Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: Geely Auto, Rakuten Inc, NTT (Nippon Telegraph & Telephone), Internet Initiative Japan, Suzuki Motor, Naver Corp, Bajaj Finance Ltd, Isetan Mitsukoshi Holdings Ltd, Kasikornbank PCL and more

In today’s briefing:

  • Geely: Blind Ordering Expectations Mismatch Transitory, Buy on Weakness
  • Seiyu: Back in the Mainstream Thanks to Rakuten
  • NTT (Buy) – Olympic Promotions Almost Over; Meanwhile We Have Updated Numbers
  • Internet Initiative Japan (Buy) Well-Positioned for Corporate IT Spend, Raising Forecasts/Valuation
  • Suzuki – Could Be the Only J-Auto to Miss at 1Q
  • Naver Corp (035420 KS):  Soaring in to the Big League
  • Bajaj Finance – Just BAFfling
  • Isetan-Mitsukoshi Targets Wealthy
  • KBANK: 2Q21 Result Was in Line with Our Expectation

Geely: Blind Ordering Expectations Mismatch Transitory, Buy on Weakness

By Victoria Li

Geely’s share performance has been under pressure these days, due to 1) mismatch between unveiled model details of ZEEKR 001 and expectations of blind order customers; 2) yoy growth rates has been weak of late.

We don’t think investors should worry too much about these transitory issues and short term weakness bring buying opportunity. Reiterate BUY.


Seiyu: Back in the Mainstream Thanks to Rakuten

By Michael Causton

In 2002, Seiyu was saved by the foreign might of Walmart. Today it is about 25% smaller but over the same 20 years, it has gone from a ¥90 billion loss to an estimated ¥40 billion operating profit last year. Now, with the backing of its new majority owners, KKR & Co Inc (KKR US) and Rakuten Inc (4755 JP), Seiyu has announced ambitious plans to become Japan’s largest online supermarket by 2025. This is increasingly likely thanks to Rakuten’s new reach through its new joint venture with Japan Post Holdings (6178 JP). 

Right now, online food retailing is a two horse race between Amazon and Rakuten, with Z Holdings nowhere in sight.


NTT (Buy) – Olympic Promotions Almost Over; Meanwhile We Have Updated Numbers

By Kirk Boodry

NTT senior management will not attend the Olympic opening ceremonies and with consumer-linked product demonstrations less relevant with no spectators, NTT’s promotional activity is winding down. On balance, Olympic sponsorship does not impact the valuation or investment case – any PR spend here would have went elsewhere – but we did enjoy following their participation in the torch relay on Twitter and their 2020 Olympic website is worth a look. We have tweaked our forecasts for FY21 based on management Q4 guidance and we remain at Buy with a ¥3,600 FY21-end target price.   


Internet Initiative Japan (Buy) Well-Positioned for Corporate IT Spend, Raising Forecasts/Valuation

By Kirk Boodry

Internet Initiative Japan (3774 JP) (IIJ) has moved from strength to strength over the last 12-18 months as long-term relationships with corporate customers translate into higher revenue as new services are introduced and corporate IT budgets increase. Just as impressive, results for FY20 indicate margin improvement will come along more quickly than expected and we have raised our forecasts to reflect that with c. 30% higher operating income over the next three years driving a corresponding increase in our target price from ¥3,270 to ¥4,300. With 21% potential upside, we remain at Buy.


Suzuki – Could Be the Only J-Auto to Miss at 1Q

By Mio Kato

While we expect results to be broadly strong for Japanese automakers thanks to favourable forex trends and strong unit volumes in North America, Suzuki unfortunately does not benefit greatly from these. Rather, it is highly negatively impacted by commodity prices, and we believe consensus does not adequately reflect this.


Naver Corp (035420 KS):  Soaring in to the Big League

By Steven Holden

Naver Corp (035420 KS) has seen a rapid rise in ownership among global emerging market investors.

Naver Corp (035420 KS) now sits among the big players in the sector, just behind Naspers (NPN SJ) and in line with NetEase Inc (NTES US).

Recent Activity shows Naver Corp (035420 KS) capturing the most new investors in 2021 among South Korean peers, with the funds invested percentage rising by 5% – marginally ahead of Kakao Corp (035720 KS) and LX Holdings (383800 KS).

All this points to Naver Corp (035420 KS) as a high conviction holding among active EM managers, and whilst a combination of record investment and price levels leaves Naver Corp (035420 KS) vulnerable to consolidation, there are many previous investors who may pick up the slack if prices fall.


Bajaj Finance – Just BAFfling

By Thomas J. Monaco

*Earnings Appear Overstated: Bajaj Finance (BAF.IN) [Bajaj] posted FY 1Q22 results of INR 10.2 bn, declining INR 3.4 bn (25.6%) linked quarter driven by weakness in Consumer Financing. The loss provision increase of INR 5.2 bn (42.2%), which – despite the growth – still did not keep up with the pace of stated NPA growth; and 

*Time To Man Up:  The day of reckoning is coming for Bajaj as net new NPLs amounted to INR 193 bn at FY 1Q22 – increasing at 281.3% on an annualized basis. By our calculation, reserves (much of the portfolio is weak consumer credits) need to increase INR 157 bn – representing nearly three years of PBT and over 50% of shareholder’s equity. In other words, Bajaj needs to man up and start reporting losses – this is a troubled financial institution.


Isetan-Mitsukoshi Targets Wealthy

By Michael Causton

Isetan-Mitsukoshi is one of Japan’s most prestigious retailers – or at least it was up until the advent of the pandemic. Facing ongoing sales falls as customers are kept away from its stores, the company knows it has to evolve if it is to survive. As well as more online sales and a few merchandise tweaks, it is going after the rich like never before. Given that the wealth market is one of the few growing segments in Japan, this makes sense but the venerable department store still has a long journey ahead to improve returns.


KBANK: 2Q21 Result Was in Line with Our Expectation

By Research Group at Country Group Securities

KBANK’s net profit in 2Q21 was Bt8.89 bn (+308%YoY, -16%QoQ), in line with our expectation.

• Pre-provision profit dropped 5.9%YoY (+1.1%QoQ) to Bt23.8bn caused by 20%YoY drop in Non-interest income. Whereas Net interest income was in line with our forecast at Bt29.7 bn (+9.7%YoY, +5.7%QoQ) supported by loan growth (+6.2%YTD) .
• Meanwhile, Non-NII dropped 20%YoY and 6.6%QoQ caused by lower gain from portfolio investment measured by FVTPL (-75%YoY,- 34%QoQ). However, Net fee income grew 6.6%YoY backed by fund management and brokerage fee.
• We remain cautious on its 2H21  earning momentum due to prolonged infection  which could depress KBANK’s asset quality and expedite provision. However, we still like KBANK for its (1) Service fee  income recovery (2) Positive loan growth outlook in longer term and (3) Ability to maintain NIM
We reiterate our BUY rating with a target price at Bt169, derived from 0.92x PBV’21E which is close to its 3-years.

Related tickers: Geely Auto (0175.HK), Rakuten Inc (4755.T), NTT (Nippon Telegraph & Telephone) (9432.T), Internet Initiative Japan (3774.T), Suzuki Motor (7269.T), Naver Corp (035420.KS), Bajaj Finance Ltd (BAF.NS), Isetan Mitsukoshi Holdings Ltd (3099.T), Kasikornbank PCL (KBANK.BK)

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