Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: Tokyo Base, United Bank Ltd/Pakistan, Intel Corp, IKEA of Sweden AB and more

In today’s briefing:

  • Tokyo Base Defies Fashion Slowdown
  • UBL: Great Dividend Yield Given Funding and Liquidity Strengths
  • Global Foundries: Some Thoughts on the IPO
  • IKEA Japan’s Comeback

Tokyo Base Defies Fashion Slowdown

By Michael Causton

Fashion retailer, Tokyo Base (3415 JP), stumbled well before the pandemic due to teething issues but  managed to hold sales at almost 2019 levels last year despite its premium positioning. It now expects almost 30% growth this year. Encouraged, it will double down on expansion, adding two more chains, including a sports fashion store, while investing faster overseas – where the real long-term potential lies.


UBL: Great Dividend Yield Given Funding and Liquidity Strengths

By Paul Hollingworth

Pakistan continues to offer value opportunities. One of our favoured stocks globally Meezan has performed especially well over the last 12 months but may merit a pause as our attention again turns to UBL though we recognise the merits of Habib Metropolitan and National Bank of Pakistan.

UBL ranks in the top quartile globally of our VFM (Valuation, Fundamentals, Momentum) universe. On a LTM basis, the bank’s PH Score™ of 8.9 reflects progression in Profitability, in Efficiency, in Asset Quality, in Liquidity and in Provisioning as well as an attractive valuation variable though some (but not all) Capitalisation ratios and NIM/Spread eroded.

A FV of 8% and a PBV of 0.77x are not unattractive below natural thresholds of 10% and 1x. The bank has an Earnings Yield of 16.2%, a Dividend Yield of 14.2%, and a Total Return Ratio of 3.1x.  

UBL’s network stands at 1,386 branches. This includes >100 Islamic branches with around 200 Islamic banking windows. Omni, a flagship branchless banking proposition, supports the mass unbanked population. UBL prides itself in its technological innovations, including a “UBL Digital App”, one of the fastest growing Banking apps in the market with a digital subscriber base of > 1.5 million.

UBL dedicates itself to corporate lending (85% of credit) and to some limited consumer activity such as secured auto. The Corporate segment includes quite an elevated exposure to segments such as manufacturing, government, and utilities. Loans are concentrated in maturities <1year and to a lesser extent <5years.  By Operating Income, the bank is balanced between Branch Banking and a combination of Corporate/Commercial, Treasury, International, and Islamic Banking. CASA Deposits represent 75.0% of Deposits while Time Deposits contribute 23.0%. Deposit maturities are diversified. Higher remittances of late support further deposit inflows and foreign-currency liquidity. Remittances have the potential to increase over the next few years, backed by the Pakistan Remittances Initiative and technical advances that materially reduce transaction costs. UBL commands a 23% share in remittances.

Caveats. Assessment must take into consideration the bank’s high exposure to the sovereign through holdings of government securities, which links the bank’s creditworthiness to that of the government, and to lending to the State. We highlight pressures on system asset quality and profitability metrics, as a result of the C-19 induced economic slowdown and ongoing challenges at the bank’s GCC operations, while acknowledging the bank’s stable deposit-based funding profile and high liquidity buffers. LCR and NSFR are elevated.


Global Foundries: Some Thoughts on the IPO

By Aaron Gabin

We offer some thoughts on Global Foundries coming IPO. We admire the strategic pivot the company took two years ago, and think there is alot to like here. The proposed $25-30B valuation does seem a bit high given TSMC trades at 13x forward EBITDA and this would be closer to 20x. Maybe they should see if Intel is still interested…

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.


IKEA Japan’s Comeback

By Michael Causton

IKEA’s stores, like many non-essential retailers, will have had a tough year, but with three new, smaller format stores opening in Tokyo in the past 18 months, the Swedish furniture chain has shown that it still has a lot to offer. Although it remains far behind sector leader, Nitori Holdings (9843 JP), it is a sign of improving competition.


Related tickers: Tokyo Base (3415.T), Intel Corp (INTC.O), IKEA of Sweden AB (4168877Z.ST)

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