Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: Softbank Group, DiDi Chuxing, Elite Commercial REIT, Comfortdelgro Corp, TAL Education, Koei Tecmo Holdings, NIO Inc, Arwana Citramulia, Nidec Corp and more

In today’s briefing:

  • Softbank Group – China Has Just Blown a Hole in Vision Fund’s Rapid Listing Theme
  • Didi Global – Greed Is Not Always Good
  • Smartkarma Corporate Webinar | ELITE SP: A Unique Social Infrastructure Play
  • Comfort Delgro (CD): Pandemic to Endemic Beneficiary
  • TAL Education (TAL): In New Rule on Tutoring School, “Article 13” Harsher Than “Non-Profit”
  • Koei Tecmo – Beats Consensus but Is That Enough?
  • Nio: Holding League Table Spot, but Further Challenges on the Way
  • Arwana Citramulia (ARNA IJ) – Glazed Porcelain
  • Nidec (6594 JP): Good 1Q, but EV Motors Face Tough Competition and Severe Pricing

Softbank Group – China Has Just Blown a Hole in Vision Fund’s Rapid Listing Theme

By Kirk Boodry

Softbank has been touting Vision Fund’s IPO flywheel for almost all of 2021 but expect that to fade as the reality of China’s crackdown sinks in. It’s stake in Didi is worth $8bn as of Friday down from $10.6bn invested at the parent and $12bn total whilst other recent IPOs (YMM -28% on 23 July, ZME -35%, DDL -8%) are also under pressure. The good news is Vision Fund China assets are <10% of total China exposure and Alibaba has been through the regulatory wringer already. That limits China downside but it does call into question Vision Fund hopes for valuation gains from liquidity events. There is a direct read across with Zuoyebang and VIPThink which are banned from going public whilst three of the largest private investments remaining in Vision Fund 1 (Bytedance, and Guazi) are likely to remain on the sidelines. We expect the holding company discount is likely to remain in the 44% range.

Didi Global – Greed Is Not Always Good

By Kirk Boodry

The more news that comes out, the worse it seems to get for Didi Global. A coalition of regulators descended on Didi headquarters last Friday as the company’s decision to go public despite Cyberspace Administration (CAC) admonishments it should wait have been taken as a challenge to the government. We expect management saw an opportunity to grab a high valuation with super Q1 numbers which in turn was sweetened by a lucrative options award and that may have made them complacent. We don’t know where regulators will take this but we do feel confident in saying that there are no quick fixes here – too many regulators are involved now and it will likely take months for the company to get out from under this level of scrutiny.

Smartkarma Corporate Webinar | ELITE SP: A Unique Social Infrastructure Play

By Smartkarma Research

For our next Corporate Webinar with are glad to welcome the management team of Elite Commercial REIT (ELITE SP)

  • Shaldine Wang, CEO
  • Jonathan Edmunds, CIO
  • Joel Cheah, CFO

Elite Commercial REIT is the first and only UK-focused listed REIT in Singapore. Listed on SGX-ST in February 2020, Elite has been established with the principal strategy of investing, directly or indirectly, in commercial and real estate-related assets in the UK.

In their upcoming webinar, Shaldine will share a short company presentation after which, she, together with Jonathan and Joel, will engage in a fireside chat with Smartkarma Insight Provider Sumeet Singh. This will be followed by a live Q&A session.

The Corporate Webinar will be hosted on Tuesday, 10 August 2021 17:00 SGT.

Corporate Webinars by Smartkarma Corporate Solutions feature discussions with IROs and Executives, discussing their companies, the challenges they face, and the opportunities in their sectors and markets.

Comfort Delgro (CD): Pandemic to Endemic Beneficiary

By Henry Soediarko

Although the Singapore government has brought back the phase 2 heightened alert requirement that prohibits dining-in just last week, the co-chair of the multi-ministry task force, Lawrence Wong, announced today that the Singapore government will review the COVID-19 restrictions in early August only for the vaccinated people. 

As the restrictions are potentially going to be eased off including allowing dining-in, the coming back of the working in the office rather than from home, and the ability to travel overseas are back again, there will be an increase in the mobility rate and Comfortdelgro Corp (CD SP) is the main beneficiary through the higher traffic in the domestic travel (through MRT and busses) and also the overseas trip through higher taxi ridership. 

TAL Education (TAL): In New Rule on Tutoring School, “Article 13” Harsher Than “Non-Profit”

By Ming Lu

  • The new rule for tutoring school damaged the prices of Chinese education equities.
  • The market focuses on the “non-profit” requirement, but we believe “Article 13” is more important.
  • We believe the authorities try to block all the ways that a tutoring school can continue.
  • We do not believe this is a “low-price opportunity” after the stock price plunge.
  • Please also see TAL Education (TAL): Last Summer for Physical Tutoring School on June 28 before the price plunge.

Koei Tecmo – Beats Consensus but Is That Enough?

By Mio Kato

Koei Tecmo posted some stellar results today with ¥20.5bn in revenue (consensus ¥14.5) and OP of ¥9.7bn (consensus ¥5.9bn), putting the company on track to hit our ¥34-39bn FY OP target vs. consensus at ¥28.5bn. ¥8.7bn in income below the OP line was also a notable positive surprise thanks to strong investment income. How much of this is priced in though?

Nio: Holding League Table Spot, but Further Challenges on the Way

By Victoria Li

NIO remained its No.1 position in local emerging EV brand YTD by delivering 41,956 cars. ES6 is the best seller with 46% volume contribution. It appears that Tesla’s Model Y hasn’t had any obvious negative impact yet as we worried before.

However, we still concerned on NIO’s outlook because:

1) Xpeng P7 (sedan) overtook NIO ES6 (SUV) became best seller model among local emerging EV brands’ product pool.

2) Increasing acceptance on smart EVs and increasing sales contribution from younger generations would reduce market share upside on NIO’s ES6 and EC6  if NIO has no improvement on autonomous driving and other smart EV functions.

3) Model Y launched standard range version on 8th July, which takes down the entry level price to Rmb276k, vs. ES6’s 348k.  It might divert NIO’s client base.

Arwana Citramulia (ARNA IJ) – Glazed Porcelain

By Angus Mackintosh

Indonesia’s leading low-cost tile producer Arwana Citramulia (ARNA IJ) released a strong set of results for 1H2021, with revenues increasing by +25.2% YoY driven by decent organic growth, new capacity plus continuing improvements in product mix.

Arwana Citramulia (ARNA IJ) continues to increase its production capacity whilst operating at very high rates of capacity utilisation above 100%. 

The company has started production of its new higher-end ARNA brand 60cmx60cm tiles, which compete for head-on with Chinese imports but where Arwana has cost advantages, faster turnaround times, and can provide better terms for customers.

Apart from the increase in new capacity for the higher-end porcelain tiles, Arwana Citramulia (ARNA IJ) also continues to shift its product mix towards its higher-end ceramic tiles under the UNO brand name, whilst reducing the production of cheaper products, helping to support margins.

The company saw its gross profit increase by +60% YoY and gross profit margin to 35.4% versus 27.5% the previous year, mainly helped by lower gas prices, which were reduced by -30% last April

We continue to view Arwana Citramulia (ARNA IJ) as one of the best quality industrial companies in Indonesia, which will continue to see the positive tailwind of better product mix and lower gas prices in 2H2021, suggesting more to come on margin improvements in the second half.

Nidec (6594 JP): Good 1Q, but EV Motors Face Tough Competition and Severe Pricing

By Scott Foster

Nidec’s share price jumped 2.4% to ¥1,300 on Wednesday, July 21 – the last trading day before Japan’s national holidays, when the company announced results for 1Q of FY Mar-22 – but fell back 3.2% to ¥12,580 today.

This reflects the positives and negatives facing the company as it ramps up production of EV motors and drive systems.

Results for the three months to June looked good, with operating profit up 60% year-on-year on a 33% increase in sales. 1Q sales, operating profit and net profit were all about 56% of 1H guidance.

On top of that, Nidec and Hon Hai announced plans to establish a joint venture to develop Nidec E-axle traction motor systems for EVs made by Hon Hai subsidiary Foxtron Vehicle Technologies.

However, competitor Hitachi (6501 JP) announced plans to build EV component factories in Japan China and the U.S. to expand capacity by about 6 times; and price competition in China is severe.

At 53x management’s EPS guidance and 50x our own EPS estimate for FY Mar-22, and 40x our estimate for FY Mar-24, a lot of potential growth is already in the price.

We reiterate our previous conclusion: Guidance is probably conservative, but the shares are still overvalued.

Related tickers: Softbank Group (9984.T), Comfortdelgro Corp (CMDG.SI), TAL Education (TAL.N), Koei Tecmo Holdings (3635.T), NIO Inc (NIO.N), Arwana Citramulia (ARNA.JK), Nidec Corp (6594.T)

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