In today’s briefing:
- NTT (Buy) – An Exciting Day for Data but Not Much Has Changed
- Appier – Explosive US Growth
- Coupang: Four Major Factors to Drive Higher Profit Margins in 2022
- Graftech Q1 2022: Debt Deleveraging Continues, LTA Pricing Overhang An Issue
- Revisiting Long Ideas: Match Group
- IBK – Loan to Deposit Ratio at 181%
- Conch Venture (586 HK): Another Spin-Off in the Pipeline
- Palantir 1Q22 Earnings: War Supposedly Good for Business?
- Denso – Strong Overshoot Potential And Only Modest Execution Risk
- Hon Hai (2317.TT): 1Q22 Preview/2Q22 Outlook- For 2022, It Could Be the Lowest Revenue in 2Q22.
NTT (Buy) – An Exciting Day for Data but Not Much Has Changed
- NTT and NTT Data will reorganize overseas assets into a new operating company run through NTT Data
- The transaction results in little change for consolidated results at NTT Group although segment reporting may change and it will buy up to ¥100bn more of NTT Data
- Restructuring could help unlock the potential of Dimension Data which has been a consistent laggard since NTT acquired it in FY11
Appier – Explosive US Growth
- When we reviewed Appier’s 2021 results we rambled on about the US for about half of our note discussing explosive growth potential.
- We said that while Appier touted a >50% QoQ growth rate in the US we suspected it was actually closer to 100%.
- In 1Q it accelerated to >180% QoQ growth prompting the sell side to go all surprised Pikachu.
Coupang: Four Major Factors to Drive Higher Profit Margins in 2022
- We have been Bearish on Coupang since 12 May 2021. Now we are turning Positive since we believe the valuations have become a lot more attractive.
- We highlight four major factors that could result in higher profit margins for Coupang in 2022 including competitors exiting early dawn service, lower COVID and EATS related costs.
- Our base case valuation of Coupang is implied market cap of $24.9 billion and target price of $14.1 per share, representing 32% upside from current levels.
Graftech Q1 2022: Debt Deleveraging Continues, LTA Pricing Overhang An Issue
- GrafTech International Ltd (EAF US) reported solid results for Q1 2022. The stock still continues to look cheap at 4.7x FY22 PE.
- The debt deleveraging target of 400 mn USD a year seems on track, and the company will be zero debt by FY23. FCF yield is 24% at the current price.
- The company also bought back 30 mn USD of stock (3 mn shares @9.88 USD/share representing 1.1% of the outstanding shares) in Q1 2022.
Revisiting Long Ideas: Match Group
- Match is down 52% over the past 6 months and at $71, Match trades at a 5% FCF yield, ~17x Fwd EBITDA, for ~20% growth / ~35% EBITDA margin
- Covid restrictions lifted in Japan (2nd biggest market) should be tailwind for 2H22
- New CEO from Zynga brings unique mobile monetization skillset ideally suited for coming Tinder Coins summer launch.
IBK – Loan to Deposit Ratio at 181%
- A wholesale funded bank with rising rates can see margin compression
- In recent months Korea shows a higher delta on funding costs than loan yields
- Credit costs already at half normal level, where ramp up was never high in FY20-21
Conch Venture (586 HK): Another Spin-Off in the Pipeline
- Following listing of China Conch Environment (587 HK), China Conch Venture (586 HK) is seeking a spin-off of CV Green Energy in A-share market and we view this move positively.
- Limited details are currently available, but we think CV Green Energy, which operates WTE businesses, will trade at significantly higher multiples than its Hong Kong peers.
- Assuming CV Green Energy to hold all Conch Venture’s WTE businesses, we estimate the IPO will boost the latter’s sum-of-the-parts value by 8% or HK$2.14 per share.
Palantir 1Q22 Earnings: War Supposedly Good for Business?
- Revenue growth ex-SPAC decelerated to 19% this quarter, 11% below consensus.
- 1Q22 20% operating margins vs. consensus 27% margins as the company invests to reaccelerate growth in 2H from rising government contracts due to war.
- Alex Karp warns that nuclear war in Ukraine is being dramatically underestimated.
Denso – Strong Overshoot Potential And Only Modest Execution Risk
- Denso 4QFY22 revenue was strong at ¥1,506bn (+4.8% vs. consensus) but increases in raw material prices resulted in OP of just ¥85bn (-31.8% vs. consensus).
- The company’s FY23 guidance was conservative projecting just ¥6,350bn (+2.2% vs. consensus at +15.1% YoY) but OP guidance was for ¥560bn (+5.3% vs. consensus).
- We expect volume to grow further and the depreciating Yen should favourably impact ASPs next year.
Hon Hai (2317.TT): 1Q22 Preview/2Q22 Outlook- For 2022, It Could Be the Lowest Revenue in 2Q22.
- Hon Hai’s revenue was NT$1,408bn in 1Q22. We expect the OPM and EPS would be ~2.2% and ~NT$2.18 in 1Q22.
- It’s a gradually increase for end-product shipment in 2021, but we think it might be followed by a slower season in 2Q22.
- Hon Hai’s target is to address the profit in 2022. For 2022, we believe it could be the lowest revenue in 2Q22.
Related tickers: NTT (Nippon Telegraph & Telephone) (9432.T), Coupang (CPNG.N), GrafTech International Ltd (EAF.N), Match Group Inc (MTCH.O), China Conch Venture Holdings (0586.HK), Denso Corp (6902.T), Hon Hai Precision Industry (2317.TW)
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