Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: Mazda Motor, TSMC, Adi Sarana Armada, Danaher Corp, Otsuka Holdings, RHB Bank Bhd, Seven & I Holdings, Precious Shipping, ROHM Co Ltd and more

In today’s briefing:

  • Mazda – Moving Upmarket With a RWD Is a Straight Six
  • TSMC – First Details of Japanese Investment Emerge
  • Adi Sarana Armada (ASSA IJ) – From the First to the Last Mile
  • Danaher Corp (DHR):  Sell Short on an Overearning Thesis.
  • Otsuka Holdings (4578 JP): Well-Diversified Portfolio to Augment Revenue Growth
  • RHB: A Standout Globally Within an Improving Value-Quality Market
  • 2021 High Conviction: Seven & I Raises Speedway Synergies & India Expansion Could Break The Deadlock
  • PSL: Expect Core Earnings to Hit Another Decade High in 3Q21
  • Rohm (6963): Buy for Auto & COVID Recovery

Mazda – Moving Upmarket With a RWD Is a Straight Six

By Mio Kato

Mazda is continuing to implement its take on the Subaru revival playbook that once took Subaru’s stock from a GFC low around ¥250 all the way above ¥5,000 while it briefly led the automotive world in OPM.

TSMC – First Details of Japanese Investment Emerge

By Mio Kato

The Nikkei just reported that Sony was considering jointly investing in a new $7bn manufacturing facility with TSMC. These are the first details to emerge regarding the TSMC investment in Japan that has been a point of discussion since it first announced it was setting up a research centre here.

Adi Sarana Armada (ASSA IJ) – From the First to the Last Mile

By Angus Mackintosh

Adi Sarana Armada (ASSA IJ) has a unique combination of different parts of the mobility ecosystem in Indonesia from corporate car rental, to car auction, and online marketplace but it is its end-to-end logistics business, and especially Anteraja, that is plugged directly into Indonesia’s booming digital economy, that makes this an exciting story.

Anteraja has expanded its coverage area significantly and is now present in 600 service points in 34 provinces across the archipelago.  It accounted for 47% of total sales in 1H2021 and is likely to account for more than 50% of sales by 2H2021.
Adi Sarana Armada (ASSA IJ) 1H2021 results saw the company’s revenues grow by +50.4% YoY, with gross profit up +20% YoY, while operating profit grew +43.7%, and the company’s net profit grew by +68.9% YoY

In an interesting development, Anteraja, the last-mile delivery arm of Adi Sarana Armada (ASSA IJ) has announced partnerships with both Grab and Gojek, to integrate both company’s logistics services into its last-mile ecosystem.

Adi Sarana Armada (ASSA IJ) is a very interesting way to play the growth in the Indonesian digital economy through its exposure to logistics and the last-mile through Anteraja, which makes up close to 50% of sales, whilst its remaining business in car rental and car auction continue to produce stable growth.

The company trades on 42x FY22E PER and 31x FY223E PER but on 16.9x FY21EV/EBITDA and 13.4x FY23E EV/EBITDA, which is probably a better measure given that this is a growth company.

Danaher Corp (DHR):  Sell Short on an Overearning Thesis.

By Eric Fernandez, CFA

Danaher designs, manufactures, and markets life science research tools, analytical instruments, reagents, consumables, and software as well as environmental  products and services. The company has over 20 businesses organized in three segments:  Life Sciences, with 51% of LTM revenues, Diagnostics with 32% and Environmental with 17%.

 We recommend selling DHR stock short (selling/avoiding for long managers).  The key elements of our short thesis are laid out below.

  • Sales spiked in Danaher’s Life Sciences and Diagnostics segments soon after the Covid pandemic surfaced.  These sales are unsustainable, in our view.
  • Danaher has weak organic growth, masked by a string of acquisitions.
  • EBITDA margins added 1000bps over the past year, which we view as unsustainable.  
  • The Covid pandemic will end through vaccination, therapeutics and natural attenuation resulting in the end of artificially inflated demand for Danaher’s products. 
  • We view estimates as too high with analysts largely extrapolating from current trends and levels. 
  • The stock is very expensive. 
  • The company takes acquisition-related write-offs and benefitted from a reversion to lower tax rates last quarter.
  • Potential Catalysts: We expect Danaher to show slower growth and lower margins which will cause a rerating of the stock and a cut in multiples.
  • Risks:    Additional Covid variants could reignite the pandemic. We believe that is unlikely with the rapidly rising rates of global vaccination and the parallel development of therapeutics and additional vaccines.

 For further details, see the report below, and formatted PDF attached.

Otsuka Holdings (4578 JP): Well-Diversified Portfolio to Augment Revenue Growth

By Tina Banerjee

Otsuka has a leadership position in atypical antipsychotic drugs. The company is successfully diversifying its revenue stream in order to mend the hole created by patent expiry of its erstwhile flagship drug Abilify (accounted for ~25% of total revenue). Four global products, including Abilify Maintena, Rexulti, Samsca, and Lonsurf currently contribute more than 30% of total revenue. Better-than-expected revenue from these four global products led to record high business profit in 2020. The performance continued in this year and the company reported 8% y/y revenue growth in H1, leading to 2021 guidance raise. This insight analyses the potential of Otsuka’s global products, which have leading market positioning amid large addressable patient population. Four global products are expected to achieve revenue of ¥480 billion (20% CAGR during 2018–2021) in 2021, two years ahead of schedule, driven by indication and geography expansion. These products should play a crucial role in achieving the medium-term management plan (2019–2023), which calls for average annual revenue growth of 10% or higher to reach revenue of ¥1,700 billion and ROE of 8% of higher in 2023. Otsuka has a rich pipeline of late-stage (phase II/III) programs to compensate for the upcoming patent cliff for its mainstay products.    

RHB: A Standout Globally Within an Improving Value-Quality Market

By Paul Hollingworth

Malaysia was a standout at Q221 in terms of positive value-quality trends. Fundamental progression was strong at CIMB, Malaysia Building Society, Hong Leong, Malayan Banking, and RHB.

According to our model PH Score™ and our VFM modelRHB especially catches our attention. RHB ranks in the top quartile globally of our VFM (Valuation, Fundamentals, Momentum) universe. 

On a LTM basis, the bank’s PH Score™ of 9.0 reflects progression in Profitability, in NIM, in Efficiency, in headline Asset Quality, in Liquidity and in Provisioning as well as the reasonable valuation variable though Common Equity/Assets eroded somewhat in contrast to other key Capitalisation ratios.

A FV of 10% and a PBV of 0.77x are not unattractive. The bank has an Earnings Yield of 11.6%, a Dividend Yield of 4.27%, and a Total Return Ratio of 1.1x.  

RHB dedicates itself to consumer (53.4% of credit) and corporate lending. The Retail segment includes an elevated exposure to mortgages. By Operating Income, the bank is balanced between Retail and CBIB/Business Banking and Treasury/Global Markets with some modest international activity. Time Deposits represent 70.7% of Deposits while Transaction Accounts contribute 22.5%. The bank takes in money <1year and lends out at 5+ years for two-thirds of its loan book.

Caveats. Malaysia faces continued pressure on its fiscal settings (as elsewhere) given its near-term economic outlook (reducing GDP forecasts) amid a worsened domestic C-19 situation and a still fluid political backdrop. Delayed economic recovery, repeated moratorium distortion and government intervention in earnings/operation risk eroding somewhat buffers built up before the pandemic. The proposed interest waiver to protect low-income borrowers is a risk to earnings forecasts moving forward amid a backdrop of a higher system NPL ratio (from 1.7% currently to perhaps 3% next year) and an estimated jump in Credit Costs of some 50bps.

2021 High Conviction: Seven & I Raises Speedway Synergies & India Expansion Could Break The Deadlock

By Oshadhi Kumarasiri

  • Our 2021 High Conviction call, Seven & I Holdings (3382 JP) delivered 2QFY22 results yesterday with revenue surpassing consensus estimate by around 9.7%. The company’s 2QFY22 operating income was 8% below consensus.
  • Although Q2 results seemed a bit weak on profitability with 0.3% YoY growth, we think it was driven mainly by a temporary rise in SG&A costs in the overseas convenience stores business due to the completion of the Speedway acquisition.
  • The initial price reaction to results was negative. Yet we think it’s mostly down to the overall weaknesses in the Japanese market.
  • Nevertheless, there are many positives to look forward to in the near term as the increase in the Speedway synergies, strong growth in America and the expansion into India could provide an impetus for Seven & I to break the resistance, which is currently at around the ¥5,400 level.

PSL: Expect Core Earnings to Hit Another Decade High in 3Q21

By Research Group at Country Group Securities

We expect PSL to report 3Q21 core profit at Bt1,225m (+57%QoQ, recovery from a loss in 3Q20), the highest level in more than decade.

• QoQ and YoY improvement in 3Q21 driven by high profitable level of TCE rate which supported by shortage on supply-side factor along with moderate recovery in seaborne trade demand after the lockdown in the major countries.
• We expect an increase in PSL’s average earnings per vessel per day to US$22,367 per day in 3Q21 (+25%QoQ +155%YoY).
• EBITDA in 3Q21 is expected to be at Bt1,635m (+38%QoQ +294%YoY), the highest level in decade.
We upgrade PSL with HOLD rating from a SELL after raised target price by 20% to Bt21.20 (Previous TP: Bt17.60) as EPS was raised due to higher-than-expected freight rate in 2H21. The target derived from 2.0xPBV’22E (2 S.D. 10-year average). HOLD rating reflect our expectation for demand in dry bulk trading to face a hiccup in late 4Q21 as China’s import volume of soybean and iron ore will remain low after a peak of the recovery cycle. However, 2022 freight rate is anticipated to remain high supported by supply-side factor.

Rohm (6963): Buy for Auto & COVID Recovery

By Scott Foster

Rohm has dropped to the bottom of its recent trading range, presumably on concerns over the impact of COVID-19 on semiconductor assembly & test in Southeast Asia and the ongoing disruption of auto production. 


  1. Guidance looks conservative. 1Q operating and net profit were 31% and 34% of FY Mar-22 full-year guidance, respectively.
  2. COVID infections in Southeast Asia have dropped back from recent peaks. 
  3. Rohm is a leading producer of Silicon Carbide wafers and power devices for Electric Vehicles. It is geared to both the recovery and technological advance of the auto industry.

With 38% upside to our ¥13,500 price target, we regard Rohm as a Buy both on a trading basis and as a longer-term investment. 

Related tickers: Mazda Motor (7261.T), TSMC (2330.TW), Adi Sarana Armada (ASSA.JK), Danaher Corp (DHR.N), Otsuka Holdings (4578.T), Seven & I Holdings (3382.T), Precious Shipping (PSL.BK), ROHM Co Ltd (6963.T)

Before it’s here, it’s on Smartkarma