In today’s briefing:
- Sea Ltd (SE US) – Reading the Positive Signals
- Tencent (700 HK): 1Q22, Zero Growth, But Will Recover for New Policies, Upgrade to Buy
- Tencent 1Q2022– Weaker than Expected
- Square Enix – Bounce Suggests Market Was Far Too Pessimistic
- Sea Ltd: In Rough Seas
- Daifuku – Just Too Pricey
- Yamaha Motor – Struggling But Still Too Cheap
- A Pair Trade Between LG Chem & LG Energy Solution
- Li Ning (2331): Turning Positive.
- Familymart to Double Space for Hit Clothing Range
Sea Ltd (SE US) – Reading the Positive Signals
- Sea Ltd released a solid set of 1Q2022 results, with very strong YoY growth in e-commerce GAAP revenues, and a predictable softening of gaming revenues given greater mobility in 1Q2022.
- A key highlight was improving profitability with the adjusted EBITDA loss per order falling 70% in South-East Asia and Taiwan. Management also signalled that gaming revenues started stabilising end 1Q2022.
- Sea Ltd (SE US) saw a strong rally post these results given guidance was maintained albeit with a wider range. Sea Ltd is now trading at a discount to peers.
Tencent (700 HK): 1Q22, Zero Growth, But Will Recover for New Policies, Upgrade to Buy
- Authorities encourage platform economy and restarted approving the licenses for new games.
- Fintech just met a high comparison base in 1Q21 and we believe the growth rate will rise.
- We believe the stock has an upside of 39% for the year end 2022.
Tencent 1Q2022– Weaker than Expected
- Tencent (700 HK) reported 1Q2022 results today. Revenue grew 0.1% YoY to RMB135.5bn (vs consensus RMB140.7bn) while reported OP decreased 34% YoY to RMB37.2bn (vs consensus RMB37.3bn).
- Adjusted OP was down 36% YoY to RMB22.3bn while adjusted OPM declined to 39.2% from 56.1% in the same period a year ago.
- Tencent’s 1Q2022 revenues were below our estimates of RMB144.3bn which was mainly due to significant drop in Fintech and business services revenues.
Square Enix – Bounce Suggests Market Was Far Too Pessimistic
- Square Enix results were mildly above consensus (by 2.4% at the revenue line and 3.4% at the OP line).
- The company did not provide guidance on account of the pending transfer of its overseas development studios.
- However, we expect the sale to lift a significant burden from the bottom line enabling significant YoY OP growth.
Sea Ltd: In Rough Seas
- Sea’s share price rose 14% yesterday after beating consensus revenue by 1.4%, but this seems unwarranted as Sea lowered the lower-end of the e-commerce revenue guidance by $400m to $8.5bn.
- Nonetheless, most of this price reaction could be short covering as Sea Ltd (SE US)’s results were rather disappointing on multiple fronts.
- With Free Fire faltering fast, we think Sea could get washed back to rough seas before reaching calm waters.
Daifuku – Just Too Pricey
- Daifuku’s 4QFY22 was strong with revenue of ¥143bn (+3.8% vs. consensus) and OP of ¥17.3bn (+8.2% vs. consensus).
- Guidance was relatively strong at the top line, 1.1% above but margin assumptions were far too conservative resulting in a 4.1% miss vs. consensus.
- One may think that creates upside potential but guidance for 2H to grow vs. 1H is optimistic and valuations are too stretched to withstand a deceleration in earnings momentum.
Yamaha Motor – Struggling But Still Too Cheap
- Yamaha’s 1QFY22 was weak with revenue of ¥482bn (-1.5% vs. consensus), and OP of ¥40.1bn (-17.3% vs. consensus).
- The company’s FY22 guidance remained unchanged projecting ¥2,000bn in revenue (-2.0% vs. consensus) and OP guidance of ¥190bn (-4.5% vs. consensus).
- Beating guidance significantly will now be difficult without price hikes but valuations are too cheap to ignore.
A Pair Trade Between LG Chem & LG Energy Solution
- We believe there is an attractive pair trade of going long on LG Chem and going short on LG Energy Solution at current levels.
- Main reasons why we like this pair trade include large shares that could be sold after 6 months lockup for LGES, LG Chem’s attractive valuation, and shift to value stocks.
- In the past one month, LG Energy Solution is down 5.3% whereas LG Chem is up 2.4%. We believe this gap could widen in the next several months.
Li Ning (2331): Turning Positive.
- Q1 22 operating figures are better than the smaller peers although not exactly beating Anta.
- Launching the cafe to boost SSSG post-COVID-19 is a positive strategy.
- Its valuation is currently trading below its historical highs . Turn positive on Li Ning (2331 HK) .
Familymart to Double Space for Hit Clothing Range
- Convenience stores in Japan aren’t known for their fashion prowess although most sell the odd sock and underwear.
- FamilyMart Co Ltd (8028 JP) sees an opportunity to both expand sales categories and increase margins with higher value fashion basics supplied by its new parent Itochu Corp (8001 JP).
- Itochu is a leading fashion supplier and has created a hit product range for Familymart as well as another in cosmetics.
Related tickers: Sea Ltd (SE.N), Tencent (0700.HK), Tencent (0700.HK), Square Enix Holdings (9684.T), Sea Ltd (SE.N), Daifuku Co Ltd (6383.T), Yamaha Motor (7272.T), Li Ning (2331.HK), FamilyMart Co Ltd (8028.T)
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