Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: Perfect Shape Medical, Razer Inc, Bank Negara Indonesia Persero, Britannia Industries, Mitra Keluarga Karyasehat Tbk, Suruga Bank Ltd, Siam Cement, AU Small Finance Bank Limited, Gunma Bank, Banco Do Brasil Sa and more

In today’s briefing:

  • Recent Updates: Perfect Shape, Hermes Int’l, A2 Milk
  • Razer: Play On
  • Bank Negara Indonesia (BBNI IJ) – The Happening
  • Britannia Industries (BRIT IN) | Taking On “G” | Estimates and Valuation
  • Mitra Keluarga Karyasehat (MIKA IJ) – Occupancy and Profitability Rising
  • Suruga Bank (8358 JP):  Doubling Up Rather Than Doubling Down
  • SCC : On the Way to Unlock Chemical Business’s Value
  • AU Small Finance Bank Q4FY21- Putting up a Tough Fight but Prolonged Covid Woes Clouding the Outlook
  • Gunma Bank  (8334 JP):  Compressed Guidance
  • Brazil Bank Sector Trends to March in Ten Charts

Recent Updates: Perfect Shape, Hermes Int’l, A2 Milk

By Steven Chen

  • Perfect Shape: founder consistently increased his stake; management appears confident in expansion initiatives;
  • Hermes International: APAC has been gaining greater significance, as expected;
  • A2 Milk: more than half of the company is functioning brilliantly for shareholders; I presume a short-term glitch for the remaining.

Razer: Play On

By Arun George

Razer Inc (1337 HK) designs and builds a gamer-focused ecosystem of hardware, software, and services. It offers gaming peripherals and hardware, as well as virtual game payments (Razer Gold) and offline-to-online digital payment networks (Razer Fintech). 

Overall, we think the 2020 results underscored Razer’s transformation into a company that under-promises and over-delivers. The 2020 results delivered a consensus revenue and profit beat along with strong cash generation and a chunky net cash position. Looking ahead, we think that consensus remains cautious. An attractive valuation and ongoing share buyback programme lend support to the share price. Overall, we think that the shares are worth a closer look. 

Bank Negara Indonesia (BBNI IJ) – The Happening

By Angus Mackintosh

Bank Negara Indonesia Persero (BBNI IJ) has historically tended to lag its peers within the top four banks in Indonesia, both in terms of returns and risk management plus their digital initiatives have not yet caught the attention of investors. With a new senior management team in place from Bank Mandiri (BMRI IJ) in place, we think this is about to change. 

Bank Negara Indonesia Persero (BBNI IJ)is making good progress on its COVID-19 loan restructuring with a reduction in loans under restructuring of IDR18tn in 1Q20201 versus 4Q2020, with further progress in April.

Credit costs fell significantly in 1Q2021, as did provisions versus 4Q2021. Overall NPLs also improved slightly in 1Q2021 falling to 4.1% of total loans. 

One key highlight in 1Q2021 was the decline in Bank Negara Indonesia (BBNI IJ)‘s cost of funds, which hit the lowest level ever at 1.7% in 1Q2021.

This has helped overall net interest margins (NIMs) hold up in 1Q2021, which are now above the bank’s FY2021 guidance range.

The key driver for CASA has been the increased number of mobile banking users which have increased significantly.

Loan growth in 1Q2021 was slow at only +2.2% but this was against a slightly negative picture for the overall banking industry, with small business and consumer loans starting to rebound at Bank Negara Indonesia Persero (BBNI IJ)

A key focus for Bank Negara Indonesia Persero (BBNI IJ) is on the digitalization of both its retail and wholesale banking businesses, which we see as a significant growth driver.

The bank now trades on 0.9x FY21E PBV, 11.6x FY21E PER, and 7.2x FY22E PER, with forecast EPS growth of +186% and +60% for FY21E and FY22E respectively. We continue to expect positive momentum over the coming quarters for the Bank Negara Indonesia Persero (BBNI IJ) both as the economy recovers and its new strategies continue to gain traction.

Britannia Industries (BRIT IN) | Taking On “G” | Estimates and Valuation

By Pranav Bhavsar

Britannia Industries (BRIT IN) released its earnings on April 27th 2021. Apart from the usual commentary, we believe the most important announcement was the “re-launch” of Milk Bikis. 

In this Insight, we interact with a couple of channels to get their perspective on the new launch along with presenting our FY22 and FY23 estimates.

Mitra Keluarga Karyasehat (MIKA IJ) – Occupancy and Profitability Rising

By Angus Mackintosh

Mitra Keluarga Karyasehat Tbk (MIKA IJ) announced a robust set of results for 1Q2021 late last week, with revenue growth of +37.6% YoY, mainly driven by COVID-19 cases, which command a higher treatment intensity.

Volume for Non-COVID-19 inpatient days also increased, up +5.6% QoQ compared to 4Q 2020, with occupancy improving to 61% for non-COVID beds. The improvement in non-COVID-19 patients bodes well for this year’s outlook. 

Mitra Keluarga continues to add more hospitals, through both greenfield and brownfield expansion plans and has opened one new hospital already this year. It will commence the groundbreaking for its 27th & 28th hospitals in 1H2021. M&A opportunities also remain a potential growth driver with two other hospitals currently in the pipeline. 

Patient numbers declined in 1Q2021 YoY but revenues per outpatient and inpatient days increased significantly due to a significantly higher number of COVID-19 patients being treated. 

Mitra Keluarga Karyasehat Tbk (MIKA IJ) bed Occupancy Ratio reached 63.4% for 1Q2021, compared to 65.7% in 1Q2020, mainly boosts by high COVID-19 bed occupancies, although non-COVID bed occupancies were not far off last year.

Mitra Keluarga Karyasehat Tbk (MIKA IJ) trades on 23.9x FY21E EV/EBITDA and 24.2x FY22E EV/EBITDA versus its 5-year average of 29.5x making the company look relatively attractive. It is likely to see a gradual tapering off in terms of revenues from COVID-19 treatments as the vaccination program starts to gain traction but it will still be an important source of revenue in the medium term, together with the fact that it is already seeing a pick-up in its normal elective treatments.

Suruga Bank (8358 JP):  Doubling Up Rather Than Doubling Down

By J. Brian Waterhouse

Among the recent flurry of Japanese regional bank upward revisions to FY3/2021 earnings guidance, one of the most interesting was released by Suruga Bank Ltd (8358 JP).  Initial FY3/2021 guidance back in May 2020 suggested consolidated net profits might fall as much as 76% YoY to just ¥6bn, with a ¥3.5bn net loss in 1H FY3/2021 due to further precautionary provisioning.  Since then, the bank has issued no less than three amendments to guidance, all of them upward revisions.  The latest guidance suggests that FY3/2021 consolidated net profits may now come in around ¥21.0 billion: more than three times initial forecasts thanks to lower credit costs and further progress in cleaning up after the catastrophic ‘share house’ scandal.

The new management team is focusing on a business model that includes more corporate business, aiming to stabilise and diversify revenues.  Revenues are indeed growing, profits have recovered to FY3/2013 levels, and yet the stock price is currently at the same level as when we wrote our previous Smartkarma Insight on Suruga Bank Suruga Bank (8358 JP):  One Step Back, but Several Steps Forward in late June 2020.  The market remains unconvinced.

Suruga Bank remains one of the most heavily traded Japanese bank stocks and is regularly one of the Top 5 Japanese bank stocks in terms of daily trading volume behind only the three megabanks and Resona Holdings (8308 JP). It is currently trading on a remarkably low PER versus peers of 4.3x (using the bank’s revised FY3/2021 guidance) and an undemanding PBR of 0.34x.

We continue to believe that Suruga Bank’s stock price remains mispriced to the already-evident improvement in its fortunes.  Risks remain, of course, and we continue to warn that this is a stock for players of the Long Game only.  The stock remains a pariah for many foreign investors, regardless of its current low valuations.  Nevertheless, the positives are increasing while the negatives are gradually starting to diminish.

SCC : On the Way to Unlock Chemical Business’s Value

By Research Group at Country Group Securities

We maintain BUY rating with new 2022E target price of Bt553.00, from Bt462.00, valued from Sum of the Parts valuation, divided to i) Petrochemical and CBM businesses at Bt442/share, derived from 14.0x PE, which is +0.5 SD of SCC’s 7 years trading average, and, ii) Packaging business at Bt111/share, derived from 15% conglomerate discounted to 21.3xPE valuation.

• SCC delivered impressive performance in 1Q21, driven by all business units.
• The solid earnings should be intact in 2Q21.
• Management disclosed that SCC is in the process of exploring the feasibility of Chemicals business restructuring, which includes the possibility of SCG Chemicals’ IPO.

The chemical business IPO should be a re-rating catalyst for SCC, given it is the largest business in the group. Meanwhile, SCC has proven track record in SCGP spin off.

AU Small Finance Bank Q4FY21- Putting up a Tough Fight but Prolonged Covid Woes Clouding the Outlook

By Saumya Agarwal

AU Small Finance Bank, the largest Small Finance Bank in India by advances, has been putting up a tough fight in this pandemic. Collection trends have improved to more than 100% in Q4FY21, loan growth has picked up, and asset quality though stressed, is still manageable. The pandemic has been doubly challenging for Small Finance Banks, such as AU, given that they cater to small businesses and self-employed people. The unrelenting Covid wave is making it difficult for AU to sustain these improvements and stage a quick turnaround.


Gunma Bank  (8334 JP):  Compressed Guidance

By J. Brian Waterhouse

The unexpected cut to FY3/2021 guidance announced by Gunma Bank (8334 JP), the dominant bank in Gunma Prefecture northwest of the Japanese capital Tokyo, is a reminder that the coronavirus pandemic continues to exact a heavy toll on Japanese industry, despite substantial efforts by the Japanese government and private commercial banks to support their clients wherever feasible.  Despite the likely dent in FY3/2021 earnings (to be formally announced in the next 2-3 weeks) caused by additional credit provisioning, we expect earnings to recover in FY3/2022.  The bank is maintaining its dividend unchanged at ¥13/share, suggesting a dividend payout ratio of around 45%.  On a prospective PER (using the bank’s revised guidance) of 12.5x and a low PBR of 0.31x, the stock remains attractive against peers.  We maintain our positive view on this stock.

Brazil Bank Sector Trends to March in Ten Charts

By Victor Galliano

  • Brazil’s credit quality, at first sight, seems well controlled based on headline data to March
  • The picture is more nuanced based on the household and consumer credit quality and leading indicator arrears (15-90 days delay) data
  • Credit quality to corporates shows that the trends are diverging between exposure to large corporates (benign) versus micro-enterprises and SMEs (worsening)
  • In short, we expect credit quality to deteriorate going forward, especially in higher risk consumer and in micro-enterprise and SME credit categories
  • Despite the potentially worsening credit quality, the bank system is generally well prepared with high provisioning levels relative to delinquency
  • Credit spreads ticked up in March, but are still well below their recent highs of early 2020
  • Nonetheless, we see value in the sector and find Banco Do Brasil Sa (BBAS3 BZ) attractive, and we also add Banco Bradesco Sa (BBDC4 BZ) to the attractively valued list
  • Risks to positive view on these big cap Brazil banks include worse than expected credit quality, weak opex control and erosion of credit spreads

Related tickers: Perfect Shape Medical (1830.HK), Razer Inc (1337.HK), Bank Negara Indonesia Persero (BBNI.JK), Britannia Industries (BRIT.NS), Mitra Keluarga Karyasehat Tbk (MIKA.JK), Suruga Bank Ltd (8358.T), Siam Cement (SCC.BK), AU Small Finance Bank Limited (AUBANK.NS), Gunma Bank (8334.T), Banco Do Brasil Sa (BBAS3.SA)

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