Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: Tencent, Alibaba Group, PCCW Ltd, Edelweiss Financial Services, Las Vegas Sands, Bandhan Bank Ltd, Intel Corp, Bank Central Asia, Mitsubishi Motors, Berli Jucker and more

In today’s briefing:

  • Tencent Holdings – Only The Beginning
  • Alibaba (BABA US) – Looking for a Reprieve from Regulatory Headwinds
  • StubWorld: The Trimming Of PCCW
  • Edelweiss: The Worst Is Behind Us
  • Post Adelson Scenarios for Las Vegas Sands Shows Stock Undervalued, but Poised for Growth.
  • Bandhan Bank | Postcard from West Bengal
  • Intel: Changing Names Doesn’t Accelerate a Roadmap
  • Bank Central Asia (BBCA IJ) – Back to the Business of Consumption
  • Mitsubishi Motors – Kicking Off 1QFY22 Auto Earnings in Style
  • BJC: 2Q21 Earnings Remain Weak QoQ

Tencent Holdings – Only The Beginning

By Thomas J. Monaco

*What’s Up With WeChat: Mainland China appears to have taken additional action against Tencent Holdings (700.HK) [Tencent], following Monday’s regulatory edict. Tencent is suspending new user registrations for its WeChat services, as it is undergoing a “security technical upgrade” in accordance with relevant laws and regulations. WeChat is Tencent’s most important business, and dominates mainland Chinese social media; and 

*Pain Trade Coming:Tencent is widely expected pay a large fine. In addition, Tencent may have to give up its exclusive music rights and possibly dispose of Kuwo and Kugou. Further, we have no doubt that Tencent will also follow Alibaba Group (BABA.US) [Alibaba] in their formation of a financial holding company. For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. At CNY 38.5 bn for full year 2020, FinTech represents a growing 28.8% of revenue – and is a key and growing component of Tencent’s current and future results. No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks. Earnings will compress, as capital requirements increase.


Alibaba (BABA US) – Looking for a Reprieve from Regulatory Headwinds

By Victor Galliano

  • The market is looking for a signal of an easing of regulatory pressures on China BigTech
  • Alibaba Group (BABA US) is in the eye of the regulatory storm, first with the crackdown on the Ant IPO, then with the anti-trust restrictions on Big Tech and more recently with China regulatory bodies focusing on US listed China tech
  • The share price is now close to the pandemic low of March 2020, having fallen a further 20% since the end of April
  • Alibaba valuations are compelling, even versus its China BigTech peers, and, less surprisingly, compared to Amazon.com Inc (AMZN US)
  • Alibaba’s market capitalization to revenue discount to its core peers has narrowed somewhat, as Chinese regulators have extended their focus on BigTech beyond the Alibaba group, but remains elevated
  • Furthermore, Alibaba’s premium to Amazon in terms of market capitalization to revenue has totally dissipated
  • We stick with our positive view on Alibaba and we believe that, even though regulatory risks have yet to recede, the secular growth story – albeit dented – in China tech still holds and that in the case of Alibaba, its modest valuations stand out
  • Risks to our positive view on Alibaba include further regulatory hurdles, such as market share limitations and tighter controls on big data, as well as client loss as a result of these regulatory limitations

StubWorld: The Trimming Of PCCW

By David Blennerhassett

In StubWorld this week …

PCCW Ltd (8 HK) enters into an SPA with DigitalBridge Group (DBRG US) to sell its Hong Kong and Malaysian data center businesses for US$750mn. 

Preceding my comments on PCCW 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%.

As always, more below the fold.


Edelweiss: The Worst Is Behind Us

By Ankit Agrawal, CFA

While Edelweiss has faced significant provisioning led losses over the past one and half years, we believe the worst is behind us now. Edelweiss had significantly cleaned up its book in Q4FY20 and in the most recent reported quarter i.e. Q4FY21, it further took significant provisioning to account for adverse impact of COVID second wave and any additional stress. Going forward, we expect Edelweiss’ asset quality to improve largely assisted by significant clean-up in the past few quarters. Additionally, the residential real estate market seems to have bottomed out with liquidity coming back to the market and demand turning favorable post COVID. In line with our original thesis, Edelweiss has also significantly accelerated its shift towards fee based business model over the past couple of years. All in all, we expect significant re-rating in the stock over the next 1 to 2 years.


Post Adelson Scenarios for Las Vegas Sands Shows Stock Undervalued, but Poised for Growth.

By Howard J Klein

  • Management under some investor criticism that six months after death of visionary founder. no Asian target yet in sight.
  • Cash proceeds from sale of Las Vegas assets and prospects for rising recovery on tap post pandemic should give clarity on use of proceeds for acquisition or development.
  • Macau and Singapore Capex totals US$4b which still leaves plentiful cash in the drawer for next Asian move. Stock still sits in a dead pool due to pandemic news flow. Its undervalued.

Bandhan Bank | Postcard from West Bengal

By Pranav Bhavsar

Bandhan Bank Ltd (BANDHAN IN) is a fine example, reiterating our ability to deliver “qualitative” alpha that is backed with rigorous primary research and channel checks (YTD BANDHAN -26% vs NIFTY at +12%). Our work done on Bandhan stands as a testimony proving our ability to cover channels not just for consumer names but also financials where in spite of wide coverage, primary checks are able to provide the required edge. 

Our earlier coverage on Bandhan includes 

We again test the waters by speaking to five DSC managers in top districts in West Bengal with an objective to assess collection, lending practices and expected delinquency. 


Intel: Changing Names Doesn’t Accelerate a Roadmap

By Aaron Gabin

Intel held a technology roadmap update yesterday…the key changes were literally in name only. We’ll believe Intel jumping 5 nodes in 4 years when we see it.

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.


Bank Central Asia (BBCA IJ) – Back to the Business of Consumption

By Angus Mackintosh

Bank Central Asia (BBCA IJ) reported a solid set of  1H2021 results earlier this week, with operating income up by +2.4% YoY and net profit rising by +18.1% YoY. 

This was driven by loan growth of +0.8% YTD, which was supported by the corporate segment and consumer loans, and especially mortgages. Commercial and SME loans also started to pick up QoQ in 2Q2021.

On the funding side, CASA grew by +8.3% YTD and +21% YoY due to increasing transaction value, a larger customer base, as well as expanded digital ecosystem partnerships. 

The bank saw its operating profit grow by +2.4% YoY, with net profit growing by +18.1% YoY mainly due to a low base in net profit last year, especially in 2Q2021 due to higher provisioning last year.

Bank Central Asia (BBCA IJ) third party deposits remained robust with CASA growing by +21% YoY with overall deposit growth to +17.5% YoY. The bank continued to develop its digital ecosystem helping to maintain the stickiness of its CASA funds, with strong growth in transactional banking. 

The bank continues to push forward its digital strategy with the recent launch of the BCA Digital app called “blu” to serve the millennial segment and to cater to Indonesia’s young population.

The bank’s cost of funds remains very low at 1.10%, which gives it an advantage over its competitors. Its NPL ratio also remains manageable at 2.4%, which is lower than the industry average.

Bank Central Asia (BBCA IJ) is well-positioned for the recovery and remains a core holding trading below its historical average PBV. It has been a bit more aggressive in growing its corporate loans and consumer loans from mortgages and auto loans, with its online and digital strategy yielding strong results boosted by its position as the leader in transactional banking. 


Mitsubishi Motors – Kicking Off 1QFY22 Auto Earnings in Style

By Mio Kato

Mitsubishi Motor reported 1QFY22 results on 27th July which saw revenues of ¥432bn (-14% QoQ, +88% YoY) and OP of ¥10.6bn (OPM of 2.5% compared to the OPM of -1.7% in 4QFY21).

The reported revenue was 4.1% higher than consensus estimates while OP beat consensus estimates for a loss of ¥6.9bn. This is the first datapoint for Japanese automotive earnings this quarter and points to our call for broad beats across the industry being correct.

Guidance was revised up from ¥30bn in OP to ¥40bn but remains conservative.

In ¥bn

Revenue

OP

OPM

Results – 1QFY22

               432

                10.6

2.5%

Consensus – 1QFY22

415

              -6.9

-1.7%

Surprise

4.1%

NM

4.1% points

 

 

 

 

Guidance – FY22

           2,080

                    40

1.9%

Consensus – FY22

           1,889

2.5

0.1%

Difference

10.1%

1516.4%

1.8% points

Source: Company disclosures, CapIQ

BJC: 2Q21 Earnings Remain Weak QoQ

By Research Group at Country Group Securities

We maintain BUY rating with a lower target price of Bt37 (-14% from Previous TP) based on 30xPE’1H22E, closed to Consumer Discretionary Sector.

• We expect 2Q21 earnings to drop QoQ but improve YoY from low base.
• We expect BJC to report 2Q21 net profit of Bt940m (+207%YoY, -7%QoQ) pressured by weak SSSG at -10%YoY in 2Q21, lower rental income and an decrease in profit margin due to rising energy cost in packaging business.
• In 2H21, we expect BJC earnings to flat HoH caused by weak consumption from the impact of 3rd wave pandemic but cost saving from lower utility costs and employee expense will offset weak consumption.
• We cut our earnings forecast by 33% and 11% in 2021-22E to factor in weaker-than-expected SSSG. We assume SSSG at -9% in 2021E and 3% in 2022E forecast, decreasing from previous assumptions. A new SSSG assumption has factored a weak SSSG from impact from the 3rd wave of COVID-19.

Related tickers: Tencent (0700.HK), Alibaba Group (BABA.N), PCCW Ltd (0008.HK), Edelweiss Financial Services (EDEL.NS), Las Vegas Sands (LVS.N), Bandhan Bank Ltd (BANDHAN.NS), Intel Corp (INTC.O), Bank Central Asia (BBCA.JK), Mitsubishi Motors (7211.T), Berli Jucker (BJC.BK)

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