Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: SGX, Nintendo Co Ltd, Sinotrans, Zoomlion Heavy Industry H and more

By September 14, 2020 No Comments

In today’s briefing:

  • Singapore Exchange – Taiwan A Standout In August
  • Nintendo – Catalysts to Support the Stock for the Next Year
  • Sinotrans (598 HK): A REIT Perspective
  • Zoomlion (1157.HK): Time to Switch from Sany into Zoomlion

Singapore Exchange – Taiwan A Standout In August

By Thomas J. Monaco

*Monthly Stats Decent:Singapore Exchange (SGX.SP) [SGX] recently reported its August 2020 monthly market metrics. SGX’s market volumes increased 11% MOM (SGX Mainboard volumes increased 13% MOM), whist velocity was higher than previous months averages at 56%. That said, market volumes have begun to normalize after a strong rally post the COVID-19 valuation trough; 

*Taiwan A Standout: While MSCI Taiwan contracts declined 19% MOM, volumes on the new FTSE Taiwan Index did exhibit an increase of 3.3x – from 82 thousand contracts during July to 352 contracts this month. SGX accounted for 99.5% of the notional traded offshore on the MSCI Taiwan. To put this in perspective, the FTSE Taiwan contracts traded were 20% of the total Taiwan contracts traded versus just 5% in July; and   

* Deals Wave of Future: SGX is hopeful to achieve synergies from newly acquired subsidiaries, such as its additional 80% stake in BidFX,a cloud-based on-line F/X trading platform. SGX is going to have to be a bit more creative to generate revenue with the Hong Kong Exchanges & Clearing (388.HK) likely to be directly competing with the A50 – on of SGX’s bread and butter products. 

Nintendo – Catalysts to Support the Stock for the Next Year

By Mio Kato

Positive news flow on Nintendo is increasing. Leaks regarding the new upgraded version of the Switch due next year are increasing and interesting, while the company has also asked suppliers to boost production of the Switch… again. There are also increasing signs of building third party support for the platform. What is pertinent is that this time it appears that third parties are finding some real success on the platform. We think this is underappreciated by the market and enables further upside.

Sinotrans (598 HK): A REIT Perspective

By Osbert Tang, CFA

We look at Sinotrans (598 HK) from the infrastructure REIT perspective given its numerous storage and logistics assets spreading all over China. At end-1H20, it owns over 10m sq.m. of land and over 4m sq.m. of warehouses/logistics centres with a total book cost of Rmb19.6bn. We believe these are significant assets for repackaging into a REIT to allow it to realise their underlying values.

Based on our assumptions, we estimate that a REIT issuance backed by its logistics assets will be able to boost its market cap by at least 16.5%. Moreover, this is only a conservative estimate as we think that the H-share will benefit more than the A-share. Moreover, Sinotrans can take this opportunity to cash in on these assets partially for funding its future investment in logistics infrastructure.  

Zoomlion (1157.HK): Time to Switch from Sany into Zoomlion

By Victoria Li

YTD, Zoomlion’s share price is up 18%, but has lagged  Sany Heavy’s (600031.CH) 35% and its own A-share’s 19.8%.  We believe this has happened mainly due to Zoomlion’s relatively lagging earrings recovery since 2018. 

However, as we expected, Zoomlion’s earnings recovery accelerated in 2Q2020 with market demand moving onwards to late cycle products. In 2Q2020, Zoomlion reported a 90% yoy growth of net profit, vs. 78% yoy growth of Sany’s.

Moreover, Zoomlion plans to use most of the proceeds from A-share private placement on excavator and related components. It plans to gain market share in excavators and targets to be one of Top 5 suppliers in 5 years. As we’ve seen, local excavator brands successfully gained market shares from global leaders in the past few years and improved sector concentration. This strengthens our conviction that Zoomlion’s excavators would take some market share from smaller players and this will be an earnings driver in the next few years.

We believe Zoomlion would outperform Sany Heavy in 2H2020, especially after A-share placement adjustment.

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