Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: Tencent Holdings, freee, Harmonic Drive Systems, Rakuten Inc, Ping An Insurance (H), GS Holdings, Concordia Financial Group, Ltd, Lyft Inc, Nissan Motor, PTT Global Chemical and more

In today’s briefing:

  • Tencent (700 HK): Every Business Line Looks Great in 3Q20, Upgrade to Buy
  • Freee KK: 1QFY21 Results Show Profits Are Possible Over the Next 12-18 Months
  • Harmonic Drive – One Step Forward One Step Back
  • Rakuten – Q3 20 Results: Record Mobile Losses Are Unlikely to Ease Soon
  • Ping An Insurance – Where There Is Smoke…
  • GS Holdings SoTP Valuation Analysis & Three Key Catalysts
  • Concordia Financial Group (7186 JP):  Unequal Partners
  • Lyft 3Q Results: Can Ride-Sharing Find a Profitable Path?
  • Nissan – Finance Segment Supportive but Underperforming Peers
  • PTTGC: New Upswing in Various Polymer Chains

Tencent (700 HK): Every Business Line Looks Great in 3Q20, Upgrade to Buy

By Ming Lu

  • Revenue increased by 28% YoY in 3Q20.
  • The worst business lines stopped declining.
  • The growth rate of financial revenue accelerated.
  • Video competitor, iQiyi, ceased the price war.
  • The draft of online antitrust law does not target Tencent.
  • The 5-year P/E band suggests an upside of 15%. Upgrade to Buy.

Freee KK: 1QFY21 Results Show Profits Are Possible Over the Next 12-18 Months

By Shifara Samsudeen, ACMA, CGMA

freee (4478 JP)  reported its 1QFY06/21 results yesterday (11th November) which saw a 49.2% YoY growth in revenues while operating losses for the quarter dropped to 12.2% of revenues from 32.6% in 1QFY06/20. The reported revenue beat consensus estimates by 4%. The consensus called for operating losses of JPY300m while the company reported operating losses of JPY272m for the first quarter of FY06/2021.


Harmonic Drive – One Step Forward One Step Back

By Mio Kato

Harmonic Drive (HDS) posted 2Q sales (¥8,384m) barely below consensus and OP of -¥295 vs. consensus forecasts of ¥593m in OP. Consensus margin estimates were unrealistic and fail to account for HDS’ significantly weaker margins due to its investment burden in the form of depreciation. Unfortunately for HDS orders fell 22.1% QoQ taking the shine off the 10.3% QoQ expansion in 1Q.


Rakuten – Q3 20 Results: Record Mobile Losses Are Unlikely to Ease Soon

By Kirk Boodry

Rakuten posted Q3 results that missed on profitability as the company ramped up spending on mobile to expand network coverage. With surveys of existing mobile users that show high marks for cost performance and simplicity but much less enthusiasm for network quality, this is what Rakuten needs to do to be competitive. Management said they are confident on progress towards profitability but this month’s monetization of its stake in Lyft and the sale of subordinated bonds indicate losses are going to continue for now. Results from the core eCommerce and Fintech segments were steady but not surprising as growth in the former moderated as Japan returned to normal whilst robust online trading boosted the latter as it did last quarter.  


Ping An Insurance – Where There Is Smoke…

By Thomas J. Monaco

*Potential Deal For Tahoe Life: According to a Bloomberg report, Ping An Insurance (2318.HK) [Ping An] (along with Sunshine Insurance Group in Beijing] is a finalist to acquire Tahoe Life, the Hong Kong-based life insurance subsidiary of Tahoe Investment, for over USD 1 bn; and

*Other Goodies May Come Along With Deal: In addition to Tahoe Life, Tahoe Investment is a founding shareholder of Haixia Life Insurance and a major shareholder of Fujian Haixia Bank, Rural Credit Bank of Fuzhou, and Dongxing Securities. Given the financial troubles of Tahoe, we would have to imagine the sale of these businesses would also be on the table for Ping An and Sunshine as well.


GS Holdings SoTP Valuation Analysis & Three Key Catalysts

By Douglas Kim

In this insight, we provide a sum-of-the-parts (SoTP) valuation analysis of Gs Holdings (078930 KS). Our SoTP valuation analysis suggests a target price of 50,783 won per share for GS Holdings, representing a 34% upside from the current levels. We are including GS Holdings in our model portfolio. 

The SoTP valuation is broken down into 5 major components:

A) Value of Public Companies (2.1 trillion won)

B) Value of Private Companies (3.2 trillion won)

C) Value of GS Holdings’ Core Business (1.5 trillion won)

D) Net Debt (571 billion won)

E) Holdco Discount (25%)

The three key catalysts of GS Holdings are as follows:

  • The merger between GS Retail and GS Home Shopping
  • Insiders have been actively buying shares of GS Holdings in 2020
  • Turnaround of the GS Energy business in 2021

Concordia Financial Group (7186 JP):  Unequal Partners

By J. Brian Waterhouse

Interim results for Concordia Financial Group, Ltd (7186 JP), or CFG, were coloured by significantly lower net interest and fee income from domestic business reported by Bank of Yokohama, and a reduced consolidated net loss of just ¥125 million reported by Higashi-Nippon Bank (HNPB) as a result of much lower credit costs than 1H FY3/2020. HNPB remains the drag on group profitability.

Aggregate foreign ownership in CFG remains high at around 31.5% as investors view CFG as a liquid alternative to the ‘crowded trade’ of simply buying megabanks for exposure to the Japanese financial sector.  Moreover, CFG offers a cash dividend payment policy of 33% of net profits, a total shareholder return policy target of 50%, conducts frequent share buybacks, and regularly cancels part of its Treasury Stock to boost overall shareholder returns.  However, lingering investor memories of past management scandals have caused CFG to significantly underperform the Topix Banks Index since 2018, with its share price still down 16% YoY even after a 21% recovery in the last six months.

The Topix Banks Index has notably underperformed Topix all year, but may be in for its perennial ‘run’ between now and mid-February next year, buoyed by the outcome of the US election and with global market hopes high for a successful COVID-19 vaccine. Even so, within the regional banking sector, we much prefer Chiba Bank (8331 JP) and Iyo Bank (8385 JP) on fundamentals, or Bank Of Kyoto (8369 JP) as a strong thematic play on the rising fortunes of its largest stock investment, namely Nintendo Co Ltd (7974 JP).


Lyft 3Q Results: Can Ride-Sharing Find a Profitable Path?

By Rickin Thakrar

Lyft Inc (LYFT US) reported 3Q20 results post the close on Tuesday, with top-line revenues down 48% in 3Q20 compared to down 61% in 2Q20 driven by lockdown restrictions and the global pandemic. Shares, however, have moved strongly upward driven by the hope of a global vaccine which has lifted lockdown affected stocks. We look at the latest results and company outlook below and provide an updated view on the stock.


Nissan – Finance Segment Supportive but Underperforming Peers

By Mio Kato

Nissan Motor continues to search for a bottom as it emphasises the quality of sales and reduces incentives to try and restore its brand. While the pain has been significant and COVID has not helped matters, healthier inventory levels should bode well for the future.


PTTGC: New Upswing in Various Polymer Chains

By Research Group at Country Group Securities

Analyst meeting yesterday came out with a positive outlook for various petrochemical chain. Core polymer business has strongly recovered and tends to grow further in 4Q20. Meanwhile, aromatics and refinery to slowly improve in 4Q20-1H21.

  • We expect PTTGC’s core earnings to strongly recover in 4Q20, led by margin expansion across all value chains. HDPE spread in 4QTD has already improved by 11%QoQ, while aromatics margin to be supported by economic recovery.
  • We revise 2020E earnings down to a loss to reflect a weakness in 9M20. However, we maintain a positive view on 2021 performance, led by new capacity.
  • Adjusted EBITDA was Bt7.4bn (-16%YoY, -3%QoQ). A weak drop was due to weak performance YoY and QoQ in refinery and aromatics BU. However, polymer EBITDA showed a strong recovery QoQ from increasing HDPE spread.

We reiterate our ‘BUY’ rating with the target price at Bt56.5, derived from 0.9xPBV’21E which is equal to -1SD to its 5 year average trading.


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