NAND industry following the acquisition of Intel Corp (INTC US)’s NAND business. 

Based on the compelling demand outlook for the industry, the significant increase in spot memory prices this year, and the expected revenue uplift in 2022 from the closure of the Intel NAND acquisition there looks to be room for an upside surprise to current earnings expectations which could sustain the earnings upgrade cycle, for a stock that is trading on valuation multiples that are below historical average levels as well as that of global peers. 

This insight is also a natural follow up from an idea generated through our, machine learning-driven, proprietary GEM screening model, which takes a three-pronged approach to find the best medium-term long ideas within the top100 largest stocks in the MSCI GEM Index: Screening for GEMs: July 2021.


CTG Duty Free (601888 CH) H-Share Pre-IPO: Fundamentally Speaking

By Osbert Tang, CFA

We have expressed our positive view on China Tourism Group Duty Free Corp Ltd (601888 CH) in various Insights previously. In this Insight, we look at the proposed H-share IPO from the perspective of investors who do not know it well. For seasoned investors in this name, this Insight serves as a summary of our views and provides background details on the proposed IPO.

Fundamentally speaking, the key positives for CTG Duty Free are: 1.) absolute leadership in China’s duty free market, 2.) encouraging growth outlook, and 3.) solid profitability and financial position. Key negatives are: 1.) policy risk and rising competition, 2.) concern on payback of new projects, and 3.) risk of overseas expansion. If the IPO is being priced at the current average H-A discount, it will be on 32.7x FY21F PER, we see this not expensive relative to the premium retailers listed in Hong Kong. 


Bank of America – Brian’s Song

By Thomas J. Monaco

*Tax Loss Carryforwards Drive Bottom Line: Bank of America (BAC.US) [BAC] reported 2Q21 bottom-line results of USD 9.0 bn, increasing USD 1.4 bn (18.6%) linked quarter. The USD 1.2 bn usage of tax loss carryforwards was the sole reason BAC’s 2Q21 bottom-line exceeded that of 1Q21. If BAC were taxed at the 1Q21 rate, the bottom-line result would have been closer to USD 7.1 bn or USD 500 mn (6.6%) lower on a linked quarter basis; and

*BAC’s Credit Quality Best Of Money Centers: We note that net new NPLs decelerated to USD 184 mn or 13.9% on an annualized basis – far better than the USD 957 mn or 74.8% posted in 1Q21. To put this result into perspective, JPM and Citigroup each reported large increases net new NPLs on a linked quarter basis of 177% and 48%, respectively. BAC would appear to have a very comfortable reserve cushion given the run rate in net new NPLs.  


J.P. Morgan & Co. – Not Good Jamie

By Thomas J. Monaco

*Troubling Result: J.P. Morgan Chase & Co (JPM.US) [JPM] reported 2Q21 bottom-line results of USD 11.9 bn, declining USD 2.4 bn (16.4%) linked quarter, as four out of five business units posted bottom-line declines pushing overall revenues lower USD 1.6 bn (5.0%). On a core operating basis, JPM’s results declined somewhat less – down USD 2.2 bn or 15.3% over the period. Results were weak almost across the board; and

*Credit Quality Reversing Previous Gains: We calculate that net new NPLs linked quarter grew USD 4.9 bn bn or 177.3% on an annualized basis – a far cry from the 22.2% and 0.2% increase at 1Q21 and 4Q20, respectively. While JPM would appear on its face to be well-provided for, provision releases now appear to be coming to an end. If the current uptick in net new NPLs is here to stay, JPM would appear light on reserves in the neighborhood of USD 7.0 bn or 50% of quarterly PBT. 


L&T Finance Holdings – Struggling To Survive

By Thomas J. Monaco

*Results Down, Credibility Continues To Decrease: L&T Finance Holdings (LTFH.IN) [LTFH] reported FY 1Q22 bottom-line results of 1.8 bn, declining INR 890 mn (33.3%) linked quarter. Results were weaker across the board;  and  

*Accelerating Negative Credit Delta: Inclusive of NCOs of INR 8.5 bn or 3.62% annualized total loans, we note that net new NPLs skyrocketed INR 12.0 bn or increasing an eye popping 106.7% on an annualized basis during the period. By our calculation, if the large blip in credit continues, LTFH  management ought to think about adding another INR 69 bn plus to the reserve. A hit this large represents over seven years of PBT or 6.3x average equity.  


Related tickers: Bilibili Inc (BILI.O), Alibaba Group (BABA.N), Kimia Farma Persero (KAEF.JK), HDFC Bank (HDBK.NS), SK Hynix (000660.KS), China Tourism Group Duty Free Corp Ltd (601888.SS), Bank Of America (BAC.N), JPMorgan Chase & Co (JPM.N), L&T Finance Holdings (LTFH.NS)

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