Daily BriefsEquity Bottom-Up

Equity Bottom-Up: Rex International Holding, Adaro Energy, Rakuten Inc, Hogy Medical, Arrail Group, RHB Bank Bhd and more

In today’s briefing:

  • Preview Rex International: 1H22 Results
  • Adaro Energy (ADRO IJ) – Riding the Coal Wave into Diversification
  • Rakuten (Neutral) – A Surprising Win with Goto Although Its Mobile Challenges Remain
  • Hogy Medical (3593 JP): Reviving Demand for Premium Surgical Kit Products to Drive Future Growth
  • Arrail Group (6639.HK) – The Development Strategy Cannot Generate High Returns
  • Malaysian Banks Screener; RHB Bank Is Our Top Pick

Preview Rex International: 1H22 Results

By Nicolas Van Broekhoven

  • Rex will soon close a disappointing 1H22 as equipment upgrades and maintenance hamper production in Oman. Recently production was halted again due to a small oil leak in its flowline.
  • Norway’s production has been declining in 1H. Rebound hopefully in 2H. New bond financing was announced for more Norwegian M&A. Malaysian assets to get the green light in 2H22.
  • Rex remains very cheap but needs to deliver on operational milestones to unlock value. YTD share price performance has lagged sector peers substantially.

Adaro Energy (ADRO IJ) – Riding the Coal Wave into Diversification

By Angus Mackintosh

  • Adaro Energy continues to ride the wave of higher coal prices but at the same time, it aims to increase production this year by over 13% further driving revenues.
  • The company is on the cusp of a transformation, with the construction of a new smelter in North Kalimantan in a new green industrial park, the world’s largest planned. 
  • FY2022 will see a sharp spike in earnings but Adaro will also pay out a significant dividend with a payout ratio similar to last year implying a yield over 20%.

Rakuten (Neutral) – A Surprising Win with Goto Although Its Mobile Challenges Remain

By Kirk Boodry

  • Rakuten’s stake in Goto is worth ¥13bn and the IPO of the latter in April and the subsequent value re-rating could provide some (very) modest offset to operating losses
  • Our forecasts remain unchanged from our mid-month update although we would flag up potential electricity resale upside for Rakuten and the sector from utility resale 
  • We have lowered our price target to ¥1,000 from ¥1,150 but uncertainty over the timing of a Bank listing, mobile recovery and return to profitability keep us cautious

Hogy Medical (3593 JP): Reviving Demand for Premium Surgical Kit Products to Drive Future Growth

By Tina Banerjee

  • Hogy Medical (3593 JP) is high-quality idea on Japan re-opening, with surgical kit, especially premium kit being the main growth driver of the company.
  • With the declining effect of the COVID-19 and resuming elective surgeries in Japan, Hogy expects 5% y/y revenue growth in FY23, driven by an 11% growth in surgical kit products.
  • Hogy is expanding marketing initiatives in Southeast Asian countries. The company is enhancing production capacity of premium kit products, with partial operation of the new plant to start in July.

Arrail Group (6639.HK) – The Development Strategy Cannot Generate High Returns

By Xinyao (Criss) Wang

  • Arrial’s positioning at high-end private dental chain indicates limited growth space. The large investment in dental professionals drags down overall margins but fails to generate good word-of-mouth and expected returns.
  • Public hospitals with NRDL reimbursement and private dental chains with high cost performance would put more pressure on Arrail. Increasing marketing/promotion expenses cannot turn things around but further reduce margins.
  • Overall, the high-end strategy cannot bring high-end returns. We are not optimistic about Arrail’s prospects and profitability. The Company may even keep losing money and hard to turn profitable.

Malaysian Banks Screener; RHB Bank Is Our Top Pick

By Victor Galliano

  • The six Malaysian banks have healthy capital adequacy ratios, healthy credit quality and adequate NPL coverage; increased tourism should support GDP, positive cost of risk trends and loan growth demand
  • We like RHB, with its attractive post-provision profitability and sound cost of risk trends, whilst also trading on attractive multiples versus peers and on a relatively low PEG
  • We also like big-cap Maybank with its reasonable valuations; combined with a prospective earnings recovery due to contained risk costs, this could drive a re-rating, after lacklustre share returns

Related tickers: Rex International Holding (REXI.SI), Adaro Energy (ADRO.JK), Rakuten Inc (4755.T), Hogy Medical (3593.T)

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