Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: Perfect Shape Medical, Sunpower Group, Bank Mandiri Persero, NIO Inc, oRo Co Ltd, Hotel Shilla, Sands China Ltd, The Walt Disney Co, ARTERIA Networks Corp, Berli Jucker and more

In today’s briefing:

  • Perfect Shape Is Not Perfect But Here Is What We Like About It
  • Sunpower (SPWG SP): GI Continues to Deliver; Re-Rating to 1 SGD Just a Matter of Time
  • Bank Mandiri Persero (BMRI IJ) – A Stand Out on a Number of Fronts
  • A Look at Nio’s Operations: BaaS Is the Recent Addition
  • ORo: Earnings Growth Hasn’t Resumed Yet but We Are Looking for Entry Points
  • Hotel Shilla: A Turnaround Story of Improving Duty-Free Business & A Separation from Samsung Group?
  • Macau Gaming: Our Highest Conviction Idea: Speedier Arrival of Effective Vaccine Moves These Stocks
  • Disney 4Q20: We’ll Get Back to You
  • Arteria Networks – Q2 20 Results: On Track to Meet Full-Year Guidance
  • BJC: Expect SSSG to Bottom Out in 4Q20

Perfect Shape Is Not Perfect But Here Is What We Like About It

By Steven Chen

  • No company is perfect from an investing perspective, with Perfect Shape being no exception;
  • Meanwhile, there is a lot that long-term, quality-focused investors like us can like about the stock;
  • In particular, skillful capital allocation, promising growth prospects, a track record of outperforming competitors, and an attractive valuation can together lead to a long-term alpha opportunity with a margin of safety.

Sunpower (SPWG SP): GI Continues to Deliver; Re-Rating to 1 SGD Just a Matter of Time

By Nicolas Van Broekhoven

Sunpower Group (SPWG SP) delivered solid 9M20 results with earnings on track to meet its CB targets for FY20. 9M20 net profit was exactly 75% of its FY20 target and historically 4Q has been its strongest quarter. Sunpower should have no issue meeting FY20 consensus expectations.

Sunpower has been a reliable revenue, EBITDA, and profit generator for two years now yet the market is valuing it at barely 9.7x FY21 earnings. As demonstrated in a recent insight Sunpower: Read Across from Buyout of Zheneng JinJiang; Fair Value Remains at 1 SGD (63% Upside) this is too conservative.

Sunpower bottomed on 23/03/20 at 0.33 and has since doubled. However, if we look at it YTD the stock is only up 4%. Given this is a 100% China domestic play and the Chinese economy is overall performing well there is a disconnect.

Our Fair Value remains unchanged at 1 SGD (based on 15x FY21 earnings as agreed in CB1/CB2).


Bank Mandiri Persero (BMRI IJ) – A Stand Out on a Number of Fronts

By Angus Mackintosh

A Smartkarma webinar with Bank Mandiri Persero (BMRI IJ) this week revealed a bank well-positioned to benefit from the gradual economic recovery taking place in Indonesia.

The bank has a new management team, which is focused on its 5-year corporate plan, “beyond lending”, which involves more cross-selling to wholesale clients to extract value and increasing its digital banking capabilities.

Bank Mandiri Persero (BMRI IJ) has seen significant reductions in funding costs as well as a marked improvement in its liquidity position, with a loans to deposit ratio of only 83%.

It has seen its restructured loans plateau out and provisions continue to come down, with credit costs likely to peak by end of 2020 at 3.5% before falling in 2021. 

Loan growth has started to pick up for property and auto segments but loans are still focused on working capital rather than investment as yet. 

Mobile banking has overtaken ATMs in terms of transaction value for the first time and this brings with it significant cost savings. Bank Mandiri Persero (BMRI IJ) will launch a super App next year to expand the scope of its digital business.

The creation of a new state-owned Syariah bank under Bank Brisyariah (BRIS IJ) with Bank Mandiri Persero (BMRI IJ) has great promise given greater scale and potentially high returns. 

From an ESG perspective Bank Mandiri Persero (BMRI IJ) is aligning itself with UN Sustainable Development Goals in a wide variety of areas, with the aim of being the ESG leaderin the Indonesian banking space.

Bank Mandiri Persero (BMRI IJ) remains our top pick amongst the Indonesian banks, with a number of standout positives outline above and it more detail below the fold. The bank trades on 1.5x FY2020E PBV versus its 3-year average of 1.8x with the prospect of a strong rebound in earnings over the next two years and a rising ROE. 


A Look at Nio’s Operations: BaaS Is the Recent Addition

By Aqila Ali

NIO Inc (NIO US) recently announced the launch of its battery subscription program, now providing a complete system of charging solutions for EVs. The company has developed its business model as planned during the time of its IPO. In this insight, we look at the company’s operations, specifically its new business venture: battery as a service (BaaS), which it will jointly operate with CATL (A) (300750 CH). We will follow up with an insight that will then take a deep dive into financials to see if these operations reflect as expected on the financial performance.


ORo: Earnings Growth Hasn’t Resumed Yet but We Are Looking for Entry Points

By Shifara Samsudeen, ACMA, CGMA

oRo Co Ltd (3983 JP) reported its 3Q2020 results today which saw 22.8% YoY decline in revenue while OP for the quarter dropped 32.1% YoY during the quarter. Both business segments saw YoY decline in revenue during the period. The company’s revenue and OP both fell below consensus estimates by 13.6% and 15.8% respectively.

In our previous insight on the company oRo: Another Stock Capable of Making PM Suga’s Digitalisation Dream a Real , we highlighted that the company’s revenues and margins are impacted by the ongoing Covid-19 pandemic. During the company’s 1H2020 earnings announcement, the company mentioned that the business conditions have recovered since June, however, 3Q2020 results show that the conditions have not yet improved as evident by the QoQ drop in revenue and margins.

Source: Company Disclosures

Hotel Shilla: A Turnaround Story of Improving Duty-Free Business & A Separation from Samsung Group?

By Douglas Kim

In this insight, we provide an updated analysis of Hotel Shilla (008770 KS). Although Hotel Shilla shares have underperformed KOSPI this year, we believe they are well-positioned to outperform the market over the next one year.

COVID-19 has wrecked so many important business sectors in Korea. Among the most devasted have been the tourism and hospitality sectors. Hotel Shilla has been no exception with a steep drop in overseas visitors to South Korea having a devastating negative impact on the company.

Hotel Shilla: A Separation from the Samsung Group? With the death of the late Samsung Group Chairman Lee Kun-Hee, there is an increasing probability that eventually Hotel Shilla may be separated from the Samsung Group.


Macau Gaming: Our Highest Conviction Idea: Speedier Arrival of Effective Vaccine Moves These Stocks

By Howard J Klein

  • The stunning Pfizer vaccine announcement days ago can be a psychological game changer for Macau stocks that target mass play most likely to ramp first.
  • Entry points for these three top picks bear potential for strong upside moves by 1Q21.
  • A possible shortened Macau recovery cycle is not yet baked into the prices here.

Disney 4Q20: We’ll Get Back to You

By Aaron Gabin

The focus, as expected was on the streaming services. Which continue to exceed expectations. At the end of its first fiscal year, Disney+ ended with 74M subs…kind of mind blowing given the initial guidance of getting to 60-90M subs by 2024.

Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.


Arteria Networks – Q2 20 Results: On Track to Meet Full-Year Guidance

By Kirk Boodry

ARTERIA Networks Corp (4423 JP) posted Q2 results modestly below consensus on disruption from coronavirus but re-iterated guidance for the full year. Revenue growth in Q2 of 2% tracked Q1 but operating income fell by 9% (v 7% growth in Q1) on higher infrastructure and customer service costs. These were higher than expected and the potential for this kind of impact is what took 15% off the share price over the last three months. The message this quarter is better as there are signs that the operating environment has improved and full-year guidance remains in reach.


BJC: Expect SSSG to Bottom Out in 4Q20

By Research Group at Country Group Securities

BJC’s 3Q20 net profit was at Bt1.1bn (-40%YoY, +247%QoQ). The 9M20 result accounted for 60% of 2020E earnings forecast.

  • The fall in 3Q20 earnings was pressured by a drop in revenue to Bt35bn (-9%YoY,-3%QoQ). SSSG reported at -17.8% from -17% in 2Q20.
  • We maintain our positive outlook in 2021 earnings driven by (1) improvement of SSSG by 3%YoY in 2021E (2) recovery in rental income after easing lockdown as we expect occupancy rate to pick up to 95% in 2021 from a bottom at 85% in 2Q20 (3) cost saving from tax-deductible item in the next three year.
  • We still like this stock given (1) its strong integrated solid supply chain which allow the company to benefit from industry growth and recovery; (2) double digits growth for small format stores in the next two years (ie., Mini BigC and BigC Market which currently contribute 15% of total sales).

We maintain BUY rating with a new target price of Bt43 (Previous TP of Bt55) based on 30xPE’21E, closed to Consumer Discretionary Sector. Target price cut was due to earnings downward revision by 22% in 2021E.


Before it’s here, it’s on Smartkarma