Equity Bottom-Up: Nexteer Automotive, TAL Education, Nexteer Automotive, Samsung Electronics, Panasonic Corp, Shin Etsu Chemical and more

In today’s briefing:

  • Nexteer (1316): AES to the Rescue
  • TAL Education (TAL): Parents Told Reason for Strong 1Q21, But Stock Price Has Risen Too Much
  • Nexteer – Macro Headwinds Open Up Buying Opportunity for the Patient
  • Samsung Electronics – Bulls on Parade
  • Panasonic: 1Q Weaker Than Expected But Recovery Likely
  • Shin-Etsu: All Segments Seeing Declines; Earnings Rebound Could Take Longer

Nexteer (1316): AES to the Rescue

By Henry Soediarko

Having increased its global market share from fifth to second in 2018 thanks to the technological advantages, the company’s share price has disappointed its shareholders and underperformed its customers’ in China due to its heavy reliance on US customers such as Ford and GM.

source: Capital IQ

With the new initiative to focus more on China and Emerging Markets, the company creates an opportunity to diversify its revenue geographically and participate in the rebound in the Chinese auto sector. 
The company is severely undervalued compared to the peers by 68% in PER and 38% in EV/EBITDA despite higher profitability (560% higher ROE) and leaner capital structure (50% better in D/E), showing potential for re-rating

If the company’s AES is to be implemented this year and adopted by various customers in China to start with, then the revenue that the company receives will bolster its current net income (USD 232.4 million) by around 38% to 570% in the next few years depending on the pace of the adoption and market share. Buy Nexteer Automotive (1316 HK) .

source: Capital IQ

TAL Education (TAL): Parents Told Reason for Strong 1Q21, But Stock Price Has Risen Too Much

By Ming Lu

  • TAL recovered strongly in 1Q21 (by May 2020).
  • We believe TAL’s online courses benefited from the bankruptcy of small tutoring schools.
  • Our EPS estimates are close to the lowest of the analyst estimates on Bloomberg.
  • The P/E band suggests that the stock price has a downside of 21%.
  • The stock has risen for about one year.

Nexteer – Macro Headwinds Open Up Buying Opportunity for the Patient

By Mio Kato, CFA

Listed on the Stock Exchange of Hong Kong, Nexteer is a global supplier of steering systems including ADAS enabled electric power steering to automotive OEMs, focusing on the truck operations of the American big three and emerging market OEMs in China, India and South America. The company has demonstrated strong execution winning numerous new customers and orders for new models but has nevertheless been plagued by a variety of factors out of their control, including the slowdown in the Chinese automotive market, strikes at GM and now the coronavirus. As a result, the stock which once traded at 5x book is down to trading at book. We explore this opportunity below.

Samsung Electronics – Bulls on Parade

By Ken S. Kim

Key reasons why Samsung Electronics (005930 KS) is gearing for a bull run.  Key fundamental and non- fundamental reasons why Samsung Electronics (005930 KS) is gearing for a catch run versus Taiwan Semiconductor Sp Adr (TSM US) 

Panasonic: 1Q Weaker Than Expected But Recovery Likely

By Aqila Ali

Panasonic Corp (6752 JP)’s first quarter ended June 2020 revenue and OP declined by 26% and 93% YoY respectively (OPM of 0.3% vs 2.9% in 1Q FY03/20). Revenue was 7% below consensus while OP was 85% below consensus. Similarly, revenue was 9% and OP was 85% below our estimates.

Source: Company Disclosures, LSR

  • The decline in revenue was mainly due to COVID 19 and the impact of deconsolidation through business portfolio reforms in Housing, batteries, securities systems businesses (excluding the deconsolidation impact revenue would have declined by 21% YoY). The impact of COVID-19 was severe in the Automotive segment relative to the other segments.
  • The significant decline in OP even after recording one-time gains (without the gain, Panasonic would have generated a loss of JPY5.9bn vs, an adjusted OP of JPY3.8bn) was mainly due to the decline in revenue due to COVID-19.
    • Our main concern during 4Q FY03/20 results was the company’s Industry solution segment which was struggling due to China’s slowdown. However, the segment had relatively low exposure to COVID 19 declines. The segment’s decline was offset by the increased demand for its power storages and capacitors (given the rising need for information and communication infrastructure for working from home and distance learning trends that arose during the Pandemic).
    • The concern now is the Connected Solutions segment which is likely to take some time to recover given the recent decline in the airline industry.
    • The automotive segment which was affected the most initially, during the COVID-19 outbreak is now experiencing a recovery via growth in the EV industry.  Toyota’s involvement should help the segment retain some business through the year. Moreover, Panasonic also reported about continuing the expansion of the Gigafactory with Tesla, thus, if cylindrical battery production increases, as EV market recovers, the segment’s profitability is likely to improve.
    • The company provided FY03/21E guidance which is broadly in line with our expectations which we estimated upon 4QFY03/20 earnings release.
  • We felt the company was at a good entry point upon its 4QFY03/20 earnings ( Weak FY03/20 Places Toyota Battery Business as Hope for LT Recovery) having healthy growth prospects, though some downward risks did exist. The stock moved up almost 18% since then until yesterday’s close. Following the earnings release, the stock price declined by 13% (TOPIX declined by 2%). Panasonic now trades at 12.8x PE based on FY03/21E earnings. We believe the current decline to be temporary, and the investor should be patient with the stock for its long-term prospects.

We go through the details below.

Shin-Etsu: All Segments Seeing Declines; Earnings Rebound Could Take Longer

By Shifara Samsudeen, ACMA, CGMA

  • Shin-Etsu reported its 1QFY03/2021 results on Tuesday (28th July 2020) after market which saw both revenue and OP decline on a YoY basis. All the segments reported YoY drop in revenue and OP.
  • Shin-Etsu’s largest business, PVC/Chlor-Alkali business saw decline in revenue for a fourth consecutive quarter due to poor market conditions. The company expects price increases alongside improving market conditions to support a recovery in the segment towards the end of the year.
  • The company’s share price has rallied significantly since mid-March 2020 as the market expects the semiconductor silicon demand to rebound in 2021 leading to supply constraints.
  • Given the uncertainty in the markets caused by Covid-19 and the recent rally in the company’s share price, we remain cautious about further increase in the company’s share price in the short-term.

Before it’s here, it’s on Smartkarma