Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: Softbank Group, Tokyo Electron, JD.com Inc (ADR), NTT (Nippon Telegraph & Telephone), Subaru Corp, XL Axiata, Coupang, Nissan Motor, Mitra Keluarga Karyasehat Tbk and more

In today’s briefing:

  • Softbank – Not Pretty
  • Softbank Group Q4 21 Results Reaction: The Tech Winter Is Here
  • TEL – Margin Disappointment
  • JD.com (9618 HK): To Keep Revenue at Any Cost
  • NTT (Buy) – Q4 21 Results Reaction: Steady as She Goes
  • Subaru – One Of The Better Weak Yen Plays
  • XL Axiata (EXCL IJ) – Are You Converegent?
  • Coupang: Decelerating Revenue, Sporadic Profitability and Still Expensive
  • Nissan – Significant Upside But Peers Are Better
  • Mitra Keluarga Karysehat (MIKA IJ) – Back to the Business of Patient Health

Softbank – Not Pretty

By Mio Kato

  • Softbank results were about as ugly as expected and the only major new information in our view was that they took a small (too small) write-down on their private holdings. 
  • Masayoshi Son did Masayoshi Son things regaling investor with tales of “To the moon bro!” but offered little of substance to suggest a turnaround was near. 
  • Ultimately we keep coming back to the question of where margin calls might be struck.

Softbank Group Q4 21 Results Reaction: The Tech Winter Is Here

By Kirk Boodry

  • Softbank reported record losses, as expected, including some writedowns in the private portfolio. That may not be enough to assuage concerns with valuations still in free fall
  • Management says tech’s day will come again and it is best to be more defensive for now, including a slower pace of investing, which we think is positive
  • Concern on weak tech and high leverage likely keep the discount in the mid-50s range.  There was nothing today to signal an inflection is at hand

TEL – Margin Disappointment

By Mio Kato

  • TEL generated ¥169bn in OP in 4Q, well above consensus at ¥150bn and even our ¥160bn estimate. 
  • The issue is that this was on ¥565bn in revenue, well above ourselves and consensus, due to ramping R&D and depreciation expenses. 
  • Those expenses also meant that guidance of ¥716bn in OP was just barely above consensus at ¥692bn.

JD.com (9618 HK): To Keep Revenue at Any Cost

By Ming Lu

  • JD is facing a severe logistics problem due to the lockdowns in many cities of China.
  • We believe JD is trying to secure its revenue no matter how large the fulfillment expense is.
  • We believe the stock has a downside of 22% for the year end 2022.

NTT (Buy) – Q4 21 Results Reaction: Steady as She Goes

By Kirk Boodry

  • Q4 results and FY22 guidance are in line with expectations and management is confident it is on track to meet its FY23 ¥370 EPS commitment
  • Returns to shareholders modestly better than expected with a ¥400bn buyback and the possibility of a further dividend hike later in the year still on the table
  • We remain positive on NTT shares which trade at an attractive 10-11x EPS with further support from expanding shareholder returns

Subaru – One Of The Better Weak Yen Plays

By Mio Kato

  • Subaru 4QFY22 was relatively strong compared to previous quarters with revenue of ¥737bn (+4.4% vs. consensus) but material prices pushed OP down to ¥13.3bn (-48.6% vs. consensus). 
  • The FY23 guidance was relatively weak at just ¥3,500bn in revenue (+4.5% vs. consensus) and OP guidance of ¥200bn (-1.0% vs. consensus). 
  • However with the yen where it is we believe Subaru is on track for a return to double digit OPM and OP of ¥370-450bn.

XL Axiata (EXCL IJ) – Are You Converegent?

By Angus Mackintosh

  • XL Axiata (EXCL IJ) results were encouraging with +8% revenue growth driven by data (95.5% of service revenues), with stable ARPUs and price competition easing during 1Q2022.
  • The march towards being truly converged continues with the completion of the Link Net acquisition giving it a significant leg up and due for completion on 27th May.
  • XL Axiata remains our top pick amongst Indonesia’s telcos, with the highest exposure to data and Indonesia’s headlong growth into all things digital and compelling valuations.

Coupang: Decelerating Revenue, Sporadic Profitability and Still Expensive

By Oshadhi Kumarasiri

  • Coupang (CPNG US)’s 1Q22 results were mixed with revenue 2.5% below consensus but an operating loss of $205.7m was $94.3m lower than consensus through a 3% gross margin improvement.
  • The company’s comments on the gross margin outlook are a bit concerning and make us think that the improvement in Q1 was just a one-off.
  • Coupang is fundamentally expensive on EV/GMV+Retail Sales. With selling pressure from Softbank and a significant downside to revenue estimates, we remain Short Coupang.

Nissan – Significant Upside But Peers Are Better

By Mio Kato

  • Nissan generated total revenue of ¥2,271bn (-12.0% vs. consensus) and OP of ¥56bn (+33.3% vs. consensus) in 4QFY22. 
  • This enabled the company to hit ¥247bn in OP vs. our start of year projection of ¥250bn (when guidance was for breakeven). 
  • Guidance looked superficially weak at ¥10trn in revenue (-0.4% vs. consensus) and ¥250bn in OP ¥250bn (-21.1% vs. consensus) but margin assumptions are silly and we expect ¥500bn in OP. 

Mitra Keluarga Karysehat (MIKA IJ) – Back to the Business of Patient Health

By Angus Mackintosh

  • Mitra Keluarga Karyasehat released 1Q2022 results recently which reflected a changing patient mix with less COVID-related patients and a recovery in its core patient business. 
  • Hospital occupancy is rising whilst Mitra Keluarga is also increasing bed numbers but margins have been impacted by changing patient mix but this is a positive long-term trend.
  • Mitra Keluarga Karyasehat (MIKA IJ) remains a key proxy for rising healthcare penetration in Indonesia, with valuation attractive from a historical basis. 

Related tickers: Softbank Group (9984.T), Softbank Group (9984.T), Tokyo Electron (8035.T), JD.com Inc (ADR) (JD.O), NTT (Nippon Telegraph & Telephone) (9432.T), Subaru Corp (7270.T), XL Axiata (EXCL.JK), Coupang (CPNG.N), Nissan Motor (7201.T), Mitra Keluarga Karyasehat Tbk (MIKA.JK)

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