Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: Sido Muncul, Fanuc Corp, Nishimatsu Construction Co, Sony Corp, Toshiba Corp, Suntec REIT, Intel Corp and more

In today’s briefing:

  • Sido Muncul (SIDO): Time to Add
  • Fanuc – Could There Be a Shock Downgrade?
  • Nishimatsu Construction – Tender Completed, Overhang Commences
  • Sony – An Uncharted 4Q
  • Toshiba (6502 JP): Nanoimprint Litho Could Add Value to Kioxia, but Not Soon
  • Suntec REIT 3Q21 – Higher Topline and Gearing, Only Difference Is the Former Was One-Off
  • Intel 3Q21: Delusions of a Madman

Sido Muncul (SIDO): Time to Add

By Henry Soediarko

Sido Muncul (SIDO IJ) ‘s share price has lagged Jakarta Stock Exchange Composite Index (JCI INDEX) in the last year due to the vaccine discovery and the shelved overseas expansion plan which has caused the earnings multiples to decrease although the earnings result has been strong.

A cross-border travel resumption that will sooner rather than later take place will inevitably lower freight costs therefore Sido Muncul can carry on with its overseas expansion plan to Nigeria and the Philippines that they had to put on hold during COVID-19. 

Combining the overseas expansion plan resumption and the potential for mean reversion, it is not a bad idea to hold Sido Muncul (SIDO IJ) . For shareholders who invested 5 years ago and made a decent return on Sido Muncul, it is not a bad idea to sell some to lock in some profit to maintain a certain level of exposure in the portfolio without being too overweight Sido Muncul. 

Fanuc – Could There Be a Shock Downgrade?

By Mio Kato

The FA sector has enjoyed a few strong quarters as COVID helped kickstart an earnings upcycle that was about due regardless. Despite this, stock prices have been flattish or weak for most names this year excluding the invincible Keyence. While peer Yaskawa upgraded its earnings guidance when it reported we have some concerns about Fanuc.

Nishimatsu Construction – Tender Completed, Overhang Commences

By Travis Lundy

One month ago, Nishimatsu Construction Co (1820 JP) launched a Tender Offer to buy back 27.42% of shares out in an Own Share Tender Offer. 

The primary goal, of course – as it often seems to be in own share tender offers in Japan which are conducted around market price – was to have the company rid itself of the Murakami-related shareholders while “returning capital to shareholders and raising ROE.”

They were aiming to buy back 15 million shares. They got offers to buy back 21.1 million shares. 

I discussed the situation in Nishimatsu Construction (1820) About to Do Its Last Buyback for a While, and You Can’t Participate! when it was announced. 

The deal was announced at a relatively high price – near a 20yr high – and the shares stayed in place during the deal. 

The results announced yesterday after the close were interesting. 

I had suggested that as many as 20.5mm shares could tender against the 15mm share buy. It turns out to have been 21.11mm shares tendered, which means that pro-ration was only 71%. 

The Deemed Dividend, which made this entire situation quasi un-investable for foreign shareholders, came out at ¥2,856.63 I am told (I had my ballpark guesstimate at ¥2,786-2,846 which is close enough for horseshoes and hand grenades and Deemed Dividend guesstimates).

And the results tell you some interesting things. More below.

Sony – An Uncharted 4Q

By Mio Kato

Sony’s execution on its IP cross selling continues to gather steam and the Jan-Mar quarter could see a slew of major titles releasing on PS5, some old favourites being released for PC to broaden the Playstation fanbase and a couple of blockbuster movies to boot.

Toshiba (6502 JP): Nanoimprint Litho Could Add Value to Kioxia, but Not Soon

By Scott Foster

In this morning’s news: “Merger talks between Western Digital and Kioxia stall” (Reuters, October 22, 2021, updated 9:07 a.m. JST). It is yet not clear how serious this might be.

On October 19, the Nikkei reported that Toshiba affiliate Kioxia, Canon (7751) and Dai Nippon Printing (7912) are aiming to use nanoimprint lithography in Kioxia’s NAND flash memory production in 2025.

The potential savings in terms of equipment and operational costs could be great enough to give Kioxia a competitive advantage. It would also justify years of development and give Canon and Dai Nippon Printing important new products.

But 2025 is a long time from now and technical hurdles remain. For the time being, more immediate issues are likely to move the stocks. 

LightStream’s Mio Kato continues to see upside potential for Toshiba, but primarily as an exit opportunity (see Toshiba – Possibility of a Kioxia-Western Digital Deal )

Suntec REIT 3Q21 – Higher Topline and Gearing, Only Difference Is the Former Was One-Off

By Clarence Chu

Suntec REIT (SUN SP) reported its 3Q21 business updates pre-market on 22 Oct 21. In this note, we will analyze its performance for the period, current capital management, and share our thoughts on its outlook.

Intel 3Q21: Delusions of a Madman

By Aaron Gabin

Intel’s CEO Pat Gelsinger is a religious man. In the 2000s, he wrote “Balancing Your Family, Faith, and Work” and “The Juggling Act: Bringing Balance to Your Faith, Family, and Work.” If one is an Intel investor today, you too need to have deep faith and believe that miracles are possible.  Like believing that Intel, who will have grown revenues at a 3.7% CAGR from 2011–2021 (inclusive of acquiring MobileEye and Altera), has lost its way on process manufacturing, and is hemorrhaging market share to AMD and ARM-based CPUs is poised to grow revenues at a 10–12% CAGR over the next 4-5 years. We are not believers.

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.

Related tickers: Sido Muncul (SIDO.JK), Fanuc Corp (6954.T), Nishimatsu Construction Co (1820.T), Sony Corp (6758.T), Toshiba Corp (6502.T), Suntec REIT (SUNT.SI), Intel Corp (INTC.O)

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