Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: Sony Corp, Philippine Stock Exchange, HKEX, Alibaba Group, Swire Pacific (A), SK Hynix, HSBC Holdings, Amorepacific Corp, China Education Group, Z Holdings and more

In today’s briefing:

  • Sony – 2021 Conviction Call Hiding Profits
  • Philippine Stock Exchange Inc (PSE PM) – Overlooked and On the Up
  • Hong Kong Exchanges & Clearing – Golden Quarter, But Risks Are High
  • Ant Group-Alibaba (BABA): Are We There Yet?
  • StubWorld: Swire Pac’s Outperformance
  • SK Hynix Posts Good Results, Expects Even Better
  • HSBC – Management Cries Costs
  • Amorepacific Corp: 2021 High Conviction – Highlights of Better than Expected 1Q 2021 Earnings
  • China Education Group (839 HK): Encouraging Takeaways from 1H21 Result Call
  • Z Holdings Q4 20 Results: Good Numbers as LINE Era Kicks Off

Sony – 2021 Conviction Call Hiding Profits

By Mio Kato

Sony posted OP of ¥972bn coming in just a touch above consensus and significantly below our own estimates of ¥1.12trn. Guidance for next year is overdoing conservatism predicting a 3.3% drop in OP despite a robust 7.8% projected growth in the top line. Our analysis suggests that Sony has joined its gaming brethren in hiding profit in its booming gaming segment and OP should be up very significantly next year.


Philippine Stock Exchange Inc (PSE PM) – Overlooked and On the Up

By Angus Mackintosh

Despite pressures on the Philippines from strict lockdowns and continuing issues with rising cases of COVID-19, Philippine Stock Exchange Inc (PSE PM) looks increasingly attractive with a powerful combination of rising volumes and a significant pipeline of IPOs in 2021. 

The exchange has also been a direct beneficiary of COVID-19 as it has encouraged the influx of greater numbers of retail investors, which has boosted market volumes significantly. 

The Philippine Stock Exchange Inc (PSE PM) currently only has 272 listed companies, which looks quite a low number but is in the process of encouraging more smaller companies to list. 

The rapid increase in IPOs should be positive for margins given the high listing fees that the listing of new shares attracts. We have just seen the approval pass for the US$1bn Monde Nissin Corp (0191881D PM) IPO, which will focus attention on the overall market.

Philippine Stock Exchange (PSE PM) has outlined a number of new initiatives to increase liquidity and the number of new listings.

The company is also looking to increasingly digitize its business by upgrading its clearing and settlement system and shortening settlement to T+2. 

Philippine Stock Exchange (PSE PM) is trading at a discount to regional exchanges on 17.1x FY21E PER, which trades on an average forward PER of 29x. There are also a number of potential catalysts ahead, the most obvious being higher volumes, driven by increasing retail participation plus more IPOs in FY2021.


Hong Kong Exchanges & Clearing – Golden Quarter, But Risks Are High

By Thomas J. Monaco

*Glittering Quarter: Hong Kong Exchanges & Clearing (388.HK) [HKEX] reported 1Q21 earnings of HKD 3.8 bn, improving HKD 915 mn (31.3%) linked quarter. Results were even more impressive when we exclude investment income (declined HKD 363 mn or 43.8% linked quarter) – increasing HKD 1.3 bn (61.0%) to HKD 3.4 bn. Results were highlighted by HKEX’ positive operating jaws, as recurring revenue increased HKD 1.2 bn (28.6%) while operating expenses declined HKD 194 mn (14.5%) over the period;  and

*Risks Are Increasing: In addition to an extended valuation when ADT has begun to turn and having a new CEO with no exchange experiences, HKEX needs to contend with the government’s examination of a stamp duty increase and mainland China’s contemplation of a new stock exchange to attract overseas-listed firms (including Hong Kong) which will bolster Shanghai’s status as a global financial center.


Ant Group-Alibaba (BABA): Are We There Yet?

By Victor Galliano

  • PBoC’s regulatory pressure and scrutiny are seemingly coming to a head at Ant Financial Services Group (6688 HK) 
  • At the China Digital Summit, the disclosure of “co-operation” between Ant Group and regulator implies that PBoC has secured that Ant Group  share their “big data” lake and capabilities with the PBoC
  • This news regarding big data sharing signals diminishing regulatory risk going forward
  • Bloomberg Intelligence reported that the Ant Group valuation could be as low as USD29bn; we see this as too bearish, even in the worst case
  • Even under our “new reality” business valuation, we arrive at an SOTP valuation range – which factors in the cost of capital needs – of USD41bn to USD62bn
  • We turn constructive on Alibaba Group (BABA US), with a great deal of Ant Group regulatory risk discounted, and given Alibaba’s attractive valuations relative to its peer group
  • Risks to our constructive view on Alibaba include a bigger than expected capital call as a core shareholder, to capitalise Ant Group’s credit business, and a worse than expected loss of payments market share from e-Yuan introduction

StubWorld: Swire Pac’s Outperformance

By David Blennerhassett

This week in StubWorld …

Swire Pacific (A) (19 HK) has gained 78% from its low at the end of October last year, compared to 13% for Swire Properties (1972 HK) and 20% for the HSI.

Swire’s NAV discount has been narrower in the past, but it’s questionable how much reliance can be placed on historical data.

Preceding my comments on Swire are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.


SK Hynix Posts Good Results, Expects Even Better

By Jim Handy

SK hynix’ earnings call today showed good results, and management’s outlook is for an even more positive second quarter and second half.  As a result, the company is accelerating its capital spending.


HSBC – Management Cries Costs

By Daniel Tabbush

HSBC is now talking about bidding up staff costs in Asia, namely in wealth and investment banking. This comes as it tries to restructure costs lower. The bank may disappoint yet again, and it may not be only with expenses. 


Amorepacific Corp: 2021 High Conviction – Highlights of Better than Expected 1Q 2021 Earnings

By Douglas Kim

Amorepacific Corp (090430 KS) is a company that was our 2021 high conviction call. We made this call in our insight 2021 High Conviction in Korea: Amorepacific Corp – Turnaround After ‘Once in a Century’ Pandemic (23 November 2020). The stock is up 39% since our call.

Today, the company reported better than expected earnings in 1Q 2021 and we believe the stock is well poised for further upside. Following the strong 1Q 2021, we continue to have a positive view of Amorepacific Corp and we believe the consensus will revise up their earnings estimates of the company by at least 10-15% in 2021.


China Education Group (839 HK): Encouraging Takeaways from 1H21 Result Call

By Osbert Tang, CFA

China Education Group (839 HK) (CEG) reported an impressive 50.2% YoY growth in its adjusted net profit for 1H21, driven by the combination of good organic momentum and contribution from new schools added. By segment, higher education and global education are the key underpinning factors, as vocational education enrollment has disrupted more by COVID-19.

In the post-1H21 result call, management revealed that 6 M&A projects are now in advance discussion and expects many of them can be concluded in this year. This will add to the organic growth backed by higher enrollment, increase in tuition and efficiency enhancement. We take the guidance of a 32-41% of adjusted net profit growth for FY21 positively, and so is the market as the share price was up 7% so far today. Its valuation multiples are highly justified by the earnings growth prospects, execution capability and quality management, in our view.


Z Holdings Q4 20 Results: Good Numbers as LINE Era Kicks Off

By Kirk Boodry

Z Holdings Q4 results are largely as expected but a meaningful reduction in market expectations (shares down 12% YTD and 31% from recent highs) means that should be taken positively. Underlying performance was strong as online retail demand expanded with the re-introduction of emergency measures (merchandise GMV +26%) even as advertising sales grew better than expected (+5% v mgmt guidance flat YoY). The outlook for FY21 is slightly better than Redex forecasts for revenue and adjusted EBITDA although the corresponding operating income is in-line so our outlook probably won’t change much. We remain at Buy


Related tickers: Sony Corp (6758.T), HKEX (0388.HK), Alibaba Group (BABA.N), Swire Pacific (A) (0019.HK), SK Hynix (000660.KS), HSBC Holdings (HSBA.L), Amorepacific Corp (090430.KS), China Education Group (0839.HK), Z Holdings (4689.T)

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