Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: NTT (Nippon Telegraph & Telephone), Appier Group Inc, Coupang, GrafTech International Ltd, Match Group Inc, Industrial Bank of Korea, China Conch Venture Holdings, Palantir Technologies Inc, Denso Corp, Hon Hai Precision Industry and more

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

By Kirk Boodry

  • 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

By Mio Kato

  • 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

By Douglas Kim

  • 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

By Sameer Taneja

  • 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

By Aaron Gabin

  • 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%

By Daniel Tabbush

  • 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

By Osbert Tang, CFA

  • 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?

By Aaron Gabin

  • 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

By Mio Kato

  • 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.

By Patrick Liao

  • 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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