Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: Vedanta Ltd,, Bank Mestika Dharma, Yaskawa Electric, Indomobil Sukses Internasional, Nexteer Automotive, The Walt Disney Co, Bank Mandiri Persero, Bharti Airtel and more

In today’s briefing:

  • VEDL Delisting Fail Day1 – Reading Between the Lines of the Trading Data
  • China Internet Weekly (12Oct2020): Tourist Number Recovered to 80% of Last National Day Holidays
  • Bank Mestika Dharma – September Quarter Reversals Surge
  • China’s ‘Golden Week’: Headline Tourism Numbers Hardly Shine
  • Yaskawa – Bad Reaction to Good Results
  • Indomobil Sukses Internasional (IMAS IJ) Emerging Transport Monolith?
  • Nexteer (1316): China Recovery to Help
  • Disney: They Listened to Loeb (Quickly!)
  • Bank Mandiri Persero (BMRI IJ) – A Plethora of Good News
  • India Internet & Consumer Weekly | Airtel, Amazon & Titan

VEDL Delisting Fail Day1 – Reading Between the Lines of the Trading Data

By Travis Lundy

The Vedanta Ltd (VEDL IN) Delisting Reverse Book Build Auction failed on Friday 9 October as confirmed on the 10th. Most institutional investors got their shares back today and were able to sell. 

Today, the stock traded HUGE volume at 145mm shares on NSE and 8.8mm shares on BSE which was just a tough less than traded Friday the 9th (trading which if it hadn’t happened might have resulted in the Offer having found a Discovered Price). 

There is a fair bit of data out there if you know where to look, and reading between the lines. This insight goes through a few of the ways to figure out from publicly available data what is going on.

Interestingly, the nature of the conclusions of this insight actually changed intraday. 

More below the fold. 

China Internet Weekly (12Oct2020): Tourist Number Recovered to 80% of Last National Day Holidays

By Ming Lu

  • Tourist number in National Day holidays recovered to 80% of last year.
  • Food delivery orders increased significantly in scenic spots during National Day holidays.
  • Pinduoduo (PDD) is not in the list of e-commerce law drafters.
  • Chinese game developers earned 29% of global game revenue on App Store and Google Player.
  • iQiyi (IQ) denied a short-seller accusation.

Bank Mestika Dharma – September Quarter Reversals Surge

By Daniel Tabbush

Indonesia’s Bank Mestika Dharma (BBMD IJ) may be one of Asia’s and indeed the world’s first banks to report earnings through the end of September. The figures are telling, where credit costs are not only down, but they are in reversal. We believe this is the most important theme for banks globally, where the credit cost delta can be radical as we move completely away from the dire days early in the year, to re-opened economies. This is especially the case where C19 mortality rates are now statistically insignificant in most all countries. 

China’s ‘Golden Week’: Headline Tourism Numbers Hardly Shine

By Daniel Hellberg

Chinese media reports Chinese tourism activity during the long Golden Week + National Day holiday period declined by about 21% YoY to 637 mn person-visits. Spending on tourism during the period reportedly fell by 28% YoY to 466 bn RMB. 

Some observers are suggesting these numbers show a strong continued recovery in tourism demand since activity collapsed in Q1 this year due to the Covid19 pandemic.

But we disagree.

In our view, the headline 2020 Golden Week+ numbers we have seen so far are not as strong as we would have expected, given a number of factors that actually should have flattered this year’s overall activity and spending numbers. 

A closer analysis of the numbers actually suggests tepid tourism demand, in our opinion, and we do not believe the recovery has gained momentum in October.  

Yaskawa – Bad Reaction to Good Results

By Mio Kato

Prior to Yaskawa’s 1Q results back in July we noted that consensus looked light for the quarter and we felt that it was also too light for both 2Q and the full year. In the end our sales estimate for 1Q of ¥98.4bn was too high as developed markets disappointed more than we expected but OP of ¥6.2bn was close to our estimate of ¥6.7bn with much of the gap explained by the sales miss and our estimate was certainly a lot closer than consensus’ ¥3.7bn estimate. At the time we projected ¥5.3bn in OP for 2Q while consensus was at ¥3.4bn. We also suggested that full year OP could be as high as double consensus’ ¥16.6bn estimate at the time. With 2Q coming in at ¥7.1bn in OP thanks to strong robotics sales we believe consensus, which has since moved its OP estimate up to ¥24.4bn for the full year is still behind the curve… as usual. The question is whether the market has left any room for upside as we believe that while the sell-side is overly conservative, the implied profits based on valuations being granted to the company by the market, are excessively optimistic.

Indomobil Sukses Internasional (IMAS IJ) Emerging Transport Monolith?

By Angus Mackintosh

Indomobil Sukses Internasional (IMAS IJ) has come back onto the investment radar as its growth strategy starts to take shape (with an obvious delay from COVID-19), with automotive, including trucks, heavy equipment, and autos, now making up more than 50% of sales. 

The company is the sole distributor for HINO Trucks, the leading large-size truck brand, with more than 50% market share in Indonesia and has now 100% of the Volvo distribution for the country. 

The company has also started to revive its Nissan auto business, increasing its stake in the distributor to 75%, giving Indomobil Sukses Internasional (IMAS IJ) a higher vested interest in the brand’s success. It has also expanded the number of Suzuki dealers and is now the sole distributor for KIA in Indonesia. 

Indombil is one of Indonesia’s largest multi finance companies, with a greater exposure to commercial vehicles than its peers, which makes it relatively defensive. Indorent is Indonesia’s No.3 car leasing player and has been relatively defensive through the pandemic period. 

Indomobil Sukses Internasional (IMAS IJ)  has also significantly grown in its trucking & logistics business under a JV with Seino Holdings (9076 JP), which now has more than 5,484 trucks in its fleet, covering a whole host of FMCG clients outside Indofood Sukses Makmur Tbk P (INDF IJ).

Indomobil Sukses Internasional (IMAS IJ) is also pushing ahead with its micro-petrol stations across the country with Exxon Mobil and Federal Oil Lubricants. It has 500 stations already open with a target of 700 micro-stations by year-end. These micro-stations are aimed at servicing motorcycle drivers. 

Indomobil Sukses Internasional (IMAS IJ) is an interesting restructuring story backed by the Salim Group, which has seen the monetization of its significant investments into the trucking space delayed by COVID-19. Trading on 0.25x FY2020 PBV, with the prospect of a sharp earnings recovery in 2020, driven by both its automotive and trucking exposure. 

Nexteer (1316): China Recovery to Help

By Henry Soediarko

With the ongoing COVID-19 cases in the US, its auto sector is unlikely to recover this year that is a drag to Nexteer Automotive (1316 HK) ‘s earnings but it has recently penetrated the Chinese auto market, supplying to Geely Auto (175 HK) for Electric Power Steering component, that could help to increase the company’s overall profitability. From a credit perspective, Nexteer’s debt-to-equity ratio is also very low compared to the Japanese small-cap peers such as Futaba and KYB and even compared to its two largest customers, General Motors Co (GM US) and Ford Motor Co (F US) at 202% and 390% debt to equity ratio respectively. 

Nexteer is trading at a 30-37% discount to its peers and compared to the Chinese auto suppliers such as Minth, Fuyao and Huayu, Nexteer is also trading at a 55% discount in EV/EBITDA, 33% discount in PER, and 61% in PBR. 

As the Chinese auto sector recovers earlier compared to the US, the company’s earnings should start to recover and its profitability should also increase, therefore, its share price should increase correspondingly. BUY. 

Disney: They Listened to Loeb (Quickly!)

By Aaron Gabin

Last week, we wrote about how Third Point’s Dan Loeb wrote a letter to Disney urging it to spend more on content. Within days, the company announced a major reorganization of its content creation and distribution strategy, with an emphasis on focusing on DTC (streaming). We applaud the move…and think Disney becomes an even more compelling long as it plays catchup to the rest of the “COVID winners” from its position in the COVID loser camp. We have a catalyst path to follow now…earnings in November, Analyst Day on December 10th. Stock will be $150 by then. 

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 Mandiri Persero (BMRI IJ) – A Plethora of Good News

By Angus Mackintosh

A call with Bank Mandiri Persero (BMRI IJ) revealed a relatively positive message on a number of fronts, which came as a rare positive surprise. 

The bank has made good progress on asset quality, with growth in restructured loans flattening out with no change since the end of 2Q2020. There was no resurgence of problem loans since new PSBB measures were imposed and we have now just returned to the new normal. 

Bank Mandiri Persero (BMRI IJ) remains confident that credit costs are like to come in at the lower end of its FY2020 guidance at 2.5%.

Loan growth between June-August has been weak with a declining balance due to early repayments in the corporate segment, with some SOEs receiving funding from the government, which they have used to repay loans with banks.  

Retail lending has been quiet although there has been some pick up in mortgages and some improvement in auto loans. 

The bank has significantly reduced its time deposit rates to around 3.5% with a 200bp reduction, which will feed through to higher net interest income, especially in 4Q2020. 

We also look at the potential listing for the bank’s Syariah business in the not too distant future. 

Bank Mandiri Persero (BMRI IJ) is trading on 1.3x FY2020E PBV versus its 5-year average of 1.8x, with its ROE forecast to recover to 12.7% in FY21E on the back of a +61.8% EPS growth. The announcement of the new management team and its 3Q2020, will both provide positive catalysts over the next month. The fact that credit costs are under control should be a further positive catalyst for the bank. 

India Internet & Consumer Weekly | Airtel, Amazon & Titan

By Pranav Bhavsar

Our objective with this weekly is to highlight notable developments in the India internet and consumer sector focusing on public and private companies. The sub-sectors covered include payment providers, e-commerce retailers,  social media platforms and consumer companies.

  • PUBG Corporation struggles to make a come back in India. After breaking ties with Tencent Holdings (700 HK) as their distribution partner in India – the company now looks at Bharti Airtel (BHARTI IN) to be their godfather.
  • Inc (AMZN US) pumps in another 7 billion INR into its payments platform Amazon Pay to give it the push it needs with the Indian festive season around the corner.
  • Titan Co Ltd (TTAN IN) shines on in its journey back to normalcy with a great performance this quarter.

Before it’s here, it’s on Smartkarma