Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: Times Neighborhood, Pinduoduo, Tokyo Electron, Ebay Inc, Kasikornbank PCL, Bajaj Finance, ZTO Express, Renesas Electronics and more

In today’s briefing:

  • Times Neighborhood: Beneficiary of Policy
  • China Internet Weekly (11Jan2021): PDD Employee Died at Frozen Deep Night, US Banned 8 Chinese Apps.
  • Tokyo Electron (8035 JP): Semiconductor Shortage Points to Stronger Year Ahead
  • TMT Weekly: 3 Things that Stood Out The Week of 1/8/2021
  • Kasikornank – Unconvincing Call
  • Bajaj Finance – Smack
  • How Chinese Authorities Measure the Development of the Express Sector, & Why It Matters to Investors
  • Renesas – Auto Chip Shortage Could Drive Further Gains

Times Neighborhood: Beneficiary of Policy

By Sameer Taneja

Times Neighborhood (9928 HK) is a direct beneficiary of the favorable policies published by The Ministry of Housing and Urban-Rural Development (MOHURD). In his insight, China Property Management Services – Green-Light to Grow, Zhen Zhou Toh detailed the policies that will benefit the property management service companies.

Times Neighborhood (9928 HK) has corrected 40% from its peak of 13.30 HKD/share and has underperformed the MSCI index since September 2020, despite executing well and raising guidance that its earnings will grow 73% CAGR from 2019-2022e. ( Vs. previous guidance of 69%).  Based on its guidance, the stock trades at 16x FY21 and 11x FY22 ( and PEG of 0.2x).

Source: Bloomberg, Share price in HKD

With tailwinds on policy, we see an easy path for the company to recover to its highs of 13.30 HKD/share. 

China Internet Weekly (11Jan2021): PDD Employee Died at Frozen Deep Night, US Banned 8 Chinese Apps.

By Ming Lu

  • Pinduoduo (PDD)’s employee died a sudden death on the way home at a frozen deep night.
  • Donald Trump banned transactions with 8 Chinese apps.
  • Chinese developers’ global income increased by 45% yoy, higher than 28% yoy of the global market size.

Tokyo Electron (8035 JP): Semiconductor Shortage Points to Stronger Year Ahead

By Scott Foster

The rapid growth of remote work and home entertainment caused by COVID-19, 5G mobile telecom, the industrial internet of things and vehicle electrification have pushed the semiconductor industry close to full capacity.

  • In recent weeks, Volkswagen, Bosch, Continental, Toyota, Nissan, Honda, Subaru, VW, Ford and Fiat Chrysler have announced production cuts or shipment delays due to a shortage of semiconductors. 
  • In December, Nvidia and AMD reported shortages of GDDR6 memory.
  • Samsung may invest more than $30 billion in its semiconductor business this year. On January 9, Japan’s Nikkei newspaper reported that Chipmaking equipment manufacturers say the company has provided order plans for 2021 that point to a further 20% to 30% increase in spending.

This should support semiconductor pricing, cash flow and capital spending, possibly lifting sales of semiconductor equipment above SEMI’s 4.4% growth forecast for 2021. It should also make concerns over December quarter results less relevant as market attention shifts to the year ahead.

Investors in Tokyo Electron (TEL) and other makers of semiconductor production, assembly and test equipment should benefit, even if the shares appear to be overbought.

TEL’s 1H results were well ahead of guidance and full-year FY Mar-21 guidance was raised. But the new guidance implies a weaker 2H. In our estimation, it too is likely to prove conservative. 

TMT Weekly: 3 Things that Stood Out The Week of 1/8/2021

By Aaron Gabin

Three things caught our eye this first week of 2021: eBay, Amazon, and the spectrum auction.

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.

Kasikornank – Unconvincing Call

By Thomas J. Monaco

*Stress Continues: A competitor hosted a conference call with the management of Kasikornbank PCL (KBANK-R.TB) [KBANK] which suggests nothing positive is occurring. Credit risk remains elevated, yet half of current and projected loan growth will be used for current customer relief measures; and

*Weak Guidance: KBANK also reiterated guidance, although we weren’t left with a high degree of confidence that KBANK wouldn’t fall short in 2021.Coupled with the aforementioned credit challenges, we anticipate the roll forward of lower lending rates to continue to impact NIMs, as will the rising loan default rates. 

Bajaj Finance – Smack

By Thomas J. Monaco

*RBI Fines Bajaj: The Reserve Bank of India (RBI) fined Bajaj Finance (BAF.IN) [Bajaj] INR 25 mn for failing to ensure that its debt recovery agents were following the appropriate guidelines; and

*Credit Costs Pressured: While the Bajaj penalty is not material, the more intense level of regulatory scrutiny could negatively impact near-term retail loan collection efficiency and raise concerns over the cost of risk and the revival of loan growth. This recent action on recovery methods on top of already high bounce rates could potentially lead to a slowdown in the collection efficiencies and higher loss provisions. 

How Chinese Authorities Measure the Development of the Express Sector, & Why It Matters to Investors

By Daniel Hellberg

In this note, we explain how authorities in China measure the development of the country’s express parcel delivery industry using the China Express Development Index, or CEDI. 

We believe CEDI is worth watching. Its December 2020 performance suggests sector growth is moderating, and that express companies must continue to invest aggressively to lift service levels. 

CEDI’s recent trends support our investment thesis for the sector, which is that pressure to consolidate is rising here in 2021. We believe BEST Inc (BEST US) may become an attractive acquisition target over the next 12 months; we rate its shares Buy. 

Renesas – Auto Chip Shortage Could Drive Further Gains

By Mio Kato

Automakers are starting to struggle with chip shortages as the Nikkei reports here, here and here. This is an extension of a broad chip shortage globally as WFH demand, the launch of new consoles, GPUs and CPUs and rapidly recovering auto sales pour some short-term fuel on the long-term fire of expanding electrification and digitalisation. No wonder then that TSMC is up 134% from its March lows, but Renesas is up an even more impressive 248% since its lows of 2020 and could continue to outperform.

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