Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: China Maple Leaf Educational Systems, Precious Shipping, Toshiba Corp, Tencent Music, Toho Bank, HKEX, Shiseido Company, LIC Housing Finance, Tipco Asphalt and more

In today’s briefing:

  • Maple Leaf Educational Systems: Deep Value or Value Trap?
  • Smartkarma Corporate Webinar | Shipping: The Impact of COVID-19 and PSL’s Response
  • Toshiba – On Track to Hit Imaginary “If Only COVID Hadn’t Happened” Guidance
  • Tencent Music (TME): Real Main Business Continued to Recover in 3Q20, Downside Has Narrowed
  • Japan Banks – Surplus Money, Higher Rates
  • Hong Kong Exchanges & Clearing – Strong Quarter, But Can It Continue?
  • Shiseido: Departing From Cost Discipline or Playing Safe?
  • LIC Housing Finance – Doing The Right Thing
  • TASCO: Revise Earnings up Thanks to New Crude Sourcing
  • HKEx (388.HK): Strong 3Q20 Result, Record Performance in Cash Market and IPOs

Maple Leaf Educational Systems: Deep Value or Value Trap?

By Steven Chen

  • Maple Leaf Educational Systems caught our attention for its low price multiples and consistently decent returns on capital;
  • Both the financial track record and the current valuation look favorable, especially compared to peers.
  • We examine the business fundamentals with our proprietary framework in search of any value trap.

Smartkarma Corporate Webinar | Shipping: The Impact of COVID-19 and PSL’s Response

By Smartkarma Research

For this next session of our Corporate Webinars, we are joined by the CEO of Precious Shipping (PSL TB), Khalid Hashim, who will present some key aspects about the company and engage in a fireside chat with Smartkarma Insight Provider Angus Mackintosh.

Every week, Corporate Webinars by Smartkarma Corporate Solutions feature discussions with Corporate IROs and Executives, discussing their companies, the challenges they face, and the opportunities in their sectors and markets.

This Corporate Webinar will be hosted on Tuesday, 17/November/2020, 5:00PM SGT/HKT, 4:00PM ICT.


Toshiba – On Track to Hit Imaginary “If Only COVID Hadn’t Happened” Guidance

By Mio Kato

Toshiba’s 2Q results missed consensus estimates with revenue of ¥772bn undershooting by 5.6% while OP of ¥15.7bn undershot by 51%. The latter number is less of a concern than it looks given the heavy weighting of profitability towards 4Q but as we have been warning Toshiba appears to be trying to hit unrealistic OP targets to please activists and we believe it is increasingly clear that they are unlikely to succeed. It is, however, cheap and has underperformed of late.


Tencent Music (TME): Real Main Business Continued to Recover in 3Q20, Downside Has Narrowed

By Ming Lu

  • The real main business, social entertainment, continued to recover in 3Q20.
  • Music, as the nominal main business, is facing a mature market.
  • TME’s largest entertainment platform, Kugou, stopped paying basic salary to live broadcasters; therefore, we believe the margins will prove in 2021.
  • The downside has narrowed from 28% to 2%. We believe the stock is fairly valued now.

Japan Banks – Surplus Money, Higher Rates

By Daniel Tabbush

The Bank of Japan (BOJ) is trying to incentive mergers amongst the countries many regional banks. To do this, it will exempt some banks from receiving the currently negative interest rate on deposits with the BOJ. With significant liquidity, exceptionally low margins, and ROA, a move from -0.1% interest rates to +0.1% interest rates even on a small pool of assets, can be meaningful for Japan’s regional banks.


Hong Kong Exchanges & Clearing – Strong Quarter, But Can It Continue?

By Thomas J. Monaco

*Solid Quarter: Hong Kong Exchanges & Clearing (388.HK) [HKEX] reported 3Q20 earnings of HKD 3.3 bn, improving HKD 376 mn (12.7%) linked quarter. Results were even more impressive when we exclude investment income (declined HKD 206 mn or 23.2% linked quarter) – increasing HKD 582 mn (28.0%) to HKD 2.7 bn; and

** Peak Value: So much value has been derived on hope for the shares of HKEx, which included that on: southbound connect, futures markets,  structural reforms, and the change in CEO. As such, we have witnessed HKEx’s 2020 share performance of 44.4% that has resulted in a global exchange leading valuation of 10.4x P/BV.


Shiseido: Departing From Cost Discipline or Playing Safe?

By Oshadhi Kumarasiri

Although Shiseido Company (4911 JP) beat consensus OP comprehensively in Q3, the company lowered its full-year revenue and OP guidance citing weaker than expected demand in Japan and worsening COVID-19 health crisis in Europe and the US. However, Shiseido shares were up 4.7% yesterday following the release of positive COVID-19 vaccine update by Pfizer. With the 2021 EV/OP multiple at an all-time high of 52.0x, it appears that the post-pandemic recovery is already priced in.


LIC Housing Finance – Doing The Right Thing

By Thomas J. Monaco

*Results Down, Credibility Up: LIC Housing Finance (LICHF.IN) [LIC] reported FY 2Q21 bottom-line of INR 7.9 bn, declining INR 266 mn (3.3%) on a linked period basis. LIC’s conservatism with respect to provisioning – especially relative to the rest of the Indian financial sector – is quite admirable;

*Credit On The Mend: During the period, we note that Stage 3 NPLs declined INR 625 mn (1.1%) to INR 58.8 bn and represent 2.79% of total loans – down 4 bp linked quarter. In addition, we note that net new NPLs at LIC were negative as well – declining INR 586 mn for an annualized rate of NPL decline of 4.0%. Coupled with NCOs of just INR 39 mn  – which amount to just 1 bp of total loans on an annualized basis, we find that reserves improved INR 1.0 bn or 4.0% linked quarter. While we admire LIC’s conservatism relative to peer, we would still be comfortable with reserves being INR 3.3 bn (11.8%) higher. That said, at this pace, LIC should get there within three quarters; and        

*Competition Intensifying: Increasing competition could impact profitability, however, with both housing lenders and private banks significantly cutting interest rates.


TASCO: Revise Earnings up Thanks to New Crude Sourcing

By Research Group at Country Group Securities

Analyst meeting held yesterday came out with a positive tone. The company is now able to procure alternative crudes, starting in 1Q21. Meanwhile, asphalt demand remains solid in 4Q20.

  • The company has already found the alternative feedstocks which economically suit the company profile, leading to 2021-22E earnings upgrade.
  • Meanwhile, we expect the company to post an earnings growth YoY (but soften QoQ) in 4Q20, on the back of i) strong domestic demand ii) healthy asphalt margin and iii) recovery in international market.
  • We revises 2020-22E earnings up by 20-60% to factor in a strong margin in 2020 and improved sales volume from new crude in 2021-22E.

We upgrade our rating to HOLD from SELL with a new target price of Bt19.50 (from Bt15.0), derived from 13.5xPE’21E which is equal to Asia ex Japan material peer.


HKEx (388.HK): Strong 3Q20 Result, Record Performance in Cash Market and IPOs

By Roger Xie

  • HKEX (388 HK) just reported strong 3Q20 results, easily beating the consensus estimate. 3Q20 net income of HK$3,347mn is up 13% quarter-over-quarter, 52% year-over-year. 9M20 net income HK$8,580mn grows 16% year-over-year. 9M20 EPS HK$ 6.80 grows 15% from EPS HK$ 5.92 same period last year.
  • The strong result is driven by the record trading activities on cash market. Securities ADT improved 24% quarter-over-quarter; trading was strong +25% quarter-over-quarter and settlement fees jumped +33% quarter-over-quarter. Investment income was also better-than-expected.
  • We are encouraged by the progress of Chinese ADR dual-listing at Hong Kong. We observed continuous trading volume migration to HKEX (388 HK) from other venue, and ADR conversion to Hong Kong-listed shares. We expect MSCI China A-share futures will be announced soon and strong trading activities to year end. Our TP for HKEX (388 HK) remains at HK$ 400.

Before it’s here, it’s on Smartkarma