Equity Bottom-Up: Nissan Motor, Fujitec Co Ltd, HDFC Bank, Fanuc Corp, New Oriental Education, Kotak Mahindra Bank, Asian Seafoods Coldstorage, Kose Corp and more

In today’s briefing:

  • Nissan – Two Strikes For the Alliance and a Zero Dividend
  • Fujitec – Love in an Elevator
  • HDFC Bank:  Finely Balanced
  • Fanuc – Single Stock Bubble Meet Single Stock Pin
  • New Oriental (EDU): Students Declined YoY for First Time in Seven Years
  • Kotak Mahindra Bank – Credit Falling Apart
  • ASIAN: Good Performance Has Already Priced In
  • KOSÉ 1QFY21 Earnings Preview: China Recovery Overlooked

Nissan – Two Strikes For the Alliance and a Zero Dividend

By Mio Kato, CFA

Following Mitsubishi Motors’ weak results and grim forecasts which drove the stock down 12.6% today, Nissan just reported relatively weak results and offered guidance which, while not quite as shocking as that of Mitsubishi Motors, leaves little to be optimistic about.

Fujitec – Love in an Elevator

By Mark Chadwick

Fujitec Co Ltd (6406 JP)  share price has outperformed the broader Japanese machinery sector over the past one year (39% versus 7%). Much of the outperformance was driven by activist interest in the name, with Asset Value Investors (AVI) revealing their aptly titled “Taking Fujitec to the next level” presentation. 

Another well-known activist, Oasis Investors, took things a step further by adding shareholder proposals to the June AGM agenda. Although shareholders rejected the proposed cancellation of treasury stock, Oasis can feel vindicated by the relatively high 33% of votes in favour of the proposal. Moreover, with a dramatic decrease in support for Fujitec’s CEO, Uchiyama-san, it seems that many minority shareholders are also becoming frustrated with management. 

With activists publicly calling for change, the stock looks a cheap and low risk play on governance reform. 

HDFC Bank:  Finely Balanced

By Steven Holden

  • HDFC Bank (HDFCB IN) is a well owned stock among global EM active managers.  Of the 250 funds in our analysis, 44.6% hold a position at an average weight of 0.87%.  It is the 10th most widely held stock across the whole of EM.
  • Whilst the long-term trend in ownership has been undoubtedly positive, this year has seen investment levels plateau and start to move lower.
  • Though on balance fund ownership fell, many active managers opened positions in HDFC Bank during the Q1 drop in prices.  This may provide support to the stock during any further weakness.  There are also plenty of previous owners who have the dry powder to buy in to HDFC Bank should the outlook improve.
  • But we can’t escape the fact that HDFC Bank is still an extremely well owned stock and one that is a defacto overweight versus the MSCI Emerging Markets index – this year’s underperformance has been costly.  This makes it an especially sensitive stock to hold when prices move south.

Analysis taken from Copley’s emerging market research, covering 250 global emerging market active strategies with combined AUM of $350bn.

Fanuc – Single Stock Bubble Meet Single Stock Pin

By Mio Kato, CFA

We have been harping on the excessive valuations in the FA sector for quite some time, and on Fanuc’s relative overvaluation vs. peers for even longer than that. In our view the case against Fanuc is stark and yesterday’s results highlight this further.

New Oriental (EDU): Students Declined YoY for First Time in Seven Years

By Ming Lu

  • Students declined YoY in 4Q20 for the first time since February 2013.
  • We believe revenue will decrease by 4% and the operating margin will decline by 2 percentage points in FY2021 (ended May 2021).
  • On the ground, students began to suspect whether English will be useful due to the tension between China and English-speaking countries.
  • The P/E band suggests the stock price will have a downside of 45% and the stock has risen for more than 3 months. Sell.

Kotak Mahindra Bank – Credit Falling Apart

By Thomas J. Monaco

* Flattish Results: Kotak Mahindra Bank (KMB.IN) [KMB] reported FY 1Q21 results of INR 12.4 bn, declining just INR 221 mn (1.7%) linked quarter. Although the stated quarter was flattish, if we exclude gains KMB’s operating result actually improved INR 2.0 bn (19.0%) to INR 12.5 mn; and

* Credit and Reserve Weakness: Linked quarter, we note that gross NPLs increased INR 5.9 bn (11.8%) and amounted to 2.70% of total loans – up 45 bp over the period. In fairness, loans outstanding did contract INR 157.5 bn or 7.2%. Loan loss provisions surprisingly declined INR 855 mn (8.2%) over the past 90 days – as credit quality and NCOs significantly worsened. By our calculation, reserves are light to the tune of INR 35 bn or about three quarters of bottom-line.   

ASIAN: Good Performance Has Already Priced In

By Research Group at Country Group Securities

We downgrade our recommendation to ‘SELL’ from ‘BUY’ with a new target price for 2021E at Bt7.2 (from Bt6.0), derived from 12.3xPE’21E which equal to its 3-year trading average.

  • We expect 2Q20E earnings to reach the record level of Bt110m (400%YoY, 5%QoQ), supported by a spike demand in frozen and pet food during global lockdown. In addition, 2Q20E performance will benefit from the Thai Baht ‘s depreciation (YoY).
  • However, we believe earnings in the remaining quarters to weaken HoH as demand for frozen and pet food declines. Meanwhile, GPM to contract from baht appreciation HoH.
  • In short-term, we believe the stock price has already reflected a strong earnings in 1H20E and should pull back to its trading average.

KOSÉ 1QFY21 Earnings Preview: China Recovery Overlooked

By Oshadhi Kumarasiri

In this insight we provide a preview into Kose Corp (4922 JP)’s 1QFY21 results scheduled to be released on 31st July 2020. Our approach to forecast quarterly results is based on our alternative data analysis. It uses monthly exports and domestic production data to forecast the company’s revenue. We discuss the details below.

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