Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: Rakus Co Ltd, Oriental Land, Mazda Motor, Metrodata Electronic, Com7 PCL and more

In today’s briefing:

  • Small Cap Growth: Rakus (3923) – Sayonara Manual Expenses!
  • Oriental Land: A Correction Possible with Q2 Results
  • Mazda – The Return of the Wankel Engine and Its Significance for the EV Transition
  • Metrodata Electronic (MTDL IJ) – A Rare Value Play on Indonesia’s Digitalization
  • COM7: Upgrade Super Cycle for IPhone Users

Small Cap Growth: Rakus (3923) – Sayonara Manual Expenses!

By Mark Chadwick

EXPENSE DAY THE OLD WAY – A nightmare for both companies and employees. We have all been there – having to keep and painstakingly classify all business trip receipts. Travel, food, client entertainment, accommodation, and the list continues. Back to the office, it takes hours to pick to the pieces, organize and submit to the accounting department, and then wait for sign-off from managers before finally getting reimbursed. And that is only on the user side – the accounting department has its own troubles. Having to account for each expense – with paper receipts, do a myriad of cross checks before entering yet more data and further approvals. The result is significant lost productivity on several ends, potential errors, delayed payments, and of course, weak expense control for the company. This where Rakus Co Ltd (3923 JP)  comes in.  
Rakus is a cloud-based Business Spend Management (BSM) solution that helps companies and employees improve efficiency in tracking and settling expenses. Rakus’ expense system facilitates fast and accurate expense reporting that enhances productivity, compliance, and controls overspending. Established in 2001, the TSE Mothers-listed Rakus is a fast-growing small-cap stock that fits squarely into the Digital Transformation theme. 

Oriental Land: A Correction Possible with Q2 Results

By Oshadhi Kumarasiri

Oriental Land (4661 JP), the operator of Tokyo Disney Resorts, is one of the worse affected in Japan from the COVID-19 crisis. However, the share price held up remarkably well despite 94.9% year-on-year revenue decline in 1Q to ¥6.1 billion, the lowest level in the past 20+ years. Quarterly operating loss was ¥15.6 billion. The operating loss would have been 135% higher without the ¥21.1 billion of personnel, outsourcing, D&A and fixed asset tax expenses classified under extraordinary costs.

Prior to Oriental Land’s Q2 results release on 29th October, we update our view on Oriental Land’s business environment and the likelihood of meeting consensus estimates.

Mazda – The Return of the Wankel Engine and Its Significance for the EV Transition

By Mio Kato

On October 8th Mazda launched its new MX-30 crossover in Japan. The vehicle was not especially remarkable, being a gasoline mild-hybrid derived from the CX-3/CX-30 platform but will be followed by a full EV version and more interestingly an electric version with a rotary/Wankel engine used as a range extender. This could have some implications for the PHEV costs relative to BEVs.

Metrodata Electronic (MTDL IJ) – A Rare Value Play on Indonesia’s Digitalization

By Angus Mackintosh

Metrodata Electronic (MTDL IJ) is a rare value play on Indonesia’s digitalization. It benefits not only from offline companies continuing to digitalize processes and infrastructure but also from the rise in e-commerce, digital payments, fintech, and gaming. 

It is one of the leading Information and Communication Technology (ICT) distribution companies in Indonesia, with strategic alliances with world-class ICT companies, distributing for around 75% of global IT brands to consumer and commercial customers. 

The real driver for growth and profits for the company is coming from the company’s solutions and consulting business, where it holds around 20% market share in Indonesia and this is a growing portion of sales and more importantly profits.

The company operates out of one distribution center but has a total of 20 warehouses across Indonesia, covering 150+ cities, with 4,000+ channel partners. 

With the boom in e-commerce, growing at an unprecedented rate globally, with younger and older generations now shopping and using other online services, there is an even greater need for the products that Metrodata Electronic (MTDL IJ) distributes.

E-commerce operators continue to drive strong demand for the company’s products in order to support their own rapid growth, with increasing needs for IT infrastructure, as well as solutions and consulting services.

Offline companies are also increasingly adopting and embracing the concept of the digital transformation of Industry 4.0. This is a mixture of cloud computing, artificial intelligence (AI), machine learning, and advanced analytics that are designed to improve management, business operations, and customer reach by making processes simpler and more accessible than before. 

The company has seen some benefit from COVID-19 as there is little doubt that with companies are obligated to implement WFH procedures, the requirement for a solid IT infrastructure and digital tools are all the more essential.

Metrodata Electronic (MTDL IJ) has a long track record of sales and profits over the last few years and has also gradually improved margins at the same time. Being a distribution company, net margins remain relatively low at 2.5% but its move towards more consulting and solutions work will help to support and improve margins going forward. 

Valuations look attractive with the company trading on 8.7x FY21E PER, with forecast growth of +15% and +17% over FY21E and FY22E respectively, assuming flat net margins of 2.5%. Its international peers trade on an average of around 16x FY21 PER, which suggests Metrodata Electronic (MTDL IJ) is undervalued, especially given a positive earnings outlook. 

COM7: Upgrade Super Cycle for IPhone Users

By Research Group at Country Group Securities

We have a positive tone toward Apple’s flagship smartphone model launch yesterday given its major change in design with capability to connect with 5G network, which prompt more user upgrades at an unprecedented level.

• iPhone 12 launch could create upgrade super cycle for users
• Rising 5G era support smartphone market in upcoming years
• We expect COM7’s earnings in 2H20 to grow strongly YoY driven by impressive sales from iPhone 12 series and seasonal IT spending period

We maintain COM7 with HOLD rating but raised target price to Bt41.0 (Previous TP: Bt29.60) derived from 35xPE’21E, (+1S.D. of 5-year average). The rerating multiple reflects; 1.) growing market expectation on earnings for IT products related stock, 2.) upcoming major upgrade cycle for iPhone users, and, benefit from accelerating IT spending in Thailand. Stock price rallied 200% from its trough in late March approaching expensive zone at  36.4xPE’21E (+1.25S.D.). Any near-term market price corrections will create opportunity to accumulate this value stock.

Before it’s here, it’s on Smartkarma